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ESTATE OF HOGARTH v. EDGAR RICE BURROUGHS

United States District Court, S.D. New York


November 3, 2004.

THE ESTATE OF BURNE HOGARTH; BURNE HOGARTH DYNAMIC MEDIA WORLDWIDE LLC; MICHAEL HOGARTH; RICHARD HOGARTH; and ROSS HOGARTH, as the children of deceased author Burne Hogarth, Plaintiffs,
v.
EDGAR RICE BURROUGHS, INC., Defendant.

The opinion of the court was delivered by: DENISE COTE, District Judge

OPINION AND ORDER

The defendant in this copyright action, having prevailed at trial and on appeal, brings a motion for an award of attorney's fees and expenses. For the following reasons, the motion for attorney's fees and expenses is granted in part and the motion for a bill of costs is granted in full. Edgar Rice Burroughs ("Burroughs") invented the character of Tarzan. His stories of Tarzan have been retold through books, movies, and in comic strips. Burroughs died in 1950. The corporate vehicle that holds the copyrights in Burroughs' work, Edgar Rice Burroughs, Inc. ("ERB"), is the defendant in this litigation. The shareholders in ERB are Burroughs' descendants.

  Burne Hogarth ("Hogarth") was a renowned illustrator of the story of Tarzan. In addition to drawing some of the Tarzan comic strips, he contributed to two illustrated books regarding Tarzan that were published by ERB in 1972 and 1976 (the "Books"). The Books were not commercially successful. Hogarth died in 1996.

  In 1999, Walt Disney Company ("Disney") produced the movie Tarzan. Before doing so, Disney and ERB executed three agreements that licensed the trademark Tarzan and characters and plots contained in certain stories written by Burroughs ("Disney License"). The licensed stories were listed in the Disney License and the Books were not among them. Two months after the official release of the movie, counsel for the Hogarth estate sent a cease and desist letter to Disney claiming copyright infringement. This litigation ensued.

  From its inception and throughout the course of the litigation, the driving force for the lawsuit was the plaintiffs' desire for a share in Disney monies paid to ERB. The plaintiffs are Hogarth's heirs. The principal roadblock to that recovery was the fact that they could not present any good faith claim that the movie's depiction of Tarzan was substantially similar to Hogarth's depiction of Tarzan in the Books. Although the plaintiffs initially asserted such a claim in the litigation, they abandoned it on the eve of trial. The only remaining claim that could entitle the plaintiffs to a share in the Disney money was a breach of contract claim. A 1970 Agreement between ERB and Hogarth had given Hogarth a right to share in revenues received from the "use of the artwork from the Books." Since the movie did not "use" any of that artwork, once the terms of the 1970 Agreement were properly construed, the contract claim was readily dismissed at trial. There was, therefore, no viable claim that gave the plaintiffs a legal right to share in the Disney money.

  The plaintiffs' claims, however, did include a complex issue of copyright law that required substantial discovery and legal analysis, to wit, whether Hogarth was the "author" of the Books, as indicated on the copyright registrations as they were originally filed, or whether the Books were "works for hire" such that Hogarth was not the "author" of the Books for purposes of copyright law. This Court concluded, and the appellate court agreed, that the Books were works for hire and that Hogarth held no copyright interest in them.

  Even if the ruling had gone in the plaintiffs' favor on the work for hire issue, however, that would not have entitled the plaintiffs to recover any of the Disney money because the movie's images of Tarzan were not substantially similar to Hogarth's depictions, ERB never gave Disney the right to use the Books, and Disney did not use the artwork from the Books in its film. Thus, had the plaintiffs won the work for hire argument, they would have had rights in the Books, which were long out of print and of no commercial value, but no right to recover any of the Disney money from ERB.

  Apparently well aware of the limitations to their claims, the plaintiffs' litigation strategy was designed to coerce a settlement from ERB and to avoid a trial if at all possible. Because of their tactics, the litigation was unnecessarily contentious and expensive and required extensive judicial supervision.

  The motion for sanctions does not seek recovery for all of the attorney's fees and costs incurred in defending this litigation. It seeks recovery for those fees and costs associated with the following discrete conduct:

1) inaccurate allegations in the complaint that contradict important documentary evidence in the plaintiffs' possession;
2) declarations submitted in opposition to defendant's early summary judgment motion that disregard that same evidence;
3) withholding that damning documentary evidence from the defendant until ordered by the Court to produce it;
4) the plaintiff's application to disqualify defense counsel on the eve of trial;
5) bad faith settlement discussions; 6) harassment of an ailing officer of ERB in order to coerce settlement;
7) improper and inaccurate disclosure of settlement discussions to the Court;
8) a frivolous copyright claim that Disney's artwork for the movie was copied from and substantially similar to Hogarth's illustrations in the Books;
9) assertion of a frivolous judicial estoppel argument;
10) harassment of defense counsel as he prepared for trial;
11) efforts to delay the trial; and
12) serving but not filing a post-trial motion to correct the record.
BACKGROUND
1. Complaint

  The plaintiffs filed the action on December 15, 2000. On January 26, 2001, they filed a First Amended Complaint ("Complaint"). The Complaint asserted twelve causes of action against ERB under the Copyright Act of 1909, 17 U.S.C. § 1, et seq., and for breach of contract. It sought a declaration that the plaintiffs were the sole owners of the renewal copyrights for the Books because they were not "works for hire," an accounting for a share of the Disney revenues received by ERB on breach of contract and related theories, and the return of certain physical property based on a breach of contract theory.

  ERB contends that the following passage in the Complaint is inconsistent with documentary evidence in the plaintiffs' possession and known to their counsel:*fn1

 

Hogarth's successful Dynamic series of art books were published by Watson-Guptill. At the end of the 1960's, Hogarth proposed to Watson-Guptill that it publish a new pictorial version of Edgar Rice Burroughs' novel, Tarzan of the Apes, to revolve around new and original artwork created by Hogarth. Hogarth suggested the project to ERB, either directly or through Watson-Guptill, and ERB agreed.
(Emphasis supplied).

  2. Motions for Summary Judgment and Disqualification of Counsel

  On January 31, 2001, ERB served a preemptive motion for summary judgment. The plaintiffs requested an immediate conference with the Court, indicating that they wished to move for the disqualification of ERB's counsel Mr. Zissu and a stay of summary judgment practice until that motion was resolved.

