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finding willful infringement based on evidence that included "records of other lawsuits filed against Defendants for similar activities, and a settlement entered into with respect to one such action"
Summary of this case from Steinmetz v. Houghton Mifflin Harcourt Publ'g Co.Opinion
No. 00 Civ. 6330 (JSM)
October 22, 2002
OPINION AND ORDER
After a bench trial on May 15, 2002, the Court found that Defendants Amereon, Ltd., John Clauss, and Joanna Paulsen had infringed Plaintiffs' copyrights in sixteen works authored by Louis Bromfield: The Farm, The Rains Came, Night in Bombay, Wild is the River, Mrs. Parkington, Pleasant Valley, Malabar Farm, The Green Bay Tree, Possession, Early Autumn, The Man Who Had Everything, Until the Day Break, Colorado, Out of the Earth,From My Experience, and Animals and Other People. The Court further found the infringement by Amereon and Clauss to have been willful, and that an award of costs and attorney fees against Defendants was appropriate. For this reason, and because Plaintiffs had elected to receive an award of statutory damages pursuant to 17 U.S.C. § 504(c)(2), the Court ordered limited discovery with respect to Defendants' assets. Although Defendants' failure to cooperate fully in that process required the Court's intervention, that discovery has now been completed, and all parties have submitted papers relating to the assessment of damages in this case, and to Plaintiffs' application for an award of attorney's fees and costs. In addition, Plaintiffs have moved for an Order pursuant to Fed.R.Civ.P. Rule 65 and New York Debtor and Creditor Law § 279, enjoining Defendants, pending satisfaction of the judgment in this case, from transferring their assets and/or the assets of New Avalon, L.P. and Printcess, L.P. (the "limited partnerships"), except as required in the ordinary course of business, and from transferring their interests in the limited partnerships. Furthermore, Plaintiffs seek an award of costs against Defendants' attorney personally pursuant to 28 U.S.C. § 1927.
I. Damages
The Copyright Act provides that an infringing Defendant is liable for either actual damages and profits under 17 U.S.C. § 504(b), or statutory damages under 17 U.S.C. § 504(c). Getaped.com v. Cangemi, 188 F. Supp.2d 398, 400(S.D.N.Y. 2002) Section 504(c)(1) provides that a prevailing Plaintiff is entitled to elect between the two remedies at any time before final judgment is rendered. Twin Peaks Productions v. Publications International Ltd., 996 F.2d 1366, 1380(2d Cir. 1993). Plaintiffs have elected statutory damages.
Pursuant to 17 U.S.C. § 504(c)(1), the Plaintiff shall receive an award of between $750 and $30,000 per work, "as the court considers just," in a case in which the infringement is not found to have been willful. Where the infringement is found to have been willful, the maximum award is increased to $150,000 per work. 17 U.S.C. § 504(c)(2).
The Court has broad discretion in awarding statutory damages.Fitzgerald Pub. Co. v. Baylor Pub. Co., 807 F.2d 1110, 1116 (2d Cir. 1986). In making such an award, the Court is required to consider various factors, including the expenses saved and profits reaped by the Defendants, the revenues lost by the Plaintiffs, the value of the copyright, the deterrent effect of the award on other potential infringers, and factors relating to individual culpability. These include the innocence or willfulness of the conduct, whether the defendant has cooperated in providing records from which to assess the value of the infringing materials produced, and the potential of the award for discouraging the defendant. Id. at 1117. See also F.W. Woolworth Co. v. Contemporary Arts, Inc., 344 U.S. 228, 234, 73 S.Ct. 222, 226 (1952) (recovery is not limited to gross profit from infringement; court may consider all facts); Superior Form Builders v. Chase Taxidermy Supply Co., 74 F.3d 488, 496 (4th Cir.), cert. denied, 519 U.S. 809 (1996) (focus is not only on actual damages suffered, but also on "any evidence that the defendants have a history of copyright infringement; any evidence that the defendants are apparently impervious to either deterrence or rehabilitation; the extent of the defendant's knowledge of the copyright laws; any misleading or false statements made by the defendants; . . . and any factor which the jury believes evidences the defendants knew, had reason to know, or recklessly disregarded the fact that its conduct constituted copyright infringement."); Chi-Boy Music v. Charlie Club, Inc., 930 F.2d 1224, 1229 (7th Cir. 1991) ("The court was not required to follow any rigid formula. . . When the infringement is willful, the statutory damages award may be designed to penalize the infringer and to deter future violations"). As the Court stated in Dream Dealers Music v. Parker, 924 F. Supp. 1146, 1153 (S.D. Ala. 1996), "[f]oremost, the court must award an amount that will put the defendant on notice that it costs more to violate the copyright law than to obey it."
