Present Status Report

Transcription

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 write, again, to report that Defendant Eclipse Jewelry Corp. ( Eclipse ) continues its contemptuous treatment of Court orders in this matter, including ignoring Your Honor s latest August 28th directives to Eclipse. Present Status Report The Court directed Eclipse on August 28, among other things, to certify in an affidavit the location of all HWI Property 1 and all Finished Goods that Eclipse failed to deliver to HWI despite several Court Orders and directives. Instead, Eclipse s Vatche Aghjayan filed two affidavits which listed only certain of the non-produced Finished Goods but failed to identify the location of the Finished Goods or other HWI Property which remain with third-parties. We have repeatedly warned about the grave harm to HWI if its intellectual property, including engraving files (which allow the holder to duplicate the Harry Winston name and logo on products), are transferred to third-parties, especially unknown third-parties in the jewelry manufacturing or casting business over whom HWI has no knowledge or control. These dangers formed the basis of HWI s irreparable harm arguments in support of equitable relief which this Court (and the First Department) have affirmed through multiple orders. Now, as we have predicted for weeks while Eclipse has ignored Your Honor s Orders, HWI s proprietary and 1 All capitalized terms not specifically defined herein shall have the same meaning as defined HWI s motion for provisional relief. (Dkt. 20) 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 8 valuable intellectual property is out in the public without any known safeguards or controls, and HWI has no knowledge what duplicates or copies the third-party(ies) made of HWI s engraving files or CAD files. It could be that the third-party(ies) sold, duplicated or copied, reverseengineered, or conveyed (or is about to do any of the same with) HWI s valuable intellectual property the DNA of the company to other parties. In violation of the July 20 TRO and the parties Master Manufacturing Agreement ( MMA ), Eclipse conveyed HWI Property to thirdparties likely to rush the completion of Work in Process, after termination of the MMA and commencement of HWI s lawsuit in order to demand from HWI payments for Finished Goods completed, if at all, by others. The repeated warnings we advanced from the original TRO to the various Court orders and directives that Eclipse has violated have proven true. HWI Property and HWI s Finished Goods have been improperly exposed to third-parties, leaving HWI to investigate, subpoena (and possibly sue) these third-parties. Any further accommodations by the Court further exposes HWI s valuable intellectual property. The Court re-ordered Eclipse on August 28 to identify the location of all HWI Property, including the Finished Goods and to deliver to HWI the HWI Property that Eclipse neglected to previously deliver in violation of the Court s August 8, 15, and 22 Orders and directives. In response, Eclipse continues to flout the Court s orders, demonstrating a continued lack of respect for these proceedings and the Court s authority, as detailed below: CAD and Engraving Files: The affidavit of Thomas Dixon, Ex. F (Dkt. 15) identified eight (8) specific CAD files requested to be returned to HWI. (Mr. Dixon s July 19, 2017 affidavit ( Dixon Affdvt. ) Dkt. 9) has been repeatedly referred to by the Court and the parties as the basis for the list of outstanding HWI Property and Finished Goods). On August 28, Eclipse rendered to HWI a jump drive containing 71 CAD files, of which, only three were included from HWI s Thomas Dixon s Ex. F. The produced CAD files include (i) Lucky 8 Charm; (ii) Peony Charm; and (iii) Small Hoop Earrings. Of those three CAD files, only Lucky 8 and Peony Charm are usable; which the Small Hoop Earring CAD file is incomplete and not usable because it displays a total stone count of 42 versus the 46 required by the design. Thus, only two usable CAD files of a total eight CAD files have been produced. The remaining requested CAD files were not produced at all. The additional sixty seven (67) files produced by Eclipse appear to consist primarily of Eclipse produced designs associated with unauthorized products that Eclipse produced unilaterally in an effort to force HWI payment of the same. HWI rejected these remaining files and Eclipse refuses to accept return of the same, only demonstrating Eclipse s efforts to use the Court orders to play games. In addition, and of grave concern to HWI, the engraving files (i.e. software which enables the engraving of HWI s trademarks on jewelry) also are excluded from the jump drive Eclipse produced. The undersigned has repeatedly made follow up requests by phone inquiring of the

