Opinion
00 Civ. 0937 (MBM).
December 1, 2000.
MARTIN B. PAVANE, ESQ. and ANDRES B. MADRID, ESQ., Cohen, Pontani, Lieberman Pavane, New York, NY., for Plaintiff.
ROBERT DAVIDSON, ESQ. and Wolf, Haldenstein, Adler, Freeman Herz, New York, NY, for Plaintiff.
PETER D. VOGL, ESQ., KATHERINE E. SMITH, ESQ. and Pennie Edmonds, New York, NY, for Defendant.
JILL M. PIETRINI, ESQ. and EDWARD M. JORDAN, ESQ., Manatt Phelps Phillips, Los Angeles, CA, for Defendant.
OPINION AND ORDER
Plaintiff Gianni Sport Ltd. seeks a judgment declaring that it does not infringe any rights defendant Metallica may have in the "Metallica" mark, does not dilute Metallica's mark, and has not engaged in unfair competition with Metallica. Gianni further seeks to enjoin Metallica from charging infringement, dilution, or unfair competition, or instituting any action for infringement, dilution, or unfair competition against Gianni. Gianni now moves to enjoin Metallica from pursuing a later filed action in California. Metallica cross-moves to dismiss plaintiff's action pursuant to Fed.R.Civ.P. 12(b)(6). For the reasons stated below, Gianni's motion to enjoin Metallica from pursuing the California action is denied. Metallica's motion to dismiss this action is granted.
I.
The following facts are undisputed unless described otherwise. Gianni is a New York corporation that manufactures clothing. (Davidson Decl. ¶ 2) Metallica is a band that specializes in a type of music called "heavy metal." The band is organized as a California partnership with it principal place of business in San Francisco, California. (Soekotjo Decl. ¶ 3; Pietrini Supp. Decl. Ex. 5) Metallica's exclusive merchandise licensee, Giant Merchandising, is located in Commerce, California. (Soekotjo Decl. ¶ 4) The dispute between the two parties arose when Metallica learned that Gianni was using the term "Metallica" on hang tags for a line of its women's clothing. (Pietrini Decl. ¶ 2; Pavane Decl. Ex. C) On May 18, 1999, Metallica's counsel sent a letter to Gianni alleging than Gianni's use of "Metallica" on its hang tags was an infringement of Metallica's trademark rights, constituted unfair competition, and diluted Metallica's trademark. (Pietrini Decl. ¶ 2; Pavane Decl. Ex. D) Metallica demanded that Gianni cease and desist from use of the mark and that it provide Metallica with information about sales of its allegedly infringing products. Furthermore, Metallica claimed that it would "be forced to exercise [its] legal rights" if Gianni did not reply in writing by May 31, 1999. (Pavane Decl. Ex. D)
Gianni's counsel left a telephone message with Metallica's counsel on June 3, 1999, and said that he would provide a substantive response to Metallica's letter. (Davidson Decl. ¶ 5; Pietrini Decl. ¶ 3) On July 1, 1999, Metallica, having received no response, issued another cease-and-desist letter, again stating that Metallica would "be forced to exercise its legal rights" if Gianni did not respond, this time by July 14, 1999. (Davidson Decl. ¶ 7, Ex. A; Pietrini Decl. ¶ 5) Gianni's counsel sent a response on June 29, 1999, which was received by Metallica on July 2, 1999. Gianni explained that it did not believe any confusion between Gianni's exclusive clothing and Metallica's products was possible. (Davidson Decl. ¶ 6; Pietrini Decl. ¶ 3; Pavane Decl. Ex. E) Gianni expressed its willingness to cease all use of the word Metallica, stating that it would "not use the name for any purpose." (Davidson Decl. ¶ 6; Pietrini Decl ¶ 3; Pavane Decl. Ex. E)
In a letter dated July 7, 1999, Metallica disputed Gianni's claim that there was no likelihood of confusion and again demanded sales information to facilitate a settlement. (Davidson Decl. ¶ 8; Pietrini Decl. ¶ 4; Pavane Decl. Ex. F) On July 20, 1999, Gianni's counsel sent a letter informing Metallica that it was in the process of gathering the requested information. (Davidson Decl. ¶ 9, Ex. B)
