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APPLE CORPS LTD. v. INTERNATIONAL COLLECTORS SOC'Y

June 26, 1998

Apple Corps Limited, MPL Communications, Inc., Yoko Ono Lennon As Executrix of the Estate of John Lennon, Subafilms, Ltd. and Yoko Ono Lennon, Plaintiffs,
v.
International Collectors Society, John E. Van Emden, Scott L. Tilson, Jeffrey B. Franz and Howard E. Friedman, Defendants.



The opinion of the court was delivered by: GREENAWAY

OPINION

 GREENAWAY, JR., District Judge,

 This matter comes before the Court on the motion for civil contempt of Gold, Farrell & Marks, counsel for plaintiffs Apple Corps Limited, MPL Communications, Inc., Yoko Ono Lennon, as executrix of the estate of John Lennon, Subafilms, Ltd. and Yoko Ono Lennon (collectively "Plaintiffs"). The other motions before the Court are the cross-motion to dissolve the Consent Order and the motion for sanctions of Dewey Ballantine, LLP, counsel for defendants International Collectors Society, John E. Van Emden, Scott L. Tilson, Jeffrey B. Franz and Howard E. Friedman (collectively "Defendants"). These motions arise from the Defendants' alleged breach of a Consent Order that the parties entered into in June 1997. The Consent Order permitted the sale of certain licensed collectors' stamps that bore the images of The Beatles. The Court heard testimony and argument on these various motions over several sessions concluding in April 1998. Based on the arguments presented and the written submissions given to the Court, Plaintiffs' motion seeking civil contempt is granted and Defendants' motion seeking to dissolve the Consent Order and requesting that the Court levy sanctions is denied.

 PRELIMINARY STATEMENT

 Plaintiffs commenced the above-captioned action against Defendants in April 1996. Plaintiffs alleged that Defendants were unlawfully trading off the good will associated with the legendary rock-n-roll band, The Beatles. Specifically, Plaintiffs alleged that Defendants created, marketed and sold, without any authorization from Plaintiffs, postage stamps featuring images of The Beatles, trademarks and copyrighted photographs (the "Stamps") owned and controlled exclusively by Plaintiffs. In addition to money damages, Plaintiffs sought a permanent injunction enjoining Defendants' exploitation of the Stamps.

 In October 1996, Plaintiffs filed a motion for a temporary restraining order and a preliminary injunction barring Defendants from selling any Stamps bearing the likeness of The Beatles and/or Yoko Ono Lennon. In defense of the motion, Defendants' counsel, Bradford Badke, represented to the Court that Defendants would cease marketing any new Stamps bearing the image of Yoko Ono Lennon or The Beatles. On November 6, 1996, the Court denied Plaintiffs' motion for a temporary restraining order and scheduled a preliminary injunction hearing for December 20, 1996. On November 8, 1996, Plaintiffs presented evidence to the Court that Defendants had continued selling such Stamps and requested that the Court reconsider its denial of a temporary restraining order. On November 14, 1996, the parties entered into a Consent Order which inter alia, preliminarily enjoined Defendants from marketing or distributing Stamps or any other product bearing the image of Yoko Ono Lennon or The Beatles.

 In June 1997, the parties agreed to resolve the case by a Consent Order which the Court entered on June 19, 1997. On or about September 24, 1997, Plaintiffs brought a motion for contempt seeking to enforce paragraph O of the Consent Order. Paragraph O of the Consent Order provides:

 
In the event that defendants or any of them breaches any provision of paragraphs A-I or K-L of this Order and as a result of such breach, plaintiffs or any one of them initiates legal proceedings to enforce their rights under this Order, defendants and each of them hereby: (1) agree that plaintiffs will be irreparably harmed by such breach and entitled to injunctive relief to prevent defendants from selling any further Stamps . . . and (3) agree to reimburse plaintiffs for all their costs, including reasonable attorney's fees incurred in connection with any successful action or proceeding brought by plaintiffs (or any one of them) to enforce their rights under this Order.

 (Consent Order P O). Accordingly, Plaintiffs seek: (1) an order adjudging Defendants in civil contempt for violating the Consent Order; (2) a permanent injunction barring Defendants from selling any stamps featuring the name and/or likeness of The Beatles (collectively, or individually); and (3) attorneys' fees and costs incurred in connection with enforcing their rights under the Consent Order.

