Xped LLC, Plaintiff, v. The Entities Listed on Exhibit 1, Defendants. RJITSCT, LLC d/b/a Respect the Look, Counter Claimant, v. Expeditee LLC, Counter Defendant.
No. 21 CV 6237
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION
09/06/23
Judge Lindsay C. Jenkins
CaseID: 1:21-cv-06237 Document #: 122 PageID #:1779
This case is one of many in the Northern District of Illinois‘s “cottage industry” of “Schedule A” cases. See BRABUS GmbH v. Individuals Identified on Schedule A Hereto, 2022 WL 7501046, at *1 (N.D. Ill. Oct. 13, 2022). As of March 2022, over 1,900 such cases had been filed. [Dkt. 79-1 ¶ 3.] These cases often proceed in rote fashion. Plaintiffs allege hundreds of defendants are infringing their trademarks and selling counterfeit goods. Fearing overseas defendants will abscond with ill-gotten gains if served with a lawsuit, plaintiffs seek an ex parte temporary restraining order (“TRO“) to freeze funds held by online merchants, then follow up with a request for a preliminary injunction. Few defendants appear in court, so plaintiffs move for default judgment and collect what funds they can. See BRABUS GmbH, 2022 WL 7501046, at *1. But while some attorneys seem to approach Schedule A cases in a “cut-and-paste” style, id., their professional obligations apply with equal force as in any other litigation.
Plaintiff Expeditee LLC secured an ex parte TRO in this Court during the 2021 holiday season, freezing the accounts of hundreds of entities, including Defendant RJITSCT, LLC, doing business as Respect the Look, for alleged trademark infringement and other violations. [Dkt. 20.] After extending the TRO, the Court set a preliminary injunction hearing for January 18, 2022. [Dkt. 24.] Four days before the hearing, Respect the Look appeared [Dkt. 30], brought a counterclaim against Expeditee [Dkt. 31], and moved to dissolve the TRO and for sanctions [Dkt. 34]. Respect the Look‘s filings and the argument and testimony at the January 18 hearing alerted the Court to serious inaccuracies in Expeditee‘s filings and problems with the merits of its claims against Respect the Look. The Court dissolved the TRO against Respect the Look [Dkt. 52], and Respect the Look renewed its motion for sanctions under the Court‘s inherent authority. [Dkt. 78.]
From the outset, this case has been plagued with serious misconduct. While some of the misconduct may have been the result of negligence or honest mistakes, the Court finds that Expeditee, its counsel, or both engaged in bad-faith conduct and committed fraud on the Court. This misconduct demands significant sanctions. Accordingly, the Court grants Respect the Look‘s motion for sanctions, dismisses Expeditee‘s claims against it with prejudice, and awards it reasonable attorney‘s fees and costs.
I. Background
A. The Complaint
On November 22, 2021, “Xped LLC,” through its attorney Patrick M. Jones of the law firm PMJ PLLC, filed a Schedule A complaint against hundreds of Defendants for trademark counterfeiting and infringement,
Plaintiff‘s misrepresentations began in its complaint.1 “Xped LLC” was a pseudonym; its true identity was Expeditee LLC, which it revealed over a month later. [See 01/05/2022 Dkt. Entry; Dkt. 77.] Further, Expeditee represented that it was a Nevada LLC with its principal place of business in Chicago [Dkt. 1 ¶ 1.] Both statements were false. Expeditee is a Delaware LLC with its principal place of business in Hanoi, Vietnam. [Dkt. 89-2 ¶ 2.]
B. TRO Proceedings
On November 30, 2021, Expeditee moved for an ex parte TRO to enjoin the sales of counterfeit products and to freeze the accounts of the Defendants. [Dkt. 11 at 9-10.] To obtain a TRO, Expeditee had to show, among other things, that it had “some likelihood of prevailing on the merits of its claims.” Mays v. Dart, 974 F.3d 810, 818 (7th Cir. 2020) (preliminary injunction context); USA-Halal Chamber of Com., Inc. v. Best Choice Meats, Inc., 402 F. Supp. 3d 427, 433 n.5 (N.D. Ill. 2019) (“The standards for granting a [TRO] and preliminary injunction are the same.” (citations omitted)).
To support its likelihood of success on the merits, Expeditee focused on its trademark infringement claim, which was based on infringement of its FLAGWIX mark. [Dkt. 11 at 15–19.] While it argued it had a likelihood of success on the merits of its other claims, it expressly linked those claims with its trademark infringement claim. [Id. at 19–20 (“The Mark is a registered mark, and Plaintiff has established a likelihood of success on the merits of its trademark infringement and counterfeiting claim ..., [and therefore] a likelihood of success on the merits for Plaintiff‘s false designation of origin claim is also established.“), 20 (same for state law claim).] Jones declared, under oath, that his client had prepared a list of infringing Defendants and that Jones had authenticated the listings himself. [Dkt. 13 ¶ 5; see Dkt. 2.]
Expeditee also argued that it was essential to obtain an ex parte order freezing the Defendants’ assets:
Issuing an ex parte order will ensure Defendants’ compliance. If such an order is not issued in this case, Defendants are likely to disregard their responsibilities and fraudulently transfer financial assets to overseas accounts before an order is issued. Specifically, upon information
and belief, the Defendants in this case hold most of their assets in China, making it easy to hide or dispose of assets, which will render an accounting by Plaintiff meaningless.
[Id. at 25.] In Jones‘s declaration, he stated that if the TRO was granted, he would “notify the Defendants by sending copies of Plaintiff‘s Ex Parte Motion for TRO and supporting papers via e-mail to the e-mail addresses provided by the Defendants to the Websites responsible for hosting their respective Webstores.” [Dkt. 13 ¶ 4.]
