Court Opinion

ID: 1037945
Source: CourtListenerOpinion
Date Created: 2013-08-21 00:00:37.924078+00
Date Added: 2024-06-11T12:05:27.524931
License: Public Domain

UNPUBLISHED

                   UNITED STATES COURT OF APPEALS
                       FOR THE FOURTH CIRCUIT

                              No. 12-1928

UNIVERSAL FURNITURE INTERNATIONAL, INC.,

                 Plaintiff - Appellee,

           v.

PAUL FRANKEL,

                 Defendant - Appellant,

           and

LEONARD FRANKEL,

                 Defendant.

Appeal from the United States District Court for the Middle
District of North Carolina, at Greensboro.  William L. Osteen,
Jr., District Judge. (1:08-cv-00395-WO-JEP)

Argued:   May 15, 2013                      Decided:   August 20, 2013

Before Sandra Day O’CONNOR, Associate Justice (Retired), Supreme
Court of the United States, sitting by designation, and FLOYD
and THACKER, Circuit Judges.

Affirmed by unpublished per curiam opinion.

John F. Bloss, HIGGINS BENJAMIN PLLC, Greensboro, North
Carolina, for Appellant.     W. Swain Wood, WOOD JACKSON PLLC,
Raleigh, North Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit.

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PER CURIAM:

       In   Universal       Furniture          International,            Inc.   v.   Collezione

Europa      USA,    Inc.,       618    F.3d     417       (4th    Cir.   2010),      this     Court

affirmed      a    judgment       in    favor       of       Universal    Furniture,        making

Collezione         liable       for     $11     million          in   damages     for    various

infringements         on        Universal’s             intellectual       property.            But

Collezione’s bankruptcy kept it from satisfying that judgment,

and so Universal decided to pursue individual liability against

defendant Paul Frankel and his brother Leonard -- Collezione’s

principal      owners       and       managers.           Leonard      defaulted,       but     Paul

contested his liability.                      The district court granted summary

judgment to Universal largely by giving preclusive effect to

issues resolved in the first lawsuit.                               Paul appeals, asserting

that   this       preclusion          holding       was      erroneous    and    that      he   had

viable      individual       defenses          to       liability.         We   disagree        and

affirm.

                                                 I.

       Because      the     facts       of    the       underlying       dispute     are      fully

developed in previous opinions and mostly irrelevant to this

appeal, we offer only an abbreviated discussion.

       Collezione         was     admittedly            in    the     “knock-off”       furniture

business -- in general, it made money by producing approximate

versions of others’ designs at a lower price.                                     It ran into

trouble      when     it     did       so     with        certain      copyrighted        designs

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belonging to Universal, and its problems were compounded by its

display of actual Universal furniture as its own during a major

furniture show called the High Point Market.                       After Universal

sent a cease-and-desist letter, Collezione agreed to redesign

the relevant furniture collections.                     But it again produced a

design rather close to Universal’s and then used it to pursue

customers who were originally induced to deal with Collezione

through its previous actions.                   Universal sued, and prevailed.

This    Court’s     opinion     in    the       first    lawsuit     resolved       that

Universal had valid and enforceable copyrights, that Collezione

infringed them, that Collezione also violated federal and state

unfair trade laws by passing off Universal’s product as its own,

and that it owed some $11 million in damages.                        See Universal

Furniture, 618 F.3d at 424-27.

       Collezione    was      owned    and       managed    almost       entirely    by

defendant Paul Frankel and his brother, Leonard.                         The brothers

founded     Collezione     together         and     were    its    only     corporate

officers.      Leonard     was       the    President,      but    Paul     was     Vice

