Exhibit 4

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 1 of 64 PageID #:494
No Shepard’s SignalTM

As of: December 2, 2015 9:43 AM EST

Christian Dior Couture, S.A. v. Liu

United States District Court for the Northern District of Illinois, Eastern Division

November 17, 2015, Decided; November 17, 2015, Filed

No. 15 C 6324

Reporter

2015 U.S. Dist. LEXIS 158225

CHRISTIAN DIOR COUTURE, S.A., Plaintiff, v. LEI LIU,

et al., Defendants.

Core Terms

consumers, personal jurisdiction, contacts, jewelry, products,

infringed, seller, motion to dismiss, ship, purposefully,

activities, courts, sales, sufficient evidence, fair play,

trademarks, contends, internet, argues, reside

Counsel: [*1] For Christian Dior Couture, S.A., Plaintiff:

Kevin W. Guynn, LEAD ATTORNEY, Amy Crout Ziegler,

Jessica Lea Bloodgood, Justin R. Gaudio, Greer, Burns &

Crain, Ltd., Chicago, IL.

For Wholesale 925 Silver Jewelry Online Store, OMFENG,

Defendants: Michael Joseph Parrent, LEAD ATTORNEY,

Barrister Law, Chicago, IL.

For YWBeads Rhinestone & Beads Firm, Zaki Company

01, Zaki Company 02, Defendants: Cathleen S Huang,

Richard A Ergo, LEAD ATTORNEYS, Bowles & Verna,

Llp, Walnut Creek, CA.

Judges: Samuel Der-Yeghiayan, United States District

Judge.

Opinion by: Samuel Der-Yeghiayan

Opinion

MEMORANDUM OPINION

SAMUEL DER-YEGHIAYAN, District Judge

This matter is before the court on Defendant Omfeng

(Omfeng) and Defendant Wholesale 925 Silvery Jewelry’s

(Silvery) motions to dismiss. For the reasons stated below,

the motions to dismiss are denied.

BACKGROUND

Plaintiff Christian Dior Couture, S.A. (Dior) allegedly

engages in the manufacture, sale, and distribution of luxury

merchandise worldwide. Dior’s merchandise is allegedly

labeled with federally-registered trademarks and sold to

consumers by authorized retailers throughout the United

States. Omfeng and Silvery allegedly operate as commercial

internet stores on the website AliExpress.com [*2]

(AliExpress) and sell products to buyers in the United

States. The owners of Omfeng and Silvery allegedly reside

in the People’s Republic of China. Dior contends that until

the court granted its request for injunctive relief, Defendants

were offering counterfeit Dior products for sale on their

internet stores on AliExpress. Dior’s amended complaint

includes claims brought pursuant to 15 U.S.C. 1501, et seq.

of the Lanham Act (Lanham Act) for trademark infringement

and counterfeiting (Count I), false designation of origin

claims (Count II), cybersquatting claims (Count III), and

claims brought pursuant to the Illinois Uniform Deceptive

Trade Practices Act, 815 ILCS § 510, et seq. (Count IV).

Dior filed a motion for a temporary restraining order (TRO)

to stop the alleged counterfeit sales, which the court

granted. At a subsequent preliminary injunction hearing,

Dior presented evidence that Defendants targeted their

internet stores towards consumers in the United States,

including Illinois. Defendants, at that time, argued that the

court lacked personal jurisdiction over them since they were

located in China and had no sales in Illinois. The court

found that it had personal jurisdiction over the Defendants

since Dior had sufficiently [*3] established, at that stage in

the proceedings, that Defendants were directly targeting

their business activities toward consumers in the United

States, including Illinois. The court then entered the

preliminary injunction order. Defendants now move to

dismiss the instant action pursuant to Federal Rule of Civil

Procedure 12(b)(2), again arguing that this court lacks

personal jurisdiction over them.

LEGAL STANDARD

Pursuant to Federal Rule of Civil Procedure 12(b)(2), a

party can move to dismiss claims for lack of personal

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 2 of 64 PageID #:495
jurisdiction. Fed. R. Civ. P. 12(b)(2). The plaintiff bears the

burden of demonstrating the existence of personal

jurisdiction. Steel Warehouse of Wisconsin, Inc. v. Leach,

154 F.3d 712, 715 (7th Cir. 1998); RAR, Inc. v. Turner

Diesel, Ltd., 107 F.3d 1272, 1276 (7th Cir. 1997). When the

court adjudicates a motion to dismiss brought pursuant to

Rule 12(b)(2) based on written materials submitted to the

court, ′′the plaintiff need only make out a prima facie case

of personal jurisdiction.′′ Purdue Research Found. v. Sanofi

-Synthelabo, S.A., 338 F.3d 773, 782 (7th Cir. 2003)(internal

quotations omitted). In determining whether the plaintiff has

met his burden, the ′′court accepts all well-pleaded

allegations in the complaint as true.′′ Hyatt Int’l. Corp. v.

Coco, 302 F.3d 707, 712-13 (7th Cir. 2002). In addition,

′′the plaintiff is entitled to the resolution in its favor of all

disputes concerning relevant facts presented in the record.′′

Purdue Research Found., 338 F.3d at 782; see also Leong v.

SAP America, Inc., 901 F.Supp. 2d 1058, 1061-62 (N.D. Ill.

2012)(explaining that ′′when the defendant challenges by

declaration a fact alleged in the plaintiff’s complaint, the

plaintiff has an obligation [*4] to go beyond the pleadings

and submit affirmative evidence supporting the exercise of

jurisdiction′′).

DISCUSSION

Defendants contend that this court lacks personal jurisdiction

over them and that all claims brought against them should

thus be dismissed. Personal jurisdiction involves

consideration of both federal and state law. Illinois v. Hemi

Group, LLC, 622 F.3d 754, 756-57 (7th Cir. 2010)(stating

that the Court was ′′still unable to discern an operative

difference between the limits imposed by the Illinois

Constitution and the federal limitations on personal

jurisdiction′′)(internal quotations omitted)(quoting Hyatt

Int’l Corp., 302 F.3d at 715). A court has general personal

jurisdiction over a defendant if the defendant has ′′continuous

and systematic′′ contacts with the forum that are ′′sufficiently

extensive and pervasive to approximate physical presence.′′

Tamburo v. Dworkin, 601 F.3d 693, 701 (7th Cir. 2010). The

court has specific personal jurisdiction over a defendant if

′′(1) the defendant has purposefully directed his activities at

the forum state or purposefully availed himself of the

privilege of conducting business in that state, and (2) the

alleged injury arises out of the defendant’s forum-related

activities.′′ Id. at 702 (citation omitted). Dior argues that

Defendants are subject to the jurisdiction of this court based

on specific personal [*5] jurisdiction. (Resp. O 7-10; Resp.

S 6-10).

I. Contacts with Illinois

Defendants argue that they lack sufficient contacts with

Illinois to be subject to personal jurisdiction.

A. Omfeng

Omfeng contends that it is not subject to personal

jurisdiction, arguing that it did not have any intentional

contacts with Illinois consumers. (O Mot. 2-6); (O Reply

1-2). Omfeng claims that it is not based in Illinois and its

owners and employees reside in China. (O Mot 1-3).

Omfeng argues that its owner, FenFen Zeng, is a citizen and

resident of the People’s Republic of China and has never

visited Illinois. However, the record shows that Omfeng

regularly sells to consumers in the United States and

recently offered to sell jewelry to an Illinois consumer.

(Resp. O 4-5). Omfeng’s Illinois offer occurred on

AliExpress this year and involved jewelry that infringed on

Dior’s product line. (Resp. O 4-5). The Seventh Circuit has

also found that when a company indicates to consumers an

ability to ship to a certain state, that such an offer to

consumers is pertinent in assessing whether that company is

subject to personal jurisdiction. Illinois v. Hemi Grp. LLC,

622 F.3d 754, 758 (7th Cir. 2010). The record shows that

Omfeng operates on AliExpress, which prices products [*6]

in U.S. dollars and the consumers that purchase Omfeng’s

products are informed that Omfeng will ship the products to

the United States, including Illinois. Dior has shown that

Omfeng sells products to consumers in the United States

and has offered to sell and ship jewelry to Illinois. By both

operating on AliExpress and actually offering to sell a

product to an Illinois consumer, Omfeng has intentionally

directed its activities at Illinois and purposefully availed

itself of the privilege of conducting business in Illinois.

Dworkin, 601 F.3d at 701. Further, the alleged injury in this

case arises directly out of Omfeng’s offer to sell jewelry to

an Illinois consumer. Id. Omfeng also argues that the

jewelry it offered for sale in Illinois was never actually sold

to the Illinois buyer in question. (O Reply 1-4). However,

Omfeng has pointed to no controlling precedent that would

require a completed sale in order to be subject to personal

jurisdiction. If Omfeng made efforts to extend offers to

Illinois consumers, Omfeng purposefully availed itself of

the privilege of conducting business in Illinois, whether or

not the deals were finalized. In addition, whether the

jewelry in question was actually sold is not [*7] pertinent to

Omfeng’s liability since a mere offer to sell infringed

merchandise is sufficient to establish liability under the

Lanham Act. 15 U.S.C. § 1114.

Omfeng further argues that the jewelry in question did not

infringe on Dior’s product line. This court was provided

with evidence at the TRO and preliminary injunction stage.

In evaluating the merits of Dior’s claims, this court found

sufficient evidence of infringing conduct by Omfeng. Dior

has also provided additional evidence in response to the

Page 2 of 4

2015 U.S. Dist. LEXIS 158225, *3

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 3 of 64 PageID #:496
instant motion. Dior is not required to prove its case at this

juncture. Purdue Research Found., 338 F.3d at 782. Although

Omfeng contends that the jewelry in question is not

infringing, there is no indication that Omfeng has made the

actual product in question available to Dior. Nor has Dior

yet been given the opportunity to conduct discovery in this

case. Dior has provided sufficient evidence to show that the

product in question was an infringing product. Therefore,

Dior has presented sufficient evidence to establish a prima

facie case as to Omfeng’s contacts with Illinois to show that

it is subject to personal jurisdiction.

B. Silvery

Silvery contends that it is not subject to personal jurisdiction,

arguing that it did not purposefully direct [*8] its activities

at residents of Illinois. (S Mot. 4); (S Reply 1-2). Silvery

argues personal jurisdiction cannot exist since the offer was

′′made from within China. . . .′′ (S Mot. 4); (S Reply 4-5).

However, Silvery points to no controlling precedent that

would insulate a seller from being subject to personal

jurisdiction simply because the seller was physically located

in another jurisdiction. Courts have found, for example, that

reaching out via telephone or mail to a state is sufficient to

form minimum contacts with a state. See Heritage House

Restaurants, Inc. v. Cont’l Funding Grp., Inc., 906 F.2d 276,

281 (7th Cir. 1990)(stating that ′′[t]he physical presence of

a defendant in Illinois during the transaction is not necessary

to obtain jurisdiction under the long-arm statute′′ and that

′′[w]here a relationship is naturally based on telephone and

mail contacts, these contacts can justify jurisdiction over a

defendant′′).

Silvery acknowledges that its owners are YunBo Yue,

GaoWen Wu and Qi Huang, and that they use aliases such

as Shuai Liu and Tony Lee. (S Mot. 2). Although Silvery is

vague as to the citizenship of all such persons, Silvery does

argue that GaoWen Wu is a citizen and resident of the

People’s Republic of China and has never visited Illinois.

The record shows that Silvery recently [*9] offered to sell

jewelry to an Illinois consumer, that Silvery’s Illinois offer

occurred on AliExpress this year, and that the offer involved

jewelry that infringed on Dior’s product line. (S Resp. 4-5).

Silvery operates on AliExpress, which prices products in

U.S. dollars. Consumers who purchase Silvery’s products

are informed that Silvery will ship the products to the

United States, including Illinois. By operating on AliExpress

and selling and offering to sell products to Illinois consumers,

Silvery has intentionally directed its activities at Illinois and

purposefully availed itself of the privilege of conducting

business in Illinois. Dworkin, 601 F.3d at 701. Further, the

alleged injury in this case arises directly out of Silvery’s

offer to sell jewelry to an Illinois consumer. Therefore, Dior

has presented sufficient evidence to establish a prima facie

case as to Silvery’s contacts with Illinois to show that it is

subject to personal jurisdiction.

II. Fair Play

Defendants argue that they are merely sellers in a global

market place and that consumers who choose to reach out to

them for products should understand that they will have no

legal recourse in the consumers’ home forums. Defendants

also argue that [*10] companies such as Dior who are

bringing Lanham Act claims such as this should not be able

bring suit in United States courts.

In the instant action, it is true that Dior is not a company

based in the United States. The Supreme Court has explained,

however, that ′′[t]he Lanham Act provides national protection

of trademarks in order to secure to the owner of the mark the

goodwill of his business and to protect the ability of

consumers to distinguish among competing producers.′′

Park ’N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189,

198, 105 S. Ct. 658, 83 L. Ed. 2d 582 (1985)(stating that

’[b]ecause trademarks desirably promote competition and

the maintenance of product quality, Congress determined

that sound public policy requires that trademarks should

receive nationally the greatest protection that can be given

them′′). Dior, in bringing the Lanham Act claims, is pursuing

the interests of United States consumers and acting in

accordance with public policy of the United States and the

will of Congress.

The court notes that Defendants rely heavily upon the

Seventh Circuit decision in Advanced Tactical Ordnance

Sys., LLC v. Real Action Paintball, Inc., 751 F.3d 796 (7th

Cir. 2014). In that case, the Seventh Circuit cautioned that

merely shipping an item to a state does not automatically

create personal jurisdiction, explaining that, there is not a

′′de facto universal jurisdiction′′ simply because [*11] a

seller operates a website and ships an item to a state. Id. at

801-02. The Seventh Circuit further explained that merely

operating an interactive website that is accessed by a

consumer within a state may not be sufficient to form

minimum contacts. Id. at 802-03; see also Monster Energy

Co. v. Wensheng, 2015 U.S. Dist. LEXIS 132283, 2015 WL

5732050, at *4 (N.D. Ill. 2015)(holding that ′′[d]isplaying

photos of an item for sale and inviting potential purchasers

to place an order and buy the product through an Internet

store is an offer for sale′′); Coach, Inc. v. Di Da Imp. & Exp.,

Inc., 2015 U.S. Dist. LEXIS 22222, 2015 WL 832410, at *2

(N.D. Ill. 2015)(indicating that personal jurisdiction existed

based upon internet sales). Although Dior has offered

Page 3 of 4

2015 U.S. Dist. LEXIS 158225, *7

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 4 of 64 PageID #:497
sufficient evidence at this juncture to establish the necessary

contacts with Illinois by Defendants, there is one important

distinction between the instant action and Advanced. In

Advanced, the seller was located in California. Id. at 798.

Thus, although the seller may not have been found to be

subject to suit in all fifty states, the seller presumably would

have been subject to suit in California. Any consumer or

aggrieved seller could at least presumably seek legal relief

in a federal court in California.

In this case, Defendants are not physically present and

operating in the United States. Apparently, Defendants

indicate that injured parties have one option, that is, that

they can go [*12] to China and try and work their way

through the Chinese legal system and try and get relief.

Defendants indicate that ′′jurisdiction would be appropriate

outside of the United States only.′′ (S Reply 14). Defendants

do not suggest any alternative forum in the United States, or

acknowledge that any of their contacts would subject them

to personal jurisdiction in the United States in states other

than Illinois. Defendants also argue that a transfer of this

case to China will not be possible, contending that ′′this

court does not have the capability of transferring a case

internationally.′′ (S Reply 14). If the court accepts

Defendants’ arguments, the United States consumers, and

parties like Dior, who claim to be harmed by Defendants’

acts, will have no access to the federal courts in the United

States, and the protections of the Lanham Act, will not be

available. The record shows that Defendants have significant

sales within the United States. The Supreme Court has

explained that a court can exercise personal jurisdiction

over a defendant if that defendant has ′′minimum contacts

with [the forum state] such that the maintenance of the suit

does not offend traditional notions of fair play [*13] and

substantial justice.′′ Philos Techs., Inc. v. Philos & D, Inc.,

802 F.3d 905, 912-13 (7th Cir. 2015)(quoting Int’l Shoe Co.

v. State of Wash., Office of Unemployment Comp. &

Placement, 326 U.S. 310, 66 S. Ct. 154, 90 L. Ed. 95 (1945)

and Milliken v. Meyer, 311 U.S. 457, 463, 61 S. Ct. 339, 85

L. Ed. 278 (1940)). Requiring Defendants such as this who

reap significant profits from sales to consumers such as

those in Illinois, to come to court and defend their actions

certainly does not offend traditional notions of fair play and

substantial justice, particularly as in this case where specific

contacts have allegedly harmed Illinois consumers. Fair

play means that if you decide to sell to consumers in the

United States you must come to the United States and stand

accountable for conduct relating to such sales. Dior has

shown that Defendants have had more than minimum

contacts with Illinois, and also contacts with others in the

United States as well. See, e.g., Fed. R. Civ. P. 4 (stating that

′′serving a summons or filing a waiver of service establishes

personal jurisdiction over a defendant if: (A) the defendant

is not subject to jurisdiction in any state’s courts of general

jurisdiction; and (B) exercising jurisdiction is consistent

with the United States Constitution and laws′′). Fair play

means that if a company accuses you of profiting by

illegally using a mark that you do not own, that you appear

and answer that accusation. The Seventh Circuit has also

explained that [*14] ′′[d]ue process requires that potential

defendants should have some control over and certainly

should not be surprised by the jurisdictional consequences

of their actions.′′ Hemi Grp. LLC, 622 F.3d at 758 (internal

quotations omitted)(quoting RAR, Inc. v. Turner Diesel,

Ltd., 107 F.3d 1272, 1277 (7th Cir. 1997)). In this instance,

as the Defendants continued to sell to United States

consumers and the United States dollars continued to flow

back to Defendants, they should not have been surprised to

learn that they are subject to the jurisdiction of United States

courts in regard to their transactions. It may be a global

market place as Defendants claim, but they cannot insulate

themselves from any harm that they cause simply by

locating themselves within the borders of China or any other

country outside the United States. Dior has shown that

Defendants attempted to sell a product to Illinois consumers

and ship at least one product to Illinois. In fairness,

Defendants should be required to defend themselves in a

court in Illinois.

The court is not making any determinations as to the

ultimate merits of Dior’s claims. The court is merely

holding that Defendants must come to this court and defend

themselves. They will be provided with all of the protections

accorded to every defendant in United [*15] States courts

and will be given an opportunity to prepare a complete

defense to all the claims alleged against them in this action.

Based on the above, Defendants’ motions to dismiss are

denied.

CONCLUSION

Based on the foregoing analysis, Defendants’ motions to

dismiss are denied.

/s/ Samuel Der-Yeghiayan

Samuel Der-Yeghiayan

United States District Court Judge

Dated: November 17, 2015

Page 4 of 4

2015 U.S. Dist. LEXIS 158225, *11

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 5 of 64 PageID #:498
Only the Westlaw citation is currently available.

United States District Court, N.D. Illinois, Eastern

Division.

CHARTER NATIONAL BANK AND TRUST,

Plaintiff,

v.

CHARTER ONE FINANCIAL, INC., Charter One

Bank, FSB and St. Paul Federal Bank for Savings,

Defendants.

No. 01 C 0905.

May 15, 2001.

MEMORANDUM, OPINION AND ORDER

ANDERSEN, J.

*1 This case is before the Court on the Motion

for a Temporary Restraining Order brought by

plaintiff Charter National Bank and Trust. Charter

National seeks to restrain Charter One Financial,

Inc ., Charter One Bank, FSB and St. Paul Federal

Bank for Savings from operating any location in the

Chicago metropolitan area using the mark

“charter.” For the following reasons, Charter National's motion is granted in part and denied in part.

ALLEGED FACTS

Northwest Bankcorp acquired a bank in Hanover Park and renamed it Charter Bank and Trust of

Illinois on October 1, 1987. In 1993, two more locations were added, one in Schaumburg and one in

Hoffman Estates. Charter Bank and Trust of Illinois

changed its name to Charter Bank and Trust, N.A.

and then to Charter National Bank and Trust

(“Charter National”). Since 1987, the entity now

known as Charter National has continuously operated the Hanover Park facility and has displayed a

large sign out front with the words “Charter Bank”.

Since 1993, the Hoffman Estates and Schaumburg

branches have displayed large signs with the words

“Charter Bank”.

Charter One did not do business in the State of

Illinois until it acquired St. Paul Federal Bank for

Savings in 1999. Until January of 2001 it operated

St. Paul's fifty-eight Chicago metropolitan locations

under the trade name and trademark “St. Paul”. In

January of 2001, St. Paul announced that it was

changing its name to Charter One Bank. On February 6, 2001, counsel for Charter National faxed a

letter to Charter One informing Charter One of its

contention that Charter National was the senior

common law user in Chicago and that the name

change was already causing customer confusion.

After Charter One did not stop converting

branches from the mark “St. Paul” to “Charter

One”, Charter National filed the instant lawsuit.

The issues have been extensively briefed and we

have conducted an evidentiary hearing. While this

court has reviewed the motion for a temporary restraining order, defendants have agreed to refrain

from displaying the name “Charter One” in the geographic area surrounding Charter National's three

branches.

DISCUSSION

The purpose of preliminary injunctive relief is

“to minimize the hardship to the parties pending the

ultimate resolution of the lawsuit.” Platinum Home

Mortgage Corp. v. Platinum Financial Group Inc.,

149 F.3d 722, 726 (7th Cir.1998). The standards for

a temporary restraining order and the standards for

a preliminary injunction are identical. Atkins v. Arson Pirie Scott & Co., Inc., 1999 WL 1249342 at *

1

(N.D.Ill.Dec. 13, 1999). Therefore, a TRO is warranted if the party seeking the injunction can make

a threshold showing that: (1) the case has a reasonable likelihood of success on the merits; (2) no adequate remedy at law exists; (3) it will suffer irreparable harm if the injunction is not granted; (4) the

balance of hardships is in favor of the moving

party; and (5) the preliminary injunction will not

harm the public interest. Rust Environment & Infrastructure, Inc. v. Teunissen, 131 F.3d 1210, 1213

(7th Cir.1997).

Page 1

Not Reported in F.Supp.2d, 2001 WL 527404 (N.D.Ill.)

(Cite as: 2001 WL 527404 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 6 of 64 PageID #:499
*2 “Trademark law aims to aid consumers in

identifying the source of goods by allowing producers the exclusive right to particular identifying

words or symbols which they may attach to their

products as a designator of source.” Thomas &

Betts Corp. v. Panduit Corp., 65 F.3d 654, 657 (7th

Cir.1995).

