Harry Winston, Inc. v Eclipse Jewelry Corp. Index No.: /2017

Size: px

Start display at page:

Download "Harry Winston, Inc. v Eclipse Jewelry Corp. Index No.: /2017"

Stephanie Jenkins
5 years ago
Views:

1 Phone: (212) Fax: (212) ELECTRONICALLY FILED VIA NYSCEF Hon. Justice Saliann Scarpulla Supreme Court of the State of New York New York County, Commercial Division 60 Center St., Courtroom 208 New York, New York Re: Harry Winston, Inc. v Eclipse Jewelry Corp. Index No.: /2017 Dear Justice Scarpulla: We are counsel to Plaintiff, Harry Winston, Inc. ( HWI ) in the above-referenced matter. We regrettably write to inform the Court about Defendant, Eclipse Jewelry Corp. s ( Eclipse ) continued contemptuous treatment of Court orders in this matter and Eclipse s dilatory conduct (despite explicit warnings of contempt-consequences), set forth in detail herein and summarized in the below chart; which contempt requires immediate relief. Date Court Order to Eclipse Eclipse s Non-Compliance & Misrepresentations No sale, transfer, or Majority of HWI Property transferred (Dkt. 25) encumbrance of HWI Property between Eclipse and undisclosed subcontractor(s) Eclipse files affidavit of its Principal, Vatche Aghjayan (Dkt. 26) which misrepresents that $372,381 of Finished Goods (131 pieces of jewelry) are complete; in reality most of the Finished Goods remain in fabrication by unauthorized third-parties or have been confiscated by Eclipse The Chrysler Building 405 Lexington Avenue New York, NY Cincinnati Fort Lauderdale Houston Los Angeles New York Philadelphia Pittsburgh Princeton San Francisco Shanghai Tampa Washington Wilmington

2 Page 2 of (Ex. A) Provisional turn-over Order directing Eclipse to remit Finished Goods to HWI by Eclipse directed to marshal all HWI Property to prepare for broader injunction on Eclipse directed to prepare detailed inventory of all HWI Property and location of HWI Property to compare to Affidavit of Thomas Dixon (Dkt. 9), submitting report to Court by Eclipse willfully refuses to comply with the Court Order and disregards direction to turn-over HWI Property Finished Goods and HWI Property not marshalled; majority of HWI Property, furnished to third-parties by Eclipse violating Court Order and MMA (defined below), and not disclosed to the Court No detailed inventory report (identity or location of HWI Property) prepared. Eclipse misrepresented that it had majority of HWI Property Eclipse s counsel warned by Court that Eclipse must comply with the turn-over Order at risk of contempt and report the status of Eclipse s compliance at conference (Ex. B) Injunction issued along with turn-over Order directing all HWI Property identified in HWI s Thomas Dixon Affidavit to be furnished to HWI by (Dkt. 49) Eclipse Ordered to provide written inventory accounting for all goods in Dixon Affdvt. and identify location Eclipse continues willful non-compliance with the Court Order in all respects, failing to report to the Court the status or location of the HWI Property and Finished Goods and failing to release any of the property demanded by the Court Order Eclipse appeals and Eclipse s motion to stay denied by Appellate Division After denial of stay reported to chambers, Eclipse s counsel informs Mr. Klein that a majority of HWI Property, including Finished Goods, would be turned-over that day; in reality, only 44 Finished Goods (from 143 consigned diamonds) produced by Eclipse out of and no HWI Property produced; no loose stones, molds, Work in Process, CAD, or engraving files produced nothing No inventory of remaining goods or identification of location produced