  At a conference on February 7, the parties described the factual background to the claims and their legal theories. A schedule for the summary judgment motion and motion for disqualification of defense counsel was set. On May 15, 2001, both motions were denied. Estate of Burne Hogarth v. Edgar Rice Burroughs, Inc., No. 00 Civ. 9569 (DLC), 2001 WL 515205 (S.D.N.Y. May 15, 2001) ("May Opinion").

  In making its summary judgment motion, ERB had argued that the Books were works for hire because ERB was the motivating factor in producing the Books. In rejecting the summary judgment motion, the May Opinion found that the plaintiffs had raised issues of fact regarding this precise issue. The May Opinion relied, inter alia, on two affidavits submitted by the plaintiffs:

[P]laintiffs have introduced evidence that Hogarth was the "motivating factor" for the creation of the Books, thus raising a material issue of fact as to whether the Books were created at Burroughs' "instance." Plaintiffs have submitted affidavits from the attorney [Arthur Schneck] who represented Hogarth during his negotiations with Burroughs over the 1972 and 1976 Books and from [Donald Holden] the Editorial Director from Watson-Guptill [the publisher of the Books,] both of whom state that it was Hogarth's idea to create the Books.
Id. at *4.

  Schneck's March 8, 2001 declaration represented that "[t]he negotiations between [the parties] confirmed that all parties expressly understood and agreed that the Hogarth Tarzan books would be created under a co-venture arrangement . . . not an employer-employee or work for hire arrangement," that Hogarth had developed the concept for the Books, and that Hogarth had chosen the Burroughs' stories that would be illustrated. Holden's affidavit reported his recollection that Hogarth made "essentially all of the contributions of content" to the Books. Both declarations were drafted by plaintiffs' counsel, Mr. David Smallman. Plaintiffs' brief in opposition to summary judgment represented that "Hogarth conceived the Hogarth Tarzan Books and approached ERB with his concept, not the other way around." As became apparent by the time of trial, neither man had competent, first hand knowledge to support the assertions in their declarations and those assertions were contradicted by important documents in the plaintiffs' possession.

  The second issue resolved in the May Opinion was the disqualification motion. In making its motion to disqualify Mr. Zissu, one of his partners, and their law firm Fross Zelnick, plaintiffs argued that the attorneys should be called to testify as witnesses at trial, and that their representation of ERB was a conflict of interest and created an appearance of impropriety. Hogarth, 2001 WL 515205, at *4. Mr. Zissu's law firm, Fross Zelnick, had a longstanding relationship with ERB. There was no evidence, however, that it had any connection to the Books in the 1970s. There was evidence that Mr. Zissu, who was employed at another firm at that period of time, had sent Marion Burroughs a blank form in 1979 to correct one of the copyright registrations for the Books. The May Opinion rejected the motion to disqualify, finding inter alia that the plaintiffs had not shown that either the law firm or Mr. Zissu were witnesses to events of moment in the litigation or that their testimony would be necessary or prejudicial to ERB. Id. at *5. The plaintiffs also argued that disqualification was necessary because Fross Zelnick had given limited advice to the Hogarth estate in 1998 and 1999 on matters unrelated to the Books. This was a particularly frivolous argument since the plaintiffs were fully informed of the relationship between Fross Zelnick and ERB at that time and had executed a waiver of any claim of conflict. Id. 3. June 13 Conference: Schedule Set for Litigation

  A schedule for the remainder of the litigation was set at a conference on June 13. Among other things, the Court reviewed the 1970 Agreement and observed that unless the plaintiffs could prove that Disney "used" the artwork contained in the Books that they had no claim against ERB for the Disney money. The plaintiffs took the position that they would be able to show that the movie "used" images and symbols from the Books. When it was suggested that discovery be bifurcated to focus on the Disney issues first, the plaintiffs argued that any bifurcation would lengthen discovery. The Court agreed not to bifurcate fact discovery, and fact discovery for all issues was scheduled to conclude on December 14. Each side was limited to six fact depositions and a firm trial date was set for March 2002.

  On August 30, Owen & Davis moved to withdraw as counsel of record for the plaintiffs and was replaced by two new law firms. Mr. Smallman, who had been involved in the litigation from its inception and was a close friend of one of the Hogarth heirs, remained counsel for the plaintiffs throughout the litigation.

  4. Plaintiffs' Failure To Produce Documents

  On September 28, ERB requested a conference to resolve discovery disputes, including the plaintiffs' failure to provide "key letters" between Hogarth and ERB which show that ERB "initiated" the book project. The plaintiffs had represented to defense counsel that they had no "documents `available' beyond those selected for their initial disclosure."

  In a letter of October 1, plaintiffs' new counsel responded with their own claims that ERB had not cooperated in discovery, specifically, in the production of documents from a 1976 California lawsuit between ERB and its former senior officer Robert M. Hodes ("Hodes"), the ERB representative who had worked extensively with Hogarth on the Books. The plaintiffs sought access to the California litigation files in order to investigate whether they could invoke the doctrine of judicial estoppel to prevail on their assertion that Hogarth had initiated and created the Books. In response to ERB's discovery issue, the plaintiffs represented that they had already "produced all responsive documents." They added that "all documents plaintiff had that might bear upon this case were produced by plaintiffs at the outset of the case."

  The plaintiffs' only document production to date had been made to the defendant in the plaintiffs' initial disclosure of July 9, 2001. At the time of the initial production, they described the 1,031 pages of documents that they produced as "all nonprivileged documents . . . that have been located to date and that are in the possession, custody and control of Plaintiffs that Plaintiffs may use to supports its [sic] claims or defenses. . . ."

  The July 9, 2001 production did not include any correspondence for the period before the execution of the November 16, 1970 contract between Hogarth and ERB. The plaintiffs did not provide any additional documents in response to ERB's July 17 Document Request and did not provide a response to that request signed by any attorney, as required by Rule 33, Fed.R. Civ. P. In response to the July 17 request for documents concerning all communications between Hogarth and Burroughs concerning the Books and the Tarzan character from 1970 to 1980, the plaintiffs responded in pertinent part that "the Hogarths have produced documents responsive to this Request in the document production made to ERB in connection with Plaintiffs' June 2001 [sic] Document Production. . . . [T]he Hogarths will produce documents responsive to this Request, to the extent that they locate any additional such documents other than those already produced." When pressed by defense counsel, Mr. Smallman continued to assert that no other documents were "available."

