Opinion
1:19-cv-3748 (ENV) (RER)
2021-04-09
BJB LIMITED, Plaintiff, v. ISTAR JEWELRY LLC, Yelnats, Inc., f/k/a Stanley Creations Inc., Brian Roth, Gary McMullan, Kohl's Corporation, and Kohl's Department Stores, Inc., Defendants.
Maria A. Savio, Marc P. Misthal, Shane David Wax, Gottlieb, Rackman & Reisman, P.C., Robert Phillip Feinland, Meister Seelig & Fein LLP, New York, NY, for Plaintiff. Camille M. Miller, Pro Hac Vice, John Trevor Cloak, Pro Hac Vice, Melanie A. Miller, Pro Hac Vice, Cozen O'Connor, P.C., Philadelphia, PA, Lisa Ferrari, Cozen O'Connor, P.C., New York, NY, for Defendants iStar Jewelry LLC, Yelnats, Inc., Brian Roth, Gary McMullan, Kohl's Corporation, Kohl's Department Stores, Inc.
Maria A. Savio, Marc P. Misthal, Shane David Wax, Gottlieb, Rackman & Reisman, P.C., Robert Phillip Feinland, Meister Seelig & Fein LLP, New York, NY, for Plaintiff.
Camille M. Miller, Pro Hac Vice, John Trevor Cloak, Pro Hac Vice, Melanie A. Miller, Pro Hac Vice, Cozen O'Connor, P.C., Philadelphia, PA, Lisa Ferrari, Cozen O'Connor, P.C., New York, NY, for Defendants iStar Jewelry LLC, Yelnats, Inc., Brian Roth, Gary McMullan, Kohl's Corporation, Kohl's Department Stores, Inc.
MEMORANDUM & ORDER
VITALIANO, D.J.
Plaintiff BJB Limited ("BJB") commenced this action against iStar Jewlery LLC ("iStar"), Yelnats Inc. (formerly known as Stanley Creations, Inc.) ("SC"), Khol's Department Stores ("Khol's"), and Brian Roth and Gary McMullan, who served as executives at SC. Plaintiff's September 18, 2019 Amended Complaint alleges federal trademark counterfeiting, trademark infringement, trademark cancellation and unfair competition claims, as well as state law claims for breach of contract, rescission, fraud, and trademark infringement. See generally Dkt. 34 ("Am. Compl.").
Pursuant to a July 1, 2016 asset purchase agreement, SC transferred to iStar all rights, title, interest in, and obligations under the various agreements and trademark registrations pertinent to this lawsuit. Am. Compl. ¶¶ 67–73. In the interest of simplicity, and because no issues regarding the corporate distinction between these entities are raised by the present motion, this Order will use "SC" to generally refer to SC and iStar, even after the asset purchase agreement.
Leaving no arguments on the table, Defendants now move to dismiss all eight claims in the amended complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure. See Dkt. 42-1 ("Defs’ Mem."). For the reasons that follow, defendants’ motion is granted in part and denied in part.
When considering a motion to dismiss, a court is limited to "facts as asserted within the four corners of the complaint, the documents attached to the complaint as exhibits, and any documents incorporated in the complaint by reference," together with "documents upon the terms and effect of which the complaint relies heavily." Chamberlain v. City of White Plains , 986 F. Supp. 2d 363, 379 (S.D.N.Y. 2013). All factual statements alleged in plaintiff's pleadings are taken as true and all reasonable inferences are drawn in favor of plaintiff. Vietnam Ass'n of Agent Orange v. Dow Chem. Co. , 517 F.3d 104, 115 (2d Cir. 2008).
BJB is a jewelry wholesaler and supplier based in the United Kingdom. Am. Compl. ¶¶ 5, 13. In 2007, BJB sought and obtained federal trademark registration for the "GOLD ‘N’ ICE" mark, which it used to brand its line of gold and crystal jewelry. Id. ¶¶ 14–24. With an eye toward selling GOLD ‘N’ ICE jewelry in the North American market, BJB entered into a May 2, 2008 Exclusive Distributorship Agreement (the "EDA") with SC, appointing SC as the exclusive distributor of BJB's jewelry in the United States and Canada. Id. ¶ 25; see also Dkt. 34-4. SC, in turn, agreed to promote and sell BJB's GOLD ‘N’ ICE branded jewelry and to refrain from marketing similar products originating from other suppliers without the prior written consent of BJB. Am. Compl. ¶ 29. The agreement required SC to purchase a minimum of $2,500,000 of the jewelry from BJB per calendar year, but provided that the minimum purchase amount would be renegotiated at the end of each year. Dkt. 34-4 at 3. In the event that SC failed to meet the minimum purchase amount at the end of a given year, the EDA gave either party the right to terminate the agreement within 30 days of the contract's anniversary. Id. The agreement also imposed upon SC an obligation to protect the GOLD ‘N’ ICE brand against infringement, and to that end assigned SC the right to enforce the trademark against infringing companies in the United States and Canada. Am. Compl. ¶ 31.
On April 14, 2011, nearly three years after the EDA was executed, SC applied to register a new mark, named "STERLING ‘N’ ICE", with the United States Patent and Trademark Office ("USPTO") for a line of "crystal jewelry set in sterling silver", but registration was refused due to similarities to the existing GOLD ‘N’ ICE trademark. Am. Compl. ¶¶ 36–37. BJB claims that, moved by a desire to overcome the similarity hurdle and secure approval of its new mark, SC sought and won BJB's permission to register its new mark in a consent agreement dated June 17, 2011 (the "Consent Agreement"). Id. ¶¶ 37–38; Dkt. 34-7. Plaintiff, however, now claims that the deal was not above board. It alleges that, to persuade BJB to enter into the Consent Agreement, SC, and in particular its president, McMullan, intentionally misrepresented the manner in which the STERLING ‘N’ ICE mark would actually be used and marketed. Am. Compl. ¶ 40. Specifically, BJB alleges that McMullan made representations concerning the size, style, color, and logo of the prospective brand in a manner that was reassuring to BJB but that turned out to be false. Am. Compl. ¶ 40; see also Dkt. 34-5.
With the Consent Agreement in hand, SC filed a response to USPTO's refusal, submitting the agreement and representing that the parties had determined that no confusion or likelihood of confusion would exist between the two marks. Am. Compl. ¶ 44; see also Dkt. 34-6. BJB alleges that this submission constituted a misrepresentation to USPTO, as it stated that there were differences between the brands’ respective geographic distribution and/or channels of trade and that there would be prominent differences between the trade dress of the two products, when in fact SC intended to market STERLING ‘N’ ICE to the same customers using "nearly identical" trade dress and marks. Am. Compl. ¶¶ 47–48. The submission to USPTO also did not mention SC's separate obligations under the EDA to buy and sell BJB's GOLD ‘N’ ICE jewelry and to protect its trademark in the United States. Am. Compl. ¶ 46. USPTO approved SC's STERLING ‘N’ ICE mark on March 27, 2012. Id. ¶ 49.
Beginning around the time that the STERLING ‘N’ ICE registration became effective, plaintiff says, there was a sudden and substantial decline in the volume of GOLD ‘N’ ICE jewelry purchased from BJB by SC. Am. Compl. ¶ 58. As this decline in purchases continued year after year, BJB charges that SC intentionally misrepresented the cause for the slump in demand. In response to inquiries from plaintiff, SC shot back that the slump was due to the increased price of gold and the lack of new and creative products from BJB. Id. ¶¶ 59, 65. Asserting a far more nefarious reality, BJB claims that SC was not only actively selling its own infringing STERLING ‘N’ ICE jewelry, but also buying cheaper and lower quality gold and crystal jewelry from third parties that it sold under the GOLD ‘N’ ICE mark. Id. ¶¶ 62–64. Indeed, BJB pointedly contends that SC sold this jewelry through Kohl's and other retailers without protecting and enforcing the GOLD ‘N’ ICE trademark as required under the EDA. Id. ¶¶ 53, 80–83.
