The opinion of the court was delivered by: Thomas P. Griesa, United States District Judge
Plaintiffs are manufacturers and sellers of trademarked merchandise. They have brought this action claiming that the numerous defendants were participants in a large-scale international counterfeiting ring, which manufactured and sold counterfeits of plaintiffs' products.
This action was commenced on October 4, 2002, at which time a temporary restraining order was entered that prohibited further counterfeiting by defendants and provided for other forms of relief, including a restraint upon the transfer or other disposition of assets. Notice was given that plaintiffs' motion for preliminary injunction would be heard on October 10, 2002. None of the defendants appeared. A preliminary injunction was signed on October 11, 2002. This injunction continued the prohibition on counterfeiting and the freeze of defendants' assets. However, the preliminary injunction contained detailed provisions allowing any defendant to seek relief from the asset freeze if the defendant presented documentary proof that particular assets were not the proceeds of counterfeiting activities. There was also a provision allowing a defendant to move for a relaxation of the asset freeze to provide for the payment of legitimate business and living expenses.
The motion dealt with in this opinion has been made by defendants Charlie Pham individually and Charlie Pham d/b/a J.A.C. Services. The caption also lists one Pham Kim. It is not certain whether this is a separate person or an alias for Charlie Pham. In any event, Pham Kim will be deemed to be a defendant and one of the makers of the present motion. The moving parties will be referred to collectively in this opinion as "JAC."
Although JAC did not appear in opposition to the preliminary injunction motion, JAC filed an answer on November 1, 2002. JAC was then represented by Robert A. Horne, Esq.
On November 1, 2002 JAC, represented by Horne, filed the motion that is presently before the court. The motion is to vacate the preliminary injunction as to JAC or, in the alternative, to release a portion of JAC's funds that have been frozen. These funds are in an account at what was Chase Bank and amount to $603,899.64. In the motion as originally presented, JAC moved to have $340,015.20 released on the ground that this amount had been determined to be unrelated to the lawsuit. JAC also moved to vacate all expedited discovery and accounting requirements in the injunction.
Following the filing of this motion, plaintiffs' counsel proceeded to negotiate with Horne about a possible agreement for the release of part of the frozen funds. However, in early November 2002, Horne was replaced by Lawrence F. Spirn, Esq. Negotiations regarding settlement of the issues raised by the motion were terminated.
Thereafter plaintiffs made a detailed submission in opposition to JAC's motion. The new attorney for JAC submitted a reply affidavit, together with an affidavit of James Pham, who is not a defendant, but who states that he is primarily responsible for the operations carried out at JAC. The position of Spirn and James Pham is substantially different from that taken by the earlier attorney, Horne. Spirn and James Pham do not concede that any of the funds frozen at Chase may be related to the litigation. They argue that there is no basis for imposing any liability whatever upon JAC and that the restraint upon the Chase account should be entirely vacated.
JAC arranges for persons to ship items via United Parcel Service ("UPS"). JAC is located at 387 Broadway in Manhattan. It is next door to 383 Broadway, where a major part of the counterfeiting operation conducted by other defendants is located.
Plaintiffs contend that JAC knowingly handled the shipment of defendants' counterfeit merchandise to customers and is thus contributorily liable. JAC contends that it did nothing more than receive wrapped packages, the contents of which it did not know.
The showing made by plaintiffs was, and still is, sufficient to justify the preliminary injunction. A quantity of counterfeit watches was found at JAC during the court-ordered seizure. Although these watches were in sealed packages, which needed to be opened by the investigators, nevertheless they were at JAC. As to JAC's knowledge of the counterfeit nature of merchandise shipped for other defendants, plaintiffs have submitted the following evidence.
Records seized by plaintiffs' investigators pursuant to court order show conclusively that there was a steady stream of the other defendants' counterfeit merchandise flowing through JAC. It was usual for shipments to be made by the counterfeiters via UPS on a C.O.D. basis. The records show that the payments were collected by JAG, which would then issue checks made out to "Cash." These checks would be delivered to the counterfeiters at 383 Broadway. They would be deposited in one or more bank accounts belonging to the counterfeiters. The cancelled checks show endorsements by one or another of the front companies used by the counterfeiters. The check stubs and other records of JAC show that the checks made out to Cash were actually for payment to "Sam" or some other alias, obviously referring to the counterfeiters.
There are also records of claims against UPS for damaged merchandise, and these records refer to articles such as watches. Although these records, of course, do not describe the articles as counterfeit, there is not the slightest reason ...