3 Page 3 of 8 whereabouts of the engraving files, which have not been identified or produced. Importantly, CAD and engraving files can be duplicated, so Eclipse needs to certify the destruction of all HWI CAD and engraving files (whether or not produced to HWI by Eclipse) and whether in the possession of Eclipse or any third-party. Molds: Eclipse finally produced the eight molds it received from HWI, which were identified on Dixon Affdvt Ex. E (Dkt. 14). None of the molds and models for the separate group of eight (8) items identified on Dixon Affidavit Ex. F have been produced. We expect that thirdparty subcontractors involved in casting of HWI products necessarily would have HWI molds which also must be produced, and Eclipse should certify the destruction of all HWI molds (whether or not specifically produced). Finished Goods: Eclipse produced an additional 49 Finished Goods on August 28 and HWI is reviewing the same for quality control and will revert within the 30 days Your Honor asked HWI to complete such inspection. That is, Eclipse has produced a combined 93 out of 142 items identified on Dixon Affidavits Exs. D and G, leaving at least 49 additional items outstanding which are at some stage of development (i.e. Finished Goods, Work in Process, or loose stones). Eclipse has refused, despite the Court s repeated directions and Orders, to identify the whereabouts of these outstanding items. It is important to remember that Mr. Aghjayan s August 4 Affidavit at 29 (Dkt. 26) represented that all Finished Goods were complete and ready for shipment, and that HWI should render payment in advance for such Finished Goods. Of course, this representation has proven false. Mr. Aghjayan repeated this lie in his August 18 Affidavit 5 (Dkt. 42), where he again boasted that all Finished Goods were complete, and falsely represented to the Court that such goods were in Eclipse s possession. Of course, we now know that the Finished Goods were not complete and instead were in the possession of third-parties (Dkt. 62) violating the MMA and the Court s TRO (Dkt. 25)). Eclipse still has not produced at least 49 items consisting of Finished Goods, Work in Process and loose diamonds. In addition, a cursory review of the Eclipse invoices attached to Mr. Aghjayan s Affidavit (Dkt. 61) reveals: Invoice ($66,950): Consists of charges for CAD files for machined Tryst rings created on speculation by Eclipse without HWI s request or authorization. Eclipse created these Tryst ring CAD files in an attempt to sell HWI on purchasing the machined rings, but HWI rejected the offer and is not required under the MMA to render any payment for such products. These undesired CAD designs were delivered to HWI by Eclipse on a jump drive. HWI rejected the designs and attempted to return the CAD files, but Eclipse refused delivery. Eclipse wrongly demands payment for the Tryst rings it attempted to persuade HWI to accept. Invoice ($58,050): HWI has no information or record of requesting (or receiving) any of the items identified on Invoice 53626, and HWI will not remit payment for Finished Goods it did not request or authorize.

4 Page 4 of 8 Invoice ($118,025): This invoice purports to be for equipment to manufacture the Eclipse speculative machined Tryst ring. HWI never authorized these items, has not received these items, does not want these items to be delivered, and is not obligated under the MMA to remit payment. I. TRO and August 8, 2017 Order Eclipse s Serial Defiance of Multiple Court Orders 2 HWI filed an emergency TRO (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 and semicompleted jewelry (referred to as Work in Process ). (Dkts. 1-20) HWI s motion included the Dixon Affdvt. which detailed the inventory of missing HWI Property (including $2 million+ in diamonds and gemstones) (Dkts. 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. (Dkt. 25) Eclipse opposed HWI s application and submitted Mr. Aghjayan s August 4 Affidavit 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) At the Court s August 8 hearing, the Court confirmed the MMA was terminated by HWI ( Tr. p. 7; p. 12, directing the parties to proceed as follows): Turn-Over Order: Given Eclipse s representation that all of the Finished Goods were complete, by August 10, Eclipse was to submit all the finished goods to Harry Winston s Quality Control. ( Tr. p. 10; pp. 11, 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 to the Court a detailed list of 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 2 HWI filed an August 28, 2017 letter (Dkt. 57), but Your Honor remarked during the August 28 conference (while on vacation) that Your Honor did not have a chance to review the letter, part of which relevant contents are reproduced here for convenience and continuity.

