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United States District Court, S.D. New York

July 14, 2004.


The opinion of the court was delivered by: BARBARA JONES, District Judge


Before the Court is Plaintiff's motion to vacate the judgment, entered after Plaintiff accepted Defendants' Rule 68 offer, and its motion to hold Defendants in contempt of court. For the reasons to follow, I grant Plaintiff's motion to vacate the judgment and deny the motion to hold Defendants in contempt.


  On December 3, 2003, Plaintiff obtained an ex parte seizure order authorizing seizure of allegedly infringing merchandise and related documents from Defendants. On December 9, 2003, I issued an order, memorializing a conference I conducted with the parties that day, directing the Defendants to "supply plaintiff with purchase and sales orders pertaining to defendants' purchase of jewelry similar to that described in the complaint. Such papers must be delivered to the plaintiff by December 10, 2003, or defendants must notify the Court of the need to extend the deadline." 12/9/03 Order at 2.

  After several communications between the parties and conferences with the Court regarding the timing and confidentiality of the documents to be produced, Defendants produced the customer and supplier documents that it had in its possession on December 29, 2003. The documents reflected that Defendants' purchased between $50,000 and $70,000 of jewelry for resale from a company named Unicorn of Hong Kong. It is undisputed, however, that the document production did not contain all of Defendants' invoices of its relevant purchases from Unicorn, but rather contained only the invoices that Defendants had in their possession at the time. These invoices, according to Defendants' recent admissions, were largely incomplete because of their haphazard record-keeping. Mr. Sholom Rubinoff, principal of Defendants Rubinoff Imports, Inc. and Rubinoff Jewelry, Inc., declared that he "did not keep . . . detailed business records. . . . ledgers, journals, and other books of account[s] reflecting the entire business." (Rubinoff Decl. at ¶ 5). In fact, Mr. Rubinoff averred that he did not "systematically maintain records of old purchases and sales," and instead "dispose[d] or some old invoices in the ordinary course of [his] business." (Rubinoff Decl. at ¶ 6). It is undisputed that at no time did Defendants' attorney, Mr. Steven Horowitz, inform Plaintiff that the Defendants did not keep regular records or that the documents Defendants produced reflected only some, but not all, of the purchase information that Plaintiff was seeking.

  On December 26, 2003, Defendants served upon Plaintiff a Rule 68 offer of judgment in the amount of $60,000, which was set to expire on January 12, 2004. During the time that the offer was pending, counsel for the parties communicated about the profits realized by the Defendants. Defendants' counsel asserted that, by its calculation, Defendants realized a profit of $54,291, and provided Plaintiff with, what it characterized, as "a summary of the calculation of gross profits on the jewelry items at issue along with relevant explanations." (Pl's Ex. 1 (1/2/03 Ltr. from Steven Horowitz to Theodore Steingut)). It is undisputed that this calculation accounted only for the jewelry reflected in the documents Defendants produced to Plaintiff.

  Plaintiff accepted the offer of judgment for $60,000 on January 12, 2004, and this Court entered judgment on January 20, 2004. Following the entry of judgment, Plaintiff commenced litigation against Defendants' supplier, Unicorn. During the course of that litigation, Plaintiff obtained several of the Rubinoff Defendants' invoices that they had not been produced during this litigation, which reflected that the Rubinoff Defendants likely profited between $84,500 and $115,000 over and above the amounts previously disclosed. Specifically, Unicorn produced an invoice dated December 2, 2003, which reflected that the Rubinoff Defendants purchased approximately 50 pieces of jewelry from Unicorn, as well as invoices dated October 3, 2003, November 11, 2003, and January 20, 2004 reflecting numerous purchases that were not disclosed prior to the settlement. (See Pl's Ex. 2). Notably, Unicorn's production showed that the Rubinoff Defendants had produced invoices generated almost a year before the seizure, but not others that were generated much closer to the time of the seizure — including one that was dated one day before this lawsuit commenced.

  Based on this new information, Plaintiff made a motion to vacate the judgment pursuant to Federal Rule of Civil Procedure 60(b) on April 21, 2004. After reviewing the parties' briefs, as well as conducting a 2-day hearing that included witness testimony and exhibits, it is my opinion that the judgment should be vacated because the Defendants made material misrepresentations and engaged in misconduct with respect to the documents they produced and their representations relating to the amount of profits they realized from the allegedly infringing jewelry.


  1. Motion to Vacate the Judgment Pursuant to Rule 60

  Rule 68 judgments may be vacated under Rule 60(b), which allows a court, in its sound discretion, to "relieve a party . . . from a final judgment order," for several enumerated reasons. Fed.R.Civ.P. 60(b); see also Mendell v. Gollust, 909 F.2d 724, 731 (2d Cir. 1990), aff'd, 501 U.S. 115 (1991). According to 60(b)(3), a court may vacate a judgment upon a showing of "fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party." Fed R. Civ. P. 60(b)(3).

  In order to vacate the judgment under Rule 60(b)(3), Plaintiff "must demonstrate, by clear and convincing evidence, that `material misrepresentations' were made," which "prevented plaintiff from `fully and fairly' presenting his case." Walther v. Maricopa Int'l Inv. Corp., 2002 WL 31521078, *3 (S.D.N.Y. Nov. 12, 2002) (citing Fleming v. New York Univ., 865 F.2d 478, 484 (2d Cir. 1989). I believe Plaintiff has met its burden here.