Having found that Defendants Amereon and Clauss willfully infringed Plaintiffs' copyrights, and having considered all of the factors enumerated above, the Court awards Plaintiffs statutory damages of $30,000 for each of the 16 works infringed by Defendants. Amereon and Clauss are jointly and severally liable for this award, which totals $480,000. Fitzgerald Pub. Co., Inc. v. Baylor Pub. Co., Inc., 807 F.2d 1110, 1116(2d Cir. 1986). Defendant Paulsen, whose infringement was not found to have been willful, is also jointly and severally liable for one-half of that amount ($240,000).
In reaching this determination, the Court has taken into account that the net profits reaped by Defendants varied between $91.12 and $3685.68 for each of the infringed works, and totaled $17,930.75. If it were determining actual damages, the Court also would consider expenses saved by the defendants. Fitzgerald Pub. Co., Inc. v. Baylor Pub. Co., Inc., 807 F.2d 1110, 1118 (2d Cir. 1986) (Profits of the infringer and damages suffered by the plaintiff are entirely separate items.). This also is a factor to be considered in making a statutory damages award. In this case, the 1974 license agreement between HarperCollins Publishers and Defendants provided for payment of an annual royalty in the amount of 10% of total sales of the works during the preceding 12 months. Given total sales of $19,466.75 during the relevant three year period, the amount saved would be $1,946.68. This yields an actual damages figure of $19,877.43.
The Court must, in its discretion, make an award of statutory damages in an amount, within the permissible range, that will further the Copyright Act's objectives of compensating copyright owners for past infringement and deterring future infringement, even for "uninjurious and unprofitable invasions of copyright." F. W. Woolworth Co. v. Contemporary Arts, Inc., 344 U.S. 228, 73 S.Ct. 222, 225 (1952); Getaped.com, Inc. v. Cangemi, 188 F. Supp.2d 398, 403 (S.D.N.Y. 2002). Thus, statutory damages awards frequently greatly exceed the actual damages shown. In Fitzgerald Pub. Co., Inc. v. Baylor Pub. Co., Inc., 807 F.2d 1110 (2d Cir. 1986), for example, the plaintiff suffered a total loss of $866.50 for the infringement of eleven works. The lower court awarded a total of nearly $50,000 in damages against the less culpable of two defendants, even though the court found that there was no need for deterrence with respect to that defendant, and that defendant actually had lost money on the infringement. 807 F.2d at 1113. This was at a time when the maximum statutory damages for a nonwillful infringement was $10,000, and the maximum award for a willful infringement was $50,000. On the copyright holder's appeal, the Second Circuit reversed, finding various errors below. In remanding to permit the district court to fix a new, appropriate award, the Circuit Court stated, "we expect that under the circumstances the award will be higher than the figure originally assessed against [this defendant]." 807 F.2d at 1117. Thus, the expectation of the Second Circuit was that the district court would award statutory damages in excess of fifty times the actual damages proven.
