United States District Court, S.D. New York
November 1, 2004.
SOURCE ENTERPRISES, INC., SOURCE MAGAZINE, LLC, AND WISSAM EXCLUSIVE Plaintiffs,
TANNERS AVENUE CORP.; BALLERS USA, INC.; X KORE, LLC; THE SPOT ON 149TH ST. INC.; HANI BAIDOUN; MOSLEM ALI BAIDOUN; and VARIOUS JOHN DOES, JANE DOES, and ABC COMPANIES, Defendants.
The opinion of the court was delivered by: HAROLD BAER, JR., District Judge[fn1] [fn1] Gabriela Leal, a Fall 2004 intern in my Chambers and a second-year law student at CUNY Law School, provided substantial assistance in the research and drafting of this Opinion.
OPINION & ORDER
Plaintiffs Source Enterprises, Inc., Source Magazine, LLC
(collectively, "the Source") and Wissam Exclusive ("Wissam")
(collectively, "the plaintiffs") filed suit against defendants
Tanners Avenue Corp. ("Tanners"), Ballers USA, Inc. ("Ballers"),
X Kore, LLC ("X Kore"), The Spot on 149th Street ("The Spot"),
and various John Does, Jane Does and ABC Companies, in which the
plaintiffs alleged violations of the Lanham Act,
15 U.S.C. § 1051, et seq., common law trade name infringement, and state
law unfair competition, and sought monetary damages and equitable
relief. The plaintiffs moved by order to show cause for a
preliminary injunction. A hearing was not held on this matter
because all of the defendants entered into a preliminary
injunction on consent, which this Court "So Ordered" on March 9,
2004. Thereafter, the Source and Wissam reached a settlement
agreement with Ballers and The Spot, which the Court "So Ordered"
on May 27, 2004. Also on May 27, 2004, this Court granted the
Source's and Wissam's motion for a default judgment and permanent
injunction with respect to X Kore.
A bench trial was held on May 19, 2004 and May 27, 2004 on the
plaintiffs' claims against Tanners, the only remaining identified
defendant. At the conclusion of trial, Tanners consented to a
permanent injunction and I dismissed the plaintiffs' claims for
the reasons stated on the record.*fn2 Thus, the only remaining issues are the
plaintiffs' applications for an award of attorney's fees pursuant
to section 35 of the Lanham Act, 15 U.S.C. § 1117 and sanctions
for Tanners' alleged violation of various discovery orders. It is
these issues that I turn to now.
I. FINDINGS OF FACT
The Source has for many years published magazines pertaining to
hip-hop culture and music under THE SOURCE trademark. Over the
last few years, the Source has begun a line of licensed products
carrying its name. In August 2003, the Source authorized Wissam
to manufacture a series of leather jackets to honor deceased rap
stars, denominated the "fallen legends" series. These jackets
were embossed with covers of THE SOURCE magazine that depict
deceased rhythm and blues and hip-hop artists, such as Tupac
Shakur, Aaliyah, and Lisa "Left Eye" Lopes. The plaintiffs
brought this suit after it discovered that these jackets were
being counterfeited and sold at retail stores in the New York
City area, as well as a trade show in Las Vegas, Nevada.
The March 5, 2004 Order to Show Cause permitted the plaintiffs
to inspect and copy the defendants' records regarding the
allegedly infringing merchandise, and following the hearing
scheduled for March 10, 2004, to take the defendants' depositions
upon twenty-four hours notice. As mentioned, the scheduled
hearing did not occur because all defendants entered into a
preliminary injunction on consent. The Court held pre-trial
conferences with the parties on March 18, 2004, April 15, 2004,
and May 6, 2004. After the first pre-trial conference, it was
agreed that the parties would continue to undertake discovery.