According to the complaint, from 2008 to 2011, sales of BJB's GOLD ‘N’ ICE products to SC ranged from $1,551,808 to $2,274,824 per year. Am. Compl. ¶ 76. In 2012, however, sales dropped to $618,816 and steadily declined to $24,879 in 2018 and $4,536 in 2019. Id.
Underscoring its victimization, BJB says that it relied upon SC's explanations for the cratering demand for its jewelry and did not begin to suspect any duplicity until November 2018, when it discovered that Kohl's, Kmart, and Sears were actively selling third party products bearing the GOLD ‘N’ ICE mark. Id. ¶¶ 61, 84–87. Armed with this knowledge, on December 13, 2018, BJB sent a letter to SC demanding that it cease and desist in these sales. Id. ¶ 89. Around the same time, BJB also first discovered the allegedly infringing nature of the products being sold under SC's STERLING ‘N’ ICE mark, which it claims were confusingly similar in style, design, color, and trade dress to the jewelry that SC was obligated to purchase from BJB under the EDA. Id. On June 27, 2019, BJB turned to litigation for redress.
Legal Standard
To survive a Rule 12(b)(6) motion to dismiss, the complaint "must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S. Ct. 1955, 1974, 167 L. Ed. 2d 929 (2007) ). This "plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (citation and internal quotation marks omitted).
Pleading rules require a plain statement of claims and do not compel a plaintiff to supply "detailed factual allegations" in support of their claims. Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ; see also Fed. R. Civ. P. 8(a)(2). But the rules require "more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937. That is, "[a] pleading that offers ‘labels and conclusions’ ... will not do." Id. (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ); see also In re NYSE Specialists Sec. Litig. , 503 F.3d 89, 95 (2d Cir. 2007).
Discussion
I. Statutes of Limitation
Defendants begin their broad assault on BJB's claims by asserting that half of BJB's claims—i.e. breach of contract, rescission, cancellation, and fraud—are barred by the applicable statutes of limitations. Defs’ Mem. at 7. Each statute of limitations defense is discussed in turn, but ultimately none warrant outright dismissal of any of BJB's claims.
A. Breach of Contract
As with several other of defendants’ defenses, the statute of limitations analysis for the breach of contract claim begins with a skirmish over the applicable law. In its opposition brief, plaintiff contends that defendants have incorrectly argued for dismissal under New York's six-year statute of limitations, N.Y. C.P.L.R. § 213(2), when the relevant contract, i.e. the EDA, contains a Pennsylvania choice of law provision. Dkt. 42-2 ("Pl's Opp'n") at 6; see also Dkt. 34-4 at 4. While Pennsylvania law provides for only a four-year statute of limitations for breach of contract, it allows for tolling of the statute of limitations pursuant to a discovery rule. Pl's Opp'n at 8 (citing Morgan v. Petroleum Prods. Equip. Co. , 92 A.3d 823, 828 (Pa. Super. Ct. 2014) ). Defendants respond that the contractual choice of law provision has no bearing on the applicable the statute of limitations, which is a procedural issue under New York law. Dkt. 42-4 ("Defs’ Reply") at 3.
Defendants prevail in this initial bout. It is well-settled in New York that an out-of-state choice of law provision "does not impact the Court's analysis as to which state's statute of limitations applies to [a plaintiff's] claims." 2002 Lawrence R. Buchalter Alaska Tr. v. Philadelphia Fin. Life Assur. Co. , 96 F. Supp. 3d 182, 202 n.8 (S.D.N.Y. 2015) ; see also Portfolio Recovery Assocs., LLC v. King , 14 N.Y.3d 410, 416, 927 N.E.2d 1059, 1061, 901 N.Y.S.2d 575 (N.Y. 2010) ("Choice of law provisions typically apply to only substantive issues, and statutes of limitations are considered ‘procedural’ because they are deemed ‘as pertaining to the remedy rather than the right’ " (citations omitted)). Thus, "[w]hile the Agreement's choice of law provision states that it shall be governed by Pennsylvania law" the Court "must apply New York statutes of limitation." Daisley v. FedEx Ground Package Sys., Inc. , No. 08 CV 4063 JG LB, 2008 WL 5083009, at *2 n.3 (E.D.N.Y. Dec. 1, 2008), aff'd, 376 F. App'x 80 (2d Cir. 2010).
Under New York law, the statute of limitations is an affirmative defense, and defendant bears the burden of proving that the plaintiff's claim is untimely. St. John's Univ., New York v. Bolton , 757 F. Supp. 2d 144, 156–57 (E.D.N.Y. 2010). Unlike Pennsylvania, moreover, "New York does not apply the ‘discovery’ rule to statutes of limitations in contract actions." ACE Sec. Corp. v. DB Structured Prod., Inc. , 25 N.Y.3d 581, 594, 15 N.Y.S.3d 716, 36 N.E.3d 623 (2015). Plaintiff has, however, proposed that the EDA constitutes a "continuing contract," such that "the statute of limitations begins to run when the contract is terminated, not from the time of breach." Pl's Opp'n at 6 (quoting Beltz v. Erie Indem. Co. , 279 F. Supp. 3d 569, 580 (W.D. Pa. 2017) ). Here, again, a choice of law issue rears its head—namely, whether Pennsylvania or New York law should govern the "continuing contract" analysis. Both parties have assumed, without citation to any authority, that Pennsylvania law should govern this issue. However, like the application of a discovery rule or other tolling doctrine, plaintiff's "continuing contract" theory is part and parcel of the statute of limitations analysis and is therefore governed by New York law. Cf. Myers Indus., Inc. v. Schoeller Arca Sys., Inc. , 171 F. Supp. 3d 107, 116 (S.D.N.Y. 2016).
Because both New York and Pennsylvania recognize a "continuing contract" or "continuing violation" qualification to their respective statutes of limitations, this presents something of a false conflict. Indeed, a survey of both states’ law does not suggest that the outcome would differ if Pennsylvania law were applied. Compare Mindspirit, LLC v. Evalueserve Ltd. , 346 F. Supp. 3d 552, 593 (S.D.N.Y. 2018) ("The doctrine distinguishes between ‘a single wrong that has continuing effects and a series of independent, distinct wrongs,’ and allows an exception to New York's usual accrual rules only in the latter case.") (quoting Henry v. Bank of Am. , 147 A.D.3d 599, 601, 48 N.Y.S.3d 67 (1st Dep't 2017) ), with Thorpe v. Schoenbrun, 202 Pa.Super. 375, 195 A.2d 870, 872 (1963) ("The test of continuity, so as to take the case out of the operation of the statute of limitations, is to be determined by the answer to the question whether the services were performed under one continuous contract, whether express or implied, with no definite time fixed for payment, or were rendered under several separate contracts.").
Under New York's continuing violation doctrine, "where a contract provides for continuing performance over a period of time, each breach may begin the running of the statute anew such that accrual occurs continuously." Miller v. Metro. Life Ins. Co. , 979 F.3d 118, 121–22 (2d Cir. 2020) ; see Guilbert v. Gardner , 480 F.3d 140, 150 (2d Cir. 2007) ("Because Defendants’ obligation to contribute $10,000 per year to Plaintiff's pension fund was a continuing one, Plaintiff's claim that Defendants breached that obligation within six years of the commencement of this action is timely."). Tacked to this frame, it is abundantly clear that the obligations that SC allegedly breached under the EDA are precisely the kind that are meant to qualify under the continuing violation exception. The EDA itself is an entirely open-ended contract that supplies only a framework for the parties to transact with one another over the course of their business relationship. Aside from outlining continuing obligations with respect to the GOLD ‘N’ ICE trademark, it provides a minimum annual purchase amount and permits this amount to be renegotiated at the end of each year. Dkt. 34-4 at 2. Further, it commits BJB to delivering the product within 10 weeks of an order, but does not commit the parties to any particular order schedule. Id. at 4. Notably, consistent with its open-ended and continuous nature, the agreement has no termination date.