Thus, both the Defendants’ trademark infringement and the likelihood that they would remove any U.S.-based assets overseas if an ex parte TRO was not entered were central to Expeditee‘s request for injunctive relief. Further, Jones declared that Expeditee would serve the Defendants by email if the Court entered the TRO. The Court accepted these representations and entered the TRO on December 21, 2021. [Dkt. 20.] It permitted Expeditee to provide notice to the defendants “by sending an e-mail to the e-mail addresses provided for Defendants by third parties hosting their webstores.” [Id. at 6–7.] On January 3, 2022, Expeditee moved for a 14-day extension of the TRO, until January 18, 2022. [Dkt. 22.] The Court granted the motion and set a preliminary injunction hearing for January 18, 2022. [Dkt. 24.]
C. Proceedings Before Preliminary Injunction Hearing
On January 10, 2022, Expeditee moved for a preliminary injunction. [Dkt. 26.] The same day, Jones filed a certificate of service, declaring under penalty of perjury that he “caused to be served true and accurate copies of the relevant documents “via email on the Defendants ....“” [Dkt. 28 at 1.] But that was not true. On December 22, 2021, Jones had emailed PayPal, a nonparty to the litigation, “instructing it to provide PMJ‘s contact information to any defendant whose accounts were affected by the case.” [Dkt. 97 Ex. A ¶ 16. But see id. Ex. B (“authoriz[ing],” not instructing, PayPal to send the service documents).] Jones “did not dictate or have any control over PayPal‘s communications to its customers” [id. at 9]; Jones did not receive a copy of any communication PayPal sent the Defendants; and PayPal did not confirm to Jones that it had served the Defendants in accordance with the Court‘s TRO [cf. id. (describing the steps Jones took regarding service)]. Despite Jones‘s lack of control over PayPal and confirmation that PayPal had effected proper service, he “believed that the defendants had been served on January 7 and January 10, 2022” and signed the certificate of service under that belief. [Id.]
In fact, PayPal had not sent the Defendants the documents Jones had asked it to. Respect the Look learned in late December 2021 that its PayPal account was frozen, which PayPal said was because of a court order. [Dkt. 35 at 3.] On January 7, 2022, PayPal provided Respect the Look with PMJ‘s contact information and a case number-“216237,” not 21-cv-6237—and advised Respect the Look to contact Jones. [Dkt. 35-6.] On January 12, Respect the Look retained Brian Beck of Zuber Lawler LLP to represent it before this Court. [Dkt. 35-7 ¶¶ 1, 13.] On January 12 and 13, Beck and Jones corresponded, and Beck twice requested a copy of the service email Expeditee had sent. Jones did not provide it. [Dkt. 35-7 ¶¶ 13–15; Dkt. 35-20.] On January 14, Beck entered an appearance on behalf of Respect the Look [Dkt. 30], filed a counterclaim against Expeditee [Dkt. 31], and moved to dissolve the TRO, to oppose the entry of a preliminary injunction, and for sanctions [Dkt. 34]. Respect the Look identified possible misrepresentations as to Expeditee‘s identity, its principal place of business, that Respect the Look was using the FLAGWIX mark, and that Respect the Look was likely to
On January 16, Jones filed an amended certificate of service confirming that the “PayPal Defendants” had been properly served and attributing the lack of service by January 10 “to a miscommunication between the Plaintiff and its counsel.” [Dkt. 38.] The same day, Jones moved to continue the January 18 preliminary injunction hearing until January 25, 2022. [Dkt. 37.] Respect the Look opposed the motion [Dkt. 39], and the Court ordered that the preliminary injunction hearing would proceed as scheduled on January 18 [Dkt. 41]. Expeditee‘s reply in support of its motion to continue the hearing labeled Respect the Look as “one of the most sophisticated counterfeiters” Expeditee sued, and it included the following image of a Flagwix flag:
contrasted with a similar Respect the Look flag:
D. January 18, 2022 Preliminary Injunction Hearing
Respect the Look was the only Defendant to appear at the preliminary injunction hearing, and it remains the only Defendant to have entered an appearance in this litigation. The hearing covered several topics. The Court first addressed the service issue. Jones acknowledged that 88 Defendants that sold products via PayPal and 14 that sold via Alibaba did not receive effective service by January 10 and that the January 16 service did not provide notice of the January 18 preliminary injunction hearing. [Dkt. 66 at 3:23–4:20.] Jones also admitted that neither Expeditee nor Jones served the Defendants by email as of January 10 because he had relied on the nonparty platforms including PayPal to effect service. [Id. at 6:5–:11 (“We initially served the TRO on the platforms, ... and we ... immediately gave them authority to provide our contact information and copies of the complaint at that time. So service was effectively provided to all defendants ....“), 6:19–:22 (“We have not been able to serve [the PayPal and Alibaba Defendants] not due to any fault of our own or any lack of effort, but [PayPal and Alibaba] just will not provide that information.“)]
