Summary
holding that defendant's statement that he "would predict that the current licensee's recent acquisition of Regis Philbin Neckwear will cause a revenue loss to Geoffrey Beene Neckwear of up to 30% in department store sales" was a prediction and not actionable under the Lanham Act
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00 Civ. 4061 (LAP).
November, 2000.
MEMORANDUM AND ORDER
Plaintiff Randa Corporation ("Randa") brings this action alleging unfair competition in violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125, and unfair competition, tortious interference with contract, tortious interference with prospective business relations and misappropriation of goodwill, reputation and business property under the common law of the State of New York. Defendant Mulberry Thai Silk, Inc. ("Mulberry") moves to dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6).
BACKGROUND
The following facts are taken from the allegations in the Complaint, which I must accept as true for purposes of the motion to dismiss. Randa is one of the largest manufacturers of neckwear in the country. (Compl. ¶ 5.) Since 1935, Randa has continuously manufactured and sold neckwear and has done so under a number of designer licenses for over 25 years. (Id.) Randa has obtained exclusive licenses for the production, promotion and sale of neckwear for the Geoffrey Beene and Claiborne trademarks. (Id. ¶ 6.)
Mulberry is also in the business of manufacturing, promoting and selling neckwear but presently does not have any designer licenses. (Id. ¶ 8.) Plaintiff Randa alleges that it "has recently learned that [Mulberry] has contacted some of the owners of the trademarks which have been exclusively licensed to plaintiff in a malicious effort to cause the trademark owners to terminate the licenses with plaintiff and enter into exclusive neckwear licenses with defendant." (Id. ¶ 10.)
As an example of this alleged malicious behavior, Randa states that on May 18, 2000, Mulberry made a presentation to Geoffrey Beene, Inc., owners of the Geoffrey Beene trademark, in an effort to induce Geoffrey Beene, Inc. to terminate its contract with Randa and enter into an exclusive neckwear license with Mulberry. (Id. ¶ 11.) The following day, Mulberry submitted a written proposal to Geoffrey Beene which allegedly disparaged Randa and was designed to induce Geoffrey Beene, Inc. to breach the license between it and Randa. (Id. ¶ 12.) In the proposal, Mulberry refers to Randa's recent acquisition of the Regis Philbin Neckwear license and states that Mulberry "would predict that [Randa's] recent acquisition of Regis Philbin Neckwear will cause a revenue loss to Geoffrey Beene Neckwear of up to 30% in department store sales. Mulberry Neckwear is positioned to overcome this potential decline in business in its entirety and increase annual sales to the total current Geoffrey Beene Neckwear business by 50-75%." (Id. ¶ 12 and Ex. A.) The proposal offers specific royalty fees, guarantees to invest substantial sums to promote Geoffrey Beene neckwear, and promises to pay a minimum of one million dollars annually in royalties to Geoffrey Beene. (Id. ¶ 12.)
ANALYSIS
I. Standard Applicable to Motion to Dismiss
When deciding a motion to dismiss under Rule 12(b)(6), a court must accept as true all well-pleaded factual allegations of the complaint and must draw all inferences in favor of the pleader. See City of Los Angeles v. Preferred Communications, Inc., 476 U.S. 488, 493 (1986); Miree v. DeKalb County, 433 U.S. 25, 27 n. 2 (1977) (referring to "well-pleaded allegations"); Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993). "`[T]he complaint is deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference.'" International Audiotext Network, Inc. v. American Tel. Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995) (quoting Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991)). In order to avoid dismissal, plaintiff must do more than plead mere "[c]onclusory allegations or legal conclusions masquerading as factual conclusions." Gebhardt v. Allspect, Inc., 96 F. Supp.2d 331, 333 (S.D.N.Y. 2000) (quoting 2 James Wm. Moore, Moore's Federal Practice ¶ 12.34[a][b] (3d ed. 1997)). Dismissal is proper only when "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); accord Cohen v. Koenig, 25 F.3d 1168, 1172 (2d Cir. 1994). Even under this liberal standard, however, I find that plaintiff's claims suffer from deficiencies that mandate their dismissal.
