UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK U2 HOME ENTERTAINMENT, INC., Plаintiff, -against- HONG WEI INTERNATIONAL TRADING, INC. and JIXONG NI d/b/a HONG WEI, INC. Defendants.
02 Civ. 5828(JFK)
United States District Court, Southern District of New York
May 3, 2005
JOHN F. KEENAN, United States District Judge
FINDINGS OF FACT and CONCLUSIONS OF LAW
For Plaintiff:
SARGOY, STEIN, ROSEN & SHAPIRO
1790 Broadway
New York, New York 10019
Of Counsel: Harvey Shapiro, Esq.
Walter Michael Lee, Esq.
For Defendants:
WU & KAO, P.L.L.C.
747 Third Avenue, 22nd Floor
New York, New York 10017
Of Counsel: Harold W. Suckenik, Esq.
This matter returns to the Court on Plaintiff‘s motion to hold Defendants in contempt of a permanent injunction issued on December 30, 2003. Pursuant to
BACKGROUND
On July 24, 2002, Plaintiff brought this action alleging that Defendants were distributing unauthorized video compact discs (“VCDs“) of copyrighted television programs (“TVB Programs“) and other motion pictures. A non-jury trial was held on October 20, 2003, during which the defense admitted that they had duplicated VCDs of the TVB Programs. After trial, the parties reached a settlement. The settlement provided, inter alia, that Defendants would pay to Plaintiff $50,000, consent to the entry of a permanent injunction and enter into a “Sublicense Agreement” for the distribution of TVB Programs. Under the settlement agreement, counsel for the parties presented a
On December 30, 2003, the Court signed the proposed injunction and judgment. At Paragraph 1(b), the injunction prohibited Hong Wei from:
Importing, manufacturing, copying, duplicating or knowingly selling, renting, distributing, performing, or otherwise disposing of any unauthorized videocassette or videodisс copies of the Subject Motion Pictures.
The injunction also provided at Paragraph 6:
The Court shall retain jurisdiction of the within action to entertain such further proceedings and to enter such further orders as may be necessary or appropriate to implement and/or enforce the provisions of the judgment.
(Pl. Exh. 13).
Plaintiff has moved that Defendants Hong Wei International Trading, Inc., and Jixong Ni (collectively, “Hong Wei“) be held in contempt of court for violating this Court‘s Permanent Injunction. The Court has heard the testimony of witnеsses, and arguments of counsel, and now makes the following findings of fact and conclusions of law on this motion.
FINDINGS OF FACT
A. The Parties and the October 2003 Trial
Plaintiff U2 Home Entertainment, Inc. (“U2“), is a California corporation with its principal place of business in South San Francisco, California. U2 does business under the name
Defendants are Hong Wei International Trading, Inc., a New York Corporation, and Jixong Ni, an individual. They operate a video retail store at 32 East Broadway, New York, New York.2 Hong Wei is in the business of distributing videocassettes and videodiscs of motion pictures and television programs to the Chinese community. At the trial, Defendаnts were represented by Chris Lin, a Chinese-speaking attorney who practices in the intellectual property area. Mr. Lin also represented Hong Wei in connection with the settlement and the injunction in the case. (Tr. at 99). Mr. Ni consulted with Mr. Lin before he signed the Settlement Agreement. Mr. Ni signed this agreement in Mr. Lin‘s office. (Tr. at 99-100). Mr. Ni knew that the Settlement
B. The Sublicensing Agreement and TVB Programs
After the settlement and issuance of the Permanent Injunctiоn, the parties entered into a “Non-Exclusive Sublicense Agreement (the “TVB Sublicense“). By its terms, Hong Wei was authorized to distribute from December 1, 2003 through November 30, 2004 digital versatile discs (“DVDs“) of the TVB Programs. The license fee payable was $100,000. The TVB Sublicense was limited to the 32 East Broadway location.