Next, the Court addressed Expeditee‘s representation that if Respect the Look‘s flag “is not counterfeiting, nothing is.” [Id. at 8:8–9:5.] Jones asserted that “as you can see from the images, defendants like [Respect the Look] have just completely cut and pasted the image of my client‘s product onto their website,” and that Respect the Look “Photoshop[s] out the FLAGWIX logo on their images.” [Id. at 9:11–:13, 10:2–:3.] Jones admitted that the image he included in his January 17 filing does not include the FLAGWIX mark, but he asserted “I believe we can find others that do.” [Id. at 9:23–:24.] When the Court asked how Expeditee could have a trademark infringement claim if Respect the Look removed the mark, Jones appeared to change his legal theory to a copyright claim. [Id. at 10:6–:13.] The Court pressed Jones on this point, noting that Expeditee‘s TRO application represented that Respect the Look used the FLAGWIX mark. Jones reiterated that Expeditee‘s TRO was based on a trademark infringement claim, which he believed was valid because Respect the Look used “the exact same image.” [Id. at 10:14–12:11 (“It‘s very clear to my client that this is their product, this is their design, this is their trademark that‘s been violated.“)] Jones then clarified that “about 50 percent” of the Defendants’ products subject to the TRO did not contain the FLAGWIX mark, allegedly because
The Court then turned to Respect the Look‘s frozen PayPal account. It noted that Expeditee represented that this “extraordinary remedy” was needed based on the likelihood that Defendants including Respect the Look would move money overseas unless their accounts were frozen, but Respect the Look had introduced evidence showing that it is not an overseas company and instead is based in Connecticut. [Id. at 13:14–14:1.] In response, Jones flatly asserted, “That‘s not true.” [Id. at 14:2.] His support for that statement was that Respect the Look uses a P.O. box; a false name (“RJITSCT, LLC“); has no presence in the United States; and is “a foreign entity owned by somebody called Reginald Jennings,” and Jones “does not know who that is or where he lives, but this is not, you know, a brick-and-mortar US company. This is a mailbox.” [Id. at 14:4–:21.] Jones presented no evidence to support these assertions. [See id. at 15:2–:3 (“I think, you know, given time, given a couple days, we can track down where they actually are ....“), 15:10–:11 (“I‘d have to do more research to find out where Reginald Jennings lives ....“).] Jennings, in contrast, had submitted a sworn declaration and testified under oath that he is a U.S. citizen and that his business operates out of Connecticut. [Dkt. 35-1; Dkt. 66 at 30:13–32:6.]
Next, Beck raised the issues of Expeditee‘s state of organization and where its principal place of business is. [Dkt. 66 at 19:5–:12.] In response, Jones asserted that Expeditee‘s principal place of business was 125 South Clark Street, Chicago. [Id. at 20:1–:2.] Beck pointed out that Jones‘s law firm is located at that address. [Id. at 21:4–:10.] Jones admitted, “Yeah, to the extent that they are in the US, yes, that‘s their address,” but “[t]heir base is in Hanoi, Vietnam,” and Expeditee “[p]resently” has no employees who work out of 125 South Clark Street. [Id. at 21:14–:22.] Jones still contended that 125 South Clark Street was Expeditee‘s principal place of business, however, because “that‘s where we registered their IP. So they have those assets there, and we also help them with their bank accounts. So their US assets are based in Chicago, Illinois.” [Id. at 21:25–22:3.]3 Beck pointed out that these assertions were not true, since Expeditee‘s trademark is registered in Nevada. [Id. at 22:4–:7.]
The Court did not enter a preliminary injunction on January 18; instead, it left the TRO in place and set another hearing for January 20, 2022. [Id. at 44:8–45:24.]
E. Additional Proceedings
On January 20, 2022, the Court dissolved the TRO and denied Expeditee‘s motion for preliminary injunction as to Respect the Look. [Dkt. 52, 55.] It extended the TRO as to the other Defendants so Expeditee could provide additional evidence about which Defendants used the FLAGWIX mark. [Dkt. 55.] On February 15, 2022, the Court later entered a preliminary injunction as to those Defendants. [Dkt. 77.]
On February 14, 2022, Respect the Look moved to dismiss, for summary judgment, and for attorney‘s fees. [Dkt. 70.] It renewed its motion for sanctions pursuant to the Court‘s inherent authority on March 7, 2022. [Dkt. 78.] Expeditee, now represented by new counsel, purported to respond to both of Respect the Look‘s motions, but its memorandum only argued that sanctions were not warranted. [Dkt. 98.] Expeditee
For the reasons discussed below, the Court finds that Expeditee, its former counsel, or both have engaged in serious misconduct in pursuing claims against Respect the Look and that dismissal of Expeditee‘s claims against Respect the Look is necessary. Thus, the Court addresses the substance only of Respect the Look‘s motion for sanctions and Expeditee‘s and PMJ‘s responses to it.
II. Legal Standard
(2) the claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law; [and]
(3) the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery ....
