New York Soc., Public Accoun. v. Eric Louis Assoc., 99 Civ. 3030(LBS).

• Decision Date: 02 December 1999
• Docket Number: No. 99 Civ. 3030(LBS).,99 Civ. 3030(LBS).
• Citation: 79 F.Supp.2d 331
• Parties: THE NEW YORK STATE SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS, Plaintiff, v. ERIC LOUIS ASSOCIATES, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

Page 331

79 F.Supp.2d 331

THE NEW YORK STATE SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS, Plaintiff, v. ERIC LOUIS ASSOCIATES, INC., Defendant.

No. 99 Civ. 3030(LBS).

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

December 2, 1999.

COPYRIGHT MATERIAL OMITTED

Mark Skolnick, Skolnick, Hochberg & Bernfeld, P.C., New York, NY, David B. Bernfeld, Skolnick, Hochberg & Bernfeld, P.C., New York, NY, Richard M. Ballerini, Gerald H. Kiel, McAulay, Nissen, Goldberg, Kiel & Hand, L.L.P., New York, NY, Mark Montague, McAuley, Nissen, Goldberg, Kiel & Hand, L.L.P., New York, NY, for Plaintiff.

Ira A. Finkelstein, Tenzer Greenblatt LLP, New York, NY, for Defendant.

OPINION

SAND, District Judge.

Plaintiff The New York State Society of Certified Public Accountants ("the Society" or "Plaintiff") commenced this action against Defendant Eric Louis Associates ("ELA" or "Defendant") on April 27, 1999, asserting causes of action for (1) trademark/servicemark infringement, false designation of origin, and unfair competition under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); (2) trademark/servicemark dilution under § 43(c) of the Lanham Act, 15 U.S.C. § 1125(c); (3) trademark/servicemark dilution under New York General Business Law § 360-1; and (4) copyright infringement under § 101 et seq. of the Copyright Act of 1976, 17 U.S.C. § 101 et seq. On the same date, the Society moved for a preliminary injunction, and applied for and was granted a temporary restraining order. After two adjournments, a hearing on the Society's preliminary injunction motion was set for May 24, 1999. On that date, counsel orally stipulated to entry of an order of permanent injunction, and the Court issued such an Order on June 1, 1999.¹ The Order authorized the Society to apply for an award of monetary damages and/or attorneys fees by June 25, 1999. Presently before the Court is (1) the Society's application for an award of attorney fees under § 35(a) of the Lanham Act, 15 U.S.C. § 1117(a); and (2) the Society's motion for discovery and a hearing pursuant to an application for an award of damages, infringer's profits, costs, and/or attorney fees under §§ 504(b) and 505 of the Copyright Act, 17 U.S.C. §§ 504(b), 505.

This application for attorney fees and damages comes to the Court in an awkward procedural posture. Faced with Plaintiff's motion for a preliminary injunction, Defendant chose to forego briefing and a hearing on the claims of liability raised in that motion-deciding instead to consent to an order permanently enjoining Defendant from continuing the actions that, according to Plaintiff, were violative of Plaintiff's servicemark and copyright. Furthermore, Defendant's formal consent to that order is replete with disclaimers of liability.² Similarly, Defendant's submissions in opposition to Plaintiff's application for damages and attorney fees contain numerous denials of liability.³ Finally, as is discussed more fully in Sections I and II below, a determination that a prevailing plaintiff in a trademark action is entitled to attorney fees requires a determination that the defendant's infringing or diluting conduct was willful or tinged with bad faith. This latter determination obviously presupposes an initial finding of infringement and/or dilution.

Taken together, the preceding considerations raise the question whether the Court can simply infer Defendant's liability on Plaintiff's underlying infringement and dilution claims from Defendant's consent to the permanent injunction-thereby ignoring Defendant's disclaimers of liability-or, instead, is obliged to decide these liability issues.

Unfortunately, however, there appears to be no clear, direct legal authority on this question, and the legal rules bearing on it indirectly point in conflicting directions.

We begin with three Federal Rules of Civil Procedure. First, Federal Rule of Civil Procedure 65(d) provides in relevant part that "[e]very order granting an injunction ... shall set forth the reasons for its issuance...." Where such an order is issued on the basis of the defendant's consent to an injunction, however, this requirement could be satisfied by a simple statement of this fact (i.e., by the statement that the order is being issued because the defendant has consented to the injunction). Hence, this rule is of little help.

Similarly, Federal Rule of Civil Procedure 52(a) requires in relevant part that "[i]n all actions tried upon the facts without a jury or with an advisory jury, the court shall find the facts specially and state separately its conclusions of law thereon...." At least one court has held that this requirement applies to actions seeking a permanent injunction. See United States v. Rohm & Haas Co., 500 F.2d 167, 177 (5th Cir.1974) (emphasis added) (citations omitted) ("In cases tried without a jury, Rule 52(a) mandates findings of fact and conclusions of law sufficiently detailed and exact to indicate the factual basis for the District Court's ultimate conclusion. Although the rule refers only to the granting or refusing of interlocutory injunctions, the language `all actions tried upon the facts without a jury' encompasses suits in which permanent injunctions are issued."). As the language of both the rule and that opinion indicate, however, the rule appears to be predicated on the "trying" of an issue and subsequent deciding thereof by a court. In approving the agreement embodied in the permanent injunction Order, the Court did not decide any issue in dispute between the parties. Hence, Rule 52(a) provides no more guidance than does Rule 65(d).

Third, Federal Rule of Civil Procedure 68 creates a mechanism by which defendants "may serve upon the adverse party an offer to allow judgment to be taken against" them. As this mechanism is closely analogous to the more informal procedure of consenting to entry of a permanent injunction, the case law interpreting Rule 68 may shed some light on the issue under consideration here. Courts have held that Rule 68 offers can be made in cases seeking equitable relief, see 12 Charles A. Wright, Arthur R. Miller & Richard L. Marcus, Fed. Prac. & Proc. § 3001.1, at 79 (1997), and that defendants "can ... disclaim liability while offering that judgment be entered as so specified," id. § 3002, at 93. "[S]uch a [disclaimer] provision may present nice questions if the offer provides for injunctive relief that is authorized only after a finding of a violation." Id. It is a very similar "nice question" with which we find ourselves presented here.

We turn, next, to four rules established in the case law that have some bearing on the issue. First, the standard for granting a permanent injunction is actual success on the merits. See, e.g., Hard Rock Cafe Int'l (USA) Inc. v. Morton, 1999 WL 701388, at *4 (S.D.N.Y.1999). Hence, it could be argued that, having ordered a permanent injunction, this Court determined, ipso facto, that Plaintiff prevailed on its underlying trademark and copyright claims. Like Rule 52(a), however, this rule would seem to apply only when a court must decide whether a permanent injunction should issue. In endorsing the agreement embodied in the permanent injunction Order, the Court did not necessarily determine that Plaintiff had actually succeeded on the merits of its infringement claims. Hence, this rule is inconclusive.

Second, in SEC v. Bausch & Lomb, Inc., 82 F.R.D. 50, 51 (S.D.N.Y.1979), the defendants, in consenting to a permanent injunction "neither admitted nor denied the allegations of the complaint [but] .... specifically waive[d] their right to require the Court to make findings of fact and conclusions of law." This case thus supports the view that liability should not be inferred from a defendant's consent to a permanent injunction.

Third, support for this view is likewise provided by a Second Circuit opinion involving claims similar to those brought by Plaintiff here, albeit a somewhat different procedural history. In Goodheart Clothing Co., Inc. v. Laura Goodman Enters., Inc., 962 F.2d 268 (2d Cir.1992), a hearing was held on, and the court granted, plaintiff's motion for a preliminary injunction. Defendants then tendered a Rule 68 offer of judgment that provided for a permanent injunction, and the court accordingly issued an order of permanent injunction. Plaintiff then filed an application for costs and attorney fees under § 35(a) of the Lanham Act. The issue on appeal was whether the district court's finding (in its opinion granting the preliminary injunction) that defendant had acted in bad faith was law of the case for the purposes of the application for attorney fees. See id. at 272-74. The Court of Appeals ruled that, despite language in the district court's order purporting to incorporate its opinion on the motion for a preliminary injunction, the issue of defendant's bad faith, for purposes of the application for attorney fees, could not be taken as settled by the court's finding of bad faith in its preliminary injunction opinion. See id. at 274 ("It would ... be anomalous at least in most cases ... to regard the initial ruling as foreclosing the subsequent, more thorough consideration of the merits that the preliminary injunction expressly envisions."). Although this holding is thus not directly on point, it is consistent with the proposition that, unless a defendant explicitly concedes an issue in the consent to a permanent injunction, a court cannot infer the establishment of this issue from the defendant's consent.

In contrast, two Court of Appeals decisions provide some support for the view that liability can be inferred from consent to a permanent injunction. In a case from the closely related area of patent law, the Second Circuit held that "in a decree, at least in one entered by consent, either an adjudication of infringement, or a grant of some relief from which infringement may be inferred, is essential before any effect of res judicata can be given to it on the issue of [pate...