Bambu Sales, Inc. v. Ozak Trading Inc.
| Decision Date | 26 June 1995 |
| Docket Number | No. 602,D,602 |
| Citation | 58 F.3d 849 |
| Parties | , 35 U.S.P.Q.2d 1425 BAMBU SALES, INC., Plaintiff-Appellee, v. OZAK TRADING INCORPORATED and Doron Gratch, Defendants-Appellants. ocket 93-7913. |
| Court | U.S. Court of Appeals — Second Circuit |
Gerard F. Dunne, New York City for defendants-appellants.
Henry Pitman, Lieberman & Nowak, New York City (Milton Springut, of counsel) for plaintiff-appellee.
Before: FEINBERG, MESKILL, and McLAUGHLIN, Circuit Judges.
Bambu Sales, Inc. imports and sells cigarette rolling paper under its federally registered trademark, BAMBU. Ozak Trading Inc. imports and distributes brand-name goods, "off-brand-name" goods, and "closeouts."
Bambu's foreign manufacturer had some surplus stock of "light-weight" paper bearing the BAMBU mark. Bambu had discontinued the sale of such paper in the United States, but it permitted the manufacturer to sell it on the condition that the manufacturer document shipment to the Nigerian buyer. Some time later, Bambu learned that the light-weight paper was being sold in the United States, in packaging that lacked the "light-weight" designation.
Ozak was in the distribution chain that brought the light-weight paper into the United States. Bambu sued Ozak and its president in the United States District Court for the Southern District of New York (Shirley Wohl Kram, Judge ), asserting three claims: (1) trademark infringement in violation of 15 U.S.C. Sec. 1114(1); (2) false designation of origin and false descriptions and representations, in violation of 15 U.S.C. Sec. 1125(a); and (3) trademark infringement and unfair competition under the common law of New York.
The district court referred the matter to a magistrate judge to supervise discovery and to make certain recommendations. After defendants violated a discovery order, and in light of other acts of delay and obstruction spanning more than one year, the magistrate judge recommended entry of a default judgment pursuant to Fed.R.Civ.P. 37. Accepting that recommendation, the district court entered a default judgment against defendants, and referred the matter back to the magistrate judge for an inquest on damages. The magistrate judge recommended that judgment be entered against defendants for $264,982.12. The district court adopted this recommendation too.
The district court also permitted Bambu to move for summary judgment on the issue of liability. Relying on the reasoning in an unpublished opinion in a companion case, Bambu Sales Inc. v. Inter-American Distributors, Inc. and Bernard Silverfarb, Docket No. CV-90-0596 (E.D.N.Y. Oct. 21, 1992) (Dennis R. Hurley, Judge ), the district court granted summary judgment to Bambu against both defendants.
On appeal, defendants challenge (1) the default judgment; (2) summary judgment in favor of the plaintiff; and (3) the damages award. For the reasons that follow, we affirm the default judgment and the damages award, and find it unnecessary to reach the summary judgment issue.
Bambu Sales, Inc. imports and sells cigarette rolling paper under its federally registered trademark, BAMBU. The paper is manufactured for Bambu in Spain by Miguel y Costas & Miguel, S.A. ("MCM"). MCM also manufactures "booklets" for Bambu. Booklets are small cardboard folders, roughly the size of a matchbook, in which the cigarette papers are packaged and sold.
Ozak Trading Inc. imports and distributes brand-name goods, "off-brand-name" goods, and "closeouts." Doron Gratch is its president.
In 1986, Bambu began marketing regular size, "light-weight" cigarette paper in the United States, in booklets declaring that the paper was light-weight. The paper did not In 1989, MCM informed Bambu that it still had left-over regular size, light-weight paper in stock. MCM asked for permission to sell the paper to a buyer in Nigeria. For a commission, Bambu approved the sale, but only on condition that MCM document shipment to Nigeria. According to Bambu, there was little risk that the paper would make its way from Nigeria to the United States because it bore the BAMBU trademark, which is on the United States Customs Service restricted list. Goods on the list are not permitted entry into the United States without the trademark holder's consent.
sell well and was the subject of customer complaints. Accordingly, Bambu discontinued selling it in the United States in 1988.
Early in 1990, Bambu began to get complaints about the quality of its "regular size" cigarette paper. Bambu learned that light-weight paper was being sold in the United States without its authorization in regular size booklets that were not labelled "light-weight." Bambu discovered that Ozak was in the distribution chain importing the paper into the United States. Ozak had purchased the paper from a British company, and then sold it to wholesale companies in the United States.