Under the TVB Sublicense, U2 was to provide Hong Wei at least 14,800 DVDs of each TVB Program release. (Pl. Exh. 14, Sch. A ¶ 3(b); Tr. at 15). The TVB Sublicense gave Defendants the right to rent TVB Programs. Defendants covenanted that they would “not sell any TVB Videograms supplied.” (Pl Exh. 14, §§ 1.05, 5.01(b)) (emphasis added). If Hong Wеi needed additional DVD copies of the TVB Programs, it could purchase copies from Plaintiff for $6.76 per DVD (Tr. at 16, 24). The DVDs provided to Hong Wei under the TVB Sublicense included episodes of the following programs: Dream of Colors, Golden Faith, The Duke of Mount Deer, A Handful of Love, Hidden Treasures, To Get Unstuck in Time, Triumph in the Skies, and Twin of Brothers (the “Subject TVB Programs“).
C. Mr. Ni‘s Understanding of the Injunction
As for the Court‘s Order of Permanent Injunction, Mr. Ni testified as to his understanding of its clear language, which forbade him from dealing in unauthorized copies of the Subject TVB Programs:
THE COURT: Did the fact that you did not sell any of the discs in the piles in front of you, Exhibit 20, did the fact that you did not sell thеm have anything to do with any agreement or arrangement you had with U2 or Tai Seng?
THE WITNESS: Yes
. . .
THE COURT: So you knew you couldn‘t sell them.
THE WITNESS: That‘s right.
THE COURT: And was that because of the injunction that you knew you couldn‘t sell them?
THE WITNESS: TVB only for rent. It‘s not for sale. THE COURT: And is the reason they were only for rent and not for sale because of the injunction and because of the agreement that you had with Tai Seng, which is also U2, as I understand it?
THE WITNESS: That‘s right.
(Tr. at 80-81). Mr. Ni‘s testimony shows that he was well aware of the obligations imposed on him by the permanent injunction that was part of the settlement agreement.
The testimony of Mr. Ni‘s аttorney, Mr. Chris Lin, supports this finding. Mr. Lin testified that his usual practice would be to go over the terms of the settlement “paragraph by paragraph and clause by clause.” (Tr. at 234). Mr. Lin recalled no departure from his usual practice in the case of Mr. Ni. (Id.). In fact, Mr. Lin testified that Mr. Ni asked several questions th1at reflected an understanding of the settlement agreement and permanent injunction. (Tr. at 234-35).
Mr. Lin‘s testimony contradicts Mr. Ni‘s prior testimony that no one had ever explained to him the “piece of paper” that ended the case: i.e., the settlement agreement. (Tr. at 55-56). Even Mr. Ni admitted, however, that he understood “that that piece of paper ended the prior case” and that he “had to perform some duties under that agreement.” (Tr. at 56).
Plaintiff did not provide Hong Wei any VCD copies of the TVB Programs provided under the TVB Sublicense. As U2‘s general counsel Alan Huie testified, there are no authorized VCD copies of recent TVB Programs. (Tr. at 29). On April 13, 2004, Mr. Huie sеnt a letter by certified mail, return receipt requested, and by fax, to Mr. Ni demanding that Hong Wei cease and desist from distributing unauthorized VCDs of the TVB Programs. (Exh. 18; Tr. at 25-26). Mr. Ni testified that he never saw this letter before he was shown it at the hearing. (Tr. at 104-05). U2‘s sales manager, Cindy Ng, rebutted this testimony. She testified that she discussed this letter with Mr. Ni, and that he said he would comply. (Tr. at 182). The Court accepts Ms. Ng‘s testimony, rejects Mr. Ni‘s, and makes the finding that Mr. Ni was lying.