By purportedly failing to live up to its obligations to make annual purchases and protect BJB's intellectual property, SC engaged in a pattern of conduct that constituted a continuing violation of the terms of the contract. To hold otherwise would allow an unnoticed breach at the outset of a long-term contract to insulate that party from liability for all breaches thereafter, once six years had elapsed. Cf. In re Libor-Based Fin. Instruments Antitrust Litig. , No. 11 MDL 2262 NRB, 2015 WL 4634541, at *125 (S.D.N.Y. Aug. 4, 2015) ("A defendant that manipulated LIBOR in 2008 is not immune simply because it also manipulated LIBOR in 2007 or 2006."). Such a perverse outcome is not the object of statutes of limitations for breach of contract.
But it is not all good news for plaintiff. Even though the continuing violation doctrine does serve to resuscitate the breach of contract claim, it "does not revive the statute of limitations for any breach of the continuing obligation that occurred more than six years before the action was commenced." Fed. Hous. Fin. Agency for Fed. Home Loan Mortg. Corp. v. Morgan Stanley ABS Capital I Inc. , 59 Misc. 3d 754, 778, 73 N.Y.S.3d 374, 393 (N.Y. Sup. Ct. 2018) ("Claims for breaches ... will only be timely if the breaches occurred within the six years immediately preceding such commencement.") (citing Bulova Watch Co. v. Celotex Corp. , 46 N.Y.2d 606, 611, 415 N.Y.S.2d 817, 389 N.E.2d 130 (N.Y. 1979) ). As a result, while BJB's claim for breach of the EDA is not wholly barred, its scope is limited to breaches occurring after June 27, 2013; claims on the contract beyond that are barred.
B. Rescission
Count Five of the Amended Complaint seeks rescission of the Consent Agreement entered into between BJB and SC on June 17, 2011. "Where ... rescission is sought on the ground of actual fraud, the Statute of Limitations is six years from the commission of the fraud or two years from when the plaintiff discovered or should have discovered the fraud, whichever is later." Hoffman v. Cannone , 206 A.D.2d 740, 740–41, 614 N.Y.S.2d 799, 800 (3d Dep't 1994) ; accord Certain Underwriters at Lloyd's v. Milberg LLP , No. 08 CIV. 7522(LAP), 2009 WL 3241489, at *5 (S.D.N.Y. Sept. 30, 2009). Relying on this standard, this time defendants interpose the time bar because of BJB's failure to timely discover the alleged fraud underlying the claim for rescission. Defs’ Mot. at 8.
In making this argument, defendants face many "considerable hurdles", as the question of "whether a plaintiff had a duty to inquire into the possible existence of a fraud is a mixed question of law and fact which should not be resolved summarily unless it conclusively appears that the plaintiff had knowledge of facts which should have caused [it] to inquire and discover the alleged fraud." Abele Tractor & Equip. Co. v. Balfour , 133 A.D.3d 1171, 20 N.Y.S.3d 697, 700 (3d Dep't 2015). Indeed, the operation of the discovery rule in rescission claims can present questions so fact-intensive that they may be reserved for trial. See New York Dist. Council of Carpenters Pension Fund v. Forde , 939 F. Supp. 2d 268, 286 (S.D.N.Y. 2013) ("[B]ecause such a test is often fact-intensive, the [Second Circuit] Court of Appeals has held that it may be inappropriate to dispose of an action for this reason even on summary judgment.").
Obviously, then, this hurdle can be even more pronounced—and in the present case is insurmountable—in the context of a motion to dismiss. Here, defendants merely assert that BJB could have discovered the alleged fraud inducing it to enter the Consent Agreement "had BJB exercised any, yet alone, reasonable diligence" as early as 2012. Defs’ Reply at 9. SC pegs as proof of BJB's inquiry notice several events described in the amended complaint, including SC's statement of use filed with USPTO in 2012, decreasing sales of BJB's jewelry beginning in 2012, and the availability, at some unspecified point, of STERLING ‘N’ ICE products over the internet. Defs’ Mem. at 8–10; Defs’ Reply at 9. Plaintiff, meanwhile, responds that it did not investigate these supposed red flags because it was being fed lies by SC, its business partner. Pl's Opp'n at 9–10. The reasonableness of plaintiff's actions in this regard is, therefore, not an issue that can be resolved at this stage, and defendants’ motion to dismiss on this ground is denied.
C. Cancellation
Count Six of the Amended Complaint seeks cancellation of the STERLING ‘N’ ICE trademark, which BJB claims was procured by fraud. Am. Compl. ¶¶ 150–154. This dust-up over the limitations period features different choice of law combatants. For their part, defendants urge that, like BJB's rescission claim, the cancellation claim should be governed by New York law and its six-year statute of limitations, subject to a two-year discovery rule, as provided in N.Y. C.P.L.R. § 213(8). Defs’ Mem. at 8–9. Plaintiff responds that this is not a case where the Lanham Act calls for borrowing New York's statute of limitations, because the Act itself specifies that claims for cancellation of a mark can be filed "[a]t any time" in cases where "the registration was obtained fraudulently." Pl's Opp'n at 11–12 (quoting 15 U.S.C. § 1064(3) ). In reply, defendants sidestep this Lanham Act language but, optimistically, note that "at least one New York court" has barred a fraudulent registration claim using New York's statute of limitations. Defs’ Reply at 10 (citing Calzaturificio Rangoni S.p.A. v. U.S. Shoe Corp. , 868 F. Supp. 1414, 1420–21 (S.D.N.Y. 1994) ).
Given the nebulousness in this aspect of the holding in Calzaturificio Rangoni , the operation of § 1064(3) ’s "at any time" language in cancellation claims is not as settled as one might hope, but the weight of authority clearly favors plaintiff's construction—as does the plain meaning of the statutory language. This issue was directly confronted by the Third Circuit in Marshak v. Treadwell , with then-Judge Alito concluding that "the plain language of Section 14(3) ... provides unambiguously that a petition seeking cancellation based on fraudulent procurement ‘may ... be filed at any time.’ " 240 F.3d 184, 194 (3d Cir. 2001) (quoting 15 U.S.C. § 1064(3) ). Contrary to defendants’ suggestion that Marshak is somehow an aberration, it has been followed by numerous courts in this Circuit. See, e.g. , World Trade Centers Ass'n, Inc. v. Port Auth. of New York & New Jersey , No. 15 CV 7411-LTS-RWL, 2018 WL 6628840, at *17 n.23 (S.D.N.Y. Dec. 18, 2018) (examining the Third Circuit's decision in Marshak and concluding that a cancellation claim under 15 U.S.C. § 1064(3) "has no time bar"); Sik Gaek, Inc. v. Yogi's II, Inc. , No. 10-CV-4077 ARR-VVP, 2014 WL 12828174, at *12 (E.D.N.Y. July 25, 2014) (citing Marshak for the proposition that "claims for cancellation of a mark based on the mark's having been obtained fraudulently ... may be brought ‘[a]t any time.’ "). Given the circumstances alleged in the complaint, this Court, too, will take the statutory language "at any time" at face value and hold, at this juncture, that plaintiff's trademark cancellation claim based on fraudulent procurement is timely as filed.
D. Fraud
As the last statute of limitations ground of their motion to dismiss, defendants contend that plaintiff's fraud claims against SC and its officers are untimely under N.Y. C.P.L.R. § 213(8), which requires that fraud claims be commenced within "the greater of six years from the date the cause of action accrued or two years from the time the plaintiff ... discovered the fraud, could with reasonable diligence have discovered it." Id. As in their ill-fated effort to throw out plaintiff's rescission claims under the same statute of limitations, defendants argue that plaintiff ignored red flags that would have prompted a reasonable actor to investigate, and therefore discover, the fraud well before the date that the two-year discovery rule would have saved it from the time bar. Defs’ Mem. at 10–11.
With the facts and the argument remaining the same, it should come as no surprise that the ruling remains the same. Crediting the allegations in the complaint, as the Court must, it is simply too early to conclude, as a mixed matter of fact and law, that plaintiff "had knowledge of facts which should have caused [it] to inquire and discover the alleged fraud." Abele Tractor , 20 N.Y.S.3d at 700. As a result, defendant's motion to dismiss BJB's fraud claims as time-barred is denied.