  I ordered Defendants, both by written order and verbally, to produce all relevant supplier documents, without limitation to documents that Defendants currently had in their possession. It was clear to me, as well as to Defendants' attorney, that Plaintiff was seeking all supplier purchase records.

  However, Defendants' attorney never informed Plaintiff or the Court that Defendants did not possess many of the relevant records, including records of purchases made within months of the litigation and records that, in total, reflected approximately 125% more in profits than was reflected in the records it produced.

  Instead, Defendants made representations about the production that are easily interpreted to mean that they were producing all relevant supplier documents. For example, in a letter to the Court dated December 10, 2003, Mr. Horowitz stated that he was prepared to "provid[e] the supplier documents to plaintiff and most if not all of the customer documents described in your Honor's Order dated December 9, 2003. Pursuant to said Order, however, defendants request until tomorrow to ascertain if there are additional customer invoices." Similarly, in a letter to the Court the following day, Mr. Horowitz repeated that he would produce "All supplier documents and most customer invoices." In addition, the cover letter accompanying the December 29 production stated, "enclosed are the customer and supplier invoices of defendant produced pursuant to Judge Jones' order." These statements, which are representative of many of Mr. Horowitz's statements to both the Court and Plaintiff were, at a minimum, misleading and omitted essential information that Defendants should have disclosed.

  Defendants argue that they were obligated only to produce the documents that they had in their possession, and that they had no duty to disclose the fact that these documents did not comprise the universe of relevant documents. Therefore, Defendants contend, there is no basis for the Court to vacate the judgment. I disagree.

  First, as I stated earlier, my communications with the parties, as well as the December 9 order, implicitly imposed upon Defendants a duty to disclose that they did not have, or were not producing, all relevant supplier documents. Second, Mr. Horowitz's statements regarding the productions were, in and of themselves, misleading.

  Third, even if I did not find that Defendants had a duty to disclose, I would nonetheless vacate the judgment under Rule 60(b)(3) because Mr. Horowitz made statements in the course of settlement negotiations that affirmatively misrepresented the amount that Defendants profited from the allegedly infringing jewelry. Although the Defendants knew that Plaintiff was not aware that it lacked complete information, Mr. Horowitz indicated that the maximum profits Defendants realized were those reflected in the documents previously produced. In addition to the representations I discussed earlier, Mr. Horowitz, in response to Plaintiff's questions regarding Defendants' calculations, stated that the Rule 68 offer "was calculated to significantly exceed the potential provable profits." (1/9/04 Ltr. from Steven Horowitz to Theordore Steingut). These statements were false and misleading, and were made by the Defendants with the intent to induce Plaintiff to settle for a much lesser amount than the profits Defendants realized.

  For these reasons, I find that there is clear and convincing evidence that Defendants made material misrepresentations by omitting the fact that they were not producing all of the relevant invoices and that the profits they realized did not exceed $55,000. See Fleming, 865 F.2d at 484. Had Defendants disclosed this information, Plaintiff would not have settled at the time or for the amount that it did.

  In addition, I note that I do not need to find intentional bad faith on the part of the Defendants in order to vacate the judgment under Rule 60(b)(3). I could, and do, find that Defendants' failure to produce documents requested in discovery and ordered by this Court constitutes "misconduct," as that term is used in Rule 60(b)(3). See Catskill Dev., LLC v. Park Place Entm't Corp., 286 F. Supp.2d 309, 314-15 (S.D.N.Y. 2003) (holding that "accidental failure to disclose or produce materials requested in discovery can constitute `misconduct' within the purview of Rule 60(b)(3).").

  Lastly, I note that the Defendants will not suffer any prejudice if the judgment is vacated. At the time the judgment was entered, this case was still in the early stages of discovery and far from being trial-ready.

  Accordingly, the judgment entered in this case is vacated pursuant to Rule 60(b)(3).

  2. Motion to Hold Defendant in Contempt

  Plaintiff also moves to hold Defendants in contempt for violating this Court's January 26, 2004 Order prohibiting them from returning to Unicorn any pieces of the allegedly infringing jewelry for a refund or for any other purpose that would put the jewelry back in the stream of commerce. Plaintiff alleges that Defendants returned two pieces of jewelry to Unicorn for reimbursement. In support of this argument, Plaintiff produces a March 5, 2004 letter from Unicorn that indicates that Defendants "sent two necklaces" to it "as returned goods." In response, Defendants assert that the necklaces had been returned to them for repair by two customers, and that it sent the necklaces to Unicorn solely for the purpose of having them do the repairs.

  In order to hold Defendants in contempt, I would have to find that the "proof of non-compliance" with this Court's orders "is clear and convincing." United States v. Local 1804-1, Int'l Longshoremen's Ass'n, AFL-CIO, 44 F.3d 1091, 1095-96 (2d Cir. 1995). The evidence produced by Plaintiff, however, simply does not convince me that the Defendants are in contempt of my orders. Therefore, Plaintiff's motion is denied.


  For the reasons above, I grant Plaintiff's motion to vacate the judgment, and deny its motion to hold Defendants in contempt of Court. I also reinstate the temporary restraining order in place at the time the judgment was entered. Defendants opposition papers to a preliminary injunction are due on or before July 28, and Plaintiff's reply papers are due on or before August 4.



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