Opinion
1:17-cv-04593 (VSB) (SDA)
10-01-2020
Best Brands Consumer Products, Inc., Plaintiff, v. Versace 19.69 Abbigliamento Sportivo S.R.L. et al., Defendants.
REPORT AND RECOMMENDATION
STEWART D. AARON, UNITED STATES MAGISTRATE JUDGE.
TO THE HONORABLE VERNON S. BRODERICK, UNITED STATES DISTRICT JUDGE:
This action has been referred to me for an inquest on damages and attorneys' fees as to Defendants Versace 19.69 Abbigliamento Sportivo S.R.L. (“Versace 19.69”) and Valero Enterprises Inc. (“Valero”) (collectively, “Defendants”).(5/4/20 Orders, ECF Nos. 92 & 93; see also Am. Order of Ref., ECF No. 98.) For the reasons set forth below, I respectfully recommend that the Court enter judgment against Versace 19.69 and Valero, jointly and severally, in the amount of $90,882.71 in damages, together with prejudgment interest calculated as specified herein, and $807.64 in costs. I further recommend that, as against Versace 19.69, the judgment include $2,720.00 in attorneys' fees.
Plaintiff voluntarily dismissed this action as to the remaining defendants, including PJB Brands Ltd. and Theofanis Papadas (“Papadas”). (See Notices of Partial Volun. Dismissal, ECF Nos. 24, 57 & 90.)
This case also was referred to me for settlement, but no consensual resolution was reached during a telephonic settlement conference held on June 23, 2020.
BACKGROUND
I. Procedural History
On June 19, 2017, Plaintiff Best Brands Consumer Products, Inc. (“Best Brands”) filed its Complaint against Versace 19.69 and Valero, among others, seeking damages, prejudgment interest and attorneys' fees under various legal theories, including breach of contract. (See Compl., ECF No. 1.) After having been served with the Complaint (Affs. of Service, ECF Nos. 20, 21), Versace 19.69 and Valero failed to answer. On November 14, 2017, the Clerk of Court entered a Certificate of Default against Versace 19.69 and Valero, among others. (11/14/17 Clerk's Cert., ECF No. 25.)
On November 15, 2017, Best Brands filed a motion for default judgment against Versace 19.69 and Valero, among others. (11/15/17 Not. of Mot., ECF No. 27.) By Stipulation and Order, entered on December 13, 2017, Best Brands withdrew its motion, and Gerald F. Dunne, Esq. agreed to accept service on behalf of Versace 19.69 and Valero. (Stip. & Order, ECF No. 32.) Thereafter, Versace 19.69 and Valero again failed to respond to the Complaint. (See 2/7/18 Pl.'s Ltr., ECF No. 33; 6/15/18 Pl.'s Ltr., ECF No. 34.)
On August 17, 2018, the Clerk of Court entered a Certificate of Default against Versace 19.69 and Valero, among others. (8/17/18 Clerk's Cert., ECF No. 39.) On October 26, 2018, the Court ordered Defendants to show cause as to why a default judgment should not be entered. (10/26/18 OTSC, ECF No. 45.) On November 27, 2018, Gerald Dunne filed a motion to withdraw as counsel for Defendants. (11/27/18 Mot. to Withdraw, ECF No. 47.)
On January 10, 2019, a telephonic hearing was held on the Order to Show Cause and Dunne's motion to withdraw. On January 17, 2019, the Court granted Dunne's motion to withdraw and gave Versace 19.69 and Valero until February 8, 2019 to retain new counsel. (1/17/19 Order, ECF No. 52.) The Court later extended Defendants' time to retain new counsel until March 1, 2019. (Mem. End., ECF No. 55.) On March 14, 2019, Justin Stern appeared as counsel for Versace 19.69. (3/14/19 Not. of Appearance, ECF No. 59.) By Order dated March 14, 2019, the Court denied the motion for a default judgment against Versace 19.69, since counsel had appeared on its behalf, and held in abeyance the motion for a default judgment against Valero until the litigation progressed further. (3/14/19 Order, ECF No. 60.)
On April 1, 2019, the Court entered a Scheduling Order setting a discovery deadline of November 1, 2019. (4/1/19 Order, ECF No. 63.) On September 6, 2019, Justin Stern made a motion to withdraw as counsel for Versace 19.69. (9/6/19 Mot. to Withdraw, ECF No. 66.) On October 31, 2019, the Court granted Stern's motion to withdraw and gave Versace 19.69 until November 27, 2019 to retain new counsel. (10/31/19 Order, ECF No. 69.)
By Order dated December 3, 2019, the Court entered defaults in favor of Best Brands against Defendants Versace 19.69 and Valero after two prior counsel had withdrawn and they failed to retain new counsel. (12/3/19 Order, ECF No. 71). On February 4, 2020, Scott B. Richman entered an appearance as counsel for Versace 19.69. (2/4/20 Not. of Appearance, ECF No. 80.) On February 12, 2020, Michael G. Gabriel also entered an appearance as counsel for Versace 19.69. (2/12/20 Not. of Appearance, ECF No. 85.)
Both counsel for Versace 19.69 since have filed motions to withdraw, but those motions have been held in abeyance by District Judge Broderick pending the inquest hearing. (See 7/20/20 Order, ECF No. 107.)
On February 20, 2020, the Court held a hearing on Plaintiff's motion for a default judgment against Papadas (“Papadas”), who was still in the case at that time, during which counsel, appearing on behalf of both Papadas and Versace 19.69, also moved to vacate the default against Versace 19.69. (2/20/20 Hr'g Tr., ECF No. at 3, 12-25.) The Court denied Plaintiff's motion for a default judgment against Papadas, and denied Versace's request to vacate the default. (See id. at 25; see also 5/4/20 Order, ECF No. 92.)
