throbber
Case 1:15-cv-05826-CBA-LB Document 1633 Filed 12/23/20 Page 1 of 13 PageID #: 35181
`Clerk’s Office
`Filed Date: 12/23/2020
`
`UNITED STATES DISTRICT COURT
`EASTERN DISTRICT OF NEW YORK
`----------------------------------------------------------x
`ABBOTT LABORATORIES, ABBOTT
`DIABETES CARE INC., and ABBOTT
`DIABETES CARE SALES CORPORATION,
`Plaintiffs,
`
`-against-
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`ADELPHIA SUPPLY USA, et al.,
`Defendants.
`----------------------------------------------------------x
`
`12:36 PM
`
`U.S. DISTRICT COURT
`EASTERN DISTRICT OF
`NEW YORK
`BROOKLYN OFFICE
`
`NOT FOR PUBLICATION
`MEMORANDUM & ORDER
`15-CV-5826 (CBA) (LB)
`
`AMON, United States District Judge:
`Abbott1 initiated this action in October 2015, asserting claims against multiple defendants,
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`including the H&H Defendants2, in connection with the unlawful sale of Abbott’s international
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`FreeStyle test strips in the United States. (ECF Docket Entry (“D.E.”) # 1.) Following extensive
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`discovery, Abbott moved for summary judgment against the defendants, seeking, inter alia,
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`summary judgment on its claims against H&H under the Lanham Act for trademark infringement
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`and willfulness. (D.E. # 1414.) The Court granted Abbott’s motion for summary judgment as to
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`liability, finding H&H liable for willful infringement as a matter of law. (D.E. # 1563.) The Court
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`also found all defendants (save for a few individual defendants) liable at summary judgment for
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`Lanham Act trademark infringement, although it determined that damages could not be resolved
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`on summary judgment.
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`During the same time in which Abbott was preparing its motion for summary judgment,
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`Abbott commenced a related action, Abbott Laboratories et al. v. H&H Wholesale Services Inc. et
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`al., No. 17-cv-3095 (E.D.N.Y.), against the H&H Defendants for their sale of international
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`1 Plaintiffs Abbott Laboratories, Abbott Diabetes Care Inc., and Abbott Diabetes Care Sales Corp. (collectively,
`“Abbott”).
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`2 H&H Wholesale Services, Inc. (“H&H”), Howard Goldman, and Lori Goldman (collectively, the “H&H
`Defendants”).
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`1
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`FreeStyle strips repacked in counterfeit U.S. packaging. In that action, Abbott conducted a Court-
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`authorized search of H&H’s premises, which resulted in the seizure of their email server. Review
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`of the contents of that server revealed that the H&H Defendants had engaged in a calculated pattern
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`of discovery misconduct in this action that amounted to a fraud on the Court. (D.E. # 1613 at 4–
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`6.)
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`Abbott moved for case-ending sanctions against the H&H Defendants in the instant action,
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`and the motion was referred to Magistrate Judge Bloom for report and recommendation (“R&R”).
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`See Jan. 14, 2019 Order Referring Mot. On May 2, 2019, Judge Bloom issued an R&R
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`recommending that the Court grant Abbott’s motion and enter a default judgment against the H&H
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`Defendants. (D.E. # 1545.) After receiving objections to the R&R and Abbott’s reply to those
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`objections, the Court adopted Judge Bloom’s R&R in its entirety and entered a default judgment
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`against the H&H Defendants. (D.E. # 1613.) Among the Court’s findings were that “the H&H
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`Defendants—including the Goldmans—had a duty to comply with the Court’s orders, and each
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`willfully and grossly failed to do so.” Id. at 15; see also id. at 16, 19 (finding the Goldmans
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`“individually liable for the willful discovery fraud and cover-up they undertook personally or that
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`was undertaken by their agents in their name”); id. at 25 (finding that “the H&H Defendants’
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`withholding of … documents constituted willful discovery misconduct” regardless of the reason
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`they were withheld).
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`Given the entry of default, on March 24, 2020, the Court ordered briefing on the issue of
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`when the damages inquest under Federal Rule of Civil Procedure 55(b)(2) against the H&H
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`Defendants should occur in relation to trial against the remaining non-defaulting defendants.
