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Judge Miner's dissent begins on page 274

Laura Goodman and James M. Blehart founded Goodheart in February 1981 as a manufacturer and seller of women's accessories, each acquiring fifty percent of Goodheart's common stock. In January 1984, Laura Goodman sold her Goodheart stock to Blehart and entered into an agreement not to compete with Goodheart for one year. She and her husband Benjamin Goodman, a Goodheart employee, then left Goodheart and formed a women's accessories business under the name B.G. Accessories, Inc. that apparently violated the noncompete agreement, because Goodheart secured a permanent injunction against Laura Goodman on that basis in New York state court.

In May 1987, Goodheart came to believe that Laura and Benjamin Goodman, by then apparently conducting business through Enterprises, were infringing a Goodheart registered trademark in a certain design appearing on Goodman products. Specifically, the Goodmans were placing a logo on their business goods and products that closely resembled Goodheart's trademark, which consisted of a 270*270 woman's face in the shape of a heart with a single eye, a nose, and lips.

On May 29, 1987, Goodheart commenced this action by filing a complaint that alleged violations of several federal and state statutes (i.e., the Lanham Act, 15 U.S.C. §§ 1114(1) (1988) (trademark infringement) and 1125(a) (1988) (false designation of origin), and N.Y.Gen.Bus.Law §§ 349 (McKinney 1988) (deceptive business practices), 368-b (McKinney 1984) (trademark infringement), and 368-d (McKinney 1984) (injury to business reputation)), as well as common law unfair competition. Goodheart sought injunctive relief, an accounting, monetary damages, punitive damages, and costs, including attorney fees.

After granting Goodheart's motion for a temporary restraining order, the district court held a hearing on Goodheart's application for a preliminary injunction on June 26, 1987. Laura Goodman, Benjamin Goodman, and Blehart testified at the hearing, as did Gary Geschwind, a pillow manufacturer and witness for the Goodmans. In addition, the district court received numerous exhibits in evidence, including the allegedly offending business cards, tags, and scarves.

In a memorandum opinion and order entered August 10, 1988 (the "Order"), the district court granted Goodheart's motion for a preliminary injunction. The district court's detailed findings explicitly considered whether the Goodmans acted in "good faith," stating:

[T]he actions of the defendants in developing and using this configuration on its line of ladies' accessories and pillows supports [sic] a finding of bad faith. As a former 50% shareholder in Goodheart, Laura Goodman was intimately familiar with the distinctive one-eyed heart used as the Goodheart trademark. In fact, at the hearing, she herself identified the salient features of the mark as well as the uses to which it is put by plaintiff. Within three weeks of her departure from Goodheart, she began selling ladies' accessories in direct violation of the covenant not to compete she entered into with Goodheart. All of her customers save one were conceded to be customers of Goodheart. This activity was stopped only upon the entry of a permanent injunction by the New York State Supreme Court. Soon thereafter, the Goodman's [sic] designed business cards and sample tags containing a configuration similar to Plaintiff's trademark in all significant respects. While Laura Goodman considered using a two-eyed heart design for the business cards, she specifically rejected that idea and opted for the one-eyed design.
In addition, in 1985 and 1986, defendants produced the women's scarves employing Goodheart's trademark as a design. And at about the same time, they also produced the pillows containing the identical design. Finally, it is noteworthy that, approximately two weeks after this suit was filed, defendants destroyed the [Enterprises] business cards and sample tags. Benjamin Goodman contended that the cards were destroyed not to avoid liability but rather because he "didn't like the way they were printed." Hearing Transcript ("HT") at 46. In light of the Goodmans' familiarity with the trademark, however, as well as the onset of the litigation, this explanation seems implausible. Indeed, Benjamin Goodman admitted at the hearing that he "wanted to avoid this case." HT at 47. In sum, these facts lead us to the conclusion that the defendants did not happen upon their mark serendipitously or by happenstance. Rather, they intentionally imitated Goodheart's mark so as to capitalize on the latter's reputation.

