RICHARD J. HOLWELL, District Judge:
Two matters in this case are currently pending before the Court.
Second is POP's motion to enforce its settlement agreement with defendant/counterclaimant Madison One Acme Inc., d/b/a Solstice Medicine Co. ("Solstice"). POP contends that Solstice breached an agreement settling all claims between POP and Solstice by engaging in selling activity and obtaining distributorship rights regarding Po Chai Pills ("PCP") in violation of certain timing terms in that agreement. Solstice contends that POP misreads the settlement agreement, that no enforceable agreement existed in the first place, and that POP cannot make out a claim for damages. Because the purported settlement agreement contains ambiguous and contradictory terms, of which the parties have contradictory but reasonable interpretations, the Court finds that the parties never came to any meeting of the minds and that therefore the settlement is unenforceable. The Court thus DENIES POP's motion to enforce its settlement.
POP brought this action on January 16, 2007. The FAC, filed March 9, 2007, states claims against, inter alia, the A & C defendants and Solstice for: (1) trademark infringement under Section 32(1) of the Lanham Act, 15 U.S.C. § 1114(1); (2) false designation of origin and false descriptions and representations under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); (3) trademark dilution under Section 43(c) of the Lanham Act, 15 U.S.C. § 1125(c); (4) trademark dilution under Section 360-l
As of 2004, POP was the "exclusive distributor" of PCP in the United States. (FAC ¶ 7; FAC Ex. B.) In or before January 2007, however, POP found products bearing a mark identical to that affixed to the bottles of their PCP being sold at various markets including at A & C. (Id. ¶ 32.) On January 17, 2007, the Court granted POP's application for an ex parte order for seizure of the allegedly infringing goods. (Id. ¶ 37.) POP executed that order and seized allegedly infringing products from A & C on January 28, 2010, and publicized the seizure in a Chinese language newspaper. (Lin Aff. ¶¶ 3, 10.)
On February 16, 2007, the Court held a hearing to ascertain whether the facts that gave rise to the original issuance of the seizure order were still valid, and to consider the A & C defendants' claim for damages arising out of the allegedly wrongful seizure. Prince of Peace Enters., Inc. v. Top Quality Food Market, LLC, No. 07 Civ. 00349(RJH), 2007 WL 704171, at *1 (S.D.N.Y. Mar. 7, 2007). The Court found that POP had not proven a likelihood of success on the merits for its claims against the A & C defendants, and vacated the seizure order as to them. Id. at *6. The Court also found that the A & C defendants had not provided documentation supporting their damages claims but granted them leave to assert counterclaims for damages. Id. On April 20, 2007, the A & C defendants filed their answers to the FAC, and included a counterclaim under Section 34(d)(11) of the Lanham Act, 15 U.S.C. § 1116(d)(11), for damages incurred from a wrongful seizure. Then on May 1, 2007, the A & C defendants filed the present motion to dismiss the complaint and in support of their claim to damages.
In the FAC, POP claims to be the "exclusive distributor" of the PCP in the United States (FAC ¶ 7), and also the "assignee" of the trademarks "use[d] for many years on and in connection with" PCP (the "Marks").
(FAC Ex. B.) The agreement also appointed POP the "Sole and Exclusive Authorized Distributor" of PCP in the United States, and tasked POP with promoting the sale and ensuring the quality of PCP. (Id.) Finally, the agreement would "remain valid until terminated by written notice to the Trademark Office of the [United States]." (Id.)
On February 1, 2008, POP and Solstice executed a handwritten agreement (the "Settlement Agreement") on Hilton Hotel stationary purportedly settling the action and dismissing all claims as between POP and Solstice. (Seltzer Decl. Ex A ("Settlement Agreement"); Yeung Aff. ¶ 3; So Decl. ¶ 4.) The Settlement Agreement was signed by Kenneth Yeung, founder and president of POP, and Wina So, CEO of Solstice. (Settlement Agreement; Yeung Aff. ¶ 3; So Decl. ¶¶ 4, 13.) Relevant to this opinion, the agreement states:
(Settlement Agreement ¶¶ 2, 3.) The parties do not disagree that the relevant "distributorship" ended June 30, 2009. (Yen Aff. ¶ 3; So Decl. ¶ 10.) Nor does Solstice refute POP's contention that it sold PCP between July and November, 2009, well within six months after the distributorship terminated. (Yen Aff. ¶¶ 5-11; see Solstice's Opp'n at 5-6.) Solstice also admits LCST offered and Solstice accepted a distributorship within the prohibited six-month period following termination of POP's distributorship, but contends that paragraph "3." of the Settlement Agreement prohibited Solstice merely from soliciting such an arrangement and not from accepting a distributorship unilaterally offered to it. (Solstice Opp'n at 5-6.) On March 15, 2010 POP filed the present motion to enforce the Settlement Agreement.
