FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
PUERTO RICO [Hon. José Antonio Fusté, U.S.
Z. Zyko for appellants.
A. Becker Whitaker for appellee.
Torruella, Lipez, and Thompson, Circuit Judges.
THOMPSON, Circuit Judge.
appeal represents yet another installment in the protracted
employment dispute between two former colleagues -
plaintiff-appellee Ángel Edgardo
Rodríguez-Miranda (Rodríguez) and
defendant-appellant Malik Benin (Benin). Here, we must
contend with the apparent efforts of Benin to avoid paying a
judgment entered against his company, Coquico, Inc.
(Coquico), in favor of Rodríguez for $348, 821.23.
Benin evidently sought to avoid the judgment by transferring
Coquico's assets to his mother, Acquanetta M. Benin
(Acquanetta), and to a new company, 18 Degrees North, LLC (18
Degrees North). The principal issue on appeal is, in essence,
whether the district court erred in using Federal Rule of
Civil Procedure 25(c) to hold Coquico, Benin, Acquanetta, and
18 Degrees North (collectively, appellants) liable for the
judgment originally entered against Coquico only. Benin also
challenges the district court order finding him in civil
contempt and imposing a $5, 000 sanction. After careful
consideration of appellants' arguments, we affirm.
HOW WE GOT HERE
case has an unusual, somewhat circuitous history; therefore,
it is necessary for us to go into some detail in laying out
its factual and procedural background.
saga began in 2000 when Rodríguez left his position in
the Puerto Rico Federal Affairs office in Philadelphia,
Pennsylvania, and was subsequently recruited by Benin to join
Benin's Pennsylvania-based start-up venture - Coquico.
manufactures and distributes plush-toy animals, including a
line of toys designed to resemble a small brown tree frog
that is adored in Puerto Rico - the coquí. Because the
company was a start-up, Rodríguez, who oversaw the
company's growth in Puerto Rico while Benin supervised
from afar in Philadelphia, initially agreed to lend the
company money (the record does not make clear what these
loans were for) and to forego salary and incentive payments
until the business got on its feet.
The Relationship Sours: A Tale of Two Lawsuits
worked for Coquico for four years, but became disgruntled
when Benin continued to withhold compensation and loan
repayments from him even as the company began making money.
Eventually, Rodríguez left Coquico and filed a
collection claim against the company in San Juan Superior
Court for money owed.And that's not all. After filing suit,
Rodríguez approached Coquico's suppliers and began
to distribute apparently similar plush-toy coquís
himself in Puerto Rico through his own company, Identiko,
Inc. (Identiko). In response to this upstart venture, Coquico
sued Identiko and Rodríguez in federal court in Puerto
Rico for, among other things, copyright infringement,
alleging that Rodríguez and Identiko had infringed
Coquico's copyrights for the coquí plush-toys
(more on this later). For the reader's ease, we refer to
this as the "copyright action" from here on out.
preliminary injunction hearing in the copyright action, the
district court entered an order enjoining Rodríguez
and Identiko from continuing to market the plush-toy
coquís.Coquico then sought contempt sanctions and
damages before the district court.
turn, Rodríguez dismissed, without prejudice, his
collection claim, which had still been pending in San Juan
Superior Court, and re-filed the action in federal court in
Puerto Rico against Coquico, Benin, and Benin's wife,
Phillipa Ashby, seeking payment of his promised wages and
loan money. It is this "collection action"
that is the case at issue here.
cases moved forward in parallel proceedings before different
district judges. In the copyright infringement action, the
district court found that "Identiko and Rodríguez
infringed [Coquico's] copyrights and that [Coquico was]
therefore entitled to recover damages." Coquico,
Inc. v. Rodríguez-Miranda, No. 07-1432 JP, 2010
WL 3372388, at *3 (D.P.R. Aug. 24, 2010). But Coquico
"elected to seek statutory damages in lieu of actual
damages, " and, on August 24, 2010, the district court
awarded Coquico $15, 000 based on the evidence presented at
the bench trial. Id. at *2-3.
the collection action, it went to trial, and, on July 27,
2011, a jury found for Rodríguez against Coquico
in the amount of $348, 821.23. Coquico did not appeal, and, on
September 19, 2011, the district court issued a writ of
execution of judgment.
a year later, on August 21, 2012, Rodríguez, who had
been unable to recover one dime on his judgment,
electronically filed a motion asking the district court to
order the sale of Coquico's assets to satisfy the
judgment. Accordingly, on September 11, 2012, the
district court approved the seizure and sale of Coquico's
copyrights and trademarks to satisfy the debt.In June 2013,
Coquico received notice from the district court that the sale
of its intellectual property had been scheduled for July 11,
2013. On July 8, 2013, three days before the scheduled sale,
Benin's mother, Acquanetta, who was not represented by
counsel, sought to intervene in the collection action and to
stay execution, claiming that she was the record owner of the
property set for sale having previously purchased the
relevant intellectual property from Coquico years before.