Having received no sales information, Metallica sent Gianni another demand on August 17, 1999 and set an August 23, 1999 deadline after which Metallica would "assume that Gianni Sport is not interested in resolving this matter amicably." (Davidson Decl. ¶ 10; Pietrini Decl. ¶ 4, Ex. 2) After additional correspondence, the parties participated in a conference call on October 8, 1999. (Davidson Decl. ¶ 14; Pietrini Decl. ¶ 5) Pursuant to the conference call, the parties signed a confidentiality agreement. (Davidson Decl. ¶¶ 17, 18; Pietrini Decl. ¶ 6, Ex. 3) During November and December, Gianni provided information to Metallica as part of the settlement discussions. (Davidson Decl. ¶ 19; Pietrini Decl. ¶ 7)
Metallica sent a proposed settlement agreement to Gianni on January 20, 2000. Metallica left the offer open until February 8, 2000. (Pavane Decl. Ex. G) Gianni's counsel claims to have left a telephone message for Metallica's counsel shortly after the January 20, 2000 settlement offer was made. (Davidson Decl. ¶ 24) However, Metallica's counsel denies receiving such a message. (Pietrini Supp. Decl. ¶ 6) Gianni filed this declaratory judgment action on February 8, 2000. On February 29, 2000, Metallica filed an action in the Central District of California for trademark infringement, false designation of origin, unfair competition, and dilution. (Pietrini Decl. ¶ 9; Pavane Decl. Ex. B)
Metallica objects to Gianni's submission of the settlement offer with its motion papers, arguing that the submission violated Fed.R. of Evid. 408 and the parties' confidentiality agreement. The submission does not violate Fed.R. of Evid. 408. The offer was not submitted to prove liability, as prohibited by the rule. Moreover, even if Gianni did violate the confidentiality agreement, Metallica does not explain how such a violation affects this motion.
II.
Metallica moves to dismiss this action pursuant to Fed. Rule of Civ. P. 12(b)(6), arguing that Gianni has failed to state a claim. Gianni, Metallica asserts, does not present an actual case and controversy. The presence of an actual case and controversy is properly decided under Fed.R. of Civ. P. 12(b)(1), even if that rule is not identified by the moving party. See St. Clair v.City of Chico, 880 F.2d 199, 201 (9th Cir. 1989), cited in Certain Underwriters at Lloyd's, London v. St. Joe Minerals Corp., 90 F.3d 671, 676 (2d Cir. 1996). When deciding a motion under Fed.R.Civ.P. 12(b)(1), a court may rely on affidavits or other evidence properly before the court. Kamen v.American Tel. Tel. Co., 791 F.2d 1006, 1011 (2d Cir. 1986).
Metallica argues that because Gianni stopped using the term Metallica prior to filing this declaratory judgment action, Gianni fails to present an actual case and controversy. (Comp. ¶ 10; see also Davidson Decl. ¶ 25) In trademark declaratory judgment actions, the actual-case-and-controversy standard has two elements. First, the defendant, Metallica in this case, must have created a real and reasonable apprehension of liability on the part of the plaintiff. Second, the plaintiff, Gianni here, must have engaged in a course of conduct which has brought it into adversarial conflict with the defendant. See Starter Corp. v. Converse, Inc., 84 F.3d 592, 595 (2d Cir. 1996).
Neither party disputes that Metallica's conduct created a real and reasonable apprehension of liability on the part of Gianni. Metallica repeatedly accused Gianni of infringement and threatened legal action. However, Metallica argues that Gianni has not engaged in a course of conduct which brought Gianni into conflict with Metallica because it has not demonstrated a "`definite intent and apparent ability to commence use' of the mark," as required in trademark cases. Id. at 596 (citing Golden Gulf Corp. v. Jordache Enter., Inc., 896 F. Supp. 337, 340 (S.D.N.Y. 1995)). Gianni has ceased use of the mark, and has demonstrated no desire to resume its use. Therefore, Gianni has no "definite intent" to commence use of the mark. See Baltimore Luggage Co. v. Samsonite Corp., 727 F. Supp. 202, 210 (D. Md. 1989) (finding that, although plaintiff had at one time engaged in conduct which brought it into conflict with the defendant, it did not satisfy the second prong of the trademark test because it had stopped selling the product).
