Opinion
99 Civ. 9307 (JFK)
August 29, 2003
SALANS, Maxim H. Waldbaum, Lori D. Greendorfer, New York, for Plaintiff
COOPER DUNHAM LLP, Robert D. Katz, Robert T. Maldonado, New York, for Defendant Chaindom Enterprises, Inc.
WADE, CLARK, MULCAHY, Dennis M. Wade, Suzanne O'Keefe New York, for Defendant Shieler Trading Corporation
MEMORANDUM OPINION AND ORDER
Before the Court is the motion of plaintiff Yurman Design, Inc. ("Plaintiff" or "Yurman") brought pursuant to this Court's Opinion and Order of June 27, 2002 ("June Order"), 2002 WL 1402305 (S.D.N.Y. June 27, 2002), and its Order of August 7, 2002, seeking sanctions. In the June Order, this Court held defendant Chaindom Enterprises, Inc. ("`Defendant" or "Chaindom77) in contempt for violating this Court's Order of November 29, 1999, which preliminarily enjoined defendants from the manufacture and sale of certain cable bracelets (the "Enjoined Products77) and awarded sanctions for lost profits to Yurman in the amount of $20,000.00.
In the June Order, the Court also permitted Yurman to conduct additional discovery concerning the amounts of profits and permitted the parties to file supplemental submissions on what they believed to be the proper profit amount. In its Order of August 7, 2002, this Court stated that if "Yurman believes there is a basis for sanctions based on materials now produced, Yurman may make such a motion without a conference with the Court.77 Yurman now moves for sanctions in the form of attorneys7 fees and costs, as well as an increased amount in the profits gained by Chaindom from the sale of the Enjoined Products.
The Court notes that Chaindom has not been forthcoming and cooperative during discovery. Their responses are generally repetitive and refer back to prior submissions which Yurman found inadequate. Chaindom does not indicate on its invoices the style number or any other indication of which product is being sold. The information which is indicated is vague and nearly undecipherable. Chaindom's admittedly poor record keeping, whether intentional or not, has led to extensive additional discovery and litigation to determine the proper amount of profits they should be assessed for violating the November 1999 Order. With this background in mind, the Court will address each sanctions element separately.
Attorneys' Fees
Yurman has requested an award of attorneys' fees in the amount of $144,110 for its work expended preparing the motion for contempt. Plaintiff contends that this amount is reasonable based on the hours spent taking discovery, conducting research, taking depositions and preparing the motion, tasks which were made more burdensome by Chaindom's poor records.
Wurman alternately moved for fees under Section 505 of the Copyright Act which provides that "[e]xcept as otherwise provided by this title, the court may also award a reasonable attorney's fee to the prevailing party as part of the costs." 17 U.S.C. § 505. The Court denies Yurman's application under that provision. The language of the statute refers to the "prevailing party" indicating that an award is appropriate upon a final adjudication on the merits. See In Design v. Lauren Knitwear Corp., 782 F. Supp. 824, 836 (S.D.N.Y. 1991) (awarding fees under § 505 after trial); Oboler v. Goldin, 714 F.2d 211, 213 (2d Cir. 1983) (awarding fees under § 505 after entry of a directed verdict). The Court finds that an award under that section is inappropriate on an interlocutory motion.
Chaindom objects to any award of fees because the Court has not determined, and Chaindom believes it to be untrue, that Chaindom acted willfully in violating the Court's preliminary injunction order. Chaindom objects to the amount requested as excessive and punitive, not remedial and compensatory as required by law. Chaindom contests the amount and type of work performed, as well as the billing rates charged. The Court agrees with Chaindom that Yurman is not entitled to the full amount requested.
A sanction for contempt should compensate plaintiff for its loss and prevent defendant's continued disobedience. Achieving those twin goals does not require awarding the full fee amount requested here. The amount awarded below, in conjunction with the amount awarded for lost profits, will satisfy these objectives.