President, Secretary, and Treasurer, and had responsibility for

the    financial    aspects     of    the       business,   as    well    as   certain

distribution matters.          In the first trial, Paul testified that

he was aware of the cease-and-desist letter and told his brother

that it would be a good idea to redesign the furniture.                        He also

testified that he was present at the High Point Market when a

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photographer        took   pictures        of       the   apparently-Collezione-but-

actually-Universal         furniture,           and       that      he    received      those

pictures     and     distributed         them       to    salespeople           (although    he

maintains that he was not aware of any intellectual property

violations).        Finally, Paul was involved in the decision to hold

orders during the redesign of the furniture to give customers a

chance to purchase the new design, and personally contacted at

least one of those potential buyers.                      He had responsibility for

the   flow    of    Collezione          product,      and     as    a    co-owner     of    the

business, he was generally familiar with its operations.                                    See

Universal Furniture Int’l, Inc. v. Frankel, 835 F. Supp. 2d 35,

45-48 (M.D.N.C. 2011).

      Finally,      although       he    maintains        that     Leonard       “controlled”

the   first        round     of     litigation,           Paul       clearly       played    a

considerable        role     in     that    suit.           Paul         gave     substantial

deposition testimony as Collezione’s Rule 30(b)(6) witness, was

the sole in-court representative for Collezione, and was the

only Collezione employee to submit any sworn statements on its

behalf.      Paul and Leonard owned equal shares in the company, and

so held an equally serious stake in the outcome of that case.

Id. at 41-42.

      In     this    case,        Universal         pursued        individual       liability

against Paul for his role in Collezione’s infringing activities.

The district court granted summary judgment to Universal, making

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two sets of determinations that Paul challenges here.                              First,

the district court determined that Paul could be collaterally

estopped   from   re-litigating         important       matters    resolved        during

the first trial (such as the validity of Universal’s copyrights,

and Collezione’s infringement thereof).                 The district court held

that, given Paul’s substantial role in the first suit and the

absence of any evidence that he would have conducted himself

differently had personal liability been at stake, Paul had a

“full and fair opportunity” to litigate the relevant issues,

making collateral estoppel appropriate.                     Second, the district

court held that there were no genuine issues of material fact

surrounding Paul’s individual liability.                    The court found that,

on   the   admitted     facts,    Paul’s       role    in   the    distribution          of

infringing furniture was sufficient to find either direct or

vicarious liability for infringement, and that Paul either did

know, should have known, or willfully blinded himself to the

passing off of Universal furniture that occurred at the High

Point   Market.       Paul   challenges        both     these     holdings,        and   we

discuss each in turn.

                                         II.

      Paul first argues that the district court erred in applying

collateral    estoppel       to   the     issues       resolved         in   the    first

litigation.       The   grant     of    summary       judgment     on    a   collateral

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estoppel issue is reviewed de novo.                      See Henson v. Liggett Grp.,

Inc., 61 F.3d 270, 274 (4th Cir. 1995).

       The     form      of   issue     preclusion        applied    in       this   case    is

sometimes called “offensive, non-mutual, collateral estoppel”:

“offensive,”         because      it    is   being      invoked     by    a    plaintiff     to

foreclose a defense to liability; “non-mutual,” because at least

one of the parties did not participate in the first litigation;

and “collateral estoppel,” because it estops the defendant from

arguing again about what was resolved in an earlier, separate

case.         The    Supreme      Court      has      counseled    that       this   form    of

preclusion          is    somewhat      disfavored         because       it    creates      the

potential       for      gamesmanship        by       plaintiffs    and       unfairness     to

defendants.          See Parklane Hosiery Co. v. Shore, 439 U.S. 322,

329-31 (1979); In re Microsoft Corp. Antitrust Litig., 355 F.3d

322, 326-27 (4th Cir. 2004).                   But for the reasons that follow,

we     find    the       tests    for    its       application      satisfied        and    the

allegations of unfairness wanting.

       This Court’s previous cases have identified various factors

that    trial       courts       must   consider         before    applying       collateral

estoppel -- factors bearing on the extent to which the relevant

issues were conclusively resolved and the extent to which the

party suffering estoppel had a chance to defend itself on these

issues in the original litigation.                       See In re Microsoft Corp.,

355 F.3d at 326; Polk v. Montgomery Cnty., 782 F.2d 1196, 1201

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(4th Cir. 1986).        Paul’s challenge addresses only two of these

factors: (1) whether he was “in privity” with Collezione, the

defendant in the first action; and (2) whether he had “a full

and fair opportunity” to litigate in that case.                        The district

court correctly resolved these related issues.

