it made the motion to vacate returnable on January 9, 1998.
Big Time and Manny's
On January 9, 1998, Mr. Hauser appeared with still another order to show cause, this one captioned in both cases. The order itself sought a stay of all enforcement efforts and to bring on a motion to vacate the defaults as to Big Time (both cases) and Manny's (Guess case). The moving affidavit, however sought to vacate the judgments against not only Big Time and Manny's, but also against Gold Center, Gold, Golden Touch, Oro-Uno (a/k/a A & D) and Senobar although the judgment against Golden Touch already had been vacated.
It argued, for the first time, that the monetary relief granted against the defendants exceeded in kind and amount that prayed in the complaint and therefore was impermissible under Rule 54(c). While the Court declined to issue the requested stay, it made the motion returnable on January 15, 1998.
The Appeals and Other Proceedings
Confusing matters still further. Mr. Hauser filed notices of appeal on January 9, 1998 in both cases. Each purports to appeal on behalf of "defendants" -- although Mr. Hauser does not represent all of the defendants -- from the judgments against the defendants and the orders refusing to vacate the default judgments. The appeals in the Gucci case, however, were dismissed on January 22, 1998 and the mandate filed in this Court on the following day.
On January 15, 1998, Guess?, Inc. stipulated with Gold, Manny's and Senobar to vacate the monetary provisions entered against them in the Guess case. Similarly, Gucci America, Inc. agreed to vacate the monetary provisions of the judgments entered against Home Boy in the Gucci case.
Finally, the Court held an evidentiary hearing on January 16, 1998 with respect to the Home Boy motions in both cases.
In summary then, the matters stand as follows:
1. The pending motions are as follows: (a) by Home Boy in the Guess case to vacate the damage award against it, (b) by Gold, Manny's and Senobar to vacate the remaining non-monetary portions of the judgments against them in the Guess case, and (c) if the Court regards the applications as properly before it, by Big Time, Gold Center and Oro-Uno to vacate the judgments against them. Big Time and Gold Center in both cases and Oro-Uno in Guess.
2. Absent relief from one or more of the default judgments, the Gucci case has been resolved as to all defendants.
3. The Guess case remains pending as to Golden Touch irrespective of the outcome of these motions, as the default judgment against it was vacated.
4. A notice of appeal of uncertain effect remains pending in the Guess case on behalf of unspecified defendants.
The starting point is to determine the effect of the pending notice of appeal on this Court's jurisdiction to decide the matters now before it in the Guess case.
In general, "the filing of a notice of appeal is an event of jurisdictional significance -- it confers jurisdiction on the court of appeals and divests the district court of its control over those aspects of the case involved in the appeal."
Rigid enforcement of such a mechanical rule, however, would ill serve the rule's objective of promoting efficiency by preventing two courts from addressing the same matter at the same time.
Moreover, it would deliver into the hands of each litigant the ability to freeze matters in the district court simply by filing a notice of appeal, no matter how frivolous.
In consequence, district courts are not deprived of jurisdiction by the filing of untimely or manifestly defective appeals and appeals from non-appealable orders.
The notice of appeal did not transfer jurisdiction over the amended default judgment in the Guess case to the Court of Appeals. The amended default judgment was entered on October 20, 1997. The notice of appeal was not filed until January 9, 1998, considerably more than thirty days thereafter. In consequence, insofar as the notice of appeal seeks review of the amended default judgment, it is untimely.
The notice seeks review also of unspecified subsequent orders declining to vacate the default judgments. But there are two additional problems.
First, the only defendants as to which the Court had denied motions to vacate on or before the date of the notice of appeal were Empire, Gold Center and Oro-Uno (a/k/a A & D Jewelry). The order denying the motion to vacate made on behalf of Empire was entered on November 17, 1997. The January 9, 1998 notice of appeal, even assuming that Mr. Hauser was authorized and intended to file it on Empire's behalf, was untimely insofar as Empire is concerned.
Second, Mr. Hauser does not represent Empire and lacked authority to file the notice on its behalf, assuming arguendo that it was his intention to do so.
Accordingly, the only orders denying motions to vacate that are the subjects of a timely, authorized and pending notice of appeal are the December 17 and December 29 orders denying the motions of Gold Center and Oro-Uno in the Guess case.
In consequence, the sole effect of the notices of appeal filed on January 9, 1998 is to preclude this Court from entertaining -- insofar as it relates to Gold Center and Oro-Uno -- Mr. Hauser's request, contained in the affidavit in support of his January 9, 1998 motion, that the default judgment in the Guess case be vacated on the ground that the relief granted exceeds that sought in the complaint and therefore ran afoul of Rule 54(c).
Having thus cleared the underbrush, the Court turns first to that aspect of Mr. Hauser's January 9, 1998 application which seeks to vacate the judgments against Big Time in both cases and against Gold Center in the Gucci case on the ground that the relief granted exceeds that demanded in the complaint and therefore violates Rule 54(c).
