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Malletier v. Barami Enterprises

February 14, 2006

LOUIS VUITTON MALLETIER, CELINE S.A., CELINE INC., EMILIO PUCCI S.R.L., AND EMILIO PUCCI INTERNATIONAL B.V., PLAINTIFFS,
v.
BARAMI ENTERPRISES, INC., RODEM, INC., HUI SOON CHOI, BEST PLAN INTERNATIONAL, LTD., NEWCOME TRADING, INC. D/B/A TOSCA, TIEN CHEUNG HONG TEXTILES LTD., VISION APPAREL, LLC, BARHAM HAKAKIAN, JANE DOE A/K/A MRS. HAKAKIAN, AND JOHN DOES 1-10, DEFENDANTS.



The opinion of the court was delivered by: Gabriel W. Gorenstein, United States Magistrate Judge

REPORT AND RECOMMENDATION

Luis Vuitton Malletier, et al., brought this action for (a) counterfeiting, trade dress and trademark infringement, and unfair competition in violation of the Lanham Act, 15 U.S.C. § 1051 et seq.; (b) trademark infringement and unfair competition under New York General Business Law §§ 360-1 and 349; (c) patent infringement under 35 U.S.C. § 271; and (d) copyright infringement in violation of the Copyright Act, 17 U.S.C. § 501. Plaintiffs have moved for a default judgment and inquest pursuant to Fed. R. Civ. P. 55(c). Defendants Barham Hakakian and his wife Mehrnaz Hakakian ("the Hakakians") oppose the motion for a default judgment, move to set aside the default pursuant to Fed. R. Civ. P. 55(c), or, in the alternative, move to vacate pursuant to Fed. R. Civ. P. 60(b) any default judgment that may have been entered. For the following reasons, the Hakakians' motion should be treated as a motion to set aside an entry of default under Fed. R. Civ. P. 55(c) and granted.

I. BACKGROUND

On February 23, 2004, plaintiffs filed the original complaint in this action, which named Barami Enterprises, Inc. ("Barami"), and other individuals and entities as defendants, though not the Hakakians. See Complaint and Jury Demand, filed Feb. 23, 2004 (Docket #1) ("Compl."). Barami is a New York corporation, which allegedly has not engaged in any active business since 2002. See Declaration of Kenneth R. Schachter in Support of Cross Motion ("Schachter Decl.") (annexed to Notice of Cross Motion, filed Nov. 11, 2005 (Docket #36) ("Cross Mot.")), ¶ 4. Mehrnaz Hakakian is a principal and officer in International Fashion Concepts, Inc. ("IFC"), a New York corporation that owns and operates a chain of women's apparel stores under the name Barami, which is a trademark that is owned by her husband, Barham Hakakian. Id. ¶ 6.

Plaintiffs sought and obtained an Order to Show Cause, which was signed by the Court on February 24, 2004. See Affidavit of Theodore C. Max in Further Support of Application for Default Judgment, filed Nov. 29, 2005 (Docket #42) ("Max Aff."), ¶ 6. The Order to Show Cause provided that Barami was to respond to plaintiffs' application for a temporary restraining order on or before February 26, 2004. See Order to Show Cause Bringing on Motion for Preliminary Injunction and Early Discovery, and Temporary Restraining Order, filed Feb. 25, 2004 (Docket #3), at 6. The defendants were temporarily enjoined from violating plaintiffs' rights under various laws, including trademark laws, and from destroying any business records or relevant evidence. Id. at 5. Upon learning of the lawsuit, Barham Hakakian contacted plaintiffs' counsel and advised him that there was only a small amount of goods involved, that Barami stores had ceased sales of the accused goods, that the accused merchandise at issue would be removed from the Barami stores, and that the accused merchandise at issue would not be sold in the future. See Schachter Decl. ¶ 4. Although Barami did not appear at the hearing on the Order to Show Cause, Barham Hakakian stipulated on behalf of Barami that Barami consented to the temporary restraining order being converted into a preliminary injunction "on the same terms and conditions, until the final trial on the merits." See Stipulation and Order, filed Feb. 27, 2004 (Docket #6); Max Aff. ¶ 7. The TRO was then converted into a preliminary injunction. Id. For the next several months, there were no filings or orders in the case. It is unclear whether any discussions occurred among the defendants, the Hakakians, or plaintiffs' counsel during that time.

In letters dated September 21 and 30, 2004, plaintiffs' counsel demanded that Barami cease and desist from any further infringing behavior. See Schachter Decl. ¶ 5. Upon receiving the cease and desist letters, the Hakakians claim they caused IFC to give instructions to its store managers to stop selling any additional merchandise that was allegedly infringing, and to return any such merchandise to IFC's suppliers to be destroyed. Id. ¶ 8. Barham Hakakian allegedly conducted an internal investigation to determine the quantity of the accused goods that had been sold and found that "between May 10 and May 18, 2004, IFC had purchased 120 accused dresses from its supplier," returned 117 dresses to its supplier, and 3 dresses were "sold for an aggregate of $480." Id.