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`2
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`Abbott, the H&H Defendants, the G&S Defendants3 and the S&S4 Defendants have all submitted
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`briefing on the issue. The H&H Defendants argue that the damages inquest should either (a) come
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`after the non-defaulting defendants’ trial; or (b) be consolidated with the non-defaulting
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`defendants’ trial. (D.E. # 1614.) Abbott and the S&S Defendants argue that the damages inquest
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`as to the H&H Defendants should be held prior to the trial for the non-defaulting defendants. (D.E.
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`## 1619, 1622.) The G&S Defendants express no view on the sequencing, arguing only argue that
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`the inquest and trial should not be consolidated. (D.E. # 1618.)
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`A more developed statement of the facts, issues, and procedural history of this complex
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`action is provided in the Court’s September 30, 2019 Memorandum and Order. Familiarity with
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`the matter is here presumed, and the Court recounts only those facts necessary to adjudicate the
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`present issue. For the reasons provided below, the damages inquest shall be held prior to the trial
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`for the non-defaulting defendants.
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`DISCUSSION
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`The decision of whether to enter a final judgment against some but fewer than all of the
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`parties in an action is left to the sound discretion of the district court. Bleecker v. Zetian Sys., Inc.,
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`No. 12 CIV. 2151 DLC, 2013 WL 5951162, at *6 (S.D.N.Y. Nov. 1, 2013). The standard is
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`governed by Rule 54(b), which provides in relevant part:
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`[W]hen multiple parties are involved, the court may direct the entry of a final
`judgment as to one or more, but fewer than all, claims or parties only if the court
`expressly determines that there is no just reason for delay.
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`
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`3 Defendants Able Wholesalers of Tennessee LLC, Kevin Singer, Paul Leight, Massalah Trading U.S.A., Ltd. Saad
`(Sam) Haddad, Matrix Distributors, Inc. Christopher Benevent, Seth Grumet, Drugplace, Inc., Neil Feig, Save Rite
`Medical.com LLC, Mark Kaplan, Shie Greenfeld, Dream Cereal, Inc. and Douglas Hauck are represented by Goodman
`& Saperstein LLC, the (“G&S Defendants”).
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` Value Wholesaler, Inc., Adelphia Supply USA, and Primed Pharmaceuticals LLC are represented by Stern & Schurin
`LLP (the S&S Defendants”).
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` 4
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`3
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`Fed. R. Civ. P. 54(b).
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`In making such a determination, “there are no fixed criteria.” Bleecker, 2013 WL 5951162,
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`at *6 (S.D.N.Y. Nov. 1, 2013) (internal quotation marks omitted). However, courts have
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`interpreted the Supreme Court’s nineteenth-century decision in Frow v. De La Vega, 82 U.S. (15
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`Wall.) 552, 21 L.Ed. 60 (1872) as informing the propriety—at least in certain circumstances—of
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`a court’s entering final judgment against a defaulting defendant while answering defendants
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`remain in the action. See id. Accordingly, the Court must determine whether holding a damages
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`inquest and entering final judgment against the H&H Defendants prior to the trial of the non-
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`defaulting defendants is consistent with both Rule 54 and Frow.
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`A. Frow and Joint Liability
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`The H&H Defendants primarily argue that a damages inquest conducted prior to the trial
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`of the answering defendants is premature and impermissible in light of Frow. Abbott contends
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`that Frow’s holding is not controlling here, and that the rationale underlying Frow is not implicated
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`by the facts of the present case. The Court concludes that Frow is not controlling here and does
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`not necessarily prohibit the damages inquest and entry of a final judgment under Rule 54.
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`In Frow, the plaintiff filed a bill in equity to determine title to a parcel of real property.
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`The pleading alleged that fourteen defendants engaged in a joint conspiracy to defraud plaintiff of
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`the property. When one of these defendants failed to plead, a default judgment was entered against
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`him. The answering defendants proceeded to trial and prevailed on the merits. The Supreme Court
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`vacated the default judgment, observing that it would be “absurd[]” to have “one decree of the
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`court sustaining the charge of joint fraud committed by the defendants; and another decree
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`disaffirming the said charge. . . .” Id. at 554.
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`Accordingly, courts have determined that where Frow applies, notice of defendant’s default
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`may be docketed, “but entry of final judgment should be deferred pending disposition as to the
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`non-defaulting defendants, so that the case can be resolved by one final, consistent judgment.”
