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Rodriguez-Miranda v. Benin

United States Court of Appeals, First Circuit

July 13, 2016

ANGEL EDGARDO RODRIGUEZ-MIRANDA, Plaintiff, Appellee,
v.
MALIK BENIN; COQUICO, INC.; 18 DEGREES NORTH, LLC; ACQUANETTA M. BENIN, Defendants, Appellees.

         APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO [Hon. José Antonio Fusté, U.S. District Judge]

          Eddi Z. Zyko for appellants.

          Jane A. Becker Whitaker for appellee.

          Before Torruella, Lipez, and Thompson, Circuit Judges.

          THOMPSON, Circuit Judge.

         This 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.

         I. HOW WE GOT HERE

         This 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.

         The 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[1] start-up venture - Coquico.

         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.

         A. The Relationship Sours: A Tale of Two Lawsuits

         Rodríguez 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.[2]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.

         After a 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.[3]Coquico then sought contempt sanctions and damages before the district court.

         In 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.[4] It is this "collection action" that is the case at issue here.

         Both cases moved forward in parallel proceedings before different district judges.[5] 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.

         As for the collection action, it went to trial, and, on July 27, 2011, a jury found for Rodríguez against Coquico only[6] in the amount of $348, 821.23.[7] Coquico did not appeal, and, on September 19, 2011, the district court issued a writ of execution of judgment.

         B. Post-Judgment Shenanigans

         Nearly 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.[8] Accordingly, on September 11, 2012, the district court approved the seizure and sale of Coquico's copyrights and trademarks to satisfy the debt.[9]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[10] - 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 collection action.

         In tandem with his mother's filing in the collection action, Benin moved pro se[11] to likewise stay the sale[12] 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.[13] 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 excluded.

         The 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.

         At the 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 bankruptcy proceeding.

         C. A Detour to Bankruptcy Court

         In its 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 Benin."

         Rodríguez, 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.[14] In addition, Rodríguez argued that Coquico had intentionally "diverted [its] business and operations . . . to a new entity to attempt to avoid payment to Rodríguez."

         Responding 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 considerable:

. 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, d/b/a Coquico;"
. 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.

         At the 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, [15] 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 ...


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