Pursuant to this, the plaintiffs noticed depositions of Tanners
representatives, Sangkoo Han ("Mr. Han")*fn3 and his
daughter, Sandy Taeyoun Han ("Ms. Han")*fn4 for April 5,
2004. Neither Mr. Han, Ms. Han, nor their counsel, Matthew Jeon
("Jeon") appeared on the scheduled date. Ultimately, these
depositions were conducted two days later on April 7, 2004. The
next day, the plaintiffs provided Tanners with a letter that
summarized the documents requested during depositions. These
included documents relating to any orders taken or catalogues
displayed during the MAGIC trade show in February 2004 and any communications or orders placed with a
suspected manufacturer of the counterfeit jackets. Tanners did
not respond to these requests.
At the April 15, 2004 pre-trial conference, the plaintiffs
informed the Court of Tanners' lack of cooperation and,
accordingly, the Court ordered that all documents be produced by
April 25, 2004. The Court was again informed at the May 6, 2004
pre-trial conference that Tanners had not produced any documents.
The Court then ordered Tanners to respond to the plaintiffs'
document requests by May 10, 2004 and scheduled trial for May 19,
2004. By letter dated May 11, 2004, plaintiffs informed the Court
that the discovery requests were still outstanding and requested
that sanctions be imposed, including that: "(1) defendant Tanners
be precluded from asserting defenses to this action; (2) damages
against defendant be established at $25,000 due to Tanners'
refusal to provide sales information; and (3) $5,000.00 in
attorneys fees." Letter from Gabriel to the Court of 5/11/04. In
response, the Court informed the parties that if Tanners appeared
in court on May 19, 2004 without having complied with discovery,
the Court would enter a default and impose sanctions.
Notwithstanding this string of court orders, Tanners
persistently failed to respond to the plaintiffs' discovery
requests, and, as a result, the plaintiffs were unable to
effectively prepare for trial. Indeed, the trial was ultimately
adjourned from May 19, 2004 until May 25, 2004 because defense
counsel did not have all of his witnesses available. Before
concluding the proceedings for the day, the Court had the
plaintiffs' April 8, 2004 discovery request read into the record
and, again, ordered that Tanners respond by May 21, 2004. When
Tanners finally did produce documents on the very day of the
deadline, its production was incomplete. Tanners did not produce
all documents until May 24, 2004, the day before the scheduled
second day of trial.
Moreover, Tanners did not file an answer in this matter. The
Court, however, denied the plaintiffs' motion for default,
because, inter alia, Tanners was present on the date of trial
and ready to go forward on the case, as least that was what
Tanners represented. As it turns out, Jeon also neglected to
inform his client, Mr. Han, that trial was scheduled to commence
on May 19, 2004. However, Ms. Han, an employee of Tanners,
eventually arrived in Court. According to Jeon, Ms. Han was
present in his office at 8:30 AM, but she had to take a detour to
Secaucus, New Jersey prior to her court appearance to retrieve
some documents that Jeon had apparently only requested she obtain
that morning. At the conclusion of trial, the plaintiffs' conceded that they
were unable to prove damages and instead requested an award of
attorneys' fees and sanctions because of Tanners' alleged willful
infringement and failure to abide by numerous discovery orders.
As mentioned, Tanners consented to a permanent injunction and I
dismissed the plaintiffs' claims against Tanners. The parties
were instructed to submit post-trial briefs on the issues of
attorneys' fees and sanctions.
II. CONCLUSIONS OF LAW
A. Lanham Act Attorney's Fees
Section 35 of the Lanham Act, 15 U.S.C. § 1117(a), provides, in
pertinent part, that "[t]he court in exceptional cases may award
reasonable attorneys fees to the prevailing party." Typically,
courts have found that "exceptional cases" within the meaning of
the statute are those where the cases involve "fraud or bad
faith," Twin Peaks Prods. V. Publications Int'l Ltd.,
996 F.2d 1366, 1383 (2d Cir. 1993), or "intentional, deliberate, or
willful infringement," Guess?, Inc. v. Gold Ctr. Jewelry,
997 F. Supp. 409, 412 (S.D.N.Y. 1998). I have already concluded that
there was no evidence of willful infringement on the part of
Tanners and to the extent there remains any doubt on this score,
I reiterate my finding here. Nevertheless, the Second Circuit has
found that attorneys' fees may be awarded in the absence of
willful infringement, where there was "fraudulent conduct in the
course of conducting trademark litigation." Patsy's Brand, Inc.