Notably, in support of her motion to intervene, Acquanetta
filed notarized transfer documents that seemed to show that
Benin, acting as "CEO & Founder" of Coquico,
had assigned the intellectual property to her in
2006 - over a year before Coquico filed its
copyright action against Rodríguez and Identiko. To
complicate matters further, Acquanetta's filings
indicated that the copyright assignment had not been recorded
with the United States Copyright Office until June 4, 2012 -
more than six years after it was ostensibly assigned to her
and, important for our purposes today, a year after
Rodríguez obtained judgment against Coquico in the
tandem with his mother's filing in the collection action,
Benin moved pro se to likewise stay the sale of the
intellectual property, arguing, for the first time, that
Acquanetta was an "indispensable party to the
action" because she, not Coquico, owned the
property. In short, despite Benin's prior,
consistent representations, not only in his copyright action
but also in the collection action, that Coquico - not
Acquanetta - was the owner of the copyrights, Benin now
asserted that his mother had "purchased" the
intellectual property back in 2006. Therefore, he claimed
that she was a necessary party to the collection action with
"an interest relating to the subject of the action,
" Fed.R.Civ.P. 19(a)(1)(B), who had been improperly
district court denied both Acquanetta's motion to
intervene and Benin's motion to stay by paper order,
explaining that it would "not allow intervention on a
matter concluded by judgment a long time ago, "
especially when the public auction for the sale of the
intellectual property was set for the next day.
time it docketed this order, on July 9, 2013, the district
court was not aware that just that day Coquico, represented
by counsel, had filed for bankruptcy under Chapter 7 of Title
11 of the United States Code, 11 U.S.C. §§ 101
et seq., in the bankruptcy court for the Eastern
District of Pennsylvania. Upon learning of the filing, the
district court stayed the case pending resolution of the
A Detour to Bankruptcy Court
bankruptcy filings, Coquico, through Benin, claimed to have
little to no assets. As for creditors, aside from the
judgment owed to Rodríguez, the majority of
Coquico's purported creditors were Benin's own
friends and family. And, consistent with Benin's and
Acquanetta's motions to stay filed in the collection
action, Coquico professed in its filings to own no
intellectual property, claiming instead that all intellectual
property was "subject to a claim of Acquanetta
who appeared in the bankruptcy action as a creditor of
Coquico's, moved to dismiss the bankruptcy petition for
lack of good faith pursuant to 11 U.S.C. § 707, arguing
"that the sole reason for the [bankruptcy] filing was to
prevent the Judicial Sale [of Coquico's intellectual
property]." Rodríguez noted that the notarized
transfer documents - which supposedly showed that the
intellectual property had been assigned to Acquanetta -
didn't even appear to be genuine. For example,
Rodríguez pointed out that, although Benin claimed he
had assigned the copyright for another of Coquico's
products, the "Vejigante Bear, " to his mother on
January 23, 2006, the "Vejigante Bear" copyright
was not registered with the United States Copyright Office
until February 24, 2006. So, Benin could not have assigned it
to his mother, Acquanetta, a month before the copyright even
existed. In addition, Rodríguez argued
that Coquico had intentionally "diverted [its] business
and operations . . . to a new entity to attempt to avoid
payment to Rodríguez."
to Rodríguez's motion to dismiss, the bankruptcy
court held a two-day evidentiary hearing on December 2, 2013,
and January 13, 2014. Noteworthy here, during the evidentiary
hearing, Benin explained that he was operating a newly
surfaced Pennsylvania limited liability company - 18 Degrees
North - which he had registered with Pennsylvania's
Department of State Corporation Bureau in March 2010.
Somewhat remarkably, Benin admitted at the evidentiary
hearing that 18 Degrees North was essentially the same
business as Coquico, "minus [Rodríguez's]
judgment." And, in fact, the similarities are
. Benin is the Chief Executive Officer, President, and
principal shareholder of 18 Degrees North, as with Coquico;
. 18 Degrees North has the same mailing address as Coquico
and manufactures and sells the same plush toys as Coquico;
. Acquanetta licensed her intellectual property
exclusively to Coquico until 2016, and then
(somehow) also licensed it to 18 Degrees North, effective
August 31, 2009;
. 18 Degrees North's bank account and Pennsylvania
registration are under the name "18 Degrees North, LLC,
. 18 Degrees North's customers overlap with Coquico's
customers and were derived from Coquico's customer lists;
. Orders made at Coquico's website are filled by 18
Degrees North, and Benin testified that "the front-end
of [Coquico's] website [is] essentially the brand
Coquico, but the transactions and the inventory [are]
associated with 18 Degrees North;"
. In a single year Coquico transferred approximately $45, 000
to 18 Degrees North.
conclusion of the two-day evidentiary hearing, the bankruptcy
court granted Rodríguez's motion to dismiss
Benin's bankruptcy petition, finding it was filed in bad
faith. See In reCoquico, Inc., 508 B.R.
929, 933 (Bankr. E.D. Pa. 2014). The bankruptcy court
determined that Coquico's bankruptcy schedules
"contain[ed] so many material falsehoods, inaccuracies,
and omissions" that it was "shocking."
Highlighting that Coquico's bank accounts "reflected
the commingling of funds, " "the payment of
personal expenses,  prepetition defalcations, [and]
post-petition unauthorized transactions, " the
bankruptcy court found that "virtually every bad faith
criteria [was] met . . . without question." See also
In re Coquico, Inc., 508 B.R. at 944 (noting that