Guggenheim Capital, LLC v. Birnbaum (In re Birnbaum)
| Decision Date | 29 July 2014 |
| Docket Number | Adv. Pro. No. 12-1011-ess,Case No. 11-50359-ess |
| Citation | 513 B.R. 788 |
| Parties | In re: David Birnbaum, a/k/a David Guggenheim, a/k/a David B. Guggenheim, a/k/a David Birnbaum Guggenheim, Debtor. Guggenheim Capital, LLC and Guggenheim Partners, LLC, Plaintiffs, v. David Birnbaum, Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
OPINION TEXT STARTS HERE
Gregory Kopacz, Esq., McDermott Will & Emery LLP, 340 Madison Avenue, New York, NY 10173, Attorneys for Guggenheim Capital, LLC and Guggenheim Partners, LLC
Ronald D. Coleman, Esq., Scott D. Simon, Esq., Goetz Fitzpatrick LLP, One Penn Plaza, Suite 4401, New York, NY 10119, Attorneys for David Birnbaum
Before the Court is the motion of Guggenheim Capital, LLC and Guggenheim Partners, LLC (together, “Guggenheim”) seeking summary judgment that the debt owed to them by David Birnbaum, the debtor in this Chapter 7 case, is nondischargeable pursuant to Bankruptcy Code Section 523(a)(6), because it arises from a willful and malicious injury by Birnbaum to Guggenheim or its property.
Guggenheim seeks summary judgment pursuant to Federal Rule of Civil Procedure 56, made applicable here by Bankruptcy Rule 7056, on grounds that this Court should give preclusive effect to a judgment and fee award in its favor entered by U.S. District Court for the Southern District of New York (the “District Court”) and affirmed by the U.S. Court of Appeals for the Second Circuit in Guggenheim's trademark infringement action against Birnbaum and an affiliated entity. Guggenheim argues that based on the District Court's findings in that action, Birnbaum should be collaterally estopped from re-litigating in this forum whether he acted willfully, whether he acted maliciously, and whether his actions caused injury.
Courts should not move too quickly to conclude that collateral estoppel bars a defendant from defending an action. Times and circumstances change, and courts must balance many considerations when collateral estoppel is invoked. From a defendant's perspective, the consequences of collateral estoppel may seem harsh. But there are considerations on the other side of the balance as well. A plaintiff should not need to prove the same facts over and over again in order to obtain meaningful relief. As a result, the requirements of collateral estoppel call for the moving party to demonstrate that the issue is substantially identical, that the issue was actually litigated and determined, that the party to be estopped had a full and fair opportunity to litigate the issue, and that the determination of the issue was necessary to the first court's final judgment. These are challenging requirements, and each must be satisfied for a defendant to be barred from re-litigating an issue. But where—as here—these requirements are met, then the plaintiff should not be required to litigate the issue again.
This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. §§ 1334(b) and 157(b)(1). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A). To the extent that Guggenheim's nondischargeability claim is finally adjudicated on this motion, this Court may enter an appropriate order and judgment. In the event that the District Court concludes that this Court may not enter a final order or judgment consistent with Article III of the United States Constitution on this claim, this Memorandum Decision and the accompanying Order may be treated as proposed findings of fact and conclusions of law pursuant to 28 U.S.C. § 157(c).
On December 12, 2011, David Birnbaum filed a petition for relief under Chapter 7 of the Bankruptcy Code. Birnbaum's bankruptcy petition notes several aliases, including David Guggenheim, David B. Guggenheim, and David Birnbaum Guggenheim. In his Statement of Financial Affairs, Birnbaum indicated that in the year preceding his bankruptcy filing, he was a defendant in an action captioned Guggenheim Capital, LLC v. Catarina Pietra Toumei, Case No. 10–8830, pending in the U.S. District Court for the Southern District of New York (the “District Court Action”).
On November 22, 2010, Guggenheim commenced the District Court Action against Birnbaum and others by filing a complaint alleging violations of the Lanham Act, including trademark infringement and trademark counterfeiting, the Racketeer Influenced and Corrupt Organizations Act, and New York law.
That same day, the District Court entered a temporary restraining order enjoining Birnbaum from using Guggenheim's marks, and directing him to respond to Guggenheim's expedited discovery requests and to preserve all records related to that matter. Some four weeks later, on December 17, 2010, the District Court converted the temporary restraining order into a preliminary injunction, enjoining Birnbaum from using Guggenheim's marks.