Similarly large multiples of actual damages were awarded in Superior Form Builders, Inc. v. Chase Taxidermy Supply Co., 14 F.3d 488 (4th Cir.), cert. denied, 519 U.S. 809 (1996) (finding an award of maximum statutory damages of $400,000 was appropriate where the defendant's profit was $10,200, there were no damages identified, and the amount awarded equalled twice the net income of the corporate defendant for a two year period); Odegard, Inc. v. Costikyan Classic Carpets, 963 F. Supp. 1328, 1342 (S.D.N.Y. 1997) (awarding statutory damages of $25,000 for one willful infringement at a time when the maximum damages for a nonwillful infringement was $20,000, and there was no showing that plaintiffs had lost profits or that defendants had benefitted financially from the infringement); and Lauratex Textile Corp. v. Allton Knitting Mills, Inc., 519 F. Supp. 730, 733 (S.D.N.Y. 1981) (awarding statutory damages of $40,000, at a time when maximum statutory damages in a case of willful infringement was $50,000, and where defendants' profits were $5,177).
In making its award, the Court also has considered, as it must, the need to deter both defendants and other potential infringers from similar behavior in the future. The evidence at trial showed that Defendants have made a habit of reprinting works without permission from the copyright owners. In this regard, Plaintiffs presented direct evidence of such infringement of a work by Ellery Queen, as well as records of other lawsuits filed against Defendants for similar activities, and a settlement entered into with respect to one such action. See Lauratex v. Allton, 519 F. Supp. at 733. In that case the court found that, given the six other copyright infringement cases that had been brought against the defendant in the past three years, "the business of encroaching upon others' copyrights is not unfamiliar to the defendant." Moreover, although the activities prior to the three year limitations period cannot serve as a basis for an actual damages calculation, the Court notes that the behavior in this case continued for a period of at least 21 years before this lawsuit was filed.
Bruce v. Amereon Ltd., No. 99 Civ. 12416 (S.D.N.Y.). A letter from Joanna Paulsen to counsel for the plaintiff in that case, seeking to settle that case, was introduced at trial of this action (Plaintiffs' Exhibit 19), and is very revealing in this regard. It states, "Our experience has been that when a publishing house goes out of business, as was the case with Playboy Press, copyrights are not renewed and books become public domain. We had listed this title for several years prior to printing it hoping that the copyright owner would make an enquiry." Thus, apparently it is Defendants' routine practice to put the onus on the copyright owner to assert its rights, rather than affirmatively searching for that owner themselves.
It also is relevant to the damages award that at trial the Court found Defendant Clauss, who also controls Defendant Amereon, to be evasive and incredible in his testimony regarding his business dealings, and was convinced that Clauss well knew that he was infringing on Plaintiffs' copyrights, and chose to continue to conduct his business in such a way for as long as he could get away with it. This is similar to the behavior of the defendant in Chi-Boy Music v. Charlie Club, Inc., 930 F.2d 1224, 1230 (7th Cir. 1991), where the district court found that he had "treated the copyright laws with disdain," and that defendant's "attitude was `[i]f they went after him, he could deal with it then.'"
Defendants' financial circumstances also are relevant in determining an amount of damages that will serve to deter future infringing conduct. Discovery has shown that Defendants possess substantial assets, that they have made sizeable unexplained expenditures, and that they have transferred over $1.5 million of their personal assets to limited partnerships for the benefit of their children since the inception of this litigation.
Finally, throughout this litigation, Defendant Clauss has been far from forthcoming with information and documents, except to the extent that it has suited his purposes. Consequently, the Court finds that in this case it is just to award statutory damages in an amount that equals the maximum permitted in a case of nonwillful infringement.
II. Costs and Attorney's Fees
Section 505 of the Copyright Act provides that the Court may, in its discretion, award full costs to a prevailing party in a civil copyright action. Costs may include a reasonable attorney's fee. 17 U.S.C. § 505. Given the willful nature of the infringement by Defendants Amereon and John Clauss, the Court has found that an award of costs and attorney's fees is appropriate, and is in line with the statutory goals of compensation and deterrence. See Kepner-Tregoe, Inc. v. Vroom, 186 F.3d 283, 289 (2d Cir. 1999). In making that award, nonexclusive factors to be considered include "frivolousness, motivation, objective unreasonableness (both in the factual and in the legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence." Fogerty v. Fantasy, Inc., 510 U.S. 517, 114 S.Ct. 1023, 1033 n. 19 (1994) (quoting Lieb v. Topstone Industries, 788 F.2d 151, 156 (3rd Cir. 1986)).