      Two     parties   can    be   said       to   be   in    privity    when   “the

interests of one party are so identified with the interests of

another that representation by one party is representation of

the other’s legal right.”           Weinberger v. Tucker, 510 F.3d 486,

491 (4th Cir. 2007) (citation omitted).                  It does not require “an

exact identity of parties,” id. at 492; a party with closely

aligned interests who controls the litigation of another can be

considered in privity with the party it controls.                      See Martin v.

Am. Bancorporation Ret. Plan, 407 F.3d 643, 651 (4th Cir. 2005).

The    district      court    correctly        identified       this     relationship

between Paul Frankel and Collezione -- the closely held company

he    owned    and    controlled    equally         with      his   brother.     The

uncontested evidence showed that, as co-owner and manager, Paul

had every incentive to make Collezione contest the copyright

validity and infringement issues resolved in the first case, and

his substantial role in that case indicates that he had a full

and fair opportunity to do so.

      Paul asserts that, given Collezione’s impending bankruptcy,

he did not have a full incentive to contest the first case.                       But

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he has not pointed to any argument or evidence that he would

have   offered       had    he    appeared        in   the       first      litigation      as    an

individual defendant, let alone suggested any material effect

that    such    evidence         could     have      had    on    the       issues   that    case

resolved.       The same is true of his allegation that his brother

Leonard “controlled” the first litigation:                             Even in this Court,

he has not explained how his interests could have departed at

all from his brother’s or their company’s; he has not indicated

why    he   lacked    the        ability    to       contest      his    brother’s       alleged

decisions given his equal ownership; he has not identified a

decision that he would have contested; and he has not offered

any evidence of how such a decision could have affected the

outcome of the case.                  Accordingly, we can find no fault in the

district       court’s      holding        that      Paul       came     forward     with        “no

evidence to suggest that [he] would have conducted himself any

differently . . . had he been a named party in [the] prior

action.”       Universal Furniture, 835 F. Supp. 2d at 43.

       Paul also suggests that collateral estoppel should be per

se unavailable because Universal failed to join him in the first

action when it could have.                 To be sure, the district court found

that there was “no reason why [Universal] could not have easily

joined      [Paul]     as        an     individual         party       to     the    Collezione

Litigation,” id. at 42, and this Court has said that offensive

non-mutual      collateral            estoppel       may   be     inappropriate        where       a

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plaintiff seeking to use it could have joined issue with the

current defendant in the previous litigation, see, e.g., Polk,

782 F.2d at 1202.              Accordingly, Paul argues that it would be

unfair to him to allow Universal to leave him out of the first

litigation, only to use that litigation against him later.

     Paul takes this doctrine out of context however, and so

fails   to    identify      the    unfairness      it     means   to     address.     The

Supreme      Court   has    noted    that    offensive        non-mutual      collateral

estoppel can be unfair when it encourages plaintiffs to adopt a

“wait and see” attitude towards litigation.                         In particular, a

plaintiff who is not a party to a particular litigation might

have an incentive to sit on the sidelines and see if the first

plaintiff prevails:             if so, she can use non-mutual collateral

estoppel to free-ride on the victory; if not, she can use non-

mutuality      to    get   a   second    bite     at    the    apple     by   litigating

herself.      See Parklane Hosiery Co., 439 U.S. at 329-30.                         Thus,

plaintiffs who opt not to join a case must be precluded from

making offensive use of its results to prevent gamesmanship, as

the rule in Polk provides.               But the problem for Paul is that

Universal      was    a    party    to   the      first    litigation,        and   would

unquestionably have been bound to its result, win or lose.                            In

other words, had Collezione prevailed in the first litigation,

Universal’s      party     status    would       prevent    it    from    re-litigating

that case with Paul as a new defendant.                           Given the district