 Defendants subsequently filed a cross-motion to rescind the Consent Order pursuant to Rule 60(b) of the Federal Rules of Civil Procedure due to Plaintiffs' alleged breach of the Consent Order. Defendants also filed a separate motion seeking to impose sanctions on Plaintiffs' counsel on the grounds that counsel behaved unethically in procuring the stamps which form the basis of their contempt motion.

 This Court heard four days of testimony and argument in connection with all three motions on November 3, 1997, November 24, 1997, January 13, 1998 and April 7, 1998.

 FACTS *fn1"

 A. The Parties

 Pursuant to agreements with former members of The Beatles, Plaintiff Apple Corps Limited ("Apple") is the sole and exclusive owner of rights in and to the name and likeness of The Beatles. Plaintiff MPL Communications, Inc. ("MPL") is the exclusive owner of rights in and to the name and likeness of Paul McCartney. Plaintiff Yoko Ono Lennon, as Executrix of the Estate of John Lennon, is the exclusive owner of rights in and to the name and likeness of John Lennon and the "John Lennon" registered trademarks. Plaintiff Subafilms, Ltd. (Subafilms") is the copyright owner in and to the full-length animated film "Yellow Submarine" and the images contained therein. Plaintiff Yoko Ono Lennon ("Mrs. Lennon") is the exclusive owner of rights in her own name and likeness.

 Defendant International Collectors Society ("ICS") is a Maryland corporation engaged in the direct marketing and sale of products, including postage stamps duly and legally issued by the governments of foreign countries, throughout the United States. Defendant John Van Emden is the President of ICS. Defendants Scott L. Tilson and Jeffrey B. Franz are co-founders and officers of ICS. *fn2"

 B. The Consent Order and the Lennon License

 Subject to certain exceptions, the June 1997 Consent Order permanently enjoins Defendants from distributing or selling "postage stamps or any other product . . . bearing or referring to (i) the name and/or likeness of The Beatles, John Lennon . . . (vi) the John Lennon registered trademark of the John Lennon signature . . ." (Consent Order P A(i) and (vi)).

 One of the exceptions to the Consent Order's permanent injunction provides that Defendants may continue to sell Stamps featuring John Lennon's name, trademark or image pursuant to a written license agreement from the Lennon Estate (the "Lennon License"). (Consent Order P D). The Lennon License requires that prior to distribution, Defendants submit for approval any "promotional material which incorporates Licensor's Trademarks . . . which is intended to be used in conjunction with the sale or distribution of" Lennon Stamps. (Lennon License P 3(a)(i)). The Lennon Estate may not unreasonably withhold approval of promotional material; however, material not approved within seven days of Licensor's receipt is deemed disapproved. Id. Exhibit A to the Lennon License provides that "Lennon and John Lennon are trademarks of the Estate of John Lennon."

 Another exception to the Consent Order's permanent injunction allows Defendants to sell (i) up to 2,000 of each of the Stamps listed in Exhibit E to the Consent Order for a period commencing February 28, 1997 and ending February 28, 1998; and (ii) the Stamps listed in Exhibit F to the Consent Order for a period commencing February 28, 1997 and ending February 28, 1999 (collectively the "Sell-Off Stamps.") *fn3" (Consent Order P E(i)). However, Defendants may sell the Sell-Off Stamps "only to persons who, according to [Defendants'] records, are members of the Beatles/Lennon Club by reason of purchase of stamps other than the Sell-Off Stamps . . ." Id.

 The Beatles/Lennon Club is comprised of people who: (1) have previously purchased a Beatles or John Lennon stamp from Defendants; and (2) are currently enrolled in Defendants' "new issue service". The "new issue service" is a service that periodically ships new stamps to a customer on a "keep or return basis". When a person purchases a Beatles or John Lennon stamp, Defendants assign that person a VIP number. If that person joins the new issue service, Defendants enroll that person in the Beatles/Lennon Club and sends a letter welcoming her to the club.

 C. ICS

 ICS uses more than seventy toll-free telephone numbers for marketing to new customers and three toll-free telephone numbers for marketing to existing customers. ICS provided a club membership toll-free telephone number (1-800-606-3490) exclusively to persons who were enrolled in one of ICS's clubs *fn4" dedicated to a celebrity or famous person. Club members received that number with their membership package. This telephone number is not printed on any other material or advertised to the general public.