However, the timing of this case is different from a typical trademark case. Usually the plaintiff is seeking a declaratory judgment before marketing an allegedly infringing product. See, e.g., Starter, 84 F.3d at 596; Golden Gulf, 896 F. Supp. 340 (dismissing because the only prospective sales were otherwise prohibited). The "definite intent and apparent ability" standard was created to prevent parties with merely a "vague and unspecific desire to use a mark" from seeking an opinion addressing hypothetical facts. Golden Gulf, 895 F. Supp. at 340; see Aetna Life Ins. Co. v. Haworth, 300 U.S. 227 (1937) (requiring that controversy be "definite and concrete"); Wembly, Inc. v. Superba Cravats, Inc., 315 F.2d 87, 89-80 (2d Cir. 1963). In the instant case, Gianni is not merely thinking about using the Metallica mark — it has actually used it.
The Supreme Court has pointed out that "it would be difficult, if it would be possible, to fashion a precise test for determining in every case whether there is [an actual] controversy." Maryland Cas. Co. v. Pacific Coal Oil Co., 312 U.S. 270, 273 (1941). Given the unusual timing of this action, application of the cited trademark declaratory judgment standard is inappropriate. The more general standard for deciding whether an actual case and controversy is presented "is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Id.
A substantial controversy between Gianni and Metallica exists regarding whether Gianni has infringed Metallica's rights. The controversy is immediate and real, not hypothetical. The activity at issue has taken place. "It is the nature of the controversy, not the method of its presentation or the particular party who presents it, that is determinative." Aetna Life Ins. Co., 300 U.S. at 244. Metallica has presented an actual case and controversy before the California court in its coercive action for damages. The case and controversy does not vanish here because Gianni filed the action,
Although Gianni has presented an actual case and controversy, a district court possesses discretion in deciding whether to entertain a declaratory judgment action. Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995). The Supreme Court has described the Declaratory Judgment Act as creating "an opportunity, rather than a duty, to grant a new form of relief." Id. at 288.
When deciding whether to entertain a declaratory judgment action, a court considers "the litigation situation as a whole."Great American Ins. Co. v. Houston Gen. Ins. Co., 735 F. Supp. 581, 585 (S.D.N.Y. 1990); see also Federal Ins. Co. v. May Dep't Stores Co., 808 F. Supp. 347, 349 (S.D.N.Y. 1992). For the reasons discussed below, the litigation situation here favors dismissal of this declaratory judgment action.
First, this action does not further the purpose of the Declaratory Judgment Act. The Declaratory Judgment Act's fundamental purpose is to allow a plaintiff not certain of his rights to "`avoid accrual of avoidable damages,'" and "`to afford him an early adjudication without waiting until his adversary should see fit to begin suit, after damage has accrued.'" United States v. Doherty, 786 F.2d 491, 498 (2d Cir. 1986) (quotingLuckenbach Steamship Co. v. United States, 312 F.2d 545, 548 (2d Cir. 1963)); see also In re Combustible Equip. Assoc., 838 F.2d 35, 37 (2d Cir. 1988) ("The purpose of the Act is to enable parties to adjudicate claims before either side suffers great damages."). Gianni, the plaintiff here, brought suit after committing the alleged infringement. Gianni has stopped using the term Metallica, and there is no suggestion that it intends to resume the use of the word "Metallica" even if it prevails here. (Pavane Decl. ¶ 25; see also Comp. ¶ 10) Any damages that are due have already accrued. Therefore, Gianni will not "avoid the accrual of avoidable damages" by means of this action.
