United States District Court, S.D. New York
July 14, 2004.
ARTHUR M. DULA AS TRUSTEE OF THE ROBERT A. AND VIRGINIA HEINLEIN PRIZE TRUST DATED 1991 as successor in interest to VIRGINIA HEINLEIN AS TRUSTEE OF THE ROBERT A. HEINLEIN AND VIRGINIA HEINLEIN TRUST DATED JUNE 20, 1983, and THE ROBERT A. HEINLEIN AND VIRGINIA LIBRARY FOUNDATION, Plaintiffs,
AMEREON, LTD., AEONIAN PRESS, INC., THE AMERICAN REPRINT COMPANY/RIVERCITY PRESS d/b/a RIVERCITY PRESS, JOANNA PAULSEN, and JOHN CLAUSS a/k/a JED CLAUSS, Defendants.
The opinion of the court was delivered by: RICHARD CASEY, District Judge
MEMORANDUM OPINION & ORDER
Now before the Court is Arthur M. Dula as Trustee of the Robert
A. and Virginia Heinlein Prize Trust Dated 1991, and the Robert
A. Heinlein and Virginia Library Foundation's ("Plaintiffs'")
motion to impose monetary sanctions and attorney's fees against
Amereon, Ltd., Aeonian Press, Inc., the American Reprint
Company/Rivercity Press d/b/a Rivercity Press, Joanna Paulsen,
and John Clauss a/k/a Jed Clause ("Defendants") for their civil
contempt. On March 10, 2004, the Court issued an opinion from the
bench finding that Defendants violated the October 25, 2002
Consent Judgment barring them from selling any works authored by
Robert A. Heinlein. As a result of this finding, the Court
ordered Defendants to allow Plaintiffs to conduct an audit, at
Defendants' cost and using a C.P.A. of Plaintiffs' choosing, to
determine: (1) the titles and quantities of all works by Robert A. Heinlein manufactured and/or sold by Defendants since
October 25, 2002; and (2) the titles and quantities of all works
by Robert A. Heinlein that remain in Defendants' inventory.
(March 10, 2004 Order to Show Cause Hearing Transcript [Tr.] at
27.) The Court reserved judgment on the amount of the monetary
sanction pending the audit's completion. (Id. at 28.) In
addition, the Court found that Plaintiffs were entitled to
reasonable attorney's fees and costs for pursuing the Order to
Show Cause, and ordered Plaintiffs to provide the Court with
"detailed time records setting forth the legal fees and costs
incurred in pursuing th[e] contempt motion." (Id.) Finally, the
Court directed Defendants to file an affidavit with Plaintiffs'
counsel every six months, under oath and by the Chief Executive
Officer thereof, confirming that they have not manufactured, made
any offers to sell or sold any works by Robert A. Heinlein.
(Id. at 27.)
An audit, conducted by Certified Public Accountants Terry Lazar
and Ira Schwartz of Lazar Sanders, LLP, is now complete. It found
that Defendants purchased seventy-five copies of Stranger in a
Strange Land on or about March 10, 2003, and sold thirteen
copies between June 2003 and March 2004. (Auditors' Report at 2,
Ex. 8 to Declaration of George Gottlieb [Gottlieb Decl.].) The
auditors determined that fifty-eight copies of Stranger in a
Strange Land remained in Defendants' warehouse, that Defendants
had not sold any other Heinlein works since October 25, 2002, and
Defendants did not have an inventory of any other Heinlein works.
(Id. at 2-3.) The accountants billed $5,415.00 for the audit.
Monetary sanctions for civil contempt may serve either or both
of two purposes: to compensate the complainant for losses caused
by the contemnor's past noncompliance, or to coerce the contemnor
into complying with the court's order. Perfect Fit Indus., Inc.
v. Acme Quilting Co., 673 F.2d 53, 56 (2d Cir. 1982). While civil contempt sanctions
may be compensatory or coercive, they may not be imposed as a
punitive measure. Paramedics Electromedicina Comercial, Ltda. v.
GE Med. Sys. Info. Techs., Inc., 369 F.3d 645, 657 (2d Cir.
2004); Huber v. Marine Midland Bank, 51 F.3d 5, 10 (2d Cir.
1995); Manhattan Indus., Inc. v. Sweater Bee by Banff, Ltd.,
885 F.2d 1, 5 (2d Cir. 1989).
Plaintiffs request that the Court award sanctions of $100,000
for Defendants' sale of thirteen copies of Stranger in a Strange
Land Plaintiffs justify this fine by arguing that the statutory
damages provision of the Copyright Act, 17 U.S.C. § 504(c),
allows courts to award up to $150,000 for willful copyright
infringement. However, a statutory damages provision for
copyright infringement is not the proper guide for determining a
civil contempt fine. See On Davis v. The Gap, Inc.,
246 F.3d 152, 172 (2d Cir. 2001) (stating that "17 U.S.C. § 504(c)(2),
which allow[s] increases to an award of statutory damages in
cases of willful infringement," serves to achieve the purposes of
punitive damages, namely punishment and prevention of malicious
conduct). The Court in this matter is concerned only with finding
a remedy for Defendants' civil contempt; therefore, Plaintiffs'
suggested fine of $100,000 is not justifiable by the damages
provision of the Copyright Act.
Neither can a $100,000 sanction be justified as a compensatory
fine. When a contempt fine is compensatory in purpose and paid
directly to the complainant rather than to the court, some proof
of loss must be present, and "the sanction should correspond at
least in some degree with the amount of damages." Paramedics
Electromedicina Comercial, 369 F.3d at 658; see also Perfect
Fit Indus., 673 F.2d at 57 ("When the purpose is compensatory,
the order should be fashioned so as to reimburse the injured
party for his actual damages."). In their memorandum regarding
the audit and the imposition of sanctions, Plaintiffs did not show that they
have suffered any loss as a result of Defendants' sale of
thirteen copies of Stranger in a Strange Land, much less a loss
amounting anywhere near $100,000. However, the Second Circuit has
indicated that a compensatory fine is "not always dependent on a
demonstration of `actual pecuniary loss,'" and that under a
theory of unjust enrichment, a complainant may be awarded the
contemnor's profits from misconduct without submitting direct
proof of injury. Manhattan Indus., 885 F.2d at 5-6; see also
Rick v. Buchansky, No. 82 Civ. 3906, 2001 WL 936293, at *6
(S.D.N.Y. Aug. 16, 2001) ("Where actual pecuniary loss is
difficult to prove, compensatory relief may include profits
derived by the contemnor from the violation of a court order.").
"Profits" mean net profits, and the contemnor "bears the burden
of demonstrating deductions for costs and expenses: It must prove
not only that it has borne the particular cost or expense but
also that the cost or expense is attributable to its unlawful
sales." Manhattan Indus., 885 F.2d at 7.
The gross revenue that Defendants made from selling thirteen
copies of Stranger in a Strange Land, at $39.95 per copy,
equals $519.35, (Ex. A to Auditor's Report), but because
Defendants have not shown any costs or expenses attributable to
these sales, their net profit cannot be ascertained at the
present time. Thus, Defendants may provide information regarding
their costs and expenses attributable to the sale of thirteen
copies of Stranger in a Strange Land, and the net profit is to
be awarded to Plaintiffs as compensatory damages. If Defendants
do not provide this information by August 30, 2004, they will be
fined $519.35, to be awarded to Plaintiffs. See, e.g.,
Basquiat v. Baghoomian, No. 90 Civ. 3853, 1992 WL 125529, at *2
(S.D.N.Y. May 22, 1992) (stating in a copyright infringement
claim that because the defendants did not satisfy their burden of
proving the asserted costs of production, those costs cannot be
used to reduce the plaintiff's damages award).
The Court may still fashion a remedy to coerce Defendants'
future compliance with the Consent Judgment. Plaintiffs'
requested $100,000 fine, however, remains impermissible even as a
coercive sanction. Although the court has broad discretion to
determine coercive civil fines, Perfect Fit Indus., 673 F.2d at
57, such fines cannot be punitive in purpose. See New York
State Nat'l Org. for Women v. Terry, 159 F.3d 86, 93 (2d Cir.
1998). One factor that may indicate that a noncompensatory fine
is punitive rather than coercive is the absence of a purge
provision allowing a defendant to avoid the fine by complying
with the court's order. Id. at 93-94. A fine without a purge
provision "suggests an intention to punish past misconduct rather
than to insure future lawfulness" because the absence of a purge
provision means that "the fine will be imposed regardless of
reform and commitment to obey." Id. at 94. Here, a flat
$100,000 fine for Defendants' sale of thirteen copies of
Stranger in a Strange Land would be punitive because it would
punish Defendants for their past misconduct without giving them
an opportunity to avoid the fine through future compliance. Thus,
the Court rejects Plaintiffs' request to fine Defendants $100,000
as a coercive remedy for their violation of the Consent Judgment.
However, some coercive measure is appropriate in order to
ensure Defendants' future compliance with the Consent Judgment.
In calculating a coercive fine, the Second Circuit has counseled
district courts to consider the following factors: (1) the
character and magnitude of the harm threatened by continued
contumacy; (2) the probable effectiveness of any suggested
sanction in bringing about compliance; and (3) the contemnor's
financial resources and the seriousness of the burden of the
sanction upon him. Paramedics Electromedicina Comercial, 369
F.3d at 657-58; Dole Fresh Fruit Co. v. United Banana Co.,
821 F.2d 106, 110 (2d Cir. 1987) (vacating contempt order because the district court had not considered the factors that
must be weighed for a coercive remedy, including the contemnor's
financial resources and the probable effectiveness of the
sanctions). The parties have not provided the Court with
information regarding these factors, leaving the Court unable to
evaluate them. Consequently, the parties are directed to submit
papers addressing these factors, and the Court will then
determine the precise amount of coercive sanctions.
Plaintiffs also request that the Court order Defendants to turn
over their remaining inventory of fifty-eight copies of Stranger
in a Strange Land to Plaintiffs in order to ensure that
Defendants do not have any opportunity to further violate the
Consent Judgment by selling additional copies. The Court agrees
that Defendants should surrender the remaining inventory to
ensure that they do not sell any more books; however, providing
the books directly to Plaintiffs would not further that purpose.