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`Mitchell v. Lyons Prof'l Servs., Inc., 727 F. Supp. 2d 116, 119 (E.D.N.Y. 2010). Exactly when
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`Frow applies and what it stands for, however, is not entirely clear from the opinion itself. See
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`Farzetta v. Turner & Newall, Ltd., 797 F.2d 151, 154 n.2 (3d Cir. 1986) (noting Frow’s
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`“ambiguity”). Courts interpreting Frow “have treated this holding narrowly,” Rivera v. Mattingly,
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`No. 06-CIV-7077(LAP)(HBP), 2017 WL 7050323, at *6 (S.D.N.Y. June 23, 2017), finding the
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`holding applies to defendants who are jointly liable. See Lemache v. Tunnel Taxi Mgmt., LLC,
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`354 F. Supp. 3d 149, 152 (E.D.N.Y. 2019) (“[Frow] explained that in a multi-defendant case where
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`defendants are alleged to be jointly liable, entering a default judgment runs the risk of inconsistent
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`judgments.”) (emphasis original); Mitchell, 727 F. Supp. 2d at 119 (noting Frow’s “holding has
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`been narrowed to cases involving true joint liability”) (internal quotation marks omitted); see also
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`10A Charles Alan Wright, et al., Federal Practice and Procedure: Civil 3D § 2690 (2001) (Frow
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`stands for the proposition that “when one of several defendants who is alleged to be jointly liable
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`defaults, judgment should not be entered against that defendant until the matter has been
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`adjudicated with regard to all defendants, or all defendants have defaulted.”).
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` Similarly, the Second Circuit “has cast doubt on the vitality of Frow in light of the
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`subsequent enactment of Federal Rule of Civil Procedure 54(b), which authorizes entry of default
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`judgment against fewer than all parties as long as there is no just reason for delay.” Consumer
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`Fin. Prot. Bureau v. NDG Fin. Corp., No. 15-CIV-5211(CMR)(WL), 2018 WL 1605067, at *6
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`(S.D.N.Y. Mar. 12, 2018) (citing Int’l Controls Corp. v. Vesco, 535 F.2d 742, 746 n.4 (2d Cir.
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`1976)). The Second Circuit observed that “it is most unlikely that Frow retains any force
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`subsequent to the adoption of Rule 54(b). In any event, at most, Frow controls in situations where
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`the liability of one defendant necessarily depends upon the liability of the others.” Int’l Controls
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`Corp, 535 F.2d at 746 n.4. “In contrast, if the liability sought to be imposed is joint and several
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`rather than joint, most courts have held that the rationale of Frow does not directly apply, since it
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`would not be inconsistent to hold some but not all defendants liable.” Rivera, 2017 WL 7050323,
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`at *7. See also Lemache, 354 F. Supp. 3d at 153 (explaining that, unlike a theory of joint and
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`several liability, it is “impossible” under a theory of joint liability “for one defendant to be liable
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`unless all other defendants are also liable”); In re Uranium Antitrust Litig., 617 F.2d 1248, 1257–
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`58 (7th Cir. 1980) (same).
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`Frow is not directly controlling in this action. As an initial matter, Frow concerned jointly
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`liable defendants, some of which were exonerated on the merits. Here, both the defaulting and
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`non-defaulting defendants have already (with minimal exception) been found liable for trademark
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`infringement at summary judgment; the non-defaulting defendants are proceeding to trial on the
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`question of damages. Moreover, the H&H Defendants were placed in default in light of their
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`unique actions. Accordingly, there is no risk of inconsistent judgments as to liability on these
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`claims. Moreover, with regard to the Lanham Act claims for trademark infringement against both
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`the defaulting and the non-defaulting defendants, Abbott has alleged a theory of joint and several
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`liability. See In re Uranium Antitrust Litig., 617 F.2d 1248, 1257–58 (7th Cir. 1980) (“The result
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`in Frow was clearly mandated by the Court’s desire to avoid logically inconsistent adjudications
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`as to liability. However, when different results as to different parties are not logically inconsistent
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`or contradictory, the rationale for the Frow rule is lacking. Such is this case involving joint and
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`several liability.”). Abbott does not argue that any one defendant is automatically liable for the
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`entirety of the damages sought by Abbott regardless of which boxes the defendant actually
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`trafficked. Rather, each defendant is liable for the unlawfully diverted boxes that it trafficked, and
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`Abbott is seeking varying damages amounts against different defendants based on that varying
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`number of boxes. Cf. Frow, 82 U.S. (15 Wall.) 552 (regarding a single res in controversy).