  A conference was held on October 5 to address the discovery issues. Owen & Davis and incoming counsel for the plaintiffs attended. It was revealed that Mr. Smallman had answered the defendants' document requests and interrogatories on behalf of the plaintiffs. The Court ordered the plaintiffs to respond within one week, completely and as required by the Federal Rules of Civil Procedure, to ERB's July document request and interrogatories. At plaintiffs' request, the Court reviewed several of the interrogatories that had been posed to them and reaffirmed their duty to answer the interrogatories. Of particular note for the pending motion for sanctions, the plaintiffs had resisted responding to and were ordered to answer interrogatories that required them to identify the "similarities" between the Books and the movie on which their copyright claims hinged. The Court rejected their argument that they needed discovery from Disney before they could identify the similarities. The plaintiffs repeatedly asked for an extension of discovery during the course of the conference; the requests were denied.

  In the course of the conference, defense counsel once again stated that unless the movie "used" images from the Books, there was no basis for the plaintiffs to claim a right to the Disney money. The plaintiffs acknowledged as much and reiterated their need for discovery from Disney. They represented that they needed the discovery to pursue their copyright claim, with its requirement of proof of access, and to pursue their contract claim, which hinged on Disney's use of the Books' images. The plaintiffs were reminded that they could take discovery of Disney so long as it were done within the schedule and parameters set for discovery.

  Finally, the plaintiffs observed that they were considering amending their Complaint by adding additional claims and joining Disney as a defendant. They asserted that the movie was infringing Hogarth's work. The defendant objected to any further amendment. The Court ruled that should any plaintiffs' motion to amend be granted, the case would be bifurcated such that any additional claims would be tried after the March trial. No motion to amend was filed. Following that conference, plaintiffs did respond to defendant's interrogatories. They described the similarity between the Books and film as follows:

A comparison of the artwork by Burne Hogarth in the Books and the 1999 animated Tarzan film shows that icons and symbols created by Burne Hogarth, that appear in the Books, but are not described in the Edgar Rice Burroughs stories . . . also appear in the Disney Tarzan film. For example, an image from the Books shows Tarzan holding up his hand juxtaposed against the hand of an ape, a key visual icon representing Tarzan's search for his own identity. . . . Other symbols appear in jungle foliage in the Disney animated Tarzan movie, such as an eye-shaped image, which Hogarth used repeatedly throughout the Books to represent the eye of God. The apes in the Books sleep in tree nests, above the ground. . . . Other strong visual images, such a [sic] Tarzan's father sawing a log, Tarzan's father shouldering a log, Tarzan as a boy swinging by an open jawed crocodile, and apes moving in single file around a jungle waterfall, are also not described in the Edgar Rice Burroughs stories, but appear in the Disney film. In addition, the dynamic movement of the Tarzan character, captured in the groundbreaking cinematic graphic novel form of the Books, appears in the . . . film. . . . The look and feel of the foliage in the Books was also used in the Tarzan animated movie by Disney.
  Within one week of the October 5 conference, plaintiffs produced more than a thousand additional pages of photocopied documents, as well as ten additional boxes of scripts, artwork, books, and other materials. Among the documents that were produced are four letters from Hodes reflecting communications that substantially undercut plaintiffs' contention that it was Hogarth's idea to create the Books. They are dated July 15, July 16, and October 19, 1970, and August 22, 1972. Each of these documents was important to the Findings of Fact at trial. See Estate of Burne Hogarth v. Edgar Rice Burroughs, Inc., No. 00 Civ. 9569 (DLC), 2002 WL 398696, at *3-4 (S.D.N.Y. Mar. 15, 2002) ("March Opinion"). The March Opinion described the four documents as follows:

 

Before receiving a reply from Hogarth, Hodes wrote on July 15, 1970, to suggest the production of "a quality, high priced edition of an adult version of TARZAN OF THE APES in graphic form." The next day, on July 16, 1970, Hodes wrote again, and described in detail his idea for a "graphic edition of TARZAN OF THE APES." Hodes saw the greatest hurdle as finding a U.S. publisher and believed it would be necessary to have all the artwork completed before approaching the publisher. Hodes envisioned a series of books on Tarzan followed by illustrated books on other Burroughs themes. Hodes proposed terms for the project that anticipated in many respects ERB's final agreement with Hogarth:
1. We would commission you to produce the work at a cost that would be paid one-half now and one-half out of the first proceeds of the book from all sources whatsoever. That one-half deferred payment is the extent of your speculation or risk.
2. We would undertake to find a U.S. publisher and to sell off the foreign rights. All expenses would be borne by us, and this, together with the sum paid to you, would be our risk.
3. The worldwide proceeds from the first book would go first to make up your deferment, and then to make up our own actual expenditures. After that, proceeds would be split 50-50.
4. Should the first book be successful, we would obtain sufficient worldwide advances to cover your and our costs of producing the next work, and so on for as long as the public continues to accept these books, with profits from all sources being divided equally. (emphasis removed).
Hodes continued: "I must leave all artistic considerations to you, but believe me, I know a market exixts [sic] abroad for such a series. If I had one completed book and the covers for about 10 more, I could make one trip to the Frankfurt Book Fair, open our own ERB exhibit there and come home with orders and advances from most of Europe."
Id. at *3-5 (emphasis supplied). The March Opinion went on to state:
In October 1970, Hodes wrote to Donald Holden ("Holden"), Editor of Watson-Guptill, with a copy to Hogarth, setting out the terms of a proposed agreement between ERB and Watson-Guptill for the publication of the 1972 Book. Hodes listed in pertinent part:
1. Your contract is directly with Edgar Rice Burroughs, Inc. We undertake to provide you with the services of Burne Hogarth to furnish you with artwork and text for your proposed illustrated book of Tarzan of the Apes. . . . You have no financial obligations whatsoever to Mr. Hogarth. We do.
2. You are responsible for designing and producing the book, and, in general, supervising Mr. Hogarth's work. . . . We reserve the right to require all parties to produce a book that reasonably and substantially tells the story of Tarzan of the Apes as Edgar Rice Burroughs told that story in his classic novel. . . . As for the artwork itself, we cannot and do not presume to influence or control the work of Mr. Hogarth.
3. Any costs involved in the design, typesetting, photography, and/or production of the book will be borne by you. Only the payments to Mr. Hogarth shall be our responsibility. (emphasis omitted).
Id. at *7 and n. 1 (emphasis supplied). The March Opinion also noted:
Hodes wrote Hogarth in August of 1972 . . . [and] proposed the story on which the second book would be based:
Our original plan was to complete Apes in book #2. I am having second thoughts about that because it takes Tarzan out of the jungle (and thus out of your own milieu). Enclosed is a copy of Jungle Tales of Tarzan — read it and see if you see any possibility of using it for #2.
Id. at *9 (emphasis supplied). As the March Opinion observed,

