Opinion
02 Civ. 4033 (JGK)
February 10, 2003
OPINION AND ORDER
The plaintiff, Harvé Benard, brings this action against the defendants, Nathan Rothschild ("Rothschild"), K.I.D. International, Inc. ("KID"), and Amazing Savings/JBS Liquidators, Inc. ("Amazing Savings") alleging claims of trademark infringement in violation of Section 32(1) of the Lanham Act, 15 U.S.C. § 1114(1); false designation of origin and other violations of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); infringement of common law trademark rights; unfair competition; and violation of Section 360-1 of the New York General Business Law. Defendant KID filed a Notice of Petition for Removal asking the Court to remove the case from itself only to return the case to itself for reference to the Bankruptcy Court for the Southern District of New York. In response, plaintiff Harvé Benard moved the Court to strike the Notice of Petition for Removal or, in the alternative, to remand the action back to this same Court. KID then filed a cross-motion to transfer the case to the United States District Court for the District of New Jersey pursuant to 28 U.S.C. § 1404(a) so that it can be referred to the Bankruptcy Court for the District of New Jersey where an allegedly related case concerning non-party D. Klein Son, Inc. ("D. Klein Son") is now pending. All defendants join in that motion.
The substance behind these seemingly bizarre procedural maneuverings is that the plaintiff who brought this action in this Court seeks to have the case remain here. The defendants seek to transfer the case to the District of New Jersey so that it can be referred to the Bankruptcy Court in that District as related to the D. Klein Son bankruptcy proceeding.
Defendant Rothschild also filed a pro se Motion to Dismiss the Complaint against him but withdrew that motion at oral argument on November 26, 2002. (Tr. at 34-35.) Rothschild has also served a counterclaim which he has not withdrawn and which should remain with the rest of the case.
I.
The following facts are alleged in the Complaint except as noted. The plaintiff, Harvé Benard, is a New York corporation with its principle place of business in New York. (Compl. ¶ 2.) Harvé Benard is engaged in the promotion, distribution and sale of high quality goods, including clothing, accessories, handbags and leather goods ("Harvé Benard Products"). (Id. at ¶ 3.) Defendant KID is a New Jersey corporation with its principle place of business in New Jersey. (Id. at 6.) Rocky Stefansky is the sole officer and shareholder of KID. (Verification of Rocky Stefansky dated Sept. 6, 2002 ("Stefansky Verif.") ¶ 1.) Defendant Amazing Savings is a New York Corporation with a business address in New York. (Compl. ¶ 5.)Bernard Holzman and his design team have designed, manufactured or licenced all Harveacute Bernard Products for over thirty years. (Id. at ¶ 13.) Harvé Benard is the owner and registrant of multiple trademarks for clothing under the names "Harvé Benard", "Signature by Harvé Benard", "Harvé by Harvé Benard", "Benard Sport" and "Benard Couture" ("Harvé Benard Trademarks"). (Id. at ¶¶ 4, 10.) As owner, Harvé Benard works to produce and promote its products, (Id. at ¶ 11.), the net worldwide sales of which exceeded $100,000,000.00 in 2001. (Id. at ¶ 12.) Harvé Benard spent hundreds of thousands of dollars that same year to promote and advertise its products. (Id.) The plaintiff has devoted significant time, effort and money to develop trade dress ("Harvé Benard Trade Dress") featuring one or more of the Harvé Benard Trademarks for use on Harvé Benard Products. (Id. at ¶ 14.) The company maintains strict design and quality controls over the manufacture of Harvé Benard Products and similarly stringent controls govern their subsequent distribution. (Id. at ¶ 13.)