I note that in resolving this motion I have not considered the Affidavit of Jeffrey Spiegel submitted with plaintiff's opposition papers. Plaintiff's affidavit contains a number of factual allegations not pled in the original complaint. This is a 12(b)(6) motion, filed in lieu of an answer and prior to commencement of discovery. Under the circumstances, I have two options, either consider the affidavit and convert this motion into one for summary judgment, or disregard the affidavit and treat this motion as a 12(b)(6) motion. See Fonte v. Board of Managers of Continental Towers Condominium, 848 F.2d 24, 25 (2d Cir. 1988). Here, neither side had any form of notice that conversion was appropriate, nor do I believe that it was. At the time the motion was submitted, an answer had not been filed and discovery had not commenced. See Old Republic Ins. Co. v. Hansa World Cargo Serv., Inc., 170 F.R.D. 361, 366 (S.D.N.Y. 1997) (declining to convert motion because, inter alia, the parties had not undertaken discovery). Accordingly, because I have not relied upon the plaintiff's affidavit for additional factual material, this motion remains a motion under Fed.R.Civ.P. 12(b)(6). See Alba v. Ansonia Bd. of Educ., 999 F. Supp. 687, 691 n. 1 (D.Conn. 1998).
II. The Lanham Act
Randa's First Cause of Action states without elaboration that "[d]efendant's actions as described above constitute unfair competition in violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125." (Compl. ¶ 13.) The Court assumes that Randa is attempting to assert a false advertising claim pursuant to Section 1125(a)(1)(B) which prohibits "commercial advertising or promotion [that] misrepresents the nature, characteristics, qualities or geographic origin of [the advertiser's] or another person's goods, services, or commercial activities." 15 U.S.C. § 1125(a)(1)(B). In the Complaint, Randa contends that Mulberry misrepresented and disparaged Randa's "goods, services [and] commercial activities" by submitting a proposal to Geoffrey Beene, Inc., the owner of one of the plaintiff's exclusive licenses, which stated that Mulberry "would predict that [Randa's] recent acquisition of Regis Philbin Neckwear will cause a revenue loss to Geoffrey Beene Neckwear of up to 30% in department store sales." (Compl. ¶¶ 10-12 and Ex. A.)
The full text of 15 U.S.C. § 1125(a)(1) reads as follows:
(a)(1) Any person who, on or in connection with any goods or services, . . . uses in commerce any . . . false or misleading description of fact, or false or misleading representation of fact, which —
(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or
(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is likely to be damaged by such act.15 U.S.C.A. § 1125(a)(1) (West 2000).
Randa seeks both injunctive and monetary relief under Section 43(a). To make out a claim under Section 43(a) sufficient to entitle the plaintiff to injunctive relief, the plaintiff must show that the defendant: (1) has made material misrepresentations about the nature, characteristics or geographic origin of either defendant's or plaintiff's goods or services; (2) has used the false or misleading representations "in commerce;" (3) has made the representations in the context of commercial advertising or commercial promotion; and (4) has made plaintiff believe that he or she is likely to be damaged by the misrepresentations. See Towers Fin. Corp. v. Dun Bradstreet, Inc., 803 F. Supp. 820, 823 (S.D.N.Y. 1992) (citing McNeil-P.C.C., Inc. v. Bristol Myers Squibb Co., 938 F.2d 1544, 1548-49 (2d Cir. 1991)); National Artists Management Co. v. Weaving, 769 F. Supp. 1224, 1230 (S.D.N.Y. 1991). To show entitlement to monetary damages under Section 43(a), a plaintiff must show an additional element — he or she must show actual damages rather than a mere tendency to be damaged. To do so, the plaintiff must show that he or she suffered actual damages that were causally related to "actual consumer confusion or deception" of the purchasing public. PPX Enters. v. Audiofidelity Enters., 818 F.2d 266, 271 (2d Cir. 1987) (citing Warner Bros., Inc. v. Gay Toys, Inc., 658 F.2d 76, 79 (2d Cir. 1981)).