II. Equitable Defenses
A. Laches
Defendants contend that BJB's counterfeiting, unfair competition, and state and federal trademark infringement claims are barred under the doctrine of laches. Before reaching the merits of defendants’ laches defense, however, plaintiff immediately seeks to rebuff it with the assertion that it is unavailable to defendants, who have allegedly engaged in intentional misconduct and thus have unclean hands. Pl's Opp'n at 12–13. Certainly, as plaintiff contends, Second Circuit law holds that "intentional infringement acts as a bar to the assertion of a laches defense against an infringement suit seeking injunctive relief." Hermes Int'l v. Lederer de Paris Fifth Ave., Inc., 219 F.3d 104, 107 (2d Cir. 2000). With intentional misconduct explicitly alleged in the complaint (e.g. , Am. Compl. ¶¶ 40, 172), the concomitant presence of unclean hands precludes dismissal on laches grounds with respect to plaintiff's claims for injunctive relief at this stage. As for damages, there is precious little law considering when "unclean hands" is raised as a counterweight to a laches defense leveled at a monetary claim arising out of trademark infringement. It appears, however, that what law there is does not preclude the laches defense in such circumstances. See Hermes Int'l 219 F.3d at 109 (affirming application of unclean hands doctrine to laches defense for injunctive claims, but not claims for monetary damages); accord CSL Silicones, Inc. v. Midsun Grp. Inc. , No. 3:14-CV-1897 (CSH), 2018 WL 3715272, at *7 (D. Conn. Aug. 3, 2018).
Regardless, as discussed infra , the motion to dismiss on this ground must be denied because there is a sufficient pleading to bar a finding of laches as a matter of law and, consequently, there need not be a finding at this stage on the question of SC's alleged unclean hands.
At any rate, the substance of laches must next be addressed. A party asserting the defense of laches must establish that: "(1) the plaintiff knew, or should have known, of his claim; (2) the plaintiff inexcusably delayed in taking action; and (3) the defendants were prejudiced as a result." Ferring B.V. v. Allergan, Inc. , 4 F. Supp. 3d 612, 622 (S.D.N.Y. 2014) ; see also Excelled Sheepskin & Leather Coat Corp. v. Oregon Brewing Co. , 897 F.3d 413, 419 (2d Cir. 2018) ("The laches clock begins to run when the trademark owner "knew or should have known, not simply that [the infringer] was using the potentially offending mark, but that [it] had a provable infringement claim against [the infringer.]’ " (citation omitted)). Here, there is no disagreement that the Court should "analogize to New York's six-year statute of limitations for fraud claims" to determine the relevant period for the laches defense. Excelled Sheepskin , 897 F.3d at 419. As a result, if defendants can establish that plaintiff delayed bringing suit "six or more years after the plaintiff knew or reasonably should have known of the alleged infringing activity," a presumption of laches applies, meaning that "the burden of providing evidence to defeat laches shifts to the plaintiff, although the ultimate burden of persuasion remains with the defendant". Pecorino v. Vutec Corp. , 6 F. Supp. 3d 217, 222 (E.D.N.Y. 2013).
BJB responds to defendants’ laches defense much as it did to defendants’ statute of limitations defenses, contending that it is simply too early to resolve the fact-intensive issues undergirding the laches defense at the pleading stage. Pls’ Opp'n at 18–20. Indeed, caselaw uniformly urges caution when considering a defense of laches even at the summary judgment stage—and even more so on a motion to dismiss. See, e.g. , Alston v. 1749-1753 First Ave. Garage Corp. , No. CV 12-2676 (DRH), 2015 WL 12564203, at *2 (E.D.N.Y. June 30, 2015) ("[L]aches requires a fact-intensive analysis and balancing of equities necessitating consideration of matters beyond the complaint."); VOX Amplification Ltd. v. Meussdorffer , 50 F. Supp. 3d 355, 364 (E.D.N.Y. 2014) ("[L]aches is an affirmative defense and is generally not available on a motion to dismiss.") (quoting George Nelson Found. v. Modernica, Inc., 12 F.Supp.3d 635, 655 (S.D.N.Y. 2014) ).
This is not to say that a laches defense can "never" succeed on a Rule 12 motion. Quite to the contrary, laches is available on a motion to dismiss in cases where "it is clear on the face of the complaint and plaintiff can prove no set of facts to avoid the insuperable bar," Carell v. Shubert Org., Inc. , 104 F. Supp. 2d 236, 263 (S.D.N.Y. 2000), and defendants correctly note laches has been granted at this stage. On this score, SC once again posits that the application of laches is simply a matter of pointing to purported red flags in the complaint and counting to six years. Yet, where the "color" of those same flags is hotly disputed by plaintiff, who has offered plausibly pleaded factual allegations telling a different tale, the Court cannot, at the pleadings stage, find the existence of inquiry notice.
Defendants offer two cases as examples. In the first, Fitzpatrick v. Sony-BMG Music Entertainment, Inc. , there was no factual dispute as to whether the plaintiff knew or should have known of the infringement during the relevant time period. No. 07CIV.2933(SAS), 2007 WL 2398801, at *4 (S.D.N.Y. Aug. 15, 2007). Instead, the issue of laches hinged on the adequacy of plaintiff's only justification for waiting to sue—namely, the pendency of a trademark petition with the Trademark Trial and Appeal Board. Similarly, in Solow Building Company, LLC v. Nine West Group , Inc. the plaintiff acknowledged that it had known of the defendants’ use of the relevant trademark for nearly 20 years before bringing suit and took no actions to protect it. No. 00 CIV. 7685 (DC), 2001 WL 736794, at *4 (S.D.N.Y. June 29, 2001), aff'd sub nom. Solow Bldg. Co., LLC. v. Nine W. Grp., Inc. , 48 F. App'x 15 (2d Cir. 2002). Even further simplifying the case was the lack of allegations that defendants had taken any recent action that increased the likelihood of confusion and thus might have "altered the competitive environment between [the parties]." Id. at *5 (quoting Fourth Toro Fam. Ltd. P'ship v. PV Bakery, Inc. , 88 F. Supp. 2d 188, 197 (S.D.N.Y. 2000) ).
There are, moreover, additional subsets to the tussle over the availability of laches to scuttle BJB's claims. For example, a laches defense requires not only that plaintiff "knew or should have known" of the infringing conduct, "but that [it] had a provable infringement claim against [the infringer.]’ ". Excelled Sheepskin , 897 F.3d at 419. Separately, and beyond the factual uncertainty regarding the onset of BJB's constructive knowledge of infringement, an open factual question remains as to when the infringing conduct actually began. See Pl's Opp'n at 17–18. There are, in short, several topics that must be probed in discovery before plaintiff's trademark, counterfeiting, and unfair competition claims can be found lost to laches. SC's motion to dismiss on this basis is, therefore, denied.
Plaintiff has attached as Exhibit A to the Wax Declaration a sworn affidavit from defendant Brian Roth, served on BJB by defendants—but never filed in court—in connection with defendants’ withdrawn motion to transfer venue. This declaration states that SC did not design and develop "the revised GOLD ‘N’ ICE product line purportedly giving rise to [p]laintiff's claims" until 2014. Dkt. 42-3 ¶¶ 19–20. Defendants vigorously dispute that the Wax Declaration should be considered at the motion to dismiss stage, as it was not integral to the amended complaint or incorporated by reference. Def's Reply at 2. However, Brian Roth's sword statement need not be considered to acknowledge that there exists uncertainty as to precisely when the allegedly infringing conduct began. It is this uncertainty, and not anything contained in the Wax Declaration, that illustrates precisely why the defense of laches must wait until factual discovery has taken place.