After those orders were entered, the District Court found that Birnbaum continued to counterfeit and infringe the Guggenheim marks as part of a scheme to defraud investors. Four months later, the District Court issued an order to show cause why contempt sanctions should not be imposed for Birnbaum's alleged failure to comply with that court's preliminary injunction order.
Birnbaum participated in the District Court Action in several ways. He appeared at the December 17, 2010 preliminary injunction hearing and the December 30, 2010 contempt hearing. Birnbaum also sought and received extensions of time to respond to Guggenheim's discovery requests, sought and was denied a stay of discovery pending the resolution of the related criminal investigation, and sought and was denied a modification of the District Court's preliminary injunction.
On July 14, 2011, based on Birnbaum's continuing conduct within and outside the District Court Action, including his violations of the preliminary injunction and discovery orders, and his continuing counterfeiting and infringement of Guggenheim's trademarks, the District Court sanctioned Birnbaum and entered a default judgment against him and Dabir International, Ltd., an entity that he controlled (the “District Court Judgment” or “Judgment”). The District Court determined that Birnbaum intentionally injured Guggenheim by his counterfeiting and infringement of Guggenheim's trademarks, and that his conduct was willful. Judgment ¶¶ 51, 53–54. Specifically, the District Court found:
Plaintiffs' Guggenheim Marks are famous and federally registered. Defendants are using “Guggenheim” marks that are identical or virtually indistinguishable from Plaintiffs' Guggenheim Marks for the same services identified in Plaintiffs' federal trademark registrations. Defendants' conduct has caused actual confusion in the marketplace, including among sophisticated investors. Defendants' use of Plaintiffs' Guggenheim Marks is a bad faith attempt to trade off of the goodwill and reputation of Plaintiffs' famous marks. Defendants' conduct is likely to cause a likelihood of confusion and a likelihood of dilution with respect to Plaintiffs' “Guggenheim” marks in violation of the Lanham Act and New York law.
Defendants' conduct constitutes the intentional trafficking in counterfeit marks in violation of the Lanham Act and New York law, including 15 U.S.C. § 1116(d).... Because Defendants' conduct is willful, intentional, and in bad faith ... the Court finds that statutory damages in the amount of $250,000 per counterfeit mark are appropriate under the circumstances of this case.
Defendants' unlawful conduct has been knowing and intentional and there are no “extenuating circumstances” for such conduct. Plaintiffs are entitled to an award of their reasonable attorneys' fees and costs under the Lanham Act and New York law.
Judgment ¶¶ 51, 53–54 (emphasis added).
As the District Court Judgment indicates, the District Court made several findings concerning Birnbaum's intent and state of mind. The District Court found, among other things, that Birnbaum's conduct was “a bad faith attempt” to exploit the “goodwill and reputation” of the Guggenheim trademarks, that Birnbaum's actions amounted to “intentional trafficking in counterfeit marks,” and that his actions were “willful, intentional, and in bad faith.” Judgment ¶¶ 51, 53. The District Court also found that Birnbaum's use of the Guggenheim marks created a “likelihood of confusion” and that there were “no ‘extenuating circumstances' ” that warranted his conduct. Judgment ¶¶ 51, 53–54.
The District Court's award of damages, fees, and costs also reflects its findings concerning Birnbaum's intent and state of mind. The District Court awarded Guggenheim “statutory damages for trademark counterfeiting in the amount of $1.25 million in lieu of an award of actual damages and profits, pursuant to 15 U.S.C. § 1117(c).” Judgment ¶ 4. Concluding that Birnbaum's “unlawful conduct [was] knowing and intentional and there are no ‘extenuating circumstances' for such conduct,” the District Court also awarded Guggenheim attorneys' fees and costs “under the Lanham Act and New York law,” and directed Guggenheim to file a declaration documenting their costs and attorneys' fees. Judgment ¶ 54. On January 31, 2012, the District Court entered an order (the “Fees Order”) awarding Guggenheim attorneys' fees of $405,901.75 and costs of $42,967.92. Fees Order 20.
On August 12, 2011, Birnbaum appealed the District Court Judgment to the Second Circuit Court of Appeals, and argued, among other things, that the District Court abused its discretion when it entered the Judgment. In affirming the decision of the District Court, the Second Circuit noted that Birnbaum not only failed to answer the complaint but also failed to comply with the District Court's discovery orders, disrupted his own...
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