Harvé Benard sells some of its goods through licensees. In 1998, D. Klein Son entered into a license agreement ("License Agreement") with Harvé Benard to manufacture and sell women's handbags. (Id. at ¶ 16; Verification of Nathan Rothschild dated Dec. 3, 2002 ("Rothschild Verif.") ¶¶ 2, 7.) D. Klein Son is not, and has never been, a defendant in this action. The plaintiff alleges that defendant Rothschild, a New York resident, served as chief executive officer of D. Klein Son until its bankruptcy in 1999 and thus had actual knowledge of the Harvé Benard Trademarks. (Compl. ¶¶ 7, 17.) The plaintiff further contends that the three defendants, with actual or constructive knowledge, distributed, reproduced, or offered for sale various handbags bearing trademarks or trade dress infringing actual Harvé Benard Trademarks and Harvé Bernard Trade Dress ("Infringing Items"). (Id. at ¶¶ 19, 21, 23, 24.) Harvé Benard claims that the Infringing Items bore marks intended to imitate Harvé Bernard Trademarks and were sold, offered for sale, distributed or advertised in a way likely to cause confusion or mistake, or to deceive. (Id. at ¶ 20.) These marks consisted of hardware, hangtags and imprinted materials falsely identifying the Infringing Items as Harvé Benard products. (Id. at ¶¶ 21, 24.)
At an unspecified time between December 1998 and March 1999 defendant KID purchased from D. Klein Son certain items ("Merchandise"), "including, potentially, [items subject to the License Agreement]." (Stefansky Verif. ¶ 3; Notice of Petition for Removal dated June 26, 2002 ("Removal Pet.") ¶ 2; Rothschild Verif. ¶ 8.) KID denies violating the plaintiff's trademark or other rights. (Stefansky Verif. ¶ 18.) But finding the Merchandise defective, KID refused to pay D. Klein Son the balance of the purchase price. (Stefansky Verif. ¶ 5.)
On or about May 18, 1999, D. Klein Son filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code in the District of New Jersey. (Stefansky Verif. ¶ 6; Removal Pet. ¶ 4.) The case was converted to a Chapter 7 filing on or about September 23, 1999 and Robert Wasserman ("Trustee") was appointed trustee for the bankruptcy estate. (Stefansky Verif. ¶¶ 6-7; Removal Pet. ¶¶ 4-5.) The License Agreement between Harvé Benard and D. Klein Son allegedly remained in effect at the time that D. Klein Son filed its bankruptcy petition. (Stefansky Verif. ¶ 8.) The Trustee failed to assume the License Agreement within 60 days of the filing and failed to seek an extension of the 60-day time limit to do so. (Id.) As a result, the License Agreement was deemed rejected pursuant to Section 365(d)(1) of the Bankruptcy Code. (Removal Pet. ¶ 6.) The Trustee and First Union National Bank ("FUNB") claimed a blanket lien on all of D. Klein Son's assets, including the Merchandise in KID's possession, and threatened to either repossess the Merchandise or to sue KID for the unpaid balance. (Stefansky Verif. ¶ 9; Removal Pet. ¶ 7.) The parties ultimately reached an agreement, approved by the United States Bankruptcy Court for the District of New Jersey, in which KID would sell the Merchandise before turning over the profits to the Trustee and FUNB. (Stefansky Verif. ¶ 10; Removal Pet. ¶ 8; United States Bankruptcy Court for the District of New Jersey Order filed Oct. 30, 2002 ("N.J. Order") attached as Ex. A to Stefansky Verif.) In exchange, KID would receive a 12% commission on net sales proceeds after satisfying a credit of roughly $240,000 held by FUNB. (Settlement Agreement ¶ 4.2 attached as Ex. B to Stefansky Verif.)
The plaintiff claims that KID had actual knowledge of the Harvé Benard Trademarks (Compl. ¶ 18) yet served as an intermediary between D. Klein Son and defendant Amazing Savings in the sale of the Infringing Items. ( Id. at ¶ 26.) Harvé Benard also contends that defendant Rothschild represented that D. Klein Son manufactured the Infringing Items as a licensee of Harvé Benard while aware that the License Agreement had already terminated. (Id. at ¶ 27.) One alleged effect of Rothschild's actions was to encourage defendant Amazing Savings to continue to sell the Infringing Items in the face of a cease and desist letter dated February 14, 2002 sent to Amazing Savings by Harvé Benard. (Id. at ¶ 25.)