Chaindom argues that the Court cannot award any fees without a finding of willfulness. However, a movant is entitled to sanctions "notwithstanding the absence of a finding that the violations were willful." Manhattan Indus., Inc. v. Sweater Bee By Banff. Ltd., 885 F.2d 1, 2 (2d Cir. 1989). Civil contempt proceedings must be "remedial and compensatory, and not punitive," id. at 4 (quoting Sunbeam Corp. v. Golden Rule Appliance Co., 252 F.2d 467, 469 (2d Cir. 1958))) (internal cite omitted), and any award resulting from such a proceeding should be "for the benefit of the complainant." Id. (cites omitted).
The Court did not characterize Chaindom's behavior as willful or intentional in its contempt finding. In fact, the Court described it as "improper." Yurman Design Inc v. Chaindom Enterprises. Inc. and Shieler Trading Corp. 2002 WL 1402305, at *2 (S.D.N.Y. June 27, 2002). Chaindom's characterizations of the behavior as intentional are not supported by the language of the Order. Nevertheless, the Court awards Yurman attorneys' fees in the amounts detailed below.
Yurman contends and the Court agrees that the investigation of Chaindom's contempt of the preliminary injunction order was made more difficult by Chaindom's failure to cooperate during discovery. Yurman was required to take extensive third-party discovery to investigate which cable jewelry products Chaindom was selling. The depositions and third party discovery necessitated by Chaindom's failure to provide more accurate records requires sanctions. The Court recognizes that this case is complicated factually but the experience and specialization of counsel in this area of law militate against awarding the full amount requested.
Amount of the Fee Award
Yurman seeks fees and costs for work performed from March 2002 through June 2002. During that time, Yurman deposed Chaindom's customers, continued its investigation and prepared its motion. Yurman excluded from its request hours spent during other times conducting related work.
Local Rule 83.9 of the Local Rules of the United States District Courts for the Southern and Eastern Districts of New York states that in connection with a motion for civil contempt, a "reasonable counsel fee, necessitated by the contempt proceedings, may be included as an item of damages." Yurman has provided the Court with detailed materials, including redacted billing statements sent to the client, as well as the declaration of Maxim Waldbaum, to support their claim for fees. See Waldbaum Decl.; Id., Ex. B. Nonetheless, having reviewed those records, the Court finds the amount requested excessive, not reasonable, and declines to award the full amount requested.
The Court awards attorneys' fees in the following manner. Under Federal Rule of Civil Procedure 30(d)(2), a deposition is limited to one day of seven hours. Fed.R.Civ.P. 30(d)(2). Based on this standard, plaintiff is awarded fees for seven hour depositions for each of the identified witnesses it deposed in connection with the contempt motion at the rate of $250 per hour.
Upon review of the submissions, specifically the Waldbaum Declaration and the exhibits attached thereto, the Court has identified nine (9) named persons who were deposed including Mr. Fikri Akdemir, President of Chaindom, and third party customers. The total number hours allowed for taking depositions then equals 63. At a rate of $250.00 per hour, the award amounts to $15,750.
Plaintiff is also awarded $200.00 per hour of deposition preparation for the same number of hours awarded for taking the depositions. At a rate of $200.00 per hour for 63 hours, the award amount equals $12,600.
The total award of attorneys' fees equals $28,350. The amount of the award is in the Court's discretion and the Court finds this amount to be sufficiently compensatory. The procedural posture here is a consideration. This request is based on a contempt finding for violation of a portion of a preliminary injunction order. There has been no final adjudication on the merits. To award the full amount requested would enter into the realm of punitive awards.
Costs Disbursements
Yurman requests costs in the amount of $16,619.00. See Waldbaum Decl. ¶ 11. The Court finds that the amount of fees awarded above sufficiently compensates plaintiff and denies the application for costs.
The Court finds that this fee award serves to deter defendant from committing future violations and sends a message of deterrence to other potential infringers. The award here is sufficient to deter Chaindom from again violating the November Order.
Amount of Chaindom's Profits from Sale of the Enjoined Products
In its June Order, this Court awarded plaintiff $20,000 in profits gained by Chaindom from sale of the Enjoined Products. The evidence offered by both sides in the contempt proceeding was inadequate to award a more accurate figure. Both parties were permitted to file supplemental submissions on that figure in attempts to alter it.