After the investigation, Barham Hakakian was of the view that because the subject matter of the case involved a small amount of infringing goods, the Hakakians would minimize the cost and expense of litigation by retaining Kenneth Schachter as counsel "for the sole and narrow purpose of negotiating a settlement with plaintiffs." Schachter Decl. ¶ 11. On or about November 2, 2004, plaintiffs served discovery on Barami. Max Aff. ¶ 11. On November 29, 2004, Schachter initiated a telephone conversation with Theodore C. Max, plaintiffs' attorney, and advised Max that Barami was out of business, that IFC operated the Barami stores, and that IFC would be prepared to enter into an agreement enjoining the defendants from any future sale of the accused products and disgorge any profits earned from the allegedly infringing sales. Schachter Decl. ¶ 11. Schachter also promised to provide Max with documents relevant to plaintiffs' claims. Id. On December 3, 2004, Schachter sent a letter to Max providing sales documents relating to the accused products, and indicated the Hakakians' willingness to settle. Id. ¶ 12; Letter from Schachter to Max re: Barami, dated Dec. 3, 2004 (reproduced as Ex. 2 to Schachter Decl.). Max responded by demanding discovery from Barami and pointing out that Barami was risking a default, and Schachter replied by reiterating that he did not represent Barami but rather was counsel for the Hakakians. Max Aff. ¶¶ 12-13; Schachter Decl. ¶¶ 12-13; Letter from Max to Schachter, dated Dec. 9, 2004 (reproduced in Ex. 3 to Schachter Decl.); Letter from Schachter to Max, dated Dec. 10, 2004 (reproduced in Ex. 3 to Schachter Decl.). On December 13, 2004, Max wrote to Barham Hakakian and requested that he retain counsel for Barami and provide responses to discovery requests, or else Max would seek a default judgment against Barami. Letter from Max to Barham Hakakian, dated Dec. 13, 2004 (reproduced as Ex. I to Max Aff.). Schachter alleges that, over the course of the next several months, he "called Mr. Max in an effort to negotiate and provided Mr. Max with additional information." Schachter Decl. ¶ 14.

On April 18, 2005, plaintiffs filed an amended complaint that added the Hakakians as defendants. See Amended Complaint, filed Apr. 18, 2005 (Docket #19) ("Am. Compl."). The Hakakians were served with the Amended Complaint on May 4, 2005, see Affidavit of Service, filed May 12, 2005 (Docket ##21-22), and thus under Fed. R. Civ. P. 12(a) their answer was due on May 24, 2005. On May 10, 2005, Max e-mailed Schachter informing him that it was "imperative" that Barami retain counsel, provide full discovery --which he asserted had been "incomplete" -- and address the claims against it. E-mail from Max to Schachter, dated May 10, 2005 (reproduced in Ex. K to Max Aff.). Max also told Schachter that he was "not sure that it [was] appropriate . . . to discuss settlement" if Schachter had not yet been retained as counsel.

Id. Schachter responded with an e-mail informing Max that he had only been retained by Barham Hakakian to negotiate a settlement, and that "Mr. Hakakian will provide [Max] with all information [Max] require[s] and will agree to injunctive relief." E-mail from Schachter to Max, dated May 10, 2005 (reproduced in Ex. K to Max Aff.).

The parties disagree as to what occurred over the course of the next two weeks. Schachter claims he had several telephone conversations with Max in which the parties discussed settlement. Schachter Decl. ¶¶ 17-18. Max asserts that settlement "negotiations never progressed and Mr. Schacter [sic] was advised repeatedly that settlement was not forthcoming." Max Aff. ¶ 19. Max also states that he "made it clear to [Schachter] that settlement negotiations had not yielded a solution and that the Barami defendants needed to retain counsel, answer the Amended Complaint and respond to discovery." Max Aff. ¶ 20.

Schachter asserts that during this period Max agreed to extend defendants' time to answer the Amended Complaint. Schachter Decl. ¶ 18. Indeed, in an e-mail message to Max dated May 26, 2005, Schachter stated, "I am writing to confirm that in view of our discussions concerning settlement you have extended defendants time to answer the complaint." See E-mail from Schachter to Max, dated May 26, 2005 (reproduced as Ex. 5 to Schachter Decl.). Significantly, Max does not address this e-mail in the affidavit he submitted in response to the Hakakians' motion. The affidavit contends only that Schachter's "suggestion that there was an open-ended 'stipulation extending the Hakakian's [sic] time to answer' indefinitely is incorrect." Max Aff. ¶ 21 (quoting Schachter Decl. ¶ 20). No further explanation is given. Thus, it is undisputed that Max did not respond to the May 26 e-mail, although it is clear that e-mail was a means of communication that Max and Schachter had previously employed.

Schachter states that, following the May 26 e-mail, he made several calls and sent numerous e-mail messages to Max offering to settle the case and requesting counter-offers to his various settlement proposals. Schachter Decl. ¶ 19. The only copy of any such communication submitted to this Court is an e-mail dated August 8, 2005, in which Schachter provided additional information to Max regarding the address of a supplier, and in which he reiterated his request for a settlement demand. See E-mail from Schachter to Max, dated Aug. 8, 2005 (reproduced as Ex. 6 to Schachter Decl.). Schachter states that throughout the period between May and September 2005, Max never stated that an answer was required. Schachter Decl. ¶ 20.

On September 12, 2005, plaintiffs moved for entry of a default judgment against defendants Barami, Barham Hakakian, and Mehrnaz Hakakian, and an inquest. See Notice of Motion for Inquest and Default Judgment, filed Sept. 12, 2005 (Docket #25) ("Def. Mot."). Similar motions were made against the remaining defendants several days later. See Docket ##26, 28.

On September 22, 2005, Schachter wrote a letter requesting permission to interpose an answer. Judge Kaplan denied the request stating, "Counsel may make a motion for relief from the judgment." See Memorandum Endorsement, filed Sept. 27, 2005 (Docket #30). At the time of this ruling, however, there was no judgment entered against the Hakakians. Rather, the plaintiffs had submitted a Clerk's Certificate of Default as part of their motion papers seeking a default judgment. See Def. Mot., Exs. C, D; see also Local Civil Rule 55.2(b) (requiring submission of a ...


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