The complaints in these cases each alleged that the plaintiff had no adequate remedy at law and had been damaged in an undetermined amount believed to be in excess of $ 25,000. The prayers for relief sought, among other things, injunctive relief and "that defendants be required to account to plaintiff Guess for all profits and damages resulting from defendants' respective infringing activities and that the award to plaintiff . . . be increased as provided for under 15 U.S.C. 1117." The moving defendants argue that the complaints thus did not seek statutory damages and, in any case, that the awards of $ 25,000 in statutory damages against each defendant exceeded the amount prayed for in the demand for judgment. In consequence, they contend, the judgments violated Rule 54(c) and must be set aside.
Rule 54(c) of the Federal Rules of Civil Procedure states:
"A judgment by default shall not be different in kind from or exceed in amount that prayed for in the demand for judgment. Except as to a party against whom a judgment is entered by default, every final judgment shall grant the relief to which the party in whose favor it is rendered is entitled, even if the party has not demanded such relief in the party's pleadings."
The rationale for the rule, insofar as it applies to default judgments, "is that default is tantamount to consent to the entry of judgment, but this consent is effective only to the extent that it was duly informed."
In these cases, the only monetary relief sought in the complaints, even read generously in favor of the plaintiffs, was an accounting for defendants' profits and damages sustained by plaintiffs, "increased as provided for under 15 U.S.C. 1117." The latter phrase obviously refers to Sections 1117(a) and (b), which permit courts to increase monetary awards to as much as treble the amount of plaintiff's actual damages or defendant's actual profits as established by the plaintiff. Nevertheless, the plaintiffs here elected, following the entry of default judgments as to liability and injunctive relief, to seek awards of statutory damages pursuant to Section 1117(c), which permits a prevailing plaintiff so electing to recover up to $ 1 million for willful use of each counterfeit mark per type of goods or services sold as an alternative to actual damages or an accounting of the defendant's profits.
Statutory damages under Section 1117(c) are different in kind from actual damages or an accounting of the defendant's profits, most fundamentally because there is no necessary mathematical relationship between the size of such an award and the extent or profitability of the defendant's wrongful activities. Surely it cannot be said that even a defendant who deliberately elects to default in a suit seeking only actual damages or an accounting of profits, secure in the knowledge that no substantial award can be entered because the defendant's infringing sales were minimal, knowingly consents to the entry of an award of up to $ 1 million. In consequence, if these defendants simply had been served with the summonses and complaints and with nothing further prior to the award of statutory damages against them, the statutory damages awards could not stand in light of Rule 54(c).
These defendants, however, were not thus surprised. Each admittedly was served with plaintiffs' joint memorandum in support of entry of judgments for damages, which clearly elected to pursue statutory damages, rather than actual damages or an accounting of profits by the defaulting defendants. Indeed, page 1 of plaintiffs' memorandum explained that Section 7 of the 1996 Act
permitted imposition of damages of up to $ 1 million and "requested that a judgment be entered against each of the defaulting defendants of $ 25,000 per infringing mark." Thus, anyone who gave a cursory reading even to the first page had to have known that judgments of $ 25,000 were sought by each plaintiff against each defaulting defendant. Yet none of the defaulting defendants responded to that application.
While Rule 54(c) must be enforced strictly in order to prevent the consent to the entry of judgment that is implicit in a default from being expanded beyond the defaulting party's intentions, there is no reason to permit it to be used as a shield when a defaulting party has full knowledge of the relief sought against it but nevertheless ignores the proceedings. As long as the defaulting party receives adequate notice of the relief sought and is afforded a meaningful opportunity to oppose it, the purpose of Rule 54(c) is served and any variance between the relief granted and that contained in the prayer for relief in the complaint is immaterial.
In Trans World Airlines, Inc. v. Hughes,20 the notorious case in which a $ 145 million default judgment was awarded against TWA based on the failure of Howard Hughes to appear for a deposition, for example, the Second Circuit affirmed against Rule 54(c) attack the district court's decision to permit amendment of the prayer for relief to increase the damages sought after the default occurred.
Although it did not discuss the point in detail, the decision clearly rested on the fact that TWA had a full opportunity to contest the amount of the damages following the amendment. Similarly, in Appleton Electric Co. v. Graves Truck Line, Inc.,22 the Seventh Circuit upheld default judgments that awarded relief that was not spelled out with precision in the complaints because the defendant had been served with a proposed default order which contained a formula that permitted the defendant to determine the amount of the judgments that would be entered against it.
Big Time here admits that it was served with the summons and complaint and "with papers which I am now informed constituted the application of the plaintiffs for a default judgment."
It claims to have defaulted "upon the understanding that the plaintiffs were seeking an Injunction against our sale of merchandise which were counterfeit or spurious,"
relief to which it did not object. Thus, it acknowledges that its default with respect to the complaint was knowing and deliberate.
