Data

Date:: 29-05-2009
Country:: USA
Number:: 08 Civ. 1587 (BSJ)(HBP)
Court:: U.S. District Court, Southern District of New York
Parties:: Doolim Corp. v. R Doll, LLC, et al.

Keywords

OBLIGATION OF BUYER (ART. 53 CISG) – PAYMENT OF PRICE

RIGHT TO SUSPEND PERFORMANCE (ART. 71 CISG) – APPARENT LIKELIHOOD OF NON-PERFORMANCE BY OTHER PARTY OF SUBSTANTIAL PART OF OBLIGATIONS

RIGHT TO AVOID (TERMINATE) THE CONTRACT IN CASE OF FUNDAMENTAL BREACH (ART. 72 CISG) – CLEAR LIKELIHOOD OF FUNDAMENTAL BREACH BY OTHER PARTY

DAMAGES IN CASE OF AVOIDANCE (TERMINATION) AND SUBSTITUTE TRANSACTION (ART. 75 CISG)

Abstract

Between April and October 2007, a South- Korean seller and a U.S. buyer entered into a series of contracts pursuant to which the former was to manufacture and ship approximately 500,000 women’s custom-made clothing to the latter’s place of business in New York. According to the terms of the purchase orders, the buyer was obligated to pay the seller within fifteen days of receipt of the garments. In July and August 2007, the seller shipped part of the order, which was received but not paid for by the buyer. During the following months of October and November, after having obtained assurances from the buyer that it would pay for the delivered items, the seller shipped additional garments. Later on, the seller agreed to be paid a discounted price in five installments but, since the buyer failed to make the scheduled payments, the seller suspended all further deliveries, and holds some of the garments in Los Angeles. In 2008, after having filed a UCC financing statement claiming a security interest in the goods and all the proceeds resulting from their sale, the seller sued the buyer.

The court determined that the contract in question was governed by CISG, as it applies to contracts for the sale of goods between parties whose places of business are in different contracting States (Korea and the U.S. in this case: Art. 1(1)(a) CISG).

As to the merits of the dispute, the Court found that the buyer had breached its contract with the seller, since it had failed to pay for the delivered goods as required by Art. 53 CISG) (Art. 25 CISG). Moreover, relying on Art. 74 CISG, the Court ordered that the seller was entitled to recover the difference between the total contract price and the price for the July, August and October 2007 shipments.

The seller also sought damages for the garments that had it manufactured but did not deliver. The court, in view of Art. 71 CISG, found that the plaintiff had rightfully withheld the last deliveries to the buyer, because it became apparent that the latter would have not been able to make any payments for those garments. Moreover, in consideration of Art. 72 CISG, which allows one of the contracting parties to avoid the contract if, prior to the date of performance, it becomes clear that the other party will commit a fundamental breach, the Court found that the seller’s avoidance of the contract and retention of the goods had been legitimate. After recalling that, following contract avoidance, the seller is entitled under CISG to either the resale of the goods and the recovery of the difference between the resale price and the contract price, or the difference between the current price and the contract price as damages (Arts. 75-76 CISG), the Court noted that in the case at hand the seller had invoked the first remedy, but had not yet resold the garments fearing that such a resale would amount to trademark infringement.

In addressing such an issue, relying on established U.S. case law, the Court pointed out that when a seller manufactures trademarked goods in response to an order from the trademark owner, and the latter unjustifiably fails to accept or pay for the goods, the aggrieved seller is considered to have an implied license to sell the trademarked goods in order to mitigate its loss. Accordingly, the Court ordered that the seller be awarded a judgment in the amount of $840,085.94 against the buyer, and a declaration that it may sell the garments in its possession manufactured for the buyer without regard to the buyer’s trademark rights.

Fulltext

United States District Court, Southern District of New York
Doolim Corp. v. R Doll, LLC, et al.
No. 08 Civ. 1587(BSJ)(HBP)

May 29, 2009

ORDER

Barbara S. Jones, District Judge.

Upon my review of Magistrate Judge Henry B. Pitman's Report and Recommendation dated May 7, 2009 (the "Report"), and in the absence of any objections to that Report, I hereby confirm and adopt the Report in its entirety, finding no clear error on the face of the record. See, e.g., Nelson v. Smith, 618 F.Supp. 1186, 1189 (S.D.N.Y.1985).

