Opinion ID: 4015399
Heading Depth: 1
Heading Rank: 1

Heading: how we got here

Text: This case has an unusual, somewhat circuitous history; therefore, it is necessary for us to go into some detail in laying out its factual and procedural background. The saga began in 2000 when Rodríguez left his position in the Puerto Rico Federal Affairs office in Philadelphia, Pennsylvania, and was subsequently recruited by Benin to join - 2 - Benin's Pennsylvania-based1 start-up venture — Coquico. Coquico manufactures and distributes plush-toy animals, including a line of toys designed to resemble a small brown tree frog that is adored in Puerto Rico — the coquí. Because the company was a start-up, Rodríguez, who oversaw the company's growth in Puerto Rico while Benin supervised from afar in Philadelphia, initially agreed to lend the company money (the record does not make clear what these loans were for) and to forego salary and incentive payments until the business got on its feet.
Rodríguez worked for Coquico for four years, but became disgruntled when Benin continued to withhold compensation and loan repayments from him even as the company began making money. Eventually, Rodríguez left Coquico and filed a collection claim against the company in San Juan Superior Court for money owed.2 And that's not all. After filing suit, Rodríguez approached Coquico's suppliers and began to distribute apparently similar plush-toy coquís himself in Puerto Rico through his own company, Identiko, Inc. (Identiko). In response to this upstart venture, Coquico sued Identiko and Rodríguez in federal court in Puerto 1 Coquico is a Pennsylvania corporation with a registered office in Wayne, Pennsylvania. Benin is its Chief Executive Officer and principal shareholder. 2 Rodríguez alleged that Coquico owed him $165,000 in salary and expenses, $119,000 in commissions, and $99,402 in unpaid loans. - 3 - Rico for, among other things, copyright infringement, alleging that Rodríguez and Identiko had infringed Coquico's copyrights for the coquí plush-toys (more on this later). For the reader's ease, we refer to this as the copyright action from here on out. After a preliminary injunction hearing in the copyright action, the district court entered an order enjoining Rodríguez and Identiko from continuing to market the plush-toy coquís.3 Coquico then sought contempt sanctions and damages before the district court. In turn, Rodríguez dismissed, without prejudice, his collection claim, which had still been pending in San Juan Superior Court, and re-filed the action in federal court in Puerto Rico against Coquico, Benin, and Benin's wife, Phillipa Ashby, seeking payment of his promised wages and loan money.4 It is this collection action that is the case at issue here. 3 Rodríguez and Identiko filed an interlocutory appeal challenging the injunction, and this court affirmed. See Coquico, Inc. v. Rodríguez-Miranda, 562 F.3d 62, 65 (1st Cir. 2009). 4 Rodríguez initially sought to pursue these claims as a counterclaim against Coquico in the copyright action, but the district court denied his request to amend his answer. In his complaint in the collection action, Rodríguez initially included a claim for defamation, alleging that Benin had knowingly and falsely accused Rodríguez of using his political influence (as a member of the Puerto Rico House of Representatives since 2008) to gain an advantage in the copyright litigation. Rodríguez later voluntarily dismissed his defamation claim. - 4 - Both cases moved forward in parallel proceedings before different district judges.5 In the copyright infringement action, the district court found that Identiko and Rodríguez infringed [Coquico's] copyrights and that [Coquico was] therefore entitled to recover damages. Coquico, Inc. v. Rodríguez-Miranda, No. 071432 JP, 2010 WL 3372388, at  (D.P.R. Aug. 24, 2010). But Coquico elected to seek statutory damages in lieu of actual damages, and, on August 24, 2010, the district court awarded Coquico $15,000 based on the evidence presented at the bench trial. Id. at -3. As for the collection action, it went to trial, and, on July 27, 2011, a jury found for Rodríguez against Coquico only6 in the amount of $348,821.23.7 Coquico did not appeal, and, on September 19, 2011, the district court issued a writ of execution of judgment.