Plaintiff now seeks $87,458.00 in gross revenues realized from the sale of the Enjoined Products. Chaindom's failure to produce requested discovery and their admittedly poor record keeping have frustrated Yurman's ability to determine the correct number of infringing bracelets sold, which likewise prevents Chaindom from proving properly the amount, if any, that should be deducted from its gross revenues. Yurman claims it has met its burden of proving the amount of Chaindom's gross profits by using sales invoices, despite the fact that Chaindom admittedly does not specify the style number of the product on its invoices.
In the alternative, Yurman seeks statutory damages under Section 504(c) of the Copyright Act in the range of $87,000-$150,000. Under the Copyright Act, the Court has discretion to award Yurman statutory damages for willful infringement in lieu of Chaindom's profits given the difficulties caused by Chaindom in calculating profits. The Court can award up to $150,000 per willful infringement measured by the number of works which is one here. Chaindom correctly argues that statutory damages are not appropriate on a motion for contempt as such damages can only be awarded after an adjudication of infringement. The Court declines to award statutory damages and reminds Yurman that Chaindom's acts were never characterized as willful or intentional in the June Order; therefore, there is no basis for an application for damages based on willful infringment.
While Chaindom claimed that showing its customers the product in question was the only way to know which design a customer purchased, they never did so. In arriving at its profit figure, Chaindom relies on the declarations of Mr. Akdemir stating that textured gold tubing is the only kind used to manufacture the infringing bracelets. The Stern-Leach invoice for textured gold tubing, dated April 13, 2000, was produced for the first time in the summer of 2002. The invoice reflects the only such purchase Chaindom made since November 1999. The invoice includes the raw materials used to manufacture the bracelets and corroborates the estimates given by Mr. Akdemir in March 2002 deposition. Chaindom purchased 1,164 grams to manufacture textured twisted gold bracelets. Each bracelet weighs approximately 28-30 grams resulting in 65 bracelets being made. Chaindom claims to make a profit of $56 per bracelet, resulting in a total net profit of $3640.00 for 65 bracelets. Chaindom argues that the fact that their later submission increases the number of bracelets sold thereby increasing the amount of profit.
Although plaintiff bears the burden to establish the defendant's profits, any uncertainty as to profits that is caused by the defendant's failure to keep adequate records of costs will be resolved in favor of the plaintiff. In Design v. Lauren Knitwear Corp. 782 F. Supp. 824, 832 (S.D.N.Y. 1991); see also Update Art, Inc. v. Modiin Pub., Ltd., 843 F.2d 67, 72 (2d Cir. 1988) (defendant's "unjustified failure to respond to discovery orders was the cause of the lack of evidence necessary precisely to determine damages"). Defendant can deduct only those costs which it proves were related to the infringing work. Id. Overhead is deductible if the defendant can show what portion of overhead contributed to the production and sale of the infringing products. Id. Although Chaindom "need not prove [its] overhead expense and their relationship to the production of the contemptuous goods in `minute detail', it must still carry its burden of demonstrating a sufficient nexus between each expense claimed and the sales of the unlawful goods." Man. Ind., at 7-8. As the infringer, Chaindom is obligated to produce satisfactory records of its overhead showing sufficient particularity. Id. at 8. Here where Chaindom's record keeping is so poor, the Court must resolved the uncertainty brought by these vague records and specious calculations reached by both sides in plaintiff's favor.
The Court finds the amount requested by plaintiff, $87,458.00, is too high. Likewise the profit figure Chaindom proposes is incredibly low. While the amount due to Yurman is clearly more than the $20,000.00 previously awarded, the Court will not grant an award reflecting the full gross revenues. Resolving this uncertainty in plaintiff's favor, the Court awards Yurman an additional $25,000.00 for a total award of lost profits of $45,000.00. The Court finds this amount to serve a deterrent purpose to discourage defendant from further violating the order.
CONCLUSION
Plaintiff's motion for attorney's fees is granted in the amount of $28,350.00. Plaintiff's application for costs is denied. The amount awarded for profits made by Chaindom in its sale of the infringing bracelets is increased by $25,000.00 for a total award of $45,000.00.SO ORDERED.