v. I.O.B. Realty, Inc., 317 F.3d 209, 222 (2d Cir. 2003)
(affirming the district court's award of attorneys' fees pursuant
to 15 U.S.C. § 1117(a) where the defendant submitted false
evidence at trial). The plaintiffs argue that an award of
attorneys' fees for misconduct during the course of the
litigation is warranted under this Second Circuit holding.
However, upon closer inspection, it is evident that there are
very few instances of an award of attorneys' fees under the
Lanham Act where there was no willful infringement. Indeed, the
only two courts that have relied upon Patsy's Brand, Inc. to
support for an award of attorneys' fees under the Lanham Act for
misconduct involved willful Lanham Act violations. E.g., De La
Torre Bueno v. Dance Perspectives Found., Inc., No. 02 Civ.
8542, 2004 WL 1724950, at *2 (S.D.N.Y. July 30, 2004); Ramada
Franchise Sys., Inc. v. Boychuk, 283 F. Supp.2d 777, 792-93
Moreover, these cases involve misconduct of a fraudulent
nature, not mere non-compliance. For example, in Patsy's Brand,
Inc., the district court ruled that the defendant's reliance on
a fabricated document and false assertions via counsel and its
principle was "more tha[n] sufficient to establish the bad faith
necessary to justify an award to Plaintiff of the full amount of its attorneys' fees and costs." No. 99 Civ. 10175, 2001
WL 1154669, at *1 (S.D.N.Y. Oct. 1, 2001), aff'd as modified,
317 F.3d 209, 222 (2d Cir. 2003); see also De La Torre Bueno,
2004 WL 1724950, at *2 (awarding attorneys' fees based on a jury
finding of willful trademark infringement and false assertions by
the defendant's principle, which were contradicted by documentary
evidence). Here there is no similar claim of spurious documents
or perjured testimony. Instead, defense counsel simply failed,
albeit repeatedly, to provide discovery. This, I believe, is
better addressed via the applicable discovery sanctions and the
Court's inherent power to sanction and not under the Lanham Act.
There are three alternate grounds for the imposition of
sanctions in this case. First, "Federal Rule of Civil Procedure
[("Fed.R. Civ. P.")] 37 provides for the imposition of
sanctions, including attorneys fees and costs, for certain
discovery abuses." Cielo Creations, Inc. v. Goa Da Trading Co.,
Ltd., No. A 04 Civ. 1952, 2004 WL 1460372, at *2 (S.D.N.Y. June
28, 2004) (citing Fed.R. Civ. P. 37 and Roadway Exp., Inc. v.
Piper, 447 U.S. 752, 763 (1980)). Specifically, Fed.R. Civ. P.
37(b)(2) provides, in pertinent part, that when "a party fails to
obey an order to provide or permit discovery," the court may
sanction that party by requiring "that party failing to obey the
order . . . pay the reasonable expenses, including attorney's
fees, caused by the failure, unless the court finds that the
failure was substantially justified or that other circumstances
make an award of expenses unjust." The Second Circuit has held
that "the imposition of sanctions under Rule 37 is within the
discretion of the district court." John B Hull, Inc., v.
Waterbury Petroleum Prods., Inc., 845 F.2d 1172, 1176 (2d Cir.
1988). Such sanctions may be awarded against counsel. E.g.,
Yeboah v. United States, No. 99 Civ. 4923, 2000 WL 1576886, at
*4 (S.D.N.Y. Oct. 20, 2000).