The Rule has an important safe harbor provision,
III. Analysis
Respect the Look moves for sanctions pursuant only to the Court‘s inherent powers [Dkt. 78 at 1], but the conduct it argues is sanctionable is also prohibited by
A. Adequacy of Rule 11
As detailed above, Expeditee‘s original complaint, its TRO memorandum, and its January 10, 2022 certificate of service all contain false, erroneous, or legally frivolous statements and arguments. Neither Expeditee nor PMJ addresses the adequacy of
The Seventh Circuit has explained that “in many cases involving a request for preliminary relief, blind adherence to the procedures in
The preliminary injunction proceedings present a different question because Respect the Look entered an appearance before the January 18 hearing. Methode establishes that, given its appearance just four days before the hearing, Respect the Look was not required to serve a sanctions motion on Expeditee and wait 21 days to file it with the Court. 371 F.3d at 927 (sending a
The Court is unpersuaded, however, that Jones‘s action or the timing of Respect the Look‘s motion impacts the other grounds for sanctions. Just as in Methode, despite the content of Respect the Look‘s sanctions motion [see Dkt. 35], at the hearing, Expeditee stood by its allegations about its state of organization and its principal place of business, Respect the Look being based in a foreign country, and the validity of its trademark infringement claims, see Methode, 371 F.3d at 927 (“When Methode proceeded with the hearing, it, in effect, rejected the warning.“). It does not matter that Respect the Look‘s warning came in the form of a sanctions motion filed with the Court (improper under
Two further arguments warrant a word. First, Expeditee argues that Respect the Look “had months to serve Expeditee with a draft of” its renewed sanctions motion, and “[t]here is no pending TRO or PI preventing [it] from complying with the 21-day safe harbor requirement.” [Dkt. 98 at 6.] This argument fails because once Expeditee stayed the course at the preliminary injunction hearing, it had “rejected the warning,” and no further warning was necessary. Methode, 371 F.3d at 927; Divane v. Krull Elec. Co., 200 F.3d 1020, 1025–27 (7th Cir. 2000) (holding that where an earlier motion for sanctions was denied as premature, it was unnecessary
Second, Expeditee argues that the fact that Respect the Look has moved for summary judgment should not impact whether sanctions are appropriate or whether it should be allowed to amend its complaint. [Dkt. 98 at 6–7.] The Court agrees. Cowen v. Bank United of Texas, FSB explained that moving to amend a complaint at the summary judgment stage can prejudice a defendant, but there, discovery had been completed, 70 F.3d 937, 944 (7th Cir. 1995); here, however, it has barely begun, and no formal discovery has occurred. The Court disagrees that moving for summary judgment is a nefarious move on Respect the Look‘s part. [See Dkt. 98 at 6.] Respect the Look submitted evidence in support of summary judgment that would have been improper to rely on in a motion to dismiss. Dowding v. Nationwide Mut. Ins. Co., 490 F. Supp. 3d 1291, 1295 (N.D. Ill. 2020).6 In any event, as explained above, Respect the Look‘s sanctions motion is proper regardless of the summary judgment posture.
In sum, the Court finds that applying the
Finally, the Court does not understand Seventh Circuit precedent to limit its ability to impose sanctions under its inherent powers when
B. Sanctionable Conduct
Respect the Look argues that sanctioning Expeditee and PMJ is warranted under the Court‘s inherent powers. [Dkt. 79 at 15–16.] The Court agrees. Two purposes of sanctions pursuant to the inherent power are “punishing a party‘s dishonesty and deterring others who might consider similar misconduct.” Sanders, 25 F.4th at 482 (internal quotation omitted). Committing fraud on the court and pursuing arguments in bad faith are sanctionable misconduct. Id. at 481; Fuery v. City of Chicago, 900 F.3d 450, 463 (7th Cir. 2018). To sanction a party for fraud on the court requires a finding of intentional and material misrepresentations or omissions. Greyer, 933 F.3d at 877–78. Sanctions for bad faith require “a finding of bad faith, designed to obstruct the judicial process, or a violation of a court order.
Mere clumsy lawyering is not enough.” Fuery, 900 F.3d at 463-64 (internal quotation omitted). But “[b]ad faith can be recklessly making a frivolous claim ....” Egan v. Pineda, 808 F.3d 1180, 1180 (7th Cir. 2015) (cleaned up). Additionally, while the Court is imposing sanctions pursuant to
At key points in this litigation, Expeditee, Jones, or both have committed fraud on the court and acted in bad faith. Further, Jones violated
1. False Representations About Expeditee
Expeditee misrepresented information about itself three times in its initial complaint: (1) its name was “Xped LLC,” (2) it was organized under Nevada law, and (3) its principal place of business was Chicago. [Dkt. 1 ¶ 1.] While all three misrepresentations are deeply troubling, only the third is sanctionable.
Expeditee‘s Identity: Expeditee filed its complaint under the name “Xped LLC,” a pseudonym it used to bring the case anonymously. [Dkt. 77; Dkt. 97 at 2.] But it did not request the Court‘s permission to proceed anonymously or identify “Xped” as a pseudonym in its complaint [Dkt. 1], even though “the complaint must name all the parties,”
PMJ defends the use of a pseudonym in the complaint in part on the ground that this practice “is not uncommon” in Schedule A cases. [Dkt. 97 at 7.] True, but this is no answer. The Federal Rules of Civil Procedure apply to Schedule A cases, like any other civil litigation. Many Schedule A plaintiffs proceed under their actual names, and motions seeking permission to proceed under a pseudonym are regularly sought where a party believes pseudonymity is justified. A plaintiff wishing to proceed anonymously must establish that its case involves exceptional
The Court does not find Expeditee‘s use of a pseudonym to be sanctionable, however, because it appears not to have been an attempt to deceive. As Expeditee and PMJ observe, Expeditee disclosed its true identity on its civil cover sheet [Dkt. 3], and its trademark registration also bore its real name [Dkt. 2-1]; both documents were filed the same day as the complaint [Dkt. 97 at 2; Dkt. 98 at 11]. The Court concludes that Expeditee‘s failure to follow the proper procedure was not intentional fraud, Greyer, 933 F.3d at 877-78, and was merely clumsy lawyering, not bad faith to obstruct the judicial process, Fuery, 900 F.3d at 463-64. Still, the Court finds the failure to follow proper procedure troubling, and it admonishes Expeditee and Jones not to use fictitious names in filings without disclosing that fact and requesting permission to proceed anonymously.
