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Z-INTERNATIONAL, INC. v. Z LINE INTERNATIONAL

July 6, 2005.

Z-INTERNATIONAL, INC., Plaintiff,
v.
Z LINE INTERNATIONAL, INC., and EPHRAIM YUROWITZ, Defendants.



The opinion of the court was delivered by: HAROLD BAER, JR., District Judge

OPINION & ORDER

Before the Court are two contempt motions that stem from a Judgment and Order issued from this Court. For the reasons stated below, both Motions are GRANTED.

I. BACKGROUND

  On October 29, 2002, Plaintiff Z-International, Inc. ("Z-International"), filed a Summons and Complaint against Defendants Z Line International, Inc. ("Z Line") and Ephraim Yurowitz ("Yurowitz") (collectively the "Defendants") for trademark infringement of the "Z-Line" mark on various school and office supplies. The Defendants failed to answer the Complaint and a Default Judgment was entered on April 11, 2003 ("Default Judgment"). On October 24, 2003, Plaintiff filed a contempt motion based upon the Defendants' failure to comply with the Default Judgment. At that point the parties came together in my chambers and after much discussion entered into settlement negotiations. Eventually I issued a Post-Mediation Order of Discontinuance ("Post-Mediation Order") on March 24, 2004 that provided: (i) Defendants pay Plaintiff the sum of $10,000 over a period of one year in monthly and equal installments of $833.33 starting April 1, 2004; (ii) those monthly payments were subject to an acceleration clause; (iii) Defendants execute a Confession of Judgment for the full $10,000; (iv) that Plaintiff receive one-time access to Defendants' books and records; and (v) any violation of the agreed upon injunction prohibiting the use of Plaintiff's mark (Z-Line) or confusingly similar marks articulated in the Default Judgment might result in further sanctions for contempt. The $10,000 sum was reached because Defendant Yurowitz claimed that neither he nor his company had any money and the access to the books and records was included to confirm that fact.

  The Defendants paid the first installment of $833.33, but failed to pay the remaining installments as they became due, failed to execute a Confession of Judgment for the full $10,000, and also failed to allow Plaintiff access to Defendants' books and records. As a consequence, a Judgment was entered on the Post-Mediation Order on July 21, 2004. The Judgment provided that: (i) Defendants pay to Plaintiff the sum of $9,166.67; and (ii) that Defendants allow the Plaintiff a one-time access to Defendants' books and records for inspection, no later than August 13, 2004. Defendants did pay Plaintiff the sum of $9,166.67 and Plaintiff provided a Satisfaction of Judgment which was docketed on February 16, 2005.

  Plaintiff hired Elan Ben-Avi ("Ben-Avi"), a financial consultant with the firm of Getzler Henrich & Associates LLC, to conduct an inspection of Defendants' books and records. (Ben-Avi Aff. at ¶¶ 1, 4.) Ben-Avi contacted Yurowitz and the parties agreed to an extension of time to conduct the inspection on August 24, 2004. (Ben-Avi Aff. at ¶ 8.) On August 23, 2004 Ben-Avi sent a list of documents for Defendants to produce during the inspection that included personal and business tax returns, bank statements, cleared checks, group structure of all business entities for which Defendants have an interest, etc. (Ben-Avi Aff. at ¶ 9.) The inspection did not take place until November 18, 2004 at the offices of Defendants' counsel during which the only documents Defendants produced were bank statements for three business checking accounts. (Ben-Avi Aff. at ¶ 19.) Yurowitz claims that these are the only documents he had that pertain to the business.

  On December 19, 2004, Plaintiff's counsel, Roberto L. Gomez, purchased school supplies at Duane Reade and at National Wholesale Liquidators ("NWL") which bear the name "COLOR ART BY Z Line" and the notice "Made in China for Z Line HK Monsey, N.Y. 10952." (Gomez Decl. at ¶¶ 19, 20, Ex. O, P, Q, R.) Counsel for NWL advised Plaintiff that NWL purchased the school supplies bearing the name "COLOR ART BY Z Line" from Defendant Z Line. (Gomez Decl. at ¶ 21, Ex. S.) Subsequently, Plaintiff filed two contempt motions. The first motion, based upon Defendants' violations of the injunction, was served by mail on Defendants' counsel on February 4, 2005. The second motion, based upon Defendants' failure to follow the Court's orders regarding the inspection of their books and records was validly served on Yurowitz' wife, as agent of the corporation and co-resident with Yurowitz, at his home on March 4, 2005.

  On February 18, 2005, this Court allowed Defendants' counsel to withdraw and the Court instructed Yurowitz to obtain new counsel. Instead of securing counsel, Yurowitz submitted several letters to the Court that requested a conference and claimed that because of financial problems, Yurowitz could not afford an attorney so he would answer the contempt motions himself. (Yurowitz Letters dated March 9, 22, 31, and April 4, 2005.) The letters also stated that it was his manufacturers fault that some of the products still contained the Z Line logo, which in any case he did not believe would cause confusion with the Z-Line logo. He also argued that no products now manufactured would bear the Z-Line logo.

  On May 10, 2005 the Court sent a letter to Yurowitz to inform him that although he as an individual could proceed pro se, his corporation, Z Line International, also a named defendant in this suit, could not. The Court declined to hold a conference but gave Yurowitz additional time, until June 10, 2005, to secure counsel on behalf of his company to oppose the contempt motions or be subject to default. On June 1, 2005 the Court received another letter from Yurowitz that claimed he was unable to secure counsel for his company and again asked the Court to allow him to appear on its behalf. On June 7, 2005 the Court responded by letter and again instructed Yurowitz that if he did not obtain counsel a default judgment would be entered against his company and based on all the papers received, it was likely the motions for contempt would be granted against him personally. On June 10, 2005 the Court received a letter from Yurowitz that stated he had not secured counsel and stood by his prior letters to describe his own defense to the contempt motions.

  II. DISCUSSION

  A. Z Line Default

  It is generally accepted that a corporation cannot appear or be permitted to conduct litigation unless represented by counsel because they are artificial entities that can only act through licensed agents. See Rowland v. California Men's Colony, Unit II Men's Advisory, 506 U.S. 194, 201 (1993). Failure to secure counsel will subject defendants to a default judgment against it. Dow Chemical Pacific, Ltd. v. Rascator Maritime, S.A., 782 F.2d 329, 336 (2d Cir. 1986) (holding that where a corporation fails to comply with the court's direction to secure counsel, entry of default against the party is appropriate).

  Yurowitz argues that there are exceptions to this rule when, as here, the corporation shares its identity with its sole shareholder, but unfortunately none apply in this situation. His company is not in bankruptcy court and financial disability is not a recognized excuse in civil litigation. See, e.g., Brown v. Beyer, Inc. et al., 1998 U.S. Dist. LEXIS 19556 (S.D.N.Y. Dec. 11, 1998) (The magistrate judge recommended a default judgment be entered against a defendant who claimed he could not secure counsel because he lacked the money.). To date Yurowitz has not retained counsel to represent ...


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