MEDIA

October 10, 2008

Crediting Defendant’s Words Over Those of DEA Agents

Published in: New York Law Journal | volume 240

This column reports on several significant, representative decisions handed down recently in the U.S. District Court for the Eastern District of New York. Judge Nicholas G. Garaufis credited defendant’s testimony over that of two government agents after a hearing on a motion to suppress evidence. Judge David G. Trager dismissed a variety of claims and counterclaims alleging trademark infringement and related state law violations. And Judge Arthur D. Spatt rejected defendant’s request for certification of an interlocutory appeal relating to personal jurisdiction under ERISA.

No Probable Cause for Arrest

In United States v. Matos, 07 CR 870 (EDNY, Sept. 23, 2008), Judge Garaufis, sharply discrediting the testimony of government agents, found no probable cause to justify defendant’s arrest for possession of cocaine and therefore suppressed all evidence obtained as a product of that arrest. (The court later granted the government’s request to submit additional evidence and reargue the motion.)

At the hearing on defendant’s motion to suppress, the evidence showed that in November 2007 a Fugitive Task Force was surveilling a Brooklyn house in pursuit of defendant’s cousin, Antony Matos, a fugitive wanted on murder charges. According to the two task force members who testified, the surveillance began at about 2:30 or 3:00 p.m., with six or seven officers in several cars placed along the block. Between 5:00 and 6:00 p.m., they finally saw a man leave the house speaking on his cell phone and carrying a shopping bag. The officers, in plain clothes, approached the man to question him. The man then tucked his phone to his shoulder and, as he ‘reached down to either his pocket or his waistband,’ he ‘dropped’ two Ziploc bags in plain view of the officers. One officer detained the man while the other retrieved the bags, which appeared to contain cocaine. The man was handcuffed, taken into custody and identified as defendant Edgar Matos.

The officers testified that defendant asked to be taken inside the house and, once inside, spontaneously revealed that he had drugs in a kitchen cabinet. Defendant also allegedly offered to inform against his fugitive cousin. Further conversations ensued. The Drug Enforcement Administration (DEA) was slow in responding to calls by the task force. About an hour and a half after defendant mentioned the drugs in the cabinet, the officers opened the cabinet with defendant’s assistance and found more Ziploc bags of cocaine and other incriminating items. It was only after the search of the cabinet that defendant received his Miranda rights. Defendant admitted that the drugs were his.

Defendant’s version of the events was quite different. He testified that as he left the house, the officers sprang from their cars, showing their guns and yelling, ‘Don’t fucking move. If you move, I will blow your head off.’ He denied dropping anything on the ground, or asking to go into the apartment, or consenting to any entry or search before the cabinet was opened. Defendant testified that he protested as the officers searched the apartment and that they kept asking him where his cousin was and urged him to cooperate.

It was undisputed that defendant did not receive his Miranda warnings until 7:20 p.m., after the search of the cabinet.

Probable cause to arrest defendant hinged on a single disputed factual issue: whether, before his detention, defendant dropped the Ziploc bags on the ground.

Judge Garaufis found the officers’ story defied credibility. They were waiting for an alleged fugitive murderer to leave the house yet claimed to walk ‘calmly’ towards defendant when he emerged. ‘The officers offered no rationale to explain why they would abandon their own cover so casually, and so jeopardize their whole operation and their own safety when possibly approaching a dangerous felon on the street.’ Slip op. 9-10. Moreover, the officers’ insistence that, when defendant reached into his pocket or waistband, they ‘neither drew a weapon or even screamed at him is too absurd to be credible ‘ –especially in light of common police testimony that guns are often hidden in waistbands. Slip op. 10.

The extraordinary delay in giving Miranda warnings, perhaps two hours after the arrest, also undermined the officers’ story. ‘The obvious inference,’ the court stated, ‘is that for all those hours, the officers had no drug evidence against [Mr.] Matos and no basis for his arrest. Only the discovery of the cocaine in the cabinet triggered a justifiable arrest.’ Slip op. 11.

Because there was no probable cause for the arrest, defendant’s statements and all physical evidence seized were inadmissible. Slip op. 12.

Trademark Infringement: Russian Chocolates

In Krasnyi Oktyabr Inc. (a/k/a, ‘Red October’) v. Trilini Imports, 05 CV 5359 (EDNY, Sept. 25, 2008), Judge Trager dismissed plaintiff’s claims and defendants’ counterclaims based on trademark infringement and state law arising from the import and sale of Russian candies.

Plaintiff entered into a licensing agreement in 1996 with a Russian manufacturer, Obeyediyonne Conditery (United Confectioners), to use the ‘Krasnyi Oktyabr’ trademarks in the United States. In 1999 plaintiff obtained a U.S. trademark registration for one of the brands and in 2001 obtained a trademark for a second. In an additional agreement giving plaintiff the exclusive right to sell three brands to the ‘Russian Ethnic Market’ in the United States, plaintiff assigned its ‘entire right, title, and interest’ in the trademarks to the Russian manufacturer.

In 2005 defendants began importing and selling United Confectioners’ chocolate bars in the United States at prices below plaintiff’s. They had purchased the candy from third-party Russian distributors who had purchased them from United Confectioners. The packaging on the candy sold by defendants was indistinguishable from the packaging on plaintiff’s candy. United Confectioners informed defendants in 2005 that it would not sell candy directly to defendants from the three brands listed in the exclusive agreement with plaintiffs, but that defendants could purchase United Confectioners’ other brands. Defendants continued selling the three brands subject to plaintiff’s agreement, and plaintiff claimed it is losing business as a result.

