Gucci America, Inc. et al v. Bagsmerchant, LLC et al
Filing
33
OPINION AND ORDER re: 21 MOTION to Set Aside Judgment / Notice of Motion filed by Bank of China, China Merchants Bank. The Banks' motion is granted and the Default Judgment is set aside to the extent that it operates as an ex-parte turnover order. The Clerk of the Court is directed to close this motion (Docket Entry # 21 ). (Signed by Judge Shira A. Scheindlin on 9/27/2012) (mro)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------------------------------ --GUCCI AMERICA, INC.; BALENCIAGA,
S.A.; BALENCIAGA AMERICA, INC.;
BOTTEGA VENETA, INC.; and YVES SAINT
LAURENT AMERICA, INC.,
Plaintiffs,
v.
OPINION AND ORDER
BAGSMERCHANT, LLC;
BAGSMERCHANT.CO; BAG STORE LTD
a/k/a WWW.BAGS-STORE.COM; YUNJING
LLC; AUTHENTIC TRADING LTD; YI
WANG; WU XIANHUI; YU ZHANG; JASON
JAMES a/k/a JASON MIOTO a/k/a JERMEN
MIOTO; WWW.BAGSDEAL.COM; all doing
business as WWW.BAGSMERCHANT.COM:
ABC COMPANIES; and JOHN DOES,
10 Civ. 2911 (SAS)
Defendants.
--------------------------------------------------------- X
SHIRA A. SCHEINDLIN, U.S.D.J.:
I.
INTRODUCTION
Non-parties China Merchants Bank ("CMB") and Bank of China
("BOC," and collectively, the "Banks") have moved pursuant to Federal Rules of
Civil Procedure 59(e), 60(b), and 24(a) and New York Civil Practice Law and
Rules ("CPLR") section 5240 to modify or set aside the July 11,2011 default
judgment (the “Default Judgment”) entered against defendants “insofar as the
judgment directs non-party foreign banks including CMB and BOC to turn over
any property of the defaulting Defendants that those banks may hold abroad.”1
Plaintiffs oppose the motion on the grounds that: (1) the motion is untimely; (2) the
Banks lack standing to alter or amend the judgment; and (3) a court sitting in New
York has authority to direct a bank over which it has personal jurisdiction to bring
assets into New York to satisfy a judgment.2 The Banks’ motion is granted in part.
II.
BACKGROUND
Plaintiffs brought suit on April 5, 2010, alleging that defendants sold
counterfeit versions of plaintiffs’ products on web sites, in violation of U.S.
trademark laws. On April 12, 2010, Judge Deborah Batts granted plaintiffs’
request for an ex parte temporary restraining order (“TRO”) directing defendants
to refrain from various infringing acts and restraining “Defendants and . . . any
banks, . . . from transferring, disposing of, or secreting any money . . . or other
assets of Defendants or otherwise paying or transferring any money . . . or other
1
Memorandum of Law of Non-Parties China Merchants Bank and
Bank of China in Support of Their Motion to Modify or Set Aside the Court’s
Default Judgment (“Bank Mem.”) at 1.
2
Plaintiffs’ Memorandum of Law in Opposition to the Motion of NonParties China Merchants Bank and Bank of China to Modify or Set Aside the
Court’s Default Judgment (“Pl. Mem.”) at 1-2.
2
assets to any of the Defendants, or into or out of any accounts associated with or
utilized by any of the Defendants.”3 On April 27, 2010, Judge Batts extended the
terms of the TRO (the “TRO Extension Order”).4 On May 5, 2010, plaintiffs
delivered the TRO and TRO Extension Order to CMB’s New York branch
(“CMBNY”) with a letter informing CMB that it was required to restrain all
accounts used by defendants.5
On May 23, 2010, Judge Batts issued a Preliminary Injunction (“PI”)
containing a nearly identical asset restraint provision to that contained in the TRO
and TRO Extension Order.6 Plaintiffs served BOC with the PI and a Rule 45
3
TRO [Dkt. No. 3] at 6-7. The TRO provided that “upon two (2) days
written notice to the Court and Plaintiffs’ counsel, any Defendant may appear and
move for the dissolution or modification of any provisions of this Order
concerning the restriction upon transfer of Defendants’s assets upon appropriate
evidentiary showing by Defendants.” Id. at 7.