Not only does Gianni's claim fall beyond the scope of the Declaratory Judgment Act's purpose, but it was also filed in "apparent anticipation" of Metallica's California suit. See Factors Etc., Inc. v. Pro Arts, Inc., 579 F.2d 215, 219 (2d Cir. 1978). Gianni's counsel states in his affidavit that "[i]f litigation was inevitable, as it seemed that it might be, we preferred that it take place where Gianni does business and keeps all its records, in New York." (Davidson Decl. ¶ 25) See Unique Indus., Inc. v. Lisa Frank, Inc., 1994 WL 525041, at *3 (S.D.N.Y. 1994) (finding such a strategy, while understandable, to be forum shopping). Metallica argues that Gianni was also motivated to "preempt" Metallica's choice of a California forum by a difference in the Ninth Circuit and Second Circuit standards for recovery of damages for trademark infringement. Gianni's counsel claims that there is no difference in the standards. (Davidson Decl. ¶ 16) Even if Gianni's counsel is correct, and therefore Gianni was not motivated by a desire to secure a decision under a more favorable standard, Gianni's filing was nonetheless motivated by a desire to litigate in New York, its home forum.
Gianni argues that its filing was not anticipatory because this action was filed nine months after Metallica's initial threat to sue. However, much of the time elapsed because settlement negotiations were taking place. "Potential plaintiffs should be encouraged to attempt settlement discussions . . . prior to filing lawsuits without fear that the defendant will be permitted to take advantage of the opportunity to institute litigation in a district of its own choosing." Capitol Records, Inc. v. Optical Recording Corp., 810 F. Supp. 1350, 1354 (S.D.N.Y. 1992) (quotingColumbia Pictures Industries, Inc. v. Schneider, 435 F. Supp. 742, 747 (S.D.N.Y. 1977)). Gianni filed this action on February 8, 2000, the day Metallica's first settlement offer expired. To allow Gianni's declaratory judgment action to go forward would penalize Metallica for its attempts at settlement, particularly in light of Gianni's hasty filing on the expiration date of the first settlement offer.
Furthermore, Gianni provides no justification for its haste in filing immediately following the settlement offer, Gianni suffered no prejudice by Metallica's failure to sue, as it did not intend to continue use of the mark, and was free to ignore Metallica's demands, leaving open the possibility that no lawsuit would commence. See Unique Indus., Inc., 1994 WL 525041, at *3 (transferring first-filed declaratory judgment action because plaintiff presented no evidence that the defendant would not have filed coercive suit and suffered no prejudice from defendant's failure to sue).
Gianni filed this suit in anticipation of Metallica's California suit. Gianni's use of the Declaratory Judgment Act to "gain a procedural advantage and preempt the forum choice of the plaintiff to the coercive action, weighs in favor of dismissal."Great American Ins. Co. v. Houston Gen. Ins. Co., 735 F. Supp. 581, 586 (S.D.N.Y. 1990).
Gianni argues that the court is required hear its declaratory judgment action because the action would serve a "useful purpose in clarifying and settling the legal relations in issue, or terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceedings." Starter Corp., 84 F.3d at 596. As discussed above, the action will not serve the Declaratory Judgment Act's purpose of preventing the accrual of avoidable damages. See Chicago Ins. Co. v. Holzer, 2000 WL 777907, at *3 (S.D.N.Y. 2000) ("A `useful purpose' arises when a party knows of the possibility of a lawsuit in the future, but neither party has reached the stage of seeking a coercive remedy.") (citing Great American, 735 F. Supp. at 584). In addition, this suit is not necessary to clarify and settle the legal relations or afford relief from uncertainty, insecurity and controversy. The pending coercive action in California will provide Gianni the opportunity to resolve the issues raised in the instant action. See Chicago Ins. Co., 2000 WL 777907, at *4;Great American, 735 F. Supp. at 586.
III.
Gianni moves to enjoin Metallica's California action pursuant to the first-filed rule. Because I decline to exercise jurisdiction over Gianni's declaratory judgment action, it is unnecessary to decide Gianni's motion. Even if the first-filed rule were dispositive here, Gianni's attempt to use a declaratory judgment action to gain a procedural advantage and secure its home forum would constitute special circumstances justifying a departure from the first-filed rule. See Factors Etc., Inc. v.Pro Arts, Inc., 579 F.2d 215, 219 (2d Cir. 1978); Capitol Records, Inc. v. Optical Recording Corp., 810 F. Supp. 1350, 1354-55 (S.D.N.Y. 1992).
* * *
For the reasons stated above, Gianni's motion to enjoin Metallica from pursuing the California action is denied. Metallica's motion to dismiss this declaratory judgment action is granted.
SO ORDERED: