Next Invs., LLC v. Bank of China

• Citation: 12 F.4th 119
• Decision Date: 30 August 2021
• Docket Number: August Term, 2020,Docket No. 20-602-cv
• Parties: NEXT INVESTMENTS, LLC, Interested Party–Appellant, v. BANK OF CHINA, Agricultural Bank of China, Bank of Communications, China Construction Bank, China Merchants Bank, Industrial and Commercial Bank of China Limited, Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

12 F.4th 119

NEXT INVESTMENTS, LLC, Interested Party–Appellant,

v.BANK OF CHINA, Agricultural Bank of China, Bank of Communications, China Construction Bank, China Merchants Bank, Industrial and Commercial Bank of China Limited, Appellees.^*

Docket No. 20-602-cv

August Term, 2020

United States Court of Appeals, Second Circuit.

Argued: May 10, 2021

Decided: Aug 30, 2021

Robert L. Weigel (Howard S. Hogan, Matthew S. Rozen, Lauren M. L. Nagin on the brief), Gibson, Dunn & Crutcher LLP, New York, NY & Washington, DC, for Interested Party–Appellant.

Sanford I. Weisburst, Quinn Emanuel Urquhart & Sullivan, LLP, New York, NY (David G. Hille, Jacqueline I. Chung, White & Case LLP, New York, NY; Carey R. Ramos, Cory D. Struble, Quinn Emanuel Urquhart & Sullivan, LLP, New York, NY, on the brief) for Appellees Bank of China, Bank of Communications, China Construction Bank, China Merchants Bank, and Industrial and Commercial Bank of China Limited.

Adam S. Hoffinger, Greenberg Traurig, LLP, Washington, DC (Gary Stein, Robert E. Griffin, Thomas L. Mott, Hannah M. Thibideau, Schulte Roth & Zabel LLP, New York, NY, on the brief) for Appellee Agricultural Bank of China.

Matthew J. Oppenheim, Oppenheim + Zebrak, LLP, Washington, DC, for Amicus Curiae Association of American Publishers, Inc. in support of Appellant.

Lauren Beth Emerson, Robert M. Isackson, Cameron Rueber, Peter S. Sloane, Leason Ellis LLP, White Plains, NY, for Amici Curiae Center for Anti-Counterfeiting and Product Protection and American Apparel & Footwear Association in support of Appellant.

Joshua A. Goldberg, Patterson Belknap Webb & Tyler LLP, New York, NY, for Amicus Curiae Banking Law Committee of the New York City Bar Association in support of Appellees.

Roberto J. Gonzalez, Brad S. Karp, H. Christopher Boehning, Jessica S. Carey, Ethan C. Stern, Xinshu Sui, Paul, Weiss, Rifkind, Wharton & Garrison LLP, Washington, DC & New York, NY, for Amici Curiae Institute of International Bankers and European Banking Federation in support of Appellees.

Before: Newman, Park, and Menashi, Circuit Judges.

Park, Circuit Judge:

In 2013, Nike, Inc., and its subsidiary, Converse, Inc. (together, "Nike"), brought a trademark-infringement suit under the Lanham Act, 15 U.S.C. § 1051 et seq. , against hundreds of participants in Chinese counterfeiting networks ("Defendants"). The United States District Court for the Southern District of New York (Scheindlin, J. , and McMahon, then-C.J. ) entered five prejudgment orders, a default judgment, and one postjudgment order against Defendants, who never appeared in court. Each of those orders enjoined Defendants "and all persons acting in concert or in participation with any of them ... from transferring, withdrawing or disposing of any money or other assets into or out of [Defendants’ accounts] regardless of whether such money or assets are held in the U.S. or abroad." App'x at 229, 648; see id. at 281, 318, 377–78, 501, 526–27. In 2019, Nike's successor-in-interest, Next Investments, LLC ("Next"), moved to hold Appellees—six nonparty Chinese banks (the "Banks")—in contempt for failure to implement the asset restraints and for failure to produce certain documents sought in discovery. The district court denied the motion, and Next appealed.

We hold that the district court did not abuse its discretion in denying Next's motion for contempt sanctions against the Banks because (1) until the contempt motion, Nike and Next never sought to enforce the asset restraints against the Banks; (2) there is a fair ground of doubt as to whether, in light of New York's separate entity rule and principles of international comity, the orders could reach assets held at foreign bank branches; (3) there is a fair ground of doubt as to whether the Banks’ activities amounted to "active concert or participation" in Defendants’ violation of the asset restraints that could be enjoined under Federal Rule of Civil Procedure 65(d) ; and (4) Next failed to provide clear and convincing proof of a discovery violation. For these reasons, we affirm.