Charter National has shown a reasonable likelihood of success on the merits. In order to show a

reasonable likelihood of success on the merits in a

trademark infringement claim, the plaintiff must

demonstrate: (1) the validity of its trademark and

(2) the infringement of that mark. Echo Travel, Inc.

v. Travel Associates, Inc., 870 F.2d 1264, 1266 (7th

Cir.1989). The validity of a mark is established by

showing that a “word, term, name, symbol or

device” is entitled to protection because that mark

specifically identifies and distinguished one company's goods from those of its competitors. Platinum, 149 F.3d at 726. Charter National is the senior

user of the mark in the Chicago metropolitan area.

Although Charter One has registered its mark at the

U.S. Patent and Trademark Office, that trademark

only allows it to use its mark if no other senior

user, who has been continuously using the mark,

has priority. 15 U.S.C. § 1065. A trademark application is always subject to previously established

common law rights of another party. The Money

Store v. Harriscorp Fin., 689 F.2d 666, 672 (7.th

Cir1982). Therefore, if “Charter National Bank” is

protectable under common law trademark law,

Charter National has a reasonable likelihood of success on the merits.

Charter National contends that its mark is protectable because the term “charter” is more than a

generic term, such as bank. Charter One argues that

the mark is not protectable because it simply signifies that the bank has been certified, or chartered,

by the state or federal government. We disagree.

“Charter National Bank” is entitled to protection.

The determination of whether a party has established a protectable right in a trademark is made on

a case by case basis, considering the totality of the

circumstances. New West Corp. v. NYM Co. of Cal.,

Inc., 595 F.2d 1194, 1200 (9 th Cir.1979). A party

may acquire a protectable right simply through the

use of the mark in connection with goods or services. Zazu Designs v. L'Oreal, S.A., 979 F.2d 499,

503 (7 th Cir.1992). We find that Charter National

has shown a reasonable likelihood of success in its

claim to have acquired a protectable right in

“Charter National” through its evidentiary submissions of advertising brochures, ads, and pictures of

signs, as well as its evidence of actual confusion.

Later in the course of this case, Charter National

will have to present more substantial evidence of

confusion, but at this point the evidence it has

presented is sufficient to convince this court that

there is a reasonable likelihood of success in showing that its name has acquired a secondary meaning

in the minds of customers and, therefore, deserves

protection.

*3 In a trademark infringement case, damages

are by “their very nature irreparable and not susceptible of adequate measurement for remedy at

law.” International Kennel Club of Chicago, Inc.

v. Mighty Star, Inc., 846 F.2d 1079, 1092 (7 th

Cir.1988). Charter National has shown a reasonable

likelihood of success on the merits because of customer confusion and frustration. Furthermore, the

fact that it is virtually impossible to calculate the

financial impact of these damages shows that there

is no adequate remedy at law.

Balancing of the hardships and the public's interest presents the closest question here. Defendants

operate over seventy locations in the entire Chicago

metropolitan region and forcing them to cover all of

their signs on all banks is a hardship. However,

they knew of this potential conflict before they

changed the names of their banking operations from

St. Paul to Charter One.

We have considered different geographical

parameters for a temporary restraining order.

Eighty percent of Charter National's deposit customers are clustered within three miles around its

branches. Therefore, we have entertained the option

Page 2

Not Reported in F.Supp.2d, 2001 WL 527404 (N.D.Ill.)

(Cite as: 2001 WL 527404 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 7 of 64 PageID #:500
of structuring a TRO to include that geographic

area. In response, Charter National argued that it

makes a profit only by virtue of the loans that it

makes and, since its loan customers live in a much

broader geographic area than its deposit customers,

its damages will not by redressed unless we totally

enjoin Charter One from any use of the mark

“charter” in the entire Chicago metropolitan area.

In the event that we determine that a preliminary

injunction is justified, we might require that Charter

One stop using the mark “charter” in the entire

Chicago metropolitan area. However, given the balancing of the hardships at this stage in the litigation

and the inconvenience to Charter One's hundreds of

thousands of customers in the Chicago area, we will

not order Charter One to stop using the mark

“charter” in the entire metropolitan area.

We have fashioned a remedy which balances

the public interests and the hardships, but still recognizes Charter National's likelihood of succeeding on the ultimate merits. We will restrain Charter

One entities from operating any type of bank facility using the word “charter” on any outdoor sign

within the geographic area between Lake Cook

Road, on the north, I 290/I355/Illinois 53, on the

east, North Avenue, on the south, and the Fox

River, on the west. Furthermore, we will enjoin

Charter One from opening any new locations, in the

above geographic area, which use the mark

“charter” in any way or is identified as “Charter

One”. This solution balances the strength of Charter

National's mark in a smaller geographic area

against the hardship of Charter One changing all of

the signs on all of its facilities in the Chicago area

on a temporary basis.

CONCLUSION

Charter National Bank & Trust's motion for a

temporary restraining order is granted in part and

denied in part. Charter One Financial, Inc., Charter

One Bank, FSB and St. Paul Federal Bank for Savings are enjoined from operating any type of bank

facility using the word “charter” on any outdoor

signs within the geographic area between Lake

Cook Road, on the north, I 290/I355/Illinois 53, on

the east, North Avenue, on the south, and the Fox

River, on the west. Furthermore, Charter One is enjoined from opening any new locations in that geographic area that use the mark “charter” in any way

or is identified as “Charter One”. Charter National's

request for a temporary restraining order prohibiting Charter One from using the mark “charter”

throughout the entire Chicago metropolitan area is

denied.

*4 It is so ordered.

N.D.Ill.,2001.

Charter National Bank and Trust v. Charter One

Financial, Inc.

Not Reported in F.Supp.2d, 2001 WL 527404

(N.D.Ill.)

END OF DOCUMENT

Page 3

Not Reported in F.Supp.2d, 2001 WL 527404 (N.D.Ill.)

(Cite as: 2001 WL 527404 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 8 of 64 PageID #:501
| | Positive

As of: June 26, 2015 5:58 PM EDT

Packaging Supplies, Inc. v. Harley-Davidson, Motor Co.

United States District Court for the Northern District of Illinois, Eastern Division

May 12, 2011, Decided; May 12, 2011, Filed

Case No.: 08-cv-400

Reporter

2011 U.S. Dist. LEXIS 50897; 100 U.S.P.Q.2D (BNA) 1348; 2011-1 Trade Cas. (CCH) P77,473; 2011

WL 1811446

PACKAGING SUPPLIES, INC., Plaintiff, v.

HARLEY-DAVIDSON, INC., and

HARLEY-DAVIDSON MOTOR COMPANY,

INC., Defendants.HARLEY-DAVISON, INC.;

HARLEY-DAVIDSON MOTOR COMPANY,

INC.; and H-D MICHIGAN, LLC, Counterclaim

Plaintiffs, v. PACKAGING SUPPLIES, INC.,

Counterclaim Defendant.

Subsequent History: Later proceeding at

Packaging Supplies v. Harley-Davidson, Inc.,

2011 U.S. Dist. LEXIS 127681 (N.D. Ill., Nov.

4, 2011)

Prior History: Packaging Supplies, Inc. v.

Harley-Davidson, Inc., 2009 U.S. Dist. LEXIS

25732 (N.D. Ill., Mar. 30, 2009)

Counsel: [*1] For Packaging Supplies, Inc.,

an Arizona corporation, Plaintiff, Counter

Defendant: Alan F. Block, Jessica A. Jeffries,

Block & Landsman, Chicago, IL.

For Harley-Davidson, Inc., a Wisconsin

corporation, Defendant: Barbara O.

Bruckmann, PRO HAC VICE, Charles M.

Malaise, James G Kress, Howrey LLP,

Washington, DC; Romeo S. Quinto, Morgan

Lewis & Bockius LLP, Chicago, IL; Thomas

Mark Williams, Winston & Strawn LLP,

Chicago, IL.

For Harley-Davidson Motor Company, Inc.,

Defendant: Thomas Mark Williams, Winston &

Strawn LLP, Chicago, IL.

For H-D Michigan, LLC, Harley-Davidson

Motor Company, Inc., Counter Claimants:

Thomas Mark Williams, Winston & Strawn LLP,

Chicago, IL.

For Harley-Davidson, Inc., a Wisconsin

corporation, Counter Claimant: Barbara O.

Bruckmann, Charles M. Malaise, James G

Kress, Howrey LLP, Washington, DC; Romeo

S. Quinto, Morgan Lewis & Bockius LLP,

Chicago, IL; Thomas Mark Williams, Winston

& Strawn LLP, Chicago, IL.

Judges: Robert M. Dow, Jr., United States

District Judge.

Opinion by: Robert M. Dow, Jr.

Opinion

[**1349] MEMORANDUM OPINION AND

ORDER

Before the Court are two unopposed motions

for summary judgment filed by the

Harley-Davidson parties. Defendants move for

summary judgment on all of the counts of

Plaintiff's [*2] complaint [71]. Counterclaim

Plaintiffs move for partial summary judgment

on Counts I, II, V, and VII of their counterclaim

(the counts that allege trademark infringement

and unfair competition) [73]. For the following

reasons, both of the pending motions [71, 73]

are granted.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 9 of 64 PageID #:502
I. Background

Plaintiff and Counterclaim Defendant

Packaging Supplies, Inc. ("PSI") is an Arizona

corporation with its principal place of business

in Scottsdale, Arizona. Defendant and

Counterclaim Plaintiff Harley-Davidson, Inc. is

a Wisconsin corporation with its principal place

of business in Milwaukee, Wisconsin.

Defendant and Counterclaim Plaintiff

Harley-Davidson Motor Company, Inc. is a

Wisconsin corporation with its principal place

of business in Milwaukee, Wisconsin, and is

responsible for the sale of Harley-Davidson

motorcycles, parts and accessories, and

general merchandise to Harley-Davidson

dealers. Counterclaim Plaintiff H-D Michigan,

LLC is a Michigan corporation with its principal

place of business in Ann Arbor, Michigan. H-D

Michigan is the owner of the Harley-Davidson

trademark rights asserted in this action.

Harley-Davidson, Inc. is the ultimate parent

corporation of its subsidiaries, H-D Michigan,

[*3] LLC and Harley-Davidson Motor

Company, Inc. Collectively, the Court will refer

to Defendants and Counterclaim Plaintiffs as

"Harley-Davidson." 1

Plaintiff commenced this action on January

17, 2008. On March 30, 2009, the Court denied

Harley-Davidson's motion to dismiss the

complaint pursuant to Federal Rule of Civil

Procedure 12(b)(6) [32]. On April 14, 2009,

Harley-Davidson answered Plaintiff's

complaint and asserted affirmative defenses

and counterclaims [35]. The parties conducted

full fact discovery. On August 30, 2010,

Harley-Davidson filed its motions for summary

judgment along with a consolidated statement

of undisputed facts pursuant to Local Rule

56.1. After receiving input from [*4] the parties

regarding their preferred briefing schedule,

the Court set a deadline of October 13, 2010

for Plaintiff's responses and November 3, 2010

for Harley-Davidson's replies [79]. As of the

date of this order, Plaintiff has filed no papers

whatsoever in response to Harley-Davidson's

motions. Nor has Plaintiff requested an

extension or made any filing at all in this case.

Because Plaintiff has failed to controvert

Harley-Davidson's statement of facts [75], the

Court deems those facts admitted so far as

they are supported by admissible record

evidence. 2 See Local Rule ("L.R.")

56.1(b)(3)(C); Bell, Boyd, & Lloyd v. Tapy, 896

F.2d 1101, 1102 (7th Cir. 1990).

A. Harley-Davidson's Trademarks

Harley-Davidson began selling motorcycles in

the United States in 1903 and has since

become an iconic brand that is recognized

worldwide. H-D Michigan, LLC is the owner of

a number of Harley-Davidson's federal

trademarks and service marks, including the

word mark "HARLEY-DAVIDSON" the "Bar &

Shield" logo and the "MotorClothes" logo.

[**1350]

1

The Court has both federal question and diversity jurisdiction over this lawsuit. The Court has federal question jurisdiction

over PSI's antitrust claim pursuant to 15 U.S.C. §15(a) and 28 U.S.C. § 1331. The Court has jurisdiction over Harley-Davidson's

Counterclaims under 15 U.S.C. § 1121 and 28 U.S.C. §§ 1338(a) and (b). Further, because the parties are citizens of different

states and the matter in controversy exceeds $75,000, the Court also has jurisdiction over this matter under 28 U.S.C. § 1332.

2

L.R. 56.1 requires that statements of facts contain allegations of material fact and that factual allegations be supported by

admissible record evidence. See L.R. 56.1; Malec v. Sanford, 191 F.R.D. 581, 583-85 (N.D. Ill. 2000). Where a party has offered

a legal conclusion or a statement of fact without offering proper evidentiary support, the Court will not consider that statement.

See, e.g., Malec, 191 F.R.D. at 583. L.R. 56.1(b)(3)(C) provides that "[a]ll material facts set forth in the statement required of

the moving party [*5] will be deemed to be admitted unless controverted by the statement of the opposing party." The Seventh

Circuit repeatedly has confirmed that a district court has broad discretion to require strict compliance with L.R. 56.1. See, e.g.,

Koszola v. Bd. of Educ. of the City of Chicago, 385 F.3d 1104, 1109 (7th Cir. 2004); Curran v. Kwon, 153 F.3d 481, 486 (7th Cir.

1998) (citing Midwest Imports, Ltd. v. Coval, 71 F.3d 1311, 1317 (7th Cir. 1995) (collecting cases)).

Page 2 of 11

2011 U.S. Dist. LEXIS 50897, *2; 100 U.S.P.Q.2D (BNA) 1348, **1349

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 10 of 64 PageID #:503
The registrations for these marks remain in full

force and effect and the United States Patent

and Trademark Office ("USPTO") has

accepted and acknowledged Section 15

incontestability affidavits for all of the relevant

registrations. The Harley-Davidson name mark

and logos are collectively referred to herein as

the "H-D Marks."

The H-D Marks are widely recognized as

among [*6] the world's most famous

trademarks. By virtue of Harley-Davidson's

extensive use and promotion of the H-D Marks,

consumers have come to recognize

Harley-Davidson as the source or sponsor of a

wide range of quality products marketed under

the H-D Marks. Harley-Davidson has invested

substantial time, effort and money in

advertising and promoting the H-D Marks for

decades, exposing the Marks to millions of

people. Between 2004 and 2008 alone,

Harley-Davidson spent more than $344 million

on advertising, promoting, and marketing

products and services under the H-D Marks,

with the majority of that advertising taking

place in the United States. Between 2004 and

2008 alone, Harley-Davidson sold nearly 1.25

million motorcycles in the U.S. generating over

$16.3 billion in sales. During that same period,

Harley-Davidson sold more than $4.1 billion of

motorcycle parts and accessories worldwide

and more than $1.3 billion of apparel and

collectibles worldwide, the majority of which

sales took place in the United States. In

addition, for the past five years,

Harley-Davidson has received substantial

royalty revenues from licensing its trademarks,

with the majority of these revenues coming

from the [*7] United States.

The federal trademark registrations for the

H-D Marks cover use of the Marks on a wide

variety of Harley-Davidson products including,

for example, motorcycle accessories, helmets,

jackets, hats, t-shirts and dozens of other items

in addition to motorcycles. Additionally,

Harley-Davidson has used the H-D Marks on

merchandise bags supplied to its dealers since

at least 1987, and has sold more than forty

million merchandise bags bearing H-D Marks

to its dealers since then. Harley-Davidson

markets and sells its merchandise bags

bearing the H-D Marks to its dealers through

its MotorClothes merchandise catalogs.

B. PSI's Use of H-D Marks

PSI's business is plastic merchandise bags.

These bags are not sold in stores; rather they

are used by consumers for carrying away their

purchases after transactions with PSI's clients.

The bags are custom printed, and since 1964

PSI has been selling them to retailers,

manufacturers and franchise operators

throughout the United States. Beginning

around 2002, numerous Harley-Davidson

motorcycle dealerships (125 out of 679) were

among PSI's clients. These dealerships are

independently owned and licensed, and the

bags that PSI made were customized [*8] for

each dealer-client.

PSI used one or more of the H-D Marks on

every (or nearly every) merchandise bag sold

[**1351] to a Harley-Davidson dealer. PSI

Page 3 of 11

2011 U.S. Dist. LEXIS 50897, *4; 100 U.S.P.Q.2D (BNA) 1348, **1350

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 11 of 64 PageID #:504
admits that its supply of merchandise bags to

Harley-Davidson dealers depends on its use

of H-D Marks. PSI has never been licensed by

Harley-Davidson to use the H-D Marks and

never sought Harley-Davidson's permission to

use the H-D Marks. 3

PSI has sold its bags to Harley-Davidson

dealers in competition with Harley-Davidson

and has displaced it as a supplier of

merchandise bags at certain dealerships. PSI

also used the H-D Marks in promotional

materials that PSI used to promote its

business. Starting in approximately 2004, PSI

promoted its business by disseminating to

prospective [*9] customers fliers that depicted

merchandise bags produced for

Harley-Davidson dealers and incorporating

H-D Marks. During that period, PSI sent

approximately 1,000 fliers each year to

Harley-Davidson and other motor sports

dealers. For those Harley-Davidson dealers

that expressed an interest in PSI's

merchandise bags, PSI routinely sent sample

packs of bags produced for other

Harley-Davidson dealers that incorporated

H-D Marks. None of the PSI promotional

materials makes any reference to whether PSI

was authorized to use the H-D Marks.

Sometime in 2005, PSI received a telephone

call from a former Harley-Davidson "trademark

enforcement" employee concerning its

merchandise bags. Following that call, PSI

wrote to the Harley-Davidson trademark

enforcement employee on November 2, 2005,

regarding its merchandise bag program,

explaining, inter alia, that PSI "would never

intentionally violate a federal trademark."

In 2007, Harley-Davidson received an inquiry

from a Harley-Davidson dealer regarding

whether PSI was an authorized supplier that

was permitted to use the H-D Marks on its

merchandise bags. In June 2007,

Harley-Davidson posted a notice on its dealer

intranet advising Harley-Davidson

[*10] dealers that PSI was not authorized to

use H-D Marks on merchandise bags, that PSI

had received a "cease and desist notice," and

that "all merchandise bags bearing

Harley-Davidson's name and/or logo must be

obtained through" Harley-Davidson. See Ex.A

to Cmplt., incorporating full text of Notice).

PSI received a copy of the Harley-Davidson

Notice in approximately June 2007, and

became aware that Harley-Davidson objected

to PSI's use of H-D Marks on merchandise

bags. Since that time, PSI received additional

notice of Harley-Davidson's position regarding

PSI's infringement of its trademarks through

the counterclaims in this litigation, and

otherwise. However, following receipt of the

Harley-Davidson June 2007 Notice, PSI did

not change its business operations concerning

the sale to Harley-Davidson dealers of

merchandise bags bearing H-D Marks. PSI

also continued to represent to

Harley-Davidson dealers that PSI did not

require a license to use the H-D Marks

because merchandise bags were a supply

item, and thus, not resold. See, e.g., Ex. 18 to

Cohen Dep. (Email from Mr. Cohen to dealer

dated May 9, 2008, stating: "these items are

not being sold and therefore do not require

that [PSI] be [*11] licensed"); Ex. 5 to Cohen

Dep. at PSI17728 (Cohen letter to dealer dated

Nov. 5, 2007, stating: "If you further check your

agreement you will see that supply items do

not need to be licensed. Bags are a supply

item.").

3 PSI has claimed that it assumed that it had the right to use H-D Marks because certain unnamed Harley-Davidson dealers

at some point prior to 2006 told PSI that it could reproduce the H-D Marks on goods not offered for resale. PSI never verified

the accuracy of its assumption that it could use the H-D Marks on its merchandise bags. PSI has never seen a Harley-Davidson

Dealer Contract and has no knowledge of the terms under which Harley-Davidson dealers could use H-D Marks.

Page 4 of 11

2011 U.S. Dist. LEXIS 50897, *8; 100 U.S.P.Q.2D (BNA) 1348, **1351

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 12 of 64 PageID #:505
In fact, the contracts between Harley-Davidson

and its dealers contained no such provision.

Harley-Davidson enters into Motorcycle Dealer

Contracts with each of its authorized dealers.

The Dealer Contract sets out the terms under

which a dealer may use the H-D Marks and

includes specific terms governing when

dealers may purchase products from third

parties when those products incorporate H-D

Marks. 4 The Contract provides that "dealers

are not permitted to purchase goods for

distribution products bearing H-D Marks from

any source other than Harley-Davidson or its

authorized licensees without prior approval of

Harley-Davidson." Ex. 2, to Merten Decl.,

Sample Motorcycle Dealer Contract, at § K(3);

see also id. (dealers are not permitted to have

products created on its behalf incorporating

H-D Marks for distribution to customers). There

is no term in the Dealer Contract [**1352] that

allows third parties to use H-D marks if the

products on which the Marks were to be used

are not [*12] intended for resale. Further, there

is no term in the Dealer Contract that requires

dealers to purchase merchandise bags from

Harley-Davidson in order to receive

Harley-Davidson motorcycles.

C. Dealer and End-User Confusion

Harley-Davidson has submitted evidence that

establishes that both Harley-Davidson dealers

and their customers were or would be

confused by Plaintiff's use of the Marks.

First, Harley-Davison has introduced evidence

that shows that PSI's unauthorized use of H-D

Marks on its bags and in its promotional

materials confused at least seven of their

dealers regarding whether PSI was authorized

to supply merchandise bags bearing H-D

Marks. A number of dealers testified that they

either assumed that Plaintiff was so authorized

or that Plaintiff told them that they could use

the Marks.

Further, PSI understood that Harley-Davidson

dealers used the merchandise bags produced

by PSI to package merchandise such as

genuine Harley-Davidson accessories and

MotorClothes apparel purchased by

[*13] consumers in their dealerships. PSI

intended for dealership customers to use its

merchandise bags bearing H-D Marks over

and over again following their purchase of

merchandise. See, e.g.AEx. 20 to Topczewski

Dep. (fax from Mr. Topczewski to dealer dated

Aug. 8, 2007, stating: "We tried to come up

with a size we thought would be very good for

people to use again and again. Something

they can use to go shopping or even for the

day at the beach.").

II. Legal Standard on Summary Judgment

Summary judgment is proper where "the

pleadings, depositions, answers to

interrogatories, and admissions on file,

together with the affidavits, if any, show that

there is no genuine issue as to any material

fact and that the moving party is entitled to a

judgment as a matter of law." Fed. R. Civ. P.

56(c). In determining whether there is a

genuine issue of fact, the Court "must construe

the facts and draw all reasonable inferences in

the light most favorable to the nonmoving

party." Foley v. City of Lafayette, 359 F.3d 925,

928 (7th Cir. 2004).

