Shonac Corp. v. AMKO Intern., Inc.
| Decision Date | 21 March 1991 |
| Docket Number | No. C2-89-613.,C2-89-613. |
| Citation | 763 F. Supp. 919 |
| Parties | SHONAC CORPORATION, Plaintiff, v. AMKO INTERNATIONAL, INC., et al., Defendants, and Hyosung Corporation, et al., New Party Defendants. |
| Court | U.S. District Court — Southern District of Ohio |
COPYRIGHT MATERIAL OMITTED
Gary D. Greenwald, Schrim & Greenwald, Columbus, Ohio, for plaintiff.
Lawrence D. Walker, Taft, Stettinius & Hollister, Columbus, Ohio, for defendants.
This case involves the importation and sale of athletic shoes made in Korea. Plaintiff, Shonac Corporation ("Shonac"), asserts claims under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-68; as well as claims under state statutory and common law. This matter is before the Court on the motion for summary judgment of defendant Hyosung Corporation ("Hyosung").
On December 6, 1990, the Court announced its decision to grant Hyosung's motion for summary judgment on all of Shonac's claims. What follows are the reasons for the Court's decision.
Shonac is an Ohio corporation engaged in the business of retailing and wholesaling discount shoes. Discount shoes include grade "B" and factory overrun shoes, as well as shoes purchased at distress sales. Shonac employees who were involved in the subject transactions are: Dan Kelly, Shonac's chief athletic footwear buyer; Richard Smith, Shonac's merchandise manager; Jim Lipps, merchandise manager for Shonac's FMS (wholesale) division; and Carol Cowart, Shonac's import/export manager.
Hyosung is a Korean corporation and the holder of a Korean export license. Under Korean law, goods can be exported from Korea only through the holder of such a license.
AMKO Corporation ("AMKO") is an Illinois corporation which acts as a purchasing agent with respect to shoes manufactured overseas. Kyu Eun Lee is the president and sole shareholder of AMKO.
Red Line Products, Inc. ("Red Line") is a New York corporation engaged in the importation and sale of hunting boots. Red Line was not directly involved in the subject transactions, but Shonac sought to hold Red Line vicariously liable for the actions of its former employee, Seon Tae Kim ("S. T. Kim").
In the fall of 1988, Shonac sent Kelly and Smith to Taiwan and Korea to buy athletic shoes. They were accompanied by Lee, who had had business dealings with Shonac since 1983. In preparation for the trip, Lee arranged for S. T. Kim to introduce Kelly and Smith to sellers of overrun, cancellation and "B" grade shoes in Pusan, Korea. These sellers are referred to as "jobbers."
Kelly, Smith and Lee arrived in Pusan, Korea on October 9, 1988. The three spent five days in Pusan, arranging for the purchase of some of the shoes which are the subject of this case. During at least part of their visit, S.T. Kim drove the three around Pusan to visit jobbers and inspect shoes for possible purchase. Some of the jobbers worked out of the basements of high rise apartment buildings or tents, while other sold their shoes from more conventional warehouses. S. T. Kim and Lee also arranged for jobbers to bring their samples to the hotel room where Kelly and Smith were staying.
Kelly and Smith transacted business with the jobbers through Lee, who acted as a translator. S.T. Kim, who does not speak English, did not converse with Kelly or Smith. According to Kelly, each time he was presented samples of branded shoes by a jobber, he would ask Lee whether the shoes were "originals" or genuine. Every time, Kelly says, Lee responded in effect that he would not want to "lose face" by being involved with counterfeit goods. Kelly maintains that when Lee indicated that the shoes were not counterfeit, Kelly assumed he also meant that the shoes did not infringe on anyone's trademark. However, both Kelly and Smith admit that they never discussed with Lee the issue of obtaining the permission of the trademark owners of any of the branded shoes that were purchased. The previous month, all Shonac buyers had received, read and signed a policy statement issued by the Schottenstein stores instructing the buyers to obtain proof of the trademark owner's authorization before making any purchase. On at least one occasion, Kelly recognized that sample shoes presented by one of the jobbers were counterfeit, and therefore declined to purchase them.
Kelly and Smith ordered thousands of pairs of shoes from the jobbers, including athletic shoes bearing such brand names as L.A. Gear, Reebok, Pro Wings and others. Kelly again traveled to Pusan in late February, 1989. Jim Lipps accompanied Kelly on this second trip. The events of the second trip are essentially the same as those of the first trip in October, 1988.