KID alleges that it sold the Merchandise to an entity know as Zebra, and Zebra later sold the goods to defendant Amazing Savings. (Stefansky Verif. ¶ 15.)
Defendant KID filed a Notice of Petition for Removal of this proceeding on June 27, 2002 seeking to remove this action from the Southern District of New York to the same Court and then have it referred to the Bankruptcy Court for the Southern District of New York.
II.
Defendant KID's Removal Petition seeks to fit a round peg into a square hole. It is clear that this action is currently pending before this Court. The action was properly brought in this Court and there is federal question subject matter jurisdiction because the Complaint alleges violations of the Lanham Act. See 28 U.S.C. § 1338(a) (jurisdiction over civil actions arising under federal statutes relating to, among other matters, trademark). However, KID now wishes to "remove" the case to this very same Court pursuant to 28 U.S.C. § 1452(a) which reads:
A party may remove any claim or cause of action in a civil action other than a proceeding before the United States Tax Court or a civil action by a governmental unit to enforce such governmental unit's police or regulatory power, to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334 of this title.
Section 1334(b) grants district courts "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b).
The notion of removing a case from this Court to itself defies logic. A review of the scant case law on the topic supports this Court's view that "removing" this case from the Court to the Court contradicts the plain language of 28 U.S.C. § 1452(a).
In Mitchell v. Fukuoka Daiei Hawks Baseball Club, 206 B.R. 204 (C.D. Cal. 1997), the Bankruptcy Court for the Central District of California faced an analogous procedural request from the plaintiff. Mitchell involved a contract dispute between the plaintiff, a professional baseball player, and the defendant, a Japanese baseball team. The parties reached an out of court settlement, but the plaintiff later filed suit in the Central District of California for breach of that agreement. Id. at 206-07. Roughly one year later, the plaintiff filed for Chapter 11 bankruptcy in the Bankruptcy Court for the Southern District of California, where the plaintiff resided, although he could have done so in the Central District of California. Id. Pursuant to 28 U.S.C. § 1452(a), the plaintiff next "removed" the lawsuit from the Central District of California to the Central District of California. Id. at 207. The "removed" action was then automatically referred to the United States Bankruptcy Court for the Central District of California. Id. at 208. The plaintiff then filed a motion with the bankruptcy court to transfer the case to the Southern District of California for referral to the Bankruptcy Court for the Southern District of California. Id.
28 U.S.C. § 157(a) provides that "Each district court may provide that any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for the district." In the Southern District of New York, automatic reference under 28 U.S.C. § 157(a) was implemented pursuant to the General Reference Order of then Acting Chief Judge Robert J. Ward on July 10, 1984.Worldcom Network Serv., Inc. v. Al-Khatib, 96 Civ. 4492, 1998 WL 23254, at *2 (S.D.N.Y. Jan. 22, 1998).
In response to the plaintiff's motion to transfer, the Bankruptcy Court for the Central District of California issued an Order to Show Cause why the "removed" action should not be remanded to the District Court for the Central District of California. The bankruptcy judge focused on the plain language of 28 U.S.C. § 1452(a) and found that to allow the plaintiff to "remove" the case from one court to the very same court would defy the "accepted rule of statutory construction that statutes should be construed in a manner that avoids an absurd result." Id. at 211; see also id. at 209-11; accord Sharp Electronics Corp. v. Deutsche Fin. Serv. Corp., 222 B.R. 259, 262-64 (D. Md. 1998) (finding that the plain meaning of "remove" in 28 U.S.C. § 1452(a) does not permit removal of an action from a district court to itself to be automatically referred to the bankruptcy court in the same district). Cf. 1 COLLIER ON BANKRUPTCY ¶ 3.07[1] (15th ed. revised 2002) (conceding that "[a]lmost every court speaking to the issue has concluded that it is legally impossible to remove a case from a particular district court to that same district court" but disagreeing with that result). Moreover, the Mitchell court found that the proper way to move a case from a district court to bankruptcy court in the same district would be by motion for referral.Mitchell, 206 B.R. at 210; see also Sharp Electronics, 222 B.R. at 260, 264.
