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GUCCI AMERICA INC. v. DUTY FREE APPAREL LTD.

April 22, 2004.

GUCCI AMERICA INC., Plaintiff; -against- DUTY FREE APPAREL LTD. d/b/a DUTY FREE APPAREL INC., JOEL SOREN, HARVEST WRAP INC., KURT DAVIDSEN and JOHN DOES 2-20, Defendants


The opinion of the court was delivered by: VICTOR MARRERO, District Judge

DECISION AND ORDER

In this trademark infringement lawsuit, the Court previously determined that defendant Joel Soren ("Soren") and his corporation, Duty Free Apparel, Inc. ("DFA") unlawfully sold counterfeit merchandise bearing trademarks of plaintiff Gucci America, Inc. ("Gucci"). Later, the Court determined that, after having been found liable, DFA again sold counterfeit Gucci merchandise in violation of a Court-imposed injunction. The Court conducted a two-day bench trial to determine whether the unlawful sales were willful and to determine the proper remedy. As explained in more detail below, the Court finds that DFA and Soren acted willfully in both the initial counterfeit sales and in violating the Court's injunction, and that a statutory damages award of $2 million is appropriate. The Court will also enjoin DFA and Soren from future Gucci sales, unless they maintain records to establish that their Gucci merchandise originates from authorized Gucci dealers. Finally, the Court addresses Gucci7s outstanding attorney's fees and costs application in connection with the investigation and prosecution of DFA and Soren's contempt. The Court concludes that Gucci is entitled to its full request, totaling an additional $59,584.62.

I. FINDINGS OF FACT

  A. PROCEDURAL HISTORY

  Gucci is a famous designer brand of jewelry, watches, handbags, wallets, and other accessories. Soren is the president and sole officer and shareholder of DFA, a midtown Manhattan retailer of discounted designer merchandise. Gucci filed this lawsuit in February 2002 alleging that DFA and Soren sold counterfeit Gucci merchandise in violation of federal trademark laws, and also raising related state law causes of action. In response to Gucci's interrogatories, DFA identified Harvest Wrap, Inc. ("Harvest Wrap") as its only source for Gucci goods. Gucci then amended its complaint to add Harvest Wrap and its principal, Kurt Davidsen ("Davidsen), as defendants.

  Gucci successfully moved for summary judgment on the issue of liability. See Gucci America, Inc. v. Duty Free Apparel, Ltd., 286 F. Supp.2d 284 (S.D.N.Y. 2003). In a decision dated October 6, 2003, the Court determined that DFA had sold to Gucci investigators a counterfeit wallet and two counterfeit handbags, and enjoined DFA and Soren from selling any more counterfeit Gucci merchandise. See id. at 290. The Court also determined that Harvest Wrap had sold at least two counterfeit Gucci backpacks directly to an individual in the business of reselling women's accessories. See id.

  Gucci returned to court shortly after the Court's summary judgment decision, alleging that DFA had continued to sell counterfeit Gucci merchandise. The Court preliminarily enjoined DFA and Soren from selling any Gucci merchandise, even if authentic. After a two-day contempt hearing in December 2003, the Court determined that, within one month of the Court's summary judgment Decision and Order, DFA had indeed sold Gucci investigators three more counterfeit Gucci items (a handbag, a cosmetic bag, and a key case), in violation of the Court's injunction. See Gucci America, Inc. v. Duty Free Apparel. Ltd., 296 F. Supp.2d 461 (S.D.N.Y. 2003).

  In light of that finding, the Court maintained its preliminary injunction preventing DFA or Soren from selling any Gucci items. The Court immediately scheduled a trial date determine whether the sales were willful (a necessary prerequisite to determining appropriate relief) and to fashion the proper remedies. Before trial, Gucci settled its claims as against Davidsen and Harvest Wrap. The Court held a two-day bench trial on March 15 and 16, 2004, to resolve the remaining claims pertaining to DFA and Soren.*fn1

  B. DFA'S DEALINGS WITH HARVEST WRAP

  At trial, Soren cast himself as an innocent retailer who was briefly duped by Harvest Wrap, a rogue supplier of high-quality counterfeits. The Court concludes, however, that virtually all of the evidence Soren produced to support that characterization is far from persuasive. More generally, all of Soren's testimony is under considerable doubt because, as the Court will explain, his testimony was frequently contradictory or implausible.