State of Organization: Expeditee also represented that it was a Nevada LLC [Dkt. 1 ¶ 1], when in fact it is a Delaware LLC, as clarified on Expeditee‘s corrected corporate disclosure [Dkt. 53]. PMJ states that Jones relied on Expeditee‘s trademark registration, which lists Expeditee as a Nevada LLC with a Nevada address. [Dkt. 2-1; see Dkt. 97 at 7-8.] As to Jones, the Court is largely satisfied with this explanation. It would have been better practice to confirm its client‘s state of registration, but the Court cannot say Jones failed to conduct “an inquiry reasonable under the circumstances,”
The Court is less satisfied, however, with Expeditee‘s claimed ignorance about this error and its representation that it “does not know where the Nevada address came from.” [Dkt. 98 at 6 n.5.] Its trademark was registered on February 9, 2021 [Dkt. 2-1], just 15 months before it filed its opposition to Respect the Look‘s motion for sanctions on May 19, 2022 [Dkt. 98], yet Expeditee claims to have no knowledge of how the error could have occurred. Given Expeditee‘s other misconduct in this case, including its deception about its principal place of business, the Court is skeptical. The propriety of Expeditee‘s trademark registration is not at issue here, though, and the Court finds that misrepresenting Expeditee as a Nevada LLC was not sanctionable conduct by Expeditee or Jones.
Principal Place of Business: Despite having its principal place of business in Vietnam [Dkt. 53], Expeditee falsely represented its principal place of business as Chicago, in the judicial district in which it filed its complaint [Dkt. 1 ¶ 1]. This false statement was sanctionable both as fraud on the court and as bad faith designed to obstruct the judicial process. Greyer, 933 F.3d at 877-78; Fuery, 900 F.3d at 463-64.
The Court addresses fraud first, which requires an intentional and material false statement. Greyer, 933 F.3d at 877-78. By signing the complaint, Jones certified that the “factual contention[]” that Expeditee‘s principal place of business was Chicago “ha[d] evidentiary support.”
PMJ insists that any misrepresentation was not intentional, but it fails to offer a credible explanation for how Jones could have been honestly mistaken about Expeditee‘s home base. [See Dkt. 97 at 8.] It suggests that his allegation was actually based on the location of Expeditee‘s U.S. agent, at 900 South Clark Street, in Chicago [id.], but this contention harms, not helps, Jones. It is wholly incredible that Jones could have believed in good faith that Expeditee‘s principal place of business was in Chicago via the location of its U.S. agent, but still represent at the hearing that its home base was his law firm. Moreover, even if Jones somehow held this implausible belief, it would be based on a frivolous legal argument because Hertz Corp. v. Friend establishes “that the phrase ‘principal place of business’ refers to the place where the corporation‘s high level officers direct, control, and coordinate the corporation‘s activities,” also known as its “nerve center.” 559 U.S. 77, 80-81 (2010) (citations omitted).7 Earnestly believing in a frivolous legal argument is no defense to sanctions. McGreal, 928 F.3d at 560 (“Rule 11 requires counsel to study the law before
representing its contents to a federal court. An empty head but a pure heart is no defense.” (internal quotation omitted)). If Jones believed that Expeditee could have a principal place of business outside of Vietnam given what he knew about where it conducted business, then that position was legally frivolous under Hertz and just as sanctionable as an intentional factual misrepresentation.
The misrepresentation was also material. “Materiality is a context-specific inquiry, but under any understanding of the concept, materiality looks to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation.” Greyer, 933 F.3d at 879 (cleaned up). Expeditee‘s misrepresentation about its principal place of business made receiving a TRO (and later a preliminary injunction) more likely for two reasons. First, it gave the Court false confidence that venue was proper in this district. Venue is proper in “a judicial district in which a substantial
Second, a major part of Expeditee‘s argument for emergency relief including an asset freeze was that Defendants based overseas would abscond with funds if Expeditee proceeded along the normal path of litigation. A TRO is an extraordinary remedy that require a clear showing that the movant is entitled to it. See USA-Halal, 402 F. Supp. 3d at 433 & n.5 (citations omitted). Expeditee portrayed itself as an American company, rather than admitting it was based in Vietnam. Many of the Defendants are based in Vietnam too [Dkt. 97 at 13], and if Expeditee had told the truth, the Court might have questioned why a Vietnamese company needed an American court to freeze the assets of Vietnamese Defendants.
The Court finds that Jones‘s false representations on behalf of Expeditee were both intentional and material. He therefore committed fraud on the Court, and sanctions are warranted pursuant to the Court‘s inherent powers. See Greyer, 933 F.3d at 877-78.
For similar reasons, Jones‘s false representations were also made in bad faith to obstruct the judicial process. See Fuery, 900 F.3d at 463-64. Even if, as Jones claims, he did not intentionally misrepresent the location of Expeditee‘s principal place of business, he was at least reckless in his initial and continued representations that Expeditee was based in Chicago. Cf. Egan, 808 F.3d at 1180 (explaining that bad faith can include recklessly making a frivolous claim). Because the Seventh Circuit has not articulated a precise definition of recklessness in the context of sanctions under the Court‘s inherent authority, see Grochocinski v. Mayer Brown Rowe & Maw LLP, 719 F.3d 785, 799 (7th Cir. 2013), the Court follows its definition for sanctions under
Expeditee also bears responsibility for its counsel‘s misconduct. “[I]t is well established that attorneys’ actions are imputed to their clients, even when those actions cause substantial harm. A litigant bears the risk of errors made by his chosen agent.” Hinterberger v. City of Indianapolis, 966 F.3d 523, 529 (7th Cir. 2020) (cleaned up). The Court finds that it is appropriate to sanction Expeditee for misrepresenting its principal place of business under the Court‘s inherent power.