The court went on to explain that the language of Section 1452(a) "must logically be interpreted as referring to the fact that proceedings from federal courts other than [the] district court can be removed to [the] district court, unless the federal proceeding in issue is pending in tax court, in which case Section 1452 prohibits it from being removed. For example, a proceeding from the Court of Federal Claims or the Court of Veterans Appeals could be removed to district court pursuant to 28 U.S.C. § 1452(a). Once removed to the district court, the removed proceeding would then be referred to the bankruptcy court for that district, pursuant to whatever reference rules that district had in effect." Mitchell, 206 B.R. at 211 (italics in the original).
The Court has found no case law from the Second Circuit on the question of intra-court removal. As such, the Court finds no reason to defy the plain language of Section 1452 and interpret the statute so as to allow KID to "remove" this action from this Court to this Court for the purpose of obtaining an automatic referral to the Bankruptcy Court for the Southern District of New York. The Petition for Removal is denied and the motion to strike the Petition for Removal is granted.
It should also be noted that there is no reason why KID followed the seemingly bizarre procedure of asking the Court to transfer this case to itself so that it could be referred to the bankruptcy court in this district when there is no related bankruptcy case pending in this district. What KID really wants to do is to have this court transfer this case to the District of New Jersey so that the case can be referred to the bankruptcy court in that district where a related bankruptcy case is in fact pending.
Should the "removal" have been granted, the plaintiff also moves to remand the action to this Court pursuant to 28 U.S.C. § 1452(b). Because the case never left the Court, the motion to remand is denied as moot.
III.
KID has filed a cross-motion to transfer this action to the United States District Court for the District of New Jersey pursuant to 28 U.S.C. § 1404(a) which provides that, "For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." KID seeks the transfer in order to obtain a subsequent referral to the Bankruptcy Court for the District of New Jersey. The plaintiff opposes the motion while all defendants support it.
The plaintiff argues that this Court lacks subject matter jurisdiction over the case and thus has no authority to transfer the case pursuant to Section 1404(a). This argument is frivolous. The Court has jurisdiction over the current action because the plaintiff brought suit for violation of the Lanham Act, thus establishing federal question jurisdiction. See 28 U.S.C. § 1338(a).
The plaintiff also contends that the Court cannot transfer the case to the District of New Jersey because it is not clear that the case could have been brought in the District of New Jersey. The plaintiff disputes that it could have sued Rothschild in the District of New Jersey. A federal court applies the forum state's personal jurisdiction rules in a case brought under federal question jurisdiction where a defendant resides outside the forum state and where there is no specific federal statute governing personal jurisdiction rules. PDK Labs, Inc. v. Friedlander, 103 F.3d 1105, 1108 (2d Cir. 1997); Provident Nat'l Bank v. California Fed. Sav. Loan Ass'n, 819 F.2d 434, 436 (3d Cir. 1987);Stewart v. Vista Point Verlag Ringier Publishing, 99 Civ. 4225, 2000 WL 1459839, at *2 (S.D.N.Y. Sept. 29, 2000). Such is the case for actions brought under the Lanham Act. Stewart, 2000 WL 1459839, at *2. New Jersey's long arm statute is as broad as the limits of the Fourteenth Amendment Due Process Clause allow as defined by the Supreme Court's decision in International Shoe Co. v. Washington, 326 U.S. 310 (1945).Cartet Savings Bank, FA v. Shushan, 954 F.2d 141, 145, 147 (3rd Cir. 1992). As the moving party, KID bears the burden of showing that venue and personal jurisdiction would be proper as to the defendants in the District of New Jersey. TM Claims Serv. A/S/O v. KLM Royal Dutch Airlines, 143 F. Supp.2d 402, 403 (S.D.N.Y. 2001).