Nor does it not deny having been served with plaintiffs' joint application for the imposition of statutory damages of $ 25,000 per trademark. But it contends that it never understood that the plaintiffs were seeking monetary damages.
The situation of Gold Center is similar. Its principal admitted receipt of process and with "being familiar with the claims asserted."
Although the complaints clearly sought damages, albeit not statutory damages, he contended that, during the period from the commencement of the action through the June 1997 depositions conducted by plaintiffs, he "was under the impression that the plaintiffs were not seeking monetary relief."
He admitted also that he was served "with a voluminous set of legal documents" in September or October -- the only documents meeting that description in the relevant time period being plaintiffs' joint application for awards of statutory damages -- but claimed that he did not understand them.
Although he was sufficiently curious to telephone plaintiffs' counsel, he did not reach them and, as far as the record discloses, never sought legal advice of his own.
In these circumstances, the Court holds that the monetary relief granted by the amended judgments is valid notwithstanding that it differs in kind from that referred to in the prayers for judgment in the complaints. The plaintiffs served each of the defaulting defendants with papers which very clearly explained that they were seeking statutory damages in the amount of $ 25,000 per trademark from each defendant. The defaulting defendants therefore were afforded notice and an opportunity to be heard with respect to the relief to be granted against them. In view of Trans World Airlines and Appleton, there is no Rule 54(c) infirmity in the judgments.
That is not the end of the matter, however. Although the issue has not been raised by counsel, the defaulting defendants' contentions that they did not understand the application for statutory damages that was served upon them raises the question whether relief should be granted from the monetary awards on the ground that their failure to respond was the product of mistake, inadvertence or excusable neglect.
This requires consideration of "(1) whether the default was willful; (2) whether defendant has a meritorious defense; and (3) the level of prejudice that may occur to the non-defaulting party if relief is granted."
Relevant too is the length of any delay between the default and the application for relief and the reasons for it.
The Court assumes arguendo that each of these defendants has a meritorious defense with respect to the amount of statutory damages as that phrase has been defined by the Second Circuit. Each has made assertions in its affidavit that would "give the factfinder some determination to make."
While the plaintiffs would suffer some prejudice if the amount of statutory damages Were reopened, the extent of that prejudice would be limited -- and certainly far more limited than if the issue of liability were reopened. In consequence, the Court's judgment as to whether to vacate the monetary awards will depend significantly on its assessment of the credibility of the principals of Big Time and Gold Center. Accordingly, the Court will conduct an evidentiary hearing limited to the issue whether these defendants' failure to respond to the joint application for the imposition of statutory damages was wilful.
Home Boy seeks only to vacate the awards of monetary relief.
In view of the stipulation by Gucci America to vacate the monetary relief procured on its behalf, the motion remains viable only to the extent it relates to the monetary award in favor of Guess?, Inc.
As indicated above, the factors relevant to the question whether to vacate the monetary portion of the default judgment against Home Boy: "(1) whether the default was willful; (2) whether defendant has a meritorious defense; and (3) the level of prejudice that may occur to the non-defaulting party if relief is granted."
In this case, Home Boy has a meritorious defense in the requisite sense -- it is in a position to advance facts that were not previously before the Court that could be material to the determination of the appropriate amount of statutory damages.
Plaintiff is situated no differently with respect to prejudice were the amount of statutory damages against this defendant reopened than in the case of the defendants discussed above -- there would be some prejudice, but not so much to preclude reopening in an otherwise appropriate case. Wilfulness, however, is a harder issue.
Home Boy actually is a name under which JAF, Inc. -- a corporation wholly owned by Keyvan Amirianfar, who emigrated from Iran some years ago -- conducts a small retail jewelry business at the corner of Fordham Road and Webster Avenue in the Bronx.
In order to place the motion to vacate in proper context, it is necessary to recapitulate the history of the lawsuit to the extent it relates to this defendant.
Home Boy was served with the summons and complaint, which were left in its store in Amirianfar's presence, on March 7, 1997.
The default judgment was entered on May 6, 1997. Home Boy was served with a notice of deposition, which was served pursuant to a court order the object of which was to afford plaintiff discovery on the issues of damages in preparation for the inquest, in June 1997.
On June 25, 1998. Amirianfar appeared pursuant to the notice at the offices of plaintiff's counsel -- thus demonstrating that he read the notice of deposition -- but refused either to identify himself or be sworn.
When Amirianfar sought to turn the tables and question plaintiff's counsel, the following colloquy occurred:
"Q [Mr. O'Neill] I am asking the questions.
"A [Mr. Amirianfar] Don't push me. I am not going to lose, you are going to lose. I am not going to lose a penny.
"Q Similarly, if I don't understand your answers or your answers are incomplete I will ask you to explain them. The deposition of defendant Home Boy 2000 is being taken in Gucci Inc. versus Gold Center, et al., Civil Action 97 Civ. 1354.