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Altvater Gessler -- J.A. Baczewski v. Sobieski Destylarnia S.A.

July 14, 2011

ALTVATER GESSLER -- J.A. BACZEWSKI
INTERNATIONAL (USA) INC., AND ALTVATER
GESSLER -- J.A. BACZEWSKI GMBH PLAINTIFFS
v.
SOBIESKI DESTYLARNIA S.A., ADAMBA IMPORTS INTERNATIONAL, INC., INTERNET
WINES & SPIRITS, INC., AND DOES 1-20, DEFENDANTS.



The opinion of the court was delivered by: Hon. Harold Baer, Jr., United States District Judge

OPINION & ORDER

Defendants Sobieski Destylarnia ("Sobieski") and Adamba Imports Int'l, Inc. ("Adamba") (collectively "Defendants") filed post-trial motions against Plaintiffs Gessler of Baczewski Int'l Inc. and Gessler of Baczewski GmbH (collectively, "Gessler") seeking monetary sanctions and recovery of attorneys' fees and costs. For the reasons set forth below, Defendants' motions for sanctions and attorneys' fees are DENIED, and their motions for costs are GRANTED IN PART AND DENIED IN PART.

I.BACKGROUND

On August 28, 2006,*fn1 Gessler filed suit against Sobieski and Adamba, the manufacturer and importer of Old Krupnik Polish Honey Liqueur ("Sobieski's Krupnik"), respectively, alleging false advertising, trademark infringement, deceptive trade practices, and unjust enrichment.*fn2 Gessler initiated suit after discovering internet advertisements associated with Sobieski's Krupnik, in which an image of Sobieski's Krupnik appeared in close proximity to the description, "[o]nce produced by the famous Baczewski Distillery of Lwow, Poland, Krupnik is produced today according to its original recipe by Starogard Distilleries of Gdanks" (the "Accused Text"). Specifically, Gessler brought claims in connection with the Accused Text's reference to "Baczewski," to which Gessler asserts trademark rights, and the Accused Text's reference to "original recipe," which Gessler asserts is its own trade secret recipe for Gessler's Krupnik ("Gessler's Recipe").

The case was tried before a jury, and on November 12, 2010, the jury returned a verdict in favor of Defendants on all counts. Currently before the Court are Sobieksi's and Adamba's post trial motions to (i) impose monetary sanctions on Gessler in the form of attorney's fees and costs pursuant to Rule 11; (ii) recover attorneys' fees and costs pursuant to § 35(a) of the Lanham Act, 15 U.S.C. § 1117(a) (2006); and (iii) recover costs pursuant to Rule 54. Additionally, Adamba independently moves for a partial recovery of attorneys' fees and costs pursuant to Rule 68. For the following reasons, Defendants' motions for sanctions and attorneys' fees are DENIED, and their motions for costs are GRANTED IN PART AND DENIED IN PART.

II.DISCUSSION

A.Motions for Rule 11 Sanctions

1.Legal Standard

Rule 11 requires that every attorney who affixes his signature to a pleading, motion or other paper to a court certify that, inter alia, "to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances . . . the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery . . . ." Fed. R. Civ. P. 11(b). Rule 11 imposes on each person who signs a court document "an affirmative duty . . . to conduct a reasonable inquiry into the viability of a pleading" before signing it. O'Malley v. New York City Transit Auth.,896 F.2d 704, 706 (2d Cir. 1990) (quoting Eastway Const. Corp. v. City of New York, 762 F.2d 243, 253 (2d Cir. 1985)). It is also a violation of Rule 11 to continue to espouse a position that is "no longer tenable." Fed. R. Civ. P. 11, Advisory Committee Notes for 1993 amendments. The Second Circuit applies "an objective standard of reasonableness" to determine whether Rule 11 has been violated. See MacDraw, Inc. v. CIT Group Equip. Fin., Inc., 73 F.3d 1253, 1257 (2d Cir. 1996). In particular, a party violates Rule 11 if it is "patently clear that a claim has absolutely no chance of success under the existing precedents, and where no reasonable argument can be advanced to extend, modify or reverse the law as it stands." Eastway Const. Corp., 762 F.2d at 254; see also O'Malley, 896 F.2d at 706. Thus, the standard for Rule 11 sanctions is particularly high, such that "[s]anctions may not be imposed unless a particular allegation is utterly lacking in support." Storey v. Cello Holdings, 347 F.3d 370, 388 (2d Cir. 2003) (internal quotation marks and citations omitted). Moreover, "when divining the point at which an argument turns from merely losing to losing and sanctionable . . . [courts must] resolve all doubts in favor of [the party facing Rule 11 sanctions]." Rodick v. City of Schenectady, 1 F.3d 1341, 1350 (2d Cir. 1993) (emphasis in original) (internal quotation marks and citations omitted).