After Judge Broderick referred this action to me to conduct an inquest, I directed Best Brands to file Proposed Findings of Fact and Conclusions of Law. (5/6/20 Order, ECF No. 94.) On August 4, 2020, Best Brands filed its Proposed Findings of Fact and Conclusions of Law (Pl.'s FOF, ECF No. 108), with an accompanying declaration. (Cohen Decl., ECF No. 109.) On August 14, 2020, Versace 19.69 filed its responses to Best Brands' proposed findings and conclusions. (V19.69 Resps., ECF No. 111), and later filed a corrected document. (V19.69 Corrected Resps., ECF No. 115-1.) Valero made no submission in advance of the inquest hearing.
Best Brands also sent a letter to the Court regarding a recent decision on the reasonableness of its counsel's attorney's fees (Pl. 8/21/20 Ltr., ECF No. 112), to which Versace 19.69 responded. (V19.69 8/21/20 Ltr., ECF No. 113.)
On August 26, 2020, I held an inquest hearing by telephone. (8/26/20 Hr'g Tr., ECF No. 117.) Counsel for Best Brands and counsel for Versace 19.69 participated in the hearing. No one appeared at the inquest hearing on behalf of Valero.
After oral argument, the parties submitted letter briefs regarding the indemnification provisions of the Agreement (see ECF Nos. 119-21, discussed infra).
II. Established Facts as a Result of Defendants' Default
In light of Defendants' default, the Court accepts Plaintiff's allegations as true, except for those pertaining to damages. See, e.g., Finkel v. Romanwicz, 577 F.3d 79, 84 (2d Cir. 2009).
Best Brands is a New York corporation having its principal place of business at 25 Merrick Avenue, Merrick, New York 11566. (Compl. ¶ 9.) Versace 19.69 is a corporation organized and existing under the laws of the country of Italy having its principal place of business at Via Daniele Crespi, 121052, Busto Arsizio, Varese - Italy. (Id. ¶ 10.) Valero is a company organized under the laws of California, having its principal place of business at 26500 Agoura Rd., Suite 130, Calabasas, CA 91302. (Id. ¶ 16.)
On or about February 2, 2015, Best Brands and Versace 19.69 entered into a license agreement (“Agreement”). (Compl. ¶ 23; Agreement, ECF No. 1-1.) Valero was Versace 19.69's agent in connection with the Agreement. (Compl. ¶ 16.)
The Agreement was filed as an exhibit to the Complaint on the ECF docket at ECF No. 1-1.
Valero had represented Versace 19.69 during the licensing negotiations with Best Brands, and spoke on its behalf. (See Compl. ¶ 80.) During the negotiations, Valero made various representations regarding the trademark to be licensed. (See id. ¶ 81.) Specifically, Valero represented that the trademarks being licensed by Versace 19.69 were valid, that there were no issues with Gianni Versace or its trademark or conflict therewith, and that there were no other trademark issues that could be an impediment to Best Brands using the trademark. (See id. ¶ 82.) To fraudulently induce Best Brands into entering the Agreement, Valero represented that there were no trademark issues with Gianni Versace or otherwise. (See id. ¶ 83.) Those representations were false when made, or were made recklessly without regard to whether they were true. (See id. ¶ 84.) Valero intended to deceive Best Brands by claiming that Versace 19.69 could give Best Brands rights to the Trademark, when Valero knew that it could not. (See id. ¶ 90.)
Under the terms of the Agreement, Versace 19.69 licensed to Best Brands its supposed rights under the trademark “V 1969 Italia” (the “Trademark”). (See Compl. ¶ 1, 23.) The property licensed included the company name Versace 19-69 Abbigliamento Sportivo S.R.L., and all rights to use that company name, as well as all trademark rights in the Trademark and company name. (See Agreement at 2.)
When the Agreement was entered into, Versace 19.69 declared and guaranteed that it was the “common law owner and beneficiary” of the Trademark and that it had “full and legal right and authority to enter into this agreement.” (See Compl. ¶ 25; Agreement at 4.) Best Brands relied on those declarations and guarantees, among others. (Compl. ¶¶ 24-28.)
As part of the Agreement, Best Brands paid a net royalty advance in the amount of $90,882.71 to Versace 19.69. (Compl. ¶ 29.) Specifically, Best Brands paid a $100,000 royalty advance, and then shipped some goods that generated royalties of $9,117.29 which was deducted from the advance to yield a net total of $90,882.71. (Cohen Decl. ¶¶ 3-4 & Ex. 1.)
Versace 19.69 subsequently was sued by Gianni Versace S.p.A. and Versace USA, Inc. (collectively “Gianni Versace”) in the Northern District of California. (Compl. ¶ 31.) In the Gianni Versace lawsuit, the Complaint (the “Gianni Versace Complaint”) alleged that Versace 19.69 uses the mark 19V69 with the name Versace and/or the name of their Italian affiliate, Versace 19.69 Abbigliamento Sportivo SPL, to deceive consumers into believing that 19v69 Italia is associated with Gianni Versace, but there is no such association. (Compl. ¶ 33; Gianni Versace Complaint, ECF No. 1-3, ¶¶ 1-2.) The Gianni Versace Complaint also alleged that Gianni Versace obtained a ruling from an Italian court prohibiting Papadas (Defendant 19.69's principal) from using the name Versace, finding, inter alia, that such use infringes Gianni Versace's trademarks. (Compl. ¶ 34; Gianni Versace Complaint ¶¶ 1-2.) The Gianni Versace Complaint included causes of action against Versace 19.69 for trademark infringement, federal false designation and federal dilution. (Compl. ¶ 32; Gianni Versace Complaint ¶¶ 44-47.)
