Second Circuit affirms default judgment against 'Guggenheim' imposter

In Guggenheim Capital LLC v Birnbaum (Case No 11-3276, July 15 2013), addressing an appeal from a default judgment against an adjudged trademark infringer, the US Court of Appeals for the Second Circuit has upheld the district court’s ruling, finding that the district court exercised proper discretion in granting default judgment against the defendant.

Plaintiffs-appellees Guggenheim Partners, licensee of the Guggenheim marks, and Guggenheim Capital, owner of the Guggenheim marks, (collectively, Guggenheim) are financial services firms affiliated with the well-known Guggenheim family. Defendant-appellant David Birnbaum offered financial services to investors by holding himself out as “David B Guggenheim” of the “Guggenheim Bank” and claiming an affiliation with the Guggenheim family.

Guggenheim filed a complaint alleging various trademark claims, violations of the Racketeer Influenced and Corrupt Organisations Act (RICO) and various state law claims. The district court issued a temporary restraining order and then a preliminary injunction against Birnbaum’s use of 'Guggenheim'. Birnbaum failed to file an answer to the remaining claims in the case after winning a motion to dismiss one claim. As the litigation progressed, Birnbaum did not timely respond to discovery requests and eventually responded only with objections invoking his Fifth Amendment privilege and similarly refused to answer deposition questions. Notwithstanding the issuance of a preliminary injunction, Birnbaum also continued to use the Guggenheim name when meeting with potential investors. The district court subsequently granted Guggenheim’s motion for default judgment against Birnbaum, enjoined him from using the Guggenheim name or mark and awarded Guggenheim $1.25 million in statutory damages as well as attorneys’ fees and costs. Birnbaum appealed.

The Second Circuit concluded that the district court did not abuse its discretion by entering default judgment under Rule 37 regarding the violation of discovery orders. When assessing a district court’s exercise of discretion under Rule 37, the Second Circuit considers several factors: the wilfulness of the non-compliant party; the efficacy of lesser sanctions; the duration of the non-compliance; and whether the non-compliant party had been warned. On appeal, Birnbaum challenged only the “wilfulness” and “warnings for non-compliance” findings. The Second Circuit found no error in the district court’s wilfulness findings given Birnbaum’s repeated discovery violations. The Second Circuit also found Birnbaum had been adequately warned, noting that he had been generally warned of sanctions six different times and moreover did not oppose Guggenheim’s motion for default judgment.

The Second Circuit also concluded default judgment was proper under Rule 55. Rule 55 allows default judgment where a party fails to plead or otherwise defend an action. In evaluating default judgment under Rule 55, courts must weigh the wilfulness of the default, the existence of any meritorious defense and prejudice to the non-defaulting party. The Second Circuit found no error in the district court’s finding of wilfulness citing Birnbaum’s failure to answer the complaint or respond to discovery, as well as Birnbaum’s violation of the preliminary injunction. Additionally, the Second Circuit rejected Birnbaum’s contention that the district court did not properly consider his fair use defence, which requires a court to consider whether a particular use was other than as a mark, in a descriptive sense and in good faith. The Second Circuit found that the fair use defense was not meritorious because Guggenheim was not Birnbaum’s real name, and in any event, the district court had properly found his use of the Guggenheim name to have been “a bad faith attempt to trade off of the goodwill and reputation of plaintiffs’ famous marks”.

Rose Whelan, McDermott Will & Emery LLP, Washington DC

McDermott Will & Emery represented Guggenheim in this matter. The descriptions and explanations in this case note are of the author’s only and should not be ascribed to or any way limit or affect any position of Guggenheim in this or any other matter.