To avoid summary judgment, the opposing

party must go beyond the pleadings and "set

forth specific facts showing that there is a

genuine issue for trial." Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 250, 106 S. Ct.

2505, 91 L. Ed. 2d 202 (1986). [*14] A genuine

issue of material fact exists if "the evidence is

4

The Dealer Contracts provide that "dealers have no rights to use H-D Marks except as specifically provided in Dealer

Contract." Ex. 2, to Merten Decl., Sample Motorcycle Dealer Contract, Part 1(C).

Page 5 of 11

2011 U.S. Dist. LEXIS 50897, *11; 100 U.S.P.Q.2D (BNA) 1348, **1351

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 13 of 64 PageID #:506
such that a reasonable jury could return a

verdict for the nonmoving party." Id. at 248.

The party seeking summary judgment has the

burden of establishing the lack of any genuine

issue of material fact. See Celotex Corp. v.

Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91

L. Ed. 2d 265 (1986). Summary judgment is

proper against "a party who fails to make a

showing sufficient to establish the existence of

an element essential to that party's case, and

on which that party will bear the burden of

proof at trial." Id. at 322. The non-moving party

"must do more than simply show that there is

some metaphysical doubt as to the material

facts." Matsushita Elec. Indus. Co., Ltd. v.

Zenith Radio Corp., 475 U.S. 574, 586, 106 S.

Ct. 1348, 89 L. Ed. 2d 538 (1986). In other

words, the "mere existence of a scintilla of

evidence in support of the [non-movant's]

position will be insufficient; there must be

evidence on which the jury could reasonably

find for the [non-movant]." Anderson, 477 U.S.

at 252.

III. Analysis

A. Harley-Davidson's Motion for Summary

Judgment on their Counterclaims for

Trademark Infringement and Unfair

Competition

Counterclaim Plaintiffs move for partial

summary judgment as to liability on [*15] their

counterclaims for trademark infringement

under Section 32(1) of the Lanham Act (15

U.S.C. § 1114(1)) (Count I); false designation

of origin (unfair competition) under Section

43(a)(1)(A) of the Lanham Act (15 U.S.C. §

1125(a)(1)(A)) (Count II); common law unfair

competition under Illinois state law (Count V);

and violation of the Illinois Uniform Deceptive

Trade Practices Act (815 ILCS 510/1 et seq.)

(Count VII). These counterclaims are

specifically directed to PSI's unauthorized (and

continuing) use of the H-D Marks.

Each of the four trademark-related

counterclaims at issue in this motion involves

the same elements and proofs. See Spex, Inc.

v. The Joy of Spex, Inc., 847 F. Supp. 567, 579

(N.D. Ill. 1994) (citing Gimix, Inc. v. JS & A

Group, Inc., 699 F.2d 901, 908 (7th Cir. 1983)

(holding [**1353] that "[c]laims for unfair

competition and deceptive business practices

[involving trade names] brought under Illinois

statutes are to be resolved according to the

principles set forth under the Lanham Act" and

noting that "Illinois courts look to federal case

law and apply the same analysis to state

infringement claims"); see also Trans Union

LLC v. Credit Research, Inc., 142 F. Supp. 2d

1029, 1038 (N.D. Ill. 2001) [*16] (same). To

establish liability on the counterclaims,

Harley-Davidson must demonstrate that: (1) it

has protectable rights in the asserted

trademarks; and (2) PSI's use of these marks

is likely to cause confusion. See CAE, Inc. v.

Clean Air Eng'g, Inc., 267 F.3d 660, 673-74

(7th Cir. 2001). Proof of these same two

elements is required for both federal claims in

this case: trademark infringement, 15 U.S.C. §

1114, and unfair competition, 15 U.S.C. §

1125(a). See Packman v. Chicago Tribune

Co., 267 F.3d 628, 638 n.8 (7th Cir. 2001).

Because there is no genuine issue of material

fact with respect to either element, the Court

grants summary judgment in favor of

Harley-Davidson as to PSI's trademark

violations. First, Harley-Davidson's protectable

interest in the H-D marks is beyond dispute

and is in fact undisputed. As discussed above,

Harley-Davidson owns several Principal

Register federal trademark registrations

covering its famous H-D Marks in connection

with a wide variety of goods. As the owner of

the federal registrations, Harley-Davidson is

entitled to several statutory presumptions

under the Lanham Act federal trademark

statute, including that its certificate of

registration constitutes [*17] "prima facie

Page 6 of 11

2011 U.S. Dist. LEXIS 50897, *14; 100 U.S.P.Q.2D (BNA) 1348, **1352

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 14 of 64 PageID #:507
evidence of the validity of the registered

mark[s] * * *, of the owner's ownership of the

mark[s], and of the owner's exclusive right to

use the registered mark[s] in commerce on or

in connection with the goods * * * specified in

the certificate * * *." 15 U.S.C. § 1057(b).

Moreover, Harley-Davidson's rights in the H-D

Marks are deemed incontestable by the U.S.

Patent & Trademark Office. As a result, the

H-D Marks are entitled to the highest degree

of protection afforded under the Lanham Act.

See 15 U.S.C. § 1065; Union Carbide Corp. v.

Ever-Ready Inc., 531 F.2d 366, 371 (7th Cir.

1976). These trademark registrations and the

statutory rights conferred thereby are effective

not only against unauthorized uses of the

Marks in connection with identical goods, but

also against unauthorized uses in connection

with "related" goods. See CAE, Inc., 267 F.3d

at 679.

In addition to its federal registrations covering

related goods, Harley-Davidson has

established that it owns common law

trademark rights covering use of the H-D

Marks on merchandise bags—the very goods

at issue in this litigation—by virtue of its

widespread use of the H-D Marks on its

merchandise bags since at least [*18] 1987.

Harley-Davidson offers these merchandise

bags bearing the H-D Marks through its dealer

catalogue, and since 2004, has sold more

than forty million merchandise bags bearing

the H-D Marks to its dealers.

Harley-Davidson's common law trademark

rights are also actionable under the Lanham

Act, 15 U.S.C. 1125(a). See, e.g. Johnny

Blastoff, Inc. v. Los Angeles Rams Football

Co., 188 F.3d 427, 435 (7th Cir. 1999).

Moving on to the second element of

Harley-Davidson's causes of action, there is

no genuine issue of material fact that PSI's

use of the HD-Marks is likely to cause

confusion. Courts in the Seventh Circuit

analyze the likelihood of confusion under a

seven-factor test: "(1) similarity between the

marks in appearance and suggestion; (2)

similarity of the products; (3) area and manner

of concurrent use; (4) degree of care likely to

be exercised by consumers; (5) strength of the

plaintiff's mark; (6) actual confusion; and (7)

intent of the defendant to "palm off" his product

as that of another." Packman, 267 F.3d at 643.

No single factor is dispositive, and courts may

assign varying weights to each of the factors

depending on the facts presented, although, in

many cases, the similarity [*19] of the marks,

the defendant's intent, and actual confusion

are particularly important. Id. No matter what

weight the Court assigns the various factors,

Harley-Davidson has conclusively established

a likelihood of confusion.

With regard to the first factor, this is not a case

involving confusingly similar marks. Rather,

there is no dispute that PSI has used and is

using the actual H-D Marks as part of the

artwork on all merchandise bags that it

produces for Harley-Davidson dealers.

Similarity of the parties' products is the second

factor in the likelihood of confusion test. See

CAE, 267 F.3d at 678-79. This factor does not

require identical products or direct competition,

[**1354] only a showing that the parties'

goods are "sufficiently related to create an

inference in consumer's minds that the

products came from the same source." Id. at

679 (quoting Int'l Kennel Club of Chicago, Inc.

v. Mighty Star, Inc., 846 F.2d 1079, 1089 (7th

Cir. 1988)). Harley-Davidson's federal

trademark registrations cover clothing, jewelry,

helmets, and many other goods that its

independent dealers offer to consumers.

Harley-Davidson's dealers, in turn, place these

Harley-Davidson branded goods in

merchandise bags provided [*20] to their

customers at the check-out counter. PSI's

accused merchandise bags are sufficiently

Page 7 of 11

2011 U.S. Dist. LEXIS 50897, *17; 100 U.S.P.Q.2D (BNA) 1348, **1353

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 15 of 64 PageID #:508
related to and used in conjunction with goods

in which Harley-Davidson owns exclusive

trademark rights by virtue of its federal

trademark registrations. Moreover,

Harley-Davidson owns common law trademark

rights in identical goods; namely, merchandise

bags bearing the H-D Marks. Consequently,

this factor is easily satisfied because both

Harley-Davidson and PSI sell identical

products—merchandise bags—to

independent Harley-Davidson dealers who

distribute the bags to consumers purchasing

branded merchandise.

Regarding the third factor, PSI and

Harley-Davidson sell their merchandise bags

in identical trade channels. PSI sells its

accused merchandise bags to

Harley-Davidson dealers, many of whom also

purchased genuine merchandise bags directly

from Harley-Davidson.

The fourth factor analyzes the degree of care

likely to be exercised by customers of the

products at issue. See CAE, 267 F.3d at

682-83. There are a number of reasons why

this factor weighs in favor of a strong likelihood

of confusion. For one, the retail consumers

who ultimately receive PSI's merchandise

bags are provided those bags for [*21] free

and therefore would not be in a position to

exercise care in selecting the bags. These

retail customers have no way of knowing

whether those bags were produced by an

authorized Harley-Davidson supplier, nor do

potential customers encountering PSI's bags

in the post-sale context. Harley-Davidson's

reputation is therefore beyond its own control,

in violation of the Lanham Act. See 15 USC §

1125(a)(1)(A); CAE, 267 F.3d at 683; Lois

Sportswear, U.S.A., Inc. v. Levi Strauss & Co.,

799 F.2d 867, 872 (2d Cir. 1986) ("[T]he

trademark laws are designed not only to

prevent consumer confusion but also to protect

'the synonymous right of a trademark owner to

control his product's reputation.'").

The fifth factor—the strength of the

marks—clearly favors Harley-Davidson. See

CAE, 267 F.3d at 684. The H-D Marks are

among the world's most famous trademarks.

Harley-Davidson has spent hundreds of

millions of dollars on advertising, promoting,

and marketing products and services under

the Marks and has sold millions of motorcycles

bearing its Marks. Where, as here, the case

involves strong and famous marks, "the law

imposes a heightened obligation on others to

give [the H-D Marks] a wide berth." Sara Lee

Corp. v. American Leather Products, Inc., 1998

U.S. Dist. LEXIS 11914, 1998 WL 433764, at

*10 (N.D. Ill. July 29, 1998) [*22] (citing James

Burrough Ltd. v. Sign of the Beefeater, Inc.,

540 F.2d 266, 276 (7th Cir. 1976)).

With regard to the sixth factor—evidence of

actual confusion—Harley-Davidson has

provided declarations from several of its

dealers that explain that they were confused

by PSI's unauthorized use of the H-D Marks.

These dealers stated that PSI's use of the H-D

Marks on flyers, its distribution of sample bags

produced for other dealers bearing the H-D

Marks, and its misrepresentations regarding

PSI's authority to supply dealers with such

bags, caused them to believe PSI was an

authorized supplier.

Lastly, courts in this Circuit examine the

accused infringer's intent to "palm off" its

products. See CAE, 267 F.3d at 686. Here, the

record is replete with facts that suggest that

PSI deliberately and intentionally used the

H-D Marks and acted in a manner intended to

confuse Harley-Davidson dealers as to PSI's

rights to use those marks. The Court need

only provide a few illustrative examples of

facts that suggest this intent. For one, PSI's

use of the H-D Marks was not occasional or

episodic: every (or nearly every) bag that PSI

has sold to a Harley-Davidson dealer bears at

least one of the H-D Marks. [*23] Indeed, PSI

Page 8 of 11

2011 U.S. Dist. LEXIS 50897, *20; 100 U.S.P.Q.2D (BNA) 1348, **1354

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 16 of 64 PageID #:509
continued to exploit the H-D Marks for its

benefit despite knowledge that

Harley-Davidson considered PSI's use

unauthorized. When questioned by dealers as

to PSI's authorization to use the H-D Marks

following the June 2007 Notice, PSI continued

to represent to Harley-Davidson dealers that

PSI did not require a license to use the H-D

Marks, without obtaining a legal opinion and

without any knowledge [**1355] of the

Harley-Davidson dealer contracts, and despite

the unequivocal statements from

Harley-Davidson to the contrary.

There is no genuine issue of material fact as to

the validity of the H-D Marks and the likelihood

of confusion caused by PSI's activities.

Accordingly, the Court enters partial summary

judgment favor of Harley-Davidson on liability

for its trademark-based counterclaims (Counts

I, II, V, and VII).

B. Harley-Davidson's Motion for Summary

Judgment on Plaintiff's Antitrust and Tort

Claims

The Court discussed PSI's claims in detail in

its prior order denying Harley-Davidson's

motion to dismiss, see Packaging Supplies,

Inc. v. Harley-Davidson, Inc., 2009 U.S. Dist.

LEXIS 25732, 2009 WL 855798 (N.D. Ill.

March 30, 2009), and refers the reader to that

order for a more detailed explanation of

Plaintiff's [*24] claims. Briefly, counts I and II of

the complaint are, respectively, state law

claims for (i) tortious interference with business

relationships and for (ii) tortious interference

with prospective business advantage. Count

III alleges an illegal tying arrangement in

violation of Section 1 of the Sherman Act (15

U.S.C. § 1).

The Court concluded its prior order by noting

that "[i]t may be that Harley-Davidson merely

was protecting its intellectual property rights; if

that is so, this case might easily be resolved at

the summary judgment phase." 2009 U.S. Dist.

LEXIS 25732, 2009 WL 855798, at *7 (citing

Thermos Co. v. Igloo Products Corp., 1995

U.S. Dist. LEXIS 18382, 1995 WL 745832, at

*5 (N.D. Ill. Dec. 13, 1995) ("[I]t is

well-established in this circuit that a trademark

holder has the right to defend himself against

infringement by sending trademark policing

letters to alleged infringers.")). The Court's

speculation has been borne out by the record

on summary judgment: because PSI has

introduced no admissible evidence that

Harley-Davidson "tied" the sale of its

motorcycles to its dealers' purchase of

merchandise bags, or otherwise engaged in

improper or unprivileged interference with

PSI's business relationships, summary

judgment against PSI [*25] and in favor of

Harley-Davidson on PSI's complaint is

warranted.

First, Plaintiff's tort claims generally involve

allegations that Harley-Davidson directed its

dealers to cease doing business with PSI. At

the motion to dismiss stage, Harley-Davidson

had argued that, as an intellectual property

rights holder, it was entitled to defend itself

against infringement by third parties such as

PSI and to warn purchasers that they, too,

might be liable. See, e.g., Thermos Co., 1995

U.S. Dist. LEXIS 18382, 1995 WL 745832, at

*5; Am. Broadcasting Co. v. Maljack

Productions, Inc., 34 F. Supp. 2d 665, 675-76

(N.D. Ill. 1998). The Court examined the Notice

and agreed with Harley-Davidson that "on its

face, the Notice appears to apply only to the

use of Harley-Davidson's trademark." 2009

U.S. Dist. LEXIS 25732, 2009 WL 855798, at

*5. The Court reasoned that "were Plaintiff's

complaint predicated solely on the text of the

Notice, the case would be a prime candidate

for dismissal." Id. However, the Court did not

dismiss Plaintiff's tort claims because the

complaint contained allegations that Harley

Page 9 of 11

2011 U.S. Dist. LEXIS 50897, *23; 100 U.S.P.Q.2D (BNA) 1348, **1354

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 17 of 64 PageID #:510
Davidson interfered with PSI's business apart

from the Notice that it sent in an effort to

protect its trademarks. For instance, Plaintiff

had alleged that, in addition [*26] to the Notice,

Harley-Davidson contacted certain dealers,

asked if those dealers purchased bags through

PSI, and (if they answered in the affirmative)

told those dealers that PSI would not be

fulfilling their orders—apparently regardless

of whether the bags contained trademarked

content. (Here, the Court noted that PSI's

complaint did not allege that any or all of the

bags it designed for Harley-Davidson dealers

contained trademarked content.)

Plaintiffs have introduced no evidence to

substantiate any of their allegations. Instead,

Defendants have established that all of the

bags that PSI sold to Harley-Davidson dealers

contained trademarked content. The only

communication in the record (the Notice)

evidences an attempt by Harley-Davidson to

protect itself from PSI's unauthorized use of its

trademarks—a privileged communication.

Accordingly, the Court grants summary

judgment in favor of Harley-Davidson and

against Plaintiff on Plaintiff's tort claims. See

Celotex Corp. v. Catrett, 477 U.S. 317, 322,

106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986) (the

"plain language of Rule 56(c) mandates the

entry of summary judgment, after adequate

time for discovery and upon motion, against a

party who fails to make a showing sufficient

[*27] to establish the existence of an element

essential to that party's case, and on which

that party will bear the burden of proof at trial").

The tying claim alleges a tie between sales of

Harley-Davidson motorcycles (the tying

product) and sales of plastic merchandise bags

[**1356] (the tied product). To establish an

unlawful tying claim, PSI must prove that

Harley-Davidson: (1) imposed a tying

arrangement between two distinct products (in

this case motorcycles and merchandise bags);

(2) possessed sufficient economic power in

the tying market to appreciably restrain

competition in the tied product market; and (3)

a not insubstantial amount of interstate

commerce was affected. Reifert v. S. Cent.

Wis. MLS Corp., 450 F.3d 312, 316-317 (7th

Cir. 2006). Plaintiff's tying claim fails for a

complete absence of evidence regarding the

first two elements; however, the Court need

only discuss the first.

PSI has introduced no evidence that suggests

that Harley-Davidson conditioned the sale of

motorcycles on its dealers' purchase of

merchandise bags—an essential element of

its antitrust claim. See Sheridan v. Maraton

Petroleum Co., LLC, 530 F.3d 590, 592 (7th

Cir. 2008) (conditioning required). "The joint

[*28] sale of two products is a 'tie' only if the

seller exploits its control of the tying product 'to

force the buyer into the purchase of a tied

product that the buyer either did not want at all,

or might have preferred to purchase elsewhere

on different terms.'" Will v. Comprehensive

Accounting Corp., 776 F.2d 665, 669 (7th Cir.

1985) (quoting Jefferson Parish Hospital

District No. 2 v. Hyde, 466 U.S. 2, 104 S. Ct.

1551, 80 L. Ed. 2d 2 (1984)). Thus, "[t]o survive

summary judgment, [PSI] must present

admissible evidence, not mere speculation,

that [Harley-Davidson] coerced its [dealers]"

to purchase merchandise bags or suffer the

loss of the motorcycle line. Paladin Assocs.,

Inc. v. Montana Power Co., 328 F.3d 1145,

1161 (9th Cir. 2003). Plaintiff has failed to

meet this burden.

Indeed, the Court has examined the Notice

and the relevant portions of the

Harley-Davidson dealer contract and found no

language in either document that requires

dealers to purchase merchandise bags from

Harley-Davidson, whether as a condition to

receive motorcyle shipments or otherwise.

There is no evidence in the record from any

Page 10 of 11

2011 U.S. Dist. LEXIS 50897, *25; 100 U.S.P.Q.2D (BNA) 1348, **1355

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 18 of 64 PageID #:511
other source that suggests that

Harley-Davidson coerced its dealers in any

way or tied the purchase of the two products

[*29] together. This failure of proof of

"conditioning" or a "tie" compels dismissal of

this claim. See, e.g., Photovest Corp. v.

Fotomat Corp., 606 F.2d 704, 722-24 (7th Cir.

1979).

IV. Conclusion

For the foregoing reasons, Defendants' motion

for summary judgment on all of the counts of

Plaintiff's complaint [71] is granted.

Counterclaim Plaintiffs' motion for partial

summary judgment on Counts I, II, V, and VII

of their counterclaim (the counts that allege

trademark infringement and unfair competition)

[73] also is granted.

Dated: May 12, 2011

/s/ Robert M. Dow, Jr.

Robert M. Dow, Jr.

United States District Judge

Page 11 of 11

2011 U.S. Dist. LEXIS 50897, *28; 100 U.S.P.Q.2D (BNA) 1348, **1356

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 19 of 64 PageID #:512
Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 20 of 64 PageID #:513
Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 21 of 64 PageID #:514
Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 22 of 64 PageID #:515
Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 23 of 64 PageID #:516
Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 24 of 64 PageID #:517
Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 25 of 64 PageID #:518
Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 26 of 64 PageID #:519
Only the Westlaw citation is currently available.

United States District Court,

N.D. Illinois,

Eastern Division.

LORILLARD TOBACCO COMPANY, a Delaware

Corporation, Plaintiff,

v.

MONTROSE WHOLESALE CANDIES and Sundries, Inc., et al., Defendants.

Nos. 03 C 4844, 03 C 5311.

Nov. 8, 2005.

John S. Pacocha, Cameron Matthew Nelson, Jeffrey

G. Mote, Kevin D. Finger, Greenberg Traurig, LLP,

Chicago, IL, for Plaintiff.

Robert A. Egan, Robert A. Egan P.C., Robert A.

Hobib, Chicago, IL, for Defendants.

REPORT AND RECOMMENDATION

MARVIN E. ASPEN, Judge.

*1 Plaintiff, Lorillard Tobacco Company

(“Lorillard”), moves to freeze the assets of defendants Reza and Sandra Hazemi This matter originally came before me as a motion to freeze the assets

of the Hazemis and Montrose Wholesale Candies

and Sundries, Inc. (“Montrose”)(collectively,

“Montrose defendants”). Judge Aspen had referred

that motion to Magistrate Judge Keys, and the referral was subsequently transferred to me. Accordingly, the court addresses Lorillard's motion for an

order freezing the Hazemis' assets in this Report

and Recommendation pursuant to 28 U.S.C. §

636(b)(1)(B).

FN1

FN1. Under 28 U.S.C. § 636(b)(1)(A), “a

judge may designate a magistrate judge to

hear and determine any pretrial matter

pending before the court, except a motion

for injunctive relief, for judgment on the

pleadings, for summary judgment, to dismiss or quash an indictment or information

made by the defendant, to suppress evidence in a criminal case, to dismiss or to

permit maintenance of a class action, to

dismiss for failure to state a claim upon

which relief can be granted, and to involuntarily dismiss an action.” Under section

636(b)(1)(B), “a judge may also designate

a magistrate judge to conduct hearings, including evidentiary hearings, and to submit

to a judge of the court proposed findings of

fact and recommendations for the disposition, by a judge of the court, of any motion

excepted in subparagraph (A). Lorillard's

motion to freeze assets is a motion for injunctive relief..