In the Gianni Versace lawsuit, Judge Gilliam in the Northern District of California held that Versace 19.69 and its agent Valero infringed Gianni Versace's trademark rights. See Gianni Versace, S.p.A., v. Versace 19.69 Abbigliamento Sportivo SRL, 328 F.Supp.3d 1007, 1022 (N.D. Cal. 2018), appeal dismissed, No. 19-15188 (9th Cir. Apr. 17, 2019). Judge Gilliam issued a permanent injunction against use of the marks “Versace,” “Versace 19.69,” “Versace Sportivo,” “Versace 19.69 Abbigliamento Sportivo,” “Versace 19.69 Abbigliamento Sportivo S.R.L. Milano Italia” and/or “Versace 19.69 Abbigliamento Sportivo S.R.L.” (N.D. Cal. Permanent Injunction, ECF No. 108-3, at 2-5.) Judge Gilliam further directed that a copy of the Permanent Injunction should be served on all licensees, including Best Brands. (id. at 3-4.)
In addition to the Gianni Versace Lawsuit, Versace 19.69 was sued by Gap (Apparel) LLC several times in the U.S. Patent and Trademark Office with respect to Versace 19.69's trademarks. (Compl. ¶¶ 37-42.) The Gap asserted that its “1969 Mark” is famous, and that Versace 19.69's use of the mark “1969” as part of Versace 19.69's asserted trademarks was unlawful (the “Gap Proceedings”). (Id. ¶¶ 43-44.)
As a result of the Gianni Versace lawsuit, the Gap Proceedings and the related issue of the ownership of the Trademark, Best Brands' purpose of entering the Agreement was substantially frustrated at no fault of its own. (Compl. ¶ 45.) Best Brands no longer was able to commercially market products with the Trademark because retailers were unwilling to sell products under a Trademark that is the subject of the Gianni Versace lawsuit. (id. ¶ 46.) Best Brands was unwilling to potentially infringe any marks of Gianni Versace and/or the Gap. (id. ¶ 48.)
LEGAL STANDARDS
I. Default Judgment And Liability
Following a default, the district court must accept as true all of the well-pleaded factual allegations in the plaintiff's complaint, except those relating to damages. See Finkel, 577 F.3d at 84. However, before entering a default judgment, the Court is required to determine whether those factual allegations, taken as true, establish defendants' liability as a matter of law. Finkel, 577 F.3d at 84; see also Cont'l Indus. Grp., Inc. v. Altunkilic, 788 Fed.Appx. 37, 40 (2d Cir. 2019) (“A district court is empowered to evaluate the sufficiency of allegations before awarding damages in a default judgment.”) (citing Finkel, 577 F.3d 79, 84);
II. Damages
“While a party's default is deemed to constitute a concession of all well pleaded allegations of liability, it is not considered an admission of damages.” Gogo Apparel, Inc. v. Daruk Imports, Inc., No. 19-CV-05701 (LGS) (SDA), 2020 WL 4274793, at *6 (S.D.N.Y. June 11, 2020), report and recommendation adopted, 2020 WL 4271694 (S.D.N.Y. July 23, 2020) (quoting Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d. Cir. 1992)). “Even when a default judgment is warranted based on a party's failure to defend, the allegations in the complaint with respect to the amount of the damages are not deemed true. The district court must instead conduct an inquiry in order to ascertain the amount of damages with reasonable certainty.” Am. Jewish Comm. v. Berman, No. 15-CV-05983 (LAK) (JLC), 2016 WL 3365313, at *3 (S.D.N.Y. June 15, 2016) (quoting Credit Lyonnais Sec. (USA), Inc. v. Alcantara, 183 F.3d 151, 155 (2d Cir. 1999)), adopted by, 2016 WL 4532201 (S.D.N.Y. Aug. 29, 2016). A plaintiff “bears the burden of establishing its entitlement to recovery and thus must substantiate its claim with evidence to prove the extent of its damages.” id. at *3 (alterations and citation omitted).
Although the Court may hold a hearing to assess damages, a hearing is not required where a sufficient basis on which to make a calculation exists. See Fed.R.Civ.P. 55(b)(2); see also Bricklayers & Allied Craftworkers Local 2, Albany, N.Y. Pension Fund v. Moulton Masonry & Const., LLC, 779 F.3d 182, 189 (2d Cir. 2015) (quoting Action S.A. v. Marc Rich & Co., 951 F.2d 504, 508 (2d Cir. 1991)). Here, the submissions filed by Plaintiff provide a sufficient basis on which to make a calculation of damages against Versace 19.69. Nevertheless, the Court scheduled a hearing in order to provide Versace 19.69 an opportunity to submit evidence and/or arguments regarding the quantum of damages.
DISCUSSION
I. Personal Jurisdiction And Venue
In its responses to Plaintiff's Findings of Fact and Conclusions of Law, Versace 19.69 argues for the first time that this Court lacks personal jurisdiction and venue. (See Corrected Resps. at 3-4.)
During oral argument, Plaintiff's counsel indicated that, to the best of his knowledge, no personal jurisdiction defense was raised prior to Versace 19.69's response to Plaintiff's Findings of Fact and Conclusions of Law, and Versace 19.69's counsel did not contradict him. (See 8/26/20 Hr'g Tr. at 6-7.) In addition, based upon the Court's review of the ECF docket, the Court found no filing on behalf of Versace 19.69 where it previously raised the issue of personal jurisdiction over it.