Because the Court was not satisfied that Joanna Paulsen was aware of the applicable copyright provisions and the basic agreements involved in this action at the time of the infringements, it made no finding of willful infringement against her. However, the Court does find, based on the trial testimony, plus its general supervision of this action, that Ms. Paulsen was a participant in Defendants' objectively unreasonable litigation position, and in their general conduct in defending this action, which unnecessarily prolonged and increased Plaintiffs' litigation costs. Consequently, the Court finds that it is appropriate, in its discretion, to award attorney's fees against Ms. Paulsen as well.See Matthew Bender Co., Inc. v. West Pub. Co., 240 F.3d 116, 124 (2d Cir. 2001).
Furthermore, in determining what constitutes a reasonable attorney's fee, the Court considers the amount of work involved, the skill employed, the damages at issue, and the result achieved. Getaped.com, Inc. v. Cangemi, 188 F. Supp.2d 398, 406 (S.D.N.Y. 2002); Screenlife Establishment v. Tower Video, Inc., 868 F. Supp. 47, 53 (S.D.N.Y. 1994). In connection with this determination, the Second Circuit has adopted the lodestar method, which places emphasis on a comparison of the rates charged by the prevailing party's counsel with rates of lawyers of similar skill and experience in the community. Crescent Pub. v. Playboy Enterprises, Inc., 246 F.3d 142, 150 (2d Cir. 2001). The Getaped.com court elaborated further, stating that relevant considerations in making this comparison include the amount of time and labor involved, the novelty and difficulty of the questions presented, the skills requisite to perform the legal service properly, preclusion of other employment by the attorney due to acceptance of the case, the customary fee, whether the fee is fixed or contingent, the time limitations imposed by the client or the circumstances, the amount involved and the results obtained, the experience, reputation, and ability of the attorneys, the undesirability of the case, the nature and length of the professional relationship with the client, and awards in similar cases. 188 F. Supp. at 406-07 (citing United States Football League v. National Football League, 887 F.2d 408, 415 (2d Cir. 1989)). Finally, the actual billing arrangement between counsel and client provides a strong indication of what constitutes a "reasonable" fee. Crescent Pub. v. Playboy Enterprises, Inc., 246 F.3d at 144, 151.
In awarding fees, the Court also must consider Defendants' ability to pay the award. Polsby v. St. Martin's Press, Inc., No. 97 Civ. 690, 2001 WL 180124, *1 (S.D.N.Y. Feb. 22, 2001). In this case, Defendants have made it difficult to discover the exact extent of their assets. Nevertheless, the information made available indicates sufficient resources to pay a substantial award.
Plaintiffs' counsel has submitted extensive materials in support of Plaintiffs' application for an award of the full fees and costs incurred in the prosecution of this action. These include the Declarations of Gloria Phares and Shawn Morehead, Ms. Phares' s resume, detailed contemporaneous time records and records of expenses, a statement regarding the various attorneys' and support staff members' billing rates, an invoice, an explanation of the time spent, including the need for some of the activities undertaken by counsel and her staff in light of obstacles that were created by Defendants and their counsel. This documentation is sufficiently detailed to provide an adequate basis for calculating an award.
Defendants have submitted their objections to Plaintiffs' submissions, and have briefed the issues raised on Plaintiffs' motion for an award of costs and attorney's fees. For the most part, Defendants' objections consist of conclusory allegations that Plaintiffs' counsel's billing rates are excessive and that Plaintiffs' counsel spent unwarranted amounts of time on this matter.