Second, sanctions may also be imposed upon counsel pursuant to
28 U.S.C. § 1927, which provides that "[a]ny attorney . . . who
so multiplies the proceedings in any case unreasonably and
vexatiously may be required by the court to satisfy personally
the excess costs, expenses, and attorneys' fees reasonably
incurred because of such conduct." As another court in this
District has observed, "[s]ection 1927 sanctions may be awarded
against an attorney for discovery abuses." Cielo Creations,
Inc., 2004 WL 1460372, at *3 (citing Apex Oil Co. v. Belcher
Co. of N.Y., Inc., 855 F.2d 1009, 1019-20 (2d Cir. 1988)). Third, the Court may impose sanctions pursuant to its inherent
power, which derives from "the control necessarily vested in
courts to manage their own affairs so as to achieve the orderly
and expeditious disposition of cases." Link v. Wabash R. Co.,
370 U.S. 626, 630-31 (1962). This inherent power permits the
Court to sanction a wide range of contempt and disobedience of
court orders. Chambers v. NASCO, Inc., 501 U.S. 32, 44 (1991).
Such sanctions may also be levied directly against counsel. Id.
at 45 (explaining that "[t]here are ample grounds for recognizing
. . . that in narrowly defined circumstances federal courts have
inherent power to assess attorney's fees against counsel, even
though the so-called `American Rule' prohibits fee shifting in
most cases.") (alteration in original) (quoting Roadway Express,
Inc. v. Piper, 447 U.S. 752, 764 (1980)).
Sanctions here are warranted because of Tanners' repeated
failure to comply with discovery orders, which thwarted an
expeditious resolution of this case and hindered the plaintiffs'
ability to prosecute this action. Tanners contends that
"documents requested by the plaintiff [were] provided as [they]
became available." Def. Mem. in Opp. at 3. However, at trial I
discovered that this was simply not the case. The plaintiffs made
several requests for various documents and Tanners ignored those
requests. For example, the plaintiffs requested a Tanners
catalogue "[a]t the deposition and then immediately after."
Transcript ("Tr.") at 83:16-17. Jeon admitted, "There was a
request made at the deposition. I remember this came up at
deposition." Tr. at 83:18-19. But Jeon "[n]ever got one." Tr. at
83:21. What is even more troubling is that Ms. Han, Jeon's first
witness and one of Tanner's three employees, testified that she
"[could] definitely get . . . one," Tr. at 83:10, but that she
had not given a catalogue to Jeon" because she "didn't know that
one was requested," Tr. at 84:1-2. Gabriel was forced to demand
production of several previously requested documents at trial. As
this exchange makes clear, much of the difficulty in discovery
was the result of counsel's errors and should not therefore be
borne by Tanners. Indeed, as noted, Jeon apparently neglected to
even inform his client, Mr. Han, of the May 19, 2004 scheduled
trial date. When pressed for an explanation of his conduct, Jeon
replied, "this is the first time I have ever gone to trial within
a month after the conference." Tr. at 145:24-25. Jeon will
therefore be liable for $5,000, no part of which should be paid
by his client, Tanners.
Any three of these sources provide ample authority for this
Court to impose sanctions on Tanners for its unashamed violations
of numerous discovery orders. Nonetheless, 28 U.S.C. § 1927 requires that the Court provide specific notice of the
authority pursuant to which sanctions are being imposed,
Lapidus, S.A. v. Vann, 112 F.3d 91, 97 (2d Cir. 1997) (holding
that due process requires that "[a]n attorney . . . be forewarned
of the authority under which sanctions are being considered").
Here, counsel was informed of plaintiffs' application for
attorneys' fees and sanctions, although no specific authority,
other than the Lanham Act, was cited at the conclusion of trial
or in plaintiffs' memoranda. Thus, in an abundance of caution, I
rely solely on this Courts' inherent authority and Fed.R. Civ.
For the foregoing reasons, Tanners' defense counsel, Matthew
Jeon, is sanctioned in the amount of $5,000. The Clerk of the
Court is instructed to close any pending motions and remove this
case from my docket.
THIS CONSTITUTES THE OPINION AND ORDER OF THE COURT.