United States District Court, S.D. New York
November 21, 2005.
KENNETH JAY LANE, INC. Plaintiff,
HEAVENLY APPAREL, INC., Defendant.
The opinion of the court was delivered by: KEVIN FOX, Magistrate Judge
REPORT AND RECOMMENDATION
TO THE HONORABLE GEORGE B. DANIELS, UNITED STATES DISTRICT
Plaintiff, Kenneth Jay Lane, Inc. ("KJL") brought this action
against Heavenly Apparel, Inc. ("Heavenly") to recover damages
for: (i) trademark infringement in violation of the Lanham Act,
15 U.S.C. § 1051 et seq.; (ii) unfair competition in violation
of federal law; (iii) common law unfair competition, in violation
of the laws of the United States and the state of New York; and
(iv) breach of the parties' license agreement ("License
Upon Heavenly's failure to file an answer or otherwise respond
to the complaint, your Honor ordered that a default judgment be
entered against it. Thereafter, your Honor referred the matter to
the undersigned to conduct an inquest and to report and recommend
the amount of damages, if any, to be awarded against the
The Court directed KJL to serve and file proposed findings of
fact and conclusions of law, and an inquest memorandum setting
forth its proof of damages, costs of this action, and its attorneys' fees. The Court also directed the defendant to serve
and file any opposing memoranda, affidavits and exhibits, as well
as any alternative findings of fact and conclusions of law it
deemed appropriate. The defendant did not file anything in
opposition to KJL's submissions.
KJL's submissions aver that it is entitled to recover: $331,250
for damages it suffered as a result of the defendant's breach of
the License Agreement; $48,517.22 in interest; and $17,151.37 for
attorneys' fees and costs. In addition, the plaintiff requests
statutory damages of not more than $3,000,000, due to the
defendant's willful infringement of the plaintiff's trademarks.
When a defendant, like Heavenly, defaults in an action, by
failing to plead or otherwise defend against a complaint, the
defendant is deemed to have admitted every well-pleaded
allegation of the complaint except those relating to damages.
See Cotton v. Slone, 4 F.3d 176, 181 (2d Cir. 1993);
Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp.,
973 F.2d 155, 158 (2d Cir. 1992). In addition, the plaintiff is entitled
to all reasonable inferences from the evidence presented. See
Au Bon Pain Corp. v. Artect, Inc., et al., 653 F.2d 61, 65 (2d
Cir. 1981). Based upon the submissions made by the plaintiff, the
complaint filed in the instant action, and the Court's review of
the entire court file in this action, the following findings of
fact are made:
KJL designs women's clothing and accessories. Clothing and
accessories bearing the plaintiff's tradenames and trademarks are
sold in the United States and abroad under license. In the
instant case, the parties entered into the License Agreement on
or about February 19, 2002. Based on that agreement, the
defendant was permitted to use certain KJL trademarks and tradenames ("licensed material"),*fn1 during the period
February 19, 2002, through June 30, 2005. In return, Heavenly was
required to make quarterly royalty payments to the plaintiff, as
described below. If Heavenly failed to meet its obligations under
the License Agreement, KJL had the right to terminate the
The License Agreement includes the following relevant
provisions: (1) Heavenly agrees to pay a royalty of the greater
of 5% of its net sales of products using the licensed material,
or guaranteed minimum fees of $75,000 for the first year,
$125,000 for the second year, and $150,000 for the third
year;*fn2 (2) if Heavenly fails to make royalty payments as
due, KJL has the right to terminate the License Agreement, and
pursuant to an acceleration clause, receive all past due royalty
payments and all royalty payments that would become due during
the entire term of the License Agreement; (3) upon default, KJL
may terminate the License Agreement thirty days after notifying
Heavenly of the default, should Heavenly fail to cure the
default; (4) upon termination of the License Agreement, Heavenly
is required to discontinue using the licensed material and return
all licensed material to KJL; and (5) if Heavenly breaches the
License Agreement, Heavenly is required to pay KJL interest on
the amount of royalties due, and to pay KJL's legal fees and KJL's expenses.