B. Acquiescence
Defendants next assert that, even if not barred by laches, plaintiff's trademark infringement, counterfeiting, and unfair competition claims are barred under the doctrine of acquiescence. Defs’ Mem. at 16. Although both are equitable defenses and similar in operation and effect, "[t]he difference between laches and acquiescence is that ‘acquiescence implies active consent, while laches implies a merely passive consent.’ " Haggar Int'l Corp. v. United Co. for Food Indus. Corp. , 906 F. Supp. 2d 96, 139 (E.D.N.Y. 2012) (quoting Sara Lee Corp. v. Kayser–Roth Corp., 81 F.3d 455, 462 (4th Cir.) ). To establish the defense of acquiescence, proof of three elements is required: "(1) the senior user actively represented that it would not assert a right or a claim; (2) the delay between the active representation and assertion of the right or claim was not excusable; and (3) the delay caused the defendant undue prejudice." Times Mirror Mags., Inc. v. Field & Stream Licenses Co. , 294 F.3d 383, 395 (2d Cir. 2002). Acquiescence does not permit a plaintiff to sleep on his rights, but at the same time there is "no obligation to sue until the likelihood of confusion looms large" and the "right to protection [has] clearly ripened." ProFitness Physical Therapy Ctr. v. Pro-Fit Orthopedic & Sports Physical Therapy P.C. , 314 F.3d 62, 68 (2d Cir. 2002) (quoting Sara Lee, 81 F.3d at 462 ).
Defendants’ acquiescence argument runs into the same fact-laden minefield as their laches defense, and, through the acquiescence defense's requirement of active consent, fares even worse. Defendants look to two sources of potential consent from BJB: first, the fact that BJB did not terminate the EDA while the allegedly infringing conduct took place, and second, the Consent Agreement's provision that "the parties specifically consent to and will not challenge in any forum the other's use and registration of their respective marks in connection with their respective goods." Defs’ Mem. at 16 (quoting Dkt. 34-7 at 1). Plaintiff's response to both is essentially the same—namely, that any consent that could be implied from BJB entering into and remaining in these agreements was predicated on a misunderstanding of defendant's actual conduct, which was a result of defendants’ alleged fraudulent misrepresentations. Pl's Opp'n at 21–22. Indeed, a plaintiff only communicates active consent for the purposes of acquiescence when it makes assurances "with knowledge of defendant's conduct." ProFitness , 314 F.3d at 68. As discussed at length supra , the existence of inquiry notice is a disputed issue of law and fact that is not suitable for resolution on these pleadings. Defendants’ motion to dismiss based on acquiescence meets the same fate; it is denied.
C. Abandonment Through Naked Licensing
Finally, defendants contend that BJB engaged in naked licensing by failing to exercise a reasonable degree of supervision over the GOLD ‘N’ ICE trademark, resulting in an abandonment of its trademark rights. Def's Mem. at 14. Undergirding this argument is the recognized principle that "a naked or uncontrolled license may provide the basis for an inference of abandonment of a trademark." Gen. Motors Corp. v. Gibson Chem. & Oil Corp. , 786 F.2d 105, 110 (2d Cir. 1986). The "central question" in a claim of abandonment is whether "the licensees’ operations are policed adequately to guarantee the quality of products sold [or the services promised] under the mark." Patsy's Italian Rest., Inc. v. Banas , 508 F. Supp. 2d 194, 212 (E.D.N.Y. 2007). "A party asserting that it was granted a naked license faces ‘a high burden of proof.’ " LPD New York, LLC v. Adidas Am., Inc. , No. 15-CV-6360 MKB-RLM, 2017 WL 1162181, at *13 (E.D.N.Y. Mar. 27, 2017) (quoting Patsy's , 508 F. Supp. 2d at 212 ). BJB responds by raising the threshold issue of whether a license was granted at all under the EDA, which was by its terms a "distributorship agreement" that did not contemplate the manufacture of any jewelry on the part of defendants. Pl's Opp'n at 24. Defendants urge that the Court look beyond the fact that the EDA is not labelled as a licensing agreement to find that a license was nonetheless conferred by its terms. Defs’ Reply at 19 (citing Doeblers’ Pennsylvania Hybrids, Inc. v. Doebler , 442 F.3d 812, 824 (3d Cir. 2006) ).
While the typical manufacturer-distributor relationship does not confer a license, an agreement permitting a dealer to "hold itself out as an ‘authorized’ dealer ... and the like" would require a license. 3 McCarthy on Trademarks and Unfair Competition § 18:41 (5th ed. 2021) ; see also Star-Kist Foods, Inc. v. P.J. Rhodes & Co. , 769 F.2d 1393, 1397 (9th Cir. 1985) (key determinant of whether a license has been conferred is the "likelihood that the purchasing public would be confused regarding who produced the goods sold"). In addition to authorized dealers, exclusive distributors of foreign manufactures’ goods are frequently the public face of a brand in the United States and may be deemed to operate "in the capacity of a licensee to the manufacturer." Excell Consumer Prod. Ltd. v. Smart Candle LLC , No. 11 C 7220 MEA, 2013 WL 4828581, at *21 (S.D.N.Y. Sept. 10, 2013). As these precedents suggest, the totality of the parties’ relationship will likely be outcome determinative where, as here, there is ambiguity in the agreement as to the existence of a license.
Upon examination of its terms, it appears that the EDA does not contemplate a public-facing role for SC in the sale of GOLD ‘N’ ICE jewelry along the lines of an "authorized dealer." It does, however, contain language indicating that SC was permitted to use the mark for advertising and promotional purposes, providing, for example, that "SC shall not promote, manufacture, market, sell, distribute, license or supply, whether on its own account or on behalf of or in conjunction with any other company or person, the Product, unless that product is supplied by BJB." Dkt. 34-4 (emphasis added). The EDA also traffics in the language of licensing by providing that SC "cannot continue to use the Brand" if the agreement is terminated. Id. (emphasis added). Perhaps the strongest evidence of a license is found in the obligations that the EDA places on SC to protect the GOLD ‘N’ ICE brand, including to "use its best efforts to ensure" against infringement and counterfeiting. Dkt. 34-4 at 3–4. To this end, the EDA assigns SC the right to enforce claims against companies who violate BJB's trademark rights in the United States and Canada. Id. at 4. Taken together, it is clear that the EDA goes well beyond a simple manufacturer-distributor agreement and creates a formal license relationship.
With this trademark license in hand, to succeed in their naked licensing defense, defendants must now prove that BJB exercised inadequate control over SC's operations such that it should be deemed to have abandoned the trademark. Now comes the rub, as "[t]he proper degree of control to be exercised over a licensee is a question of fact to be determined in light of the specific circumstances of the business relationship between the parties." 3 McCarthy on Trademarks and Unfair Competition § 18:58 (5th ed. 2021).
For resolution of that issue, recourse must be had again to the EDA, which contemplated that all gold-and-crystal jewelry and its packaging would be supplied by BJB, with SC prohibited from selling similar products originating from other suppliers without the prior written consent of BJB. Dkt. 34-4 at 3. This sets the present case apart from those in which the manufacturing standards of a licensee could be taken into account, as BJB only needed to ensure the quality of its own manufacturing processes. Cf. Embedded Moments, Inc. v. International Silver Co. 648 F. Supp. 187, 194 (E.D.N.Y. 1986) ("[R]eliance upon the integrity of a licensee is sufficient to fulfill the control requirement where a history of trouble-free manufacture provides the basis for such reliance."). BJB, therefore, was required to exercise a reasonable degree of control over a licensee who had not been entrusted with manufacturing or packaging the product, but merely providing it to retailers and ensuring against infringement by others. Whether BJB in fact did so cannot be determined on the pleadings. The complaint does not purport to exhaustively catalogue control-related activities or communications between BJB and SC. Furthermore, pleading rules "do not compel a litigant to anticipate affirmative defenses ... and to affirmatively plead facts in avoidance of such defenses." Abbas v. Dixon , 480 F.3d 636, 640 (2d Cir. 2007). Resultingly, defendants’ motion to dismiss plaintiff's trademark infringement, counterfeiting, and unfair competition claims on trademark abandonment grounds is denied.