Lower court proceedings
Bambu filed suit in the United States District Court for the Southern District of New York, asserting three claims against Ozak and Gratch, its president. Count I alleged trademark infringement in violation of 15 U.S.C. Sec. 1114(1); Count II alleged a violation of Section 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a) (); and Count III alleged trademark infringement and unfair competition under the common law of New York. Judge Kram referred the matter to Magistrate Judge Barbara A. Lee to supervise discovery and to make certain recommendations.
Discovery turned out to be a Stalingrad battle. Pursuant to a stipulation of the parties, Bambu first took the deposition of Gratch on March 14, 1990. At that deposition, and in a separate document request, Bambu called for the production of documents related to Ozak's purchase and sale of Bambu cigarette paper. Fifteen months later, in June, 1991, Ozak still had not produced the documents.
Ozak also failed to produce documents and interrogatory answers regarding prior acts of trademark infringement. Although its refusal was based, in part, on claims of privilege, Ozak never provided an index of the withheld documents as required by Rule 46(e) of the Civil Rules for the Southern District of New York. In addition, during the continuation of Gratch's deposition in February, 1991, Gratch refused to answer numerous questions on the ground of relevancy, a violation of federal and local court rules. See, e.g., Johnson v. Schmidt, No. CV-89-0531, 1992 WL 135237, at * 1, 1992 U.S. Dist. LEXIS 8342, at * 1 .
After further acrimony, Bambu filed a motion to compel production of documents and answers to interrogatories, and to compel the continued deposition of Gratch. Responding to the motion, defendants also sought an order compelling discovery. In an August 30, 1991 order, Magistrate Judge Lee granted Bambu's motion "in all respects," adding that "[c]ompliance with local Civil Rule 46 is not optional" and "[a] deponent may not refuse to answer a question on grounds other than privilege." The magistrate judge denied defendants' discovery motion, and awarded Bambu attorneys' fees. Defendants never sought review of this order.
Several weeks passed with no effort by defendants to comply with the August 30 order. Accordingly, Bambu moved for a default judgment under Fed.R.Civ.P. 37. Opposing the motion, defendants' attorney stated in an affidavit that they were unable to comply because Gratch was stricken with a "grave illness." Defendants provided no details about Gratch's illness, nor did they submit any documentary evidence to support the claim (e.g., a statement from Gratch himself or his physician).
Gratch was finally deposed on February 5, 1992, while the Rule 37 motion was still pending. Two weeks later, on February 18, 1992, Magistrate Judge Lee issued a 16-page report recounting the lamentable history of defendants' obstinacy in resisting discovery.
The report concluded that (1) defendants had engaged in a pattern of "tactical obstruction"; (2) defendants had adequate notice that violation of the August 30 order could result in the entry of a default judgment; (3) "any sanction short of a default judgment would permit the recalcitrant parties to benefit from their tactical obstruction"; and (4) another discovery order would only multiply the proceedings. Accordingly, she recommended that a default judgment be entered against Ozak and Gratch.
Defendants filed objections to the report. Judge Kram indicated that she had reviewed the objections de novo, stating that
In their objections to the Magistrate Judge's Report and Recommendation, defendants' principal contention is that Doron Gratch was too ill during September and October 1991 to comply with the Court's August 30, 1991 order. The Court finds, however, that defendants' submissions do not establish this fact.
Accordingly, Judge Kram granted Bambu's motion for a default judgment, and referred the matter back to Magistrate Judge Lee for an inquest on damages.
The only witness to testify at the inquest was Doron Gratch, who was called by both Bambu and defendants. In addition to Gratch's testimony, Bambu offered proof of the volume of Ozak's sales, proof that defendants took no steps to verify the authenticity of the paper before purchasing it, and that defendants, by virtue of their involvement in prior "gray goods" litigation, were aware of the potential problems when brand-name merchandise is purchased from an off-shore source. Evidence at the inquest proved that Ozak sold an aggregate of 13,570 boxes of the light-weight cigarette paper for total proceeds of $178,388.40.
Defendants attempted to prove deductible costs. Although they offered numerous bills, defendants offered virtually no evidence that the bills had actually been paid, other than Gratch's oral testimony.
Magistrate Judge Lee filed a report finding that "Gratch's testimony at...
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