3 Page 3 of 8 I. TRO and August 8, 2017 Order PROCEDURAL POSTURE HWI commenced this action and simultaneously filed an emergency motion (Dkts. 5-21) seeking an order directing the immediate return and/or seizure of HWI property including diamonds and gemstones owned by HWI and consigned by HWI to Eclipse, molds, CAD, and engraving files, and completed (referred to as Finished Goods ) and semi-completed jewelry (referred to as Work in Process, collectively all such property the HWI Property ). (Dkt. Nos. 1-20) In support of HWI s motion, HWI submitted a July 19, 2017 affidavit of Thomas Dixon ( Dixon Affdvt. ) providing detailed inventory lists of HWI Property in Eclipse s possession (including nearly $2 million in diamonds and gemstones) to be turned-over to HWI. (Dkt. Nos. 9-19) The Court on July 20 issued an Order to Show Cause with a temporary restraining order restricting the sale or transfer of the HWI Property pending a hearing. (Dkt. 25) Eclipse opposed HWI s Order to Show Cause, including filing an August 4, 2017 affidavit from Eclipse Principal, Vatche Aghjayan representing that HWI owes Eclipse $372,381 for Finished Goods that have not yet been shipped but are complete, complaining that Eclipse has rendered labor and incurred costs on account of such goods and it should be reimbursed in full for the same, as detailed in the relevant invoices. (Dkt ) (emphasis supplied) The parties appeared for oral argument on the Order to Show Cause on August 8. A true and accurate copy of the transcript ( Tr. ) from the August 8 hearing is annexed as Ex. A. At the August 8 hearing, the Court confirmed that the parties Master Manufacturing Agreement ( MMA ) was properly terminated by HWI ( Tr. p. 7, 12, Ex. A) The Court further directed the parties to proceed as follows: Turn-Over Order: By August 10, Eclipse was to submit all the finished goods to Harry Winston s Quality Control. ( Tr. p. 10; p. 11, Ex. A) The Court specifically directed that Eclipse physically turn-over the Finished Goods to HWI for HWI s quality control inspection at HWI. Id. at p. 17; Marshal HWI Property: Eclipse was directed to marshal the remaining HWI Property so it was ready to be transferred, without having to pay someone to seize it and go through all of that. Id. at p. 13; and Inventory Identification and Location: On August 22, a date set for the next hearing, Eclipse was directed to report back to the Court with a detailed list of all HWI Property identified in the Dixon Affdvt. to specifically identify the HWI Property in Eclipse s possession and where everything is. Id. at Specifically, Eclipse was directed, you will find those diamonds the loose

4 Page 4 of 8 diamonds or tell us where they are, and we will discuss them on the 22nd. (Id. at p. 13) II. Eclipse s Contempt of the August 10 Deadline Triggering August 15 Court Directive On August 8, after the hearing, HWI contacted Eclipse to arrange to retrieve, at HWI s cost, the Finished Goods to conduct the quality control inspection in accordance with the August 8 Order. Mr. Aghjayan of Eclipse informed HWI that Eclipse would not release the Finished Goods to HWI, disregarding the August 8 Order. Mr. Aghjayan later certified in a sworn statement that he was aware of the August 8 Order (Dkt. No. 42 6), but he chose to ignore the August 8 Order anyhow because he preferred the inspection occur at Eclipse, contrary to the August 8 Order and the MMA. After multiple attempts on August 9-10 by HWI (in addition to my exchanges with Eclipse s counsel) to persuade Eclipse s compliance with the August 8 Order, Eclipse s counsel confirmed that Eclipse would not comply with the August 10 deadline. Therefore, HWI filed an August 11 letter motion (Dkt. Nos ) seeking an injunction, turn-over and seizure order, and a finding of contempt, which triggered a telephonic hearing with the Court on August 15. During that hearing, the Court warned Eclipse s counsel that it was the Court s duty to enforce [the Court s] orders, and directed counsel to inform Eclipse to comply with the August 8 Order or face contempt. (See discussion on record at subsequent August 22 hearing ( Tr. ) p. 2, Ex. B) III. Eclipse s Contempt of the August 22 Deadline and Injunction Against Eclipse The parties appeared on August 22 for a further hearing on HWI s Order to Show Cause seeking provisional relief (injunction). At the August 22 hearing, the parties informed the Court that the August 8 Order and August 15 directive continued to be ignored by Eclipse, and that Eclipse had not turned over any Finished Goods (or other HWI Property). Eclipse further failed to provide the Court-ordered inventory analysis of all goods identified in the Dixon Affdvt. by the August 22 deadline. Instead, Eclipse s counsel represented that Eclipse had generally gone through it and [Mr. Aghjayan] said that most of it was there and, as for the jewelry, [Mr. Aghjayan] said he found most of it except for the necklaces. ( Tr. p. 11, Ex. B) (emphasis supplied) The Court granted HWI an injunction, including: Turnover of all HWI Property: All HWI Property identified in the Dixon Affdvt. was to be turned-over to HWI by August 25. Id. at. pp. 18, 24-25, 29; Bond: HWI to post $250,000 bond to secure the injunction by August 30. Id. at p. 33;

