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KENNETH JAY LANE, INC. v. HEAVENLY APPAREL INC.

November 21, 2005.

KENNETH JAY LANE, INC. Plaintiff,
v.
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 JUDGE

I. INTRODUCTION

  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 Agreement").

  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 defendant.

  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.

  II. BACKGROUND

  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 agreement.

  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 ...


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