On October 1, 2002, the defendant failed to pay KJL $18,750,
the minimum guaranteed royalty fee due to the plaintiff. The
plaintiff notified the defendant of its default on December 6,
2002, and allowed the defendant thirty days to cure the default.
After the defendant failed to cure the default, the plaintiff
terminated the License Agreement on January 6, 2003.
By failing to make the past due royalty payment, or to make any
other payments that became due to KJL as a result of Heavenly's
default, the defendant breached its contract with KJL. The
defendant also breached the parties' License Agreement by: 1)
failing to provide an accounting to KJL, as required by the
parties' agreement; and 2) failing to return to KJL the licensed
material upon the termination of the parties' agreement.
According to KJL, the defendant continues to use the licensed
marks and represents that its use of such marks is authorized by
III. CONCLUSIONS OF LAW
A default judgment in an action establishes liability, but is
not a concession of damages. See Cappetta v. Lippman,
913 F. Supp. 302, 304 (S.D.N.Y. 1996) (citing Flaks v. Koegel,
504 F.2d 702, 707 [2d Cir. 1974]). Damages must be established by the
plaintiff in a post-default inquest. See id. In conducting an
inquest, the court need not hold a hearing "as long as it [has]
ensured that there was a basis for the damages specified in the
default judgment." Transatlantic Marine Claims Agency, Inc. v.
Ace Shipping Corp., 109 F.3d 105, 111 (2d Cir. 1997). The court
may rely on affidavits or documentary evidence in evaluating the
fairness of the sum requested. See Tamarin v. Adam Caterers,
Inc., 13 F.3d 51, 54 (2d Cir. 1993). KJL seeks damages, costs and attorneys' fees from Heavenly for:
(i) breaching the parties' License Agreement; and (ii) violating
federal trademark law and federal and state unfair competition
1. Breach of Contract Claim Under New York Law
The proper measure of damages for breach of contract is the
amount necessary to put the plaintiff in as good a position as he
would have been if the defendant had not breached the contract.
See Western Geophysical Co. of America, Inc. v. Bolt Assoc.,
Inc. 584 F.2d 1164, 1172 (2d Cir. 1978); Goodstein Constr.
Corp. v. City of New York, 80 N.Y.2d 366, 373, 590 N.Y.S.2d 425,
The plaintiff's complaint and inquest submissions establish
that the parties entered into the License Agreement on or about
February 19, 2002. That agreement permitted the defendant to use
certain KJL trademarks; in return, the defendant was required to
make quarterly royalty payments to the plaintiff. On October 1,
2002, the defendant failed to pay $18,750 that was due to the
plaintiff under the terms of the parties' agreement. The
defendant's failure to pay the plaintiff this sum constituted a
default of the License Agreement. KJL notified the defendant of
its default and waited the requisite period of time, provided for
in the parties' License Agreement, for the defendant to cure the
default. The default was not cured. As a result of the
defendant's failure to cure its breach of the License Agreement,
the plaintiff is entitled to recover the past due payment of
$18,750. Furthermore, under the terms of the parties' License
Agreement, the defendant agreed that, upon a default, it would
pay, in an accelerated fashion, all royalty payments due under the License Agreement. Therefore, KJL
is entitled to an award of $312,500 in addition to the amount
noted above. This amount represents the minimum amount of royalty
payments to which KJL would have been entitled during the entire
term of the parties' contract. In sum, the plaintiff is entitled
to damages of $331,250 on its breach of contract claim.
A. Attorney's Fees, Costs, and Interest
"Under the general rule in New York, `attorneys' fees are
incidents of litigation and a prevailing party may not collect
them from the losing party unless such an award is authorized by
agreement between the parties, statute or court rule.'" Bonnie &
Co. Fashions v. Bankers Trust Co., 955 F.Supp. 203, 217
(S.D.N.Y. 1997) (quoting Bourne Co. v. MPL Communications,
Inc., 751 F.Supp. 55, 57 [S.D.N.Y. 1990]). However, "the intent
to provide for counsel fees [by agreement between the parties] as
damages for breach of contract must be `unmistakably clear' in
the language of the contract." Id. (alteration in original)
(citing Bridgestone/Firestone, Inc. v. Recovery Credit Svcs.,
Inc., 98 F.3d 13, 20-21 [2d Cir. 1996]).