2. False Representations About Respect the Look
Expeditee falsely claimed that Respect the Look is a foreign company with no meaningful ties to the United States with no evidentiary support or reasonable grounds to believe evidence would support those facts, in violation of
Expeditee‘s complaint and TRO request do not expressly state that Respect the Look in particular is a foreign company. But by alleging that Defendants including Respect the Look were likely to move assets overseas if the Court did not enter an ex parte TRO freezing their assets, Expeditee alleged Respect the Look was based overseas because the risk of flight only applies to persons and entities with little or no U.S. presence. [See Dkt. 1 ¶¶ 2, 30; Dkt. 11 at 25; Dkt. 13 ¶ 3.] Respect the Look entered an appearance, opposed the preliminary injunction, and provided evidence that it was a Connecticut-based company whose owner was an American citizen. [See, e.g., Dkt. 35-1 ¶ 2.] Respect the Look‘s registration lists a Connecticut business address. [Id.] Its website provides a Connecticut mailing address, an email address, and an American phone number. [Id. ¶ 4.] Respect the Look provided this evidence on January 14, 2022, but rather than abandon his baseless factual claims—heeding the warning, as suggested by Methode, 371 F.3d at 927—Jones continued to insist that Respect the Look was a foreign company [see, e.g., Dkt. 66 at 14:2-:3 (“They have no basis in the United States.“), 14:18-:21 (“They have no presence in the United States. They‘re a foreign entity owned by somebody called Reginald Jennings. I don‘t know who that is or where he lives, but this is not, you know, a brick-and-mortar US company. This is a mailbox.“)]. Jones‘s only evidence in support of his assertion was that Respect the Look used a P.O. box as its mailing address. [See id. at 14-15.]8
company practice—cannot overcome Respect the Look‘s U.S. phone number, U.S. business address, and registration to do business in Connecticut. [Dkt. 35-1 ¶¶ 2, 4.] Jones and those who reported to him failed to conduct a reasonable investigation that would have revealed the clear evidence of Respect the Look‘s U.S. presence.
Jones argues that less diligence is required when there are numerous defendants and when the plaintiff needs to move quickly to secure relief. [Dkt. 97 at 11 (citing Thomas v. Cap. Sec. Servs., Inc., 836 F.2d 866 (5th Cir. 1988); Zenith Elecs. Corp. v. Exzec, Inc., 1997 WL 798907 (N.D. Ill. Dec. 24, 1997)).] This argument is a non-starter. The cases Jones cites did not involve preliminary injunctive relief, which “is an extraordinary and drastic remedy, one that should not be granted unless the movant, by a clear showing, carries the burden of persuasion.” Goodman v. Ill. Dep‘t of Fin. & Pro. Regul., 430 F.3d 432, 437 (7th Cir. 2005) (internal quotation omitted); see USA-Halal, 402 F. Supp. 3d at 433 n.5. And here, Expeditee sought and obtained ex parte injunctive relief, for which the Court relied on its representations without the benefit of the normal adversarial process. These circumstances do not permit relaxing the standards for pre-suit investigation—if anything, they require the opposite. If a plaintiff seeks extraordinary relief with respect to many defendants, it should expect to put in a corresponding amount of effort. Expeditee emphasizes that it needed to act fast to protect its profits during the period “leading up to Christmas, the most profitable season for Plaintiff” [Dkt. 97 at 11], but it ignores that its TRO harmed Respect the Look‘s business during its busy season [Dkt. 35-1 ¶ 8 (discussing Respect the Look‘s lost revenue)].
The Court finds that Jones violated
3. Frivolous Legal Arguments
Jones also advanced frivolous legal arguments about Defendants who were not infringing its FLAGWIX mark, including Respect the Look, in violation of
Expeditee‘s memoranda in support of its motions for TRO and preliminary injunction
Jones cannot avoid sanctions through ignorance of this aspect of trademark law; lawyers must research the law before advancing a legal theory in court. McGreal, 928 F.3d at 560. Nor are any of Expeditee‘s or PMJ‘s arguments about why sanctions are not warranted convincing. PMJ suggests that Respect the Look cropped out FLAGWIX‘s mark in the image it presented to the Court [Dkt. 97 at 3], but the Court finds this suggestion implausible. Both Respect the Look and Jones included identical flag images in briefing before this Court, which show an entire flag, not one that has been cropped. [Dkt. 35 at 6; Dkt. 40 at 3.] If Jones possessed an image of a Respect the Look flag bearing the FLAGWIX mark, he should have produced it.