On a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) the Court accepts as true all factual allegations in the complaint and draws all reasonable inferences in the plaintiff's favor. In re DDAVP Direct Purchaser Antitrust Litigation, 585 F.3d 677, 692 (2d Cir.2009). The complaint's allegations, however, "must be enough to raise a right of relief above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Only a "plausible claim for relief survives a motion to dismiss." LaFaro v. New York Cardiothoracic Group, PLLC, 570 F.3d 471, 476 (2d Cir.2009). Thus courts are "not bound to accept as true a legal conclusion couched as a factual allegation," and "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949-50, 173 L.Ed.2d 868 (2009) (internal quotation marks omitted).
The A & C defendants argue that POP lacks standing to bring its federal
The FAC and the agreement POP relies on to support its alleged assignment do not support the inference of a valid assignment. First, the LCST-POP agreement reads more as a license, or limited permit, to use the Marks than a sale of all the rights in them. An assignment of a trademark is only valid when it includes "all rights in that mark." 3 McCarthy § 18:1. On the other hand, licenses for particular uses, or other documents not purporting to transfer ownership in the mark, are not assignments as the alleged assignor has not parted with all rights. Id.; see also Gruen Mktg. Corp. v. Benrus Watch Co., Inc., 955 F.Supp. 979, 982-83 (N.D.Ill. 1997) ("[Plaintiff's] argument, however, does not overcome the express language of the License Agreement that [defendant] retained ownership of the BENRUS mark. A licensee lacks standing where the agreement indicates that the licensor retains exclusive ownership of the mark.") (citing DEP Corp. v. Interstate Cigar Co., Inc., 622 F.2d 621, 623 (2d Cir.1980)). Specifically, when an agreement places obligations regarding the trademark on the alleged assignee and indicates that the trademark is owned not by the assignee but by the assignor, a court should read that agreement as a license and not as an assignment. Calvin Klein Jeanswear Co. v. Tunnel Trading, 98 Civ. 5408(THK), 2001 WL 1456577, at *4-5 (S.D.N.Y. Nov.
Second, nothing in the FAC or documents referenced therein suggests that LCST ceased its own sales of PCP, and thus that LCST had transferred all of the goodwill connected to the Marks with the rights to use them. Cf. Clark & Freeman Corp. v. Heartland Co. Ltd., 811 F.Supp. 137, 139 (S.D.N.Y.1993) (discussing not only that post-assignment continuation of operations suggests a non-transfer of goodwill, but also that even post-assignment cessation of operations does not, alone, suffice to indicate that transfer). Without an indication that LCST ceased its own operations selling PCP, LCST cannot have transferred to POP all of its goodwill in the Marks. Furthermore, though a trademark's owner is not necessarily required to transfer all the physical assets of his business connected to the mark, the assignee must still demonstrate (1) that its business "go[es] on in real continuity" with the assignor's business; and (2) that the assignor has divested himself of his trademark rights and business activity involving the mark. See Fitzpatrick, 2010 WL 3377500, at *3. Even if POP could prove the former through, perhaps, being the exclusive distributor of PCP, nothing in the FAC indicates, at all, that LCST divested itself of its business involving the mark.
The FAC states: "Plaintiff is the assignee of the [Marks]." (FAC ¶ 26.) However, in assessing a complaint on a motion to dismiss, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 129 S.Ct. at 1949. The Court is "not bound to accept as true a legal conclusion couched as a factual allegation." Twombly, 550 U.S. at 555, 127 S.Ct. 1955. Because POP has not alleged facts allowing the Court to determine, as is required, that POP was plausibly the assignee of the Marks, see Iqbal, 129 S.Ct. at 1950, POP does not adequately allege it has standing to bring its federal infringement claim. Thus that claim must be dismissed.