A “defendant who defaults by failing to answer a complaint does not waive any challenge to personal jurisdiction; rather, a defendant may ignore judicial proceedings and challenge any ensuing default judgment in a collateral proceeding.” Hood v. Ascent Med. Corp., No. 13-CV-00628 (RWS) (DF), 2016 WL 1366920, at *6 (S.D.N.Y. Mar. 3, 2016), report and recommendation adopted, 2016 WL 3453656 (S.D.N.Y. June 20, 2016), aff'd, 691 Fed.Appx. 8 (2d Cir. 2017). However, “[b]ecause personal jurisdiction can be waived by a party, a district court should not raise personal jurisdiction sua sponte when a defendant has appeared and consented, voluntarily or not, to the jurisdiction of the court[.]” Sinoying Logistics Pte Ltd. v. Yi Da Xin Trading Corp., 619 F.3d 207, 213 (2d Cir. 2010) (citing Ins. Corp. of Ir., Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 703-05 (1982); “R” Best Produce, Inc. v. DiSapio, 540 F.3d 115, 123 (2d Cir. 2008)).
Though Versace 19.69 has never filed an Answer or otherwise responded to the Complaint, it has appeared through multiple counsel in this action over the course of more than three years. Notably, when Versace 19.69 sought to vacate the default against it at the February 20, 2020 hearing before Judge Broderick, it did not raise personal jurisdiction or venue as a basis for doing so. Rather, its counsel only raised the issue of the Court's jurisdiction over Papadas, not Versace 19.69. (2/20/20 Hr'g Tr. at 24.) Thus, the Court finds that Versace 19.69 has waived any personal jurisdiction (or venue) defense. See Corporacion Mexicana De Mantenimiento Integral, S. De R.L. De C.V. v. Pemex-Exploracion Y Produccion, 832 F.3d 92, 102 (2d Cir. 2016) (citation omitted) (“To waive or forfeit a personal jurisdiction defense, a defendant must give a plaintiff a reasonable expectation that it will defend the suit on the merits or must cause the court to go to some effort that would be wasted if personal jurisdiction is later found lacking.”).
One of the issues addressed at the February 20, 2020 hearing before Judge Broderick was “to have [him] vacate the default as to Versace [19.69].” (2/20/20 Hr'g Tr. at 3.)
In addition, in a written submission made by counsel for both Versace 19.69 and Papadas prior to the February 20, 2020 hearing, an argument was raised about the lack of personal jurisdiction over Papadas. (See Resp. to OTSC, ECF No. 86, at 6.)
Even putting aside waiver, the Court finds that personal jurisdiction and venue are proper under the terms of the Agreement, which provides that “both parties consent to the jurisdiction and venue of any dispute or controversy between the parties to be in the State and Federal courts located in the City and State of New York.” (Agreement ¶ 29(a) at 19.) As here, “part[ies] can consent to personal jurisdiction by contract prior to litigation.” Recurrent Capital Bridge Fund I, LLC v. ISR Sys. & Sensors Corp., 875 F.Supp.2d 297, 306 (S.D.N.Y. 2012).
Versace 19.69 invites the Court to “explore whether it has personal jurisdiction to enter a final judgement given the Agreement's [arbitration] provision.” (Corrected Resps. at 3.) The provision of the Agreement that discusses arbitration (¶ 29(b)) is curious. It immediately follows the provision cited above in which the parties consent to the jurisdiction and venue of New York courts, and states that “all disputes and differences arising from and in constitution with this agreement and between the parties shall be finally settled by binding arbitration in accordance with the rules of commercial arbitration, American arbitration association of New York City.” (Agreement ¶ 29(a) at 19 (emphasis supplied).) It is unclear what the term “constitution” is intended to mean in this context, or whether it simply is a typographical error. Regardless, the Court finds that the best way to harmonize Paragraphs 29(a) and 29(b) of this Agreement is to construe them as providing the initiating party the option of pursuing either litigation in a New York court or before the American Arbitration Association (“AAA”) in New York. See Alpha Capital Anstalt v. Real Goods Solar, Inc., 311 F.Supp.3d 623, 629 (S.D.N.Y. 2018) (“The courts should construe a contract in a manner that avoids inconsistencies and reasonably harmonizes its terms.” (citation omitted)).
At oral argument, Versace 19.69's counsel stated that “I'm not sure precisely what was meant by constitution.'” (8/26/20 Hr'g Tr. at 5.)
In any event, even if the Agreement were construed as providing for the resolution of all disputes before the AAA, arbitration is an affirmative defense, see Fed.R.Civ.P. 8(c), that can be waived. See Zhang v. Wang, 317 Fed.Appx. 26, 28 (2d Cir. 2008). Here, as with the personal jurisdiction defense, the Court finds that the arbitration defense also has been waived. See Roberts v. Bennaceur, 658 Fed.Appx. 611, 616 (2d Cir. 2016) (“a party may forfeit a right or defense by actively litigating other issues and forgoing the opportunity to litigate that right or defense”).