I. BACKGROUND

Lorillard is one of the largest cigarette manufacturers in the United States and its brand, Newport, is the best-selling menthol cigarette in the

country. Lorillard has registered the trademark,

Newport, with the United States Patent and Trademark Office, giving it the exclusive right to manufacture, distribute, advertise, and sell Newport cigarettes in the United States. Lorillard distributes

its cigarettes through a network of wholesalers and

retailers, subject to a wide range of state and federal regulations. Over the past several years, the federal government and many states have substantially

increased taxes on cigarettes and other tobacco

products, which has made it profitable for

“bootleggers” to sell counterfeit tobacco products,

as well as import and distribute tobacco products in

a manner designed to avoid paying the taxes,

thereby reaping a handsome, but ill-gotten reward.

In July of 2003, one of Lorillard's division

managers paid a call on the Montrose store in

Chicago, Illinois, and purchased a carton of what he

suspected to be counterfeit Newport cigarettes, and

sent it for inspection to Lorillard's offices in

Greensboro, North Carolina. There, a quality assurance inspection convinced Lorillard that the cigarPage 1

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 27 of 64 PageID #:520
ettes were counterfeit and it filed this suit against

Montrose on July 14, 2003, alleging trademark violations under the Lanham Act 15 U.S.C. § 1051, et

seq., as well as various Illinois statutory violations

and common law offenses. On July 15, 2003, Judge

Marvin Aspen granted Lorillard's application for an

ex parte seizure order allowing Lorillard to seize

any counterfeit cigarettes, as well as records documenting the manufacture, importation, purchase,

sale, distribution, or receipt of any merchandise

bearing any Lorillard marks. The United States

Marshals Service returned service on the seizure of

four cartons of “counterfeit cigarettes and documents” on July 16, 2003. Montrose's owners, Reza

and Sandra Hazemi, have since been added as defendants.

After enduring a maddening course of fruitless

attempts at garnering any meaningful discovery

from Montrose and the Hazemis, and becoming understandably suspicious that the Hazemis were looting Montrose's assets, Lorillard filed a motion to

compel discovery and to freeze the assets of Montrose and the Hazemis, supporting it with over 1200

pages of documents detailing what Lorillard has

learned, and has had to endure, over a yearand-a-half.FN2 In the interim, however, and less

than a week after being informed that the court was

preparing to rule on Lorillard's motions, Montrose

filed a Chapter 11 bankruptcy petition in the Bankruptcy Court for the Northern District of Illinois on

September 7, 2005. This stayed the proceedings as

to the corporate defendant.FN3 On September 9,

2005, the Hazemis filed a motion before me to stay

these proceedings as to them, which I denied on the

grounds that I did not have the authority to rule on

the motion and that it should have been filed before

Judge Aspen. To date, the Hazemis have not filed

an appropriate motion before Judge Aspen.

FN2. To support its motions, Lorillard

filed the exhibits mentioned, as well as: (1)

a declaration, (2) a substitute declaration,

(3) a second declaration by Lorillard's

counsel, (4) a declaration in support of the

emergency motion, and (5) the actual motions and supporting memoranda. Through

a good portion of the declarations and the

memoranda, however, Lorillard fails to

cite to pages of the voluminous record that

support many of its assertions. Thus, in

some instances, Lorillard often merely directs the court to entire 200-plus-page deposition transcripts or 100-page business

transactions to locate specific quotes. (See,

e.g., Combined Motion to Compel Discovery and Freeze Assets, at 4(¶¶ 6-7);

(Substitute) Declaration of Jeffrey Mote,

¶¶ 10-11, 14-15, 22, 39; Second Declaration of Jeffrey Mote, at ¶¶ 22, 34). In other

instances, it does not even provide a general reference to any supporting documentation (See, e.g., (Substitute)Declaration of

Jeffrey Mote, ¶¶ 28-29, 32-34, 41, 42, 43,

44) or-more understandably given the

volume of materials prepared-misidentifies

purported supporting materials or fails to

make pages part of the record. (See, e.g.,

Combined Motion to Compel Discovery

and Freeze Assets, at 6(¶ 12);

(Substitute)Declaration of Jeffrey Mote, at

¶¶ 28-29, 32-34, 41, 42, 43, 44; Second

Declaration of Jeffrey Mote, at ¶¶ 22, 64,

65). At the court's request, Lorillard's

counsel filed a consolidated declaration

which corrected some, but not all, of these

deficiencies. The few that remain,

however, do not make Lorillard's tale of

woe any less compelling; those assertions

that Lorillard does adequately support with

evidence and the court's own perusal of the

record provide enough detail regarding the

Montrose defendants' discovery obfuscation and financial legerdemain for the

court to grant Lorillard's motion.

FN3. On November 1, 2005, Bankruptcy

Court Judge Hollis granted Lorillard's motion to modify the automatic stay to permit

Lorillard to continue its lawsuit against the

Page 2

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 28 of 64 PageID #:521
corporate defendant, Montrose.

*2 On October 31, 2005, Lorillard filed an

emergency motion to freeze the assets of the individual defendants Ray and Sandra Hazemi. Lorillard's motion was prompted by its discovery that

the Hazemis own certain property at 3019 N. Rose

St. in Franklin Park, Illinois, despite the Hazemis'

repeated denials, under oath, to the contrary. As it

happens, this is merely the most recent installment

in a continuing saga of deception, obfuscation,

shuffling of assets, and corporate looting. While the

evidence demonstrates that this has long been the

Hazemi's pattern of doing business, it most recently

has been calculated to place the Hazemi's assets

beyond the reach of Lorillard. This most recent revelation regarding the property at 3019 N. Rose St.

demonstrates that Mr. Hazemi has not only given

what appears to be perjured deposition testimony,

but made bald misrepresentations to the court regarding their ownership of the property. When examined in insolation, this episode alone would be

sufficient to support an order freezing their assets.

But when examined in context of what has gone on

before, there can be no question that such an order

is warranted.

A

The Hazemis' Misrepresentations Regarding

Their Ownership of the Property at 3019 N.

Rose St.

During its long and arduous discovery experience in this case, Lorillard has brought several motions to obtain compliance with subpoenas served

on various third parties, including a business located at 3019 N. Rose Street in Franklin Park,

Illinois (the “3019 N. Rose St. Property”) doing

business as “Franklin Cigarette Depot.” Through

the discovery it was able to gain, Lorillard learned

that defendant Sandra Hazemi had owned the 3019

N. Rose St. Property and transferred it to a Janesville, Wisconsin wholesale supplier named Chambers & Owens in or about June 2003 as part of a

settlement in a lawsuit between Chambers & Owens

and defendant Montrose Wholesale. During Mrs.

Hazemi's deposition she indicated that she was an

“owner” in name only FN4 and that the details concerning the purchase and transfer of the 3019 N.

Rose Street Property, among others, were entirely

controlled by Ray Hazemi. (Plaintiff's Emergency

Motion to Freeze Assets, Ex. A, Sandra Hazemi

Dep. of 7/26/05 at 359-65). During his deposition

on July 21, 2005, Ray Hazemi testified that the

Hazemis transferred the 3019 N. Rose Street Property to Chambers & Owens in 2003 and that Chambers & Owens still owned the property on the day

of the deposition. (Plaintiff's Emergency Motion to

Freeze Assets, Ex. B, Ray Hazemi Dep. of 7/21/05

at 94). Mr. Hazemi further testified that he and his

wife were attempting to get the property back from

Chambers & Owens. (Id.).

FN4. The phrase “in name only” takes on a

curious meaning here, as nearly every document associated with the Hazemi's transfer of the 3019 N. Rose St. property identifies the owner as “Sean Semler” or

“Sandra Semler Hazemi a/k/a Sean

Semler.” (Plaintiff's Emergency Motion to

Freeze Assets, Ex. D; Declaration of Jeffrey Mote in Support of Emergency Motion

to Freeze Assets, Exs. H at RN 0257; I at

00444; J at 0221, 0229; L; M). Sean

Semler is Mrs. Hazemi's brother. At their

depositions, neither Mr. nor Mrs. Hazemi

could hazard a guess as to why these documents referred to Mrs. Hazemi in this manner.

Ray Hazemi's deposition continued on August

3, 2005. Once again, plaintiff asked whether Chambers & Owens still owned the 3019 N. Rose St.

property and Mr. Hazemi states “[t]hat's correct.” (

Plaintiff's Emergency Motion to Freeze Assets, Ex.

C, Ray Hazemi Dep. of 8/3/05, at 350). When Mr.

Hazemi was asked whether he has had discussions

with Chambers & Owens about the return of the

3019 N. Rose St. property, he answered: “[n]o,

nothing.” (Id. at 535). But he added that he and his

wife were trying to work out a plan by which the

Page 3

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 29 of 64 PageID #:522
property could be returned to them. (Id. at 535-36).

*3 The subject of the 3019 N. Rose St. property

also came up in court. The parties' counsel appeared before me on July 25 and August 1, 2005, in

connection with plaintiff's motion for rule to show

cause why Franklin Cigarette Depot should not be

held in contempt for failing to respond to a duly

served subpoena. (Plaintiff's Emergency Motion to

Freeze Assets, Exs. D and E, Hearing Transcript

Excerpts for the 7/25/05 and 8/1/05 hearings, respectively). These particular hearings concerned the

Hazemis' ownership of Franklin Cigarette Depot

and the property associated with it located at 3019

N. Rose St. During the July 25, 2005 hearing, the

Hazemis' counsel, Robert A. Habib, stated that Ray

Hazemi had admitted during his July 21, 2005 deposition that he had an ownership interest in Franklin Cigarette Depot, but that he did not own the real

property because it had been turned over to Chambers & Owens. Mr. Habib stated unequivocally that

Ray Hazemi testified that the 3019 N. Rose Street

Property was no longer owned by the Hazemis,

stating “the real estate is gone.” (Ex. D at pp. 5-6).

Similarly, during the August 1st hearing, Mr. Habib

stated that “[t]he property at 3019 North Rose

Street they don't own anymore.” (Ex. E, pp. 10-11).

As it happens, the Hazemis misrepresented the

facts surrounding the Hazemi's ownership of the

3019 N. Rose St. property at their depositions and

in open court.FN5 During a Rule 341 Meeting of

Creditors (the “341 Meeting”) on September 24,

2005, in connection with Montrose's Chapter 11

Bankruptcy case, Chambers & Owens' counsel

Scott Shadel informed plaintiffs counsel that Chambers & Owens had transferred the 3019 N. Rose

Street Property back to the Hazemis in 2003. Mr.

Shadel also indicated he believed the Hazemis had

purchased the property back from Chambers &

Owens for about $250,000. On October 21, 2005,

Mr. Shadel faxed a copy of the Warranty Deed prepared by Chambers & Owens to transfer the 3019

N. Rose St. property to Sandra Hazemi on September 2, 2003. (Plaintiff's Emergency Motion to

Freeze Assets, Ex. F).

FN5. It would also appear that the

Hazemi's attorney, Mr. Habib, was victimized by their misrepresentations as well.

An able and experienced lawyer, Mr.

Habib certainly would not have accepted

his client's assertions at face value. Yet,

he, too, was taken in by the Hazemis, and

employed-unwittingly-in their ruse.

When these serious circumstances came to

light by way of Lorillard's emergency motion, I allowed the Hazemis and their attorney a week to file

whatever they felt might be an adequate response to

being caught in a lie. After what one must assume

was a complete and thorough consultation among

clients and counsel, Mr. Hazemi offers an explanation by way of a rather sketchy, five-paragraph affidavit.FN6 He states that the transfer of the 3019 N.

Rose St. property was made to stop Chambers &

Owens from collecting on the judgment from Mr.

Hazemi only. When he sold another parcel of property for $250,000, he applied those assets to the

judgment as against him. Mr. Hazemi asserts that a

Mr. Phil Jackson of Chambers & Owens then

“handed [him] a piece of paper and stated that no

longer we owe Chambers, but that the debt as to

Montrose remained pending.” (Reza Hazemi Aff., ¶

4). The piece of paper, according to Mr. Hazemi,

turned out to be the warranty deed, but he swears he

did not look at it at the time or know what it was.

Instead, he simply put it in his safe, where it languished uninspected until Lorillard filed this motion. (Reza Hazemi Aff. ¶ 4). Similarly, Mrs.

Hazemi also swears that she never saw the warranty

deed. (Sandra Hazemi Aff.).

FN6. While Mr. Habib prepared the

Hazemis' affidavits in consultation with

them, he did not sign the documents. Only

the Hazemis have sworn to their veracity.

*4 According to Mr. Hazemi, he regarded the

mysterious piece of paper as proof that his personal

debt to Chambers & Owens had been discharged by

Page 4

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 30 of 64 PageID #:523
payment of $250,000. (Reza Hazemi Aff., ¶ 4).

Having never looked at the document-that is what

he claims-it is curious how he can be so sure that it

amounted to such proof. As Mr. Hazemi tells the

tale, the paper might have been anything at all.

Why he was confident that it proved he had paid

Chambers & Owen $250,000 is unexplained. Having handed over a quarter-million dollars to satisfy

a debt, one might expect even the least sophisticated of businessmen to inspect the note received in

return. But Mr. Hazemi is by no means an unsophisticated businessman. He has a masters degree in

accounting, and counsel has represented that he has

practiced as a CPA in the past. He owns or has

owned several businesses with millions of dollars

of revenue running through them. The Hazemi's explanation that they were simply unaware that they

owned the 3019 N. Rose St. property strains credulity past the breaking point.

The 3019 N. Rose St. property, then, has been

in the possession of the Hazemis all along, a hidden

asset during this litigation. To ensure that it remained hidden, the Hazemis committed what appears to be perjury at their depositions, then lied to

me in an inherently incredible affidavit. Given the

history of the Hazemis' conduct in this litigation,

and the manner in which they operated their business, however, none of this is surprising. It is just

the latest in a long line of underhandedness and deception, as the following discussion will make

clear.

B

The Organization and Structure of the Montrose

Corporation

1

The Hazemis' Acquisition of the Corporation

Shortly after filing suit, Lorillard served Montrose with its first set of interrogatories and document requests, which regarded, in part, Montrose's

corporate structure, organization, and financial condition. ((Substitute)Declaration of Jeffrey G. Mote,

(“Mote Decl.”), Ex. A). In what would become a

disheartening pattern for Lorillard, Montrose and

the Hazemis initially thwarted Lorillard's discovery

efforts. Montrose did, however, produce income tax

records for the years 1997 through 2003, which revealed its ownership structure during that period:

1997 Tarek Al-Mikhi (50%); Sandra Semler

Hazemi (25%); Jack Shoushtari (25%)

1998 Sandra Semler Hazemi (50%); Jack

Shoushtari (50%)

1999 Mr. Hazemi (50%); Jack Shoushtari (50%)

2000 Mr. Hazemi (50%); Jack Shoushtari (50%)

2001 Mr. Hazemi (100%)

2002 Mr. Hazemi (100%)

2003 Mr. Hazemi (50%); Sandra Semler Hazemi

(50%)

(Mote Decl., ¶ 7; Ex. I). Finally, on March 8,

2005, after more than a year-and-a-half of awaiting

the twice-promised production, Lorillard filed a

motion to compel discovery.

At least with respect to the corporate records,

the motion did the trick: Montrose produced the

documents, however unapologetically, in time to

take credit for its “compliance” in its response to

Lorillard's motion on April 11, 2005. Significantly,

in support of the Montrose defendants' response to

Lorillard's motion, Mr. Hazemi's wife, Sandra

Semler Hazemi, filed an affidavit in which she

swore that she had never been a shareholder, officer

or director of Montrose and had never authorized

anyone to say she was shareholder, officer or director of Montrose, directly contradicting Montrose's tax returns. (Def.Resp., Ex. 8). The first of

many such contradictions.

*5 The tardily-produced records reveal that

Tarek Al-Mikhi originally formed Montrose on or

about March 28, 1997. (Second Declaration of Jeffrey Mote (“2nd Decl.”), Ex.DD, Articles of Incorporation and related corporate records, RN 48-82).

Page 5

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 31 of 64 PageID #:524
The company issued 1200 shares to its three shareholders and directors: Tarek Al-Mikhi (President)

received 600 shares, Mr. Hazemi (Vice-President)

received 300 shares, and Jack Shoushtari

(Secretary/Treasurer) received 300 shares. (Ex. DD,

at RN 53). On or about February 6, 1998, the Montrose owners entered into an agreement whereby

Tarek Al-Mikhi sold all of his shares in Montrose,

transferring 300 each to Mr. Hazemi and Jack

Shoushtari. (Ex. DD, at RN 6044-6048). Under the

transfer agreement, Mr. Al-Mikhi was paid $89,000

at closing and was to receive another $26,250 on

the earlier of January 2, 2000, the date Montrose

exercised its option to purchase the property housing Montrose at 4417-4425 W. Montrose Avenue in

Chicago Illinois, or the date it sold or otherwise

transferred this option. (Ex. DD, at 6045). Shortly

thereafter, however, the three became entangled in

litigation over the transaction. On or about January

2, 2001, Mr. Shoushtari and Mr. Hazemi entered into a “Stock Sales Agreement”, whereby Mr.

Hazemi immediately acquired 300 shares of Mr.

Shoushtari's original Montrose Stock. (Ex. DD, at

RN 279-288).FN7

FN7. The “Stock Sales Agreement was a

bit out of the ordinary. It called for Mr.

Shoushtari to pay Mr. Hazemi $67,952

pursuant to the following significant representation: “Payment of these monies is as

a result of the corporation being insolvent

at the time of this transaction, that is, its liabilities exceed its assets.” (Ex. DD, at RN

279). Mr. Hazemi also agreed to indemnify

Mr. Shoushtari against any judgment in a

pending lawsuit, Certified Grocers v. Montrose/Shoushtari, Case No. 98 L 14808.

(Ex. DD, at RN 284). In addition,

Shoushtari agreed to transfer any shares received from Mr. Al Mikhi pursuant to

those pending lawsuits to Mr. Hazemi for

$1. (Ex. DD, at RN 285). The record suggests that he made this transfer on January

2, 2001. (Ex. DD, at RN 277-78).

2

The Hazemis' Convoluted Acquisition of the Site

of Montrose's Operations

At or near the time Montrose was formed in

1997, it entered into a lease agreement with a

Joseph Cholewa, dated March 27, 1997, for the

property at 4417-4425 W. Montrose Ave. (Ex. JJ, at

RN 84-86). A few days later, on April 3, 1997,

Montrose and Mr. Cholewa agreed to a supplemental “Rider” amending the lease agreement by granting, inter alia, Montrose an option to buy the property at 4417-4425 W. Montrose for $710,000, to

which $7,500 of the $10,500 monthly rent would be

credited towards the purchase price of the property.

(Ex. JJ, at RN 87-96). In exchange for this purchase

option, Montrose paid Mr. Cholewa $60,000, which

was to be credited to the eventual purchase price if

Montrose exercised its option to purchase. (Id.) If

Montrose decided not to exercise its option, the

“Rider” provided that it was entitled to a “rebate”

of two-thirds of the $60,000 option and two-thirds

of the $7,500 rent that was to have been allocated

towards the purchase price. (Id.). Rather than exercising the option outright, Mr. Hazemi and Mr.

Shoushtari concocted a scheme whereby they

would acquire control of the at 4417-4425 W. Montrose property without appearing to exercise the option, thereby hiding the property as an asset of

Montrose and avoiding the need to pay Mr. AlMikhi the remaining $26,000 under the stock purchase agreement previously discussed. (Ex. DD, at

RN 6045). Once Mr. Cholewa lost his interest in

the property sometime between entering into the

lease agreement in 1997, and June of 1998, pursuant to a foreclosure proceeding initiated by Parkway Bank & Trust. (Ex. JJ, at GN 187-194), the

scheme went into effect.

*6 The convoluted process began in June of

1998, when Antonia Shoushtari-Montrose owner

Jack Shoushtari's wife-and Bahar Azari-Mr.

Hazemi's niece and a then-employee of Montroseacquired the 4417-4425 W. Montrose property via a

Trustee's Deed from Parkway Bank and Trust Company dated June 12, 1998. (Ex. JJ, at SH 65-67). It

Page 6

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 32 of 64 PageID #:525
would appear from the documents that the two purchased the property for $523,000, taking out a

$418,400 loan from Labe Bank. (Ex. JJ, at SH 57).

They purportedly managed the property under the

name “AB Venture,” and the loan was paid off over

an 84-month period.FN8 Next, Antonia Shoushtari

transferred her entire interest in the property at

4417-4425 W. Montrose property to Bahar Azari

through a quitclaim deed dated January 2, 2001.

The transfer between Antonia and Bahar was made

for no consideration. (Ex. JJ, at GN 184-186). On

February 20, 2003, Bahar Azari transferred her entire interest in the 4417-4425 W. Montrose property

for no consideration via a quitclaim deed to a company called 6201 S. Champlain LLC, which was

formed by Mike Kakvand, who will be discussed

later. Interestingly, the company listed 4417 W.

Montrose, the location of the Montrose store, as its

address. (Ex. JJ, at GN 36-38). The very next day,

on February 21, 2003, Mr. Kakvand's company executed a resolution purporting to authorize the

transfer of the 4417-4425 W. Montrose property

(Ex. JJ. at GN 138), and transferred the property to

Sandra Hazemi via a warranty deed. (Ex. JJ, at GN

28-35).

FN8. Lorillard submits that rental income

from tenants of the property at 4417-4425

W. Montrose would not come close to

making this expedited payment schedule.

Instead, it would appear that AB Venture

was dependent on cash funneled from

Montrose to cover the balance of each

monthly payment. Although Montrose and

the property owners represented that Montrose's rent was $3,500 per month, it was

actually paying $6,000 per month by check

to Mrs. Shoushtari and Ms. Azari. (Ex.

SS). It would seem that utility bills for the

property were directed to Montrose and its

owners and paid with Montrose's funds.

(Ex. SS). Montrose paid for the electrical

utilities and property insurance directly, although all these expenses were identified

as being paid by the nominal owners of the

property. (Id.).

3

Montrose's Shakey Corporate Standing

Despite the Montrose defendants' recalcitrance

throughout discovery, Lorillard has been able to uncover some information regarding Montrose's corporate status, which suggests that Montrose has had

some difficulty with the Secretary of State for the

State of Illinois. The State of Illinois administratively dissolved Montrose on August 1, 1998. On

August 10, 2000, Montrose submitted a change of

registered agent (changing from Ganders P. Caponize to its counsel in this suit, Robert Egan) to the

Illinois Secretary of State as well as an Application

for Reinstatement signed by Jack Shoushtari as

Montrose' Secretary and Sandra Hazemi as Montrose Vice President. (Ex. DD, at RN 97-101). Mrs.

Hazemi's signature in that capacity is rather curious, given the fact that she has sworn that she has

never been an officer or director with Montrose. (

Def.Resp., Ex. E).