To recover under Section 43(a), Randa must first demonstrate that Mulberry's advertising or promotions were literally false. Johnson Johnson v. GAC Int'l, Inc., 862 F.2d 975, 977 (2d Cir. 1988) (citing Coca-Cola Co. v. Tropicana Prods., Inc., 690 F.2d 312, 317 (2d Cir. 1982)). Thus, neither subjective claims nor mere puffing is actionable because they cannot be proven true or false. Lipton v. The Nature Co., 71 F.3d 464, 474 (2d Cir. 1995) (citing Groden v. Random House, Inc., No. 94 Civ. 1074, 1994 WL 455555, at *5 (S.D.N.Y. Aug. 23, 1994), aff'd, 61 F.3d 1045 (2d Cir. 1995)). "[S]tatements of opinion are generally not the basis for Lanham Act liability." Groden, 61 F.3d at 1051. In determining whether the text of a promotion is literally false, I must consider the context of the promotion. Avis Rent A Car Sys. v. Hertz, 782 F.2d 381, 385 (2d Cir. 1986) (reiterating the Supreme Court's invective against "the tyranny of literalness"); Vidal Sassoon v. Bristol-Myers Co., 661 F.2d 272, 276 (2d Cir. 1981) (stating that court must view the "`entire mosaic'" of the advertisement rather than "`each tile separately'") (quoting FTC v. Sterling Drug, Inc., 317 F.2d 669, 674 (2d Cir. 1963)).
A plaintiff may also show that "although the advertisement is literally true, it is likely to deceive or confuse consumers." Lipton v. The Nature Co., 71 F.3d 464, 474 (2d Cir. 1995) (citing McNeil-P.C.C., Inc. v. Bristol-Myers Squibb Co., 938 F.2d 1544, 1549 (2d Cir. 1991)). In this action, Randa has asserted that the statements made by Mulberry were false. (Compl. ¶ 10.)
Although Randa asserts that Mulberry made "false and fraudulent statements and representations," (Compl. ¶ 10), the only facts alleged by Randa to be false representations relate to Mulberry's written proposal to Geoffrey Beene attached as Exhibit A to the Complaint. The allegedly offending passage states that:
"[Mulberry] would predict that the current licensee's recent acquisition of Regis Philbin Neckwear will cause a revenue loss to Geoffrey Beene Neckwear of up to 30% in department store sales."
(Compl. Ex. A.) Mulberry's statement is an opinion of a possible future event. It is a prediction about a possible business trend. At most, it is mere puffery. A review of Randa's Complaint shows that it is bereft of any other allegations of false statements other than a conclusory assertion that false statements were made.
Because I find that Mulberry's proposal and comments to Geoffrey Beene contain no false statements and, as such, do not fall with Section 43(a), I need not examine whether Randa has satisfied the remaining elements of a Section 43(a) claim. Randa has failed to plead any additional facts which would support a claim under Section 43(a), and its claim is therefore dismissed.
III. New York Unfair Competition Law
Randa's Second Cause of Action alleges unfair competition in violation of its rights under New York common law. (Compl. ¶ 17.) In New York, as elsewhere, the common law of unfair competition encompasses a broad range of unfair practices. See American Footwear Corp., 609 F.2d at 662; Flexitized, Inc. v. National Flexitized Corp., 335 F.2d 774, 781 (2d Cir. 1964). The tort of unfair competition has been called "a broad and flexible doctrine" encompassing "any form of commercial immorality." Metropolitan Opera Ass'n v. Wagner-Nichols Recorder Corp., 199 Misc. 786, 792, 796, 101 N.Y.S.2d 483, 488-89, 492 (Sup.Ct. 1950), aff'd, 279 A.D. 632, 107 N.Y.S.2d 795 (1951); Towers Fin. Corp., 803 F. Supp. at 823. The tort implies the misappropriation for commercial advantage of "the `benefit' or property right belonging to another." Metropolitan Opera Ass'n, 199 Misc. at 793, 101 N.Y.S.2d at 489; Towers Fin. Corp., 803 F. Supp. at 823.
Unfair competition claims under New York law closely resemble Lanham Act claims except "the state law claim may require an additional element of bad faith or intent." Weight Watchers Int'l, Inc. v. Stouffer Corp., 744 F. Supp. 1259, 1283-84 (S.D.N.Y. 1990) (citing Saratoga Vichy Spring Co. v. Lehman, 625 F.2d 1037, 1044 (2d Cir. 1980)). "[T]he essence of unfair competition under New York common law is `the bad faith misappropriation of the labors and expenditures of another, likely to cause confusion or to deceive purchasers as to the origin of the goods.'" Rosenfeld v. W.B. Saunders, 728 F. Supp. 236, 249-50 (S.D.N.Y. 1990) (quoting Computer Assocs. Int'l, Inc. v. Computer Automation, Inc., 678 F. Supp. 424, 429 (S.D.N Y 1987), aff'd, 923 F.2d 845 (2d Cir. 1990)).