Nearly a year later, on August 21, 2012, Rodríguez, who 5 Judge Jaime Pieras, Jr. presided over the copyright action, but after final judgment was entered, the case was later assigned to Judge Fusté for limited post-trial matters. 6 The record does not make clear why the other parties — Benin and his wife, Phillipa Ashby — were not also listed on the judgment. 7 The jury awarded $71,554.23 for outstanding loan payments, $187,832 in salary, $32,085 in commission payments, and $57,350 in reimbursements for expenses. - 5 - had been unable to recover one dime on his judgment, electronically filed a motion asking the district court to order the sale of Coquico's assets to satisfy the judgment.8 Accordingly, on September 11, 2012, the district court approved the seizure and sale of Coquico's copyrights and trademarks to satisfy the debt.9 In June 2013, Coquico received notice from the district court that the sale of its intellectual property had been scheduled for July 11, 2013. On July 8, 2013, three days before the scheduled sale, Benin's mother, Acquanetta, who was not represented by counsel, sought to intervene in the collection action and to stay execution, claiming that she was the record owner of the property set for sale having previously purchased the relevant intellectual property from Coquico years before. Notably, in support of her motion to intervene, Acquanetta filed notarized transfer documents 8 When motions are filed electronically using the CM/ECF system, notifications are automatically sent to all parties in the case who have provided an e-mail address. According to district court rules, the court sends pro se litigants who are not registered to use the CM/ECF system paper copies of all documents filed in their case. 9 The district court approved the sale of the same copyrights and trademarks that had been at issue in the copyright action, namely: (1) Comun by Coquico Copyright number VA0001075653; (2) Coquico: We Sing Copyright numbers TX0005550274, TX0005535397; (3) Musical plush toy frog named 'Comun' A commissioned work for Coquico, Inc. by Michael Tian Copyright number V3473D525; (4) Rufus/by Coquico, Inc. Copyright number VA0001138519; (5) Tata/by Coquico, Inc. Copyright number VA0001138520; and (6) Trademarks: Reg. Nos. 2,534,754; 2,560,104; 2,541,228. For clarity, we will refer to the copyrights and trademarks collectively as intellectual property. - 6 - that seemed to show that Benin, acting as CEO & Founder of Coquico, had assigned the intellectual property to her in 200610 — over a year before Coquico filed its copyright action against Rodríguez and Identiko. To complicate matters further, Acquanetta's filings indicated that the copyright assignment had not been recorded with the United States Copyright Office until June 4, 2012 — more than six years after it was ostensibly assigned to her and, important for our purposes today, a year after Rodríguez obtained judgment against Coquico in the collection action. In tandem with his mother's filing in the collection action, Benin moved pro se11 to likewise stay the sale12 of the 10The text of the purported copyright assignment actually contains no date but the second page of the document, which contains the signatures, includes a notary public signature dated January 23, 2006. 11According to the district court docket, Coquico's and Benin's trial attorney was terminated as of October 3, 2011, a few weeks after the writ of execution of judgment was entered. No other attorney entered an appearance on their behalf. Both Benin's and Acquanetta's motions to stay were identified as being pro se motions. Rodríguez pointed out to the district court, however, that Benin's motion to vacate appeared to have been written and signed by an attorney. In a subsequent bankruptcy proceeding, discussed in more detail below, Benin acknowledged that the motions were in fact prepared by Coquico's bankruptcy attorney, Kahiga A. Tiagha, and mailed for filing from his law office in Philadelphia. In re Coquico, Inc., 508 B.R. 929, 935 (Bankr. E.D. Pa. 2014). The bankruptcy court mused that these attorney filings in pro se clothing may have constituted fraud on the court. 12Unlike Acquanetta, Benin, if you recall, was already a party to the action and did not need to move to intervene. To review, although the judgment was entered against Coquico only, - 7 - intellectual property, arguing, for the first time, that Acquanetta was an indispensable party to the action because she, not Coquico, owned the property.13 In short, despite Benin's prior, consistent representations, not only in his copyright action but also in the collection action, that Coquico — not Acquanetta — was the owner of the copyrights, Benin now asserted that his mother had purchased the intellectual property back in 2006. Therefore, he claimed that she was a necessary party to the collection action with an interest relating to the subject of the action, Fed. R. Civ. P. 19(a)(1)(B), who had been improperly excluded. The district court denied both Acquanetta's motion to intervene and Benin's motion to stay by paper order, explaining that it would not allow intervention on a matter concluded by judgment a long time ago, especially when the public auction for the sale of the intellectual property was set for the next day. At the time it docketed this order, on July 9, 2013, the district court was not aware that just that day Coquico, represented by counsel, had filed for bankruptcy under Chapter 7 of Title 11 of the United States Code, 11 U.S.C. §§ 101 et seq., Coquico, Benin, and Benin's wife, Phillipa Ashby, had all been parties to the collection action. 13 Benin also argued that Rodríguez had failed to properly serve the defendants — Benin, his wife, and Coquico — with Rodríguez's motion requesting the sale of Coquico's intellectual property. But Rodríguez's motion was filed electronically using the CM/ECF system. - 8 - in the bankruptcy court for the Eastern District of Pennsylvania. Upon learning of the filing, the district court stayed the case pending resolution of the bankruptcy proceeding.
