Havana Club Holding, S.A. v. Galleon

• Decision Date: 12 August 1997
• Docket Number: No. 96 CIV. 9655(SAS).,96 CIV. 9655(SAS).
• Citation: 974 F.Supp. 302
• Parties: HAVANA CLUB HOLDING, S.A. and Havana Club International, S.A., Plaintiffs, v. GALLEON S.A., Bacardi-Martini USA, Inc., Gallo Wine Distributors, Inc., G.W.D. Holdings, Inc. and Premier Wine and Spirits, Defendants.
• Court: U.S. District Court — Southern District of New York

974 F.Supp. 302

HAVANA CLUB HOLDING, S.A. and Havana Club International, S.A., Plaintiffs, v. GALLEON S.A., Bacardi-Martini USA, Inc., Gallo Wine Distributors, Inc., G.W.D. Holdings, Inc. and Premier Wine and Spirits, Defendants.

No. 96 CIV. 9655(SAS).

United States District Court, S.D. New York.

August 12, 1997.

COPYRIGHT MATERIAL OMITTED

Michael Krinsky, Rabinowitz, Boudin, Standard, Krinsky & Lieberman, P.C., New York City, Charles Sims, Proskauer, Rose, LLP, New York City, for Plaintiffs.

William R. Golden, Jr., Margaret E. Ferguson, Kelley, Drye & Warren, LLP, New York City, for Defendants.

OPINION AND ORDER

SCHEINDLIN, District Judge:

Defendants move for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure on their counterclaim for cancellation of the "Havana Club" trademark and design registration in the United States Patent and Trademark Office ("PTO"). Defendants first contend that Plaintiffs' attempt to secure their rights to the mark without approval of the Office of Foreign Assets Control ("OFAC") stripped Plaintiffs of any rights to the mark and thus caused the mark to be abandoned. In opposition, Plaintiffs contend that their acquisition of rights to the mark was valid under the Cuban Assets Control Regulations ("CACR"), as well as the General Inter-American Convention for Trade Mark and Commercial Protection ("Inter-American Convention"). Plaintiffs claim, in the alternative, that there was no requirement that OFAC approve the assignment. Defendants additionally seek cancellation of Plaintiffs' registration of the mark based on the theory that Plaintiffs have no right to use the mark.

Plaintiffs move to amend their complaint to include two additional causes of action against Defendants. Plaintiffs also move to dismiss certain counterclaims raised by Defendants. For the reasons set forth below, Defendants' motion is granted, in part, and denied, in part. Plaintiffs' motion to amend their complaint is granted, in part, and denied, in part. Plaintiffs' motion to dismiss certain of Defendants' counterclaims is denied without prejudice.

I. DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

A. Legal Standard

A party is entitled to summary judgment when there is "no genuine issue of material fact" and the undisputed facts warrant judgment for the moving party as a matter of law. See Fed.R.Civ.P. 56(c); Celotex v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The burden of demonstrating the absence of a material factual dispute rests on the moving party. See Gallo v. Prudential Residential Svcs., Ltd., 22 F.3d 1219, 1223 (2d Cir.1994). Once that burden is met, the non-moving party must present "significant probative supporting evidence" that a factual dispute exists. Fed.R.Civ.P. 56(e); Anderson, 477 U.S. at 249, 106 S.Ct. at 2510-11.

The court's role is not to try issues of fact, but rather to determine whether issues exist to be tried. See Balderman v. United States Veterans Admin., 870 F.2d 57, 60 (2d Cir. 1989); Donahue v. Windsor Locks Bd. of Fire Comm'rs, 834 F.2d 54, 58 (2d Cir.1987). All ambiguities must be resolved and all inferences drawn in favor of the party against whom summary judgment is sought. See Anderson, 477 U.S. at 255, 106 S.Ct. at 2513-14; Donahue, 834 F.2d at 57, 60. If there is any evidence in the record from which a reasonable inference could be drawn in favor of the non-moving party on a material issue of fact, summary judgment is improper. See Chambers v. TRM Copy Centers Corp., 43 F.3d 29, 37 (2d Cir.1994).

B. Factual Background

1. The Cuban Assets Control Regulations

The CACR were implemented in 1963 under Section 5(b) of the Trading with the Enemy Act of 1917 ("TWEA"), as amended, 50 U.S.C.App. 1-44. Section 5(b) of the Act affords the President "broad authority to impose comprehensive embargoes on foreign countries as one means of dealing with both peacetime emergencies and times of war." Regan v. Wald, 468 U.S. 222, 225-26, 104 S.Ct. 3026, 3029, 82 L.Ed.2d 171 (1984). The CACR, one such embargo, were adopted in response to Cuban efforts to destabilize Latin American governments. Id. at 226, 104 S.Ct. at 3029-30 (citing Presidential Proclamation No. 3447, 3 C.F.R. § 157 (1959-1963 Comp.)).