4
See TRO Extension Order [Dkt. No. 5].
5
See 5/5/10 Letter from J. Halter to CMB, Ex. D to 8/8/11 Declaration
of Dwight A. Healy in Support of Motion to Modify or Set Aside the Court’s
Default Judgment (“Healy Decl.”).
6
See Preliminary Injunction and Order Authorizing Expedited
Discovery (“PI Order”) [Dkt. No. 9] at 7-8. The PI provided that “upon two (2)
days written notice to the Court and Plaintiffs’ counsel, any third party and
Defendants may appear and move for the dissolution or modification of any
provisions of this Order that impact upon it.” Id. at 10.
3
subpoena at their New York branch (“BOCNY”) on October 19, 20107 and served
CMBNY with the PI and a Rule 45 subpoena on October 21, 2010.8 The Banks
each served objections and responses to the Rule 45 subpoenas and notified
plaintiffs that they had found no responsive documents in their New York
branches.9 Plaintiffs did not move to compel or otherwise challenge the
responses.10
On July 8, 2011, Judge Batts entered a Default Judgment against
defendants, which included a permanent injunction, equitable accounting and
statutory damages of $7.8 million.11 The Default Judgment provided:
That, in accordance with Rule 64 of the Federal Rules of Civil
Procedure, 15 U.S.C. § 1116(a), Article 52 of New York State’s
7
See Bank Mem. at 4. Accord 10/19/10 Letter from J. Halter to COB,
Ex. 5 to 9/9/11 Declaration of Jennifer C. Halter in Opposition to Motion to Set
Aside Default Judgment (“Halter Decl.”).
8
See 10/21/10 Letter from J. Halter to CMB, Ex. 3 to Halter Decl.
9
See Objections and Responses to Rule 45 Subpoena Served on China
Merchants Bank, New York Branch, Ex. H to Healy Decl.; Response to Rule 45
Subpoena Served on Bank of China, New York Branch, Ex. B to Declaration of
Lanier Saperstein in Support of Motion to Set Aside Judgment (“Saperstein
Decl.”). The Banks notified plaintiffs that they did not have possession custody or
control over documents outside the New York branches and objected to the extent
that producing documents would violate applicable domestic or foreign law. See
id.
10
See Healy Decl. ¶ 12; Saperstein Decl. ¶ 10.
11
See Default Judgment [Dkt. No. 19].
4
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’ Asset Holders . . . who receive notice of this
order by personal service or otherwise are ordered to liquidate . .
. and pay the value of such Defendants’ Assets to Plaintiffs . . .
regardless of whether the Defendants’ Assets are located in the
United States or abroad.12
On August 8, 2011, the Banks moved to modify or set aside the Default Judgment
“insofar as the judgment directs non-party foreign banks including CMB and BOC
to turn over any property of the defaulting Defendants that those banks may hold
abroad.”13 The case was transferred to this Court on September 11, 2012.14
III.
APPLICABLE LAW
A.
Section 5240 of the CPLR15
Section 5240, made applicable to this federal action pursuant to
Federal Rule of Civil Procedure 69, provides that “the court may at any time, on its
own initiative or the motion of any interested person, and upon such notice as it
may require, make an order denying, limiting, conditioning, regulating, extending
12
Id. at 4, 8-9.
13
Bank Mem. at 1.
14
See Dkt. No. 32.
15
Plaintiffs do not dispute that this is an appropriate procedural vehicle
for consideration of the propriety of the turnover provision in the Default
Judgment. See Pl. Mem. at 16 n.13.
5
or modifying the use of any enforcement procedure.”16
B.