I. BACKGROUND

A. The Asset Restraints

In November 2013, Nike, Inc. and its subsidiary Converse, Inc. sued the proprietors¹ of websites advertising and selling products bearing Nike or Converse marks, like Nike's "Swoosh," its Jordan brand "Jumpman," or the Converse Chuck Taylor "All Star" label. Nike alleged trademark infringement, trademark counterfeiting, and false designation of origin, all in violation of the Lanham Act, 15 U.S.C. §§ 1114(1), 1116(d), 1117(b) – (c), 1125(a), along with several related federal and state causes of action. Nike sought an injunction restraining Defendants from further use of the trademarks, an accounting of Defendants’ profits (plus treble recovery) or treble compensatory damages for counterfeiting, statutory damages related to cyberpiracy, and punitive damages.

Nike immediately sought and received a temporary restraining order. After Defendants failed to appear, the district court granted a preliminary injunction and three orders amending the preliminary injunction. All five prejudgment orders contained the following restriction regarding Defendants’ assets:

IT IS FURTHER ORDERED that, in accordance with Rule 65 of the Federal Rules of Civil Procedure, 15 U.S.C. § 1116(a), and this Court's inherent equitable power to issue provisional remedies ancillary to its authority to provide final equitable relief, Defendants, their officers, directors, agents, representatives, successors or assigns, and all persons acting in concert or in participation with any of them, including any third parties receiving actual notice of this Order by personal service or otherwise, are restrained and enjoined from transferring, withdrawing or disposing of any money or other assets of Defendants, or otherwise paying or transferring any money or other assets into or out of any accounts held by, associated with, or utilized by Defendants, regardless of whether such money or assets are held in the U.S. or abroad .

App'x at 281 (emphasis added); see id. at 318, 377–78, 501; see also id. at 229 (TRO).²

B. The Banks Attempt To Challenge the Asset Restraints

In June 2015, Nike moved for default judgment. Nike's proposed judgment would have preserved the asset restraints from the prejudgment orders and extended them to any later-discovered assets belonging to Defendants. About one month later, the Banks—six nonparty banks headquartered in China³ —filed a joint letter opposing Nike's motion for default judgment "insofar as the proposed judgment contains a federal asset-freezing injunction that would purport to require the Banks to restrain customer accounts located outside the United States." App'x at 1096. Nike had notified the Banks of the prejudgment orders by personally serving the orders and related material at the Banks’ New York branch offices or by approved email service. The Banks’ letter argued that the court could not enforce the asset restraints against the Banks in light of international comity concerns and New York's separate entity rule and because the court lacked personal jurisdiction over the Banks.

Nike responded that the Banks’ objections were irrelevant and premature because the proposed judgment "is not an order against the Banks." Id. at 1102. "If the Court later needs to compel the Banks to take (or refrain from) any specific actions to prevent the counterfeiters from violating the default judgment, the Court can then evaluate whether personal jurisdiction exists over the Banks and whether any comity issues exist for the Court to consider." Id. The district court agreed with Nike and denied the Banks’ letter motion, reasoning that the Banks’ objections were not "ripe" because "the Proposed Default Judgment is directed entirely at defendants and seeks no enforcement against the non-party Banks." Nike, Inc. v. Wu , No. 13-cv-8012, 2015 WL 9450795, at *1 (S.D.N.Y. Aug. 20, 2015) (" Nike I "). The district court acknowledged the possibility—however remote—"that defendants will comply with the Court's Order and make plaintiffs whole—in which case the Banks would never be required to take any action with respect to the asset freeze." Id.

The district court entered default judgment against Defendants on August 20, 2015 and granted Nike an accounting of profits. Without any documents from Defendants to assist in calculating their profits, the court used statutory proxies, yielding a judgment of over $1 billion.⁴ The judgment also kept the prejudgment asset restraints in place, ordering that

in accordance with Rule 65 of the Federal Rules of Civil Procedure, 15 U.S.C. § 11l6(a), Article 52 of New York State's Civil Practice Law and Rules, and this Court's inherent equitable power to issue remedies ancillary to its authority to provide final relief, all Defendants’ Assets that have been previously identified as frozen or that were otherwise required to be restrained in compliance with this Court's Orders, continue to be restrained regardless of whether the Defendants’ Assets are located in the United States or abroad.

App'x at 526–27. The default judgment went on to apply the same restraints to "any other of Defendants’ Assets that Plaintiffs identify in the future and/or that have not yet been frozen ... regardless of whether the Defendants’ Assets are located in the United States or abroad." Id. at 527.

On January 31, 2017, nearly a year-and-a-half later, Nike assigned its interest in the judgment to Next Investments, LLC, an investment vehicle owned by the litigation-finance firm Tenor Capital. Next (represented by Nike's counsel) sought an order to show cause why (1) Defendants should not be held in contempt of court and (2) additional bank accounts and websites associated with the counterfeiter networks should not be subject to the judgment. The district court (reassigned to then-Chief Judge Colleen McMahon after Judge Scheindlin retired) entered the order. Defendants again failed to appear, so the court held them in...