 D. The Fact Booklets

 Defendants publish and distribute booklets containing information about certain celebrities with the sale of certain stamps. These are known as "99 facts booklets". At issue are two versions of these 99 facts booklets: one entitled "99 Little Known Facts About John Lennon and Groucho Marx" (the "Lennon/Marx Fact Book") and one entitled "99 Little Known Facts About John Lennon" (the "Lennon Fact Book"). Defendants included the Lennon Fact Book free with each shipment of Lennon Stamps, and the Lennon/Marx Fact Book free with each shipment of a stamp depicting both John Lennon and Groucho Marx (the "Lennon/Marx Stamp"). Customers were entitled to keep the free booklets even if they returned the Stamps.

 During the course of negotiating the Lennon License, Defendants' counsel submitted to Dorothy Weber, counsel for the Lennon Estate, an ICS advertisement for the Lennon/Marx Stamp for the Lennon Estate's approval. The advertisement referred to a "99 facts booklet." Since Ms. Weber had never seen the booklet referred to in the advertisement, on May 2, 1997, she advised Defendants' counsel that Defendants must submit this booklet for review and approval. However, as of May 30, 1997, when the parties executed the Lennon License, Defendants had not yet sent Ms. Weber a copy of the Lennon Fact Book or the Lennon/Marx Fact Book.

 On or about August 1, 1997, Mrs. Lennon provided Ms. Weber with a copy of the Lennon Fact Book. Mrs. Lennon had received it from a fan named Lisa Adams. Ms. Adams was upset about certain statements in the Lennon Fact Book which she believed were false. Ms. Weber telephoned Defendants' attorney, Bradford J. Badke. She told him that a fan had sent the booklet to Mrs. Lennon, and that Mrs. Lennon was very upset about information contained in the Lennon Fact Book. Ms. Weber advised Mr. Badke that she had never seen the Lennon Fact Book nor had she approved it for distribution. Ms. Weber pointed to two of the statements in the Lennon Fact Book which were particularly offensive: one which implied Mrs. Lennon had experienced a miscarriage as a result of physical abuse by John Lennon, and another which stated that John Lennon and Mrs. Lennon were both heroin addicts.

 Following their conversation, Ms. Weber wrote to Mr. Badke requesting that he immediately provide copies of any and all advertising and promotional materials as provided for in paragraph 3 of the License Agreement. Mr. Badke replied that "ICS inadvertently continued" to distribute the booklet "after the execution of the license agreement on the mistaken belief that the booklet had been approved." (Weber Aff., Ex. 5, Letter from Badke to Weber of 8/1/97). Mr. Badke added that "ICS [will] immediately cease sending the booklet to customers." Id. He also wrote that "consistent with your earlier letter of today, ICS will send to you copies of all advertising and promotional material relating to the licensed stamps." *fn5" Id.

 A few days later, ICS's president, John Van Emden, sent Ms. Weber a package of materials along with a cover letter, which referred to the material he was sending as "packaging and promotional material related to [ICS's] sales of Lennon stamps for your review and approval." (Weber Aff., Ex. 6, Letter from Van Emden to Weber of 8/5/97). Mr. Van Emden's letter referenced the enclosed Lennon Fact Book and the New Issue Alert *fn6" Mr. Van Emden reiterated Mr. Badke's prior statement that the Lennon Fact Book "is NOT being used now pending your review." Id.

 Mr. Van Emden did not include the Lennon/Marx Fact Book in his package. At the time Ms. Weber was not aware that there were two versions of the 99 facts booklets so she did not realize that Mr. Van Emden had not submitted the Lennon/Marx Fact Book for approval.

 E. Investigation Into Defendants' Compliance With the Consent Order *fn7"

 Ms. Weber never replied to Mr. Van Emden's letter regarding the materials which were submitted for approval. The New Issue Alerts, which Mr. Van Emden included in the package of promotional materials submitted for approval, referred to two different prices for Sell-Off Stamps: one for Beatles/Lennon Club members and one for nonmembers even though the Consent Order prohibited the sale of Sell-Off Stamps to nonmembers. On August 11, 1997, prior to the running of the seven day period for the Lennon Estate to approve the materials, Ms. Weber telephoned an ICS "800" number. The ICS sales representative took her order for Sell-Off Stamps even though she was not a member of ICS's Beatles/Lennon Club and had never before purchased stamps from ICS.