In any event, the State issued a formal Certificate of Reinstatement on August 10, 2000. (Ex. DD,

at RN 100). The State administratively dissolved

Montrose again a year later on August 1, 2001, and

subsequently reinstated it on March 18, 2002. (Ex.

DD, at RN 114-116). Continuing the pattern, Montrose was administratively dissolved on August 1,

2003, for failure to file its annual report and pay its

annual franchise tax, but was subsequently reinstated on October 3, 2003. (Ex. DD, at RN

117-120). The Montrose defendants claim that

Montrose closed its operations as of October 31,

2003 (Def.Resp., at 2, 8), but, as of February 19,

2005, the Illinois Secretary of State's Real Time

Corporate/LLC database identified Montrose's

status as “Goodstanding.” (Ex. K). In the interim,

according to Mr. Mote's Second Declaration, Sean

Semler, Sandra Hazemi's brother, incorporated

Montrose Wholesale Food Co. at Mr. Hazemi's request; it was administratively dissolved on November 1, 2004. (2nd Decl., ¶ 37; Ex. FF). As of May

12, 2005, the database listed Montrose as “Not

Page 7

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 33 of 64 PageID #:526
Good Standing.” (Ex. FF).

*7 It is telling, that the Montrose defendants

never produced any records relating to these

changes in the corporation's status. Moreover, the

Montrose defendants have never disclosed that

Montrose is no longer operating in any of their discovery responses; not in Montrose's original October 15, 2003, initial disclosures (Ex. T), or in the

Montrose defendants' initial disclosures from on

March 1, 2005 (Ex. U). Timely disclosure of this

information would have been required under

Fed.R.Civ.P. 26(e). Purchase records that Lorillard

has obtained through third parties indicate that

Montrose continued doing business at least through

September of 2004. (2nd Mote Decl., Ex. HH).

Similarly, Montrose answered Lorillard's Second

Amended Complaint in February 2005, long after it

purportedly stopped doing business. That the corporation seems to be an apparition, appearing from

time to time, may be no accident, and it is certainly

in keeping with the manner in which its financial

records were, and are, “kept.”

C

The Hazemis' Questionable Business Practices

1

Cigarette Purchases

After a long and fruitless pursuit of Montrose's

financial records and accounting information, Lorillard appears to be resigned to the fate that business

records one might ordinarily expect to exist in an

operation with the sales of Montrose simply do not.

(Plaintiff's Reply, at 9-11). Among these would appear to be records of cigarette purchases. Initially,

in its August 2003 responses, Montrose promised to

make 10 to 12 boxes of cigarette purchase invoices

available for inspection. (Mote Decl., Ex A2, Resp.

3). Montrose's counsel also wrote Lorillard's counsel a letter dated July 25, 2003, indicating the same

thing. (Def.Resp.; Ex. 3). But Lorillard was still

seeking these records at the time of Mr. Hazemi's

first deposition on February 2, 2004. (Mote Decl.,

Ex. C, at 160). That day, Mr. Hazemi explained that

records of his purchases were loosely kept in 5 or 6

boxes at the Montrose facility, and Montrose's

counsel again stated that Lorillard could inspect the

documents. (Mote Decl., Ex. C, at 160-62). Nevertheless, Lorillard had to request these records again

when it served discovery requests on Mr. Hazemi.

At that time Mr. Hazemi declared that Montrose

had already produced them. (Mote Decl., Ex. B1,

Resp. 2, 4). By the time of his second deposition,

however, he was not as certain.

At Mr. Hazemi's second deposition on December 14, 2004, the topic of these boxes, be there 5 or

6, or 10 or 12, came up once again.

Q: Now, where are these 10 to 12 boxes maintained?

A: I will try to tell you guys. I think you guys

took it. You guys say no, but I think you guys

took it.

Q: ... [L]ong after the date of the seizure, [you

said] you had 10 to 12 boxes ... and you would

make them available to us to come to inspect.

I'm asking you, where are those 10 to 12 boxes

of documents presently stored?

A: I don't know. I don't know.

***

*8 Q: So is it possible that you've destroyed or

discarded the 10 to 12 boxes?

A: Not whatsoever.

***

A: They're someplace in my basement or someplace. I have to find them.

***

Q: Is it possible that they might still be at Montrose Wholesale?

A: No.

Page 8

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 34 of 64 PageID #:527
Q: ... Is there a place other than your house where

they might have been taken?

A: No. I take everything to my house.

(Mote Decl., Ex. D, at 231-33).

Later in his deposition, Mr. Hazemi added further confusion to the question of the whereabouts of

the cigarette purchase invoices. He testified that

when Montrose purchased Newport cigarettes from

distributors, he “dumped” the invoices in a cabinet.

(Mote Decl., Ex. D, at 209). He did not maintain

these purchase invoices, however, but discarded

them. (Ex. D, at 210). Shockingly, he testified that

he did this even after Lorillard filed suit, seemingly

admitting to spoliation of evidence. (Ex. D, at 210).

According to Mr. Hazemi, he did not feel the need

to keep such records because MSA” FN9 kept track

of these things. (Ex. D, at 210-11).

FN9. According to Lorillard's counsel, the

last part of the cigarette distribution chain

involves the sale of tobacco products from

retailers who are authorized to participate

in certain cigarette promotional programs

to consumers. Typically, these promotions

involve rebate payments-known in the industry as “buydown” programs-wherein an

authorized retail distributor is paid a rebate

for each carton it sells during the term of

the “buydown” program, provided the retailer purchased such carton from an authorized wholesale distributor. Authorized

wholesale distributors agree to report all

purchases and sales of a particular manufacturer's promotional cigarette products to

Management Science Associates, a consultant the tobacco companies employ to

collect data on sales and distribution of

their products. UPC scanning is a part of

this sophisticated and far-reaching information gathering system See http://

www.msa.com; Holiday Wholesale Grocery Co. v. Philip Morris Inc., 231

F.Supp.2d 1253, 1291 (N.D.Ga.2002). Tobacco manufacturers, including Lorillard,

use the data reported to MSA to monitor

and detect potential fraudulent reporting by

wholesale distributors and their retail customers who are participating in the manufacturer's promotional programs.

Along similar lines, Mr. Hazemi described his

bookkeeping:

There's no accounting book. It's very, very

simple. Either money comes or money goes.

Money goes to the bank. Money comes and then

turns around and goes to the bank. Then you purchase. There is no accounting. There is no booking.

(Ex. D, at 188, 194). Mr. Hazemi did allow,

however, that he could contact the suppliers that

sold him Newport cigarettes-Costco and City Salesfor copies of Montrose's purchase invoices. (Ex. D,

at 209-10, 212). He later admitted that he also

bought Newport cigarettes from other suppliers as

well: McClain, Chambers & Owen, and Flemming.

(Ex. D, at 229). Lorillard's counsel specifically

asked him about one more distributor, Peter Karfias, and Mr. Hazemi testified that Montrose purchased only “fourth tier” cigarettes from him, never

Newports. (Ex. D, at 91-93). In fact, invoices from

Mr. Karfias indicate that Montrose had actually

purchased more than $60,000 worth of Newport cigarettes from him between August 12, 2003, and

November 18, 2004. (2nd Decl., Ex. QQ).

Mr. Hazemi testified that he paid for these cigarettes by check on Montrose's account at Labe

Bank, and kept the cancelled checks in a drawer.

(Ex. D, at 213). He thought Lorillard had obtained

these in the seizure. (Ex. D, at 213). On other occasions, Mubeen Hussain purchased cigarettes for

Montrose and paid for them with his personal credit

card; Mr. Hazemi would reimburse him with cash.

(Ex. D, at 214). Mr. Hazemi testified that he had no

receipts for these purchases. (Ex. D, at 216).

In the time since Mr. Hazemi's second deposPage 9

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 35 of 64 PageID #:528
ition, the Montrose defendants have decided that he

does not take everything to his house or discard invoices after “dumping them in a cabinet. In its response to Lorillard's previous motion, Montrose

and the Hazemis maintain the Lorillard obtained the

boxes of documents at the seizure. (Def.Resp., at 3).

Unfortunately for the Montrose defendants, the

seizure occurred on July 16, 2003. Some two weeks

later, on August 1, 2003, Montrose offered to produce the 10 to 12 boxes of invoices in response to

Lorillard's discovery requests. (Ex. A2, Resp.3).

This, despite the fact that the offer to allow the

boxes to be inspected came after the cigarette and

document seizure occurred on July 16, 2003. In addition, in a letter dated April 18, 2005, Montrose's

counsel informed Lorillard that he had three boxes

of Montrose documents including “bank statements,

delivery sheets, orders, purchase invoices, and other business documents.” (Second Declaration of

Jeffrey Mote (“2nd Mote Decl.”), Ex. BB). Montrose's purchase orders and invoices, then, seem to

be a target forever in motion, if they exist at all.

2

Cigarette Sales

*9 Lorillard also sought sales records that purportedly existed on Montrose's computer's hard

drive which it used for cigarette sales reporting. (

Combined Motion and Memorandum to Compel

Discovery and Freeze Assets (“ Pl.Mem. ”), at 3).

This was necessary in order to explain PDF images

on a compact disc that Montrose had produced as

evidence of cigarette sales it reported to MSA in

2003. (2nd Mote Decl., ¶ 30). After repeated requests for the hard drive went unfulfilled, Lorillard

subpoenaed a backup file of Montrose's computer

records from Montrose's computer consultant,

Osama Mouhsen, on January 12, 2005. (Pl.Mem., at

3). Mr. Mouhsen had two overlapping data bases

from Montrose, one covering November of 2003

through February of 2005, and one covering

December of 2001 to March of 2004. (2nd Decl.,

Ex. II, at 78-79). At his deposition on March 21,

2005, Mr. Mouhsen explained that Mr. Hazemi had

asked him to switch data bases in March of 2004,

and to create a new one that covered the period beginning in November of 2003. (Ex. II, at 78-79). He

also indicated that he offered to sell Mr. Hazemi a

scanning device and program for incoming inventory, but Mr. Hazemi was not interested. (Ex. II, at

80). Mr. Hazemi did, at least, use a UPC scanner

dedicated to the sales of cigarettes. (Mote Decl.,

Ex. D, at 202-04). Once Montrose became aware of

the subpoena, it agreed to produce the hard drive

for inspection, and Lorillard engaged a forensics

firm to image it. (Pl.Mem., at 3). All this to secure

discovery of sales records that one would ordinarily

expect to be much easier to obtain.

According to Mr. Hazemi, he did not bother to

track inventory at Montrose, he would simply

looked at the shelves and take a rough guess. (Mote

Decl., Ex. D, at 205-06). At any given time, Mr.

Hazemi said, there were 6000 cartons of cigarettes

at Montrose, 15 to 20% of which were Newport cigarettes. (Mote Decl., Ex. D, at 206). After the

seizure, Mr. Hazemi said that figure was closer to 3

to 5%. (Mote Decl., Ex. D, at 207). Mr. Hazemi

testified that those inventory levels would also reflect the percentages of Newport sales. (Mote Decl.,

Ex. D, at 207). For a more specific answer, Mr.

Hazemi referred Lorillard's counsel to MSA. (Mote

Decl., Ex. D, at 207-08).

3

Other Discovery Efforts

Given the paucity of Montrose's records, Lorillard consulted the MSA records as Mr. Hazemi had

repeatedly encouraged it to do. Those records for

the year 2003 detailing inbound and outbound shipments reveal Montrose had sales of promotional

Newport cigarettes that far exceed its purchases.

(Ex. O). This information is certainly suspicious

and, as Lorillard points out, seems to suggest that

Montrose was acquiring significant volumes of

Newport cigarettes from illegitimate, non-reporting

sources and/or providing its retail customers with

fraudulent invoices to obtain higher rebate payments from Lorillard.

Montrose still refuses to produce financial or

Page 10

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 36 of 64 PageID #:529
accounting records, even for the very recent past,

claiming that it does not keep even the most basic

records, such as balance sheets, income statements,

or cash flow statements. (Pl.Mem., at 3-4). According to the Montrose defendants, this is because the

Hazemis work long hours and have little time for

paperwork, relying instead on deposits and expenditures for income and expenses. (Def.Resp., at

1). Nevertheless, it is strange-to say the least-that

Mr. Hazemi, who has a masters degree in accounting from Roosevelt University (Mote Decl., Ex C.

at 30), would cavalierly eschew even the simplest

of business practices. Strange, unless there turns

out to be an underhanded explanation for it.

D

Creative Tax Returns

*10 At his first deposition in February 2004,

Mr. Hazemi testified that he had not filed a return

for Montrose or himself since 1999. (Ex. C, at

133-34). He explained that he had asked for extensions every year. (Ex. C, at 134). The returns produced, then, were apparently merely drafts. On

February 22, 2005, Montrose made a supplemental

production of purported income tax returns for the

years 1997 through1999. The 1997 return is the

only one signed by an officer of Montrose; again, it

would appear that the others were never filed.

(Exs.I1-I7). Once again, Lorillard was left to its

own devices to assemble some kind of picture of

Montrose's finances.

Lorillard deposed Montrose's tax preparer,

John Cherachi, on February 2, 2005. According to

Mr. Cherachi, the Montrose returns for the years

2000-2003 were “draft” tax returns that had not

been filed. (Ex. G, at 195, 199-200, 231). Mr. Cherachi also produced income tax return records for

the Hazemis for the years 2000, 2002, and 2003

(the 2001 return was missing). (Exs.H1-H4). He

prepared returns for the years 2001 through 2003

all at the same time, in May or June of 2004. (Ex.

G. at 149-50). Mr. Cherachi testified that he had

prepared tax returns for the Hazemis since the early

1990s, but could not recall a single instance in

which the Hazemis had not required an extension

from the IRS because their records were always incomplete. (Ex. G, at 231-35). And he did not know

if the Hazemis had ever actually filed these returns.

(Ex. G, at 151).

During his deposition, Mr. Cherachi testified

that he met with Mr. Hazemi in approximately June

of 2004, and prepared summary spreadsheets (Ex.

J) for Montrose's 2001-2003 income tax returns.

(Ex. G, at 154-55). At that time, however, Mr.

Hazemi did not provide Mr. Cherachi with any financial records or documents to prepare these

spreadsheets. Instead, he sat next to him at a computer in his home and orally told him, reading from

notes, what numbers to insert in the spreadsheets.

(Ex. G, at 150-154). Tellingly, Mr. Cherachi testified that Mr. Hazemi requested he prepare Montrose's 2003 return as a “final” return and that he

zero out the books for Montrose Wholesale on the

balance sheets included in that return. (Ex. G, at

179; Ex. I7). This, as already noted, directly conflicts with evidence elsewhere in the record.

At various times since at least January 2, 2001,

Montrose's principals have represented to others

that Montrose was insolvent, beginning with, as

already noted, the Stock Purchase Agreement. (Ex.

DD, at RN 279). In February 2002, the Montrose

defendants' counsel in this lawsuit, Robert Egan,

represented to plaintiff's counsel in another lawsuit

involving a supplier, Chambers & Owens, that both

Montrose and Ray Hazemi were financially insolvent. (Ex. GG). Montrose's income tax returns from

1997 through 2003, show purported losses of more

than $2,889,350 during that period. (Exs.I1-I7).

Nearly all of those losses-$2,771,756-were reported

after the Hazemis took full control of Montrose.

Mr. Cherachi confirmed that the losses reported in

Montrose's 2001-2003 tax returns were based on

numbers Mr. Hazemi dictated to him as he sat at his

computer; he never saw any corroborating financial

records. (See Exs. I5-I7; Ex. G at 150-157). That is

certainly not surprising, given Mr. Hazemi's

“bookkeeping” or lack thereof.

Page 11

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 37 of 64 PageID #:530
E

The Hazemis' Banking Records and Use of Corporate Funds

*11 Throughout this litigation, bank recordseven the mere existence of accounts-have, like records of every other type, been a matter of some

secrecy for the Hazemis and the Montrose corporation. At his second deposition, Mr. Hazemi testified

that Montrose maintained its only bank account-a

checking account-at Labe Bank. (Mote Decl., Ex.

D, at 188, 194). He also stated that he had no personal bank account of any kind. (Mote Decl., Ex.

D, at 188, 190). His wife, however, maintained an

account with Citibank. (Mote Decl., Ex. D, at 189).

Although Mr. Hazemi testified that the funding for

that account comes from Montrose (Mote Decl., Ex.

D, at 192), his wife swore in her affidavit that she

has never received any money from Montrose. (

Def.Resp., Ex. 8). As for his lack of any type of

banking or checking account, Mr. Hazemi explained that he simply paid cash to cover his dayto-day expenses, using money from Montrose.

FN10 (Mote Decl., Ex. D, at 190). The Hazemis

used Sandra Hazemi's account to pay the mortgage,

the utilities, grocery bills, and clothing expenses.

(Mote Decl., Ex. D, at 191).

FN10. According to the Montrose defendants, Mr. Hazemi accounts for this by declaring a “management fee” from Montrose, which is reflected in his personal tax

returns. (Def.Resp., at 4). As already noted,

however, these returns have never been

filed, and were based on figures Mr.

Hazemi dictated to Mr. Cherachi which

may or may not have been drawn from an

actual financial record. Given Mr.

Hazemi's admitted aversion to bookkeeping, it is more likely they were not.

When Montrose refused to voluntarily produce

its bank records, Lorillard began to subpoena its

banks including Labe Federal Bank and Village

Bank and Trust. Records from Labe Federal Bank

reveal that between February 2, 2002 and June 13,

2003, Mr. Hazemi wrote more than $8,779,000 in

checks to “Montrose Wholesale,” purportedly for

cash drawn on Montrose's Labe Bank account. (Ex.

L). Montrose has not produced any records identifying where these funds were transferred or how

the funds were used. In their response to Lorillard's

motion, the Montrose defendants explain these

funds were deposited at Parkway Bank & Trust in

what they call an “ancillary” account and used to

purchase cigarettes from a distributor called Fleming. (Def.Resp., at 5, 10). Incredibly, the Montrose

defendants fault Lorillard for “distort[ing] the use

of the account by ... not demonstrating any disbursements from the account.” (Id.). It is the Montrose defendants, however, who have produced no

records relating to this account; any distortion of

their activities is a product of their non-compliance

with discovery.

Lorillard also obtained bank records for another undisclosed account. It seems Montrose held an

account at Village Bank & Trust from November

2002 until the end of July 2004, despite the fact that

Mr. Hazemi testified that Montrose did all its banking at Labe Bank. (Ex. M). These records reveal

more than a million dollars in transactions during

that period. Thus, approximately ten million dollars

ran through these two accounts that apparently

slipped Mr. Hazemi's mind at his second deposition. To date, Lorillard continues to seek records

relating to these accounts, including cancelled

checks, without success.

Village Bank & Trust was also a source of

three loans to Montrose and the Hazemis.

(Exs.Nl-N3). Neither the Hazemis nor Montrose

have produced records relating to these transactions. The first loan is a credit account for $85,000,

for the Hazemis dated November 27, 2002, with a

mortgage taken on the Hazemi's home at 650 Pleasant Lane, Lombard, Illinois. (Ex. N1). The second

loan involves a $750,000 Promissory Note dated

February 21, 2003. The loan agreement is referred

to as a “Business Loan Agreement” and identifies

Sandra Hazemi as the borrower of purchase money

Page 12

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 38 of 64 PageID #:531
for the property located on three lots at 4417 W.

Montrose Avenue, in Chicago-the property that

houses Montrose. Interestingly, Mr. Hazemi is listed as an unlimited guarantor on the loan, despite

the fact that, at his second deposition, he claimed

that he had no assets, aside from being the sole

shareholder in Montrose. (Ex. D, at 193). He also

claimed neither he nor his wife owned any property

except for the family home in Lombard, Illinois,

and an interest in her family's home in Canada. (Ex.

D, at 197).

*12 The third loan is dated April 8, 2003 and

involves a Promissory Note for $350,000 to Montrose and First National Bank of Blue Island, Trust

No. 71013 as joint borrowers. (Ex. N3). Montrose

has never produced nor otherwise disclosed any interests it has in property with this trust. Moreover,

the address provided for First National Bank of

Blue Island, Trust No. 71013, is 6630 W. Montrose

Avenue-the same address as that linked to numerous businesses affiliated with the Hazemis and their

relatives. Trust documents attached to the loan papers reveal that Ray Hazemi and his sister, Giti Azari, were assigned the beneficial rights in the trust

on April 3, 2003, and that the trust was set up in

connection with a 1999 installment contract for

property that Giti Azari purchased. (Ex. N, at VBT

000117).

F

Associated Businesses

Mr. Hazemi has been similarly cryptic regarding the other businesses with which he has been,

and is, affiliated. When Lorillard posed an interrogatory asking him to identity “each and every business” that he had ever been “affiliated with as an

owner, shareholder, employee, officer or agent,”

Mr. Hazemi certified that the only businesses he

has been affiliated with are Montrose Wholesale

and G & D Pantry, as their respective presidents.

(Ex. B2, ¶ 8). Lorillard's investigations have suggested otherwise. At his deposition, Mr. Cherachi

testified that Mr. Hazemi had hired him to prepare

taxes for at least three other business,S&D

Pantry, Franklin Cigarette Depot, and Malibu, Inc.

(Ex.G, at 59, 62-63, 67-68). In addition, other evidence Lorillard obtained pursuant to third-party subpoenas confirmed that Mr. Hazemi neglected to

mention several businesses with which he had been

affiliated in one capacity or another: Harwood

Heights Gas Mart (employee);S&D Pantry

(employee); Malibu Inc. (president and owner);

Franklin Cigarette Depot (owner and employee);

and Milano Pizza (owner or manager). (Ex. CC).

Mrs. Hazemi also has certain property interests

that Mr. Hazemi chose to keep secret as his deposition: 4417-4425 W. Montrose Avenue, Chicago;

6764 W. Forest Preserve Drive, Harwood Heights

(Ex. N); and, of course, the aforementioned 3019

N. Rose Street property. (Plaintiff's Emergency Motion to Freeze Assets, Ex. F). This contradicts not

only the Hazemi's recent testimony at their depositions in July and August of 2005, but even Mr.

Hazemi's earlier testimony that his wife had no real

property interests aside from the Hazemi's house in

Lombard and a house in Canada that had been in

the family for sixty years. (Ex. D at 196-197). And

of course, it demonstrates that the Hazemis have no

qualms about flirting with perjury to see to it that

their assets remain hidden.

As is apparent from the forgoing, and from the

Hazemis' efforts to secure the property where the

Montrose store is located, Mr. Kakvand has a good

deal of involvement with the Hazemis and their

businesses. In October of 2004, he was indicted

along with Ali Razvi in the Northern District of

Illinois, for bank and wire fraud in connection with

a scheme to defraud mortgage lenders out of more

than $27 million. (Ex. KK, Case No. 04 CR 0896).