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`B. Frow and Joint and Several Liability
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`Abbott has also, however, maintained that defendants are jointly and severally liable for
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`trademark infringement damages attributable to those boxes for which multiple defendants were
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`in the same distribution chain. H&H Defendants agree. (See D.E. # 1614 at 23 (“[W]e do accept
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`that H&H, like any other individual defendant in this case, is jointly and severally liable for the
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`damages specifically allocated to its particular distribution chain.”).) H&H Defendants point to
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`this doctrine as raising the specter of inconsistent damages awards as between such defendants
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`and, under the principles guiding Frow and its progeny, precluding entry of a final judgment prior
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`to the damage determination at trial for the non-defaulting defendants.
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` Although “[t]he Frow holding has been narrowed to cases involving true joint liability,”
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`courts have, in the absence of countervailing justifications, nonetheless “also consistently delayed
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`damages inquests even where a plaintiff seeks joint and several liability in order to avoid the
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`problems of dealing with inconsistent damage determinations.” Harvey v. Home Savers
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`Consulting Corp., No. 07-CV-2645 (JG), 2008 WL 724152, at *1 (E.D.N.Y. Mar. 17, 2008)
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`(internal citations and quotation marks omitted) (collecting cases); Gesualdi v. MMK Trucking,
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`Inc., No. CV 09-1484 SLT AKT, 2010 WL 3619569, at *5 (E.D.N.Y. Aug. 24, 2010), report and
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`recommendation adopted, No. 09 CV 1484 SLT AKT, 2010 WL 3619719 (E.D.N.Y. Sept. 9, 2010)
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`(“Even though[] the defaulting and non-defaulting Defendants may be held jointly and severally
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`liable for the same damages, deferring consideration of damages with respect to the defendants in
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`default until after Plaintiffs’ contested claims are litigated will minimize the risk of inconsistent
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`awards.”) (internal brackets and quotation marks omitted).
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`These cases are, however, distinguishable in that the risk of an inconsistent damages award
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`arose there because the plaintiff was seeking a single, unitary damages amount against multiple
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`defendants. Where a unitary damages figure is sought against defaulting and non-defaulting
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`defendants alike, there is a risk that logically inconsistent awards be entered. As stated above,
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`Abbott is here seeking different and unique damages amounts against different defendants based
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`on the boxes that particular defendant sold.
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`On the other hand, the H&H Defendants rightly observe that the defendants in this action
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`did not operate in neat silos, and that the distribution chains involving multiple defendants that
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`trafficked the same infringing box(es) are interweaving. Moreover, at summary judgment, several
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`defendants argued that Abbott could not prove that the defendants’ infringement displaced sales
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`of non-infringing boxes and caused actual damages. The Court declined to grant summary
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`judgment as to damages, determining that the jury must decide the extent to which Abbott suffered
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`any actual damages. The H&H Defendants now argue that Abbott’s theory of the case places them
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`at the center of a complicated distribution-chain web, leaving H&H jointly and severally liable
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`with multiple non-defaulting defendants for an outsize portion of the total number of infringing
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`boxes that Abbott alleges the H&H Defendants trafficked in. They argue that it would be at the
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`heart of Frow’s concern were the Court to impose damages on the H&H Defendants at an inquest
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`for trafficking in infringing boxes where the jury determined, vis-à-vis a non-defaulting defendant
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`in the same distribution chain as H&H, that those same boxes did not cause actual damages at the
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`point of sale. They argue that the presence of this common issue between the defendants as to
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`whether an infringing box caused actual damages renders them and non-defaulting defendants in
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`the same distribution chain “similarly situated.”
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`Courts have observed that “decisions in this Circuit subsequent to Vesco support extension
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`of Frow to cases in which defendants are merely ‘similarly situated.’” Diarama Trading Co. Inc.
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`v. J. Walter Thompson U.S.A., Inc., No. 01-cv-2950 (DAB), 2002 WL 31545845, at *4 (S.D.N.Y.
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`Nov. 13, 2002) (quoting Farberware v. Groben, 1991 WL 123964, at *3 n. 4 (S.D.N.Y.1991)).
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`The “similarly situated” principle has been applied in cases where liability of the answering
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`defendants was yet undetermined, and the defendants’ liability was inextricably connected.