 

[s]ince many of the critical events in the case occurred in the 1970s or even earlier, and the principals in those events are essentially unavailable (either because of death in the case of Hogarth and Marion Burroughs or the parties' decision not to depose him in the case of Robert Hodes), it is the documentary evidence from that era that has been the most valuable and reliable source of evidence.
Id. at *2.

  Defendant produced many documents from the Hodes litigation from thirty-six cartons. Mr. Smallman spent part of two days in mid-October reviewing the documents. In late November, plaintiffs arranged to copy some of the documents.

  5. Trial Counsel Enter Litigation for Plaintiffs

  In late October, a fourth law firm appeared to represent the plaintiffs, Lankler Siffert & Wohl. With Mr. Smallman, this firm remained counsel for the plaintiffs through the trial.

  On November 14, plaintiffs sought the Court's assistance to obtain an unredacted copy of the license agreement between ERB and Disney. They asserted that they needed the document to prepare expert testimony, among other things.*fn2 ERB resisted disclosing its financial arrangements with Disney since they were irrelevant to the issue of liability. ERB reiterated that the 1970 Agreement only gave Hogarth the right to share in revenue for the "use" of his artwork, that the movie did not "use" the artwork, and that ERB had not given Disney a license to use the Books. The plaintiffs responded on November 16 that the movie did "use" Hogarth images. They took the position that "the superhuman bodily movements of the Tarzan character are clearly Hogarth-inspired, and not `classic Disney.'" They represented that they would offer expert testimony that the image of an ape's hand and Tarzan's hand held up against one another was based on an illustration by Hogarth in the Books. They gave as another example the tree nests of apes. They asserted that the "terrifying and animate nature of the jungle environment" in the film is "classic Hogarth and widely recognized as such."

  In a November 19 conference, plaintiffs gave notice that they were no longer relying solely on the theory that the movie had "used" Hogarth images, but were also pursuing a theory that the Disney License included the "right" to exploit the Books, and that even if the movie did not actually take advantage of that right, the plaintiffs were entitled to share in the fee earned from licensing the right to exploit. In the alternative, they argued that if ERB selectively excluded the Books from the licensed properties, then that was a breach of ERB's fiduciary duty to Hogarth. Plaintiffs' counsel said that the issue was not Disney's "use", but ERB's "use." The Court observed that the plaintiffs had never articulated these theories before, that these new theories represented a significant shift in emphasis, and that it appeared that the plaintiffs were having difficulty articulating a legal basis for their suit, but nonetheless granted their application for an unredacted copy of the Disney License. With that ruling, the plaintiffs learned that ERB obtained approximately $15 million from Disney. 6. Plaintiffs Take Discovery

  On November 7, with a December 14 discovery deadline looming, the plaintiffs began in earnest to take discovery. On November 7, they served interrogatories. On November 12, they served a second set of document requests, which in large part repeated their first requests. On November 28, they served two deposition notices, and at approximately that same time, they served a subpoena for a deposition of Disney to take place on the December 14 deadline. On November 15, plaintiffs served a request for admissions.

  On November 29, plaintiffs requested a conference to discuss ERB's refusal to respond to the request for admissions on the basis that it was untimely. At a December 4 telephone conference, the Court required ERB to answer the requests to admit, but gave them an extension to do so beyond the December 14 discovery cut-off date.

  During the December 4 conference call, plaintiffs' counsel outlined a series of motions it wished to bring in advance of trial. Plaintiffs claimed that ERB was judicially estopped from arguing the work for hire doctrine because it took a contrary position in the Hodes litigation. In response to the Court's inquiry as to whether the court in the Hodes litigation had relied upon ERB's position in its ruling, plaintiffs' counsel represented that the court had done so.*fn3 Plaintiffs' counsel also wished to argue that ERB and Hogarth had a co-venture agreement and that such an agreement would defeat the presumption created by the instance and expense test under the work for hire doctrine. Finally, plaintiffs wished to press a statute of limitations argument. Plaintiffs' counsel conceded that the issues in the litigation had been confused in the beginning, and agreed with the Court's observation that these were new arguments. The defendant responded that the plaintiffs were running from the work for hire doctrine which had been the basis for their lawsuit and that the judicial estoppel argument was flawed for several reasons. It pressed to keep the trial schedule. The Court noted the long standing trial schedule and that the Court's procedures for a non-jury trial, including pretrial submissions of exhibits and direct testimony through affidavit, resembled summary judgment practice in any event. It ruled that the trial would proceed as scheduled and that each of the plaintiffs' new issues could be litigated at the trial.

  Plaintiffs' counsel then described the parties' settlement positions, representing that plaintiffs sought little or no money from the Disney license and only brought the case to vindicate their ownership rights in Hogarth's work. Defense counsel responded that ERB had made it clear for some time that it was willing to give the Books to the plaintiffs, but the plaintiffs wanted money too. Plaintiffs' counsel declined the Court's invitation that the parties come to the courthouse to put what appeared to be their agreement on the record. 7. Telephone Calls Between the Parties

  On December 13, 2001, plaintiffs took the deposition of Burroughs' grandson Danton Burroughs and learned that he was suffering from Parkinson's disease. Between December 21 and 26, Ross Hogarth placed several telephone calls to Danton Burroughs in an effort to get him to pay the plaintiffs some of the Disney money. He disparaged defense counsel and according to Mr. Burroughs, predicted that "it's going to get ugly" and there will be "trouble" for Mr. Burroughs if the case were not settled. Mr. Hogarth asserts that he characterized the trial as being "ugly" and used the word "trouble" to reflect the continuing unpleasantness and the financial burden of litigation. On December 27, defense counsel confirmed in writing his adamant request that the plaintiffs discontinue telephone calls to Danton Burroughs about settlement.