The Order concluded as follows:

Goodheart has undeniably established a likelihood of confusion under Polaroid [Corp. v. Polaroid Electronics Corp., 287 F.2d 492 (2d Cir.), cert. denied, 368 U.S. 820, 82 S.Ct. 36, 7 L.Ed.2d 25 (1961)]. It has thereby demonstrated its likelihood of success on the merits of its trademark infringement claim, as well as the risk of irreparable harm if defendants' activities are allowed to continue unchecked. American Cyanamid Company v. Campagna Per le Farmacie in Italia S.p.A. and Cosprophar, Inc., 847 271*271 F.2d 53 (2d Cir.1988). Accordingly, Goodheart's motion for a preliminary injunction is granted. Because at present no further activity is contemplated by the parties, this action shall be placed in suspense pending a request by either party that it be restored to active status.
It Is So Ordered.

Shortly thereafter, the Goodmans tendered an offer of judgment to Goodheart pursuant to Fed.R.Civ.P. 68. The offer read:

Pursuant to Rule 68, Fed.R.Civ.P., defendants by their undersigned counsel hereby offer to allow judgment to be taken against them in the amount of One Thousand Dollars ($1,000.00) exclusive of costs and attorneys fees, if any, awarded by the Court and to provide for a permanent injunction in accordance with the Court's Memorandum Opinion and Order, filed on the 10th day of August, 1988.

Goodheart accepted in a notice essentially repeating the language of the offer.

On November 4, 1988, the district court entered a judgment memorializing the terms of the agreement. The judgment read:

This action having been commenced by ... [Goodheart] on May 29, 1987 against defendants ..., and the defendants having appeared, and plaintiff's application for a temporary restraining order having been granted on June 11, 1987, and this action having come on for a preliminary hearing on June 26, 1987, and plaintiff's application for a preliminary injunction having been granted pursuant to [the Order], and defendants having offered in writing, pursuant to Rule 68 of the Federal Rules of Civil Procedure, to allow Goodheart to take judgment against them for one thousand dollars ($1,000.00) exclusive of costs and attorneys' fees, if any, which the Court may award and for a permanent injunction in accordance with the Court's Memorandum Opinion and Order filed on August 10, 1988, and plaintiff, within ten days thereafter, having duly accepted the offer in writing,
It is Ordered and Adjudged that:
1. plaintiff ... take judgment against defendants ... for one thousand dollars ($1,000.00) exclusive of costs and attorneys' fees, if any, which the Court may award; and
2. defendants ... are permanently enjoined, in accordance with [the Order], from infringing Goodheart's registered trademark (U.S. Trademark Registration No. 1,303,627 and New York Trademark Registration No. R21353) in violation of Section 32(1) and 43(a) of the Lanham Act, 15 U.S.C. §§ 1114(1) and 1125(a) (1982), New York General Business Law §§ 368-b, 368-d and 349, and New York Common Law.

Despite the settlement, the Goodmans took an appeal to this court, arguing that the final judgment imposed liability beyond that to which they had agreed. We affirmed the judgment in an unpublished order filed March 29, 1989, 875 F.2d 307.

On November 15, 1988, Goodheart filed a motion seeking an award of costs and attorney fees as the "prevailing party" in a trademark action pursuant to 15 U.S.C. § 1117 (1988). The district court referred the application to Magistrate Judge Sharon E. Grubin. The magistrate judge then rendered a report and recommendation in which she cited relevant cases in which attorney fees had been awarded for bad faith, intentional, or deliberate trademark violations; considered the issue of bad faith settled by the Order; and recommended awarding Goodheart $85,380.00 in attorney fees and $4,981.31 in costs, or a total award of $90,361.31.

The district court affirmed the magistrate judge's report and recommendation in an opinion and order entered May 9, 1991. In doing so, the court explicitly rejected the argument that the Goodmans preserved the issue of bad faith, finding that their offer of judgment "in accordance with" the Order incorporated the district court's bad faith determination therein. The district court accordingly ruled that the magistrate judge's report and recommendation was "affirmed on the issue of the conclusive effect of the bad faith finding in the [Order]."

This appeal followed.


Judge Miner's dissent begins on page 274

962 F.2d 268 (1992)



LAURA GOODMAN ENTERPRISES, INC., Laura Goodman and Benjamin Goodman, Defendants-Appellants.

No. 356 Docket 91-7615.

United States Court of Appeals, Second Circuit.

Argued October 8, 1991.

Decided May 7, 1992.

New York Law School location: File #1321, Box #128