III. Substantive Challenges to Trademark Claims
First focusing its substantive challenges on BJB's pleading of its trademark claims, SC argues that it was given not only an exclusive trademark license, but also effectively made an owner of "at least some of the rights in the GOLD ‘N’ ICE brand" by virtue of being assigned the right to enforce trademark claims against infringers. Defs’ Mem. at 17. Leaping forward by analogy to copyright law, SC argues that it is incapable of infringing a mark that it owns. Id. (citing United States Naval Inst. v. Charter Communs., Inc. , 936 F.2d 692, 695 (2d Cir. 1991) ). This analogy, unsupported by any trademark law authority, attempts to transmute the legal implications of an exclusive license in the copyright context into a limited license in the trademark context. For all its brashness, the argument sputters at the outset and fails to ward off BJB's infringement claim.
Indeed, it is black letter law that the scope of a trademark license is defined by the terms of that license, and that "a use by a licensee which is outside the scope of the license is both trademark infringement and a breach of contract." 4 McCarthy on Trademarks and Unfair Competition § 25:30 (5th ed. 2021) ; see also Haggar Int'l Corp. v. United Co. for Food Indus. Corp. , 906 F. Supp. 2d 96, 111–12 (E.D.N.Y. 2012) ("[T]he exclusive U.S. distributor does not acquire ownership of a foreign manufacturer's mark ... merely through the sale and distribution of goods bearing the manufacturer's trademark" and when disputes arise, "courts will look first to any agreement between the parties regarding trademark rights.") (quoting Tecnimed SRL v. Kidz-Med, Inc. , 763 F. Supp. 2d 395, 403 (S.D.N.Y. 2011) ). The words of the agreement torpedo SC's argument for dismissal on this ground. It is explicit "that the Brand belongs to BJB" and that SC "will not use [the brand] in any way without the prior permission of BJB." Dkt. 34-4 at 3. Further, SC is expressly forbidden from promoting, manufacturing, marketing, selling, distributing, licensing, or supplying any jewelry similar to GOLD ‘N’ ICE other than BJB's own product. Id. at 2. It is, in sum, clear from this language that there were express limitations placed on SC's use of BJB's trademark under the license, and that SC can be held liable for exceeding those limitations under the Lanham Act and New York common law.
For essentially the same reason, SC's misguided argument that it breached a covenant in the agreement, rather than a condition of the license (and therefore cannot be held liable for both breach of contract and trademark-related claims), must be rejected. Defs’ Mem. at 17–18. The covenant-condition framework for assessing the breach of a licensing agreement can be traced to Graham v. James , where the Second Circuit held that a failure to pay royalties, as agreed in a copyright licensing agreement, constituted a covenant, not a condition of the license, and therefore was not actionable as infringement. 144 F.3d 229, 236–37 (2d Cir. 1998) ; see also Krist v. Pearson Educ., Inc. , 419 F. Supp. 3d 904, 912–13 (E.D. Pa. 2019) ("Reduced to its essence, Graham involved a dispute between a licensor and licensee over the failure to pay royalties, not a dispute about the use of protected works outside the scope of the license."). The Second Circuit has recently put the distinction in plainer terms, noting that the rule in Graham "holds true only where the defendant licensee ‘uses the copyright as agreed with the licensor.’ " Spinelli v. Nat'l Football League , 903 F.3d 185, 202 (2d Cir. 2018) (quoting Davis v. Blige , 505 F.3d 90, 100 (2d Cir. 2007) ).
Since plaintiff has plausibly pleaded that defendants’ conduct was, in fact, a violation of the limited license granted under the agreement, the breach of contract claim goes to a condition, not a covenant, in the agreement. As a result, SC is not entitled to dismissal on this ground.
Next, Defendants argue that plaintiff's claims arising out of the marketing and sale of allegedly infringing STERLING ‘N’ ICE products should be dismissed based on the plain language of the Consent Agreement, in which BJB and SC agreed not to "challenge in any forum the other's use and registration of their respective marks in connection with their respective goods." Defs’ Mem. at 18 (quoting Dkt. 34-7 at 2). This too can be dismissed out of hand, as BJB alleges that the Consent Agreement was induced by fraud and seeks recission of the entire agreement. If BJB is successful, SC will be unable to wield the Consent Agreement as a shield against any claims. Defendant's motion to dismiss plaintiff's trademark, counterfeiting, and unfair competition claims on this basis is, accordingly, denied.
Finally, Defendants take issue with plaintiff's broad use of the Lanham Act, arguing that BJB's federal trademark infringement, counterfeiting, and unfair competition claims, as well as its state trademark infringement claim, must be consolidated and/or dismissed. Defs’ Mem. at 19. Certainly, it is well-settled that despite the proliferation of statutes applicable to trademark infringement, a plaintiff "is not entitled to duplicative recoveries for the same intellectual property theft under multiple theories of liability." Marshall v. Marshall , No. 08 CV 1420 LB, 2012 WL 1079550, at *23 (E.D.N.Y. Mar. 30, 2012), aff'd, 504 F. App'x 20 (2d Cir. 2012) (citation omitted).
Count Two of the Amended Complaint is entitled "Trademark Counterfeiting," citing 15 U.S.C. §§ 1114 and 1116. Count Three of the Amended Complaint is entitled Trademark Infringement, and also cites 15 U.S.C. § 1114. Count Four of the Amended Complaint is entitled Unfair Competition, citing 15 U.S.C. § 1125. Count Seven of the Amended Complaint is entitled "Trademark Infringement and Unfair Competition in Violation of New York State Common Law".
BJB does not dispute that it is unable to recover on multiple claims for the same damages. But that is not the concern of the moment. With multiple causes of action seeking to recover for the same injury, the appropriate inquiry is what impact this has at the pleading stage. While some courts have declined at pretrial to dismiss duplicative intellectual property claims, there is also ample precedent for trimming the fat early on. See, e.g. , Sussman-Automatic Corp. v. Spa World Corp. , 15 F. Supp. 3d 258, 273 (E.D.N.Y. 2014) (dismissing "Plaintiff's unfair competition claim under the Lanham Act as duplicative of the Plaintiff's trademark infringement and false advertising claims under that statute"); Tactica Int'l, Inc. v. Atl. Horizon Int'l, Inc. , 154 F. Supp. 2d 586, 597 (S.D.N.Y. 2001) ("Because [plaintiff's] claims of unfair competition and trademark infringement (for unregistered marks) under Section 43(a) of the Lanham Act are one in the same, they need not be addressed as separate causes of action.")
At any rate, there can be no dispute that BJB's three claims under the Lanham Act are governed by the same legal standards. See Glob. Merch. Servs., Ltd. v. Sunfrog, LLC , No. 17 CIV. 10154 (AKH), 2018 WL 11223365, at *8 (S.D.N.Y. Aug. 9, 2018) ("[I]t is well settled that the standards for false designation of origin claims under Section 43(a) of the Lanham Act ( 15 U.S.C. § 1125 ) are the same as for trademark infringement claims under Section 32 ( 15 U.S.C. § 1114 ).") (quoting Innovation Ventures, LLC v. Ultimate One Distrib. Corp. , No. 12 CV 5354, 2016 WL 1317524, at *6 (E.D.N.Y. Mar. 31, 2016) ). Logically and practically, then, there is no reason to delay in consolidating plaintiff's three claims arising under 15 U.S.C. § 1114 and 15 U.S.C. § 1125 into a single count of Lanham Act trademark infringement.