Plaintiffs' counsel's fees would appear to be within the range of fees charged by attorneys of similar skill and experience at New York area firms of similar size and stature. The maximum rate charged for partners' time is $460 per hour. Associate time is charged at between $215 and $330 per hour, with an average of approximately $284 per hour, and paralegal time is billed at a maximum of $135 per hour. In Yurman Designs, Inc. v. PAJ, Inc., 125 F. Supp.2d 54 (S.D.N.Y. 2000), aff'd, 2002 U.S. App. LEXIS 2016 (2d Cir. Feb. 8, 2002), the court reviewed the Report of Economic Survey for 1999, issued by the American Intellectual Property Law Association, the 1999 National Law Journal Survey of the rates employed for associates by the 250 largest firms in the country, and the 1999 Compensation and Benefits Survey of the National Federation of Paralegal Associations, and found that partner billings that averaged $520.69 per hour, associate billings averaging $278.50 per hour, and paralegal billings that averaged $162.35 per hour were "commensurate with the rates prevailing in the community for similar services by lawyers of reasonably comparable skill, experience and reputation." Id. at 58. Given this finding, made two years ago by another judge of this court, and the fact that, in general, fees and expenses have risen in the interim, it is clear that Plaintiffs' counsel's billing rates are reasonable. Furthermore, the rates presented are those actually charged the Plaintiffs. These Plaintiffs apparently are long-time clients of the Patterson, Belknap firm. Their acceptance of the rates charged is another indication of their reasonableness. Cf. David Yurman Designs, 125 F. Supp.2d at 58.
Plaintiffs' counsel's representation of her client evidenced substantial expertise in the area of copyrights, consistent with the extensive experience set out in her resume. Plaintiffs' counsel prosecuted this case vigorously, but not overzealously. The quality of Plaintiffs' counsel's submissions to the Court and presentation at trial was high. Moreover, in this case, many of Defendants' counsel's actions, as well as the Defendants' reluctance or inabilities with respect to their obligation to provide discovery, required Plaintiffs' attorneys to incur extra time and expenses. Consequently, Defendants cannot be heard to complain of such additional costs. Plaintiffs also were highly successful in this action and have been awarded a significant award of statutory damages.
The Copyright Act, 17 U.S.C. § 505 permits an award of full costs and fees. Twin Peaks Productions v. Publications International, 996 F.2d 1366, 1383 (2d Cir. 1993). In light of the foregoing conclusions, the court finds such an award to be appropriate in this case. Plaintiffs have presented documentation of costs and fees in the amount of $292,420.91.
However, examination of Plaintiffs' counsel's records show charges for work related to the reversion of the copyrights at issue to Plaintiffs from HarperCollins. This work, and related fact finding, would have been necessary to allow Plaintiffs to make use of the copyrights in any way, whether or not Defendants had infringed upon them. Consequently, the time attributable to that work should be deducted. While it is difficult to isolate such charges, the Court has given the benefit of the doubt to Defendants on this issue, and finds that approximately $4,500 arguably may be attributable to this activity. Accordingly, Plaintiffs are entitled to an award of $287,920.91 for costs and attorney's fees pursuant to 17 U.S.C. § 505.
III. Plaintiffs' Motion Pursuant to 28 U.S.C. § 1927
Plaintiffs charge that Defendants' attorney has unreasonably and vexatiously multiplied the proceedings herein, and should be held liable personally for costs and fees pursuant to 28 U.S.C. § 1927. While Mr. Bressler's conduct in this litigation may have been less cooperative than one would have wished, it does not rise to the level of bad faith that is required to impose sanctions on an attorney pursuant to 28 U.S.C. § 1927.
IV. Plaintiffs' Motion for a Preliminary Injunction
Plaintiffs have moved for a preliminary injunction pursuant to Fed.R.Civ.P. Rule 65 and New York Debtor and Creditor Law § 279, enjoining Defendants, pending satisfaction of the judgment in this case, from transferring their assets and/or the assets of the limited partnerships, except as required in the ordinary course of business, and from transferring their interests in the limited partnerships. They argue that they are entitled to such an order because Defendants Clauss and Paulsen conveyed the bulk of their liquid assets to the limited partnerships for the benefit of their children, for no consideration, in November 2000, after the inception of this case.