  8. Plaintiffs Again Request an Adjournment of the Trial Date

  On January 18, 2002, plaintiffs requested permission to adjourn the trial and to move for summary judgment on two issues: whether the work for hire claim was time-barred, and whether 1970 Agreement and Disney License entitled the plaintiffs to a pro rata share of the Disney money. They also requested an extension of the time to submit the pre-trial order. On January 22, ERB responded at length and objected to any delay in the trial schedule because it would increase the already "punishing costs on the defendant." The Court denied the request for an adjournment of the trial but granted plaintiffs' request for a one-week extension of the date for filing the pre-trial order. Between January 25 and February 11, plaintiffs counsel sent 18 letters to defense counsel which ERB asserts were argumentative, oppressive, and intended to distract ERB from trial preparation. On February 15, the parties filed their pre-trial order documents.

  9. Eve of Trial Issues

  On February 22, plaintiffs wrote to request that they be given an opportunity following trial to provide expert testimony regarding the customs and practices of the motion picture industry on the issue of license fee allocation in the event liability was established at trial. Defense counsel pointed out that plaintiffs had long opposed bifurcation of discovery and had gotten access to the Disney License based on their representation that they needed it for expert discovery. The defendant referred again to the legal costs it was incurring.

  In response to a motion in limine filed by the defendant, the plaintiffs gave notice that they wished to call defense counsel, Mr. Zissu, as a trial witness to testify as to the nature of his representation of ERB in the 1970s and 1980s in connection with the Books, and his knowledge prior to 1982 about the contents of the original certificates of copyright registration for the Books. They argued that Mr. Zissu labored under a conflict of interest and should be disqualified from representing the defendant, or at least from having any role at trial. The defendant responded in writing to put to rest the continued assertions of plaintiffs that there was a conflict of interest regarding Mr. Zissu's representation of ERB. It asked the Court to examine in camera letters for which ERB asserted attorney-client privilege on the condition that the examination not be deemed a waiver of this privilege.

  10. Final Pretrial Conference

  A final pretrial conference was held on March 7, 2002. Pursuant to the Court's practices, the parties had submitted their trial exhibits and the affidavits constituting the direct testimony of their witnesses with their pretrial order. At the conference, a number of evidentiary issues raised by these submissions and the motions in limine were addressed. In particular, the Court ruled that very little of the two affidavits that the plaintiffs submitted from Schneck was admissible evidence. The plaintiffs were given an opportunity to submit another affidavit from Schneck in the event that they believed that he had any competent, admissible evidence to offer at trial. The plaintiffs chose not to submit a third affidavit from Schneck.

  The conference also addressed the plaintiffs' request to call Mr. Zissu as a witness and to disqualify him as trial counsel. The Court observed that the plaintiffs had not moved to disqualify Mr. Zissu, but had made the argument the week before trial in opposition to a motion in limine. It added that, if a motion had been made, there were many things "to say about the tactical nature of such a motion and about the attempts that have been on going for months to delay the date of trial by plaintiffs." The Court summarized that plaintiffs' evidentiary argument that was the basis asserted for Mr. Zissu's disqualification,*fn4 characterized it as absurd, and noted that if there had been any basis to call Mr. Zissu as a trial witness on material, disputed issues of fact, the plaintiffs would have filed the appropriate motion long before trial. The plaintiffs thereafter withdrew their request to have Mr. Zissu testify as a trial witness.

  Significantly, the plaintiffs admitted at the conference that none of the theories that they would press at trial would be based on any claim that there was a similarity between the Disney movie and the Books. With that admission, the issues regarding similarity disappeared from the case.

  11. Trial

  The trial took place on March 11. On March 15, the Court granted judgment for ERB. Hogarth, 2002 WL 398696. The Opinion found that the Books were works for hire and ruled against the plaintiffs on their copyright claim to ownership rights in the Books. It also denied the plaintiffs' contract claim. The plaintiffs appealed.

  Of importance to this motion, Schneck's trial testimony was essentially restricted to a discussion of a monetary formula under the 1970 Agreement, and Holden admitted that he had no knowledge — as between Hogarth and Burroughs — as to whom had first suggested the Book project and no knowledge concerning Hodes' involvement in the creative work on the Books.

  12. Post-trial Correspondence

  On June 6, 2002, plaintiffs served on the defendant a "Statement of Evidence When Proceedings Were Not Recorded or When a Transcript is Unavailable," pursuant to Rule 10(c), Fed.R.App. P. The document bore the caption of the case in the Second Circuit and the Court of Appeals' docket number. It was signed by Mr. Smallman. ERB prepared a response, but when it attempted to file the response in the Court of Appeals was advised that the "Statement" had never been filed with that Court. Mr. Smallman then advised defense counsel that the plaintiffs wished to make a joint application regarding the matter to the district court. ERB thereafter submitted its papers to the district court, but plaintiffs never filed their "Statement" with any court and abandoned their efforts to add the evidence to the record on appeal. 13. Plaintiffs' Financial Circumstances

  In response to an inquiry from defense counsel, plaintiffs' counsel represented in writing on March 28, 2002, that "you may be assured that plaintiffs have the ability to pay whatever costs may be properly taxable in this case, as well as an award of attorneys' fees."

  DISCUSSION

  Defendant asserts three bases for recovering costs and attorneys' fees from plaintiffs. They seek recovery under 17 U.S.C. § 505, 28 U.S.C. § 1927, and federal courts' "inherent power" to sanction counsel or litigants for bad faith conduct.

