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finding billing rates of $375 to $425 per hour for law firm's partners to be within normal rates
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No. 00 Civ. 8156 (RCC).
July 14, 2004
MEMORANDUM OPINION ORDER
INTRODUCTION
Now before the Court is Arthur M. Dula as Trustee of the Robert A. and Virginia Heinlein Prize Trust Dated 1991, and the Robert A. Heinlein and Virginia Library Foundation's ("Plaintiffs'") motion to impose monetary sanctions and attorney's fees against Amereon, Ltd., Aeonian Press, Inc., the American Reprint Company/Rivercity Press d/b/a Rivercity Press, Joanna Paulsen, and John Clauss a/k/a Jed Clause ("Defendants") for their civil contempt. On March 10, 2004, the Court issued an opinion from the bench finding that Defendants violated the October 25, 2002 Consent Judgment barring them from selling any works authored by Robert A. Heinlein. As a result of this finding, the Court ordered Defendants to allow Plaintiffs to conduct an audit, at Defendants' cost and using a C.P.A. of Plaintiffs' choosing, to determine: (1) the titles and quantities of all works by Robert A. Heinlein manufactured and/or sold by Defendants since October 25, 2002; and (2) the titles and quantities of all works by Robert A. Heinlein that remain in Defendants' inventory. (March 10, 2004 Order to Show Cause Hearing Transcript [Tr.] at 27.) The Court reserved judgment on the amount of the monetary sanction pending the audit's completion. (Id. at 28.) In addition, the Court found that Plaintiffs were entitled to reasonable attorney's fees and costs for pursuing the Order to Show Cause, and ordered Plaintiffs to provide the Court with "detailed time records setting forth the legal fees and costs incurred in pursuing th[e] contempt motion." (Id.) Finally, the Court directed Defendants to file an affidavit with Plaintiffs' counsel every six months, under oath and by the Chief Executive Officer thereof, confirming that they have not manufactured, made any offers to sell or sold any works by Robert A. Heinlein. (Id. at 27.)
An audit, conducted by Certified Public Accountants Terry Lazar and Ira Schwartz of Lazar Sanders, LLP, is now complete. It found that Defendants purchased seventy-five copies of Stranger in a Strange Land on or about March 10, 2003, and sold thirteen copies between June 2003 and March 2004. (Auditors' Report at 2, Ex. 8 to Declaration of George Gottlieb [Gottlieb Decl.].) The auditors determined that fifty-eight copies of Stranger in a Strange Land remained in Defendants' warehouse, that Defendants had not sold any other Heinlein works since October 25, 2002, and Defendants did not have an inventory of any other Heinlein works. (Id. at 2-3.) The accountants billed $5,415.00 for the audit.
DISCUSSION
Monetary sanctions for civil contempt may serve either or both of two purposes: to compensate the complainant for losses caused by the contemnor's past noncompliance, or to coerce the contemnor into complying with the court's order. Perfect Fit Indus., Inc. v. Acme Quilting Co., 673 F.2d 53, 56 (2d Cir. 1982). While civil contempt sanctions may be compensatory or coercive, they may not be imposed as a punitive measure. Paramedics Electromedicina Comercial, Ltda. v. GE Med. Sys. Info. Techs., Inc., 369 F.3d 645, 657 (2d Cir. 2004); Huber v. Marine Midland Bank, 51 F.3d 5, 10 (2d Cir. 1995); Manhattan Indus., Inc. v. Sweater Bee by Banff, Ltd., 885 F.2d 1, 5 (2d Cir. 1989).
Plaintiffs request that the Court award sanctions of $100,000 for Defendants' sale of thirteen copies of Stranger in a Strange Land Plaintiffs justify this fine by arguing that the statutory damages provision of the Copyright Act, 17 U.S.C. § 504(c), allows courts to award up to $150,000 for willful copyright infringement. However, a statutory damages provision for copyright infringement is not the proper guide for determining a civil contempt fine. See On Davis v. The Gap, Inc., 246 F.3d 152, 172 (2d Cir. 2001) (stating that " 17 U.S.C. § 504(c)(2), which allow[s] increases to an award of statutory damages in cases of willful infringement," serves to achieve the purposes of punitive damages, namely punishment and prevention of malicious conduct). The Court in this matter is concerned only with finding a remedy for Defendants' civil contempt; therefore, Plaintiffs' suggested fine of $100,000 is not justifiable by the damages provision of the Copyright Act.