Accordingly, I award plaintiff Doolim Corp. ("Doolim") judgment in the amount of $840,085.94 against defendant R Doll, LLC ("Doll"), and a declaration that it may sell the garments in its possession manufactured for Doll without regard to Doll's trademark rights. Further, as the Report notes, while my July 15, 2008 Order entering default judgment against Doll and Rosenthal & Rosenthal, Inc., did not address defendant Steven Oshatz, he was also and remains in default.[1] In keeping with Magistrate Judge Pitman's recommendation, I enter a judgment of default against Oshatz and award Doolim a declaration that it may sell the garments in its possession manufactured for Doll without regard to Oshatz's trademark rights. I dismiss Doolim's fourth claim, which sought a declaration of its rights with respect to certain assets in the possession of defendant Rosenthal & Rosenthal, Inc., and deny Doolim's application for an order of attachment.

The Clerk of Court is directed to close this case.

SO ORDERED:

REPORT AND RECOMMENDATION

Pitmann, United States Magistrate Judge

TO THE HONORABLE BARBARA S. JONES, United States District Judge,

[I. Introduction
II. Findings of Fact
The Parties
Doolim's Manufacture and Shipment of Garments to Doll
Doolim's Alleged Security Interest
Doll's Alleged Insolvency
Rosenthal's Alleged Security Interest
III. Conclusions of Law
Doolim's Contract Claims
Garments Delivered to Doll
Garments Retained by Doolim
Whether Doolim's Proposed Resale of the Garments Would Infringe Doll's or Rosenthal's Trademark Rights
The Priority of Doolim's Interest in Proceeds Held by Rosenthal
Doolim's Application for an Order of Attachment
IV. Conclusion
V. Objections]
I. INTRODUCTION

On July 15, 2008, the Honorable Barbara S. Jones, United States District Judge, ordered that plaintiff Doolim Corporation ("Doolim") shall have a default judgment against defendants, R Doll LLC, a/k/a "Rubber Doll" ("Doll") and Rosenthal & Rosenthal, Inc. ("Rosenthal") as a result of defendants' failure to answer or move with respect to the complaint (Order, dated July 15, 2008 (Docket Item 10)). Judge Jones subsequently referred this matter to me to conduct an inquest and to issue a report and recommendation concerning the amount of damages to be awarded to Doolim (Order dated July 15, 2008 (Docket Item 10)).

Pursuant to Judge Jones's Order, I issued a Scheduling Order on July 31, 2008, directing Doolim to serve and file proposed findings of fact and conclusions of law by September 30, 2008, and directing defendants to submit responsive materials by October 30, 2008 (Docket Item 11). My July 31 Scheduling Order further provided:

IF DEFENDANTS (1) FAIL TO RESPOND TO PLAINTIFF'S SUBMISSIONS, OR (2) FAIL TO CONTACT MY CHAMBERS BY OCTOBER 30, 2008 AND REQUEST AN IN-COURT HEARING, IT IS MY INTENTION TO ISSUE A REPORT AND RECOMMENDATION CONCERNING DAMAGES ON THE BASIS OF PLAINTIFF'S WRITTEN SUBMISSIONS ALONE WITHOUT AN IN-COURT HEARING. See Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 111 (2d Cir.1997); Fustok v. ContiCommodity Services Inc., 873 F.2d 38, 40 (2d Cir.1989) ("[I]t [is] not necessary for the District Court to hold a hearing, as long as it ensured that there was a basis for the damages specified in a default judgment.") (Docket Item 11 (emphasis in original)).

One copy of my July 31 Order was sent to defendants Doll and Steven Oshatz ("Oshatz") at 530 Seventh Avenue, Suite 2805, New York, New York 10018, the address where Doolim effected personal service on them; a second copy of the Order was sent to defendant Rosenthal, one of Doll's factors. The copy sent to Doll and Oshatz was returned to my chambers, labeled by the United States Postal Service "Return to Sender, Attempted -- Not Known, Unable to Forward," but the copy sent to Rosenthal was not returned. Doolim submitted proposed findings of fact and conclusions of law on October 2, 2008, and revised proposed findings of fact and conclusions of law on January 21, 2009. None of the defendants has made any written submission, nor have they contacted my chambers in any way. Since all reasonable steps to provide notice to defendants have been taken, I make the following findings of fact and conclusions of law on the basis of plaintiff's submissions alone.