  The Copyright Act permits a court "in its discretion" to award costs, including a "reasonable attorney's fee," to the prevailing party in a copyright infringement action. 17 U.S.C. § 505 ("Section 505"). In deciding whether to award such costs and fees, courts may consider, among other factors, "frivolousness, motivation, objective unreasonableness (both in the factual and in the legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence." Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 n. 19 (1994). Such factors must be applied in a manner that is "faithful to the purposes of the Copyright Act," id., with such purposes including an interest in encouraging defendants to litigate copyright defenses "to the same extent that plaintiffs are encouraged to litigate meritorious claims of infringement." Id. at 527. Indeed, even if a losing party's claims were objectively reasonable, fees may still be awarded, Matthew Bender & Co. v. West Publ'g Co., 240 F.3d 116, 123 (2d Cir. 2001), because "bad faith in the conduct of the litigation is a valid ground for an award of fees." Id. at 125.

  If an attorney "multiplies the proceedings in any case unreasonably and vexatiously," a court may require the attorney personally to satisfy "the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct." 28 U.S.C. § 1927 ("Section 1927"). Section 1927 sanctions require "a clear showing of bad faith on the part of an attorney, and that bad faith may be inferred only if actions are so completely without merit as to require the conclusion that they must have been undertaken for some improper purpose such as delay." Salovaara v. Eckert, 222 F.3d 19, 35 (2d Cir. 2000) (citation omitted). Therefore, while the district court has discretion in awarding sanctions, it must find "clear evidence that (1) the offending party's claims were entirely without color, and (2) the claims were brought in bad faith — that is, `motivated by improper purposes such as harassment or delay.'" Eisemann v. Greene, 204 F.3d 393, 396 (2d Cir. 2000) (citation omitted). This bad faith standard has been interpreted "restrictively" by the Court of Appeals, and judges must make their decisions to impose sanctions "`with restraint and discretion.'" Id. (citation omitted).

  Courts' inherent power to control their own proceedings includes the power to impose appropriate monetary sanctions on counsel or a litigant, including the assessment of attorney's fees. Chambers v. Nasco, Inc., 501 U.S. 32, 45 (1990). Under this inherent power, "a court may assess attorney's fees when a party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons." Id. at 45-46 (citation omitted). Bad faith conduct that can be adequately sanctioned by other means (such as Fed.R. Civ. P. 11) does not usually warrant resort to the court's inherent power. Id. at 50. Resort to the court's inherent power is appropriate, however, when the challenged conduct is "entirely without color and has been asserted wantonly, for purposes of harassment or delay, or for other improper reasons." Baker v. Health Mgmt. Sys., Inc., 264 F.3d 144, 149 (2d Cir. 2001) (citation omitted). The finding of bad faith supporting the use of the court's inherent power is similar to that necessary to support sanctions under Section 1927. Id. at 37 n. 4. The assessment of attorney's fees in such cases "should not be assessed lightly or without fair notice and an opportunity for a hearing on the record." Roadway Express, Inc. v. Piper, 447 U.S. 752, 767 (1980).

  1. Withheld Correspondence and Effort To Delay Trial

  Four of the issues raised by ERB are particularly interconnected. Three issues concern the documents withheld by plaintiffs which undercut their assertion that Hogarth had initiated the Book project, and which provided substantial support for ERB's "work for hire" defense. ERB asserts that allegations in the complaint and assertions by the plaintiffs in opposition to the defendant's summary judgment motion were belied by this correspondence, and that the plaintiffs withheld the documentary evidence intentionally and in bad faith during discovery and until ordered by the Court to produce it. ERB also asserts that plaintiffs engaged in a pattern of conduct designed to increase litigation costs and to avoid or delay a trial, in the hope that ERB would be worn down and settle the case. This constellation of issues is linked to ERB's overarching charge that the lawsuit was brought and pursued in bad faith.

  The plaintiffs assert in response that ERB should have brought a motion pursuant to Rule 11, Fed.R. Civ. P., if it felt that the complaint was not supported by evidence, that the defendants had copies of this documentary evidence in their own files, that the documents were in any event produced within the discovery period, and that the plaintiffs had more than a colorable basis for concluding that Hogarth had initiated the Book project. The plaintiffs' submissions on this motion reveal that Mr. Smallman made two searches of the plaintiffs' files, one before the lawsuit was filed and one in October 2002. Although the plaintiffs have not explicitly identified the search in which Mr. Smallman recovered the four documents at issue on this motion, they appear to concede that it was before the lawsuit was initiated. They argue that they viewed these documents as helpful to them and did not believe it was necessary to refer to the documents in their pleadings or their witness' declarations. As far as their attempts to delay the trial are concerned, they observe that the trial went forward as scheduled and was held within two years of the filing of the lawsuit.

  The Court concludes that the plaintiffs had located these documents and were aware of their contents at the time they filed the lawsuit. Thus, before they filed this lawsuit, the plaintiffs had possession and through their attorney were aware of damaging documentary evidence that seriously undermined their contention that Hogarth was the author of the Books for copyright purposes. They made assertions in their opposition to the summary judgment motion and through the declarations that they drafted and submitted with that opposition that they knew to be substantially contradicted by those undisclosed documents. They did not produce those documents in their initial disclosures, although they now contend that they viewed the documents to be helpful to their case, did not produce them in response to a document request when they were clearly required to be produced, and did not properly sign their response to the document request. They produced them only after the Court ordered that they comply with the document request.

  It is unnecessary to decide whether the assertions in the Complaint, the plaintiffs' conduct of summary judgment practice, or their failure to produce the documents in their initial disclosures would warrant sanctions by itself. Their intentional withholding of these documents when they were required to be produced in response to the document request is strong evidence of bad faith and a decision to suppress, if possible, the documentary record that would undermine their claims. In addition, their misrepresentations to opposing counsel, and to this Court in their October 1, 2001 letter, regarding the completeness of their document production, warrant sanctions. As a consequence, the plaintiffs, jointly and severally with Mr. Smallman, will be required to pay the attorneys' fees and costs associated with the defendant's summary judgment reply memorandum, the depositions of the two declarants upon whom plaintiffs relied in opposing the summary judgment motion, and the correspondence and conference associated with the defendant's efforts to get compliance with its document request.

  This award is made under each of the three grounds upon which ERB brings its motion. The documents were critical to undermining the only copyright claim presented at trial: the issue of whether Hogarth was the author of the Books or whether they were works for hire. The failure to produce them in a timely fashion underscores the plaintiffs' appreciation of the documents' devastating impact on their claim, their bad faith in delaying their production, and their deliberate presentation of an incomplete and misleading picture of the relationship between Hogarth and ERB to the Court.