While the tort of unfair competition may be a broad and flexible doctrine, it is not all-encompassing and certainly does not include the type of business competition described in plaintiff's Complaint. Randa has failed to plead adequately that Mulberry misappropriated the labors and expenditures of Randa or that Mulberry attempted to confuse Geoffrey Beene, Inc. Indeed, Exhibit A to the Complaint states that Mulberry was invited by Geoffrey Beene to make a proposal. The proposal on its face demonstrates not only that Mulberry was not attempting to confuse Geoffrey Beene as to the origin of its goods but rather was emphasizing the differences between Mulberry and Randa. Finally, as stated supra, Randa has failed to plead any facts which would support an allegation that Mulberry deceived Geoffrey Beene. Simply because a party has expended substantial time and money to develop a business relationship with a customer does not make that party immune from healthy competition from competitors. Randa has failed to allege a claim for unfair competition under New York law and, accordingly, that claim is dismissed.
IV. Tortious Interference With A Contract
Randa's third claim for tortious interference with a contract under New York law can be addressed briefly. (Compl. ¶ 21.) Under New York law, a party bringing an action for tortious interference with a contract must allege that: (1) a valid contract existed between the plaintiff and a third party; (2) defendant knew of the contract; (3) defendant intentionally induced breach of the contract or otherwise rendered performance impossible; and (4) plaintiff suffered damages. See Kronos, Inc. v. AVX Corp., 81 N.Y.2d 90, 94, 595 N.Y.S.2d 931, 612 N.E.2d 289 (1993); Enercomp, Inc. v. McCorhill Publ'g Co., 873 F.2d 536, 541 (2d Cir. 1989) (citing Guard-Life Corp. v. S. Parker Hardware Mfg. Corp., 50 N.Y.2d 183, 189-91, 428 N.Y.S.2d 628, 631-32, 406 N.E.2d 445, 447-48 (1980)).
Randa's claim for tortious interference suffers from one fatal flaw sufficient to warrant dismissal. In order to sustain a cause of action for tortious interference with contract, a plaintiff is required to demonstrate that the defendant induced a third party to breach the contract. See Jack L. Inselman Co. v. FNB Fin. Co., 41 N.Y.2d 1078, 1080, 396 N.Y.S.2d 347, 349, 364 N.E.2d 1119, 1120 (1977) ("In order for the plaintiff to have a cause of action for tortious interference of contract, it is axiomatic that there must be a breach of that contract by the other party."); Baylis v. Marriott Corp., 906 F.2d 874, 877 (2d Cir. 1990) ("Under traditional principles of New York law, a party may not recover for tortious inducement of breach of a contract without proving that the underlying contract has been breached."); Agugliaro v. Brooks Bros., 802 F. Supp. 956, 963 n. 5 (S.D.N.Y. 1992) (plaintiff must allege defendant's intentional procuring of a breach of contract and actual breach of contract) (citing Israel v. Wood Dolson Co., 1 N.Y.2d 116, 120, 151 N.Y.S.2d 1 (N.Y. 1956)); Krause Krause v. Gelman, 562 N.Y.S.2d 42, 43 (1st Dep't 1990) (plaintiff must allege that third party was directly induced to breach contract with plaintiff); NBT Bancorp v. Fleet/Norstar Fin. Group, 553 N.Y.S.2d 864, 868, 159 A.D.2d 902, 905 (3d Dep't 1990) (failure to allege a breach of merger agreement is fatal to cause of action), appeal dismissed, 561 N.Y.S.2d 546 (N.Y. 1990). Accordingly, because no breach of any contract has been alleged, the claim for tortious interference must be dismissed.
Randa admits that it cannot allege a breach of contract because no breach has occurred, but argues nevertheless that it should be entitled to injunctive relief. (Pl. Br. in Opp. to Def.'s Motion to Dismiss at 13.) The Court finds the cases cited by Randa to be inapposite and declines to deviate from the clear New York precedent that without an allegation of breach, no claim for tortious interference of a contract can be made.