In the instant case, the plaintiff is entitled to attorneys'
fees and costs because the express language of the contract
between KJL and Heavenly places this obligation on the defendant
clearly and unmistakably, in the event of a breach of the
contract by Heavenly. The License Agreement states in pertinent
Licensor shall have and hereby reserves all the
rights and remedies which it has, or which are
granted to it by operation of law, with respect to
the collection of fees payable by the Licensor
pursuant to this Agreement, with respect to damages
for breach of this Agreement by Licensee, with
respect to the recovery from Licensee of all costs
incurred by Licensor as a result of any breach of
this Agreement by Licensee, including without
limitation all legal fees. . . .
License Agreement ¶ 11 (e). A party seeking an award of attorneys' fees must support the
request with contemporaneous time records that show, "for each
attorney, the date, the hours expended, and the nature of the
work done." New York State Ass'n for Retarded Children, Inc. v.
Carey, 711 F.2d 1136
, 1154 (2d Cir. 1983). Attorney fee
applications that do not contain such supporting data "should
normally be disallowed." Id. at 1154.
Although, KJL is entitled to attorneys' fees by virtue of the
express language of the License Agreement, KJL failed to provide
the Court with any basis for determining the reasonableness of
the attorneys' fees it seeks. In particular, KJL failed to
provide the Court with contemporaneous time records, showing for
each attorney, the date, the hours expended, and the nature of
work that was performed for KJL in connection with this action.
See New York State Ass'n for Retarded Children, Inc.,
711 F.2d at 1154. Therefore, no award to KJL of its attorneys' fees
is warranted. KJL also failed to identify its costs with
particularity. Therefore, the Court is unable to determine
whether the costs it incurred were reasonable. Consequently, no
award to KJL for its costs is warranted.
KJL has requested an award of prejudgment interest on the
amount of unpaid royalties it seeks. KJL contends that
prejudgment interest should be calculated from January 6, 2003,
at an annual rate of 9%, pursuant to New York's Civil Practice
Law and Rules ("CPLR") § 5004. CPLR § 5001 (a) provides that
interest shall be granted on damages resulting from a breach of
contract, and CPLR § 5004 fixes the rate at which that interest
is to be calculated on an annual basis. Therefore, the plaintiff
is entitled to prejudgment interest, at the statutory rate of 9%
per year, calculated from January 6, 2003. The plaintiff has also requested an award of postjudgment
interest. 28 U.S.C. § 1961 informs that "interest shall be
allowed on any money judgment in a civil case recovered in a
district court." 28 U.S.C. § 1961(a). Interest is calculated from
the date of the entry of judgment, at a rate equal to the weekly
average one-year constant maturity Treasury yield, as published
by the Board of Governors of the Federal Reserve System, for the
calendar week proceeding the date of the judgment. Id.
Therefore, KJL is entitled to postjudgment interest, at the rate
prescribed by statute, calculated from May 3, 2004, the date the
default judgment was entered.
2. Claims Under the Lanham Act
Under the Lanham Act, a prevailing plaintiff in an action such
as the one at bar, is generally entitled to recover: (1) the
defendant's profits; (2) any damages sustained by the plaintiff;
and (3) the costs of the action. See 15 U.S.C. § 1117.
KJL seeks damages for trademark infringement under
15 U.S.C. § 1114. In its most pertinent part, the statute provides that:
Any person who shall, without the consent of the
registrant (a) use in commerce any reproduction,
counterfeit . . . of a registered mark in connection
with the sale, offering for sale, distribution, or
advertising of any goods or services on or in
connection with which such use is likely to cause
confusion, or to cause mistake, or to deceive . . .
shall be liable in a civil action by the registrant
for the remedies hereinafter provided.
15 U.S.C. 1114(1)(a).
KJL also seeks damages for unfair competition under
15 U.S.C. § 1125. That statute provides, in relevant part, the following:
Any person who, on or in connection with any goods or
services . . . uses in commerce any word, term, name,
symbol, or device, or any combination thereof, or any
false designation of origin, false or misleading
description of fact, or false or misleading
representation of fact, which (A) is likely to
cause confusion, or to cause mistake, or to deceive as to the affiliation,
connection, or association of such person with
another person, or as to the origin, sponsorship, or
approval of his or her goods, services, or commercial
activities by another person, or (B) in commercial
advertising or promotion, misrepresents the nature,
characteristics, qualities, or geographic origin of
his or her or another person's goods, services, or
commercial activities, shall be liable in a civil
action by any person who believes that he or she is
or is likely to be damaged by such act.
15 U.S.C. § 1125(a).
The plaintiff requests, pursuant to 15 U.S.C. § 1117, that the
court award up to $1,000,000 for each of the three marks used
improperly by the defendant. KJL seeks an award of this magnitude
because it contends that Heavenly violated the trademark law
willfully. 15 U.S.C. § 1117 allows a plaintiff to elect to
recover statutory damages for infringing conduct when an
infringer's profits and actual damages are uncertain.
15 U.S.C. § 1117 provides, in pertinent part, the following:
In a case involving the use of a counterfeit mark . . .
the plaintiff may elect, at any time before final
judgment is rendered by the trial court, to recover,
instead of actual damages and profits under
subsection (a) of this section, an award of statutory
damages . . . in the amount of (1) not less than $500
or more than $100,000 per counterfeit mark per type
of goods or services sold, offered for sale, or
distributed, as the court considers just; or (2) if
the court finds that the use of the counterfeit mark
was willful, not more than $1,000,000 per counterfeit
mark. . . .
15 U.S.C. § 1117(c).
In crafting the statutory damages provision of the Lanham Act
noted above, Congress took into account that oftentimes,
"counterfeiters' records are nonexistent, inadequate or
deceptively kept in order to willfully deflate the level of
counterfeiting activity actually engaged in, making proving
actual damages in these cases extremely difficult if not
impossible." Polo Ralph Lauren, L.P. v. 3M Trading Co., Inc.,
No. 97 Civ. 4824, 1999 WL 33740332, at *4 (S.D.N.Y. April 19, 1999) (citation omitted); see also Sara
Lee Corp. v. Bags of New York, Inc., 36 F. Supp. 2d 161, 165
(S.D.N.Y. 1999) ("Statutory damages are most appropriate when
infringer nondisclosure during fact finding leaves damages
15 U.S.C. § 1117(c) "does not provide guidelines for courts to
use in determining an appropriate award, as it is only limited by
what the court considers just." Gucci Am., Inc. v. Duty Free
Apparel, Ltd., 315 F. Supp. 2d 511, 520 (S.D.N.Y. 2004)
(internal quotation marks omitted). However, courts have looked
to an analogous provision of the Copyright Act,
17 U.S.C. § 504(c), through which statutory damages for willful infringement
may be awarded, for assistance in determining what factors should
inform an award of statutory damages pursuant to
15 U.S.C. § 1117(c). Those factors include:
(1) the expenses saved and the profits reaped; (2)
the revenues lost by the plaintiff;
(3) the value of the copyright; (4) the deterrent
effect on others besides the defendant; (5) whether
the defendant's conduct was innocent or willful; (6)
whether a defendant has cooperated in providing
particular records from which to assess the value of
the infringing material produced; and (7) the
potential for discouraging the defendant. See
Gucci, 315 F. Supp. 2d at 520 (citing Fitzgerald
Pub. Co., Inc. v. Baylor Pub. Co., 807 F.2d 1110,
1117 [2d Cir. 1986] (internal quotation marks
In the case at bar, Heavenly's willfulness, in violating the
trademark law, is established by virtue of its default in this
action. See Tiffany (NJ) Inc. v. Luban, 282 F. Supp. 2d 123,
124 (S.D.N.Y. 2003). In considering the various factors noted
above, the Court has remained mindful of the fact that, in
determining an appropriate amount of statutory damages, a court
must strive to ensure that the amount fixed will act as a
specific deterrent to the defendant(s) before the court and as a
general deterrent to others who might consider engaging in
infringing conduct in the future. The plaintiff contends that
these aims will best be achieved by an award to it of statutory damages that approaches the maximum amount permitted by
15 U.S.C. § 1117(c), $1,000,000 per mark infringed. However, KJL
has not provided the Court with any information about Heavenly's
business, the market in which Heavenly sold or is continuing to
sell the counterfeit products, or any estimate of the volume of
products bearing the plaintiff's marks sold by the defendant.