  The plaintiffs cannot take any solace from the fact that the defendant eventually found copies of the documents in its own records. The plaintiffs could have no confidence that they still existed in defendant's files or could be located there. It was apparent from the summary judgment practice that the defendant had not located the documents as of that time.

  The plaintiffs argue that this Court and the Court of Appeals both found that the copyright claim concerning the Books themselves was complicated and required extended analysis. That was principally true because of the way that the initial copyright registrations for the Books had been drafted. They identified Hogarth as an author, and it was therefore necessary to determine the weight to be given as a matter of law to that designation, and whether it could be rebutted by the record of the relationship. The plaintiffs recognized that their copyright claim to the Books had been substantially weakened following the disclosure of these documents, as evidenced by their search for new theories to support the litigation. While plaintiffs must feel free to bring copyright claims when those claims are based on a good faith belief in their merits, they are not free to pursue their claims through the wrongful suppression of critical evidence.

  The defendant is correct that the plaintiffs hoped to bring about a settlement in this case in order to get a share of the Disney money without having to prevail at trial. As it turned out, however, the plaintiffs' repeated requests for an adjournment of the trial date were denied and the trial took place as originally scheduled. There will be no separate award, therefore, for the plaintiffs' efforts to delay the trial. 2. Settlement Tactics

  Three of the issues raised by ERB concern settlement discussions. ERB asserts that the plaintiffs participated in settlement discussions in bad faith, that they harassed an ailing member of the Burroughs' family in order to coerce a settlement on the eve of trial, and that they inaccurately and inappropriately described the settlement discussions to the trial court. At the December 4 conference, the plaintiffs falsely asserted that they were pursuing the litigation because of their desire to vindicate Hogarth's ownership right to the Books and were not seeking money from the Disney license.

  The plaintiffs assert that they incurred over $122,000 in legal fees in resisting ERB's early summary judgment motion. In settlement discussions, they thereafter sought approximately $1.6 million from ERB because, they assert, they had confidence in their lawsuit. They contend that no sanctions can be imposed for their description of their settlement posture to the trial court, even if misleading, since they had not been given prior notice that a disclosure of settlement discussions would result in sanctions. They assert that one of them called a Hogarth heir in good faith to try to resolve the case without a trial and that the calls were not abusive.

  There are disputed issues of fact regarding the telephone calls between the Hogarth and Burroughs heirs. In the context of this already extended litigation, a hearing will not be held to resolve them, and no sanctions will be imposed for those telephone calls.

  ERB has shown that the plaintiffs made settlement demands that exceeded any amount that they could have reasonably expect to receive following trial. The only claim on which the plaintiffs had any reasonable basis to believe that they would prevail was the claim to ownership rights in the Books. Since the Books were of little or no commercial value, any damage award that would have accompanied a declaration of their ownership rights would have been de minimis. As already discussed, those ownership rights would not have given them a right to share the Disney money. The defendant, however, has not pointed to any authority that would permit an award of sanctions for an unrealistic or excessive settlement demand.

  Plaintiffs' counsel misrepresented to the Court in the December conference that the plaintiffs were only interested in vindicating Hogarth's rights to the Books and did not seek money from the Disney movie. It is undisputed that they in fact were seeking Disney money in their settlement negotiations and had made non-negotiable demands in that regard. No notice is required for counsel to be sanctioned for intentionally and knowingly providing misleading information of any kind to the Court. While sanctionable, there is no identifiable increased cost of litigation that can be attributed to this misrepresentation to the Court. It was obvious throughout the litigation that it was principally motivated by the plaintiffs' desire to get a share of the Disney money. No other reason could explain the plaintiffs' tactics and, in the circumstances, the costly litigation. Because of the other awards being made through this Opinion, no separate award is made for this misrepresentation to the Court.

  3. Copyright Claim

  ERB asserts that the plaintiffs' pleaded and pursued a copyright claim based on the movie in bad faith. The plaintiffs assert that they had a colorable basis for the claim. They point to evidence that Disney had access to Hogarth's artwork. They rely on, among other things, the facts that Hogarth taught master drawing and animation classes at Disney in 1988 (six years before the Disney License), that press accounts reflected animators' belief that Disney had animated Hogarth Tarzan work, and that Disney animators were familiar with Hogarth's Tarzan art.

  None of the plaintiffs' evidence of access addresses a critical component of a copyright claim: similarity. From the very first conference with the Court, plaintiffs had difficulty articulating the basis for any claim of similarity. The plaintiffs improperly delayed answering the defendant's interrogatories on this issue for that very reason. Ultimately, the plaintiffs abandoned the copyright claim on the eve of trial.

  ERB has shown that it is entitled under Section 505 to an award of attorney's fees and expenses for all work associated with any claim by the plaintiffs that the movie and the artwork in the Books was similar. This shall include costs associated with any discovery taken of Disney.

  4. Efforts To Disqualify Defense Counsel

  ERB asserts that plaintiffs improperly attempted to cause defense counsel's disqualification on the eve of trial. Disingenuously, plaintiffs respond that they did not seek to disqualify Mr. Zissu for a second time and on the eve of trial, but only opposed ERB's motion seeking to strike Mr. Zissu as witness at trial.

  In their opposition to ERB's motion in limine, plaintiffs explicitly sought Mr. Zissu's disqualification for a second time. As the Court observed at the final pretrial conference, if the conflict issue were legitimate, then the plaintiffs should have raised it in a timely manner and not on the eve of trial. By trying to disqualify ERB's trial counsel, plaintiffs sought in bad faith to derail the trial schedule, postpone an adverse verdict, and increase settlement pressure. The costs associated with responding to this renewed attempt to disqualify Mr. Zissu are awarded against the plaintiffs and their counsel jointly and severally.

  5. Judicial Estoppel Argument

  Plaintiffs sought to prove that ERB was judicially estopped from asserting that the Books were works for hire because of the position ERB had taken in litigation with Hodes, its former officer. Hodes had played a critical role in the creation of the Books. ERB produced dozens of cartons of documents for plaintiffs' review in California. Ultimately, the Court rejected plaintiffs' estoppel argument. See Hogarth, 2002 WL 398696, at *25.

