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EASTERN FREIGHT WAYS v. EASTERN MOTOR FREIGHT

July 9, 2003

EASTERN FREIGHT WAYS, PLAINTIFF,
v.
EASTERN MOTOR FREIGHT, DEFENDANT.



The opinion of the court was delivered by: Andrew Peck, Magistrate Judge

REPORT AND RECOMMENDATION

By Opinion and Order dated June 12, 2003, Judge Swain granted plaintiff's motion for a default, entered an injunction against defendant, and referred the matter to me for an inquest as to damages and attorney's fees. (Dkt. No. 29: 6/12/03 Opinion & Order.)

For the reasons set forth below, the Court recommends denial of any damage award but further recommends awarding plaintiff the full amount of attorney's fees (and costs) sought of $19,532.51.

FACTS

"Where, as here, `the court determines that defendant is in default, the factual allegations of the complaint, except those relating to the amount of damages, will be taken as true.'" Chen v. Jenna Lane, Inc., 30 F. Supp.2d 622, 623 (S.D.N.Y. 1998) (Carter, D.J. & Peck, M.J.) (quoting 10A C. Wright, A. Miller & M. Kane, Federal Practice & Procedure: Civil 3d § 2688 at 58-59 (3d ed. 1998)).*fn1

The complaint asserts that since 1994, plaintiff has used "the trade name and service mark EASTERN FREIGHT WAYS in commerce in connection with freight transportation services," and owns a registered service mark in the name. (Dkt. No. 1: Compl. ¶¶ 7, 11.) The complaint further alleges that defendant "is using the tradename and service mark EASTERN MOTOR FREIGHT" for similar services, without plaintiff's permission, and that the defendant's name is confusingly similar to plaintiff's name. (Compl. ¶¶ 14, 19.) The complaint asserts claims for, inter alia, trademark infringement and false designation of origin under the Lanham Act (Compl. ¶¶ 20-24, 25-29) and seeks injunctive relief, treble damages, punitive damages and attorney's fees (Compl., "Wherefore" clauses).

By decision dated October 16, 2002 (Dkt. No. 22), I granted the motion of defense counsel to withdraw for defendant's failure to pay his fees. Eastern Freight Ways v. Eastern Motor Freight. Inc., 02 Civ. 3138, 2002 WL 31324128 at *1 (S.D.N.Y. Oct. 16, 2002) (Peck, M.J.). I also directed defendant to retain new counsel, since a corporation can only appear by counsel. Id. (citing Promotica of America, Inc. v. Johnson Grossfield, Inc., 98 Civ. 7414, 2000 WL 424184 at *2 (S.D.N.Y. Apr. 18, 2000) (Peck, M.J.) (& cases cited therein)).

When defendant failed to retain counsel, Judge Swain granted plaintiff's motion for a default judgment, entered a permanent injunction against defendant, and referred the matter back to me for an inquest as to damages and attorney's fees. (Dkt. No. 29: 6/12/03 Opinion & Order.) The Court set a schedule for submissions from both parties on the inquest. (Dkt. Nos. 31-32: 6/18/03 & 6/27/03 Scheduling Orders.) Both the regular and certified mail copies of those Orders sent to defendant were returned to the Court by the Post Office, undelivered to and unclaimed by defendant.

ANALYSIS

The Second Circuit has approved the holding of an inquest by affidavit, without an in-person court hearing, "`as long as [the Court has] ensured that there was a basis for the damages specified in the default judgment.'" Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 111 (2d Cir. 1997) (quoting Fustok v. ContiCommodity Servs., Inc., 873 F.2d 38, 40 (2d Cir. 1989)).*fn2

Damages

As damages, plaintiff seeks the defendant's profits from use of the infringing mark. (Dkt. No. 33: Plf. Inquest Br. at 4.) In support, plaintiff submitted a Dunn & Bradstreet ("D&B") report indicating that defendant made gross profits of $1 million in 2000, and plaintiff seeks $3.5 million for the period January 2000 to June 2003, since defendant has not put forth any evidence of its costs. (Plf. Inquest Br. at 6-7; Dkt. No. 34: Sloane 7/7/03 Aff. ¶¶ 3-4 & Exs. A-B.)

The problem with plaintiff's damages request, however, is that the very D&B report that plaintiff relies on for defendant's profits also reports defendant's operating expenses for 2000, which exceeded operating sales revenue, for a net operating loss. (Sloane 7/7/03 Aff. Ex. A: D&B Report at 3.)*fn3

Even if the Court otherwise were willing to award millions of dollars in damages based on a D&B report, the Court declines plaintiff's invitation to award damages of $3.5 million based on "profit" information in the D&B Report which ignores expense and net operating loss information in the same report. The Court sympathizes with plaintiff that defendant did not respond to plaintiff's discovery demands. But while that gives plaintiff some leeway in proving damages, it does not open the door so wide as to allow one to drive a truck through the gap in proof. Moreover, other damage theories (such as plaintiff's damages instead of ...


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