II. FINDINGS OF FACT

A. The Parties

1. Plaintiff, Doolim, was and is a Korean corporation engaged in the manufacture of apparel, with its principal place of business in Seoul, Korea (Complaint ("Compl.") ¶¶ 1-2).[1]

2. Defendant Doll was and is a New York limited liability company engaged in the business of manufacturing and distributing apparel under the registered trademarks RUBBER DOLL and RDOLL (the "Doll Marks"), with its principal place of business in New York, New York (Compl.¶ 3).

3. Defendant Oshatz was and is the managing member of Doll and owner of the Doll Marks; he maintained a business office in New York, New York and resides in Newtown, Pennsylvania. (Compl.¶ 4).

4. Defendant Rosenthal was and is a New York corporation engaged in the business of factoring and financing, with its principal place a business in New York, New York (Compl.¶ 5).

B. Doolim's Manufacture and Shipment of Garments to Doll

5. Between April and October 2007, Doolim and Doll entered into a series of contracts pursuant to which Doolim was to manufacture in Vietnam and ship to Los Angeles approximately 500,000 women's knit pants, dresses and tops, manufactured to Doll's specifications (Compl. ¶ 22; Doll Purchase Orders annexed as Ex. 2 to Declaration of Huh Dal Wook, dated Jan. 15, 2009 ("Huh Decl.")).

6. Approximately 460,000 of the garments were to be branded with the Doll Marks (Compl.¶ 22). Many of the garments were to be branded such that the Doll Marks were to be "on and a part of the garments themselves," rather than on a removable tag or label (Huh Decl. ¶¶ 3, 20).

7. Doll agreed to purchase the garments for landed duty-paid [2] prices ranging from $3.20 to $12.50 per garment, with the majority of the garments in the $3.20 to $5.00 range (Huh Decl. ¶ 2; Doll Purchase Orders annexed as Ex. 2 to Huh Decl.; Doolim Invoices annexed as Exs. 4-7 to Huh Decl.).

8. According to the terms on Doll's purchase orders, Doll was obligated to pay Doolim within 15 days of Doll's receipt of the garments (Purchase Orders annexed as Ex. 2 to Huh Decl.; see also Huh Decl. ¶ 5).

9. In July and August 2007, Doolim shipped 77,528 of the garments that Doll had ordered with a total purchase price of $381,026.10 (the "July and August Garments") (Compl. ¶ 13; Doll Purchase Order Nos. 100541-43, 100554, 100556-59, 100560-63, 100581-82, 100597-98, annexed as Ex. 2 to Huh Decl.; Doolim Invoice Nos. DM-0257 [3200], DM-20070724 [37230], DM-20070803 [17754], DM-222/223 [9822], DM-225229 [9522], annexed as Ex. 4 to Huh Decl.).

10. Doll received the July and August Garments on or before September 7, 2007 (Compl. ¶ 13; Huh Decl. ¶ 7).

11. As of September 22, 2007, Doll had not made any payments to Doolim for the July and August Garments (Huh Decl. ¶ 8).

12. Between September 22 and October 9, 2007, Doolim sought and obtained assurances from Doll that it would pay for the July and August Garments (Huh Decl. ¶¶ 8-9).

13. In October and early November 2007, Doolim shipped to Doll an additional 157,092 garments with a total purchase price of $659,059.74; Doll received these garments on or before November 20, 2007 (the "October Garments") (Compl. ¶ 15; Doolim Invoice Nos. DM-308/307 [153684] & DM-0395 [3408], annexed as Exs. 5-6 to Huh Decl.).

14. During the same period in October and November, Doll ordered 249,293 more garments from Doolim, with a total landed duty-paid purchase price of $878,262.64 (the "Surplus Garments") (Doll Purchase Order Nos. 100656-60, 100662-75, annexed as part of Ex. 2 to Huh Decl.). Approximately 87% of the Surplus Garments were scheduled to be shipped to Doll in January 2008; Doll planned to re-sell most of the Surplus Garments to K-Mart (the "K-Mart Garments"). The landed duty-paid price to Doll of the K-Mart Garments was $766,438.54 (Doll Purchase Order Nos. 100656-60, annexed as part of Ex. 2 to Huh Decl.).

15. On or about November 21, 2007, Doll paid Doolim $200,000.00, which Doolim credited against one of the October Invoices (Huh Decl. ¶ 10; Doolim Invoice No. DM-308-307 [153684], annexed as Ex. 5 to Huh Decl.).