Procedure for Turnover Orders Under Section 5225(b)
Article 52 of the CPLR “governs the enforcement of money
judgments and orders directing the payment of money.”17 Enforcement under
section 5225(b), which deals with property not in the possession of the judgment
debtor, “requires a special proceeding brought by the judgment creditor against the
garnishee.”18 The New York Court of Appeals explained that “[t]he reason for this
procedural distinction is that the garnishee, not being a party to the main action,
has to be independently subjected to the court’s jurisdiction.”19
Section 403 of the CPLR provides that garnishees must be served, in
the same manner as a summons, with a notice of petition specifying the time and
place of the hearing on petition, and any accompanying affidavits, at least eight
days in advance of the time at which the petition is noticed to be heard.20 The
16
C.P.L.R. § 5240. Rule 69(a)(1) provides that “[t]he procedure on
execution – and in proceedings supplementary to and in aid of judgment or
execution – must accord with the procedure of the state where the court is located,
but a federal statute governs to the extent it applies.”
17
Koehler v. Bank of Bermuda Ltd.,12 N.Y.3d 533, 537 (2009)
18
Id. at 541.
19
Id.
20
See C.P.L.R. §§ 403(a)-(c). Alternatively, the court may grant an
order to show cause to be served in lieu of a notice of petition. See id. § 403(d).
6
special proceeding culminates in a judgment which runs directly against the
respondent.21
IV.
DISCUSSION
Defendants have standing as “interested person[s]” to request “an
order denying, limiting, conditioning, regulating, extending or modifying the use
of any enforcement procedure” against them.22 The portion of the Default
Judgment directing “all Defendants’ Asset Holders . . . who receive notice of this
order by personal service or otherwise are ordered to liquidate . . . and pay the
value of such Defendants’ Assets to Plaintiffs”23 was the equivalent of an ex-parte
turnover order, for which third-party asset holders are entitled to a special
proceeding involving notice and a hearing under section 5225(b).
The Default Judgment is void insofar as it directs non-parties to
liquidate assets of defaulting defendants without affording the non-parties the
safeguards of section 5225(b). To the extent that plaintiffs wish to enforce the
21
See id. § 411.
22
Cf. Cablevision Sys. Corp. v. 45 Midland Enter., Inc., 85 F.Supp. 42
(S.D.N.Y. 1994) (entering a default judgment against defendants and noting that if
the measures for collection of legal fees therein forced defendant into bankruptcy,
the proper procedure was to apply for a payment schedule pursuant to Rule 69(a)
and C.P.L.R. § 5240).
23
Default Judgment at 8-9.
7
terms of the Default Judgment against the Banks, they may petition to do so in
accordance with section 5225(b).
V.
Conclusion
The Banks' motion is granted and the Default Judgment is set aside to
the extent that it operates as an ex-parte turnover order. 24 The Clerk of the Court is
directed to close this motion (Docket Entry # 21 ).
Dated:
September 27, 2012
New York, New York
This Order should not be construed to question the Court's authority
to freeze the assets held by third-parties pursuant to the TRO or PI, nor should it be
read to question the Court's authority, upon proper procedure, to enforce the full
scope of the Default Judgment.
24
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- Appearances For Plaintiffs:
Gibson, Dunn & Crutcher, LLP
Robert L. Weigel, Esq.
Howard S. Hogan, Esq.
Jennifer C. Halter, Esq.
Anne M. Coyle, Esq.
200 Park Avenue, 51st9 Floor
New York, New York 10166
(212) 351-4000
For Non-party China Merchants Bank:
White & Case LLP
Dwight A. Healy, Esq.
Marika Maris, Esq.
1155 Avenue of the Americas
New York, New York 10036
(212) 819-8200
For Non-party Bank of China
Allen & Overy LLP
Lanier Saperstein, Esq.
Pamela Rogers Chepiga, Esq.
Andrew H. Reynard, Esq.
1221 Avenue of the Americas
New York, New York 10020
(212) 610-6300
9
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