A.V. by Versace, Inc. v. Gianni Versace S.P.A.

87 F.Supp.2d 281

A.V. BY VERSACE, INC., Plaintiff, v. GIANNI VERSACE, S.p.A. and Alfredo Versace, Defendants. and Gianni Versace, S.p.A., Third-Party Plaintiff, v. Anthony J. Pellegrino, Patrick Marano, and John Does 1-10, Third-Party Defendants.

Gianni Versace, S.p.A., Plaintiff, v. Alfredo Versace and Foldom International (U.S.A.), Inc., Defendants.

No. 96Civ.9721(PKL)(THK).

No. 98Civ.0123(PKL)(THK).

United States District Court, S.D. New York.

March 6, 2000.

Walsh & Walsh, Hackensack, NJ (John Walsh, of counsel), for A.V. By Versace, Inc.

Quirk and Bakalor, P.C., New York, NY (H. Nicholas Goodman, James M. Andriola, of counsel), for A.V. By Versace, Inc.

Phillips, Nizer, Benjamin, Krim & Ballon LLP, New York, NY (Theodore C. Max, David E. Jacoby, of counsel), for Gianni Versace, S.p.A.

Tunick, Kupferman & Creadore, P.C., New York, NY (Theodore R. Kupferman, of counsel), for Alfredo Versace and Foldom International (U.S.A.), Inc.

OPINION AND ORDER

LEISURE, District Judge.

Gianni Versace, S.p.A. seeks an order, pursuant to Federal Rule of Civil Procedure 70, Local Civil Rule 83.9, and this Court's inherent power, finding defendants Alfredo Versace and Foldom International (U.S.A.), Inc. in civil contempt for violating a preliminary injunction entered by the Honorable Sidney H. Stein, United States District Judge, in Civil Action No. 98-0123(SHS) (the "Foldom Action"). In addition, Gianni moves this Court for leave to amend its answer, counterclaim, and third-party complaint in Civil Action No. 96-9721(PKL) (the "A.V. Action"). For the following reasons, Gianni's application for contempt sanctions is granted with respect to Alfredo Versace and denied with respect to Foldom International (U.S.A.), Inc., and its motion for leave to amend its pleadings is granted.

BACKGROUND

Gianni Versace, S.p.A. ("Gianni") is a world-famous design house founded in the 1970s by the late Italian designer, Mr. Gianni Versace. Gianni owns a number of famous trademarks incorporating the name "Versace," as well as its signature "Medusa" trademarks. A.V. By Versace, Inc. ("A.V.") is a manufacturer of clothing and athletic shoes bearing the trademarks "A.V. By Versace" and "Alfredo Versace," pursuant to an alleged license with Alfredo Versace ("Mr.Versace"), an Italian citizen and United States resident. Mr. Versace has also been accused of marketing jeans and other items of clothing, as well as cigarettes, in conjunction with codefendant Foldom International (U.S.A.), Inc. ("Foldom"), through the use of various marks confusingly similar to trademarks registered by Gianni in the United States. The parties filed separate lawsuits in December 1996 and January 1998, which were later consolidated by this Court. See A.V. by Versace, Inc. v. Gianni Versace, S.p.A., No. 96 Civ. 9721, 1998 WL 832692 (S.D.N.Y.1998), at *1.

I. The A.V. Action

The facts underlying the A.V. Action have been set forth in greater detail in this Court's January 28, 1997 Memorandum Order, A.V. by Versace v. Gianni Versace, S.p.A., 1997 WL 31247, at *1 (S.D.N.Y. Jan. 28, 1997), familiarity with which the Court assumes. In December 1996, A.V. commenced the A.V. Action after its customer, Kinney Shoe Corporation ("Kinney"), received a cease and desist letter from Gianni's attorneys alleging that Kinney's sales of "A.V. By Versace" and "Alfredo Versace" clothing and shoes infringed various Gianni trademarks. As to Gianni, A.V. sought (1) declaratory relief, declaring that its products do not infringe Gianni's registered trademarks; (2) injunctive relief, enjoining Gianni from sending further "cease and desist" letters to A.V.'s customers; and (3) damages, under theories of unfair competition and tortious interference with contract. See id. Against Mr. Versace, A.V. requested (1) declaratory relief, ruling that (a) it has the sole right to use the mark "Alfredo Versace," and (b) if the mark is registered in the United States, it must be assigned the registration; and (2) compensatory and punitive damages. See id.

On January 28, 1997, this Court denied A.V.'s request for a preliminary injunction against the two defendants that would have prohibited both from using the mark "Alfredo Versace," based on A.V.'s failure to demonstrate a likelihood of irreparable harm. See id. at *2-3. Gianni subsequently filed counterclaims, a cross-claim, and third-party claims of trademark infringement and unfair competition against A.V. and third-party defendants Anthony J. Pelligrino ("Pelligrino") and Patrick Marano ("Marano") (collectively, the "third-party defendants").¹ See A.V., 1998 WL 832692, at *1.