II. Liability
As set forth above, Judge Broderick entered defaults against Versace and Valero on the issue of liability. (12/3/2019 Order at 2). However, a final judgment has not yet been entered. Thus, this Court accepts Plaintiff's factual allegations as to liability as true, but still considers whether those allegations establish liability as a matter of law. See Cont'l Indus. Grp., Inc. v. Altunkilic, 788 Fed.Appx. 37, 40 (2d Cir. 2019) (discussing Magistrate Judge authority with respect to liability inquiry on damages inquest and noting that “[w]hile both a notice of default and a default judgment deem the complaint's factual allegations admitted, a default judgment generally signals recognition of the defaulting party's liability.”) (citing City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 128 (2d Cir. 2011) (explaining that “entry of a default judgment[ ] converts the defendant's admission of liability into a final judgment that terminates the litigation and awards the plaintiff any relief to which the court decides it is entitled”); Swarna v. Al-Awadi, 622 F.3d 123, 140 (2d Cir. 2010) (explaining difference between default judgment and notice of default)).
The Court notes that, in seeking to vacate the default against Versace 19.69, counsel for Versace 19.69 argued for setting aside the default in accordance with Federal Rule of Civil Procedure 55(c), while noting the higher standard for vacating a default judgment under Rule 60(b). (See 2/20/20 Hr'g Tr. at 13); accord Roberts v. Keith, No. 04-CV-10079 (CSH), 2007 WL 2712853, at *2 (S.D.N.Y. Sept. 18, 2007) (default judgment not final when case was referred for inquest as to damages).
A. Breach Of Contract Claims
Under New York law,“to prevail on a breach of contract claim . . . a plaintiff must prove [i] a contract; [ii] performance of the contract by one party; [iii] breach by the other party; and [iv] damages. Nielsen Co. (U.S.), LLC v. Success Sys., Inc., 112 F.Supp.3d 83, 97 (S.D.N.Y. 2015) (citations omitted).
New York law properly is applied here since the Agreement contains a New York choice of law provision. (See Agreement ¶ 29(a).)
1. Versace 19.69
The Court finds that Best Brands has established the elements of a breach of contract claim against Versace 19.69. Best Brands has shown the existence of a contract; performance by Best Brands by payment of the royalty advance; breach by Versace 19.69, in that it has failed to honor its obligation to return the royalty advance; and damages suffered as a result of the breach, in the amount of the royalty advance paid by Best Brands, but not returned. (See Compl. ¶¶ 23, 29, 60-68.)
The Court notes that Plaintiff also asserts claims against Versace 19.69 under breach of warranties and fraud theories. However, since, as set forth in Discussion Section II below, the Court recommends that Plaintiff be awarded all the damages it seeks due to Versace 19.69's breach of contract, the Court does not address Plaintiff's other claims as to Versace 19.69.
2. Valero
The Court finds that Best Brands has not established liability for breach of contract against Valero. Valero was not a signatory to the Agreement. While Valero was an agent of Versace 19.69, under New York law, “[a]n agent dealing on behalf of a disclosed principal is not liable for [his or] her principal's breach of contract absent evidence that the agent intended to be bound personally on the contract.” Broadway Warehouse Co. v. Buffalo Barn Bd., LLC, 143 A.D.3d 1238, 1242 (4th Dep't 2016) (citations omitted); see also Pascarella v. Sandals Resort Int'l, Ltd., No. 19-CV-02543 (AT), 2020 WL 1048943, at *6 (S.D.N.Y. Mar. 4, 2020) (“it is black-letter law that ‘[w]hen an agent acting with actual or apparent authority makes a contract on behalf of a disclosed principal . . . the agent is not a party to the contract unless the agent and third party agree otherwise'” (citation omitted)). Plaintiff has not alleged facts showing that Valero intended to be bound by the Agreement. Thus, the Court finds that Plaintiff's allegations, accepted as true, fail to establish liability for breach of contract against Valero.
Nor has Best Brands established liability against Valero for breach of warranties. “Under New York common law, upon showing that: (1) plaintiff and defendant entered into a contract; (2) containing an express warranty by the defendant with respect to a material fact; (3) which warranty was part of the basis of the bargain; and (4) the express warranty was breached by defendant, plaintiff is entitled to be indemnified for any damages incurred as a result of such breach.” Promuto v. Waste Mgmt., Inc., 44 F.Supp.2d 628, 642 (S.D.N.Y. 1999). Plaintiff alleges that, during the negotiation process, Valero made various warranties regarding the trademark to be licensed, including that there were no trademark issues with Gianni Versace, and that Plaintiff would be given certain indemnifications. (FOF ¶¶ 58-66.) Best Brands frames its claim as based on the Agreement but, as set forth above, has not established that Valero, which was not a signatory to the Agreement, has any liability for breach of the Agreement. Thus, the Court finds that Best Brands is not entitled to recovery of damages against Valero for breach of warranties contained in the Agreement.
B. Plaintiff's Fraud Claim Against Valero
Plaintiff also asserts a fraud claim against Valero. (See Compl. at 19; FOF ¶¶ 67-80.) “To state a claim for common law fraud in New York, a plaintiff must plead that ‘(1) defendant made a representation as to a material fact; (2) such representation was false; (3) defendant[ ] intended to deceive plaintiff; (4) plaintiff believed and justifiably relied upon the statement and was induced by it to engage in a certain course of conduct; and (5) as a result of such reliance plaintiff sustained pecuniary loss[.]'” Cummings v. City of New York, No. 19-CV-07723 (CM) (OTW), 2020 WL 882335, at *13 (S.D.N.Y. Feb. 24, 2020) (quoting Stephenson v. PricewaterhouseCoopers, Ltd. Liab. P'ship, 482 Fed.Appx. 618, 622 (2d Cir. 2012) (citation omitted)). The Court finds that Best Brands has established the elements of a fraud claim against Valero. Best Brands has shown that Valero made material misrepresentations to Best Brands, intending to deceive Best Brands; that Best Brands justifiably relied upon those misrepresentations; and that Best Brands suffered loss. (See Compl. ¶¶ 80-84, 90.)