5 Page 5 of 8 diamonds the loose 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 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, 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) III. Eclipse s Contempt of the August 22 Deadline and Injunction Against Eclipse The parties appeared on August 22 for the injunction hearing, at which HWI reported that the August 8 Order and August 15 directive continued to be ignored by Eclipse, and that Eclipse had not turned-over any HWI Property, including the Finished Goods. 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 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) (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, which HWI timely posted (Dkt. 63);

6 Page 6 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) denied in full the relief requested by Eclipse, agreeing with this Court that the injunction did not risk irreparable harm to Eclipse. 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 of the Court 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, and the Court-ordered detailed inventory list would be provided. HWI dispatched to Eclipse a security team to retrieve the Finished Goods and HWI Property. Eclipse released only 44 / 131 Finished Goods and released no additional HWI Property. When pressed for the whereabouts of the remaining property, Mr. Aghjayan claimed that Eclipse did not have the Finished Goods, 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) Even more alarming, Mr. Aghjayan suddenly revealed for the first time that a majority of the HWI Property, including the Finished Goods (which Eclipse previously represented were ready for shipment) was transferred to unidentified third-party subcontractor(s) or not in Eclipse s

7 Page 7 of 8 possession. Not only is such delivery to a third-party a violation of the TRO restricting such transfer, but the MMA expressly prohibits the use of any Eclipse subcontractor without HWI s prior written consent. Eclipse s non-compliance with the August 22 Order triggered an August 28 telephonic conference in which Eclipse was again ordered to provide a detailed inventory list and identify the location of all of the HWI Property, producing whatever was in Eclipse s possession. As set forth above, Eclipse failed to comply with that directive and has not identified the location of the remaining Finished Goods, Work in Process and loose stones or caused the same to be produced. With Eclipse s violation of the Court s most recent August 28 Order, Eclipse continues to conduct its business with HWI on its own time and in the manner it prefers, repeatedly ignoring Your Honor and harming HWI at the same time. Since the filing of this lawsuit, Eclipse has neglected to identify the location of HWI Property, turn-over HWI Property, and turn-over the Finished Goods or identify the third-parties holding the Finished Goods. Eclipse has willfully violated Court Orders and directives on July 20, August 8, 15, 22, and 28, and must be punished. IMMEDIATE SEIZURE, ARREST AND CONTEMPT ORDERS SHOULD BE ISSUED Eclipse has repeatedly disobeyed this Court s repeated warnings and Orders of July 20; August 8; August 15; August 22; August 28, 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). In addition to the normal contempt power of this Court, CPLR 2703 specifically provides independent 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 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 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). In perhaps the most brazen treatment of Your Honor s Orders, Mr. Aghjayan now demands that HWI render payment to Eclipse for Finished Goods that it has not even released so that Eclipse

8 Page 8 of 8 can pay the third-party to whom it wrongly conveyed the (non-)finished Goods and other HWI Property. (Dkt. 62) While the irony of such a request is palpable, HWI surely will not pre-pay Eclipse for Finished Goods being completed by an unknown third-party in violation of the Court s TRO and the MMA, especially given the quality of such Finished Goods will no doubt be suspect. Eclipse should be sanctioned for transferring HWI Property (including the Finished Goods) and intellectual property to a third-party and then demanding HWI remit payment for such goods in order to gain their release from the third-party. For all of the above conduct, HWI respectfully requests the Court issue an order, in the same or substantially similar form as the proposed order 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 the HWI Property, including the Finished Goods, Work in Process and Purchaser Supplied Material 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 enforcement procedures to enforce the Court s orders); (iv) (v) (vii) imposing the maximum coercive statutory penalty for contempt; striking any future pleading by Eclipse; for such other and further relief as the Court deems just and proper; Very truly yours, /S/ Samuel D. Levy Samuel D. Levy C: All parties via NYSCEF