5 Page 5 of 8 Inventory: Eclipse, again, was ordered to provide a detailed writing and list everything that [Eclipse] has, compare it you counsel, are to compare it to what is in the [Dixon] affidavit. Id. at p. 18; and Contempt: The Court warned again that if Eclipse did not comply with the August 25 deadline, the Court would hold Eclipse in civil contempt: In the event that the defendant does not comply with my order today...i am going to hold the plaintiff in contempt on Monday next. I will sign an order holding the plaintiff in civil contempt, directing the Sheriff to bring the plaintiff in to explain why he is not complying with my order or the corporation is not complying with my order; and also I am going to issue I think it s a $500 initial money penalty which will continue to go up. Id. at pp. 20, 22, 26, 33-34, all of the above collectively the August 22 Order. IV. First Department Denies Eclipse s Interim Stay Request Eclipse filed on August 24 a Notice of Appeal of the August 22 Order (Dkt. Nos ), and sought an interim stay on August 25. The First Department (Hon. Justice Judith J. Gische) heard oral argument the same day, and denied in full the relief requested by Eclipse, agreeing with this Court that the injunction did not risk irreparable harm to Eclipse. (A true and accurate copy of the Order denying the interim stay request is attached as Ex. C) Thus, this Court s August 22 Order was left undisturbed by the First Department. V. Eclipse s Contempt of the August 22 Order, Misrepresentations to the Court And Scheme to Defraud the Court and Further Violate the TRO and MMA Mr. Klein held a telephonic conference on August 25 to receive a report about compliance with the August 22 Order and the status of Eclipse s application for an interim stay. Eclipse s counsel represented that the majority of the HWI Property would be returned that day, including a detailed inventory list. HWI dispatched to Eclipse at 4:30 P.M on August 25 a security team to retrieve the HWI Property. Eclipse released only 43 out of 143 Finished Goods HWI expected were in Eclipse s possession (131 of which Eclipse had invoiced as completed months ago) and released no additional HWI Property. When pressed for the whereabouts of the remaining HWI Property, Mr. Aghjayan claimed that the HWI Property, which Eclipse had previously claimed repeatedly in sworn statements were actually finished, ready, and in Eclipse s possession, and which had been invoiced to HWI as being complete (Dkt ; Dkt 42 5), were actually not complete at all. It appears the majority of HWI diamonds identified in the Dixon Affidavit apparently had not yet been incorporated into any fabricated jewelry by Eclipse, and Eclipse s dogged opposition in this case appears to be an

6 Page 6 of 8 elaborate ruse to cause delay until such manufacturing could be surreptitiously completed and HWI charged for such goods at a margin. Specifically, an analysis of the goods produced thus far by Eclipse and the (sham) invoices issued for the Finished Goods (in reality incomplete goods), reveals of the 143 consigned diamonds to Eclipse (as of the date of filing this action), 99 (or about 70%) remain in Eclipse s possession. Shockingly, of the 131 Finished Goods invoiced by Eclipse to HWI (and represented in sworn statements to the Court) as completed, only 43 (less than 33%) were produced on August 25. Therefore, 88 Finished Goods and 11 additional loose diamonds were not produced (in addition to molds, CAD and engraving files). Even more alarming, Mr. Aghjayan suddenly revealed for the first time that a majority of the HWI Property (which Eclipse previously represented constituted primarily Finished Goods ready for shipment to HWI) was shipped to an unidentified third-party subcontractor(s) for fabrication and was otherwise not in Eclipse s possession. Not only is such delivery to a thirdparty a violation of this Court s TRO restricting such transfer, but the MMA expressly prohibits the use of any Eclipse subcontractor without HWI s prior written consent. (Dkt. No. 2, MMA II(b), XVI(d)(survives termination) (Eclipse shall not subcontract any work without the prior written consent of the [HWI]... Each change in a subcontractor shall require [HWI s] prior written consent. ) HWI never consented to the use of any Eclipse subcontractor. Eclipse and its counsel refused (and continues to refuse) to identify the location of the remaining HWI Property or provide the detailed list of inventory (and its location) which was twice-ordered by the Court on August 8 and August 22 to be produced - Orders, like virtually all of the Orders issued by the Court in this case, which were willfully ignored by Eclipse and its counsel. Eclipse and its counsel have not explained why numerous representations about the status and location of Finished Goods and HWI Property have proven to be false. (See Dkt ; Dkt. 42 5; Tr. p. 11, Ex. B) Either the HWI Property was secreted and disassembled subsequent to these (mis)representations (a violation of the TRO) or such representations were simply false. In either scenario, there must be a reckoning. IMMEDIATE SEIZURE, ARREST AND CONTEMPT ORDERS SHOULD BE ISSUED Eclipse has repeatedly disobeyed this Court s numerous warnings and Orders of July 20; August 8; August 15; and August 22, and knowingly mislead the Court and HWI, to HWI s prejudice and detriment, and thus should be held in contempt. Jud. L. 753(a)(2)-(3). CPLR 2703 specifically provides independent remedies to supplement the usual contempt remedies under these circumstances as follows: Where the court has directed disposition of personal property capable of delivery and the direction is disobeyed, the court by order, in addition to punishing the disobedience as a contempt, may require the sheriff to take