Without information of this type, the Court cannot conclude that
an award of statutory damages at or near the maximum permitted by
law is reasonable, appropriate and just. In the circumstance of
this case, the Court finds that an award of statutory damages of
$125,000 per infringed mark will impress upon Heavenly that there
are consequences for its misconduct. In addition, statutory
damages of this amount will serve as a specific deterrent to
Heavenly and as a general deterrent to others who might
contemplate engaging in infringing behavior in the future.
KJL has requested that the court award it the attorneys' fees
it incurred in prosecuting this infringement action. In
"exceptional cases," reasonable attorneys' fees may be awarded to
a successful plaintiff in an action brought pursuant to the
Lanham Act. See 15 U.S.C. § 1117(a). An exceptional case is one
in which there is evidence of fraud, bad faith or willful
infringement. See Twin Peaks Productions, Inc. v. Publications
Int'l, Ltd., 996 F.2d 1366, 1383 (2d Cir. 1993); Sara Lee
Corp., 36 F. Supp. 2d at 170. As noted above, the defendant's
infringement has been deemed willful by virtue of its default in
this action. Therefore, the Court finds that an award to KJL of
reasonable attorneys' fees is warranted. However, as discussed
earlier in this writing, the plaintiff has not provided the Court
with sufficient information concerning its attorneys' fees, so
that the Court might determine the reasonableness of the
attorneys' fees KJL incurred. See New York State Ass'n for
Retarded Children, Inc., 711 F.2d at 1154. In circumstances
where the requisite data concerning attorneys' fees have not been
provided to a court, an award of attorneys' fees is not appropriate.
For the reasons set forth above, the Court recommends that KJL
be awarded: (a) $331,250 in damages for breach of contract, along
with prejudgment interest calculated by the Clerk of Court at the
rate of 9% per year, from January 6, 2003; and (b) $375,000 in
statutory damages for trademark infringement. The plaintiff
should also receive postjudgment interest, calculated by the
Clerk of Court from May 3, 2004, in accordance with
28 U.S.C. § 1961.
The plaintiff shall serve Heavenly with a copy of this Report
and Recommendation, and submit proof of service to the court.
V. FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal
Rules of Civil Procedure, the parties have ten (10) days from
service of the Report to file written objections. See also
Fed.R.Civ.P. 6. Such objections, and any responses to
objections, shall be filed with the Clerk of Court, with courtesy
copies delivered to the chambers of the Honorable George B.
Daniels, United States District Judge, 40 Centre Street, Room
410, New York, New York 10007, and to the chambers of the
undersigned, 40 Centre Street, Room 540, New York, New York
10007. Any requests for an extension of time for filing
objections must be directed to Judge Daniels. FAILURE TO FILE
OBJECTIONS WITHIN TEN (10) DAYS WILL RESULT IN A WAIVER OF
OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See Thomas v.
Arn, 474 U.S. 140 (1985); IUE AFL-CIO Pension Fund v.
Herrmann, 9 F.3d 1049, 1054 (2d Cir. 1993); Frank v. Johnson, 968 F.2d 298, 300 (2d Cir. 1992); Wesolek v.
Candair Ltd., 838 F.2d 55, 57-59 (2d Cir. 1998); McCarthy v.
Manson, 714 F.2d 234, 237-38 (2d Cir. 1983).
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