The plaintiff questions personal jurisdiction solely as to defendant Rothschild.
In Falik v. Smith, 884 F. Supp. 862 (S.D.N.Y. 1995), Judge Carter of this Court transferred the case to the District of New Jersey after finding that the action should have been brought in New Jersey originally. The court found that the defendant, a California resident, had the requisite minimum contacts with New Jersey as a general partner of a New Jersey general partnership who engaged in continuous and systematic business in New Jersey and purposely availed himself of the benefits and protections of the state's laws. Id. at 867. Defendant Rothschild has similarly maintained sufficient minimum contacts so as to be on notice that he could be subject to suit in New Jersey courts. In 1995, Rothschild purchased D. Klein Son, a New Jersey corporation with its principle place of business in New Jersey. (Rothschild Verif. ¶¶ 2-3, 5.) He is the sole officer and director of the company and the sole member of Another Opportunity, L.L.C., which is the sole shareholder of D. Klein Son. (Id. at ¶ 6.) Rothschild negotiated the License Agreement between Harvé Benard and D. Klein Son from the latter's New Jersey office, and Rothschild conducted all calls and meetings with the plaintiff regarding the License Agreement from his New Jersey office. (Id. at ¶¶ 7, 9.) Moreover, venue, which is not contested, is proper in the District of New Jersey under 28 U.S.C. § 1391(b)(2) as "a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of the property that is the subject of the action is situated."
Once the threshold test has been met and it is determined that this action could have been brought in the District of New Jersey, the Court must determine whether transfer is warranted based on an evaluation of the deference owed to the plaintiff's choice of forum, the convenience to the parties and witnesses and the interests of justice, "a term broad enough to cover the particular circumstances of each case, which in sum indicate that the administration of justice will be advanced by a transfer." Schneider v. H.A. Sears, 265 F. Supp. 257, 263 (S.D.N.Y 1967) (Weinfeld, J.); see also Capital Venture Int'l v. Network Commerce, Inc., 01 Civ. 4390, 2002 WL 417246, at *1 (S.D.N.Y. Mar. 15, 2002);Mishnayot v. MGM Mirage, 01 Civ. 9955, 2002 WL 257849, at *1 (S.D.N.Y. Feb. 22, 2002); Wils v. Schulman, 91 Civ. 2078, 1991 WL 143444, at *2 (S.D.N.Y. July 24, 1991).
The plaintiff claims that the interests of justice would not be served by a transfer because the defendants "removed" only the main action in the case and not Rothschild's counterclaim which alleges slander and malicious prosecution. Thus, the plaintiff contends, two courts would have to work to resolve the case. However, the Court rejects the plaintiff's argument because no part of this case was ever "removed" from this Court and the case can be transferred as a whole to the District of New Jersey.
In this case, while deference is owed to the plaintiff's choice of forum and while the convenience of the parties and witnesses would not be greatly affected by a transfer from the Southern District of New York across the river to the District of New Jersey, the interests of justice counsel strongly in favor of transfer. "There is a strong policy favoring the litigation of related claims in the same tribunal in order that pretrial discovery can be conducted more efficiently, duplicitous litigation can be avoided, thereby saving time and expense for both parties and witnesses, and inconsistent results can be avoided. . . . Accordingly, cases often have cited the pendency of related actions in another court as strongly supporting the transfer of an action to that court." Capital Venture, 2002 WL 417246, at *2 (quoting Savin v. CSX Corp., 657 F. Supp. 1210, 1214 (S.D.N.Y. 1997)).
The plaintiff claims that this action is not sufficiently related to the D. Klein Son bankruptcy to justify transferring the case to District of New Jersey where it can be referred to the Bankruptcy Court. However, "[t]he test for determining whether litigation has a significant connection with a pending bankruptcy proceeding is whether its outcome might have any `conceivable effect' on the bankrupt estate. If the question is answered affirmatively, then litigation falls within the `related to' jurisdiction of the bankruptcy court." Ames Dept. Stores, Inc. v. TJX Co., Inc., 190 B.R. 157, 160 (S.D.N.Y. 1995) (quotingPublicker Indus. Inc. v. United States, 980 F.2d 110, 114 (2d Cir. 1992)).