Shonac purchased branded athletic shoes from the Pusan jobbers through AMKO from October, 1988 until June, 1989. In the summer and fall of 1989, Shonac began to receive complaints from various trademark owners, including Ocean Pacific, Inc., Hyde Athletic Industries, Inc., L. A. Gear, Inc., Dexter Shoe Company, Inc., Volume Shoe Corporation and Melville Corporation concerning Shonac's unauthorized sale of these companies' branded shoes. The complaints apparently concerned shoes Shonac had purchased from the jobbers in Pusan. Ultimately, Shonac paid substantial sums in license or royalty fees to the trademark owners. Shonac sold most of the branded athletic shoes it bought from the Pusan jobbers, although some of the trademark owners required Shonac to sell certain shoes only in foreign countries. Shonac's remaining stock, consisting of Avia and Reebok shoes, was removed from the market altogether.
The following describes how most of the sales took place. Kelly would write a purchase order to AMKO. The purchase order described the goods being purchased, and in the subject transactions specifically designated branded athletic shoes. Shonac stated in its purchase orders that it would pay for the goods with an "L.C." (letter of credit). In all of the documents prepared by Shonac, AMKO is listed as the seller of the shoes.
Usually that same day, Lee of AMKO would fill out a confirmatory pro forma invoice. The pro forma invoice specified the terms and conditions of the letter of credit. Lee submitted the pro forma invoice to Carol Cowart of Shonac.
Cowart used the information on the pro forma invoice to fill out an application for an irrevocable letter of credit which she then submitted to BancOhio National Bank ("BancOhio"). BancOhio then notified the advising bank, the Korean Exchange Bank in Seoul, Korea that an irrevocable letter of credit had been opened and informed the Korean bank of the terms of the letter of credit.
In most of the transactions, Hyosung, holder of a Korean export license, acted as the export window. Under Korean law, goods sold to an overseas customer must be processed through an export license holder. Export licenses are issued by the Korean department of Ministry and Trade, and very few factories have been able to obtain one. Hyosung is one of a relatively small number of registered trading companies currently operating in Korea.
With respect to Hyosung, the subject transactions were "indirect" export transactions. Shonac concedes that "in an indirect export transaction, Hyosung has little if any contact with the customer, but instead acts as a middleman in purchasing the goods in Korea at the direction of another and reselling and exporting said goods to the customers." Shonac's memorandum contra, p. 5. Thus, even under Shonac's characterization, Hyosung's role was no more than that of a middleman or a conduit for the goods. In each transaction, the real seller was the jobber, and the real buyer was Shonac.
Either AMKO or S.T. Kim arranged for the services of Hyosung. In the transactions in which Hyosung was involved, it did no more than process documents necessary to obtain payment under the letters of credit. Hyosung did not undertake, or agree to undertake an inspection of the shoes. Indeed, there is no evidence that Hyosung even knew that the shoes were branded.
Pursuant to the terms of the letters of credit, Hyosung sent the various documents it prepared to BancOhio. The documents were sent by private courier. After making payment to Hyosung on the letters of credit, BancOhio would send the documents to Shonac by U.S. Mail. The documents prepared by Hyosung did not contain any representations concerning the genuineness of the shoes or that the sale of the shoes did not violate trademark law. Kelly, Smith and Lipps have all admitted that they were not even aware prior to this litigation that Hyosung was involved in the subject transactions. Only Cowart, who received the documents from BancOhio, knew of Hyosung. There is no evidence that Cowart or anyone else at Shonac ever relied on Hyosung to inspect the shoes to determine the genuineness of the shoes or to obtain the trademark owners' permission to sell the shoes.
The terms of the letters of credit, which were dictated by Lee of AMKO, required the issuance of an inspection certificate. Prior to export, the shoes were inspected by S.T. Kim. The inspection consisted of counting the number of pairs of shoes for an order. S.T. Kim would then execute an inspection certificate indicating the number of pairs of shoes, the purchase order number and the number of the letter of credit. The inspection certificates issued by S.T. Kim did not contain any representations that the shoes were genuine or that the trademark owners' permission had been obtained for the sale of the shoes. In fact, the inspection certificates did not even indicate that the subject shoes were branded. There is no evidence that anyone at Shonac relied on any of the information contained in the inspection certificates. On more than one occasion, the inspection certificate filled out by S.T. Kim was a Red...
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