Summary Judgment Denied In Trademark Dispute On The Gowanus

In The Gowanus Dredgers v. Baard, 11 CV 5985 (PKC) (E.D.N.Y. Dec. 17, 2013), the Gowanus Dredgers (the “Dredgers”), a charitable organization established “to raise awareness of environmental issues affecting the Gowanus waterfront in Brooklyn and the broader New York/New Jersey harbor area,” sued Erik Baard, the founder of a group called the Long Island City Community Boathouse (“Boathouse”) that later became affiliated with the Dredgers.  After Baard resigned from the leadership of both the Dredgers and the Boathouse, he allegedly continued to use the logo and name of the Boathouse on his Facebook page.  As a result, the Dredgers sued Baard for trademark infringement under the Lanham Act, common law unfair competition, and New York’s unfair competition laws.

In deciding the Dredgers’ motion for summary judgment, Judge Pamela Chen addressed whether they had standing to assert infringement claims owned by the Boathouse, which used (and therefore owned) the trademark at issue.  The Dredgers argued that they owned the Boathouse’s trademark because: (1) the Boathouse was “essentially a subsidiary” of the Dredgers; (2) the Boathouse was an “activity committee” of the Dredgers governed by the Dredgers’ by-laws; (3) the Dredgers provided insurance to the Boathouse; and (4) the Boathouse operated as a “fiscal conduit” for fundraising for the Dredgers.  Baard countered by arguing that the Boathouse was a separate entity from the Dredgers, therefore they did not have standing to assert the infringement claims at issue.

Judge Chen found that issues of fact concerning the Dredgers’ ownership of the Boathouse precluded summary judgment.  She was not persuaded that the purchase of insurance coverage or the alleged “fiscal conduit” relationship constituted evidence of ownership.  What she found “most telling” was the absence of a contract, board minutes, correspondence, or an authorization evidencing the Dredgers’ ownership of the Boathouse.  After oral argument she gave the Dredgers the opportunity to submit an affidavit supplementing their claim of ownership, and the Dredgers did so.  However, the affidavit did not definitively resolve the ownership question and left issues of fact.

Reasonable Attorneys’ Fees Awarded Under Fee Shifting Statute May Be At Southern District Market Rates But Must Account For Fees Already Recovered From Other Defendants

In Animal Science Products, Inc. v. Hebei Welcome Pharmaceutical Co. Ltd., 05 CV 0453 (E.D.N.Y. Dec. 30, 2013), Judge Brian Cogan granted in part plaintiffs’ request for attorneys’ fees under the Clayton Act, to the extent of awarding $4,093,163.35 in fees, and no costs, out of the $13,724,641.75 in fees and $1,363,307.68 in costs requested.  The case was a seven-year, multi-district anti-trust class action against Chinese vitamin C manufacturers, in which a group of direct purchasers alleged that the defendants participated in a cartel to fix prices and limit the output of vitamin C exported to the United States.  Plaintiffs settled with two of the four main defendants and ultimately recovered a judgment, after a jury trial and trebling of the damages, of $153,300,000 against defendants Hebei Welcome Pharmaceutical Co. and North China Pharmaceutical Group Corp.  Plaintiffs were represented by Boies, Schiller & Flexner LLP and Susman Godfrey LLP.

Judge Cogan accepted plaintiffs’ counsel’s hourly rates of $375-$980, even though they were higher than the rates customarily charged by lawyers with offices in the District, due to the complex and demanding nature of the case. The Court said the case involved factual and legal issues that “have never been considered in this district and very possibly would be unique anywhere,” and required that “extraordinary” resources “be brought to bear to prosecute the case.” Slip op., 3.  In the Court’s view there was “no plaintiffs’ class action firm with the capacity to deal with a case of this magnitude resident within this district.”  Slip op., 4.  The Court said that because it was not a “close question” whether to apply the forum rate or counsel’s national rates, there was no need for plaintiffs to offer independent evidence that their counsel’s national rates were reasonable.  Rather, the Court relied on its own knowledge of market rates in the relevant community, which includes the Southern District, and said that plaintiffs had bolstered their reasonableness showing by demonstrating that counsel’s proposed rates were the same as the rates charged to clients paying on an hourly basis, and that similar or higher rates had been approved by courts in other complex class action litigation.

Virtually the entire reduction in the fees and the complete denial of the costs was in order to avoid what Judge Cogan viewed as double counting, in light of plaintiffs’ prior receipt of a substantial amount in fees and costs from the settling defendants.  Plaintiffs sought the “full amount of their fees in this case even though a substantial portion of those fees have been paid” as a result of the settlements, on the theory that “they are entitled to an enhancement of their lodestar calculation and that in lieu of that, I should not apply a credit in favor of defendants to their fee recovery.”  Slip op., 11.  Judge Cogan rejected plaintiffs’ argument that relied on a “linkage between an enhancement and an offset” for fees already recovered, because plaintiffs’ proposal would result in an enhancement of “over 100%.”  He concluded that not offsetting the fees plaintiffs had already received would result in a windfall to them at odds with the Clayton Act’s allowance of a “reasonable” fee award.

PSLRA’s Safe Harbor

In In re Symbol Techs., Inc. Securities Litigation, 05 CV 3923 (E.D.N.Y. Dec. 5, 2013), Judge Denis Hurley denied defendants’ motion to dismiss the consolidated amended class action complaint.  The case involves Symbol Technologies, a manufacturer of inventory management products that was the subject of a government investigation into “systematic accounting fraud, including the manipulation of inventory levels to artificially inflate reported revenues” prior to the class period.  That government investigation led several former executives to plead guilty to criminal charges and the company to agree to consent decrees enjoining future violations of the antifraud provisions of federal securities laws.

At issue in the case were statements by the company and its senior executives to the effect that the company had put its financial improprieties behind it.  According to the complaint, those statements misrepresented Symbol’s financial results, the efficiency of its internal controls, and improvements in its corporate governance, which led to an inflation of Symbol’s stock price that damaged plaintiffs when the truth emerged.  Judge Hurley had little trouble concluding that the consolidated amended complaint sufficiently alleged the necessary elements of a securities fraud claim:  misrepresentations by defendants, materiality, falsity, scienter, and loss causation.

Of interest to us was his analysis of defendants’ claim that the Private Securities Litigation Reform Act’s “safe harbor” provision applied to defendants’ revenue projections.  The lead plaintiff argued that the safe harbor provision did not apply because of an exclusion for issuers who had “been the subject of a judicial or administrative decree or order.”  In short, plaintiff asserted that Symbol’s consent decrees deprived the company of safe harbor protection while defendants asserted that the consent decrees did not constitute a “judicial or administrative decree or order.”  In a case of first impression—neither the parties nor the Court found direct support for either side’s position—Judge Hurley found defendants’ argument to be a “distinction without a difference” and held the exclusion to apply.