POP also fails to properly allege standing to bring its federal and state dilution claims for a similar reason: it is not the owner of the Marks. Section 43(c) of the Lanham Act allows only "the owner of a famous mark," to "be entitled to an injunction against another person who, at any time after the owner's mark has become famous, commences use of a mark or
There is authority suggesting that an exclusive licensee or distributor, as POP claims to be in this case, might have standing to sue under Section 43(c) if the license agreement in question grants the licensee especially strong ownership rights. In World Championship Wrestling v. Titan Sports, Inc., the court stated:
46 F.Supp.2d 118, 122 (D.Conn.1999). This Court respectfully disagrees. As the STX decision, cited in Titan Sports, properly notes:
STX, Inc. v. Bauer USA, Inc., No. C 96-1140 FMS, 1997 WL 337578, at *4 (N.D.Cal. June 5, 1997) (emphasis added). Indeed, this district requires that one either be the owner or the registrant of the mark in question to have standing under Section 43(c) and New York Gen. Bus. Law § 360-l. See Iconix, 2008 WL 2695090, at *5 ("[Plaintiff] concedes that it is `neither the "registrant" nor the owner' of the Bongo mark, and thus that it does not have standing to pursue its claims for. . . dilution under 15 U.S.C. § 1125(c)." Absent a valid assignment transferring all ownership rights in a mark, even an exclusive licensee and distributor, as plaintiff here claims to be, (see FAC ¶¶ 7, 29), is not a mark's "owner" for purposes of Section 43(c)). ICEE Distributors, Inc. v. J & J Snack Foods Corp., 325 F.3d 586, 599 (5th Cir.2003). Finally, even if Titan Sports' interpretation were correct, that possibility still would not help POP as the license agreement here states explicitly that LCST is the "owner" of the marks and that LCST is merely granting POP the "use" of those marks.
POP has not alleged facts allowing the Court to determine, as is required, that POP was plausibly the owner of the Marks. See Iqbal, 129 S.Ct. at 1950. POP, in fact, does not allege at all that it was the Marks' owner. POP thus does not adequately allege it has standing to bring its federal and state dilution claims, and those claims must be dismissed.
Section 43(a) of the Lanham Act, unlike Sections 32(1) or 43(c), does not require that plaintiff be the registrant, valid assignee, or owner of the trademark in question. Instead, that section allows a civil action by "any person who believes that he or she is or is likely to be damaged" by the conduct made unlawful thereunder. 15 U.S.C. § 1125(a)(1). Nevertheless, POP fails to state a claim under Section 43(a) because the FAC does not allege that the PCP bearing the infringing mark, which in this case is a so-called "gray good," differs in any way from POP's PCP.
Section 43(a) provides in relevant part:
15 U.S.C. § 1125(a). When the mark in question is affixed to a "gray good"—that is a good allegedly unauthorized for sale in the relevant market but bearing the manufacturer's actual trademark—courts employ a two part test for determining whether that likelihood of confusion exists.
Though the standard for finding a material difference is low, and perhaps even "`require[es] no more than showing that consumers would be likely to consider the differences between the [two] products to be significant when purchasing the product,'" Dan-Foam, 500 F.Supp.2d at 312 (quoting Bourdeau Bros., Inc. v. Int'l Trade Comm'n, 444 F.3d 1317, 1324 (Fed. Cir.2006) (applying that material difference test in a Tariff Act case)), plaintiff here cannot satisfy even that standard as the FAC fails to allege that the goods in question were different at all. If anything the FAC indicates that the products were equivalent. (See FAC ¶ 36 ("Plaintiff has on January 28, 2007 entered the place of business of Defendant A & C Supermarket, Inc. and found infringing Po Chai Pills products bearing the Plaintiff's registered Trademark.").) Indeed, POP has represented to this Court that it accepts that the allegedly wrongfully marketed PCP was actually manufactured by LCST and that the ingredients in that PCP and its own were the same. See Prince of Peace, 2007 WL 704171, at *4-5 (Hr'g of Feb. 16, 2007 at 5, 9). The A & C defendants' PCP was thus not materially different from POP's and POP's claim under Section 43(a) of the Lanham Act must be dismissed.