III. Damages
The Court next considers the amount of damages that should be awarded against Versace 19.69 on the breach of contract claim and against Valero on the fraud claim.
A. Versace 19.69
1. Economic Damages
“Under New York law, a successful plaintiff in a breach of contract action is entitled to damages in the ‘amount necessary to put the plaintiff in the same economic position he would have been in had the defendant fulfilled his contract.'” Am. Jewish Comm., 2016 WL 3365313, at *5 (quoting Scholastic, Inc. v. Snap TV, Inc., No. 09-CV-04349 (GBD) (GWG), 2011 WL 1330246, at *3 (S.D.N.Y. Apr. 8, 2011)). In its submission to the Court, Best Brands seeks “damages of $100,000 (but in no event less than $90,882.71).” (See Pl.'s FOF ¶ 143.)
The Court finds that, in order to put Best Brands in the same economic position it would have been absent the breach by Versace 19.69, Best Brands is entitled to damages from Versace 19.69 in the amount of $90,882.71. On February 11, 2015, Best Brands paid $100,000.00 to Versace 19.69 as a royalty advance. (Cohen Decl. ¶ 3; Wire confirmation, ECF No. 108-1.) Best Brands then shipped some goods that generated royalties of $9,117.29, yielding a net total of $90,882.71. (Cohen Decl. ¶ 4.) Thus, to put Best Brands in the same economic position had there not been a breach, it is entitled to receive the sum of $90,882.71 from Versace 19.69.
2. Prejudgment Interest
Best Brands also is entitled to prejudgment interest under CPLR 5001.The rate of prejudgment interest is nine percent per annum. CPLR § 5004. Since Versace 19.69 failed to return the royalty advance, the Court will award prejudgment interest from February 11, 2015, the date the royalty advance was paid,at nine percent per annum, as Plaintiff requests.
Section 5001 of the CPLR provides, in part, “[i]nterest shall be recovered upon a sum awarded because of a breach of performance of a contract,” and that the “[i]nterest shall be computed from the earliest ascertainable date the cause of action existed ” CPLR § 5001(a)-(b).
See Cohen Decl. ¶ 3.
Plaintiff calculates prejudgment interest due up to the date of the inquest as $45,334.29 (FOF ¶ 108.) However, prejudgment interest shall be calculated up to the date that judgment is entered, which will come after District Judge Broderick adopts this report and recommendation, in whole or in part.
3. Attorneys' Fees
Plaintiff also seeks to recover its attorneys' fees and expenses based upon Paragraph 12(c) of the Agreement. (FOF ¶¶ 109-14.) “The awarding of attorneys' fees in diversity cases is governed by state law.” Glassman-Brown v. Pouring Wine, LLC, No. 14-CV-03763 (TPG) (KNF), 2015 WL 5853802, at *7 (S.D.N.Y. Aug. 5, 2015) (quoting Grand Union Co. v. Cord Meyer Dev. Co., 761 F.2d 141, 147 (2d Cir. 1985)) (alterations omitted), adopted in part, 2015 WL 5853807 (S.D.N.Y. Oct. 7, 2015).
New York law imposes a strong presumption against reading indemnification provisions to cover attorneys' fees incurred in litigation between the parties. See Hooper Associates v. AGS Computers, Inc., 74 N.Y.2d 487, 492 (1989) (“[A] promise by one party to a contract to indemnify the other for attorney's fees incurred in litigation between them is contrary to the well-understood rule that parties are responsible for their own attorney's fees, [and] [a] court should not infer a party's intention to waive the benefit of the rule unless the intention to do so is unmistakably clear from the language of the promise.”). Thus, where a “contract does not ‘exclusively or unequivocally refer[ ] to claims between the parties themselves,'” courts “will presume that indemnification extends only to third-party disputes.” Bank of New York Tr. Co. v. Franklin Advisers, Inc., 726 F.3d 269, 283 (2d Cir. 2013) (quoting Hooper).
Paragraph 12(c) of the Agreement contains the following indemnification provision in favor of Best Brands:
Licensor [Versace 19.69] hereby saves and holds Licensee [Best Brands] and its respective affiliates harmless of and from and indemnifies each of them against any and all claims, losses, liability, judgements, penalties, damages and expenses (including reasonable attorneys' fees and expenses) that they or any of them may incur or be obligated to pay, or for which they or any them may become liable or be compelled to pay in any action, claim or proceeding against them or any of them, by reason of the fact that Licensee's use of the Property strictly in accordance with the terms of this Agreement infringes upon the rights of a third party and by reason of any acts by Licensor or any of its respective affiliates, agents or employees arising out of or related to this Agreement. Licensor's indemnification obligation shall also apply to any action by reason of any representation or warranty on the part of Licensor being untrue in any material respect or by reason of any acts, whether of omission or commission, by Licensor or any member of the Licensor, or any of their respective affiliates, agents or employees arising out of or related to this Agreement. Licensor's indemnification obligation also shall apply to any action, claim or proceeding against any of the indemnities brought by or on behalf of any member of the Licensee, its customer, any Contractor or any of Licensee's suppliers arising out of or relating to this Agreement or the performance of Licensee hereunder or their relationships or dealings with Licensee, the termination thereof or otherwise, including any action, claim or proceeding against any of the indemnities for the payment of a goodwill indemnity or other termination payment.(Agreement ¶ 12(c).)