PMJ‘s attempt to rely on Jones‘s pre-suit investigation fares no better. It indicates the investigation showed that “the defendants had ‘cloned’ the Plaintiff‘s products” and “were pawning off counterfeit goods as their own,” but on their face, these assertions say nothing about Respect the Look‘s use of the FLAGWIX mark. [See Dkt. 97 at 12.] PMJ suggests that Respect the Look‘s physical flags bear the mark, even if the pictures online do not. [Id. (“It is a common practice for trademark infringers to erase the mark from the picture of the infringing product to avoid liability.“)] PMJ represents that it would have been cost prohibitive to purchase flags from each of the alleged infringers before filing suit and suggests that this cost-benefit analysis makes Jones‘s pre-suit investigation reasonable. [Id.] This is a non-sequitur. The fact that it might have been prohibitively expensive to obtain evidence by purchasing flags doesn‘t get Expeditee any closer to having evidence that Respect the Look (or other Defendants who did not use the mark) infringed its trademark. A plaintiff bears the burden of clearly establishing that it is entitled to preliminary injunctive relief. Goodman, 430 F.3d at 437; see USA-Halal, 402 F. Supp. 3d at 433 n.5. A plaintiff in Expeditee‘s position who wishes to obtain
PMJ and Expeditee also contend that Respect the Look violated Expeditee‘s intellectual property by counterfeiting similar versions of its products, even if it did not use the FLAGWIX mark. [Dkt. 97 at 12 (“Plaintiff and PMJ had a good faith basis to allege that these images were advertisements for the sale of counterfeits of the Plaintiff‘s products in violation of its intellectual property rights.“); Dkt. 98 at 14 (“Expeditee has ample evidence that RTL willfully infringed Expeditee‘s valuable intellectual property rights.“)] Whether or not this is true,9 it wasn‘t the claim Expeditee pursued at the TRO and preliminary injunction stages [contra Dkt. 98 at 8 (discussing Expeditee‘s other claims)], and it has provided no authority or argument as to why it had a nonfrivolous basis to assert trademark infringement claims.10
Expeditee‘s sole basis for receiving a TRO and a preliminary injunction was the Defendants’ infringement of its FLAGWIX trademark. But these claims were frivolous as to Respect the Look and the roughly 50% of other Defendants who did not advertise using the mark. By representing otherwise in filings submitted to the Court, Jones violated
4. Certificate of Service
Finally, the Court considers the certificates of service. Respect the Look argues that the January 10, 2022 certificate of service Jones filed was fraudulent. [Dkt. 79 at 9-12.] The Court agrees. In that filing, Jones declared, under penalty of perjury, that he had “caused to be served true and accurate copies of the following documents ... via email on the Defendants listed on Schedule A ....” [Dkt. 28.] In fact, he had asked the platforms to pass along the documents to the Defendants, which they had no obligation to do. [See Dkt. 97 at 9; id. Ex. A ¶ 16; id. Ex. B.] Jones apparently did not ask for the Defendants’ email addresses himself or confirm that proper service was effected. [See id. at 9.] Nevertheless,
This was an intentional misrepresentation, or at least an intentional, misleading omission. See Greyer, 933 F.3d at 877-78. Parsing the phrase “caused to be served” might leave room to argue Jones believed he caused service to be effected by making his request of the platforms, albeit a nonbinding one. But the context in which Jones acted makes clear that his representation was intentionally fraudulent. Expeditee‘s memorandum in support of its TRO motion discussed service of process by Expeditee and made no mention that Expeditee or Jones would ask third-party platforms to effect service for it. [Dkt. 11 at 28-31 (“[T]his Court may allow Plaintiff to serve the Defendants via email.” (emphasis added)).] The Court‘s order granting the TRO likewise reflected the understanding that Expeditee would serve process itself: ”Plaintiff may provide notice of these proceedings to Defendants ... by sending an e-mail to the e-mail addresses provided for Defendants by third parties hosting their webstore ....” [Dkt. 20 at 6 (emphases added).] Although the order references third-party hosts, it is in the context of those third parties providing Expeditee with email addresses, which Expeditee would then use to serve the Defendants. PMJ insists that Jones “clearly [had] no intent ... to deceive this Court” and he “believed that the defendants had been served” [Dkt. 97 at 9], but PMJ fails to explain how Jones could have reasonably believed his actions comported with his assertion that Expeditee would serve the Defendants and the Court‘s direction for it to do just that. The Court finds Jones‘s failure to disclose the details about how he caused the Defendants to be served suspicious. If, somehow, Jones believed his actions were reasonable, it is odd he was not more specific, such as, “At my direction, [the platforms] caused to be served ....” Jones either intentionally misrepresented how service was effected or at least intentionally omitted important details about service.
Jones‘s misrepresentation or omission was also material. See Greyer, 933 F.3d at 877-78. Expeditee needed to notify the Defendants before receiving a preliminary injunction,
Acknowledging the problems with the initial certificate of service, PMJ argues that Jones “immediately remedied any uncertainty regarding service” by “re-serv[ing] all PayPal defendants” on January 16, 2022 and filing an amended certificate of service. [Dkt. 97 at 9-10 (emphasis omitted).] As noted above, if Jones‘s attempt to properly serve the Defendants cured the problems with his initial attempt at service, the Court would find this conduct does not warrant sanctions. The Court, however, finds that Jones‘s remedial actions did not effectively correct the earlier problems.
The January 16 service did not include notice of the preliminary injunction hearing two days later; instead, it instructed a recipient that “Any answer or other response ... should be filed ... within
Apart from harm to the Defendants, Jones‘s submission of a fraudulent certificate of service was also a serious breach of his obligations to the Court, which his subsequent remedial measures cannot undo. In ex parte proceedings in particular, the Court has no choice but to rely on the plaintiff‘s truthfulness. Making fraudulent representations about service is especially grave misconduct. Without proper service, a defendant whose rights have been affected by the Court‘s order may have difficulty appearing and vindicating those rights. That could well have occurred here, if Respect the Look had not appeared and vigorously defended itself. Despite Jones‘s remedial efforts, given the high stakes of this type of proceeding, Court finds that sanctions are warranted based on the initial fraud. See Sanders, 25 F.4th at 482.
C. Sanctions
The Court has detailed Expeditee‘s and Jones‘s misconduct. It now considers what sanctions to impose, which it bases on its “interest in both punishing a party‘s dishonesty and deterring others who might consider similar misconduct.” Id. (internal quotation omitted). Respect the Look asks the Court to award it reasonable attorney‘s fees and costs for the costs incurred defending this lawsuit and to dismiss Expeditee‘s claims against it with prejudice. [Dkt. 79 at 4.] The Court will do so.