2.Sobieski's Motion

Sobieski argues that Gessler violated Rule 11 by failing to conduct a reasonable pre-filing investigation of the facts necessary to support its claims and by electing to proceed with trial after discovery, when Gessler should have realized that its claims were no longer tenable.*fn3 Although Gessler did not ultimately prevail at trial, Sobieski has not met its burden of showing that Gessler's claims had no chance of success, or that Gessler's allegations were utterly lacking in support.*fn4

With respect to Gessler's false advertising claim under § 43(a) of the Lanham Act,*fn5 Sobieski argues that Gessler did not conduct a reasonable pre-filing investigation because Gessler had no evidence that Sobieski created or used the Accused Text. Sobieski further contends that Gessler violated Rule 11 by continuing to pursue its false advertising claim after being made aware of facts prior to trial showing that a non-party's website was the source of the Accused Text. However, Sobieski's emphasis on the source of the Accused Text is misleading because liability for false advertising does not require that the defendant have created or used the Accused Text,*fn6 and evidence regarding the source of the Accused Text may not have been conclusive.*fn7 Prior to filing, Gessler conducted an investigation by observing the proliferation of the Accused Text by retailers of Sobieski's Krupnik, by ordering bottles of Sobieski's Krupnik from New York retailers to verify that the product advertised by the Accused Text was in fact manufactured by Sobieski, and by noting that Sobieski's Krupnik was being advertised in multiple states, with some retailers offering to ship the product across state lines. At trial, Gessler also presented circumstantial evidence that Sobieski caused the Accused Text to be disseminated in the marketplace,*fn8 including evidence that Polmos, an entity affiliated with Sobieski,*fn9 had previously used language similar to the Accused Text in multiple promotional materials, and that Sobieski's Krupnik experienced a sharp increase in sales during 2000-2006 despite Sobieski's claim that it did not engage in advertising. Resolving all doubts in Gessler's favor, Sobieski fails to show that Gessler's initial investigation was not reasonable under the circumstances, or that its allegation of false advertising was utterly lacking in support.

With respect to Gessler's claim for misappropriation of trade secrets,*fn10 Sobieski argues that Gessler made no reasonable investigation to determine whether Sobieski was actually using Gessler's Recipe because Gessler failed to consult with an expert or lay witness capable of making such a determination. However, prior to filing, Gessler was aware that Sobieski had purchased the manufacturing facility which had previously been licensed to produce Gessler's Krupnik, and that Sobieki's retailers were using the Accused Text, which by its own language indicates that Sobieski's Krupnik is manufactured according to Gessler's Recipe.*fn11 At trial, Gessler also presented evidence supporting its trade secret claim, including: (1) advertisements used by Sobieski's retailers stating that Sobieski's Krupnik was produced according to Gessler's Recipe; (2) evidence that Sobieski's Krupnik was manufactured by the Polmos facility only months after the facility had produced Gessler's Krupnik; (3) evidence that Sobieski had a copy of Gessler's Recipe in its files; and (4) evidence that Sobieski's promotional materials described Sobieski's Krupnik as being manufactured pursuant to an 18th century recipe.*fn12 Sobieski fails to show that Gessler's investigation and prosecution of its trade secret misappropriation claim were unreasonable under the circumstances or utterly lacking in support.

With respect to Gessler's trademark infringement claim, Sobieski argues that Gessler failed to conduct an investigation into the Accused Text's effect on the average purchaser, and failed to obtain evidence of actual consumer confusion prior to filing its complaint. However, Gessler points out that juries have been allowed to conclude actual confusion without the use of surveys.*fn13 At trial, Gessler also ...


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