Based upon this provision, Best Brands seeks indemnification for its reasonable attorneys' fees incurred in connection with the subpoena by Gianni Versace. (FOF ¶ 114.) The attorneys' fees incurred by Best Brands relating to the subpoena responses, which total $2,720.00 (see FOF ¶ 117), are reimbursable under Paragraph 12(c), inasmuch as these expenses arose from the fact that Versace 19.69's representation regarding the Trademark was untrue.
“The party seeking fees bears the burden of demonstrating that its requested fees are reasonable.” Trs. of the N.Y.C. Dist. Council of Carpenters Pension Fund v. Golden Dev. & Constr. Corp., No. 17-CV-1051 (VSB) (JLC), 2017 WL 2876644, at *5 (S.D.N.Y. July 6, 2017) (quoting 1199/SEIU United Healthcare Workers E. v. S. Bronx Mental Health Council Inc., No. 13-CV-02608 (JGK), 2014 WL 840965, at *10 (S.D.N.Y. Mar. 4, 2014)). The Court has reviewed the billing rates and time entries relating to the $2,720.00 in legal fees and finds them to be reasonable.
Best Brands also seeks indemnification for the attorneys' fees it expended in prosecuting this action. (FOF ¶ 115.) However, the Court finds that the language of the Agreement is not unmistakably clear that the parties intended that Versace 19.69 indemnify Best Brands for disputes between the parties themselves.
In its post-hearing letter brief, Best Brands parses Paragraph 12(c) into thirteen separate clauses and then includes a detailed analysis over the course of four pages why the various clauses should be construed so as to entitle Best Brands to indemnification for legal fees in its own case against Versace 19.69. (See Pl. 9/9/20 Ltr. Br. at 2-6.) This very analysis, however, while laudable and creative, shows why indemnification is not available here. In order for a party to be entitled to contractual indemnification for attorneys' fees in litigation between the parties, the contractual language must be unmistakably clear. The language of Section 12(c) is not.
During oral argument, the Court raised with Plaintiff's counsel the Hooper and Scott-Macon cases cited herein (see 8/26/20 Hr'g Tr. at 7-11) and permitted, at their request, further briefing limited to the issue of whether the indemnification provisions contained in the Agreement permits the recovery of attorneys' fees incurred in litigation between the parties to the Agreement in light of the New York Court of Appeals decision in Hooper. (See 8/26/20 Order, ECF No. 116.) The parties thereafter submitted further briefing. (See Pl. 9/9/20 Ltr. Br., ECF No. 119; Versace 19.69 9/23/20 Ltr. Br., ECF No. 120; Pl. 9/30/20 Reply Ltr. Br., ECF No. 121.)
The New York Court of Appeals decision in Hooper, supra, is instructive. In Hooper, the court was confronted with an indemnification clause that obligated the defendant to “indemnify and hold harmless [plaintiff] . . . from any and all claims, damages, liabilities, costs and expenses, including reasonable counsel fees” arising out of breach of warranty claims, performance of services, and infringement of patents, copyrights or trademarks. 74 N.Y.2d at 492 (internal quotation marks omitted) (alteration and ellipses in original). The Court of Appeals found that the indemnity clause related to third-party claims, and neither was “exclusively or unequivocally referable to claims between the parties themselves [nor] support[ed] an inference that defendant promised to indemnify plaintiff for counsel fees in an action on the contract.” id.
Similarly here, the Agreement provides indemnification for attorneys' fees incurred “by reason of the fact that Licensee's use of the Property strictly in accordance with the terms of this Agreement infringes upon the rights of a third party and by reason of any acts by Licensor or any of its respective affiliates, agents or employees arising out of or related to this Agreement,” and states that the “indemnification obligation shall also apply to any action by reason of any representation or warranty on the part of Licensor being untrue in any material respect.” (Agreement ¶ 12(c).) This contractual language is not exclusively or unequivocally referable to claims between the parties themselves. Thus, the Court finds that it is not “unmistakably clear” from the language of the Agreement that the parties intended to include disputes between the parties. See Hooper, 74 N.Y.2d at 492; see also Scott-Macon Sec., Inc. v. Zoltek Companies, Inc., No. 06-CV-02711, 2007 WL 2914873, at *6 (2d Cir. Oct. 4, 2007) (“It is not ‘unmistakably clear' from the language of the Agreement that the parties intended that [defendant] indemnify [plaintiff] for disputes between the parties themselves. Therefore, the district court's award of attorneys' fees was error and is reversed.”).
Paragraph 12(c) in this case also stands in stark contrast to the indemnification provision at issue in Mid-Hudson Catskill Rural Migrant Ministry, Inc. v. Fine Host Corp., 418 F.3d 168, 178 (2d Cir. 2005), which is cited by Best Brands in its letter brief. (See Pl. 9/9/20 Ltr. Br. at 3.) In MidHudson, the indemnification provision in question, which was the second (and broader) of two indemnification provisions, stated in relevant part: “[The Ministry] shall be indemnified and held harmless from any . . . actions of any kind or nature arising, growing out of, or otherwise connected with any activity under this Agreement.” Mid-Hudson, 418 F.3d at 178. In Mid-Hudson, then-Judge Sotomayor held: “We agree with plaintiff that the broad language of the second provision, when read in conjunction with the first provision, indicates ‘unmistakably,' . . . that the parties intended for the second provision to apply to ‘actions of any kind or nature,' including actions between the parties.” id. at 178-79 (citing Hooper, 74 N.Y.2d at 492). Paragraph 12(c) contains no such “unmistakably clear” language.