1. Attorney‘s Fees
Respect the Look argues that it is appropriate to require Expeditee and PMJ “to pay the [its] reasonable attorney fees and costs incurred in seeking dissolution of the TRO and opposing the related motion for a preliminary injunction.” [Dkt. 79 at 13.] It notes that this Court has awarded attorney‘s fees incurred while defending an ex parte TRO obtained by pleadings that “were not ‘well grounded in fact’ or made after ‘reasonable inquiry‘” and an emergency motion that “caused ‘needless delay’ and unnecessarily increased the cost of litigation.” Raskin, S.A. v. Datasonic Corp., 1986 WL 12598, at *3 (N.D. Ill. Nov. 5, 1986); see also Methode, 371 F.3d at 928 (affirming sanctions including attorney‘s fees after TRO proceeding). [Dkt. 79 at 13-14.] Neither Expeditee nor PMJ discusses Raskin, and Expeditee only discusses Methode on different grounds addressed above.
The Court finds that awarding attorney‘s fees is appropriate and necessary to deter future misconduct by parties and their counsel in the future. See Sanders, 25 F.4th at 482. Under these circumstances, awarding attorney‘s fees is critical for deterrence due to the ex parte nature of the TRO proceedings and the fast pace of the preliminary injunction proceedings. If plaintiffs or their attorneys commit fraud on the Court or misrepresent the facts to obtain preliminary injunctive relief, it will be difficult to detect and sanction misconduct without the participation of attorneys on the other side. It is necessary to incentivize
The Court is mindful of the fact that “[a]ttorneys’ fees that are imposed as a sanction pursuant to a trial court‘s inherent authority ‘may go no further than to redress the wronged party for losses sustained,’ and the court ‘may not impose an additional amount as punishment for the sanctioned party‘s misbehavior.‘” REXA, Inc. v. Chester, 42 F.4th 652, 673 (7th Cir. 2022) (quoting Goodyear Tire & Rubber Co. v. Haeger, 581 U.S. 101, 108 (2017)). The misbehavior here occurred during the TRO and preliminary injunction proceedings, so as Respect the Look suggests [Dkt. 79 at 13], the Court awards attorney‘s fees and costs to reimburse Respect the Look for fees and costs incurred while litigating those two motions. Further, as Expeditee argues [Dkt. 98 at 12],
2. Dismissal with Prejudice
Respect the Look also requests the Court dismiss Expeditee‘s claims against it with prejudice “to punish the plaintiff for the harm done to the legal system.” [Dkt. 79 at 16.] Dismissal with prejudice is a “draconian” sanction, Greyer, 933 F.3d at 877 (citation omitted), and the Court does not take it lightly. The circumstances here warrant this harsh sanction, both to deter future misbehavior and especially to punish the serious misconduct here. See Sanders, 25 F.4th at 482.
The Seventh Circuit has “held that a dismissal with prejudice is an appropriate sanction for lying to the court in order to receive a benefit from it, because no one needs to be warned not to lie to the judiciary.” Id. at 481 (internal quotation omitted). Further, dismissal may “be appropriate when the plaintiff has abused the judicial process by seeking relief based on information that the plaintiff knows is false.” Id. (internal quotation omitted). Both circumstances are present here. Despite knowing it was not based in Chicago, Expeditee and Jones falsely represented that it was. They were aware, at the very least, that this representation might cause the Court not to scrutinize venue before granting a TRO. Additionally, Jones declared that he had served the Defendants, when in fact he relied on third parties with no duty to do so and failed to confirm that proper service occurred. And Expeditee secured a TRO and an asset freeze against Respect the Look by falsely claiming it had evidence of trademark infringement, when that claim was frivolous. Dismissal with prejudice is an appropriate sanction for these actions.
No lesser sanction would be appropriate. See Greyer, 933 F.3d at 877 (noting that “in all but the most extreme situations courts should consider whether a lesser sanction than dismissal with prejudice would be appropriate” (citation omitted)). Although the Court has awarded attorney‘s fees and costs to Respect the Look, that sanction compensated that party for losses incurred due to Expeditee‘s and
Expeditee argues that it should be given just this kind of second chance because it may have valid claims that it brought in its initial complaint (Counts II and III) or that it hopes to add in its amended complaint. [Dkt. 98 at 12-13.] The Court disagrees. Expeditee obtained emergency injunctive relief based on a theory it had no evidence for, failed to adequately serve Respect the Look, and stood by those false allegations and frivolous arguments even after Respect the Look and the Court questioned them. The Court will not give it another opportunity to do what it should have done from the outset: bring factually and legally sound claims.
IV. Conclusion
For the foregoing reasons, the Court grants Respect the Look‘s motion for sanctions [Dkt. 78]. Exercising its inherent powers, the Court dismisses Expeditee‘s claims against Respect the Look with prejudice. It denies Respect the Look‘s motion to dismiss, for summary judgment, and for attorney‘s fees as moot. [Dkt. 70.] It also denies Expeditee‘s motion for leave to amend its complaint as moot as to Respect the Look. [Dkt. 88.]
The Court awards Respect the Look reasonable attorney‘s fees and costs incurred in vacating the TRO and defending the motion for preliminary injunction. To facilitate the award of fees, Respect the Look must provide the Court with an itemization of fees and costs that contains sufficient billing information to determine a proper award, which will ultimately be allocated between Expeditee and its counsel. Until those records are provided, the Court will not opine as to the scope of the fee award. REXA, 42 F.4th at 673-74. The Court also requires additional information on Respect the Look‘s position that because the Court has dismissed Expeditee‘s claims with prejudice, the Court should award Respect the Look all of its attorney‘s fees as the prevailing party pursuant to
Respect the Look‘s counterclaim against Expeditee remains pending. [Dkt. 31.] Expeditee has answered [Dkt. 68], but no discovery has occurred [see Dkt. 120]. By separate order, the Court will instruct the parties to propose a discovery schedule for this case.
Enter: 21-cv-6237
Date: September 6, 2023
Lindsay C. Jenkins
United States District Judge