V. Tortious Interference With Prospective Business Relations
Randa's fourth claim is for tortious interference with prospective business relations. (Compl. ¶ 23.) To establish a claim for tortious interference with prospective business relations under New York law, a plaintiff must show: 1) that the defendant interfered with a business relationship between, and belonging to, plaintiff and a third party; 2) with the sole purpose of either harming the plaintiff or by means which are dishonest, unfair or otherwise improper; and 3) that plaintiff would have entered into a contract with the third party but for the defendant's interference. See PPX Enters., Inc. v. Audiofidelity Enters., Inc., 818 F.2d 266, 269 (2d Cir. 1987); Brown v. Bethlehem Terrace Assoc., 136 A.D.2d 222, 225, 525 N.Y.S.2d 978, 980 (App.Div. 1988). If a "defendant's interference is intended, at least in part, to advance its own competing interests, the claim will fail unless the means employed included criminal or fraudulent conduct." PPX Enters., Inc., 818 F.2d at 269.
Again, Randa has failed to plead a critical element of the tort it alleges. Randa has failed to state that Mulberry has "interfered with the benefits resulting from its business relations" with Geoffrey Beene, Inc. or any other business relationship. See id. Based upon the facts alleged in the Complaint, the business relationships underlying Randa's claims remain undisturbed. For this reason alone, Randa's claim is defective and should be dismissed. I note, however, that Randa's claim is defective for additional reasons, including, inter alia, failing to plead that Mulberry acted in a dishonest, unfair, or otherwise improper manner.
VI. Misappropriation
Finally, Randa alleges that Mulberry misappropriated to its own use and benefit the valuable goodwill, reputation and business property of Randa under New York law. Misappropriation of goodwill under New York law is the "misleading of the public into believing that a product is sponsored or derived from another." Diversified Mktg., Inc. v. Estee Lauder, Inc., 705 F. Supp. 128, 132 (S.D.N.Y. 1988) (citing American Footwear Corp. v. General Footwear Co., 609 F.2d 655, 662 (2d Cir. 1979)). Randa's "misappropriation of goodwill theory thus turns on a showing of likelihood of confusion." Diversified Mktg., Inc., 705 F. Supp. at 132.
It is clear from the face of Exhibit A to the Complaint that Mulberry's proposal to Geoffrey Beene could not cause any confusion to the reader but rather would inform the reader of the differences between Mulberry Neckwear and Randa Neckwear. The letter proposal states that "[t]he purpose of this summary is to respond in as concise a manner as possible to the interest you expressed in understanding what differentiates Mulberry Neckwear from your current licensee [Randa] and its competitors." (Compl. Ex. A.) Randa has also failed to plead any facts to support its claim that Mulberry used for its own benefit the reputation or business property of Randa.
Because Randa has failed to make out a claim for misappropriation, this claim is dismissed.
VII. Leave to Amend
The Federal Rules of Civil Procedure permit a party to amend its pleadings by leave of the court. Fed.R.Civ.P. 15(a). Leave of the court "shall be freely given when justice so requires." Fed.R.Civ.P. 15(a); Foman v. Davis, 371 U.S. 178, 182 (1962). The decision whether to grant such a motion rests within the discretion of the district court. Id. However, "outright refusal to grant the leave without any justifying reason appearing for the denial is not an exercise of discretion; it is merely an abuse of that discretion." Id. Among the reasons that justify denying leave to amend are: "undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment. . . ." Id.; Evans v. Syracuse City Sch. Dist., 704 F.2d 44, 46 (2d Cir. 1983); S.S. Silberblatt. Inc. v. East Harlem Pilot Block Bldg. 1 Hous. Dev. Fund Co., 608 F.2d 28, 42 (2d Cir. 1979); State of New York v. Cedar Park Concrete Corp., 741 F. Supp. 494, 496 (S.D.N.Y. 1990). Although I am skeptical that plaintiff can plead a claim for relief on these facts, leave to replead is granted. Plaintiff may file an amended complaint within ten business days of the date hereof. If plaintiff repleads and defendant believes that defects similar to those noted above exist, defendant's counsel shall so inform plaintiff's counsel within five business days of receipt of the amended complaint. Counsel shall confer and, if they are unable to agree, shall inform the Court by letter promptly.
CONCLUSION
For the reasons stated above, defendant's motion to dismiss is granted. Plaintiff is given leave, however, to amend the Complaint within ten business days of the date hereof.
SO ORDERED.