16. On November 25, 2007, Doolim shipped to Doll an additional 13,735 garments, with a total purchase price of $67,433.75 (the "November Garments"); these garments did not arrive in the United States until December 2007 or January 2008 (Huh Decl. ¶ 11; Doll Purchase Order Nos. 100624-27, 100653-55, annexed as part of Ex. 2 to Huh Decl.; Doolim Invoice No. DM-20071125 [13735], annexed as Ex. 7 to Huh Decl.).

17. On December 1, 2007, Doolim requested additional assurances from Doll that it would pay the outstanding balances on all of the orders accepted by Doolim as of that date (Huh Decl. ¶ 13).

18. On December 8, 2007, the parties entered into a written agreement that modified the rights and obligations of the parties (the "Modification Agreement") (Huh Decl. ¶¶ 14-15; Doolim/R Doll Payment Schedule, executed Dec. 7 & 8, 2007, annexed as Ex. 8 to Huh Decl.). Doll promised to pay Doolim, and Doolim promised to accept, a total of $931,000.00 in five specified installments on December 14 and 28, 2007 and January 11, January 25 and April 20, 2008 in satisfaction of "[a]ll open invoices received through 12/30/07"; Doll also promised to provide Doolim, by December 14, 2007, with a letter of credit securing Doll's payment for the K-Mart Garments (Huh Decl. ¶¶ 14-15; Doolim/R Doll Payment Schedule, executed Dec. 7 & 8, 2007, annexed as Ex. 8 to Huh Decl.). In exchange, Doolim promised to accept the reduced payment amount [3] and Doll's modified payment schedule, instead of the original terms which required payment within 15 days of Doll's receipt of the garments.

19. By mid-January 2008, Doll had not made any of the scheduled installment payments and had not provided Doolim with a letter of credit securing payment for the K-Mart Garments (Huh Decl. ¶ 12). As a result, Doolim suspended all further deliveries of garments to Doll (Huh Decl. ¶ 16).

20. At the time that Doolim suspended its deliveries, Doolim had not yet delivered the November Garments to Doll; it held those Garments for Doll in Los Angeles (Huh Decl. ¶ 19). In addition, Doolim had finished manufacturing, but had not yet shipped, 38,450 of the Surplus Garments, and had commenced the manufacture of the remaining 210,843 Surplus Garments.

21. Doolim had already incurred the majority of its costs with respect to the manufacture of the Surplus Garments, and it completed the manufacturing process with "minimal [additional] effort" (Huh Decl. ¶ 17). After completing the manufacture of the Surplus Garments, Doolim held them in Vietnam (Huh Decl. ¶ 18).

22. Doolim did not attempt to sell any of the completed November and Surplus Garments because "Doll and Oshatz had at one point intimated that they would seek to protect their interests in the intellectual property, should [Doolim] try to sell any of the garments directly" (Huh Decl. ¶ 20).

C. Doolim's Alleged Security Interest

23. On February 8, 2008, Doolim filed a UCC financing statement with the New York Secretary of State, claiming a security interest in, among other things, the July and August Garments, the October Garments, and all of the proceeds from the sale or delivery of those garments (Doolim Financing Statement, annexed as Ex. 9 to Huh Decl.).

D. Doll's Alleged Insolvency

24. In early 2008, Oshatz told Doolim that "he and [Doll] were insolvent," that "the brand was finished" and that "he was planning to leave New York" (Huh Decl. ¶ 24).

25. Doolim had no further contact with Doll or Oshatz after that conversation (Huh Decl. ¶ 24).

E. Rosenthal's Alleged Security Interest

26. In July 2005, Rosenthal filed a UCC financing statement with the New York Secretary of State, claiming a security interest in, among other things, all of Doll's present and future accounts, inventory and trademarks. New York State UCC Financing Statement No. 760985, Filing No. 200507065602580, available at http://appsext7.dos.state.ny .us/ASPIMGView/imgview.aspx?pdocid=14835940 (last visited May 7, 2009).

27. In or around April 2007, Doll entered into an agreement with Rosenthal pursuant to which Rosenthal provided financing to Doll, Rosenthal acquired all of Doll's rights to payment from its customers for goods which Doll sold to them, including goods manufactured by Doolim, and Rosenthal acquired a security interest in the Doll Marks (Compl.¶ 10).

III. CONCLUSIONS OF LAW

28. The Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. § 1331 (civil actions arising under the treaties of the United States), Genpharm Inc. v. Pliva-Lachema a.s ., 361 F.Supp.2d 49, 53-55 (E.D.N.Y.2005), and 28 U.S.C. § 1332(a)(2) (civil actions between citizens of State and citizens of foreign state where matter in controversy exceeds sum of $75, 000).