  Soren began selling Harvest Wrap's Gucci brand merchandise at least as early as August 2000, when DFA sold the first of six items the Court ultimately determined to be counterfeit. That same month, Prada, another famous designer brand, filed a lawsuit against DFA alleging that DFA's Prada brand goods were counterfeit. Soren testified that he was also purchasing Prada goods at that time from Harvest Wrap, and that he told Davidsen about Prada's lawsuit. Soren apparently did not take any steps to verify the authenticity of Harvest Wrap's Prada brand merchandise. The parties to that lawsuit ultimately stipulated to an injunction against DFA and to dismissing the lawsuit.

  On October 6, 2000, Gucci sent DFA a cease-and-desist letter stating that it believed DFA was selling counterfeit Gucci items. At trial, Soren testified that he responded to that letter as follows. First, on the advise of his lawyer, Soren stopped selling Harvest Wrap's Gucci brand merchandise. Specifically, he stowed those items on the second floor of DFA's premises, away from the selling floor. Second, he immediately began returning the goods to Harvest Wrap, little by little — although without initially informing Harvest Wrap of the reason for the returns — as credits towards purchases of other name brand merchandise (presumably because Harvest Wrap would not give Soren his money back). Soren claims he had sold only approximately 20 to 50 of the approximately 2,000 Gucci brand items he had purchased from Harvest Wrap before he began returning them. However, Soren testified that he continued to sell Gucci brand merchandise he had acquired from other sources, such as authorized dealers in Italy. Third, sometime in the summer of 2003, after Soren had returned all the Gucci goods which Harvest Wrap would accept, Soren transported the leftover Harvest Wrap items (about 370 pieces) to his garage at his home on Long Island, never to be sold again. This account is suspect or not supported by the record on almost every point. Soren testified at a deposition in July 2002 that he continued to buy Gucci merchandise from Harvest Wrap even after this lawsuit was filed in February 2002, i.e., long after Gucci's October 2000 cease-and-desist letter. In a June 2003 deposition, Soren testified that he did not recall doing anything in response to the cease-and-desist letter and that he continued to sell Gucci brand merchandise. Soren also indicated at that deposition that he had been buying goods from Harvest Wrap up until late 2002 or early 2003. Soren's attempt to reconcile this contradiction at trial — stating that he was "confused with the dates" — was unconvincing, especially because Soren was questioned about those dates repeatedly at both his depositions and at trial. (Trial Transcript ("Tr.") at 100-01).

  Moreover, Soren made no mention in his deposition of having removed nearly 2,000 items for sale, and he failed to produce those items for inspection (as properly requested) during discovery. Soren specifically testified at the December 2003 contempt hearing that he did not have any merchandise anywhere except at his store in midtown Manhattan, directly contradicting his version of the events presented at trial. The existence of the leftover Harvest Wrap items was first made known to Gucci and the Court in a letter from Soren's attorney dated March 8, 2004 — one week before trial. The late disclosure forced Gucci to take Soren's deposition on the eve of trial in order to prepare as regards the last-minute development.

  The Court concludes that Soren's failure to disclose the existence of the leftover Harvest Wrap merchandise was willful and that he concealed this material information either because he sought to resell the merchandise at some point, or because he thought it would be to his advantage in this litigation not to reveal its existence. Once the Court scheduled a trial on damages only, it became advantageous for Soren to admit that he had not sold some of that merchandise, and he belatedly divulged the existence of those items.

  In addition to the string of contradictions and omissions that filled Soren's testimony, there is direct evidence of DFA's continued dealings with Harvest Wrap. Gucci admitted into evidence at least 30 cancelled checks from DFA to Harvest Wrap containing a hand written notation of "Gucci," presumably made by Soren or with his knowledge, and dated after October 2000. At trial, Soren stated that all of those checks pertained to returns, not purchases. This explanation is implausible because almost all of those checks contain only Gucci's brand name, and no indication of another brand name for which Soren would be exchanging the Gucci goods. Moreover, most of the Gucci checks specifically list the quantity and price of the goods, which happen to correspond exactly to the amount of the check. For example, one DFA check dated May 23, 2001, includes the notation

  77pcs × 147 Gucci

 (Tr. Ex. 22). Not surprisingly, the check is made out in the amount of $11,319 (i.e., 77 times 147). There are dozens of such checks, all of which the Court concludes represent purchases, not returns.*fn2 The most recent check in evidence from DFA to Harvest Wrap is dated December 2002.