"Federal courts have supplemental jurisdiction over state law claims `that are so related to claims in the action within [the court's] original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution.'" DCML LLC v. Danka Business Systems PLC, No. 08 Civ. 5829(SAS), 2008 WL 5069528, at *3 (S.D.N.Y. Nov. 26, 2008) (quoting 28 U.S.C. § 1367(a)) (alteration in original). Though a court's exercise of that jurisdiction is discretionary, when "all federal claims have been dismissed before trial, the balance of factors . . . will point toward declining to exercise jurisdiction over the state-law claims." Id. (alteration in original) (internal quotation marks omitted). Because all of POP's federal claims have been dismissed as against the A & C defendants, as well as POP's state law dilution claim, the Court declines to exercise jurisdiction over POP's New York common law unfair competition claim and dismisses that claim.
Under Section 34(d)(11) of the Lanham Act, "[a] person who suffers damage
The A & C defendants have alleged the first and second elements required for damages under Section 34(d)(11); they were the victims of an ex parte seizure (A & C Defendants' Answer ¶ 8; Lin Aff. ¶¶ 3, 5), and that seizure caused damages. (Lin Aff. ¶ 6.) Furthermore, the seized goods were non-infringing. The Court here holds, inter alia, that POP has no standing to assert its infringement claims; in other words, POP had no federal trademark right which it could have enforced following an allegedly wrongful use of the Marks. See Calvin Klein Jeanswear, 2001 WL 1456577, at *4. Thus the PCP seized from A & C did not infringe upon any trademark rights held by POP, and the A & C defendants are entitled to damages under Section 34(d)(11).
The A & C defendants claim damages resulting from lost sales, spoiled merchandise, and wages paid during the time that POP physically executed the seizure, and also claim attorney's fees. (Lin Aff. ¶¶ 5-9.) Defendants also claim they "suffered substantial harm to [] goodwill," and request, additionally, punitive damages. (A & C Def.'s Mem. at 8.) As documentary evidence to support these figures, the A & C defendants submit, in toto, (1) a two-line chart purporting to demonstrate the difference in their revenues between January 21, 2007, and January 28, 2007, the date of the seizure; and (2) the dairy entries of their lawyer, Xian Feng Zou, detailing the work he performed on this case. However, because the Court cannot, merely from the chart submitted, determine the existence or extent of damages with accuracy (indeed, defendants make no proffer at all going to the value of their loss of good will), the Court refrains from issuing any damages award at this time and instead refers this matter to Magistrate Judge Frank Maas for a damages inquest.
The A & C defendants are also entitled to return of any seized goods as the Court's decision of March 6, 2007, vacated POP's seizure order with respect to A & C. Prince of Peace, 2007 WL 704171, at *6. To the extent that any goods POP seized from the A & C defendants have yet to be returned, POP is hereby directed to release those goods to the A & C defendants.
Preliminarily, the Court notes that a question exists concerning what law governs the Settlement Agreement. Under New York's choice-of-law rules, "the interpretation and the validity of contracts are determined by the law of the place where the contract is made, while all matters connected with its performance are regulated by the law of the place where the contract, by its terms, is to be performed." TSR Silicon Resources Inc. v. Broadway Com Corp., No. 06 Civ.
Like all contracts, "[a] settlement agreement is a contract that is interpreted according to general principles of contract law." Omega Eng'g, Inc. v. Omega, S.A., 432 F.3d 437, 443 (2d Cir.2005). To maintain a breach of contract under New York law, a party must establish "(1) the existence of a contract, (2) performance by the party seeking recovery, (3) non-performance by the other party, and (4) damages attributable to the breach." RCN Telecom Servs., Inc. v. 202 Centre Street Realty LLC, 156 Fed.Appx. 349, 350-51 (2d Cir.2005). Existence of a contract requires "an offer, acceptance, consideration, mutual assent and intent to be bound." Benicorp, 447 F.Supp.2d at 337. Mutual assent requires, in turn, "a meeting of the minds of the parties, and, if there is no meeting of the minds on all essential terms, there is no contract." Id. Indeed, "[i]f the Court finds substantial ambiguity regarding whether both parties have mutually assented to all material terms, then the Court can neither find, nor enforce, a contract." Id. (citing Schurr v. Austin Galleries of Illinois, Inc., 719 F.2d 571, 576 (2d Cir.1983)). An ambiguity exists when "the terms of the contract could suggest more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business." Law Debenture Trust Co. of New York v. Maverick Tube Corp., 595 F.3d 458, 466 (2d Cir.2010) (internal quotation marks omitted). On the other hand, a contract "is unambiguous when it has a definite and precise meaning and where there is no reasonable basis for a difference of opinion." Klos v. Lotnicze, 133 F.3d 164, 168 (2d Cir.1997).