The President had delegated his powers under the TWEA to the Secretary of the Treasury in 1942. In 1962, the Secretary delegated the administration of foreign assets control regulation to OFAC. See Sardino v. Federal Reserve Bank of New York, 361 F.2d 106, 109 n. 2 (2d Cir.1966). OFAC remains responsible for executing and enforcing economic embargoes and sanctions programs against several countries. See Free Trade with Cuba Act, Hearings on H.R. 2229 Before the Subcomms. on Select Revenue Measures and Trade of the House Comm. on Ways and Means, 103rd Congress 99 (1994) (statement of R. Richard Newcomb, Director of OFAC). In that capacity, OFAC administers the embargo against Cuba pursuant to the CACR.

The CACR prohibit transfers of property, including trademarks, in which a Cuban entity has an interest, except when specifically authorized by the Secretary of the Treasury. See 31 C.F.R. §§ 515.201(b), 515.311. OFAC, acting on behalf of the President, enjoys considerable discretion to authorize otherwise prohibited transactions by way of licenses. See id. § 515.801(b)(6). Moreover, OFAC has the same discretion to amend, modify or revoke both the licensing provisions of the CACR, as well as individual licenses, at any time. Id. § 515.805.

2. The Current Controversy

Havana Club rum, produced in Cuba and distributed under the Havana Club trademark, has been exported to over twenty countries since 1973. See Declaration of Luis Francisco Perdomo Hernandez ("Perdomo Decl."), Vice Chairman of the Board of Havana Club Holding, S.A., dated June 6, 1997, ¶ 5. According to Plaintiffs, the sole reason Havana Club rum is not currently sold in this country is that the embargo prohibits its importation, except as accompanying baggage of a returning United States visitor to Cuba. See 31 C.F.R. § 515.560(c)(3); Complaint ¶ 27. Plaintiffs assert that since 1973, the owners of Havana Club rum have intended to sell their rum in the United States as soon as it is legally possible to do so. Complaint ¶ 27. At present, the principal markets for Havana Club rum are Western Europe, Canada, and Mexico, although Havana Club is also sold in Central and South America, and in other markets. Id. at ¶ 25.

Under Section 44 of the Lanham Act, foreign entities are permitted to register trademarks in the United States. 15 U.S.C. § 1126. Pursuant to Section 44, the Havana Club mark was registered in the United States in 1976 by Cubaexport, a Cuban state enterprise, based on Cubaexport's registration of the mark in Cuba. Complaint ¶ 17; 15 U.S.C. § 1126(c). Cubaexport continued to market Havana Club rum internationally from 1972 until 1993. Perdomo Decl. ¶ 5.

In 1993, Cubaexport's Havana Club rum business was reorganized to incorporate a foreign partner. See Perdomo Decl. ¶ 11. Cubaexport reached an agreement with Pernod Richard, S.A. ("Pernod"), an international distributor of liquor, to form two companies: (1) Havana Club Holding ("HC Holding"), of which 50% equity and board representation was to be held by a newly formed Cuban company, Havana Rum & Liquors, S.A., and 50% by Pernod; and (2) Havana Club International ("HCI"), which has a 50-50 equity split between Havana Rum & Liquors and Pernod, both through direct holdings and through holdings in HC Holding. See Perdomo Dec. ¶ 12. Plaintiffs allege that all of the assets associated with the Havana Club trademark were transferred as part of this reorganization by Cubaexport to Havana Rum & Liquors, which then transferred them to HC Holding. Id. HC Holding then granted HCI an exclusive license to sell Havana Club rum and to use the Havana Club trademark. Id. The transfer of the trademark in the 1993 reorganization of Cubaexport's Havana Club business was governed by the CACR.

On October 5, 1995, Plaintiffs applied to OFAC for a specific license¹ authorizing the assignment of the Havana Club trademark, Registration No. 1,031,651, from Cubaexport to Havana Rum & Liquors, S.A. to Havana Club Holdings, S.A. See Affidavit of Margaret Ferguson ("Ferg.Aff."), attorney for Defendants, May 23, 1997, Ex. E. On November 13, 1995, OFAC issued License No. C-18147, which approved the assignment and authorized all necessary transactions incident to the assignment of the mark. Id. However, on April 17, 1997, OFAC issued a Notice of Revocation stating that "as a result of facts and circumstances that have come to the attention of this Office which were not included in the application of October 5, 1995, License No. C-18147 ... is hereby revoked retroactive to the date of issuance." Id., Ex. G. OFAC did not further explain the grounds for the revocation but did state that any action taken under the license is null and void as to matters under its jurisdiction. See id.

OFAC enjoys considerable discretion in granting or revoking licenses, and the CACR permit OFAC to amend, modify, or revoke a license at any time, on its own initiative. See Havana Club Holding, S.A. v. Galleon S.A., 961 F.Supp. 498, 505 (S.D.N.Y. 1997). Moreover, the CACR grant OFAC the authority to take such action sua sponte. Id. Because the issuance or revocation of licenses by OFAC is committed to OFAC's discretion, OFAC's decisions are not reviewable by this Court. Id. at 503, 505. Consequently, Defendants contend that because Plaintiffs have failed to obtain a specific license and are unable to challenge OFAC's decision, Plaintiffs cannot validly transfer the United States registration of the Havana Club mark. See Memorandum of Law in Support of Defendants' Motion for Partial Summary Judgment ("Def.Mem.") at 8.

Plaintiffs advance four arguments in response to Defendants' assertion: (...