  The Court concludes that, throughout this more than two-year period, Soren either knew, or should have known, that Harvest Wrap's Gucci brand merchandise was counterfeit. Having received Gucci's cease-and-desist letter in October 2000 and Gucci's complaint in this action in early 2002, Soren should have at least known there was reason to inquire further about the authenticity of that merchandise.*fn3 Moreover, Soren must have known, if not prior to August 2000 certainly at many points thereafter, that Harvest Wrap was obviously not an authorized Gucci dealer. He should have also been aware of the risk of dealing in merchandise obtained through such unusual channels, and without the benefit of authenticating documentation. Instead of directly confronting that risk, or directly seeking to counter Gucci's allegations, Soren relied upon (1) Davidsen's assurances "that the goods were a thousand percent authentic"; (2) his own assessment that the goods "looked perfect"; and (3) the fact that no other designers had challenged his business practices. (Tr. 63) Moreover, even in the face of Gucci's lawsuit, rather than directly confronting Harvest Wrap with the accusation that the Gucci goods Harvest Wrap had sold DFA were fake, Soren instead began surreptitiously and without further explanation simply returning that merchandise in exchange for "credits".

  Of the six DFA items the Court has determined to be counterfeit, the Court's examination reveals that five of those items are sophisticated counterfeits. Gucci's expert relied upon relatively detailed observations to determine that those items were counterfeit. This fact arguably would lend some support to Soren's assertion that he had no reason to question the authenticity of Harvest Wrap's Gucci brand merchandise. However, Soren himself conceded that the sixth item, a "Jackie O" handbag, is of an obviously inferior quality. He described it as having "cheaper" leather and testified that "a five-year old could tell the difference" between the leather on that bag and the high-quality leather of the designer goods DFA would sell. (Contempt Hearing Transcript ("Hg.") at 40) The Court's own examination of the bag confirms that it is not made of high-quality leather. This observation should have given Soren all the more reason to question the authenticity of that bag, as well as any merchandise from the same source.*fn4 Instead, he passed off that merchandise to unsuspecting customers.

  Soren conceded at trial that "one or two" of the Harvest Gucci items "could have slipped in there," and at one point he even suggested that Gucci's lawyers planted the counterfeit Gucci merchandise on DFA's selling floor. (Tr. 55, 85-86) The Court rejects the notion that all of the counterfeit sales were innocent, or accidental. Of the six items the Court has already determined are counterfeit, one was sold as early as August 2000 and another as late as November 2003. It is simply beyond belief that all six of those items could have accidently been mixed in with DFA's stock for such a long period of time.

  One particularly egregious example, involving the Jackie O model the Court just mentioned, clearly demonstrates that Soren acted willfully, not innocently. At the contempt hearing, Gucci witness Vicki Richards ("Richards") testified that she called DFA to purchase a $471 Jackie O model handbag and that she sought to have it shipped overnight. The DFA person answering the phone, "Cindy", said that Richards would have to wait at least a week because the bag was at DFA's "other site." (Hg. 22)

  Three months later, Gucci's lawyers inspected the merchandise which Soren had just revealed was stashed away in his garage on Long Island. They found, and admitted as evidence at trial, a Jackie O model handbag remarkably similar to the one Richards had purchased. Soren conceded at trial that the leather on the two bags was similar. The Court's own inspection of the bags confirms that the leather appears to be of an identical (and relatively poor) quality. At the time of Richards' testimony in December 2003, it was unclear what was meant by the reference to a second "site," but now a reasonable inference that may be drawn from these facts is that "Cindy" — probably DFA employee Cindy Katz ("Katz") — was referring to Soren's garage in Long Island. The similarity of the two bags at issue bolsters the Court's previous conclusion that the first Jackie O bag went from Harvest ...


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