In its bankruptcy filings, Coquico, through Benin, claimed to have little to no assets. As for creditors, aside from the judgment owed to Rodríguez, the majority of Coquico's purported creditors were Benin's own friends and family. And, consistent with Benin's and Acquanetta's motions to stay filed in the collection action, Coquico professed in its filings to own no intellectual property, claiming instead that all intellectual property was subject to a claim of Acquanetta Benin. Rodríguez, who appeared in the bankruptcy action as a creditor of Coquico's, moved to dismiss the bankruptcy petition for lack of good faith pursuant to 11 U.S.C. § 707, arguing that the sole reason for the [bankruptcy] filing was to prevent the Judicial Sale [of Coquico's intellectual property]. Rodríguez noted that the notarized transfer documents — which supposedly showed that the intellectual property had been assigned to Acquanetta — didn't even appear to be genuine. For example, Rodríguez pointed out that, although Benin claimed he had assigned the copyright for another of Coquico's products, the Vejigante Bear, to his mother on January 23, 2006, the Vejigante Bear copyright was not registered with the United States Copyright - 9 - Office until February 24, 2006. So, Benin could not have assigned it to his mother, Acquanetta, a month before the copyright even existed.14 In addition, Rodríguez argued that Coquico had intentionally diverted [its] business and operations . . . to a new entity to attempt to avoid payment to Rodríguez. Responding to Rodríguez's motion to dismiss, the bankruptcy court held a two-day evidentiary hearing on December 2, 2013, and January 13, 2014. Noteworthy here, during the evidentiary hearing, Benin explained that he was operating a newly surfaced Pennsylvania limited liability company — 18 Degrees North — which he had registered with Pennsylvania's Department of State Corporation Bureau in March 2010. Somewhat remarkably, Benin admitted at the evidentiary hearing that 18 Degrees North was essentially the same business as Coquico, minus [Rodríguez's] judgment. And, in fact, the similarities are considerable:  Benin is the Chief Executive Officer, President, and principal shareholder of 18 Degrees North, as with Coquico; 14 At the two-day evidentiary hearing in the bankruptcy court, Benin attempted to explain the discrepancy by admitting that he had altered the notarized documents submitted to the copyright and trademark offices, submitting amended transfer documents but using the same signature page. Benin explained that he thought this was appropriate because the original was simply a placeholder. The bankruptcy court later speculated that Benin’s conduct, altering a notarized document, may have amounted to a first-degree misdemeanor. - 10 -  18 Degrees North has the same mailing address as Coquico and manufactures and sells the same plush toys as Coquico;  Acquanetta licensed her intellectual property exclusively to Coquico until 2016, and then (somehow) also licensed it to 18 Degrees North, effective August 31, 2009;  18 Degrees North's bank account and Pennsylvania registration are under the name 18 Degrees North, LLC, d/b/a Coquico;  18 Degrees North's customers overlap with Coquico's customers and were derived from Coquico's customer lists;  Orders made at Coquico's website are filled by 18 Degrees North, and Benin testified that the frontend of [Coquico's] website [is] essentially the brand Coquico, but the transactions and the inventory [are] associated with 18 Degrees North;  In a single year Coquico transferred approximately $45,000 to 18 Degrees North. At the conclusion of the two-day evidentiary hearing, the bankruptcy court granted Rodríguez's motion to dismiss Benin's bankruptcy petition, finding it was filed in bad faith. See In re Coquico, Inc., 508 B.R. 929, 933 (Bankr. E.D. Pa. 2014). The bankruptcy court determined that Coquico's bankruptcy schedules contain[ed] so many material falsehoods, inaccuracies, and omissions that it was shocking. Highlighting that Coquico's bank accounts reflected the commingling of funds, the payment - 11 - of personal expenses,[15] prepetition defalcations, [and] postpetition unauthorized transactions, the bankruptcy court found that virtually every bad faith criteria [was] met . . . without question. See also In re Coquico, Inc., 508 B.R. at 944 (noting that [t]he evidence established that Benin looted Coquico both prepetition and postpetition, and that he lied in multiple court filings as to Coquico's assets). The bankruptcy court further noted that 98 percent of Coquico's debt was held by Benin's family members — his wife, his father, and, of course, his mother, Acquanetta. What's more, the bankruptcy court found Benin's testimony to be extremely