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court’s correct determination about the alignment of interests

between    Paul     and       Collezione,      there      is    no     reason      this   result

should     not    run     both    ways.        Indeed,         given    the     finding      that

Collezione and Paul were in privity, the estoppel in this case

is only garden-variety, mutual estoppel between the plaintiff in

the first action (Universal) and the defendant in that action or

its   privy      (Collezione/Paul).                Accordingly,         we    find    that    the

application of collateral estoppel was correct, and the district

court      properly        gave     preclusive            effect       to     those       issues

definitively resolved in the prior litigation.

                                              III.

      We    next    address       Paul’s      arguments        regarding        his    personal

defenses to liability.                 We again review the district court’s

grant of summary judgment on these issues de novo, and again

agree with its determination.

                                               A.

      First,       we     agree        with    the        district       court        that    the

uncontested       evidence       established         at    least     vicarious        liability

for copyright infringement.                   It is copyright infringement not

only to copy another’s design, but to authorize distribution of

such copies to the public for sale.                            See 17 U.S.C. § 106(3).

And a party may be guilty of vicarious infringement if it: “(1)

possessed     the       right    and    ability      to     supervise        the     infringing

activity;     and       (2)    possessed      an     obvious     and     direct       financial

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interest       in     the    exploited           copyrighted        materials.”                 Nelson-

Salabes, Inc. v. Morningside Dev., LLC, 284 F.3d 505, 513 (4th

Cir. 2002).           By his own admission, Paul was involved in: the

“operations          and    financial        side      of    the     business,”             including

transactions with the Collezione warehouse; “order fulfillment;”

“purchasing          and    flow     of    product;”        “general        operation           of   the

sales     [department];”              and        “supervision         of     .     .        .    [the]

distribution center.”                J.A. 38, 59.            Given his status as a co-

owner,    and       his     expression       of    his      opinion       that    the       furniture

should    be    redesigned,          we     can    easily      agree       with    the       district

court’s    finding          that    Paul     had    both      the    ability       to       supervise

infringing distribution and an obvious financial interest in the

exploitation          of     the     copyrighted         furniture.               He    had      every

incentive       to    see     that    his        company     successfully          marketed          its

knock-off       furniture,         and      to    ensure      that     it    did       so       without

committing       copyright          infringement.             His     failure          to       prevent

infringing      distribution              thus    leaves     him     at    least       vicariously

liable for that infringement.

                                                  B.

       Finally, we also agree with the district court’s holding

regarding      Paul’s        personal       liability        for    Collezione’s             “reverse

passing off” of Universal’s furniture under both federal and

state law.           Paul was admittedly present in the showroom when

this     passing           off     occurred        and       when     the        furniture           was

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photographed, and he admittedly distributed those photographs to

Collezione’s       salespeople.          Even    after         he    became    aware   of

Universal’s allegations in its cease-and-desist letter, he was

involved in the distribution of furniture to customers initially

induced to deal with Collezione through its false designation of

Universal’s furniture as its own.                     He also profited directly

from those sales and failed as a co-owner to do anything to

prevent them, even after becoming aware of a significant risk of

continued     infringement           through     Universal’s           communications.

Accordingly,       we    can    locate   no   error       in   the   district    court’s

finding     that        Paul    either   knew        or    should     have     known    of

Collezione’s infringement, or was at least willfully blind to

its misdoings.

                                          IV.

     At bottom, it is clear that Paul’s strategy in this action

was to pin both the conduct of Collezione’s first trial and its

entire operation as a knock-off furniture business on his absent

brother Leonard.               But we agree with the district court that

Paul’s    evident        involvement     in    the    first     trial    and    his    own

testimony regarding his role in the business make that strategy

untenable.          We     therefore     agree        with     the    application      of

collateral estoppel and the grant of summary judgment on Paul’s

asserted personal defenses, and affirm the judgment below.

                                                                                AFFIRMED

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