According to the indictment, Kakvand would purchase run-down apartment buildings through companies he either owned or controlled-including Residential Realty Development, Inc., Infiniti Financial

Corporation, Liberty Financial, and Mortgage

Bankers Service Corporation-and obtain false, inflated appraisals from co-conspirators based on

non-existent renovations. (Ex. KK, Case No. 04 CR

Page 13

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 39 of 64 PageID #:532
0896). He would then resell the properties as condo

developments or apartments to shill buyers for

whom he obtained and then pocketed mortgage

loans. (Ex. KK, Case No. 04 CR 0896). One of the

fraudulent apartment transactions identified in the

indictment involves the aforementioned property at

6201-6203 S. Champlain Avenue and Mr Kakvand's company, 6201 S. Champlain, LLC. (Ex.

KK, at 4). The address for the company is the same

as Montrose's address, 4419 W. Montrose Avenue.

(Ex. MM).

*13 Interestingly, Mr. Kakvand purchased the

Champlain property from Omni Investments, LLC,

which is run by Bardan Azari, son of Giti Azari.

(Ex. MM). Giti Azari was also the registered agent

for the previously mentioned Kakvand company,

Liberty Financial. (Ex. MM). Bardan and Bahar

Azari also are linked to Liberty Financial as evidenced by the Citations to Discover Assets served on

them in connection with a civil case against Kakvand, Hoge v. Kakvand, Cook County Case No. 95

CH 10195. (Ex. MM). Giti Azari and Bahar Azari

also both worked at another of Mr. Kakvand's businesses, Mortgage Bankers Service Corporation, in

1999 through 2001, which received at least a few

administrative penalties from the Illinois Office of

Banks and Real Estate (“OBRE”), including a license revocation. (Ex. LL). The company also figures in several loans to Sandra Hazemi and the Azaris. (Ex. NN).

Through Illinois property records, Lorillard

discovered that Bahar Azari used her connections at

Mortgage Bankers Service Corporation to obtain

loans to acquire properties at 5504 W Agatite Avenue and 5806 W Giddings Street in Chicago. In

addition, Giti Azari approved a series of loans to

Sandra Hazemi from Mortgage Bankers Service

Corporation. (Ex. NN). Sandra Hazemi obtained at

least two loans from that firm for her home at 650

Pleasant Lane in Lombard, Illinois. (Ex. NN).

Sandra Hazemi also acquired the property at 6774

W. Forest Preserve Drive, Chicago, in 1999 from

Mr. Kakvand and Residential Realty Development

with a $450,000 loan from Labe Bank. (Ex. OO,

loan no. 01-12000452). Closing records show that

$390,796.56 was distributed to Mr. Kakvand's Residential Realty Development, Inc. (Ex. OO, at LAB

2095). Interestingly, Giti Azari signed on behalf of

MBBG, Inc. as guarantor on the Labe Bank note for

Sandra Hazemi's purchase of 6774 W. Forest Preserve Drive. (Ex. OO, at LAB 2115).

II

THE PROPRIETY OF FREEZING ASSETS IN

THIS CASE

Based on the foregoing record, Lorillard asks

this court to enter an order freezing the assets of

Montrose and the Hazemis under Fed.R .Civ.P. 65.

A district court is not permitted to freeze a defendant's assets solely to preserve a plaintiff's right to

recover damages. Grupo Mexicano de Desarollo,

S.A. v. Aliance Bond Fund, 527 U.S. 308 (1999).

The decision in Grupo Mexicano, however, did not

concern the preliminary relief available in a suit

seeking an equitable remedy. 527 U.S. at 325. Indeed, the Supreme Court made note of the fact that

a restraint on assets was still available when the suit

sought an equitable relief. Id. at 325 (citing Deckert

v. Independence Shares Corp., 311 U.S. 282 (1940)

(upholding prejudgment asset freeze in case seeking equitable relief, including appointment of receiver to wind up corporation, rescission of contracts, and the return of disputed fund of money)).

In this instance, Lorillard seeks, among other relief

contemplated by the Lanham Act, a disgorgement

of the Montrose defendants' profits, which is an

equitable remedy. CSC Holdings, Inc. v. Redisi,

309 F.3d 988, 996 (7th Cir.2002); BASF Corp., 41

F.3d at 1095-96.FN11 Because Lorillard seeks to

recover the Montrose defendants' profits, then, an

order freezing the Montrose defendants' assets is

within the court's authority. In, CSC Holdings, for

example, the court found that an asset freeze was

entirely proper where the plaintiff sought remedies

that including accounting and profits. As such, the

court has the authority to enter an order freezing assets in cases where the plaintiff seeks an equitable

remedy generally, CSC Holdings, 309 F.3d at 996;

Page 14

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 40 of 64 PageID #:533
S.E .C. v. ETS Payphones, Inc., 408 F.3d 727, 734

(11th Cir.2005); Elliott v. Kiesewetter, 98 F.3d 47,

58 (3rd Cir.1996), and specifically, in Lanham Act

cases such as this one. Levi Strauss & Co. v. Sunrise Intern. Trading Inc., 51 F.3d 982, 987 (11th

Cir.1995); Reebok International, Ltd. v. Marnatech

Enterprises, 970 F.2d 552, 559 (9th Cir.1992).

After a review of the voluminous record in this

case, the court finds that a preliminary injunction

freezing the Montrose defendants' assets is warranted in this case.FN12

FN11. The Montrose defendants argue that

Lorillard must establish a nexus between

the sale of counterfeit cigarettes-specifically, five cartons that apparently have been

seized-and the assets to be frozen. (

Def.Resp., at 13-14). In support, they rely

on two cases: Mitsubishi International v.

Cardinal Textile Sales, 14 F.3d 1507 (11th

Cir.1994); and Rosen v. Cascade International, Inc., 21 F.3d 1520 (11th Cir.1994).

Neither case supports the Montrose defendants' position. In Mitsubishi, while the

Ninth Circuit did hold that “a court may

not reach a defendant's assets unrelated to

the underlying litigation and freeze them

so that they may be preserved to satisfy a

potential money judgment,” 14 F3.d at

1521, it had no occasion to consider the

propriety of freezing assets to preserve a

party's right to an equitable remedy. Instead, the relief at issue was the payment

of a debt and money damages for fraud.

The Rosen court held similarly, but took

care to distinguish situations in which the

plaintiff is seeking only an award of monetary damages from those in which the

plaintiff is seeking equitable relief. 21 F.3d

at 1527, 1528-29. That distinction, at work

here, is apparently lost on the Montrose

defendants. Furthermore, to the extent that

the Montrose defendants argue that the individual Hazemis' assets are out of reach,

such concerns are addressed in the court's

discussion of Lorillard's “alter ego” theory.

FN12. The Montrose defendants submit,

without authority, that a preliminary injunction cannot be entered without a hearing. (Def.Resp., at 12). Rule 65, however,

does not make a hearing a prerequisite for

ruling on a preliminary injunction. Certainly, if genuine issues of material fact are

created by the response to a motion for a

preliminary injunction, an evidentiary

hearing is indeed required. Ty, Inc. v. GMA

Accessories, Inc., 132 F.3d 1167, 1171

(7th Cir.1997). “But as in any case in

which a party seeks an evidentiary hearing,

he must be able to persuade the court that

the issue is indeed genuine and material

and so a hearing would be productive-he

must show in other words that he has and

intends to introduce evidence that if believed will so weaken the moving party's

case as to affect the judge's decision on

whether to issue an injunction.” Id. Here,

the Montrose defendants have made no

such showing and, indeed, do not even expound upon their assertion that the court

must conduct a hearing. They do not indicate what evidence they might introduce

against Lorillard's motion and, given that

they admit that they keep virtually no corporate or financial records, it is doubtful

that any such evidence exists. See In re

Aimster Copyright Litigation, 334 F.3d

643, 654 (7th Cir.2003) (party's own activity hampered its ability to present contrary

evidence in preliminary injunction proceeding). As the court has already detailed,

the record assembled in this matter is extensive. It includes two depositions' worth

of Mr. Hazemi's sworn testimony, not to

mention a sworn affidavit from his wife.

Add these to more than a thousand pages

of financial and business records and the

material before the court is more than adequate to allow the court to rule on LorilPage 15

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 41 of 64 PageID #:534
lard's motion without a hearing.

*14 A party seeking a preliminary injunction

under Fed.R.Civ.P. 65 is required to demonstrate a

likelihood of success on the merits, that it has no

adequate remedy at law, and that it will suffer irreparable harm if the relief is not granted. Promatek

Industries, Ltd. v. Equitrac Corp., 300 F.3d 808,

811 (7th Cir.2002). If the moving party can satisfy

these conditions, the court must then consider any

irreparable harm an injunction would cause the

nonmoving party. Promatek Industries, 300 F.3d at

811. Finally, sitting as a court of equity, the court

then weighs all these factors employing a slidingscale approach: the more likely the plaintiff's

chance of success on the merits, the less the balance

of harms need weigh in its favor. Promatek Industries, 300 F.3d at 811.

A

Likelihood of Success on the Merits

In the context of a motion for a preliminary injunction in a trademark infringement claim, a likelihood of success exists if the party seeking the preliminary injunctive relief demonstrates that it has a

“better than negligible” chance of succeeding on

the merits of the underlying infringement claim.

Platinum Home Mortg. Corp. v. Platinum Financial

Group, Inc., 149 F.3d 722, 726 (7th Cir.1998). The

record thus far assembled in this matter certainly

meets this rather minimal hurdle. Indeed, on July

15, 2003, Judge Aspen entered an ex parte seizure

order in which he found that Lorillard was likely to

succeed on the merits in this case. Nothing has occurred since Judge Aspen made that finding that

would convince the court to disturb his ruling. At

that time, one of Lorillard's division managers had

purchased cigarettes that had turned out to be counterfeit at the Montrose store. The seizure produced

further evidence of counterfeit cigarettes. MSA records reveal Montrose had sales of promotional

Newport cigarettes that far exceed its purchases, arguably suggesting that Montrose was acquiring significant volumes of Newport cigarettes from illegitimate, non-reporting sources and/or providing its

retail customers with fraudulent invoices to obtain

higher rebate payments from Lorillard. In addition,

at his deposition, Mr. Hazemi was less than frank

about his sources of Newport cigarettes. The record

satisfies the court that Lorillard has “better than

negligible” chase of succeeding on the merits of its

case.

For the court's purposes here, however, the

likelihood of Lorillard's success in pursuing their

“alter ego” theory of liability against the Hazemis is

just as important as their likelihood of success on

their Lanham Act claims. Under Illinois law, to

succeed on this theory, Lorillard must show that:

“(1) there is such a unity of interest and ownership

that the separate personalities of the corporation

and the individual no longer exist; and (2) circumstances are such that adhering to the fiction of a

separate corporate existence would promote injustice or inequity.” International Financial Services Corp. v. Chromas Technologies Canada, Inc.,

356 F.3d 731, 736 (7th Cir.2004). Among the

factors pertinent to this showing are whether there

was inadequate capitalization, a failure to observe

corporate formalities, an absence of corporate records, and commingling of funds. 356 F.3d at 738.

Once again, the record as it stands in this case is

more than adequate to demonstrate that Lorillard is

likely to succeed on its “alter ego” theory.

*15 Corporate formalities such as meetings or

corporate minutes are not a part of the Montrose defendants' operations. Courts are known to allow

sole proprietors or husband-and-wife proprietors

some leeway in this area, especially where they

have made efforts to maintain records and keep corporate funds separate from their own. See, e.g.,

Trustees of Pension, Welfare and Vacation Fringe

Ben. Funds of IBEW Local 701 v. Favia Elec. Co.,

Inc., 995 F.2d 785, 788 (7th Cir.1993). Here,

however, the Hazemis admittedly have made no

such efforts. In addition, they are less than forthcoming about Montrose's corporate ownership

structure. While Mrs. Hazemi was listed as a 50%

owner in 1998, she was apparently replaced in this

Page 16

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 42 of 64 PageID #:535
position by her husband in 1999. She was a 50%

owner once again in 2003, apparently taking over

half of her husband's share at that time. What is a

bit more disturbing, however, is that Mrs. Hazemi

has filed an affidavit in which she swears she has

never been a shareholder of Montrose. (Def.Resp.,

Ex. 8). She also swore that she has never been an

officer of Montrose, yet she signed an application

for the corporation's reinstatement as vice president. This obfuscation about the Hazemi's shareholder status might not be a terribly significant factor

when viewed in isolation, but in this case, it must

be combined with the following evidence regarding

the absence of any corporate record keeping and the

Hazemi's commingling of Montrose's funds with

their own.

Finding an absence of corporate records can be

no easier than it is in this case: the Montrose defendants trumpet their failure to keep corporate records, employing it as a shield against discovery.

According to them, there are no records such as

balance sheets, cash flow statements, or accounting

ledgers, for Montrose. (Mote Decl., Ex. D, at 188,

194, 210-11; Def.Resp. at 8). The Montrose defendants claim they do not keep order forms or track inventory. (Ex. D, at 205-06; Def.Resp., at 9). Instead, Montrose's sole records are cancelled checks

and bank deposits. (Ex. D, at 188, 194; Def.Resp.,

at 8). Everything, the Montrose defendants claim, is

based on cancelled checks and bank deposits, including tax returns. (Def.Resp., at 10). Those tax returns were prepared by Mr. Hazemi dictating numbers to Mr. Cherachi without any corroborating financial records. (Mote Decl., Ex. G, at 150-54). The

last time either Montrose or Mr. Hazemi filed a tax

return was 1999. (Mote Decl., Ex. C, 133-34). The

Montrose defendants explain that they simply do

not have the man-power to keep any semblance of

traditional corporate records. (Def.Resp., at 1, 8,

9-10).

This absence of records not only supports Lorillard's alter ego theory, but creates conditions that

are ripe for the commingling of assets. Mr. Hazemi

does not bother to maintain a personal bank account; instead, he draws cash as needed from Montrose. (Mote Decl ., Ex. D, at 190). The Montrose

defendants explain that they account for this as a

“management fee” on tax returns. (Def.Resp., at 4).

There is no evidence that the Montrose defendants

kept any record of Mr. Hazemi's cash withdrawals,

however, and, as just noted, the tax returns are prepared without corroborative financial data and have

not been filed since 1999. Mr Hazemi testified that

the money in his wife's checking account came

from Montrose as well. (Ex. D, at 192). But, Mrs.

Hazemi swore that she has never received any

money from Montrose and, more specifically, that

she has never been paid for working at Montrose. (

Def.Resp., Ex.8). Thus, there is no telling what the

funds in her checking account represent. Neither

Mr. nor Mrs. Hazemi, then, seem to acknowledge

that Montrose is a separate entity from themselves

when it comes to Montrose's money.

*16 Montrose's banking practices allow for the

commingling of assets as well. During discovery,

Mr. Hazemi maintained that Montrose did all its

banking at one bank. (Mote Decl., Ex. D, at 188,

194). Lorillard's own efforts revealed that Montrose

had accounts at two other banks as well. The Montrose defendants suggest that there was nothing secretive about these accounts; they did not disclose

them because they were merely “ancillary” accounts. (Def.Resp., at 10). They claim to have used

one “ancillary” account to deposit over $8 million

from checks Montrose wrote to itself on its Labe

Bank account, but have produced no records of that

activity. (Def.Resp., at 5). Lorillard's third-party

discovery efforts have revealed the other

“ancillary” account was home to approximately $ 1

million in transactions over a twenty-month period.

(Mote Decl., Ex. M). Nearly $10 million is quite a

bit of activity for a couple of undisclosed, ancillary

accounts, especially when the Hazemis feel free to

help themselves to cash from Montrose without any

accounting or records of their withdrawals. And,

the fact that Mrs. Hazemi owns the property that

houses Montrose, after a long and serpentine series

Page 17

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 43 of 64 PageID #:536
of transactions involving an individual under indictment for defrauding mortgage lenders, does not escape the court's attention. Her ownership is made

all the more suspicious by the fact that Mr. Hazemi

testified his wife owned no property other than the

family home in Lombard and an interest in her family's home in Canada. And, as has recently been

made clear by the revelations regarding the 3019 N.

Rose St. property, this is not the only property ownership the Hazemis have covered up.

The evidence Lorillard has advanced in this

matter demonstrates that, with respect to Montrose,

the Hazemis have disregarded corporate formalities, have kept no corporate records, and have

treated corporate funds as their own. Judge Aspen

has already found that there is a likelihood that Lorillard will succeed on it Lanham Act claims, and

there have been no further developments that would

counsel a revision of that opinion. Based the record

in this matter, the court finds that Lorillard has not

only established a likelihood of success on the merits of its Lanham Act claims, but as to it “alter ego”

theory as well.

B

Inadequate Remedy at Law and Irreparable

Harm

Next, Lorillard must show that it has no adequate remedy at law and, as a result, that it will

suffer irreparable harm if the injunction is not issued. FoodComm Intern. v. Barry, 328 F.3d 300,

304 (7th Cir.2003). “Inadequate remedy at law does

not mean wholly ineffectual; rather, the remedy

must be seriously deficient as compared to the harm

suffered.” FoodCom Intern., 328 F.3d at 304. In

this case, the Lanham Act provides Lorillard with

the equitable remedy of recovering the Montrose

defendants' profits. In such cases, courts have generally concluded that an asset freeze is appropriate

to ensure that permanent equitable relief will be

possible. Levi Strauss & Co. v. Sunrise Intern.

Trading Inc., 51 F.3d 982, 987 (11th Cir.1995);

Reebok Intern., Ltd. v. Marnatech Enterprises, Inc.,

970 F.2d 552, 559 (9th Cir.1992).

*17 The evidence discussed above demonstrates that the Hazemis are hardly circumspect

about segregating their assets from those of Montrose. Corporate financial records are non-existent,

bank accounts go undisclosed. Clearly, the remedy

of disgorgement of profits will be less than inadequate if the Hazemis continue to treat the Montrose coffers as their own and relieve Montrose of

its corporate assets. In addition, especially given

the Hazemis' disregard for corporate bookkeeping,

the profits at issue in this case might become all but

untraceable, if that is not already the case.

Finally, it is clearly not beyond the Hazemis to

lie about the very ownership of assets. They have

done so recently and repeatedly. It is not unusual,

in a Lanham Act case, for a court to freeze assets

where there is evidence that the defendants “may

hide their allegedly ill-gotten funds if their assets

are not frozen.” Reebok Intern., Ltd. v. Marnatech

Enterprises, Inc., 970 F.2d 552, 563 (9th Cir.1992).

This is not a case where there is a mere threat of the

Hazemis hiding their assets; Lorillard has demonstrated that they are already actively doing so, and

attempting to cover their trail with more deception.

It is the Hazemis that have brought this case to this

brink. They have seen to it that there is no other

way to preserve the status quo but an asset freeze.

Accordingly, the court finds that Lorillard has established that it has no adequate remedy at law and

will suffer irreparable hardship without a freeze of

the Hazemis' assets.

C

Balance of Harms to the Respective Parties

In balancing the harms, the court must weigh

the error of denying a preliminary injunction to the

party who would win the case on the merits against

the error of granting an injunction to the party who

would lose. FoodComm Intern., 328 F.3d at 305.

In so doing, the court bears in mind that the purpose of a preliminary injunction is “to minimize the

hardship to the parties pending the ultimate resolution of the lawsuit.” AM General Corp. v. DaimlerChrysler Corp., 311 F.3d 796, 804 (7th Cir.2002).

Page 18

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 44 of 64 PageID #:537
In this case, there is no doubt that the Hazemis will

suffer harm if their assets are frozen. But it is a

harm they have brought upon themselves with their

tactics of deception and underhandedness. Just how

to quantify that is a difficult question because the

Hazemis have not addressed the issue. But this

much is certain: the Hazemis have had a rather long

string of chances to end their pattern of deception

in this litigation: the court has given them the benefit of the doubt time and again. They have chosen to

blatantly lie, in depositions and in open court. The

balance of harms, by far, favors the protection of

Lorillard's rights by the issuance of an order freezing the Hazemis' assets.

The court also notes that, in balancing the

harms to the parties, the greater a movant's chances

of success on the merits, the less strong a showing

it must make that the balance of harm is in its favor.

FoodComm Intern., 328 F.3d at 303. As the court's

foregoing discussion reveals, Lorillard has made a

rather strong showing that it will succeed on the

merits of this case. Accordingly, the court grants

Lorillard's motion for a preliminary injunction

freezing the Hazemis' assets in this case. Lorillard

shall submit a draft order freezing the Hazemis' assets and detailing the plan for the court's approval.

*18 Recognizing that the freezing of assets

could work a hardship on the Hazemis, the order

should make provisions for withdrawal of living expenses, and for the payment of expenses related to

legitimate business operations. If the Hazemis comply with the order, and submit the necessary proof

to the Court, no undue hardship need be felt by defendants as a result of the asset freeze. Moreover,

the Court is free to modify or dissolve the preliminary injunction if warranted by developments in this

case subsequent to the noticing of this appeal.

Although the court accepts Lorillard's arguments regarding the necessity of an asset freeze, it

cannot accept the argument that no bond is necessary in this case. Under Federal Rule of Civil Procedure 65(c):

[n]o restraining order or preliminary injunction

shall issue except upon the giving of security by

the applicant, in such sum as the court deems

proper, for the payment of such costs and damages as may be incurred or suffered by any party

who is found to have been wrongfully enjoined or

restrained.

The rule, as the Seventh Circuit has stated,

makes security mandatory. Gateway Eastern Ry.

Co. v. Terminal R.R. Ass'n of St. Louis, 35 F.3d

1134, 1141 (7th Cir.1994). While it is clearly within the court's discretion to fix the amount of the

bond, Id., the parties here have provided the court

with no evidence, or even discussion, of what

would constitute an appropriate amount. As such,

the parties must file memoranda on this issue along

with supporting documentation, in order that the

court may determine a reasonable amount for security in this instance. See, e.g. Mead Johnson & Co.

v. Abbott Laboratories, 201 F.3d 883, 887 (7th

Cir.2000); Gateway Eastern Ry. Co., 35 F.3d at

1142.

III

CONCLUSION

For the foregoing reasons, it is respectfully recommended that the plaintiff's motion-and emergency motion-for a preliminary injunction freezing

the defendants' assets be granted. It is further recommended that the plaintiff be ordered to file a

draft order for the court's approval, and the parties

be ordered to file memoranda on the appropriate

amount of the bond as per this report and recommendation.

N.D.Ill.,2005.

Lorillard Tobacco Co. v. Montrose Wholesale Candies

Not Reported in F.Supp.2d, 2005 WL 3115892

(N.D.Ill.)