In construing settlement agreements, if ambiguities are created by the contract's language, then the court may look to the parties' statements and submissions to resolve the ambiguity by
The Settlement Agreement here suggests two contradictory meanings and is therefore facially ambiguous. Paragraph "2." prohibits Solstice from selling PCP for "6 months after termination of POP current or extended distributorship." (Settlement Agreement ¶ 2.) Yet paragraph "3." permits Solstice to sell PCP after "termination of distributorship mentioned in ¶ 2." (Id. ¶ 3) Thus paragraphs "2." and "3." are at odds; the former prohibits selling during the relevant six months while the latter permits it. Moreover, the parties' alleged understandings of that prohibition or permission are incompatible. POP assures the Court that "POP would not sign a settlement agreement unless it included an additional six (6) months during which Solstice was prohibited from selling PCP." (Yeung Aff. ¶ 5.) Yet Solstice is equally adamant that "[Solstice] would not have agreed to any contract term that prohibited Solstice from selling PCP for a six month period after termination of POP's distributorship." (So Decl. ¶ 13.) And both parties' claims as to the contract's meaning are reasonable. It is reasonable that POP would desire a six month period after the end of its distributorship in which to obtain a new deal. It is also reasonable that POP's period of exclusive selling terminate with its exclusive distributorship. And if POP could not obtain a new distributorship in the time remaining on its then present deal, it seems unreasonable to preclude Solstice from entering the market after that deal terminated.
POP's argument for harmonizing the conflicting paragraphs is unpersuasive. POP states:
(POP's Reply at 7 (alterations in original) (internal citations omitted).) Of course, POP has conveniently failed to recognize that interpreting paragraph "2." to unconditionally prohibit Solstice from selling within the six month period would likewise "render meaningless" the permission of that activity made by paragraph "3." Because POP has offered no further evidence indicating that it and Solstice actually came to a mutual understanding as to whether Solstice was allowed to sell PCP within six months after POP's distributorship
The Benicorp and Gessin cases are instructive. In Benicorp the district court found unenforceable a drug supplier's settlement with an insurer. 447 F.Supp.2d at 340. The insurer had sued the supplier alleging breaches of the parties' drug supply agreement relating to rebates the supplier would pay the insurer. Id. at 332. The parties settled and included in their agreement a release by the insurer of all claims relating to rebates under the supply agreement. Id. at 334-35. When the supplier refused to pay rebate claims arising after the execution of the settlement, the insurer sued again. Id. at 331. The supplier argued that the settlement agreement operated as a release from all claims relating to the rebates, even claims arising after the settlement was executed. Id. at 335. The court found that the agreement was ambiguous and contradictory, that both parties' interpretations were reasonable, and that therefore the parties had never reached a meeting of the minds. Id. 338-40. Gessin presents a similar situation. There a contractor sued an owner for $1.7 million in change orders. Gessin, 903 N.Y.S.2d at 27. The parties settled "all change orders" for $500,000, but whereas the owner believed that amount settled the entirety of the contractor's claim, the contractor believed the settlement only accounted for $580,000 of the claim. Id. The Appellate Division, First Department affirmed the lower court's determination that the settlement was void, stating:
Id. at 29. As in Benicorp and Gessin, the prohibitions and permissions created by the contract here are completely at odds, as are the parties' reasonable interpretations. Thus POP's settlement agreement with Solstice is unenforceable, and POP's motion to enforce the settlement agreement is denied.
For the reasons stated above, the A & C defendants' Motion to Dismiss is GRANTED, and POP's claims against the A & C defendants are DISMISSED with prejudice. POP is ORDERED to release to the A & C defendants any goods seized pursuant to the Court's January 17, 2007, ex parte seizure order to the extent those goods have not already been returned. Judgment is also ENTERED FOR the A & C defendants on their counterclaim for damages; and this matter is referred to Judge Maas for a inquest to determine the amount of damages to which the A & C defendants are entitled. POP's motion to enforce its settlement agreement with Solstice is DENIED. The Court will hold a status conference on March 18, 2011, at 10:30 a.m. ANY PARTY REMAINING IN THIS CASE WHO FAILS TO APPEAR WILL BE FOUND IN DEFAULT AND WILL BE DISMISSED FROM THIS ACTION.
SO ORDERED.