On July 10, 2004, Nai Saecho accompanied a confidential informant into Mr. Ni‘s Hong Wei store at 32 East Broadway. This informant was Wai Hing Dye, the mother of Perry Yuen, who was Ms. Saecho‘s employer. (Tr. at 159, 225). Despite the injunction and Sublicensing Agreement, Ms. Dye purchased 91 VCDs for $45.50 cash. (Tr. 157-58, 162). After the purchase, Ms. Saecho gave the discs to Mr. Yuen, who was waiting outside the store. (Tr. at 158). Mr. Yuen later provided the discs to Mr. Huie. (Tr. at
On August 14, 2004, there was a repeat performance at the Hong Wei store, albeit with a different troupe of actors. On that day, Ms. Sharrie Lao went into the Hong Wei store while Mr. Huie waited outside. (Tr. at 165). Ms. Lao testified that she purchased VCDs of the TVB programs To Get Unstuck in Time, Hidden Treasures, A Handful of Love and Twin of Brothers. (Tr. at 166-67, 169). She paid an unspecified amount of cash, without a deposit, and was refused a receipt even though she requested one. (Tr. at 167, 169). When Ms. Lao asked for an explanation, the store attendant told her that “they [Hong Wei] sell a lot of discs every day, the quality should be very good, there won‘t be any defective discs.” (Tr. at 170). The 95 discs purchased on August 14 were admitted into evidence as Plaintiff‘s Exhibit 20.
There is no dispute that the VCDs came from the Hong Wei store. (Tr. at 87-88). Each of the VCDs marked as Exhibits 19 had inventory numbers from the Hong Wei store. (Tr. at 85-87). Mr. Huie testified that U2 releases only DVDs of new TVB
The same is true for Exhibit 20. These VCDs also had Hong Wei inventory numbers (Tr. at 85-87). Mr. Huie testified that the Handful of Love, Hidden Treasures, To Get Unstuck in Time and Twin of Brothers VCDs were unauthorized copies because these programs were recent releases and therefore not available legitimately on VCD. Mr. Huie further testified that these VCDs, like those in Exhibit 19, were merely plain silver discs with handwriting –- in other words, obviously unauthorized copies of the TVB programs. (Tr. at 38-40).
E. Mr. Ni‘s Shifting Explanations for the Infringement
Mr. Ni posited no less than five different explanations for the source of these questionable discs: (1) they were purchased from Plaintiff (Tr. аt 88); (2) they were purchased from video stores in New York, including nearby Dong Fang (Tr. at 72, 96, 97, 141); (3) they were purchased from China (Tr. at 128-29); (4) they were purchased from California (Tr. at 94); and (5) they were rented from Dong Fang (Tr. at 98). Ultimately, it does
Mr. Ni testified that the VCDs were not for sale, but only for rent. (Tr. 79-81). This testimony contradicts Mr. Ni‘s prior testimony that he had sold VCDs. (Tr. at 60, 71-72). Assuming for the moment that the discs were for sale, Mr. Ni justified the sale by claiming that “Cindy [Ng] told me that I could sell them.” (Tr. at 60). Ms. Ng rebutted this testimony when she testified as to her conversation with Mr. Ni about Mr. Huie‘s warning letter: “I discussed with him that the warning letter was about how he could not sell discs of our new TVB programs.” (Tr. at 182).6 This conversation took place over the
Mr. Ni‘s alternate explanation is that the VCDs were solely for rent because he was aware that new TVB titles could not be sold. (Tr. at 80). This story flies in the face of Mr. Ni‘s former testimony and the overwhelming weight of evidence. Nevertheless, the Court gave Mr. Ni the opportunity to produce rental records concerning three Hidden Treasures discs in Exhibit 20. (Tr. at 89-92). This was Mr. Ni‘s chance to rebut the previous testimony of Mr. Huie, who testified that the discs had bеen purchased on August 14, 2004. Not surprisingly, Mr. Ni was unable to produce the records as the Court requested.
F. The U.S. Chinese Video Association
It is worth noting that Mr. Ni is the president of the U.S. Chinese Video Association. He was elected to this post by other video retail store owners. This organization hires attorneys to educate members stores concerning the United States copyright laws. One of the lawyers for this organization is Alan Wu of Wu & Kao, counsel for Hong Wei. (Tr. 150-53).