Judge Trager granted defendants’ motion to dismiss plaintiff’s §32 claim under the Lanham Act for lack of standing. The central issues were whether plaintiff was authorized to act as an agent of United Confectioners in protecting its trademark rights and whether United Confectioners had suffered damages. The court found that plaintiff had not demonstrated any lost profits suffered by United Confectioners, because there was no evidence that United Confectioners’ profits were different on candy sold for export and that sold for domestic consumption given the balance of costs and expenses.

Moreover, plaintiff did not provide a reason why United Confectioners –the real party in interest –could not participate in the litigation or bring subsequent infringement claims against defendants. Prior to the 2005 assignment of the trademark rights to United Confectioners, plaintiff may have had exclusive rights to sue for infringement, but after the assignment it no longer had those rights.

Next, Judge Trager dismissed plaintiff’s Lanham Act claims on the merits. For §32(1) and 43(a) claims under the Lanham Act, a plaintiff must show that it has a valid mark, entitled to protection, and the defendant’s use of it was likely to cause confusion. Although the products all originated from United Confectioners’ factories, plaintiff argued that defendants’ candy may not be considered ‘genuine,’ because they were not subjected to the same quality control procedures as plaintiff’s. Judge Trager found that plaintiff had not shown that defendants’ goods were subjected to any different quality control standards. Plaintiff’s unfair competition claim failed for similar reasons.

Plaintiff’s claims under New York General Business Law fared no better. First, defendants did not violate General Business Law §349, because plaintiff could not demonstrate harm to the consumer public. Second, defendants did not violate General Business Law §350, proscribing false advertising. Apart from their failure to show harm to consumers, plaintiffs did not even show that defendants advertised the candy. Third, defendants did not violate General Business Law §360-1, prohibiting conduct that would injure business reputation or dilute the distinctive quality of a mark, because plaintiff did not have the status of a legal representative and there was no blurring or tarnishment of the mark.

The court also dismissed plaintiff’s claim of tortious interference with prospective business relations. Plaintiff could not demonstrate that defendants’ conduct was undertaken for the sole purpose of harming plaintiff, or that it was wrongful or improper. Nor did plaintiff show any interference with any prospective client.

Judge Trager dismissed defendants’ counterclaims for abuse of process, fraud on the U.S. Patent and Trademark Office, antitrust violations and tortious interference with defendants’ prospective business relations.

ERISA, Personal Jurisdiction

In Garg v. Winterthur Life, 07 CV 510 (EDNY, Aug. 26, 2008), Judge Spatt denied defendant’s motion for orders: (1) certifying an interlocutory appeal of the court’s decision denying defendant’s motion to dismiss an ERISA complaint for lack of personal jurisdiction, and (2) determining the applicable standard and scope of review of defendant’s decision to deny plaintiff disability benefits.

Plaintiff was employed by Credit Suisse First Boston (CSFB) as a supervisor of the Global Market Risk Management group from 1994 until 1999 when he claimed that he became disabled and could no longer perform his duties. Defendant, a Swiss insurance company, acts as the plan administrator of the Pension Fund International of the Credit Suisse Group (PFI Plan) in which plaintiff participated. The PFI Plan provided for payments to plaintiff if he became disabled.

ERISA, the Employee Retirement Income Security Act of 1974, provides for nationwide service of process. In the U.S. Court of Appeals for the Second Circuit, where nationwide service of process is statutory, the court applies a ‘national contacts’ test –looking to a defendant’s minimum contacts with the United States as a whole to determine personal jurisdiction. Here, the question was whether the court had jurisdiction over insurance or employee benefits plan administrators, who undertook administration of plans for New York residents.

Plaintiff alleged that defendant:

  1. had contracted with CSFB to provide insurance to plaintiff and other employees living in New York;
  2. had sent to and received correspondence from plaintiff in New York;
  3. administered the policy through contact with Nassau County; and
  4. was a subsidiary of Credit Suisse Group, the parent of CSFB.

Such factors, in the court’s view, were sufficient to establish minimum contacts by defendant. Judge Spatt declined to certify an interlocutory appeal and adhered to the court’s position that the facts alleged by plaintiff established a prima facie showing of personal jurisdiction. An immediate appeal, the court observed, was not likely to materially advance the termination of the litigation, because plaintiff was entitled to discovery on the jurisdictional question.

Judge Spatt then turned to defendant’s motion to determine the applicable standard and scope of review. Defendant contended that because an undated plan document entitled ‘General Conditions’ gave it discretionary authority to determine eligibility for benefits, the court could review its decision only under an ‘arbitrary and capricious’ standard, considering only the administrative record before the plan administrator and limiting discovery to that record. Defendant, however, did not meet its burden of establishing that the ‘General Conditions’ were in place at the time plaintiff’s disability claim arose in light of plaintiff’s contention that he had not seen the ‘General Conditions’ until after the litigation was commenced. Thus, the court declined to decide on a standard of review based on that document.

Finally, plaintiff was entitled to discovery on defendant’s potential conflict of interest as both plan administrator and insurer responsible for making payments, the lack of written procedures in the record for determining claims, and defendant’s reliance on the decision of another ‘local plan’ rather than engaging in a substantive evaluation of plaintiff’s claim. As the court noted, additional discovery could lead to information that would provide ‘good cause’ for looking beyond the administrative record to determine the appropriate standard of review.

Harvey M. Stone and Richard H. Dolan are partners at Schlam Stone & Dolan. Bennette D. Kramer, a partner of the firm, assisted in the preparation of the article.

[This article is reprinted with permission from the October 10, 2008, issue of the New York Law Journal. Copyright © 2008 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.]