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`Diarama Trading Co. Inc, 2002 WL 31545845, at *4 (declining to enter default judgment for fear
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`of prejudicing appearing defendants, who all claimed that their rights in the contested trademark
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`derive from the defaulting defendant). Here, all of the defaulting and non-defaulting defendants
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`(with minimal exception) have all already been found liable for trademark infringement.
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`Moreover, it is not clear to the Court at this time which defendants may be jointly and severally
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`liable with which other defendants, and for what boxes. Finally, the non-defaulting defendants
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`may present different defenses and theories to the jury that are accepted by the jury but are
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`inapplicable to the H&H Defendants.
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`The H&H Defendants have failed to show that “liability of one defendant necessarily
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`depends upon the liability of others”, Int’l Controls Corp, 535 F.2d at 746 n.4. And, even assuming
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`arguendo that there is a common issue between the defendants within the purview of the “similarly
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`situated” doctrine which presents a possible risk of inconsistent awards, the Court weighs this
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`against the countervailing factors and determines there is no just reason for delay in entering final
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`judgment against the H&H Defendants. See Shanghai Automation Instrument Co. v. Kuei, 194 F.
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`Supp. 2d 995, 1009 (N.D. Cal. 2001) (“To hold that the mere possibility of inconsistent judgment
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`divests the Court of its discretion under Rule 54(b) would imply that whenever there are multiple
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`defendants who raise similar defenses, the court could never enter a default judgment until
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`conclusion of the entire case regardless of the substantial prejudice likely to be suffered by the
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`plaintiff as a result of the delay. Such a rule would contravene the purpose of the 1961 amendment
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`to Rule 54(b).”).
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`C. Balancing the Equities
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`In Int’l Gemmological Inst., Inc. v. Rafaeil, the court observed that while some decisions
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`delayed a damages inquest over concerns of inconsistent awards, that interest in “judicial
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`economy” must yield to the “interests of the parties in proceeding with the inquest.” No. 05-cv-
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`2395 JGK JCF, 2005 WL 3880222, at *2 (S.D.N.Y. Aug. 17, 2005), report and recommendation
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`adopted, 2006 WL 739822 (S.D.N.Y. Mar. 21, 2006). Specifically, the parties there would have
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`been prejudiced by delay because plaintiff could not begin to collect until final judgment was
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`entered, and the “defaulting defendants would have ample opportunity to spend, secrete, or
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`otherwise protect their ill-gotten gains . . . [which would] permanently prevent the plaintiff from
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`being made whole.” Id. at *3. Additionally, the court determined that this would also prejudice
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`the non-defaulting defendants, since if “defaulting parties are able to insulate themselves from
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`judgment during the continuing litigation, the non-defaulting parties could be forced to satisfy the
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`entire damage award without the possibility of contribution from the defaulting defendants.” Id.;
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`see also Bleecker v. Zetian Sys., Inc., No. 12-cv-2151 DLC, 2013 WL 5951162, at *7 (S.D.N.Y.
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`Nov. 1, 2013) (declining to delay entry of final judgment against defaulting defendant because,
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`inter alia, plaintiff plead that defaulting defendant against whom final judgment was sought was
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`“seeking to avoid liability” by transferring out its assets); Lemache, 354 F. Supp. 3d at 154
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`(“Courts in this Circuit have routinely declined to apply Frow in cases asserting joint and several
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`liability, and proceeded to decide the default judgment motion while other parties are litigating.”).
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`Abbott asserts that they will be prejudiced by a delay of final judgment against the H&H
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`Defendants because there is a serious risk that those defendants will dissipate their assets prior to
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`final judgment and collection. Citing to declarations filed under seal, Abbott avers that the H&H
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`Defendants’ former counsel stated early in this litigation that his firm had taken steps to render the
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`H&H Defendants judgment proof. (See D.E. # 1619 at 26.) Abbott further avers that during this
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`litigation, the H&H Defendants “took additional steps to move to protect their assets from
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`collection.” (Id.) The non-defaulting defendants argue that they would be similarly prejudiced by
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`granting the H&H Defendants more time to insulate themselves from collection. The H&H
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`Defendants have not responded to this allegation in their briefing on this damages-sequencing
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`issue. The Court finds this risk is credible and substantial. Additionally, the Court takes notice of
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`the ongoing global pandemic and the substantial delay in jury trials that it has caused. See e.g.,
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`E.D.N.Y. Administrative Order 2020-26 (postponing all jury selection and trials until further
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`notice). Considering that criminal matters will likely be prioritized over civil matters when jury
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`trials resume, the Court expects a substantial delay before a jury trial may be conducted for the
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`non-defaulting defendants.