END OF DOCUMENT

Page 19

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 45 of 64 PageID #:538
Only the Westlaw citation is currently available.

United States District Court,

N.D. Illinois,

Eastern Division.

Donald VANCE and Nathan Ertel, Plaintiffs,

v.

Donald RUMSFELD, United States of America and

Unidentified Agents, Defendants.

No. 06 C 6964.

Dec. 21, 2007.

Michael I. Kanovitz, Arthur R. Loevy, Gayle M.

Horn, Jonathan I. Loevy, Loevy & Loevy, Chicago,

IL, for Plaintiffs.

James R Whitman, Washington, DC, Samuel B.

Cole, United States Attorney's Office, Chicago, IL,

for Defendants.

MEMORANDUM OPINION AND ORDER

ARLANDER KEYS, United States Magistrate

Judge.

*1 Currently before the Court is Plaintiffs' Motion for Limited Discovery. Defendant United

States argues that Plaintiffs are not entitled to the

requested discovery and that the Court lacks jurisdiction to compel the production. For the reasons

set forth below, Plaintiffs' Motion is granted in part,

and denied in part.

BACKGROUND FACTSFN1

FN1. The Background Facts were taken

from the allegations in Plaintiffs' Amended

Complaint, which, at this stage of the proceedings and for purposes of the present

Motion, the Court will accept as true.

Plaintiffs Donald Vance and Nathan Ertel, both

American citizens, traveled to Iraq in 2004 to work

for the Sandi Group, which provides security services for the Unites States State Department, nongovernmental organizations (“NGO's”), and commercial and media firms operating in Iraq. Dissatisfied with their working conditions, Plaintiffs

resigned from Sandi and returned to the United

States.

In 2005, Shield Group Security (“SGS”), another private security firm operating in Iraq, recruited Plaintiffs, separately, to join the firm. Both

Mr. Vance and Mr. Ertel accepted positions with

SGS, and returned to Iraq in late 2005.

SGS maintained its offices in a gated community in the “Red Zone” in Baghdad, Iraq.

Plaintiffs resided in this gated community, which

was patrolled by armed guards, and was essentially

a neighborhood populated by native Iraqis, SGS

employees, and other expatriates employed by

private firms doing business in Iraq.

Plaintiffs allege that, while working with SGS,

they observed suspicious and potentially illegal

activity. Specifically, Plaintiffs claim that they witnessed SGS agents making payments to Iraqi

sheikhs, in an attempt (they believed) to gain an advantage from these influential Iraqis. Concerned

about the legality of SGS's actions, Mr. Vance purportedly contacted the Federal Bureau of Investigation (“FBI”) during a visit to Chicago. Mr. Vance

was put in contact with FBI agent Travis Carlisle,

who arranged for Mr. Vance to continue to report

on SGS's suspicious activity in Iraq. Mr. Vance

agreed to do so, and reported to Agent Carlisle

daily.

Agent Carlisle subsequently put Mr. Vance in

contact with Maya Dietz, a United States government official working in Iraq. Ms. Dietz asked Mr.

Vance to copy SGS's computer documents and to

forward them to her; Mr. Vance agreed.

Mr. Ertel apparently shared Mr. Vance's concerns, and subsequently became aware of Mr.

FOR EDUCATIONAL USE ONLY Page 1

Not Reported in F.Supp.2d, 2007 WL 4557812 (N.D.Ill.)

(Cite as: 2007 WL 4557812 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 46 of 64 PageID #:539
Vance's communications with the FBI. Mr. Ertel

agreed to assist Mr. Vance in reporting to Agent

Carlisle, and the two also began communicating

their concerns to Deborah Nagel and Douglas

Treadwell, two U.S. government officials working

in Iraq.

Plaintiffs reported to Agent Carlisle and other

U.S. officials that SGS Vice President Jeff Smith

FN2 routinely sold arms, ammunition, night vision

technology and infrared targeting systems

throughout Iraq. Mr. Smith was well-connected

politically, and had a direct relationship with both

General George Casey and Iraqi President Jalal

Talabani. Plaintiffs also informed both Agent Carlisle and Ms. Nagel that Laith Al-Khudairi, a wellconnected employee in the detainee operations division of the United States State Department, conducted suspicious meetings at the SGS compound FN3

.

FN2. Although Mr. Smith did not serve as

SGS's Vice President at all relevant times,

he was consistently “high-up in the chain

of command at SGS.” Amen. Compl. at ¶

65. Plaintiffs also reported on a number of

other SGS employees, including their supervisor, Mr. Josef Trimpert, who was involved in an illegal “Beer for Bullets”

scheme.

FN3. Plaintiffs also informed on a number

of other SGS-Affiliated members of the

Al-Khudairi family. Plaintiffs imply that,

in addition to SGS, all of the individuals

that they informed on would have a motive

to have them arrested. Plaintiffs also find it

suspicious that none of these individuals

were detained and questioned in a manner

similar to Plaintiffs, despite the incriminating information Plaintiffs presented about

them to the FBI and other officials.

*2 Plaintiffs found the government officials

within Iraq to be unreceptive to their concerns, informing Plaintiffs that there was little the local officials could do to address the problem. Discouraged

with the local officials' responses, Plaintiffs shared

most of the information they gathered only with

Agent Carlisle FN4.

FN4. Plaintiffs' Amended Complaint also

alleges that, once these government officials working in Iraq realized they were

being left out of the loop, they chose to retaliate by having Plaintiffs arrested and interrogated.

Plaintiffs allege that SGS began to question

their loyalty to the firm. SGS's suspicions escalated,

and on April 14, 2006, armed SGS agents confiscated Plaintiffs' access cards, effectively trapping

Plaintiffs in the “Red Zone” within the SGS compound. Plaintiffs contacted Ms. Nagel and Mr.

Treadwell, who advised Plaintiffs to barricade

themselves in a secure room until U.S. forces could

rescue them. Plaintiffs complied and were removed

from the SGS compound by U.S. forces.

Plaintiffs were then escorted to the U.S. Embassy, where military personnel seized all of their

personal property, including their laptop computers,

cellular phones, and cameras. Plaintiffs claim that

they were then separated and questioned by an FBI

agent and two individuals from United States Air

Force Intelligence. Plaintiffs revealed the suspicious activity that they had observed while employed by SGS, and their communications with the

FBI. Plaintiffs informed their interrogators that information contained on their seized computers

would support their statements. Following the interviews, Plaintiffs were escorted to trailers, where

they were permitted to sleep for two to three hours.

Their rest was short-lived. Several armed

guards arrested Plaintiffs, handcuffing and blindfolding the men, and escorted them into a humvee.

Plaintiffs were taken to Camp Prosperity, a U.S.

military compound in Baghdad, where they were

placed in a cage, strip searched, and fingerprinted.

They were then taken to separate cells, and held in

solitary confinement. Plaintiffs were labeled

“security internees” affiliated with SGS, and were

FOR EDUCATIONAL USE ONLY Page 2

Not Reported in F.Supp.2d, 2007 WL 4557812 (N.D.Ill.)

(Cite as: 2007 WL 4557812 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 47 of 64 PageID #:540
suspected of supplying weapons to insurgents.

Plaintiffs were allegedly informed that this information was sufficient, according to the policies enacted by Defendant Donald Rumsfeld, for the indefinite, incommunicado detention of Plaintiffs,

without due process or access to an attorney.

Two days later, Plaintiffs were again shackled

and blindfolded, and then transported to Camp

Cropper, another U.S. military compound in Baghdad. At Camp Cropper, Plaintiffs were repeatedly

interrogated and subjected to physically and mentally coercive tactics by military personnel, who refused to identify themselves. These unidentified individuals also denied Plaintiffs' repeated requests

for an attorney.

On April 20, 2006, Plaintiffs received letters

from the Detainee Status Board, indicating that a

proceeding would be held on April 23rd, to determine their legal status as “enemy combatants,”

“security internees,” or “innocent civilians.” The

letter explained that Plaintiffs did not have the right

to legal counsel at that proceeding, and that they

could only present evidence and witnesses who

were reasonably available at Camp Cropper. On

April 22, 2006, Plaintiffs received a notice that the

Detainee Status Board had determined that they

were “security internees,” and that they had the

right to appeal the determination to Camp Cropper

officials. Plaintiffs appealed, and requested that

they be allowed to testify on the other's behalf, and

that their seized personal property be admitted as

evidence of their innocent civilian status.

*3 On April 26, 2006, Plaintiffs appeared before the Board. However, they were not permitted

to testify on the others' behalf, nor were they

provided with the evidence that they had requested.

In addition, the Board refused to allow Plaintiffs to

see the evidence against them or to confront any adverse witnesses. Nevertheless, on May 17, 2006,

Major General John Gardner authorized Mr. Ertel's

release-18 days after the Board officially acknowledged that he was an innocent civilian. Mr.

Vance's detention continued for an additional two

months, where he was continually interrogated. Major General Gardner authorized Mr. Vance's release

on July 13, 2006, but he was not permitted to leave

Camp Cropper until July 20, 2006. Neither Plaintiff

was ever charged with any crime.

Plaintiffs filed suit against Donald Rumsfeld on

December 18, 2006, alleging that Mr. Rumsfeld

should be held accountable for constitutional violations that occurred in Iraq at the hands of unidentified agents of the United States, as well as for the

allegedly unconstitutional practices and policies enacted by Defendant Rumsfeld, which led to

Plaintiffs' arrest and confinement.

On December 22, 2006, Plaintiff Vance filed a

Motion for Leave to Serve Expedited Third Party

Discovery on the United States. The United States

filed a Motion in Opposition and a “Statement of

Interest” on January 11, 2007. Plaintiffs and the

United States appeared before Judge Milton I.

Shadur, on January 16, 2007. At the hearing, Judge

Shadur questioned the advisability of permitting the

requested discovery directed at the United States, in

the absence of Defendant Rumsfeld. However,

Judge Shadur stated that it would be beneficial for

the United States to facilitate the Plaintiffs in their

quest to determine the identities of the unknown individuals responsible for their arrest, interrogation,

mistreatment, and detention.

The United States agreed that the discovery of

just the identities of other potential defendants

would be less objectionable than allowing discovery against the United States on substantive issues,

but argued that Plaintiffs had failed to demonstrate

sufficient need that the information be obtained

through expedited discovery. Judge Shadur,

however, was sympathetic to Plaintiffs' concern

that they likely would be faced with a statute of

limitations defense if discovery were not expedited.

In addition, Judge Shadur acknowledged the comparative difficulty Plaintiffs would face in attempting to secure the identities of the unknown defendants, most, if not all of whom, were stationed in

Baghdad. Judge Shadur further stated that he did

FOR EDUCATIONAL USE ONLY Page 3

Not Reported in F.Supp.2d, 2007 WL 4557812 (N.D.Ill.)

(Cite as: 2007 WL 4557812 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 48 of 64 PageID #:541
suspected of supplying weapons to insurgents.

Plaintiffs were allegedly informed that this information was sufficient, according to the policies enacted by Defendant Donald Rumsfeld, for the indefinite, incommunicado detention of Plaintiffs,

without due process or access to an attorney.

Two days later, Plaintiffs were again shackled

and blindfolded, and then transported to Camp

Cropper, another U.S. military compound in Baghdad. At Camp Cropper, Plaintiffs were repeatedly

interrogated and subjected to physically and mentally coercive tactics by military personnel, who refused to identify themselves. These unidentified individuals also denied Plaintiffs' repeated requests

for an attorney.

On April 20, 2006, Plaintiffs received letters

from the Detainee Status Board, indicating that a

proceeding would be held on April 23rd, to determine their legal status as “enemy combatants,”

“security internees,” or “innocent civilians.” The

letter explained that Plaintiffs did not have the right

to legal counsel at that proceeding, and that they

could only present evidence and witnesses who

were reasonably available at Camp Cropper. On

April 22, 2006, Plaintiffs received a notice that the

Detainee Status Board had determined that they

were “security internees,” and that they had the

right to appeal the determination to Camp Cropper

officials. Plaintiffs appealed, and requested that

they be allowed to testify on the other's behalf, and

that their seized personal property be admitted as

evidence of their innocent civilian status.

*3 On April 26, 2006, Plaintiffs appeared before the Board. However, they were not permitted

to testify on the others' behalf, nor were they

provided with the evidence that they had requested.

In addition, the Board refused to allow Plaintiffs to

see the evidence against them or to confront any adverse witnesses. Nevertheless, on May 17, 2006,

Major General John Gardner authorized Mr. Ertel's

release-18 days after the Board officially acknowledged that he was an innocent civilian. Mr.

Vance's detention continued for an additional two

months, where he was continually interrogated. Major General Gardner authorized Mr. Vance's release

on July 13, 2006, but he was not permitted to leave

Camp Cropper until July 20, 2006. Neither Plaintiff

was ever charged with any crime.

Plaintiffs filed suit against Donald Rumsfeld on

December 18, 2006, alleging that Mr. Rumsfeld

should be held accountable for constitutional violations that occurred in Iraq at the hands of unidentified agents of the United States, as well as for the

allegedly unconstitutional practices and policies enacted by Defendant Rumsfeld, which led to

Plaintiffs' arrest and confinement.

On December 22, 2006, Plaintiff Vance filed a

Motion for Leave to Serve Expedited Third Party

Discovery on the United States. The United States

filed a Motion in Opposition and a “Statement of

Interest” on January 11, 2007. Plaintiffs and the

United States appeared before Judge Milton I.

Shadur, on January 16, 2007. At the hearing, Judge

Shadur questioned the advisability of permitting the

requested discovery directed at the United States, in

the absence of Defendant Rumsfeld. However,

Judge Shadur stated that it would be beneficial for

the United States to facilitate the Plaintiffs in their

quest to determine the identities of the unknown individuals responsible for their arrest, interrogation,

mistreatment, and detention.

The United States agreed that the discovery of

just the identities of other potential defendants

would be less objectionable than allowing discovery against the United States on substantive issues,

but argued that Plaintiffs had failed to demonstrate

sufficient need that the information be obtained

through expedited discovery. Judge Shadur,

however, was sympathetic to Plaintiffs' concern

that they likely would be faced with a statute of

limitations defense if discovery were not expedited.

In addition, Judge Shadur acknowledged the comparative difficulty Plaintiffs would face in attempting to secure the identities of the unknown defendants, most, if not all of whom, were stationed in

Baghdad. Judge Shadur further stated that he did

FOR EDUCATIONAL USE ONLY Page 3

Not Reported in F.Supp.2d, 2007 WL 4557812 (N.D.Ill.)

(Cite as: 2007 WL 4557812 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 49 of 64 PageID #:542
not believe “a reasonable inquiry on the part of the

government would find any difficulty in identifying

persons that the plaintiff is not in a position to

identify.” 1/16/2007 Hearing Transcript at p. 8. As

such, Judge Shadur ordered the United States to “go

back and inquire into the availability of such information through the kinds of sources that are

available to you.” Id. at p. 11,

*4 The parties returned to Judge Shadur's

courtroom ten days later, on January 26, 2007. The

United States reported that initial conversations

with officials at the State Department did not reveal

any individuals who might be responsive to the relevant portion of Plaintiffs' discovery requests, but

that the officials would require more time for investigation. Counsel then stated that the Department of Defense had conducted some interviews,

and that “they are more likely to have people who

are responsive to those categories, but they are going to require more time as well. Based on my conversation with them I would say that it would take

at least 60 days in order to conduct that investigation and come to a determination as to who is not

responsive to those requests.” 1/26/2007 hearing

transcript at p. 3.

Although the United States initially agreed to

turn over the identities of potential defendants on a

rolling basis, counsel later balked, explaining that

the United States would not disclose the information absent a competent court order to do so. Counsel reiterated the difficulty that even the United

States government would face in attempting to conduct the requested discovery in an active war zone.

On February 12, 2007, Plaintiffs amended their

Complaint, naming the United States of America as

an additional Defendant. In Count XV of their

Amended Complaint, Plaintiff asked that the Court,

pursuant to the Administrative Procedure Act

(“APA”) 5 U.S.C § , 701 et seq. (West 2007), order

the United States to return personal property that

Plaintiffs allege military personnel confiscated

from them when they were arrested in Iraq.

On February 21, 2007, the case was reassigned

to Judge Wayne R. Andersen. Defendants subsequently filed a Motion for Transfer of Venue,

which Judge Andersen denied on September 19,

2007. Plaintiffs, who had agreed to stay their discovery requests until Judge Andersen issued his ruling on Defendants' Motion for Transfer of Venue,

refiled their discovery Motion on October 1, 2007.

Judge Andersen referred all discovery matters, including Plaintiff's Motion for Limited Discovery, to

this Court.

The parties appeared before the Court on October 5, 2007. At the hearing, the United States argued that Plaintiffs' APA claim was moot, because

the United States Department of Defense (“DoD”)

had already returned all of the property that it could

reasonably locate, and that the Plaintiffs were

barred from seeking any other form of redress

against military personnel under the APA. In response, Plaintiffs stated that they had reason to believe that agencies in addition to the DoD may have

had possession of their property; thus the DoD's

bald assertion that it did not have any additional

property belonging to Plaintiffs was, at best, inconclusive. Plaintiffs also raised the possibility that

employees of private government contractors might

be among the “unidentified defendants” acting in

concert with military personnel-and thus, were potentially outside of the scope of the protections afforded by the military authority exception-further

undermining Defendant's argument that Plaintiffs'

claims were moot.

DISCUSSION

*5 Plaintiffs seek leave to discover the identities of the individuals responsible for their arrest,

detention, and mistreatment in Iraq. Plaintiffs note

that the facilities where they were held are

“sterilized” facilities, meaning that all of the personnel are anonymous to the detainees. As such,

Plaintiffs claim, they do not have effective means

of identifying and naming these unknown defendants.

To that end, Plaintiffs have sought discovery

FOR EDUCATIONAL USE ONLY Page 4

Not Reported in F.Supp.2d, 2007 WL 4557812 (N.D.Ill.)

(Cite as: 2007 WL 4557812 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 50 of 64 PageID #:543
from the United States since January of 2007, when

the United States informed Judge Shadur and

Plaintiffs that, despite the inherent difficulties involved in conducting such discovery, the United

States' investigation into the identity of additional

defendants would be complete in approximately 60

days. Obviously, more than 60 days has passed

since the United States made this assertion, and the

United States has never denied that it possesses

much of the information that Plaintiff seeks. Yet,

the United States has staunchly refused to divulge

the fruits of its investigation.

In its Response, the United States argues that

Plaintiffs are not entitled to the information and

that their Motion must be denied, because: 1)

Plaintiffs have not demonstrated that expedited discovery of any matters is appropriate in this case; 2)

this Court lacks jurisdiction to order discovery

against the United States; 3) granting Plaintiffs'

Motion would raise serious Separation of Powers

concerns; and 4) Plaintiffs' discovery requests are

futile. The Court will address each of the government's arguments in turn.

I. Expedited Discovery is Appropriate

The United States notes that, despite the fact

that Plaintiffs have been seeking this information

for approximately one year, Plaintiffs' Motion is actually one for expedited discovery, because the

parties have not conferred pursuant to Fed.R.Civ.P.

26(f). The government asserts that Plaintiffs bear

the burden of demonstrating that expediting discovery is necessary, and that any harm to Plaintiffs in

not expediting discovery outweighs the prejudice to

the responding party if discovery is expedited. See

generally, Merrill Lynch Pierce, Fenner & Smith,

Inc. v. O'Connor, 194 F.R.D. 618, 623

(N.D.Ill.2000).

Plaintiffs argue that delaying discovery would

cause them irreparable harm, because of the looming statue of limitations deadline on their Bivens'

claims. Bivens v. Six Unknown Named Agents, 403

U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971).

The parties dispute whether Illinois' two-year statute of limitations (which will expire in approximately April of 2008) should apply to Plaintiffs' Bivens claims or the District of Columbia's three-year

limitations period should-or at least-could have

controlled. Compare Delgrado-Brunet v. Clar, 93

F.3d 339, 342 (7th Cir.1996) (noting that courts applying Illinois law impose a two year statute of limitations on such claims) with Carney v. American

Univ., 151 F.3d 1090, 1096 (D.C.Cir.1998) (finding

that D.C. Circuit law imposes a three year statute of

limitations on Bivens' claims). Contrary to the government's assertion FN5, the question of which jurisdictions' law applies depends not upon the forum

in which Plaintiffs filed suit, but upon Judge Andersen's resolution of the choice of law issues FN6

.

It is conceivable that such a ruling would be issued

after Illinois' two-year statute of limitations period

has passed, forcing Plaintiffs to shoulder the risk

that the district court's decision could effectively

foreclose their ability to seek redress from the unknown defendants.

FN5. The United States insists that

Plaintiffs have effectively manufactured

the purported prejudice by choosing to file

in a forum with a shorter limitations period.

FN6. Of course, the forum in which the

suit is filed is a factor in the choice of law

analysis.

*6 The government counters that conducting

expedited discovery in a warzone outweighs any

such concerns. The Court disagrees. There is no apparent end in sight to the hostilities in Iraq, and the

United States is powerless to waive a statute of limitations defense on behalf of the unknown defendants. In addition, the government represented to

Judge Shadur, almost one year ago, that it had

already begun its investigation into the identities of

the unknown defendants, and that it could conclude

that investigation within about 60 days. The United

States has never denied that it possesses some if not

all of the information that Plaintiffs seek. Therefore, the Court finds that potential harm to

FOR EDUCATIONAL USE ONLY Page 5

Not Reported in F.Supp.2d, 2007 WL 4557812 (N.D.Ill.)

(Cite as: 2007 WL 4557812 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 51 of 64 PageID #:544
Plaintiffs by delaying discovery outweighs any resulting prejudice to the United States.

II. This Court has Jurisdiction to Compel Discovery

The United States bluntly asserts that this

Court lacks jurisdiction to order the government to

produce discovery for the reasons explained in its

recently filed Motion to Dismiss Rule 12(b) (1). Of

course, this Court lacks the authority to dispose of

the arguments raised in Defendant's Motion to Dismiss. See generally, Thomas v. Arn, 474 U.S. 140,

141-42, 106 S.Ct. 466, 88 L.Ed.2d 435 (U.S.1985);

see also, Brown v. City of Chicago, No. 98-7949,

2001 WL 1064259, at *1 (N.D.Ill. Sept.10, 2001)

(noting that magistrate judges lack jurisdiction to

rule on the City's motion to bifurcate trial, where

the referral only encompassed discovery disputes.)

But the Court need not resolve the United States'

Motion to Dismiss to properly evaluate Plaintiffs'

present Motion; an analysis of relevant law makes

clear that the government's filing of a Motion to

Dismiss-even one challenging the district court's

jurisdiction-does not strip the Court of the authority

to order appropriate discovery.