29. Venue is proper in the Southern District of New York pursuant to 28 U.S.C. § 1391(b)(2) because a substantial part of Doll's actions and omissions that gave rise to Doolim's claims occurred at Doll's principal place of business located in the Southern District of New York. In the alternative, venue is proper in the Southern District of New York pursuant to 28 U.S.C. § 1391(b)(3) because at least one defendant, Rosenthal, may be found in that district.

30. The Court has personal jurisdiction over the defendants under New York C.P.L.R. § 301 because they or their representatives were personally served in New York with the summons and complaint in this action (Affidavit of Service by Personal Delivery, sworn to Feb. 21, 2008, Docket Item 3). See Genpharm Inc. v. Pliva-Lachema a.s., supra, 361 F.Supp.2d at 56, citing Sunward Elecs., Inc. v. McDonald, 362 F.3d 17, 22 (2d Cir.2004); Jack B. Weinstein, Harold L. Korn & Arthur R. Miller, New York Civil Practice: CPLR ¶ 301.00 (Lexis 2009).

A. Doolim's Contract Claims

31. Doolim's contract claims against Doll are governed by the United Nations Convention on Contracts for the International Sale of Goods, Apr. 11, 1980, S. Treaty Doc. No. 98-9 (1983), 1489 U.N.T.S. 3, 19 I.L.M. 668 (1980) ( "CISG"), "which 'applies to contracts of sale of goods between parties whose places of business are in different States ... when the States are Contracting States.' " TeeVee Toons, Inc. v. Gerhard Schubert GmbH, 00 Civ. 5189(RCC), 2006 WL 2463537 at *4 (S.D.N.Y. Aug. 23, 2006), quoting CISG art. 1(1)(a), 19 I.L.M. at 672.

32. Doolim and Doll entered into contracts for the manufacture and delivery of garments, which were "contracts of sale of goods" within the meaning of the CISG (Compl.¶ 28).

33. Doolim and Doll's places of business are in South Korea and the United States, respectively, which are both "Contracting States" within the meaning of the CISG. See CISG art. 99(2), 19 I.L.M. at 694 (CISG enters into force for states that accede to it); United Nations Commission on International Trade Law, Status of CISG, http://www.uncitral.or g/uncitral/en/uncitral_texts/sale_ goods/1980CISG_status.html (last visited May 7, 2009) (CISG entered into force for South Korea on March 1, 2005, and for the United States on January 1, 1988).

34. None of the exceptions to the applicability of the CISG applies here. See CISG arts. 2, 6, 19 I.L.M. at 672, 673 (CISG does not apply to contracts for purchase of money, securities, negotiable instruments, ships, vessels, hovercraft, aircraft, or electricity, does not apply to goods bought by auction or by authority of law or goods bought for personal, family or household use, and does not apply if and to the extent that the parties so agree); see also Delchi Carrier SpA v. Rotorex Corp., 71 F.3d 1024, 1027 n. 1 (2d Cir.1995) (CISG applies if "agreement is silent as to choice of law" and "both parties are located in signatory nations," unless parties have "by contract choose[n] to be bound by a source of law other than the CISG, such as the Uniform Commercial Code").

1. Garments Delivered to Doll

35. Doolim first seeks damages for the garments that it delivered to Doll.

36. Doll is obligated to pay Doolim $1,040,085.84, the purchase price for the July and August Garments and the October Garments, and was initially obligated to pay that sum within 15 days of its receipt those garments. CISG, art. 53, 19 I.L.M. at 683 ("The buyer must pay the price for the goods and take delivery of them ....").

37. Doll fundamentally breached this obligation by paying Doolim only $200,000.00 for the garments and failing to pay the balance. Doll's payment of only a small fraction -- less than 20% -- of the purchase price substantially deprived Doolim of the performance that it had a right to expect from Doll, i.e., full payment within 15 days of delivery. CISG art. 25, 19 I.L.M. at 677 (A breach is fundamental if it "results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.").

38. Because of Doll's breach, Doolim is entitled to recover $840,085.84, the difference between the total contract price for the July and August Garments and the October Garments and the amount paid.[4] CISG art. 74, 19 I.L.M. at 688 ("Damages for breach ... by one party consist of a sum equal to the loss ... suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the ... conclusion of the contract ....").

2. Garments Retained by Doolim

39. Doolim also seeks damages for the garments that it manufactured but did not deliver.

40. Doolim permissibly withheld delivery of the November and Surplus Garments to Doll because it became apparent that Doll would not be able to make any payments for those Garments. CISG art. 71(1), 19 I.L.M. at 687-88 ("A party may suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations as a result of ... a serious deficiency in his ability to perform ...."). As of December 7, 2007, Doolim had well-grounded fears that Doll would not pay for the garments in production because Doll was already more than three months delinquent with respect to the July and August Garments. Doolim only resumed manufacture and shipment of the Surplus Garments because Doll promised to secure a letter of credit for the bulk of the Surplus Garments by December 14, 2007 and to pay a discounted price in installments, beginning with a $200,000.00 payment on December 14, 2007. However, when Doll failed to either secure the letter of credit or make the $200,000.00 payment by December 14, 2007, it was apparent that Doll would be, at the very least, seriously deficient in its performance of its remaining contractual obligations.

41. Doolim also permissibly cancelled the contract and permanently withheld delivery of the November Garments and the Surplus Garments because Doll's persistent failure to pay for the garments it ordered demonstrated that it was unable or unwilling to pay the agreed upon price for these garments. CISG art. 72, 19 I.L.M. 688 ("If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided."). By the end of January 2008, Doll had failed to secure the letter of credit for the K-Mart Garments, had failed to make the payments totaling $530,000.00 that were due on December 14 and 28, 2007 and January 11 and 25, 2008, and had failed to give Doolim any assurance that Doll would be able to meet any of its obligations on the amounts owed to Doolim for shipments previously accepted. Thus, it was evident that Doll would likely continue to breach its obligations under both the Modification Agreement and the purchase orders for the November and the Surplus Garments.

42. Because Doolim reasonably avoided its contracts with Doll relating to the November and Surplus Garments, it was entitled to a choice of two remedies under the CISG: (1) resale of the Garments within a reasonable time and in a reasonable manner, coupled with recovery from Doll of the difference between the resale price and the contract price (in addition to any foreseeable consequential losses) or (2) recovery of the difference between the current price and the contract price as damages, with the current price usually defined as the price at the place of delivery. CISG arts. 75-76, 19 I.L.M. at 689.

43. Doolim seeks to invoke the first option, evidently believing that the November and Surplus Garments retain some value (Plaintiff Doolim's Memorandum of Law in Support of the Proposed Findings of Fact and Law at Inquest, dated Jan. 21, 2009 ("Pl.'s Br."), 4-7).[5] However, Doolim has not yet resold the garments because the garments bear the Doll Marks, and Doolim is concerned that its sale of the garments might constitute trademark infringement. As a result, Doolim has not established that it is entitled to any damages relating to the November and Surplus Garments, and I recommend that it be denied any such damages.

As discussed below, Doolim is entitled to a declaration that it can sell the November and Surplus Garments without regard to Doll and Oshatz's trademark rights. Thus, Doolim will recover some proceeds from the sales of these garments. Awarding Doolim the purchase price that Doll had agreed to pay would result in a double recovery to Doolim and put it in a better position than if Doll had fully performed the contracts.

B. Whether Doolim's Proposed Resale of the Garments Would Infringe Doll's or Rosenthal's Trademark Rights

44. Doolim also seeks a declaratory judgment that it may sell the garments currently in its possession without infringing the Doll Marks that appear on the garments (Plaintiff Doolim's Proposed Findings of Fact and Law at Inquest, dated Jan. 21, 2009 ("Pl.'s Prop. Findings"), ¶ 29).

45. Where, as here, a seller manufactures trademarked goods in response to an order from the trademark owner, and the trademark owner unjustifiably fails to accept or pay for the goods, the aggrieved seller has an implied license to sell the trademarked goods in order to mitigate its damages. See McCoy v. Mitsuboshi Cutlery, Inc., 67 F.3d 917, 922 (Fed.Cir.1995) (authorizing manufacturer's resale of 130,000 patented and trademarked knives because buyer previously accepted and paid for 20,000 such knives, but unjustifiably refused to pay for remaining knives); Platt & Munk Co. v. Repub. Graphics, Inc., 315 F.2d 847, 854-55 (2d Cir.1963) (manufacturer of children's books could have resold copyrighted books "without liability for infringement, just as a judgment creditor or another lienor foreclosing through the judicial process could do" if "the person for whom the goods were being made unjustifiably decline[d] to pay the price."); Diebold Inc. v.. Positran Mfg., Inc., CIV. A. 02-374 GMS, 2002 WL 31129726 at *1-*4 (D.Del. Sept. 26, 2002) (permitting manufacturer to complete manufacture of patented remote transaction security equipment and sell that equipment after buyer breached agreement to pay for equipment and filed for bankruptcy).

46. Here, as in Mitsuboshi Cutlery, Doolim's performance was not deficient in any way; Doll was simply unwilling or unable to pay the price for the garments despite its promises to do so. Under these circumstances, Doolim is entitled to an implied license to sell the November Garments and Surplus Garments in order to mitigate its damages. I therefore recommend that Doolim be granted a declaratory judgment that it does not infringe the Doll Marks by selling the garments which Doolim originally agreed to manufacture and deliver to Doll.[6]

C. The Priority of Doolim's Interest in Proceeds Held by Rosenthal

47. Doolim claims that it has perfected a purchase-money security interest in the garments that Doolim delivered to Doll, and in the proceeds from Doll's or its creditors' sale of those garments (Compl .¶ 42). Doolim further claims that Rosenthal possesses such proceeds, and that Doolim's interest "is senior to any other security interests in the collateral, except to the extent of Rosenthal's possessory interest therein" (Pl.'s Prop. Findings ¶ 31). Doolim seeks a declaratory judgment and order that Rosenthal disburse the proceeds to Doolim, "net of Rosenthal's entitlement" (Pl.'s Prop. Findings ¶ 31).

48. Doolim has not pled facts nor has it offered evidence establishing that Rosenthal has possession of any of the proceeds from the sale of garments manufactured by Doolim. A plaintiff is not entitled to entry of an award of damages at an inquest absent evidence as to the amount of damages. See Int'l Bhd. of Elec. Workers Local No. 43 v. Meachum Elec. Contractors, Inc., 5:05-CV-754 (NAM/GHL), 2006 WL 3096486 at *2 (N.D.N.Y. Oct. 27, 2006) ("[W]here, as here, plaintiffs presented no evidence in support of their averment regarding the amount of contributions and deductions defendants were delinquent in remitting, there was no basis on which to make a damages award.").

49. Without evidence as to the amount of proceeds that Rosenthal possesses, Doolim has not proven that it is entitled to any recovery from Rosenthal. Therefore, I recommend that Doolim be denied declaratory relief on the issue of its entitlement to proceeds held by Rosenthal, if any.

D. Doolim's Application for an Order of Attachment

50. Doolim also seeks an order of attachment "against Doll and Rosenthal" (Pl.'s Br. 11) and "on the monies held by Rosenthal to satisfy the outstanding balance due" from Doll (Pl.'s Prop. Findings ¶ 32). Doolim does not seek an order of attachment against Oshatz.

51. Rule 64 of the Federal Rules of Civil Procedure incorporates the law of the state in which a federal court sits with respect to provisional remedies. Accordingly, New York state law is controlling. Fed.R.Civ.P. 64(a)-(b).

52. Attachment is a "provisional remedy," N.Y. C.P.L.R. § 6001, which, by definition, is only available before judgment is entered. N.Y. C.P.L.R. § 6211 (order of attachment may be granted "before or after service of summons and at any time prior to judgment."); Black's Law Dictionary 1320 (8th ed.2004) (defining provisional remedy as "[a] temporary remedy awarded before judgment and pending the action's disposition, such as ... an attachment."); David D. Siegel, New York Practice § 316 (4th ed. 2009) ("Application for the attachment can be made ... at any time before final judgment.").

53. Here, Doolim is seeking attachment as part of the final judgment, "after all doubt as to liability has been erased," McCahey v. L.P. Investors, 774 F.2d 543, 548 (2d Cir.1985) (describing circumstances under which post-judgment remedies are appropriate), and the only issue is the amount of damages. Under these circumstances, it is improper for Doolim to seek attachment. Therefore, I recommend that Doolim's request for an order of attachment be denied as to both Doll and Rosenthal.

IV. CONCLUSION

Accordingly, for all the foregoing reasons, I respectfully recommend that Doolim be awarded judgment on its first and second claims against Doll in the amount of $840,085.94. I further recommend that on its third claim, Doolim be awarded a declaration that it is entitled to sell the garments in its possession manufactured for Doll without regard to the trademark rights of Doll. I recommend that Doolim's fourth claim, which seeks a declaration of its rights with respect to certain assets in the possession of Rosenthal, be dismissed. I also recommend that Doolim's application for an order of attachment as part of the final judgment be denied.

I also note that your Honor's Order dated July 15, 2008 which directed the entry of a default judgment did not include Oshatz. Oshatz appears to be a defendant only on Doolim's claim for a declaration of its rights to sell the garments specially manufactured for Doolim; the complaint affirmatively states that the claims for money damages are directed against Doll only (Compl. at 6). Since Oshatz is also in default, I further recommend that the judgment in this matter include Oshatz and declare that Doolim is entitled to sell the garments in its possession manufactured for Doll without regard to the trademark rights of Oshatz.

V. OBJECTIONS

Pursuant to 28 U.S.C. § 636(b)(1)(C) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have ten (10) days from receipt of this Report to file written objections. See also Fed.R.Civ.P. 6(a) and 6(e). Such objections (and responses thereto) shall be filed with the Clerk of the Court, with courtesy copies delivered to the Chambers of the Honorable Barbara S. Jones, United States District Judge, 500 Pearl Street, Room 1920, and to the Chambers of the undersigned, 500 Pearl Street, Room 750, New York, New York 10007. Any requests for an extension of time for filing objections must be directed to Judge Jones. FAILURE TO OBJECT WITHIN TEN (10) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. Thomas v. Arn, 474 U.S. 140 (1985); United States v. Male Juvenile, 121 F.3d 34, 38 (2d Cir.1997); IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1054 (2d Cir.1993); Frank v. Johnson, 986 F.2d 298, 300 (2d Cir.); Wesolek v. Canadair Ltd., 838 F.2d 55, 57-59 (2d Cir.1988); McCarthy v. Manson, 714 F.2d 234, 237-238 (2d Cir.1983).

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FOOTNOTES

Order

1. After I referred this matter to Magistrate Judge Pitman to conduct an inquest and issue the Report concerning the amount of damages to be awarded to Doolim, Magistrate Judge Pitman directed defendants, including Oshatz, to respond to Doolim's proposed findings of fact and conclusions of law by October 30, 2008. But while "all reasonable steps to provide notice to defendants," including Oshatz, "have been taken," "none of the defendants has made any written submission, nor have they contacted my chambers in any way." (Report, at 3.)

Report and Recommendation

1. As a result of defendants' default, all the allegations of the complaint, except as to the amount of damages, must be taken as true. Bambu Sales, Inc. v. Ozak Trading, Inc., 58 F.3d 849, 854 (2d Cir.1995); Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir.1992); Trans World Airlines, Inc. v. Hughes, 449 F.2d 51, 69-70 (2d Cir.1971), rev'd on other grounds, 409 U.S. 363 (1973); Knox v. Palestine Lib. Org., 442 F.Supp.2d 62, 74 (S.D.N.Y.2006).

2. A landed duty-paid price includes shipping costs. See, e.g., Dole Food Co., Inc. v. Watts, 303 F.3d 1104, 1109 (9th Cir.2002); New York Credit Men's Adjustment Bureau, Inc. v. United States, 68 Cust. Ct. 319, 342 F.Supp. 745 (1972).

3. As of December 8, 2007, the total landed duty-paid price to Doll for the open invoices that had been, or were scheduled to be, delivered by December 30, 2007, was $1,019,343.69 (Doll Purchase Order Nos. 100541- 43, 100554, 100556-59, 100624-27, 100653-55, 100662-75, annexed as part of Ex. 2 to Huh Decl.). However, the parties may have anticipated that Doolim would not deliver all of the open invoices on schedule, and this possibility may have been reflected in the modified payment amount.

4. Doolim does not claim any additional damages based on Doll's delay in paying Doolim or its subsequent breach of the Modification Agreement (see Compl. 6-10).

5. Although Doolim also requests damages in the amount of the full contract price for the November and Surplus Garments (Compl. ¶ 33; Plaintiff Doolim's Proposed Findings of Fact and Law at Inquest, dated Jan. 21, 2009, ¶ 28), it has offered no evidence concerning the current price of the goods, so it may not utilize that remedy.

6. Because I recommend that Doolim should be granted an implied license to resell the withheld garments without infringing the Doll Marks, it is unnecessary to address Doolim's alternative argument that the trademarks have been abandoned.}}

Source

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