II. The Foldom Action and Judge Stein's Preliminary Injunction

On January 8, 1998, after sending another "cease and desist" letter to Mr. Versace's counsel and to Foldom, Gianni filed a separate lawsuit against Mr. Versace and Foldom, alleging trademark infringement, unfair competition, and trademark dilution in violation of the Lanham Act, 15 U.S.C. §§ 1114(1), 1125(a), and 1125(c); trademark dilution, pursuant to N.Y. Gen. Bus. Law § 360-l; and trademark infringement and unfair competition under New York common law. See Foldom Compl. ¶ 1. In short, Gianni claimed that Mr. Versace and Foldom were manufacturing and selling products that infringed Gianni's registered trademarks, or licensing or franchising such infringing trademarks. See id. ¶ 17. These products allegedly included men's and women's suits, jeans, tee-shirts, sweaters, active wear, handbags, leather goods, and packaging bearing the names "AV Versace," "Versace by A.V.," or "Alfredo Versace." Id. ¶ 18. Of specific displeasure to Gianni was an advertisement that appeared in the November 12, 1997 issue of Women's Wear Daily, soliciting persons to license or franchise trademarks from "AV Versace." Id. ¶ 18. By its complaint, Gianni sought a preliminary injunction enjoining Mr. Versace and Foldom from using "its trademarks or trade dress or any designation so similar as likely to cause confusion, mistake or deception," including among others, "Alfredo Versace," "A.V. by Versace," "Versace by A.V." and "A. Versace," id. ¶ A, as well as compensatory and punitive damages, id. ¶¶ C, E-G. The case was initially assigned to the Honorable Sidney H. Stein, United States District Judge.

On February 4, 1998, Judge Stein granted Gianni's request for a preliminary injunction, issuing his decision from the bench. See Max Aff. ¶ 8; Prelim. Inj. at 1; see also Order to Show Cause, dated Jan. 12, 1998. During that hearing, defense counsel raised the issue of the injunction's extraterritorial application:

THE COURT: ... [Defendants' attorney] Mr. Feldman has raised separate issues in the papers in regard to my ability to adjudicate these issues in regard to Pakistan and Austria, so forth.

MR. MAX: So long as he is here and licensing it there.

THE COURT: If the license is entered into here, I do have authority.

MR. MAX: If he is an actor here, if he wants to move to Austria and do licensing there, I certainly would agree with your Honor that we have no jurisdiction over him. But as I believe the letter that Mr. Feldman passed up at the last hearing indicates, which dealt with correspondence between Mr. Versace [in] New York and someone in Italy, clearly the spider at the middle of the web is here in New York, so long as he is licensing and franchising his trademark from New York.

THE COURT: It is a jurisdictional matter. I think you are right. I will let that be. I will let Mr. Feldman convince me otherwise. To the extent that he is directing things be done, I guess that is a pretty basic contract matter, I have jurisdiction to stop him from doing things.

Feb. 4, 1998 Conf. Tr. at 20-21. Yet, Judge Stein declined to rule definitively on the question, and instead asked the parties to provide him with case law, which he expected would clarify the legal principles involved. See id. at 24. He did, however, state that "[i]n the absence of [a clear holding from the Second Circuit], the proposed preliminary injunction should cover licensing in the States. For licenses to be entered abroad, let's see what the cases say." Id.

Between February 4 and February 9, 1998, both sides submitted letter brief; and proposed orders arguing their respective positions on the issue of the Court's power to reach activities directed from within the United States that take place outside the country. See Max Aff. ¶ 14-17 & Exhs. B-D. On February 6, 1998, the attorneys for Foldom and Mr. Versace proposed a change to paragraph 11 of the proposed order (concerning publicity), which would have added the phrase "within the United States." See Proposed Prelim. Inj. at 7 (Max Aff., Exh. D). Counsel contended that his proposal was meant "to clarify the issue that this order is not preventing our client from conducting businesses in foreign countries which may allow him to use his name or a variation thereof as a trademark." Letter from John F. Kaley, Esq. to the Court, dated Feb. 6, 1998, at 2 (Max Aff., Exh. D). Later that day, counsel for Gianni wrote a letter to the Court, objecting to the proposed change, see id. at 2-4, to which counsel for defendants replied three days later, see Letter from Stephen E. Feldman, Esq. to the Court, dated Feb. 9, 1998, at 2-3 (Max Aff., Exh. D), and which in turn provoked a surreply from Gianni, see Letter from Max to the Court, dated Feb. 10, 1998, at 2-3 (Max Aff., Exh. D).

Six days after issuing its oral decision, on February 10, 1998, the Court entered a preliminary injunction, which ordered, inter alia, that

[d]efendants, their officers, agents, servants, employees, representatives, licensees, and attorneys, and all persons in active concert or participation or privity with any of them who receive actual notice of this Order, are hereby enjoined, pendente lite, in the United States of America² from registering, attempting to register, using, advertising, marketing, licensing, franchising, promoting or...