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Guotai USA, Co., Ltd. v. J & Company, LLC

United States District Court, C.D. California

May 3, 2017

GUOTAI USA, COMPANY, LTD.; JIANGSU GUOTAI LITIAN ENTERPRISES COMPANY, LTD; Third Party Plaintiffs,
v.
J&COMPANY, LLC; JACOB ABIKZER; MILO HAIM; and DOES 50-100, Third Party Defendants.

          ORDER DENYING MOTION FOR DEFAULT JUDGMENT [85]

          OTIS D. WRIGHT, II UNITED STATES DISTRICT JUDGE

         I. INTRODUCTION

         This case involves a trademark licensing agreement. Before the Court is Third Party Plaintiffs Guotai USA Company Ltd. and Jiangsu Guotai Litian Enterprises Company's motion for default judgment against Third Party Defendants J&Company Jeans, LLC and Jacob Abikzar. (ECF No. 85.) For the following reasons, the Court DENIES the motion.[1]

         II. FACTUAL BACKGROUND

         Plaintiffs in the underlying lawsuit, JNCO Holdings, LLC (“JNCO Holdings”) and JNCO, LLC (“JNCO”), are owners of the JNCO mark. (Third Party Compl. (“TPC”), Ex. 4 at 1, ECF No. 40.) This mark is best known for its association with a particular line of baggy jeans. (Id. ¶ 19.) Defendants in the underlying lawsuit (and Third Party Plaintiffs in this portion of the lawsuit), Guotai USA Company Ltd. (“Guotai USA”) and Jiangsu Guotai Litian Enterprises Company (“Litian”), are entities operating in the fashion industry.[2] (Id. ¶¶ 1-2.) Defendant Isaac Cohen is the chief executive officer of Guotai USA. (Cohen Decl. ¶ 2.) Third Party Defendant Milo Haim is the managing member of JNCO Holdings and JNCO. (TPC ¶ 19.) Third Party Defendant Jacob Abikzer is the president of JNCO Holdings, JNCO, and J&Company Jeans, LLC (“J&Company”). (Id.) He is also Haim's nephew. (Id.) J&Company is “engaged in the clothing business” and is a dba of JNCO Holdings and JNCO. (Id. ¶ 3.) Third Party Plaintiffs allege that JNCO Holdings, JNCO, Haim, and J&Company are part of a “single enterprise” and “always act for, and on behalf, of each other.” (Id. ¶ 5.) Third Party Plaintiffs further allege that JNCO Holdings, JNCO, and J&Company are not “viable businesses and have no ability to pay judgments entered against them.” (Id.)

         This case began when this enterprise failed to pay Litian for garments. (Id. ¶ 13). By October 2013, the enterprise had racked up $582, 586 in debt to Litian. (Id.) The enterprise had no money to pay Litian and entered into a licensing agreement with Litian for the JNCO marks as a means of eventually making good on its debt. (Id. ¶ 19.) In discussions leading up to the licensing agreement, Haim and Abikzer told Isaac Cohen and Litian management that the enterprise had never sold its products to discount wholesalers or stores, that significant money and effort had been expended to promote the JNCO marks, and that the enterprise's reputation in the marketplace was “impeccable.” (Id.)

         At some point after signing the agreement, Third Party Plaintiffs discovered that the representations Haim and Abikzer made leading up to the agreement were false. (Id. ¶ 22.) For instance, JNCO-marked garments had been sold at discount stores such as TJ Maxx and Haim's reputation in the fashion industry was such that buyers did not want to do business with purveyors of garments bearing the JNCO mark. (Id.) To date, Third Party Plaintiffs have expended millions of dollars in reliance on the agreement. (Id. ¶ 21.) These expenditures include, but are not limited to, the hiring of a sales force, various forms of promotion, and the lease of real property. (Id. ¶¶ 20, 26, Ex. 7.)

         However, the parties' dealings did not end with the licensing agreement. (Id. ¶ 24.) In August 2014, the enterprise sought an additional $211, 500 in “merchandise” from Third Party Plaintiffs. (Id.) To induce Third Party Plaintiffs to extend them this credit, Haim and Abikzer personally represented to Isaac Cohen that “the invoice [for the garments] would be paid” even though they knew the enterprise could not pay the invoice amount. (Id. ¶¶ 57, 59.) Haim also signed a guarantee to this effect on August 28, 2014. (Id. ¶ 57.) To date, “no money has been paid” to Third Party Plaintiffs “on this invoice.”[3] (Id.)

         Around the same time, Guotai USA agreed to “take over” the lease of a property on Rio Vista Avenue in Los Angeles (“the Rio Vista property”) from the enterprise in exchange for a $4, 000 per month rental subsidy. (Id. at 26.) J&Company made the first two $4, 000 payments in July and August; however, thereafter, the enterprise tendered checks that were returned by Third Party Plaintiffs' bank for insufficient funds. (Id.) By the time Third Party Plaintiffs negotiated a new lease with the Rio Vista property's landlord in August 2016, the enterprise owed $80, 000 in missed monthly payments. (Id.)

         On April 5, 2016, Haim entered the Rio Vista property without Third Party Plaintiffs' permission, and removed a computer server that contained “all” of the intellectual property licensed to Third Party Plaintiffs under the agreement. (Id. ¶ 27.) This server also contained Third Party Plaintiffs' own intellectual property. (Id.) Third Party Plaintiffs have not been able to recover or duplicate the intellectual property that was on the server. (Id.)

         After stealing the server, Haim undertook additional activities to “sabotage” the licensing agreement. (Id. ¶ 29.) On June 21, 2016, Third Party Plaintiffs entered into an agreement with Kickfurther, a crowd-funding site. (Id.) After the resulting crowd-funding campaign raised $100, 000, Haim contacted employees of Kickfurther and informed them that Third Party Plaintiffs did not have a license to use the JNCO marks. (Id.) As a result, Kickfurther “cancelled” the campaign and did not pay out the $100, 000. (Id.) In addition, Haim caused the JNCO website to “go off-line” several times before permanently disconnecting it in April 2016. (Id.)

         Plaintiffs filed this lawsuit on September 15, 2016, alleging, among other things, that Defendants violated the licensing agreement and diluted the JNCO marks by creating a competing “J Crown” mark. (ECF No. 1.) Plaintiff's Complaint makes no mention of the debts, bad checks, property issues, the missing server, or disruptions of the licensing agreement. (Id.) On October 31, 2016, Defendants filed an answer and Guotai USA and Litian filed a counterclaim. (ECF Nos. 38-39.) That same day, Guotai USA and Litian also filed a Third Party Complaint against Haim, Abikzer, and J&Company. (ECF No. 40.) The Third Party Complaint contains nineteen causes of action including breach of contract, intentional misrepresentation, negligent misrepresentation, trespass, conversion, violation of California Civil Code section 1719(a) for passing checks without sufficient funds, and violation of California's Unfair Competition Law (“UCL”). Haim filed an answer to the Third Party Complaint on November 29, 2016, denying liability as to all nineteen causes of action. (ECF No. 55.)

         On March 13, 2017, the Clerk of Court entered default against J&Company and Abikzar at Third Party Plaintiffs' request. (ECF Nos. 78-79.) On April 14, 2017, Third Party Plaintiffs filed the pending motion for default judgment. (ECF No. 85.)

         III. ...


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