It was nearly a year ago that Burberry’s quest to recover more than $2.5 million from Asher Horowitz - whose company, Designers Imports USA, lost a trademark counterfeiting case in 2007 - was looking pretty bleak. As is often the case, a court ruled in the British brand’s favor and awarded damages, but collecting the $2.5 million proved easier said than done. Well, with a recent court decision, things are looking up for Burberry. Allow us to explain.
This tale begins with facts that we are quite familiar with. Designers Imports operated a website which sold counterfeit Burberry merchandise (among other things). In 2007, Burberry brought suit in the United States District Court for the Southern District of New York. And in July 2010, a final judgment was entered in Burberry’s favor, enjoining Designers Imports from infringing Burberry’s trademark and awarding over $2.5 million in damages.
But the story didn’t end there. In May 2010, Horowitz entered into an agreement with RTC Fashion Inc., which operates fashion85.com. Per the agreement, RTC Fashion would use Designers Imports’ website address for an annual fee of $500. So in June 2010, just one month before the court’s final decision was given, RTC Fashion assumed the name Designers Imports. According to Burberry, “Horowitz depleted Designers’ funds and assets by conveying www.designersimports.com to RTC in order to frustrate the enforcement of the judgment in the Federal Action.”
We’ve often seen defendants in cases like these – meaning those who sell counterfeits, are taken to court, and who are ordered to stop operating their website and to pay damages – evade actually paying damages. The usual course of action for said defendants is to just start another website. And since many of the operators are in other countries, there’s not a lot left to do in terms of collecting the money. But making strategic moves like this to avoid being held accountable is something we don’t often see.
Burberry, of course, was not deterred. In September of 2011, the fashion house commenced action in the Supreme Court of the State of New York against RTC Fashion and Horowitz. In short, Burberry asked that Designers Imports’ corporate veil be pierced, which would mean that Horowitz could be held personally liable for the $2.5 million judgment.
State law governs corporate veil piercing claims, which means that New York’s law applies in this case. As the recent decision from the court points out, in New York, piercing the corporate veil generally “requires a showing that the individual defendants 1) exercised complete dominion and control over the corporation, and 2) used such dominion and control to commit a fraud or wrong against the plaintiff which resulted in injury.” And the factors a court must consider when determining whether to pierce the corporate veil include “failure to adhere to corporate formalities, inadequate capitalization, commingling of assets, and use of corporate funds for personal use.”
Several facts worked to Burberry’s advantage: 1) Horowitz is the sole shareholder, officer and director of Designers Imports and RTC; 2) Designers Imports has no by-laws, no stock transfer ledger, no minutes of its shareholders meetings, and no minutes of its board of directors meetings; 3) Horowitz’s only meetings were with his accountant on a yearly basis for the purpose of preparing his tax returns; 4) Horowitz commingled Designers Imports’ assets for his personal use; 5) Horowitz used corporate funds for his personal use; and 6) Horowitz obtained several short-term loans from banks and religious organizations in order to keep Designers Imports solvent. In essence, there wasn’t much about Horowitz’s corporation that actually looked and behaved like a legitimate corporation.
Ultimately, the court found that Horowitz “abused the corporate form to advance his own personal interests” and that he “exercised his control to commit a wrong against the plaintiffs by dissolving Designers assets and transferring its domain name to his new company RTC, thereby rendering Designers incapable to satisfy the Federal Action judgment.” What this means is that Burberry can hold the counterfeiter personally liable for the judgment against Designers Imports.
Seedy businesses selling counterfeit goods with an illegitimate corporate front beware, your veil might be pierced next.
JENNIFER WILLIAMS is a law school graduate who writes about fashion, the legal avenues available for protecting it, and the ways in which the laws are falling short. She is currently awaiting admission to the NY State Bar. For more from Jennifer, follow her on Twitter.