The resolution of a question concerning

“jurisdiction is vital only if the court proposes to issue a judgment on the merits.” Sinochem Intern.

Co. Ltd. v. Malaysia Intern. Shipping Corp., ---

U.S. ----, ----, 127 S.Ct. 1184, 1192, 167 L.Ed.2d

15 (U.S.2007) quoting Intec USA, LCC v. Engels,

467 F.3d 1038, 1041 (7th Cir.2006). In the instant

case, it is clear that this discovery Motion is collateral to a resolution of the merits.

The United States Supreme Court has held that

“federal courts have the power to order, at their discretion, the discovery of facts necessary to ascertain

their competency to entertain the merits.” Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351, 98

S.Ct. 2380, 57 L.Ed.2d 253 (1978). “Where issues

arise as to jurisdiction, or venue, discovery is available to ascertain facts bearing on such issues.” Id.

A district court has wide latitude in determining

whether to grant a party's request for discovery and

such decisions are reviewed for an abuse of discretion. Doty v. Illinois Cent. R.R. Co., 162 F.3d 460,

461 (7th Cir.1998).

Courts have taken a rational approach to discovery requests made in advance of a determination

regarding jurisdiction. Courts have generally found

it unnecessary for a district court to order discovery

or hold a hearing on a motion to dismiss for lack of

subject matter jurisdiction where the facts are

straightforward and the law is not complex. See

Hay v. Indiana State Bd. of Tax Com'rs, 312 F.3d

876, 882 (7th Cir.2002) (“Because of the minimal

procedural requirements for ‘plain, speedy and efficient’ set forth by the Supreme Court in Rosewell,

the district court could make a determination of adequacy based on the information before it, including by reviewing the applicable statutes establishing the procedures for tax assessment review. Consequently, it was not an abuse of discretion for the

district court to grant the motion to dismiss without

allowing the landowners to conduct discovery”);

Cook v. Providence Hosp., 820 F.2d 176, 178 (6th

Cir.1987) (finding that no hearing is required on a

motion to dismiss where the facts are relatively

simple, substantially uncontroverted, and the law is

not complex.)

*7 However, where additional discovery would

assist the court in resolving the jurisdictional issues, discovery is appropriate. Ignatiev v. United

States, 238 F.3d 464, 467 (D.C.Cir.2001) (rejecting

the district court's determination that the plaintiffs

requested discovery was nothing more than a fishing expedition, and finding that the district court

erred in granting the motion to dismiss for lack of

subject matter jurisdiction without permitting discovery on the jurisdictional question.); Rosner v.

United States, 231 F.Supp.2d 1202, 1218

(S.D.Fla.2002) (permitting the plaintiffs to conduct

discovery to determine whether the government's

actions were non-military in nature, thus precluding

the application of the APA's “military authority”

exception, prior to resolving defendant's motion to

dismiss.)

FOR EDUCATIONAL USE ONLY Page 6

Not Reported in F.Supp.2d, 2007 WL 4557812 (N.D.Ill.)

(Cite as: 2007 WL 4557812 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 52 of 64 PageID #:545
In the instant case, Plaintiffs have argued that

the APA military authority exception may not apply

to certain unidentified defendants, if those defendants were not military personnel FN7. Absent the

requested discovery, however, it would be impossible for Plaintiffs to support such an argument.

A full and fair analysis of the government's Motion

to Dismiss hinges on the disclosure of the identities

and status of the unknown defendants. Similarly,

the district court's resolution of the Defendant

Rumsfeld's qualified immunity argument would benefit from information about the types of defendants involved in the abuses claimed by Plaintiffs.

FN7. Plaintiffs also argue that the exception may not apply, because the government's failure to return the Plaintiffs' personal property is not military in nature.

The United States counters that discovery is

not warranted in any event, because Plaintiffs' sole

claim against the government-their claim for the return of personal property seized in Iraq-is moot.

The United States bases its mootness argument on:

1) the affidavit of Lt. David Melson, averring that

the government has conducted a search of any and

all places where the property would have been

seized, stored or located; 2) Evidence/Property Custody documents (“Property Documents”) that purportedly demonstrate the chain of custody of the

property in question; and 3) the fact that the government has made arrangements to return that property belonging to Plaintiffs that it was able to locate

FN8

.

FN8. Plaintiffs note that the only item that

the United States has found is Mr. Vance's

laptop, and that the government has

offered no explanation as to why it was

able to locate this one item and no others.

Plaintiffs first attack Lt. Melson's affidavit,

noting that Lt. Melson claims to have contacted

only the Joint Personnel Recovery Center

(“JPRC”), the Evidence Custodian for the Military

Policy Criminal Investigative Division (“CID”) and

the 494th MP Battalion in his search for Plaintiffs'

property. Lt. Melson did not contact any other government agencies or military departments, despite

the fact that FOIA documents that Mr. Vance received demonstrate that the Naval Criminal Investigative Service (“NCIS”) had control over at least

some of Mr. Vance's property, including his thumb

drives and cell phone. As such, the investigation

described in Lt. Melson's affidavit appears on its

face to be incomplete.

Plaintiffs next highlight numerous inconsistencies in the Property Documents proffered by the

government. For example, the Property Documents

include a property receipt for Mr. Vance that does

not match the receipt that Mr. Vance has in his possession. Mr. Vance claims that these discrepancies

raise doubts about the authenticity and reliability of

the property receipts.

*8 Finally, Plaintiffs argue that their APA

claim relates to the United States' failure to return

property that was seized more than 18 months ago.

Because Plaintiffs' challenge against any governmental actors would be limited to the government's

failure to return their property, and not to the

seizure itself, the act is not military in nature, and,

therefore, falls outside of the scope of the military

authority exception. See Jaffe v. United St ates, 592

F.2d 712, 720 (3rd Cir.1979) (ruling that the

plaintiff's APA claim for failure to warn about the

medical risks associated with observing a nuclear

test in Nevada did not fall within the military authority exception, as the challenged conduct did not

occur in the field nor in time of war.) Indeed,

Plaintiffs do not know if their property remains in

military custody, with the State Department, the

FBI, the CIA, or a host of other agencies. As such,

Plaintiffs argue, their claim is neither clearly barred

FN9 by the military authority exception nor moot,

and discovery is appropriate.

FN9. The Court is not ruling on the validity of Plaintiffs' arguments, merely noting

the existence of reasonable opposition to

the government's position.

FOR EDUCATIONAL USE ONLY Page 7

Not Reported in F.Supp.2d, 2007 WL 4557812 (N.D.Ill.)

(Cite as: 2007 WL 4557812 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 53 of 64 PageID #:546
The Court agrees that the evidence proffered by

the government is far from conclusive on the issue

of mootness. Moreover, even if the government's

evidence was not flawed, this evidence would not

moot Plaintiffs' claims if the district court determines that the government's conduct was not military

in nature, or if the unidentified actors were private

governmental contractors-like many of the allegedly politically-connected individuals who were

the subject of Plaintiffs reports to Agent Carlislewho are not shielded by the APA's military authority exception. As such, it is difficult to see how the

district court can resolve Defendants' argument that

the military authority exception bars Plaintiffs'

APA claim, without a more clear understanding of

the individuals involved in the complained of abuses.

In conclusion, the Court finds that the issue of

jurisdiction in this case is complex and fact intensive. Analysis of the issues raised in Defendants'

Motion to Dismiss would only benefit from appropriately tailored discovery. As such, the Court rejects the United States' claim that the arguments

raised in its Motion to Dismiss strip the Court of

the power to compel discovery.

III. Tailored Discovery Would Not Violate Separation of Powers Concerns.

The United States next argues that separationof-powers concerns dictate against granting

Plaintiffs' Motion for discovery. The government

notes that the purpose of the APA's “military authority” exception is to prevent federal courts from

interfering in military strategy, decision-making,

and actions occurring in “combat zones or in preparation for, or in the aftermath of, battle.” Def.'s

Resp. at 6, citing Doe v. Sullivan, 938 F.2d 1370,

1380 (D.C.Cir.1991) (finding that the plaintiff's

challenge to a rule published by the FDA was not a

military matter.) Notably, the district court has not

ruled that the military authority exception to the

APA applies in this case, and Plaintiffs have

offered colorable arguments that the exception does

not apply.

*9 Nevertheless, the government argues, it is

impossible to divorce this case from the realities of

an ongoing war in Iraq. Agreed. However, the cases

cited by the government are tangential, at best, to

the issue of whether the requested discovery in this

case is advisable or even permissible. For example,

the government cites to Chappel v. Wallace FN10,

where the Court discussed the unique distinction

between military and civilian life:

FN10. Similarly, Alhassan v. Hagee, 424

F.3d 518, 525 (7th Cir.2005) concludes

that it would be inappropriate for courts to

review whether a soldier's evidence of his

opposition to war was sufficient to establish that he was a conscientious objector

whether his objection to war was based on

religious concerns, and whether his beliefs

were deeply felt. Responsibility for making

such determinations rest with the military,

not the courts.

[J]udges are not given the task of running the

Army. The responsibility for setting up channels

through which ... grievances can be considered

and fairly settled rests upon the Congress and

upon the President of the United States and his

subordinates. The military constitutes a specialized community governed by a separate discipline from that of the civilian. Orderly government

requires that the judiciary be as scrupulous not to

interfere with legitimate Army matters as the

Army must be scrupulous not to intervene in judicial matters.

462 U.S. 296, 301, 103 S.Ct. 2362, 76 L.Ed.2d

586 (1983) (quoting Orloff v. Willoughby, 345

U.S. 83, 93-94, 73 S.Ct. 534, 540, 97 L.Ed. 842

(1953)).

But the case at bar involves charges filed by civilians-not soldiers attempting to avoid the jurisdiction of a military tribunal. And caselaw teaches that

citizens have the right to sue the government for

abuses that occurred during wartime, and that the

judiciary retains the authority to adjudicate those

suits. In Hamdi v. Rumsfeld, the United States SuFOR EDUCATIONAL USE ONLY Page 8

Not Reported in F.Supp.2d, 2007 WL 4557812 (N.D.Ill.)

(Cite as: 2007 WL 4557812 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 54 of 64 PageID #:547
preme Court rejected “the Government's assertion

that separation of powers principles mandate a

heavily circumscribed role for the courts in such

circumstances. Indeed, the position that the courts

must forgo any examination of the individual case

and focus exclusively on the legality of the broader

detention scheme cannot be mandated by any reasonable view of separation of powers, as this approach serves only to condense power into a single

branch of government. We have long since made

clear that a state of war is not a blank check for the

President when it comes to the rights of the Nation's citizens.” 542 U.S. 507, 535-36, 124 S.Ct.

263, 265 (2004).

The Hamdi Court's decision demonstrates that,

not only do citizens detained during wartime have

the right to seek redress in the courts, but that the

courts have the authority to require the United

States to afford those litigants certain processes,

despite the exigencies of war. Mr. Hamdi, a United

States citizen, was taken into custody in Afghanistan, after he was allegedly found supporting

Taliban soldiers against the United States. Mr.

Hamdi was subsequently detained, indefinitely, in a

military facility in the United States, and he filed a

petition for habeas corpus. Mr. Hamdi argued that

he was denied a meaningful and timely hearing on

the issue of whether he was an enemy combatant,

and that his extra-judicial detention, which began

and ended with the submission of an affidavit based

on third-party hearsay, violated his rights under the

Fifth and Fourteenth Amendments. Id, 542 U.S. at

524-25,

*10 The government argued that “[r]espect for

separation of powers and the limited institutional

capabilities of courts in matters of military decision-making in connection with an ongoing conflict” ought to eliminate entirely any individual process, restricting the courts to investigating only

whether the broader detention scheme itself is legal.

Id. at 527. A majority of the Supreme Court disagreed, and found instead that the “tension ...

between the autonomy that the Government asserts

is necessary .. and the process that a citizen contends he is due before he is deprived of a constitutional right,” should be resolved by balancing the

plaintiff's constitutional rights against the government's separation of power and wartime concerns.

Id., citing Mathews v. Eldridge, 424 U.S. 319, 96

S.Ct. 893, 47 L.Ed.2d 18 (1976).

The Court balanced Mr. Hamdi's assertion that

he should have been afforded full due process

rights, as the risk of an erroneous deprivation of

liberty absent such protections was unacceptably

high, with the government's claim that enemy combatants-even if they are citizens-are entitled to only

minimal process. The government highlighted the

“practical difficulties that would accompany a system of trial-like process” because “military officers

who are engaged in the serious work of waging

battle would be unnecessarily and dangerously distracted by litigation half a world away, and discovery into military operations would both intrude on

the sensitive secrets of national defense and result

in a futile search for evidence buried in the rubble

of war.” 542 U.S. at 531-32, 124 S.Ct. at 2648.

The Court concluded that a citizen-detainee

seeking to challenge his classification as an enemy

combatant must receive notice of the factual basis

for his classification, and a fair opportunity to rebut

the government's assertions before a neutral

tribunal. 542 U.S. at 533, 124 S.Ct. at 2648. In so

ruling, the Court found it “unlikely that this basic

process will have the dire impact on the central

functions of warmaking that the Government forecasts.” Id at 534, 124 S.Ct. at 2639. The Court further noted that such a process would meddle little

into the waging of war, inquiring only into the appropriateness of certain detentions, explaining:

While we accord the greatest respect and consideration to the judgments of military authorities in

matters relating to the actual prosecution of a

war, and recognize that the scope of that discretion necessarily is wide, it does not infringe on

the core role of the military for the courts to exercise their own time-honored and constitutionally

FOR EDUCATIONAL USE ONLY Page 9

Not Reported in F.Supp.2d, 2007 WL 4557812 (N.D.Ill.)

(Cite as: 2007 WL 4557812 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 55 of 64 PageID #:548
mandated roles of reviewing and resolving claims

like those presented here.

542 U.S. at 535, 124 S.Ct. at 1249-50.

Obviously, the issue presented here is distinguishable; the United States has not contested the

feasibility of asserting an APA claim against it, but

has instead challenged the validity of Plaintiffs'

claims, and its obligation to produce discovery as a

result. With the exception of the APA's military authority exception-the applicability of which

Plaintiffs contest-the government has not argued

that Congress has authorized the suspension of

APA suits against it. Nevertheless, Hamdi is instructive in assisting this Court's balancing of

Plaintiffs' need for information relevant to this litigation against the undeniable hurdles of gathering

discovery in Iraq during wartime.

*11 As discussed above, if the United States

does not provide Plaintiffs with the identities of the

unknown defendants, there is a very real possibility

that the applicable statute of limitations will prevent Plaintiffs from ever seeking redress from potentially liable individuals. In addition, the Court is

not persuaded that gathering this information will

require the United States to “go out into the field to

interview” soldiers “some of whom may be conducting combat operations.” Def.'s Resp. at p. 7.

Plaintiffs very specifically identified the dates and

locations of their detention. It strains credulity to

believe that the government and/or military does

not have in place procedures for documenting individuals working in those facilities at specific times.

Moreover, the United States has already been

ordered by Judge Shadur to begin such an investigation, and has stated that such an investigation

would be completed in approximately March of

2007. The government does not deny that it already

has the information that Plaintiffs seek, it simply

refuses to divulge the information. As such, it is not

clear the extent to which the separation of powers

concerns cited by the United States are even implicated FN11

.

FN11. The United States complains that

the requested discovery is inappropriate,

because military personnel on active duty

in Iraq should not be required to defend

against a lawsuit, half way around the

world. Plaintiffs correctly point out that

such concerns can be appropriately addressed after the unknown defendants have

been identified. For example, Congress has

enacted the Servicemembers' Civil Relief

Act, 50 U.S.C. app. § 501 et seq., which

allows courts to stay litigation against' defendants in the active duty military.

Finally, while the Court is sensitive to the extreme challenges presented by the ongoing hostilities in Iraq, the Court cannot accept the practical

consequences of the United States' position-that the

existence of a war so diminishes the authority of

the judiciary that it must suspend the normal routes

of discovery, based on little more than the United

States' own assessment of its opponent's position. It

is the resulting concentration of power in the executive branch that would offend separation of

powers concerns.

The Court concludes that Plaintiffs should be

afforded that basic discovery necessary to enable

Plaintiffs to avoid a potential statute of limitations'

defense. As such, the United States shall produce to

Plaintiffs the identities of the unknown defendants

within 30 days of the entry of this Opinion.

IV. Potential Qualified Immunity Arguments are

Insufficient to Defeat Plaintiffs' Discovery Request.

The United States asserts that requiring it to

undertake discovery in a war zone is inappropriate

for the additional reason that Plaintiffs' claims

against the unidentified defendants will be futile.

The United States confidently asserts that any and

all claims against both known and unknown defendants will be dismissed on qualified immunity

grounds, and that caselaw dictates that any order

compelling discovery should await a ruling on the

district court's determination of the Defendants'

FOR EDUCATIONAL USE ONLY Page 10

Not Reported in F.Supp.2d, 2007 WL 4557812 (N.D.Ill.)

(Cite as: 2007 WL 4557812 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 56 of 64 PageID #:549
qualified immunity arguments.

Many courts have noted the “importance of

resolving immunity questions at the earliest possible stage in litigation.” Hunter v. Bryant, 502 U.S.

224, 227, 112 S.Ct. 534, 116 L.Ed.2d 589 (1991)

(citing Harlow v. Fitzgerald, 457 U.S. 800, 818,

102 S.Ct. 2727, 73 L.Ed.2d 396 (1982)). While

Harlow and its progeny sought to protect government officials who were likely entitled to immunity

from broad reaching discovery, the Supreme Court

has acknowledged that “limited discovery may

sometimes be necessary” before a court can resolve

the issue of qualified immunity. CrawfordEl v. Britton, 523 U.S. 574, 593 n. 14, 118 S.Ct. 1584, 140

L.Ed.2d 759 (1998); see also, Fairley v. Fermaint

482 F.3d 897, 900 (7th Cir.2007) (noting that

“qualified immunity gives the defendant a right not

only to prevail but also to avoid entanglement in

the litigation-sometimes dubbed a ‘right not to be

tried,’ this entitlement includes a right to avoid discovery”, but only if matters are “sufficiently clear”

at the outset of the suit.)

*12 In the instant case, it is impossible to determine whether the unknown defendants can raise

a colorable claim for qualified immunity, precisely

because they-and their positions either within the

government, military, or the private sector-are unknown. The only Defendant to have thus far filed a

claim for qualified immunity is Defendant Rumsfeld. While Defendant Rumsfeld might present a viable argument FN12 that he should not be required

to engage in discovery until his claim for immunity

is resolved, Plaintiffs are not seeking discovery

from Defendant Rumsfeld. Plaintiffs are seeking

the identities of the unknown defendants from the

United States, and the United States did not raise a

claim for qualified immunity in its Response to

Plaintiffs' Motion or in its Motion to Dismiss.

FN12. Of course, Plaintiffs challenge the

viability of Defendant Rumsfeld's qualified

immunity claim, noting that an American

citizen's right to be free from involuntary

confinement without due process, even

while living abroad, was well established

at the time they were detained. Citing

Hamdi, 542 U.S. at 533.

The government's position is simply untenable.

There is no statutory or caselaw support for the proposition that a court should delay discovery based

on the United States' bald representation that unknown defendants will be immune from suit. Nor

do the allegations in Plaintiffs' Amended Complaint

compel a conclusion that the unknown defendants

are necessarily military employees entitled to immunity. See Fed. R, Civ. P. 15(a)(2) (noting that

courts should “freely give leave” to allow plaintiffs

to amend their complaints “when justice so requires.”) Plaintiffs' allegations are consistent with

theories advanced by counsel in court, that private

government contractors may have been acting in

concert with the military in orchestrating Plaintiffs'

arrests. Only additional discovery will reveal if the

government's predictions are accurate. Therefore,

the Court rejects the United States' argument that

the issue of qualified immunity prevents the Court

from proceeding on Plaintiffs' discovery Motion.

In addition, Plaintiffs' unopposed request for

leave to serve subpoenas on SBC Global for email

correspondence and on Orascom for relevant cell

phone records is granted.

CONCLUSION

The present Motion seeks to discover the identities of those individuals responsible for Plaintiffs'

arrest and detention in Iraq. Almost one year ago,

the United States represented to Judge Shadur that

it could obtain this information within 60 days, and

the government has never denied that it possesses

information responsive to Plaintiffs' request. In refusing to produce such information, the government

has raised a dubious challenge to the court's jurisdiction, speculated as to the viability of potential

defenses that might be asserted by presently unknown defendants, decided that its assessment of

the weakness of Plaintiffs' claims should excuse the

government's participation in discovery, and argued

that separation-of-powers concerns counsel against

FOR EDUCATIONAL USE ONLY Page 11

Not Reported in F.Supp.2d, 2007 WL 4557812 (N.D.Ill.)

(Cite as: 2007 WL 4557812 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 57 of 64 PageID #:550
the court performing its judicial duties, in favor of

concentrating discretion and power within the executive branch.

The Court does not presume to foresee the ultimate validity of the claims and defenses raised in

this lawsuit. But the Court is convinced that it has

both the authority and the obligation to order the

United States to discover and produce to Plaintiffs

the identities of the individuals responsible for

Plaintiffs' arrests, detention, and mistreatment in Iraq.

*13 Therefore, the Court grants Plaintiffs' Motion to the extent that it seeks the identities of unknown defendants responsible for their arrest, detention, and mistreatment while at Camps Prosperity and Cropper in Iraq. The Court denies Plaintiffs'

Motion to the extent that it seeks all documents

concerning Plaintiffs, as this evidence does not implicate the statute of limitations concerns that informed this Court's decision. Similarly, the Court

denies Plaintiffs' Motion to the extent that it asks

the government to identify all persons who issued

and or signed any policy or order that relates to the

topics listed in six broad categories, even if such

policy and/or order was of general applicability and

not specific to Plaintiffs' case.

Therefore, Plaintiffs' Motion to identify the unknown defendants is Granted, Plaintiff's Motion for

leave to serve subpoenas on SBC Global and Orascom is Granted, but Plaintiffs' Motion for all additional discovery is Denied, without prejudice.

N.D.Ill.,2007.

Vance v. Rumsfeld

Not Reported in F.Supp.2d, 2007 WL 4557812

(N.D.Ill.)

END OF DOCUMENT

FOR EDUCATIONAL USE ONLY Page 12

Not Reported in F.Supp.2d, 2007 WL 4557812 (N.D.Ill.)

(Cite as: 2007 WL 4557812 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 58 of 64 PageID #:551
Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 59 of 64 PageID #:552
Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 60 of 64 PageID #:553
Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 61 of 64 PageID #:554
Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 62 of 64 PageID #:555
Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 63 of 64 PageID #:556
Case: 1:20-cv-02421 Document #: 16-4 Filed: 04/23/20 Page 64 of 64 PageID #:557