Neither can a $100,000 sanction be justified as a compensatory fine. When a contempt fine is compensatory in purpose and paid directly to the complainant rather than to the court, some proof of loss must be present, and "the sanction should correspond at least in some degree with the amount of damages." Paramedics Electromedicina Comercial, 369 F.3d at 658; see also Perfect Fit Indus., 673 F.2d at 57 ("When the purpose is compensatory, the order should be fashioned so as to reimburse the injured party for his actual damages."). In their memorandum regarding the audit and the imposition of sanctions, Plaintiffs did not show that they have suffered any loss as a result of Defendants' sale of thirteen copies of Stranger in a Strange Land, much less a loss amounting anywhere near $100,000. However, the Second Circuit has indicated that a compensatory fine is "not always dependent on a demonstration of `actual pecuniary loss,'" and that under a theory of unjust enrichment, a complainant may be awarded the contemnor's profits from misconduct without submitting direct proof of injury. Manhattan Indus., 885 F.2d at 5-6; see also Rick v. Buchansky, No. 82 Civ. 3906, 2001 WL 936293, at *6 (S.D.N.Y. Aug. 16, 2001) ("Where actual pecuniary loss is difficult to prove, compensatory relief may include profits derived by the contemnor from the violation of a court order."). "Profits" mean net profits, and the contemnor "bears the burden of demonstrating deductions for costs and expenses: It must prove not only that it has borne the particular cost or expense but also that the cost or expense is attributable to its unlawful sales." Manhattan Indus., 885 F.2d at 7.
The gross revenue that Defendants made from selling thirteen copies of Stranger in a Strange Land, at $39.95 per copy, equals $519.35, (Ex. A to Auditor's Report), but because Defendants have not shown any costs or expenses attributable to these sales, their net profit cannot be ascertained at the present time. Thus, Defendants may provide information regarding their costs and expenses attributable to the sale of thirteen copies of Stranger in a Strange Land, and the net profit is to be awarded to Plaintiffs as compensatory damages. If Defendants do not provide this information by August 30, 2004, they will be fined $519.35, to be awarded to Plaintiffs. See, e.g., Basquiat v. Baghoomian, No. 90 Civ. 3853, 1992 WL 125529, at *2 (S.D.N.Y. May 22, 1992) (stating in a copyright infringement claim that because the defendants did not satisfy their burden of proving the asserted costs of production, those costs cannot be used to reduce the plaintiff's damages award).
The Court may still fashion a remedy to coerce Defendants' future compliance with the Consent Judgment. Plaintiffs' requested $100,000 fine, however, remains impermissible even as a coercive sanction. Although the court has broad discretion to determine coercive civil fines, Perfect Fit Indus., 673 F.2d at 57, such fines cannot be punitive in purpose. See New York State Nat'l Org. for Women v. Terry, 159 F.3d 86, 93 (2d Cir. 1998). One factor that may indicate that a noncompensatory fine is punitive rather than coercive is the absence of a purge provision allowing a defendant to avoid the fine by complying with the court's order. Id. at 93-94. A fine without a purge provision "suggests an intention to punish past misconduct rather than to insure future lawfulness" because the absence of a purge provision means that "the fine will be imposed regardless of reform and commitment to obey." Id. at 94. Here, a flat $100,000 fine for Defendants' sale of thirteen copies of Stranger in a Strange Land would be punitive because it would punish Defendants for their past misconduct without giving them an opportunity to avoid the fine through future compliance. Thus, the Court rejects Plaintiffs' request to fine Defendants $100,000 as a coercive remedy for their violation of the Consent Judgment.
However, some coercive measure is appropriate in order to ensure Defendants' future compliance with the Consent Judgment. In calculating a coercive fine, the Second Circuit has counseled district courts to consider the following factors: (1) the character and magnitude of the harm threatened by continued contumacy; (2) the probable effectiveness of any suggested sanction in bringing about compliance; and (3) the contemnor's financial resources and the seriousness of the burden of the sanction upon him. Paramedics Electromedicina Comercial, 369 F.3d at 657-58; Dole Fresh Fruit Co. v. United Banana Co., 821 F.2d 106, 110 (2d Cir. 1987) (vacating contempt order because the district court had not considered the factors that must be weighed for a coercive remedy, including the contemnor's financial resources and the probable effectiveness of the sanctions). The parties have not provided the Court with information regarding these factors, leaving the Court unable to evaluate them. Consequently, the parties are directed to submit papers addressing these factors, and the Court will then determine the precise amount of coercive sanctions.
Plaintiffs also request that the Court order Defendants to turn over their remaining inventory of fifty-eight copies of Stranger in a Strange Land to Plaintiffs in order to ensure that Defendants do not have any opportunity to further violate the Consent Judgment by selling additional copies. The Court agrees that Defendants should surrender the remaining inventory to ensure that they do not sell any more books; however, providing the books directly to Plaintiffs would not further that purpose. The Court thus orders Defendants to turn over their remaining inventory of Stranger in a Strange Land to the United States Marshal.