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`The H&H Defendants do, however, argue that a separate damages inquest prior to trial
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`would be inefficient. As an initial matter, the Court determines that any risk of judicial inefficiency
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`is here outweighed by the risk of prejudice to the other parties. Int’l Gemmological Inst., 2005
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`WL 3880222, at *2. Moreover, the H&H Defendants overstate the risk of inefficiency. Their
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`assertion that the proceedings at an inquest and trial would be entirely duplicative is unfounded.
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`Although there may be some overlap in the evidence presented during the different stages, the
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`facts and findings relevant to Abbott’s damages claim against the H&H Defendants are unique to
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`them. And for those defendants that go to trial, the jury will be making findings unique to the
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`damages liability of those defendants appearing before it, based on their conduct and arguments
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`relating to defenses applicable to their circumstances but not others. In contrast, delaying the
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`inquest until after a jury trial would not reduce the scope of the inquest, because the H&H
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`Defendants’ liability for Lanham Act damages, aiding-and-abetting-fraud damages, reputational
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`harm, and attorneys’ fees are all specific to them. Finally, the decision to hold the inquest first
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`may well prove to be a more efficient use of judicial resources if it helps to facilitate a settlement
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`that obviates trial: if Abbott is successful at inquest against the H&H Defendants in establishing
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`damages, the non-defaulting defendants may use that figure as a guide in evaluating their own
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`exposure; if Abbott is not successful in proving a significant quantum of damages, that will inform
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`Abbott that it may fare better if it tempers its demands in its future negotiations with the non-
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`defaulting defendants.5
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`The H&H Defendants were placed in default as a result of their serious fraud upon the
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`Court. Delaying the inquest and entry of final judgment could frustrate the Court’s interest in
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`vindicating its sanctions and prejudice the other parties to this litigation. Weighing these
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`prejudices against the countervailing factors, the Court determines that there is no just reason for
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`delay, and that the damages inquest and entry of final judgment should precede the trial of the non-
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`defaulting defendants. Cf. Diarama Trading Co. Inc., 2002 WL 31545845, at *4 (holding that
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`“Plaintiff fail[ed] to convince the Court that good cause exists for the Court to exercise its authority
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`under Rule 54(b) to enter final judgment against [defaulting defendant]” because, inter alia,
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`5 Finally, the Court declines the H&H Defendants’ invitation to consolidate the inquest with the jury trial. In addition
`to the reasons provided in text, the Court concludes that consolidation would introduce undue prejudice to the parties
`and tax the jury’s focus in what is already a complex case.
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`“Plaintiff has made no showing of prejudice flowing from” a decision holding the motion for final
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`judgment in abeyance pending resolution of the merits against answering defendants); United
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`States v. First Funds LLC, No. 10 Civ. 6540(JGK)(MHD), 2012 WL 1415327, at *3 (S.D.N.Y.
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`Apr. 20, 2012) (citing Int’l Gemmological for the proposition that “one argument for separate
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`damage assessments … is that a plaintiff should be able to pursue prompt enforcement of judgment
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`against a defaulted defendant,” although finding that inapplicable to the case before it “because
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`there is no prospect of such an asset pursuit”).
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`CONCLUSION
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`For these reasons, the Court concludes that the damages inquest against the H&H
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`Defendants shall be held before the trial of the non-defaulting defendants.
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`The parties are directed to file briefing and relevant documentary evidence regarding the
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`proper calculation and amount of damages to be entered against the H&H Defendants, in
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`accordance with the following schedule: Abbott shall file its papers by January 29, 2021; the H&H
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`Defendants shall file any opposition by March 1, 2021; Abbot’s reply, if any, shall be filed by
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`March 15, 2020. If, after reviewing the papers, the Court determines that argument or an
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`evidentiary hearing is warranted, one may be scheduled at a later date.
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`SO ORDERED.
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`Dated: December 23, 2020
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`Brooklyn, New York
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`/s/ Carol Bagley Amon
`Carol Bagley Amon
`United States District Judge
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`13
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`

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