CONCLUSIONS OF LAW
A. Jurisdiction
Defendants challenge this Court‘s jurisdiction to entertain Plaintiff‘s contempt motion. The December 30, 2003
B. Rule 52(a) of the Federal Rules of Civil Procedure
Defendants contend that Plaintiff may not move for contempt of the December 30, 2003 Permanent Injunction because the injunction contained no findings of fаcts or conclusions of law pursuant to
C. Civil Contempt: Analysis
The Court has the power to impose fines, imprisonment, or both, for the disobedience of its lawful orders.
The first issue is whether the Court‘s Injunction and Judgment of December 30, 2003 was clear and unambiguous. A clear and unambiguous order is “specific and definite enough to apprise those within its scope of the conduct that is being proscribed.” N.Y. State Nat‘l Org. for Women v. Terry, 886 F.2d 1339, 1352 (2d Cir. 1989). Where, as here, an injunction is involved, “the party enjoined must be able to ascertain from the four corners of the order precisely what acts are forbidden.” Drywall Tapers & Pointers of Greater N.Y. v. Local 530 of Operative Plasterers, 889 F.2d 389, 395 (2d Cir. 1989).
The next issue is whether Mr Ni‘s noncompliance with the permanent injunction is clear and convincing. Based on the evidence adduced at the contempt hearing, the Court concludes that Plaintiff has not only established clear and convincing noncompliance, but noncompliance beyond any doubt. The evidence establishes that Defendants were permitted under the Sublicense to rent DVDs of the new TVB programs. Plaintiff, the copyright holder, did not issue VCDs of these programs.7 Defendants infringed Plaintiff‘s copyright by selling unauthorized VCDs of new TVB programs. Despite his constantly shifting story, Mr. Ni conceded on direct examination that he had sold the VCDs. (See supra, p. 11). Even if he rented these VCDs (a truly absurd proposition unsupported by аny evidence), Mr. Ni infringed the
To summarize, there is clear and convincing evidence that the discs in Exhibits 19 and 20 were unauthorized copies of the TVB programs, and that Hong Wei sold these discs to Ms. Saecho and Ms. Lao on July 10, 2003 and August 14, 2003, respectively. These sales violated the settlement agreement, permanent injunction and Sublicensing Agreement. Plaintiff therefore has established the second prоng of their burden.
The final issue is whether Defendants were diligent in their attempt to comply with the permanent injunction. The Court finds that Defendants were not. On two occasions during the summer of 2004, Hong Wei sold unauthorized VCDs to Plaintiff‘s agents. When called to account at the contempt hearing, Mr. Ni regaled the Court with a display of untruthfulness that would have astounded Pinocchio.8 Mr. Ni‘s conduct shows a complete disdain for the permanent injunction and the oath he swore before he took the stand. This conduct is all the more egregious because of Mr. Ni‘s status as president of the U.S. Chinese Video Association. There is no question that Mr. Ni was not diligent in complying with the Court‘s order.
D. Appropriate Sanctions
Now that it has been determined that Defendants are in civil contempt of Court, appropriate sanctions must be devised. The Court has broad discretion to fashion sanctions to coerce compliance with its orders and compensate Plaintiff for Defendants’ noncompliance. See N.A. Sales Co. v. Chapman Indus. Corp., 736 F.2d 854, 857 (2d Cir. 1984). Plaintiff seeks damages under the Copyright Act, which provides:
[E]xcept as provided by clause (2) of this subsection, the copyright owner may elect, at any time before final judgment is rendered, to recover, instead of actual damages and profits, аn award of statutory damages for all infringements involved in the action, with respect to any one work, for which any one infringer is liable individually, or for which two or more infringers are liable jointly and severally, in a sum not less than $750 or more than $30,000 as the court considers just.
