Manhattan Industries, Inc. v. Sweater Bee by Banff, Ltd.
| Decision Date | 15 September 1989 |
| Docket Number | D,No. 893,893 |
| Citation | 12 USPQ2d 1368,885 F.2d 1 |
| Parties | MANHATTAN INDUSTRIES, INC., Bayard Shirt Corporation, and Don Sophisticates, Inc., Plaintiffs, v. SWEATER BEE BY BANFF, LTD., and Robert Belsky, Defendants. SWEATER BEE BY BANFF, LTD., Contempt-Plaintiff-Appellant, v. MANHATTAN INDUSTRIES, INC., Bayard Shirt Corporation, Champpierre, Ltd., Laurence L. Leeds, Jr., Donald Kallman, Robert Hamel, and Fred Feldstein, Contempt-Defendants, Manhattan Industries, Inc., Bayard Shirt Corporation, Donald Kallman, and Robert Hamel, Contempt-Defendants-Appellees. ocket 88-7810. |
| Court | U.S. Court of Appeals — Second Circuit |
Dennis Grossman, New York City (Eileen King, Grossman & King, New York City, of counsel), for contempt-plaintiff-appellant.
Thomas J. Sweeney, III, New York City (Cynthia A. Feigin, Davis, Markel & Edwards, Paul Fields, McAulay, Fields, Fisher, Goldstein & Nissen, New York City, of counsel), for contempt-defendants-appellees.
Before LUMBARD, PRATT and MINER, Circuit Judges.
This is an appeal from a judgment entered in the United States District Court for the Southern District of New York (Broderick, J.) that approved and adopted a report of a special master finding the Bayard Shirt Corporation ("Bayard") in civil contempt of that court's February 27, 1981 consent judgment and injunction ("consent judgment"). The finding of contempt was premised on Bayard's failure to use a source reference to distinguish a mark it had adopted in connection with the sale of certain products from the mark adopted by Sweater Bee by Banff, Ltd. ("Sweater Bee"). Despite this finding, the district court agreed with the special master that Bayard's conduct was not willful and that Sweater Bee had failed to prove any injury. As a result, the court declined to award an accounting, damages or attorney's fees against Bayard. Also adopted by the district court was the special master's recommendation that Sweater Bee pay one-third of his fees and expenses.
On appeal, Sweater Bee contends that Bayard's conduct was willful as a matter of law, that sanctions may be imposed for non-willful conduct in any event, and that the district court erred in refusing to order an accounting of Bayard's contempt revenues or profits. We hold that Sweater Bee is entitled to the benefit of sanctions for Bayard's continuous violations of the consent judgment notwithstanding the absence of a finding that the violations were willful and the absence of proof that Sweater Bee sustained any lost sales by reason of the violations, and we award an appropriate sanction.
In May 1979, General Mills, Inc. abandoned its "Kimberly" trademark for women's apparel. Immediately thereafter, Manhattan Industries, Inc. ("Manhattan")--Bayard's corporate parent--and Sweater Bee, both of which manufacture and market women's apparel, claimed the right to use the mark. To enforce its claim, Manhattan commenced an action under section 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a) (1982), in the Southern District of New York in October 1979, seeking (i) an accounting of profits derived from Sweater Bee's use of the mark, (ii) damages, (iii) costs and (iv) an injunction to prevent Sweater Bee's continued use of the Kimberly name ("1979 action").
Ruling in favor of Manhattan, the district court issued a permanent injunction against Sweater Bee but denied any monetary relief. On appeal, we reversed, finding that both parties had an equal right to use the Kimberly mark and that they could do so concurrently, provided that each party differentiated its mark from that of the other. Manhattan Indus., Inc. v. Sweater Bee By Banff, Ltd., 627 F.2d 628, 631 (2d Cir.1980). Accordingly, we remanded the matter to the district court "for the fashioning of an appropriate order...." Id. On remand, the parties entered into a consent order, which on February 27, 1981 was incorporated into a judgment, permitting each party to use the Kimberly mark on all advertising material, brochures, labels, envelopes, business cards and the like in connection with the sale, distribution and advertising of women's apparel, but only when accompanied by a "source reference" in close proximity to the Kimberly mark (e.g., "Kimberly by Sweater Bee" and "Kimberly by Bayard").