evasive, not credible, contrived and, frankly, coached. Finally, the bankruptcy court found the timing of the filing suspicious, especially given Benin's own (striking) testimony that the purpose of the bankruptcy filing was to stop the judicial sale. The bankruptcy court concluded that Coquico's bankruptcy filing was nothing more . . . than an attempt to relitigate the copyright lawsuit and the collection lawsuit, and to spirit away the only valuable asset . . . the copyrights . . . [t]aking the customers, the products, everything and . . . transitioning them . . . into 18 [D]egrees [N]orth simply to attain 15 Benin had readily admitted to the bankruptcy court that Coquico paid basically all of his personal expenses, as well as his family's personal expenses, including, for example, charges to Nordstrom Rack and DirecTV services in his wife's name. - 12 - relief from a judgment creditor. See also In re Coquico, Inc., 508 B.R. at 943-44 (noting that Benin's own testimony from the Dismissal Motion hearing made crystal clear that it was his ultimate intention to spirit away the business and assets of Coquico in order to leave Coquico judgment proof and his plush toy business insulated from the Rodr[í]guez judgment).
After the bankruptcy case was dismissed, on January 29, 2014, Rodríguez filed yet another motion in the district court in Puerto Rico in the collection action seeking to compel payment of the judgment. The miscellaneous motion — titled Motion Asking This Court To Order Defendant And Respondents To Pay the Judgment In This Case On Penalty Of Contempt — invoked concepts of successor liability, veil piercing, and fraud and sought to join Benin, Acquanetta, and 18 Degrees North to the action and to hold them jointly and severally liable for the judgment. Rodríguez attached Coquico's bankruptcy schedules, the bankruptcy hearing transcript, and the bankruptcy judge's oral decision to the motion. Rodríguez filed the motion electronically and also sent copies of the motion by regular mail to Coquico, 18 Degrees North, Benin, and Acquanetta. Upon receiving and reviewing Rodríguez's motion, the district court issued an electronic order setting the motion for hearing on February 28, 2014. The district court also ordered Rodríguez to notify all parties in interest of the - 13 - hearing and that failure to appear would result in sanctions. Accordingly, Rodríguez engaged a process server, who personally served Acquanetta with Rodríguez's motion and with the district court's order. And, although Benin avoided personal service, he ultimately acknowledged that he had also received the motion and the district court's order. Shortly before the hearing on Rodríguez's motion, Benin filed a letter, as an officer of Coquico, informing the district court that he did not have the resources to hire an attorney and that he would not be able to attend the hearing. Aside from perfunctorily mentioning that the judgment had been entered against Coquico and no other parties, Benin did not respond to the substance of Rodríguez's motion. Rodríguez replied to Benin's letter, informing the district court that Benin had, in fact, been able to hire two attorneys to represent him in the bankruptcy case. The district court denied Benin's motion (such as it was) and the hearing continued as scheduled. Despite having been noticed and ordered to appear, Benin, Acquanetta, 18 Degrees North, and Coquico all failed to attend the district court hearing or to oppose Rodríguez's motion. But the hearing proceeded, and Rodríguez entered into evidence the transcript from the bankruptcy hearing, including Benin's testimony, and the bankruptcy court's findings of fact and conclusions of law. - 14 - On March 6, 2014, the district court entered an order that joined Benin, Acquanetta, and 18 Degrees North to the action pursuant to Rule 25(c) and held them liable for the judgment. The district court determined that all three were joinable under Rule 25(c), specifically concluding that 18 Degrees North [] is a successor corporation and alter ego of Coquico and, therefore, is liable for [Coquico's] debts, including the judgment, costs, and interest award, and that Benin and Acquanetta are alter egos of both Coquico and 18 Degrees North and, consequently, are also liable for the judgment. The district court also held Coquico, Benin, Acquanetta, and 18 Degrees North in civil contempt for failure to appear at the hearing and ordered Benin to pay $5,000, [g]iven the magnitude and the variety of the offenses he committed to avoid paying the judgment. The district court did not sanction Acquanetta but indicated that if she continued to violate the district court's orders it would do so. Benin paid the contempt sanction, and appellants timely appealed.