There is, though, more reason to hesitate with respect to plaintiff's New York common law trademark infringement claim. While "the elements of a successful New York common law claim of trademark infringement parallel the elements required for a Lanham Act trademark infringement claim," AM Gen. LLC v. Activision Blizzard, Inc. , 450 F. Supp. 3d 467, 479 (S.D.N.Y. 2020), there is not complete overlap in the applicable law. See JA Apparel Corp. v. Abboud , 682 F. Supp. 2d 294, 309 n.13 (S.D.N.Y. 2010) ("[t]he standard for trademark infringement under the Lanham Act is similar to the standard for analogous state law claims.") (quoting Merck & Co., Inc. v. Mediplan Health Consulting, Inc., 425 F.Supp.2d 402, 410 n.6 (S.D.N.Y. 2006) ). Further, the general practice of courts in this Circuit is not to dismiss concurrent state and federal trademark claims, but to iron out any duplicative remedies during or after trial. See, e.g. , Brooks v. Dash , 454 F. Supp. 3d 331, 341 (S.D.N.Y. 2020) (dismissing common law trademark infringement claim as duplicative of Lanham Act claim "for damage calculation purposes" after a bench trial). That will be the trail followed here. The parallel state law claims, at this point, will not be consolidated or dismissed. IV. Fraud
A. Divergent Remedies
Defendants contend BJB's fraud claims, which they argue arise entirely out of SC's and its officers’ alleged breach of the EDA and Consent Agreement, cannot survive alongside the corresponding pleading of breach of contract claims. Defs’ Mem. at 18–19. Such pleading, however, is not fatal. Parallel fraud and contract claims may be brought under New York law "if the plaintiff (1) demonstrates a legal duty separate from the duty to perform under the contract; (2) points to a fraudulent misrepresentation that is collateral or extraneous to the contract; or (3) seeks special damages that are unrecoverable as contract damages." Merrill Lynch & Co. Inc. v. Allegheny Energy, Inc. , 500 F.3d 171, 183 (2d Cir. 2007). Plaintiff argues that its fraud claim fits into either of the first two categories and can thus proceed in harmony with the breach of contract claim. Pl's Opp'n at 29–30.
As to the existence of a special relationship, plaintiff points out that distributorship agreements have been held to give rise to a special relationship under New York law. Id. at 30. There is, however, New York case law holding that a fiduciary duty in such instances is a "rare" and "exceptional" occurrence that exists only where the parties have been engaged in a longstanding relationship with a high degree of economic dependence. Abernathy-Thomas Eng'g Co. v. Pall Corp. , 103 F. Supp. 2d 582, 602 (E.D.N.Y. 2000) ; see also Manhattan Motorcars, Inc. v. Automobili Lamborghini, S.p.A. , 244 F.R.D. 204, 220 (S.D.N.Y. 2007) (noting that the agreements between the parties "effectively grant [defendant] the authority to exercise near life and death economic power over [plaintiff]"). That is not the case here. Although BJB entrusted SC to spearhead its foray into the North American market, including by helping to safeguard its trademarks, there is nothing to indicate that the relationship between the two was anything closer than arm's length. As plaintiff points to no other legal duty that would permit a parallel fraud claim, the exception is not met on this basis.
Seeking safe harbor in its second, and alternative, theory of liability, BJB urges that its fraud claims involve misrepresentations that were collateral to or even entirely extraneous to the agreements. While intentionally false statements regarding "what will be done in the future" are not sufficient to bring a parallel fraud claim under New York law, "a misrepresentation of a present fact" can give rise to a separate action for fraud. Merrill Lynch , 500 F.3d at 184 ("A misrepresentation of present facts is collateral to the contract (though it may have induced the plaintiff to sign the contract) and therefore involves a separate breach of duty."). Plaintiff's fraud claim centers on two categories of misrepresentations: first, those made in order to induce BJB to enter into the Consent Agreement, Am. Compl. ¶ 170, and second, those made to conceal the true reason for the decline in purchases of GOLD ‘N’ ICE jewelry, Am. Compl. ¶ 171–74.
Plaintiff also lists misrepresentations made to USPTO as a separate category of fraudulent conduct, but defendant correctly notes that making fraudulent misrepresentations to regulators does not constitute a fraud on BJB. See Defs’ Reply at 23. Reliance by the plaintiff, for example, would be essential and is absent on these facts.
Proceeding on this theory, BJB's claims are impervious to SC's attacks on inconsistent pleadings grounds. Plainly, Defendant's argument for dismissal of the former category can be easily dispensed with, as BJB's fraud claim concerning misrepresentations underlying the Consent Agreement is a quintessential claim of fraudulent inducement, which "is separate and distinct from a breach of contract claim under New York law" and may be brought simultaneously. Merrill Lynch , 500 F.3d at 184 ; see also GWG MCA Cap., Inc. v. Nulook Cap., LLC , No. 17-CV-1724 (GRB), 2019 WL 1084777, at *5 (E.D.N.Y. Mar. 7, 2019) (holding that misrepresentations inducing plaintiff to enter a second agreement with defendant were actionable as fraud).
Alleged misrepresentations concerning demand for GOLD ‘N’ ICE jewelry are less clear cut, as they relate to a provision of the EDA, namely, the annual minimum purchase requirement. However, defendants’ alleged misrepresentations do not concern their prospective intent to fulfill the annual purchase requirement, which would not be actionable in fraud, but instead concern the reason why the requirement was not being fulfilled, which according to plaintiff was a pattern of selling infringing and counterfeit products. See Eagle Comtronics, Inc. v. Pico Prod., Inc. , 256 A.D.2d 1202, 682 N.Y.S.2d 505, 507 (4th Dep't 1998) ("Plaintiff does not allege merely that defendant entered into the contract while misrepresenting its intent to perform as agreed, but alleges that, after the contract was entered into, defendant repeatedly misrepresented or concealed existing facts." (citations omitted)). These misrepresentations of "present facts made post-contract formation" were collateral to the underlying contractual obligation to purchase minimum amounts of jewelry each year. U.S. Bank Nat'l Ass'n v. BFPRU I, LLC , 230 F. Supp. 3d 253, 261 (S.D.N.Y. 2017) (quoting Minnie Rose LLC v. Yu , 169 F. Supp. 3d 504, 521 (S.D.N.Y. 2016) ). Indeed, the misrepresentations are functionally similar to fraudulent inducement, as they are alleged to have had the effect of inducing BJB to remain in the agreement, which, as the pleadings suggest, it would not have done had SC disclosed its actual misconduct. See Merrill Lynch , 500 F.3d at 184. With this understanding, there is no inconsistent pleading and plaintiff's fraud claim may proceed alongside its breach of contract claim without being derailed by this objection.
B. Heightened Pleading
Virtually a sine qua non in any pleading challenge to a fraud claim is an attack grounded in Rule 9(b). Under this provision, the allegations of fraud set forth in the complaint must be pleaded "with particularity ... requiring a plaintiff to ‘specify the time, place, speaker, and content of the alleged misrepresentations,’ as well as ‘how the misrepresentations were fraudulent’ and ‘those events which give rise to a strong inference that the defendant had an intent to defraud, knowledge of the falsity, or a reckless disregard for the truth.’ " Janese v. Fay , 692 F.3d 221, 228 (2d Cir. 2012) (quoting Caputo v. Pfizer, Inc. , 267 F.3d 181, 191 (2d Cir. 2001) ). As touched upon supra , plaintiff's fraud claim deals with two distinct sets of misrepresentations and omissions and is better analyzed under Rule 9(b) as consisting of two separate fraud claims. The first is a claim of "fraudulent inducement" and concerns the misrepresentations made by defendants to induce plaintiff to enter into the Consent Agreement. See Am. Compl. ¶¶ 40–57. The second is a claim of "fraudulent misrepresentation and/or concealment" concerning the reasons for the decline in purchases of BJB's jewelry, which occurred later in time. See id. ¶¶ 58–66.
Plaintiff's allegations concerning fraudulent inducement clearly pass muster under Rule 9(b) because they are grounded, in large part, on a June 2011 email exchange between BJB and McMullan that is attached as an exhibit to the amended complaint. Am. Compl. ¶ 40; Dkt. 34-5. On reply, defendants raise the new argument that plaintiff failed to plead loss causation with respect to fraud based on the Consent Agreement. Defs’ Reply at 24. This is plainly meritless, as it is not at all difficult to infer loss causation from allegations that defendants used the Consent Agreement to obtain approval from USPTO, and then were able to sell allegedly infringing STERLING ‘N’ ICE jewelry, reducing demand for BJB's own product. See Am. Compl. ¶¶ 53–61, 75–76.