Also telling is Paragraph 12(e) of the Agreement, which provides that a person seeking indemnification under Paragraph 12(c) shall use reasonable efforts to give notice of any action, claim or proceeding for which an indemnitee is seeking indemnification. Paragraph 12(e) gives the indemnitor the discretion to defend any such action claim or proceeding and requires indemnitees to seek approval of the indemnitor before settling any such action, claim or proceeding. (See Agreement ¶ 12(e).) This provision is typical of an agreement “which contemplate[s] reimbursement when the indemnitee is required to pay damages on a third-party claim.” Hooper, 74 N.Y.2d at 492; see also Oscar Gruss & Son, Inc. v. Hollander, 337 F.3d 186, 200 (2d Cir. 2003) (finding provisions in agreement regarding indemnitor's rights to notice and assumption of defense show agreement was meant to cover third-party claims only); Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 20-21 (2d Cir. 1996) (contractual indemnity provision did not apply to suit between parties where its language could “easily be read as limited to third party actions”).
Thus, the Court finds that Best Brands is not entitled to recover its legal fees incurred in the prosecution of this action, but only is entitled to recover the $2,720.00 in fees incurred in connection with the Gianni Versace subpoena.
B. Valero
“When a claim sounds in fraud, the measure of damages is governed by the ‘out-of-pocket' rule, which states that the measure of damages is ‘indemnity for the actual pecuniary loss sustained as the direct result of the wrong.'” Connaughton v. Chipotle Mexican Grill, Inc., 135 A.D.3d 535, 538 (1st Dep't 2016), aff'd, 29 N.Y.3d 137 (2017). Here, as set forth above, the pecuniary loss sustained as a result of Valero's misrepresentations is $90,882.71.
In addition, Best Brands is entitled to prejudgment interest against Valero. “In New York, prevailing plaintiffs in common law fraud actions are entitled to prejudgment interest as a matter of right.” Allstate Ins. Co. v. Afanasyev, No. 12-CV-02423 (JBW) (CLP), 2016 WL 1156769, at *12 (E.D.N.Y. Feb. 11, 2016), report and recommendation adopted, 2016 WL 1189284 (E.D.N.Y. Mar. 22, 2016). Thus, prejudgment interest should be awarded against Valero as set forth above.
IV. Costs
Plaintiff also seeks recovery of its costs. (See FOF ¶ 143.) The Court has reviewed the costs sought by Plaintiff and determines that Plaintiff should recover its filing fee ($400.00), postage ($230.64), local transportation costs ($96.00) and FedEx charges for serving its default papers (excluding charges for service on Papadas, since claims against him dismissed) ($81.00). (See Invoices, ECF No. 108-4, at 4, 9, 13, 27.) Other charges, which include office supplies, are not reimbursable costs. See Tatum v. City of New York, No. 06-CV-04290 (PGG) (GWG), 2010 WL 334975, at *13 (S.D.N.Y. Jan. 28, 2010) (office supplies not reimbursable costs). Thus, the Court recommends that Plaintiff recover $807.64 in costs.
One of the invoices submitted contain costs unrelated to this case, including a fee for a patent application and a pro hac vice fee for a New Jersey court. (Invoice #1718, ECF No. 108-4, at 14.) During oral argument, Best Brands removed these costs from its request. (8/26/20 Hr'g Tr. at 13.)
V. Declaratory Judgment
In addition to damages, Best Brands seeks a declaratory judgment. Judge Broderick referred this case to me for an inquest on damages, not to determine if declaratory relief is appropriate. Nevertheless, as Versace 19.69 correctly points out, the declaratory relief sought in the Complaint (Compl. ¶ 78 (“Best Brands seeks a declaratory judgment that Versace 19.69 does not own rights in the Trademark”)) differs from the declaratory relief that Best Brands now seeks. (See Pl.'s FOF ¶ 86 (“Best Brands is entitled to termination of the Agreement in accordance with the Agreement's terms”).) “A default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings.” Fed.R.Civ.P. 54(c). See also Silge v. Merz, 510 F.3d 157, 159 (2d Cir. 2007) (“[The theory of this provision] is that the defending party should be able to decide on the basis of the relief requested in the original pleading whether to expend the time, effort, and money necessary to defend the action. It would be fundamentally unfair to have the complaint lead defendant to believe that only a certain type and dimension of relief was being sought and then, . . . allow the court to give a different type of relief ....” (quoting 10 Charles
Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure, § 2663 (1998).)
CONCLUSION
For the foregoing reasons, I respectfully recommend that the Court enter judgment against Versace 19.69 and Valero, jointly and severally, in the amount of $90,882.71 in damages, together with prejudgment interest calculated as specified herein, and $807.64 in costs. I further recommend that, as against Versace 19.69, the judgment include $2,720.00 in attorneys' fees.
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NOTICE OF PROCEDURE FOR FILING OBJECTIONS TO THIS REPORT AND RECOMMENDATION
The parties shall have fourteen (14) days (including weekends and holidays) from service of this Report and Recommendation to file written objections pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure. See also Fed.R.Civ.P. 6(a), (d) (adding three additional days when service is made under Fed.R.Civ.P. 5(b)(2)(C), (D) or (F)). A party may respond to another party's objections within fourteen days after being served with a copy. Fed.R.Civ.P. 72(b)(2). Such objections, and any response to objections, shall be filed with the Clerk of the Court. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(d), 72(b). Any requests for an extension of time for filing objections must be addressed to Judge Broderick.
FAILURE TO OBJECT WITHIN FOURTEEN (14) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(d), 72(b); Thomas v. Arn, 474 U.S. 140 (1985).