 That same day Ms. Weber instructed her secretary, Lisa Ann Ruggeri, to call ICS. Ms. Weber wanted to determine whether her secretary could purchase Sell-Off Stamps despite the fact that she was not a member of any ICS club. Ms. Weber also asked Ms. Ruggeri to ask Joshua Glick *fn8" to call ICS to see if he could purchase Sell-Off Stamps from ICS even though he was not a member of any ICS club. Subsequently, Plaintiffs' counsel, Gold, Farrell & Marks, hired private investigators, the James Mintz Group, to telephone ICS to determine whether, as non-members, they could purchase Sell-Off Stamps.

 1. Sale of Sell-Off Stamps to Dorothy Weber

 On August 11, 1997, Ms. Weber dialed the telephone number (1-800-606-3490) which appeared on a New Issue Alert and posed as a consumer. She used her married name, Dorothy Meltzer, and referred the sales representative to the New Issue Alert designated "JL5". Ms. Weber stated that she wished to order certain stamps for her husband who was a John Lennon fan who had seen the stamps. When the sales representative advised Ms. Weber of the price, Ms. Weber questioned why it was higher than the price listed in the New Issue Alert. The sales representative replied that club members received a lower price.

 Ms. Weber received her order from ICS which included two different Sell-Off Stamps--LB19 and TB9. (See Weber Aff. P 10 and Ex. 9; LiCalsi Aff. P 11 and Ex. F). ICS charged her the higher, non-member price.

 2. Sale of Sell-Off Stamps to Lisa Ann Ruggeri

 On August 11, 1997, Ms. Ruggeri called ICS, on behalf of Plaintiffs, to determine whether she could order Sell-Off Stamps. She dialed the telephone number listed on the New Issue Alerts that Ms. Weber had shown her. Ms. Ruggeri was not a member of the Beatles/Lennon Club, and had never purchased stamps from Defendants before that time.

 In placing her order, Ms. Ruggeri stated that she had seen certain Beatles stamps that a friend had, that she had been given a copy of a New Issue Alert from her friend and that she now wished to purchase two specific stamps referenced in the New Issue Alert. The ICS sales representative then suggested that Ms. Ruggeri order two additional Sell-Off Stamps (about which Ms. Ruggeri had not asked). The sales representative asked Ms. Ruggeri if she was a Beatles/Lennon Club member. Ms. Ruggeri advised the sales representative that she was not. The sales representative told her that since she was not a club member she could not get the stamps at the member's price.

 Ms. Ruggeri received her order from ICS which included three different Sell-Off Stamps --LB8, LB9 and LB24. (See Ruggeri Aff. P 7 and Ex.; LiCalsi Aff. P 11 and Exs. E and F). ICS charged her the higher, non-member price.

 3. Sale of Sell-Off Stamps to Joshua Glick

 In August 1997, Joshua Glick called ICS, on behalf of Plaintiffs, to determine whether he could order Sell-Off Stamps. Mr. Glick called the club telephone number which appeared on a New Issue Alert and requested specific stamps. He was not a member of lCS's Beatles/Lennon Club, and had never purchased stamps from ICS before that time. When placing his order, the sales representative asked Mr. Glick if he was a Beatles/Lennon Club member, and he answered that he was not. Mr. Glick purchased Sell-Off Stamps and subsequently received his order which included three different Sell-Off Stamps--LB15, MTB and GFB. (See Glick Aff. P 4 and Ex.; LiCalsi Aff. P 11 and Exs. E and F). ICS charged him the higher, non-member price for his stamps.

 4. Sale of Sell-Off Stamps to Jeffrey Mitnick

 On August 28, 1997, Amy Lippman, an associate at Gold, Farrell & Marks, counsel for Plaintiffs, called her husband Jeffrey Mitnick, Esq. and asked him to call ICS and order Beatles stamps. Mr. Mitnick obtained ICS's number (1-800-624-4427) from directory assistance. Mr. Mitnick was not a member of ICS's Beatles/Lennon club, and had never purchased stamps from ICS before that time.