7 Page 7 of 8 and dispose of the property in accordance with its direction. (emphasis supplied) Civil contempt has as its aim the vindication of a private right of a party to litigation and any penalty imposed upon the contemnor is designed to compensate the injured private party for the loss of or interference with that right. McCormick v. Axelrod, 59 N.Y.2d 574, (1983). Eclipse has engaged in frivolous conduct by willfully refusing compliance with existing Court directives and multiple Orders. These efforts were undertaken primarily to delay resolution of the litigation (to buy time to cover-up the falsely-represented state and location of the Finished Goods and HWI Property) and are not based on any reasonable interpretation or extension of the law, providing an independent basis for sanctions. See Rules of the Chief Administrative Judge ; Jud. L. 753(a)(2)-(3). Eclipse may also delaying to prepare a bankruptcy petition, which Eclipse has repeatedly threatened. The Court telegraphed it would hold Eclipse in contempt by Monday next (i.e. today) and issue a warrant for Mr. Aghjayan s arrest, in the event of non-compliance with the August 22 Order, which has come to pass as the vast majority of HWI Property was not produced (and has not been accounted for) by Eclipse. ( Tr. pp. 20, 22, 26, 33-34, Ex. B) Accordingly, HWI respectfully requests the Court issue an order, in the same or substantially similar form as the proposed order and warrant submitted herewith: (i) holding Eclipse s Principal, Vatche Aghjayan, in civil contempt and issuing a warrant for Mr. Aghjayan s arrest directing that Mr. Aghjayan appear before the Court to explain his conduct and identify the location of all HWI Property identified in the Dixon Affdvt. (Dkt. Nos. 9-19) including any Finished Goods and explaining what efforts Eclipse has made to safeguard HWI Property; (ii) directing the New York County Sheriff to immediately seize all HWI Property including any Finished Goods from Eclipse or from such third-parties as Eclipse shall immediately identify; (iii) their location; directing an immediate accounting of all HWI Property and Finished Goods, and (iv) awarding sanctions in the form of attorneys fees and costs in connection with all of the pleadings and proceedings to-date (and for future seizure and other enforcement procedures to enforce the Court s orders); (iv) (v) imposing the maximum coercive statutory penalty for contempt; striking any future pleading by Eclipse;

8 Page 8 of 8 (vii) for such other and further relief as the Court deems just and proper; HWI s counsel is available, including today, for an in-person or telephonic hearing at the convenience of the Court. Very truly yours, /S/ Samuel D. Levy Samuel D. Levy C: All parties via NYSCEF

Present Status Report

Present Status Report Phone: (212) 885-5352 Fax: (212) 202-6187 Email: SLevy@BlankRome.com ELECTRONICALLY FILED VIA NYSCEF Hon. Justice Saliann Scarpulla Supreme Court of the State of New York New York County, Commercial Division