On June 26, 1981, Sweater Bee commenced an action against Manhattan ("1981 action"), claiming that in the prior trademark action Manhattan had committed fraud and perjury in procuring its concurrent right to use the Kimberly trademark and tradename, and that Manhattan repeatedly had failed to use an appropriate source reference in conjunction with the Kimberly name, in violation of the consent judgment. Later, on March 24, 1982, Sweater Bee filed an amended complaint, asserting causes of action under, inter alia, section 43(a) of the Lanham Act, the antitrust laws, federal common law and state law. On October 19, 1982, the district court granted in part and denied in part a motion by Manhattan to dismiss the amended complaint, see Fed.R.Civ.P. 12(b)(6), noting that Manhattan's failure to use a source reference "states a claim under Sec. 43(a) of the Lanham Act."
Sweater Bee moved for leave to file a second amended complaint in December 1983, to assert, among other things, additional source-reference claims and a claim against Manhattan, Bayard and certain other Manhattan-related entities and individuals for civil contempt of the consent judgment. Sweater Bee moved also for partial summary judgment on the civil contempt claim and for a judgment of criminal contempt.
After hearing oral argument, Judge Broderick on August 23, 1984 granted Sweater Bee's motion to add the additional source-reference claims, denied its motion for partial summary judgment, and held that Sweater Bee's civil contempt claim should proceed under the caption of the 1979 action so that the court could retain jurisdiction over it. He then referred the matter to a special master, who was to conduct discovery and an evidentiary hearing, report to the district court whether there had been a civil contempt of the consent judgment and, if so, determine "the amount of damages, if any, suffered by [Sweater Bee] as the result of such civil contempt." In referring the matter to the special master, the court ordered also that each side pay one-half of the master's fees, "with the ultimate responsibility for the ... fees to abide the event." Finally, the court deferred ruling on Sweater Bee's motion for a judgment of criminal contempt, which, on December 6, 1984, was dismissed upon Sweater Bee's own request. 1
Discovery proceedings commenced toward the end of 1984. During discovery, the special master on several occasions noted Sweater Bee's failure to comply with the discovery schedule he had established. Not only was Sweater Bee regularly delinquent in producing documents and complying with the master's discovery orders, but it responded belatedly and inadequately to Manhattan's interrogatories. In fact, the special master cautioned that "appropriate actions" might be taken if Sweater Bee continued to cause delay, and observed that the number of times Sweater Bee had not met discovery deadlines "outnumber[s] the other side in a geometric fashion."
Twenty-three days of hearings, between March 14 and October 8, 1985, were held before the special master. On June 27, 1986, the special master filed his report In reaching his decision, the special master reviewed various violations of the terms of the consent judgment, finding repeated omissions of the required source references in clothing labels and hang tags, sales invoices, dealings with salesmen (trade shows, sales order forms, salesmen contracts and business cards), stationary, advertising ("counter signs," co-op newspaper ads and one store catalogue), and New York lobby listings, building directories, and telephone listings. He found that the greater part of Bayard's contemptuous conduct lasted well into 1983, more than two years after the entry of the consent judgment. Further, the master determined that, by and large, Bayard's Kimberly sales invoices lacked source references until the end of July 1982, and that Bayard's New York telephone listing for its Kimberly line and showroom appeared without the required reference until sometime after January 1984, when Bayard finally advised New York Telephone to change the listing.
finding Bayard, but not Manhattan nor any of the other contempt-defendants, in civil contempt of the consent judgment. However, because he determined that Bayard's conduct was not willful and that Sweater Bee had failed to prove any injury, he declined to require an accounting of revenues or profits.
Equally as important, the special master concluded that Bayard failed to develop and implement a "thorough, considered ... plan of attack on compliance" with the consent judgment "that would have prevented the problems that occurred." Although Bayard--principally through Robert Hamel, Executive Vice-President, who was responsible for ensuring compliance with the judgment--instructed its employees and suppliers to use the source reference in connection with all goods sold under the Kimberly name, the master noted that there "appear[s] to have been little follow-through once initial instructions ... had been given."
Despite finding widespread contemptuous conduct, the special master concluded that Bayard's conduct was not willful. For instance, the master found that although 13,000 "Kimberly Sport" labels without a source reference were missing from Bayard's inventory and presumably added to Bayard garments, they probably were taken and sewn onto the garments "mistakenly." He found also that while the number of garments shipped with improper labels after August 1982 was "probably substantial," there was no "intentional, deliberate effort by Bayard to ship garments with the wrong labels or tags." As well, he found that...
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