 When placing his order, Mr. Mitnick did not specify any particular stamp to the sales representative. He just said that he wished to purchase Beatles stamps. The sales representative suggested that Mr. Mitnick purchase a Sell-Off Stamp as part of a package of three stamps. Mr. Mitnick subsequently received his order which included the Sell-Off Stamp designated in the Consent Order as JLM. (See Mitnick Aff. P 5 and Ex.; LiCalsi Aff. P 11 and Ex. F). ICS charged him the higher, non-member price for his stamps.

 5. Sale of Sell-Off Stamps to Thea Bournazian

 In September 1997, Thea Bournazian, a private investigator with the James Mintz Group, called ICS, on behalf of Plaintiffs, to determine whether she could order Sell-Off Stamps. In consultation with Plaintiffs' counsel, the James Mintz Group prepared a script which provided investigators with a description of the specific stamps they should order. The script provided ICS's general telephone number (1-800-235-1000). When Ms. Bournazian called that number, the sales representative told her that she had reached the number for Princess Diana stamps. Ms. Bournazian told the representative that she was a Beatles fan seeking to buy Beatles stamps. The sales representative put her on hold and returned with another telephone number for Ms. Bournazian to try (1-800-340-3666).

 Ms. Bournazian called that number and advised the sales representative that she wished to purchase two specific Sell-Off Stamps. The sales representative indicated that those two stamps were no longer available. Ms. Bournazian then stated that she was a Beatles fan, and asked the sales representative if she "was sure" that she could not get them. After placing Ms. Bournazian on hold momentarily, the ICS sales representative returned to the line and took her order. Ms. Bournazian sent that telephone number (1-800-340-3666) to the other James Mintz investigators via electronic mail.

 Ms. Bournazian subsequently received her order from ICS which included two different Sell-Off Stamps--LB24 and JL30. (See Bournazian Aff. P 4 and Ex.; LiCalsi Aff. P 11 and Ex. F). ICS charged her the higher, non-member price for her Stamps. Ms. Bournazian was not a member of the Beatles/Lennon Club, and had never purchased stamps from ICS before that time.

 6. Sale of Sell-Off Stamps to Anne Murray

 In September 1997, Anne Murray, a private investigator with the James Mintz Group, called ICS, on behalf of Plaintiffs, to see whether she could order Sell-Off Stamps. She used the number Ms. Bournazian had sent her.

 In placing her order, Ms. Murray initially inquired whether ICS had a particular stamp which featured John Lennon and Paul McCartney playing guitars. This stamp is not a Sell-Off Stamp. The sales representative advised Ms. Murray that this stamp was not available. The representative then suggested that Ms. Murray order a particular set of John Lennon stamps which she proceeded to describe. This was a set which included Sell-Off Stamp "JLM". The ICS representative did not ask Ms. Murray if she was a member of the Beatles/Lennon Club. Ms. Murray did not place an order during that phone call, but called again later that day and asked to speak with the same sales representative she had spoken to earlier. The sales representative took her order.

 Ms. Murray subsequently received her order which included the Sell-Off Stamp designated as "JLM" in the Consent Order. (See Murray Aff. P 4 and Ex.; LiCalsi Aff. P 11 and Ex. F). Ms. Murray was not a member of ICS's Beatles/Lennon Club, and had never purchased stamps from ICS before that time. ICS charged her the higher, non-member price for her stamps.

 7. Offer of Sell-Off Stamps to Lolita Homer

 On September 15, 1997, Lolita Homer, a researcher with the James Mintz Group, called the ICS, on behalf of Plaintiffs, to determine whether she could order Sell-Off Stamps. She used the telephone number Ms. Boumazian had sent to the James Mintz investigators. Ms. Homer was not a member of the Beatles/Lennon Club, and had never purchased stamps from ICS.

 Ms. Homer inquired as to the availability of a particular stamp and the ICS sales representative told her that it was not available. The ICS sales representative then offered her several Beatles stamps including the Sell-Off Stamp labeled TB9. The ICS sales representative never asked Ms. Homer if she was a member of the Beatles/Lennon Club.

 Ms. Homer declined to order that Sell-Off Stamp because she was not sure that Plaintiffs wanted that stamp. She did, however, call ICS back the following day to order the TB9 Sell-Off Stamp, but the sales ...


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