New York Debtor and Creditor Law § 279 gives the Court power to restrain a defendant from disposing of his property and/or to set aside a conveyance of property where that conveyance is fraudulent as to a creditor whose claim has not matured. Section 278 similarly empowers the Court to set aside or disregard a conveyance that is fraudulent as to a creditor whose claim has matured. New York Debtor and Creditor Law § 273-a provides that every conveyance that is made without fair consideration when the person making it is a defendant in an action for money damages, or a judgment in such an action has been docketed against him, is fraudulent as to the plaintiff, without regard to the actual intent of the defendant, if, after a final judgment for plaintiff, the defendant fails to satisfy the judgment. In addition, New York Debtor and Creditor Law § 276 provides that a conveyance made with actual intent to hinder, delay or defraud either present or future creditors is fraudulent as to those creditors.
Defendants have admitted that the formation of the limited partnerships and conveyance of their largest liquid assets to the limited partnerships for the benefit of their children was without consideration. They claim, however, that these transfers were for legitimate estate planning purposes, and were not intended to hinder, delay or defraud either these Plaintiffs or anyone else.
Actual intent to hinder, delay or defraud creditors may be inferred on the basis of "badges of fraud", which include: (1) the lack or inadequacy of consideration; (2) the family, friendship or close associate relationship between the parties; (3) the retention of possession, benefit or use of the property in question; (4) the financial condition of the party sought to be charged both before and after the transaction in question; (5) the existence or cumulative effect of a pattern or series of transactions or course of conduct after incurring the debt, the onset of financial difficulties or pendency or threat of suits by creditors; and (6) the general chronology of the events and transactions. In re: Kaiser, 722 F.2d 1574, 1582-83 (2d Cir. 1983); In re: All American Petroleum Corp., 259 B.R. 6, 18 (Bankr. E.D.N.Y. 2001). Although the papers submitted on Plaintiffs' motion present substantial basis for a finding that Defendants' transfers of assets to the limited partnerships were fraudulent as to the Plaintiffs, the Court is not in a position to enter an injunction pursuant to Debtor and Creditor Law § 276 without a hearing with respect to Defendants' actual intent. Section 273-a also does not provide a basis for an injunction at this time because, thus far, Defendants have not failed to satisfy a final judgment.
However, because most of the indicia of fraud outlined by the Second Circuit would appear to be present with respect to Defendants' conveyances of property to the limited partnerships, the Court will hold a hearing on November 25, 2002, at 10:00 a.m., to determine whether, at that point, an Order pursuant to Debtor and Creditor Law § 278 is warranted. If the Defendants satisfy the judgment in this case before that date, that hearing will be unnecessary.
Conclusion
On June 7, 2002, the Court ordered an Order permanently enjoining Defendants, their affiliates, divisions and subsidiaries, directors, officers, agents, servants, employees and attorneys, and all others acting in concert or participation with them from infringing Plaintiffs' copyrights in the works.
For the reasons stated above, the Court now awards to Plaintiffs statutory damages pursuant to 17 U.S.C. § 504(c), in the amount of $480,000 against Defendants John Clauss and Amereon Ltd., jointly and severally. Defendant Joanna Paulsen is also liable, jointly and severally, for $240,000 of that amount. In addition, the Court awards to Plaintiffs costs and attorney's fees pursuant to 17 U.S.C. § 505, in the amount of $287,920.91 against Defendants Clauss, Amereon and Paulsen, jointly and severally.
The Court will retain jurisdiction over this matter pending satisfaction of the judgment to be entered herein.
The Clerk of the Court is directed to enter final judgment forthwith, in the amounts stated in the Conclusion of this Opinion and Order.