For the heirs of some uber-weathy clans, trading on the family name comes easy. It certainly seemed a natural fit for David B. Guggenheim, who began to appear on the dealmaking scene back in the 1970s, using his name to woo investors.
One problem: David Guggenheim was actually David Birnbaum, of Ditmas Park, Brooklyn. And not surprisingly, the real Guggenheim family, which launched a fledgling investment firm in 2000, wasn't so keen on Birnbaum's activities.
On Monday, almost three years after Birnbaum's elaborate masquerade came to light, the bona fide Guggenheims of Guggenheim Partners LLC won a handy victory over their allegedly bogus relative.
Siding with the investment firm and its lawyers at McDermott, Will & Emery, the U.S. Court of Appeals for the Second Circuit upheld a July 2011 default judgment against Birnbaum, rejecting arguments that the lower court had abused its discretion.
The decision in Guggenheim Capital v. Birnbaum, 11-3276-cv, leaves in place a permanent injunction blocking Birnbaum from using the Guggenheim name and a $1.25 million damages award for Guggenheim Partners.
The case stems from November 2010, when Guggenheim Partners filed a lawsuit alleging that Birnbaum infringed the Guggenheim mark and seeking to enjoin him from using the Guggenheim name to defraud investors. Birnbaum was arrested in early 2011 on criminal charges for the caper, but was never indicted.
Southern District Judge Paul Gardephe (See Profile) told Birnbaum on several occasions that he faced sanctions for dodging discovery orders. The judge had imposed a temporary restraining order early in the case and later granted a preliminary injunction to prevent Birnbaum from using the Guggenheim name, but Birnbaum continued to solicit investors while presenting himself as "David Guggenheim."
Gardephe warned Birnbaum that his patience was "wearing thin" and that if Birnbaum continued to use the name, "the consequences [were] going to be very very severe."
In April 2011, Guggenheim Partners requested a default judgment, as well as injunctive relief, statutory damages, and costs and attorney fees, due to Birnbaum's "willful contempt over and over and over and over again."
The district court provided Birnbaum an opportunity to respond, but he was no longer represented by counsel and invoked his Fifth Amendment privilege. Gardephe entered the default judgment in July 2011.
McDermott, Will & Emery partner John Dabney, who represented Guggenheim Partners, said Monday's ruling provides clear guidance previously not seen about the level and amount of notice that must be given to a litigant before a default decision can be entered.
"It seems Birnbaum thought he didn't need to abide by the court rulings," Dabney said.
Ronald Coleman, a partner at Goetz Fitzpatrick who represented Birnbaum on the appeal, said he was disappointed the ruling didn't consider that Birnbaum's previous counsel advised him not to participate in the proceedings because he feared his statements would be used against him in the then-pending criminal case.
Coleman had argued in the appeal that Birnbaum wasn't sufficiently warned of the consequences of a default judgment when he was without counsel. The appellate court disagreed.
He also argued that Birnbaum's use of the name "Guggenheim" constitutes fair use of his rightful name, but the judges said he failed to satisfy the elements of a legitimate fair use defense. Birnbaum claims a relationship with the Guggenheim family on the mother's side, but during the case he provided no evidence to corroborate the claims.
Birnbaum is now in a Chapter 7 bankruptcy proceeding as a result of the monetary judgment. Guggenheim Partners has taken the position that because Birnbaum's violation was willful, the judgment isn't dischargeable in bankruptcy.
Coleman said Birnbaum's only real asset is the Brooklyn co-op where he and his wife live, and his firm is arguing that the bankruptcy voids the debt despite the willful default finding.
@|Lisa Shuchman, a reporter for Litigation Daily, can be contacted at email@example.com.