  ERB argues that the pursuit of the issue was in bad faith since plaintiffs had the forty-six page trial court decision from the Hodes litigation clarifying that the California court had never relied on any finding that could assist the plaintiffs. Judicial estoppel requires evidence that the court in the prior litigation relied on a party's inconsistent position. See Bates v. Long Island R.R., 997 F.2d 1028, 1038 (2d Cir. 1993).

  The plaintiffs assert that they took discovery of ERB regarding the prior litigation because the California court files were not available, and because correspondence produced by ERB during discovery included Hodes' accusation that ERB had tried in that litigation to deny him his rightful credit for the Books by asserting that Hogarth had created them. The plaintiffs do not address ERB's argument that the plaintiffs should have known that a judicial estoppel argument was unavailable because they would never be able to show judicial reliance.

  ERB has not shown that it is entitled to sanctions as a result of the plaintiffs' pursuit of discovery of the Hodes litigation. ERB could have, but did not, make the argument that it does now regarding judicial reliance. Moreover, since the documentary record was so critical to understanding the events surrounding the creation of the Books, to the extent that the Hodes litigation files may have contained relevant documents from the period in which the Books were created, the plaintiffs would have been entitled to look at them.

  6. Harassment of Defense Counsel

  ERB contends that plaintiffs' counsel engaged in a campaign to interfere with defense counsel preparing for trial through a barrage of demands and correspondence at a critical period. The plaintiffs assert that ERB is ignoring "the realities of modern litigation" and should not expect to have the luxury of cloistering himself to prepare for trial. Because ERB has not identified any particular issues that were raised in bad faith through this correspondence, no award will be made for the expenses associated with responding to the letters.

  7. Post-verdict Motion To Correct the Record

  ERB moves for sanctions for the expense it incurred in responding to a motion that was served on it but never filed with the Court. The plaintiffs assert that they decided not to file their motion because there were irreconcilable differences in recollection as to whether their original counsel had admitted to the Court at an early phase of the litigation that but for the Disney money, the plaintiffs would not have sued, and they decided against having the Court resolve the dispute. The plaintiffs further assert that they were simply following the procedure set forth in Rule 10(c), Fed.R. App. P., and that there is no basis for any sanction. Rule 10(c) provides:

If the transcript of a hearing or trial is unavailable, the appellant may prepare a statement of the evidence or proceedings from the best available means, including the appellant's recollection. The statement must be served on the appellee, who may serve objections or proposed amendments within 10 days after being served. The statement and any objections or proposed amendments must then be submitted to the district court for settlement and approval. As settled and approved, the statement must be included by the district court in the record on appeal.
Rule 10(c), Fed.R. App. P.

  It is undisputed that the document served upon ERB bore the Second Circuit's caption and was signed by Mr. Smallman. It was unaccompanied by any cover letter or other statement that would advise ERB that it hadn't yet been filed with the Court of Appeals and that it was merely being served to see if defense counsel would agree to supplement the record with the facts it presented. In these circumstances, ERB not unreasonably assumed that the document had been filed and that it had no choice but to prepare and file a response. Only upon attempting to file the document did ERB learn that the plaintiffs' motion had never been filed.

   Sanctions shall be awarded against the plaintiffs and Mr. Smallman, jointly and severally, for the expense and cost ERB incurred in responding to this served but never filed post-verdict motion. A simple cover letter or telephone call from the plaintiffs would have been enough to explain that the document had not yet been filed and that it was intended to open discussion among the parties. Having served a document which any attorney would have reasonably understood to be a court filing, ERB is entitled to the costs and fees associated with preparing and filing a response.

   8. Bill of Costs

   On April 2, 2004, ERB submitted a bill of costs ("Bill of Costs"), pursuant to Rule 54(d)(1), Fed.R. Civ. P., and S.D.N.Y. Local Civil Rule 54.1, requesting $3,604.09. Plaintiffs objected; ERB filed a reply, and plaintiffs filed a sur-reply. Plaintiffs assert that ERB's Bill of Costs should be rejected because the Second Circuit denied costs on appeal.

   Rule 54(d)(1) provides that "costs . . . shall be allowed as of course to the prevailing party." Rule 54(d)(1), Fed.R. Civ. P. It is well settled that the award of costs to the prevailing party is the rule, not the exception. See, e.g., Whitfield v. Scully, 241 F.3d 264, 270 (2d Cir. 2001). The losing party bears the burden of showing why costs should not be awarded. Id. An award of costs may be withheld if the prevailing party engaged in misconduct, the case is one of public importance, the issues were particularly difficult, or the party who would pay the costs is indigent. Id.

   Plaintiffs fail to show that an award of costs to ERB is inequitable or otherwise unwarranted. While plaintiffs point to mistakes made by publisher Watson-Guptill in its copyright applications filed almost thirty years before this litigation ensued, the plaintiffs have not pointed to any misconduct by ERB in this litigation. As outlined above, the plaintiffs have themselves engaged in misconduct. The plaintiffs have not shown that there is any reason to find an exception to the ordinary rule that they must pay costs.

   The Second Circuit's decision not to award costs on appeal is an independent decision that does not control a ruling on an application for a bill of costs arising from proceedings before the district court. The Court of Appeals grappled with a complex legal issue that would not have existed if the copyright filings had been done more carefully. This Court presided over two years of litigation that resulted in a complete victory for ERB. While the copyright filings presented an opportunity for the plaintiffs to craft a legal argument, it was not their only legal argument. Indeed, because the litigation was driven by their desire to obtain part of the Disney money, and because there was also a contract claim that was independent of the copyright claim, the litigation before the district court could have existed irrespective of the contents of the copyright filings. It is not surprising, therefore, that a decision in this case on costs incurred before the appellate court is not identical to a decision on costs incurred before the trial court. ERB's Bill of Costs is granted, as calculated by the Judgment Clerk. CONCLUSION

   ERB's motion for sanctions is granted in part. Its motion for a bill of costs is granted. ERB shall submit a calculation of its claim for an award based on the rulings in this Opinion within two weeks, with supporting documentation. The plaintiffs shall have two weeks to respond regarding the calculation of the amounts requested.

   SO ORDERED.


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