SC's attack on alleged misrepresentations in the amended complaint about the cause for decline in orders of GOLD ‘N’ ICE jewelry are more coherent. These allegations, SC argues, fail to identify "when and where" the statements were made, and do not provide sufficient detail concerning the content of those statements. Defs’ Mem. at 20–21. But, BJB defiantly responds that a more precise date was not possible in this case, as the misrepresentations were made repeatedly over the course of several years, and the "where" of the alleged misrepresentations is unknown to BJB, as they were made via telephone and email from across the Atlantic Ocean. Pl's Opp'n at 32.
Still, despite the considerable length of plaintiff's amended complaint, there is a notable lack of temporal detail concerning the statements underlying the claim of fraudulent misrepresentation and/or concealment. Indeed, the Amended Complaint merely states that "[b]eginning in an around 2012, with the issuance and SC's STERLING ‘N’ ICE registration," there was a drop in demand for BJB's jewelry, and, at some point thereafter, Roth and McMullan "knowingly and intentionally misrepresented the cause for the decline." Am. Compl. ¶¶ 58–59. Then, some six years later, on or around November 2018, plaintiff discovered the allegedly fraudulent nature of defendants’ representations. Am. Compl. ¶ 177. The timing of any misrepresentations between 2012 and November 2018, including the approximate date of when the purported misrepresentations began, is left to the imagination. Plaintiff's explanation, that specificity was not possible because the statements were made repeatedly over time, does not excuse this deficiency. To the contrary, that the misrepresentations were made repeatedly would suggest that plaintiff would have records—whether archived emails or meeting memoranda—that could be used to date and expound upon the substance of even some of the alleged misrepresentations.
In any event, regardless of whether plaintiff could have or should have memorialized the statements it now claims induced it to act or refrain from acting, Rule 9(b) requires pleading those misrepresentations with particularity and plaintiff has not done so. Because the amended complaint lacks "sufficient substance" to "afford the defendant the opportunity to prepare a response and to warrant further judicial process", United States ex rel. Chorches for Bankr. Est. of Fabula v. Am. Med. Response, Inc. , 865 F.3d 71, 87 (2d Cir. 2017), plaintiff's claim of fraudulent misrepresentations and/or concealment must be dismissed.
Keeping faith with another virtual sine qua non of Rule 9(b) motion practice, plaintiff has, presently, asked for leave to amend its pleadings a second time to address any deficiencies. As the Second Circuit has repeatedly observed, "[c]omplaints dismissed under Rule 9(b) are ‘almost always’ dismissed with leave to amend." Pasternack v. Shrader , 863 F.3d 162, 175 (2d Cir. 2017) (quoting Luce v. Edelstein , 802 F.2d 49, 56 (2d Cir. 1986)) ; see also ATSI, Commc'ns., Inc. v. Shaar Fund, Ltd. , 493 F.3d 87, 108 (2d Cir. 2007) ("District courts typically grant plaintiffs at least one opportunity to plead fraud with greater specificity when they dismiss under Rule 9(b)."). "In cases where such leave has not been granted, plaintiffs have usually already had one opportunity to plead fraud with greater specificity, or the defective allegations were made after full discovery in a related case." Luce , 802 F.2d at 56 (citations omitted). Here, plaintiff filed the Amended Complaint in this action less than three months after filing the original complaint, before any motion practice had taken place. As a result, plaintiff will be afforded another opportunity to plead its claim of fraudulent misrepresentations and/or concealment with the required specificity. Therefore, in line with this reasoning, defendants’ motion to dismiss plaintiff's fraud claim under Rule 9(b) is denied with respect the claim of fraudulent inducement, but granted with respect to the claim for fraudulent misrepresentations and/or concealment.
V. Claims Against Khol's and SC Corporate Officers
In the final chapter of their motion to dismiss, defendants ask the court to dismiss all trademark-related claims against Kohl's and against SC's corporate officers, Roth and McMullan. Regarding the former, defendants argue that BJB is precluded from enforcing its trademark rights against Kohl's because it assigned enforcement rights to SC under the EDA. Defs’ Mem. at 21. This is essentially a re-run of defendants’ already-rejected argument that BJB surrendered partial ownership of the GOLD ‘N’ ICE trademark to SC. See Defs’ Mem. at 17. As discussed at length supra , SC's right and obligation to enforce the trademark was a condition of the license that it was given and does not serve to strip BJB of its core rights as the holder of a registered trademark, such as the ability to prosecute infringement. Applying that understanding, while defendants contend that the assignment of enforcement rights was "to BJB's exclusion", id. , there is simply nothing in the language of EDA indicating that this was the case. Nor do defendants even attempt to explain why BJB would—seemingly gratuitously—give up its own right to prosecute trademark infringement in North America.
As for Roth and McMullan, defendants contend that plaintiff has failed to allege that they were "moving, active, conscious force[s] behind [SC's or iStar's purported] infringement," as required to assert a trademark infringement claim against an individual. Defs’ Mem. at 21 (quoting Canon U.S.A., Inc. v. F & E Trading LLC , No. 21:5-cv-6015(DRH)(AYS), 2017 WL 112515, at *4 (E.D.N.Y. Jan. 11, 2017) ). Contrary to defendants’ assertions, this is not a particularly high bar, especially at this early stage in the litigation. Plaintiff need merely plead facts "showing that an officer ‘authorized and approved the acts of unfair competition which are the basis of [the] ... corporation's liability.’ " Int'l Diamond Importers, Inc. v. Oriental Gemco (N.Y.), Inc. , 64 F. Supp. 3d 494, 515, 525 (S.D.N.Y. 2014) (holding that, as president of defendant company, the individual defendant would have "authorized and approved the infringing acts done by the company") (quoting Bambu Sales, Inc. v. Sultana Crackers, Inc. , 683 F. Supp. 899, 913 (E.D.N.Y. 1988) ); see also Canon , 2017 WL 112515, at *5 (holding that plaintiff pleaded a sufficient trademark infringement case against individual who served as principal of corporate defendant with demonstrated involvement in relevant products). BJB has alleged that Roth and McMullan were at relevant times Vice President and President of SC, respectively, and that they were sufficiently involved in issues pertaining to the GOLD ‘N’ ICE and STERLING ‘N’ ICE brands to have executed the EDA and Consent Agreement and engaged in communications with BJB concerning the anticipated use of these brands. Am. Compl. ¶¶ 26, 40, 59, 149–50; Dkt. 34-5; Dkt. 34-7. On this basis, the Court declines, on Rule 12, to dismiss plaintiff's federal or state trademark infringement claims against Roth or McMullan.
Defendants direct the Court to iStar's corporate filings from March 2020 indicating that its sole corporate officer is Tony Cheng. But this observation is fruitless for defendants. Even assuming that Roth and McMullan were never involved in iStar after it purchased the brands from SC in June 2016, the amended complaint still alleges that Roth and McMullan presided over infringing activity in their time as principals at SC, making them potentially liable for trademark infringement. See Am. Compl. ¶¶ 9–10.
Conclusion
For the foregoing reasons, the motion to dismiss plaintiff's claims is granted in part and denied in part. Plaintiff's breach of contract claim (Count One) is dismissed as time-barred only with respect to breaches occurring prior to June 27, 2013. Plaintiff's counterfeiting and unfair competition claims under the Lanham Act (Counts Two and Four) are dismissed as separate counts and consolidated with plaintiff's trademark infringement claim under the Lanham Act (Count Three). Plaintiff's fraud claim (Count Eight) is dismissed without prejudice to the extent it concerns fraudulent misrepresentations and/or concealment, but survives to the extent it alleges that SC fraudulently induced BJB to enter into the Consent Agreement. Plaintiff is, however, granted leave to amend its claim of fraudulent misrepresentations and/or concealment, provided it does so within 30 days of the docket entry of this Order.
So Ordered.