Lastly, Plaintiffs request that the Court order Defendants to reimburse Plaintiffs $41,940.00 in attorney's fees, $4,838.37 in costs, and $5,415.00 in auditor fees. The Court previously held at the Order to Show Cause hearing that Plaintiffs were entitled to auditor fees as well as reasonable attorney's fees and costs attributable to the contempt motion, and ordered Plaintiffs to provide "detailed time records setting forth the legal fees and costs for pursuing this Order to Show Cause." (Tr. at 28.) Reasonable attorney's fees can be derived by multiplying "the number of hours reasonably expended on the litigation . . . by a reasonable hourly rate." Weitzman v. Stein, 891 F. Supp. 927, 930 (S.D.N.Y. 1995). To establish the number of hours reasonably expended, the party seeking attorney's fees must provide contemporaneous time records specifying "`the date, the hours expended, and the nature of the work done.'" Id. at 930-31 (quoting New York State Ass'n for Retarded Children, Inc. v. Carey, 711 F.2d 1136, 1148 (2d Cir. 1983)). Although the party must submit a detailed record of hours expended, "the district court has discretion to determine the number of hours reasonably expended on a case." Weitzman, 891 F. Supp. at 931. An attorney's reasonable hourly rate is discerned from the prevailing market rates in the community, which the court determines by examining the parties' submissions regarding "the rate `prevailing in the community for similar services by lawyers of reasonably comparable skill, experience and reputation.'" Id. (quoting Miele v. New York State Teamsters Conference Pension Ret. Fund, 831 F.2d 407, 409 (2d Cir. 1987)). The court may also "rely in part on [its] own knowledge of private firm hourly rates in the community."Weitzman, 891 F. Supp. at 931.
Plaintiffs have submitted an affidavit from Peter Cobrin, a director from the law firm of Gibbons, Del Deo, Dolan, Griffinger Vecchione, P.C. who has substantial experience in the practice of intellectual property law, affirming that the hourly rates charged by Plaintiffs' attorneys were "within the normal rates for attorneys involved in similarly sophisticated intellectual property practices in New York City." (Declaration of Peter Cobrin [Cobrin Decl.] at 2.) The affidavit included a survey from the American Intellectual Property Law Association, which indicates that the average hourly billing rates in the New York City area in 2003 were $406.00 for partners and $306.00 for associates. (Average Hourly Billing Rate by Type of Practice and Location of Primary Place of Work, Ex. 1 to Cobrin Decl.) In addition, Plaintiffs have provided time records setting forth their legal fees from September 8, 2003 to May 6, 2004. Before January 1, 2004, the hourly billing rates charged by Plaintiffs' attorneys were $375.00 for a partner and $250.00 for an associate. (Gottlieb Decl. at 2 n. 3.) After January 1, 2004, an increase in billing rates at Plaintiffs' attorneys' firm resulted in hourly billing rates of $425.00 for one partner, $375.00 for another partner involved in the case, and $275.00 for an associate. (Id. at 2.) The time records also show that Plaintiffs' attorneys spent 140.2 hours on the present matter among three attorneys, a law clerk, and a paralegal. (Matter Ledger Report, Ex. 1 to Gottlieb Decl.) The Court finds that both the hourly billing rates and the number of hours expended on this matter were reasonable. Thus, Defendants are directed to reimburse Plaintiffs $41,940.00 in attorney's fees, $4,838.37 in costs, and $5,415.00 in auditor fees, for a total of $52,193.37.
CONCLUSION
In light of the foregoing it is ORDERED that:(1) Defendants are to surrender their remaining inventory of Stranger in a Strange Land to the United States Marshal by July 23, 2004;
(2) Plaintiffs are awarded attorney's fees and costs of $46,778.37 and $5,415.00 in auditor fees, for a total of $52,193.37;
(3) Defendants, if they so desire, are directed to submit papers documenting their costs and expenses attributable to their sale of thirteen copies of Stranger in a Strange Land by August 30, 2004. Plaintiffs may respond to any such filing by September 22, 2004. If Defendants do not file such papers, Plaintiffs will be awarded $519.35 in damages;
(4) In order to determine the amount of a coercive fine, the parties may conduct discovery regarding the following three issues: (a) the character and magnitude of the harm threatened by Defendants' continued contumacy; (b) the probable effectiveness of a suggested sanction in bringing about compliance; and (c) Defendants' financial resources and the seriousness of the burden of a sanction if imposed upon Defendants. Discovery must be complete by August 16, 2004. Plaintiffs are then directed to submit papers, of no more than ten pages, proposing and justifying a coercive fine by August 30, 2004. Defendants may submit a response, of no more than ten pages, no later than September 13, 2004. Plaintiffs may submit a reply, of no more than five pages, by September 22, 2004.