This case presents ample reasons to transfer the action to the District of New Jersey to be referred to its Bankruptcy Court. First, transfer would promote the interests of justice because the D. Klein Son bankruptcy proceeding would likely be affected by the outcome of this action. For example, KID claims a right to indemnification from the Trustee of the bankruptcy estate. Resolution of this issue would affect both the outcome of Harvé Benard's suit and the obligations of the Trustee with respect to the bankruptcy estate. Placing all matters before the relevant bankruptcy court would further judicial economy and efficient resolution of the case. Second, the question has arisen as to whether the Infringing Items were part of the bankruptcy estate at all. In spite of the plaintiff's assertions to the contrary, the bankruptcy court is clearly best suited to assess this issue in view of its prior experience with the estate. Third, as a defense to this action, KID claims that the Settlement Agreement specifically exempts KID from the chain of title for the Merchandise. (Settlement Agreement ¶ 4.5; Stefansky Verif. ¶ 11; Removal Pet. ¶ 9.) KID also claims that the Settlement Agreement preserves any indemnification claims that KID might possess against FUNB and D. Klein Son's bankruptcy estate. (Settlement Agreement ¶ 7.1; Stefansky Verif. ¶ 13; Removal Pet. 11.) Finally, KID contends that "the Order [of the New Jersey bankruptcy court] provides that any sale of Merchandise shall be `free and clear of all liens, claims, interests and encumbrances pursuant to section 363(b), (f) and (h) of the Bankruptcy Code,' including rights arising under the License Agreement." (Stefansky Verif. ¶ 12; Removal Pet. ¶ 10.) The Bankruptcy Court for the District of New Jersey is in the best position to determine whether the Settlement Agreement and Order in fact shield KID from liability or provide for indemnification should Harvé Benard prevail on the merits. If the bankruptcy judge determines that the case is not properly before that court, the action can be remanded to the district court for resolution.
To support this contention, KID cites Paragraph 4.5 of the Settlement Agreement which reads, "In order to effectuate a sale of Inventory, KID shall issue to the buyer a bill of sale indicating that KID is selling such Inventory for the benefit of FUNB, as secured lender."
Paragraph 7.1 of the Settlement Agreement reads, "Upon the Effective Date, the parties shall exchange mutual reciprocal general releases excepting out from such releases . . . any claim for indemnification and/or contribution regarding any claim brought against any or all of them relating to any of their business activities in connection with the debtor . . . ." The parties executed the relevant releases on December 1, 2000. (Stefansky Verif. ¶ 14; Release by KID to Trustee dated December 1, 2000 attached as Ex. C to Stefansky Verif.)
The district court's ability to withdraw the reference should also resolve the plaintiff's concern that it would not receive a jury trial in the Bankruptcy Court. The bankruptcy court could resolve pre-trial matters before remanding the case to the district court, if necessary, for trial. All of the arguments could be made in connection with a motion to withdraw the reference in the District of New Jersey. See, e.g., In re Orion Pictures, 4 F.3d 1095, 1101-1102 (2d Cir. 1993); In re Ranch I Inc., C2 Civ. 4417, 2002 WL 31175184, at *2 (S.D.N.Y. Sept. 27, 2002).
In view of the relatedness of this case to the D. Klein Son bankruptcy and the expertise of the bankruptcy court, the motion to transfer this case to the District of New Jersey is granted.
CONCLUSION
For the reasons explained, the plaintiff's motion to strike the removal petition is granted. The plaintiff's request, in the alternative, to remand the action is denied as moot. Defendant KID's cross-motion to transfer the action to the District of New Jersey is granted. The Clerk is directed to transfer this case to the District of New Jersey.