The Court thus orders Defendants to turn over their remaining
inventory of Stranger in a Strange Land to the United States
Lastly, Plaintiffs request that the Court order Defendants to
reimburse Plaintiffs $41,940.00 in attorney's fees, $4,838.37 in
costs, and $5,415.00 in auditor fees. The Court previously held
at the Order to Show Cause hearing that Plaintiffs were entitled
to auditor fees as well as reasonable attorney's fees and costs
attributable to the contempt motion, and ordered Plaintiffs to
provide "detailed time records setting forth the legal fees and
costs for pursuing this Order to Show Cause." (Tr. at 28.)
Reasonable attorney's fees can be derived by multiplying "the
number of hours reasonably expended on the litigation . . . by a
reasonable hourly rate." Weitzman v. Stein, 891 F. Supp. 927,
930 (S.D.N.Y. 1995). To establish the number of hours reasonably
expended, the party seeking attorney's fees must provide
contemporaneous time records specifying "`the date, the hours
expended, and the nature of the work done.'" Id. at 930-31
(quoting New York State Ass'n for Retarded Children, Inc. v. Carey, 711 F.2d 1136, 1148 (2d Cir.
1983)). Although the party must submit a detailed record of hours
expended, "the district court has discretion to determine the
number of hours reasonably expended on a case." Weitzman,
891 F. Supp. at 931. An attorney's reasonable hourly rate is
discerned from the prevailing market rates in the community,
which the court determines by examining the parties' submissions
regarding "the rate `prevailing in the community for similar
services by lawyers of reasonably comparable skill, experience
and reputation.'" Id. (quoting Miele v. New York State
Teamsters Conference Pension & Ret. Fund, 831 F.2d 407, 409 (2d
Cir. 1987)). The court may also "rely in part on [its] own
knowledge of private firm hourly rates in the community."
Weitzman, 891 F. Supp. at 931.
Plaintiffs have submitted an affidavit from Peter Cobrin, a
director from the law firm of Gibbons, Del Deo, Dolan, Griffinger
& Vecchione, P.C. who has substantial experience in the practice
of intellectual property law, affirming that the hourly rates
charged by Plaintiffs' attorneys were "within the normal rates
for attorneys involved in similarly sophisticated intellectual
property practices in New York City." (Declaration of Peter
Cobrin [Cobrin Decl.] at 2.) The affidavit included a survey from
the American Intellectual Property Law Association, which
indicates that the average hourly billing rates in the New York
City area in 2003 were $406.00 for partners and $306.00 for
associates. (Average Hourly Billing Rate by Type of Practice and
Location of Primary Place of Work, Ex. 1 to Cobrin Decl.) In
addition, Plaintiffs have provided time records setting forth
their legal fees from September 8, 2003 to May 6, 2004. Before
January 1, 2004, the hourly billing rates charged by Plaintiffs'
attorneys were $375.00 for a partner and $250.00 for an
associate. (Gottlieb Decl. at 2 n. 3.) After January 1, 2004, an
increase in billing rates at Plaintiffs' attorneys' firm resulted
in hourly billing rates of $425.00 for one partner, $375.00 for
another partner involved in the case, and $275.00 for an associate. (Id. at 2.) The time
records also show that Plaintiffs' attorneys spent 140.2 hours on
the present matter among three attorneys, a law clerk, and a
paralegal. (Matter Ledger Report, Ex. 1 to Gottlieb Decl.) The
Court finds that both the hourly billing rates and the number of
hours expended on this matter were reasonable. Thus, Defendants
are directed to reimburse Plaintiffs $41,940.00 in attorney's
fees, $4,838.37 in costs, and $5,415.00 in auditor fees, for a
total of $52,193.37. CONCLUSION
In light of the foregoing it is ORDERED that:
(1) Defendants are to surrender their remaining inventory of
Stranger in a Strange Land to the United States Marshal by July
(2) Plaintiffs are awarded attorney's fees and costs of
$46,778.37 and $5,415.00 in auditor fees, for a total of
(3) Defendants, if they so desire, are directed to submit
papers documenting their costs and expenses attributable to their
sale of thirteen copies of Stranger in a Strange Land by August
30, 2004. Plaintiffs may respond to any such filing by September
22, 2004. If Defendants do not file such papers, Plaintiffs will
be awarded $519.35 in damages;
(4) In order to determine the amount of a coercive fine, the
parties may conduct discovery regarding the following three
issues: (a) the character and magnitude of the harm threatened by
Defendants' continued contumacy; (b) the probable effectiveness
of a suggested sanction in bringing about compliance; and (c)
Defendants' financial resources and the seriousness of the burden
of a sanction if imposed upon Defendants. Discovery must be
complete by August 16, 2004. Plaintiffs are then directed to
submit papers, of no more than ten pages, proposing and
justifying a coercive fine by August 30, 2004. Defendants may
submit a response, of no more than ten pages, no later than
September 13, 2004. Plaintiffs may submit a reply, of no more
than five pages, by September 22, 2004.
© 1992-2004 VersusLaw Inc.