The Court is inclined to impose a sanction that results in a compensatory fine, but in such cases proof of loss must be present, and “the sanction should correspond at least to some degree with the amount of damages.” Paramedics Electromedicina Comercial, Ltda. v. GE Med. Sys. Info. Techs., Inc., 369 F.3d 645, 658 (2d Cir. 2004). Unfortunately, none of Plaintiff‘s submissions on this contempt motion shows any evidence of actual loss. The Second Circuit has held that a compensatory sanction is “not always dependent on a demonstration of actual pecuniary loss,” and “under a theory of unjust enrichment, a contempt plaintiff is entitled to defendant‘s profits without submitting direct proof of injury.” Manhattan Indus., Inc. v. Sweater Bee by Banff, Ltd., 885 F.2d 1, 5-6 (2d Cir. 1989); see also Rick v. Buchansky, 2001 WL 936293 at *6 (S.D.N.Y. 2001) (Ward, J.) (“Where actual pecuniary loss is difficult to prove, compensatory relief may include profits derived by the contemnor from the violation of a court order.“). Profits mean “net profits,” and
The evidence is clear that Ms. Saecho paid $45.50 for the 91 discs in Exhibit 19. Incredibly, there was no evidence at the hearings concerning how much Ms. Lao paid for the 95 discs in Exhibit 20. Plaintiff‘s papers do not address the point either. There is evidence, however, that if Defendants wanted additional copies of TVB Programs, they could have purchased DVDs from Plaintiff at $6.76 per disc. (Tr. at 16, 24). In the Court‘s view, each of the 186 unauthorized VCDs in Exhibits 19 and 20 represents one DVD that should have been purchased legitimately from Plaintiff for $6.76 each. On Defendants’ side, no showing has been made concerning costs or expenses associated with the profits resulting from the illegal activities. Both sides shall make additional submissions on these subjects. Plaintiff shall submit papers concеrning the price paid for the Exhibit 20 discs. Defendants shall submit papers detailing their costs and expenses, if any. If such submissions are not made in accordance with the deadlines in pp. 21-22 of this Order, the Court will issue a compensatory sanction of $45.50 plus $6.76 for each disc, for a total of $1302.86.
The Court now turns to the other purpose of sanctions: coercing compliance with its Orders. Coercive fines may not be
The Court therefore will calculate the fine, but only after supplemental briefing. The following factors will be relevant to this calculation: “[1] the character and magnitude of the harm threatened by continued contumacy, [2] the probable effectiveness of any suggested sanction in bringing about [compliance], and [3] the contemnor‘s ability to pay.” Paramedics Electromedicina, 369 F.3d at 657-58; Dole Fresh Fruit Co. v. United Banana Co., 821 F.2d 106, 110 (2d Cir. 1987) (vacating contempt order because, inter alia, district court failed to consider the three factors before fashioning coercive remedy). At present, the Court has scant information concerning
Finally, Plaintiff requests reasonable costs and attorneys’ fees under
CONCLUSION
- The Court finds Defendants-Contemnors Hong Wei International Trading Inc. and Jixong Ni in contempt оf the Permanent Injunction dated December 20, 2003.
- No later than June 17, 2005, Plaintiff shall file and serve supplemental papers concerning the price paid by Ms.
Lao for the Exhibit 20 discs. Defendants-Contemnors may respond to this filing by July 8, 2005. - No later than June 17, 2005, Defendants-Contemnors shall file and serve supplemental papers concerning the costs and expenses attributable to their sale of the discs in Exhibits 19 and 20. Plaintiff may respond to this filing by July 8, 2005.
- The parties may conduct discovery on the three сoercive sanction factors quoted from Paramedics Electromedicina (supra, p. 20). Discovery shall be completed by June 3, 2005. No later than June 17, 2005, Plaintiff may file and serve supplemental papers to a maximum of ten pages proposing a coercive sanction and justifying the amount. Defendants-Contemnors shall submit a response under the same guidelines by July 1, 2005. Plaintiff may file a five-page reply no later than July 8, 2005.
- No later than June 17, 2005, Plaintiff shall submit to the Court supplemental papers proposing reasonable attorneys’ fees and justifying the amount. Defendants-Contemnors shall submit a response by July 8, 2005.
SO ORDERED.
Dated: New York, New York
May 3, 2005
JOHN F. KEENAN
United States District Judge