BBK Tobacco & Foods, LLP v. Galaxy VI Corp.

• Decision Date: 30 September 2019
• Docket Number: 17-CV-4079 (BCM)
• Citation: 408 F.Supp.3d 508
• Parties: BBK TOBACCO & FOODS, LLP, Plaintiff, v. GALAXY VI CORP., Defendant.
• Court: U.S. District Court — Southern District of New York

408 F.Supp.3d 508

BBK TOBACCO & FOODS, LLP, Plaintiff,

v.GALAXY VI CORP., Defendant.

17-CV-4079 (BCM)

United States District Court, S.D. New York.

Signed September 30, 2019

Maria Rose Sinatra, Victoria Regina Danta, Marcella Ballard, Venable LLP, New York, NY, for Plaintiffs.

Elio Forcina, Ford & Harrison LLP, New York, NY, for Defendant.

OPINION AND ORDER

BARBARA MOSES, United States Magistrate Judge.

This is a case about counterfeit rolling papers. Plaintiff BBK Tobacco & Foods, LLP d/b/a HBI International (HBI) makes RAW brand rolling papers and other smoking accessories. It filed this action on May 31, 2017 against eleven defendants, alleging that they were selling counterfeit RAW products at various convenience stores, newsstands, groceries and other small businesses across Manhattan and Brooklyn. Ten of the eleven have settled or defaulted. Now before the Court is plaintiff's summary judgment motion (Dkt. No. 135) against the sole remaining defendant, Galaxy VI Corp. d/b/a Galaxy Wholesale (Galaxy), which operates a smoke supply store in Brooklyn. HBI alleges that Galaxy bought and sold counterfeit RAW rolling papers and trays, thereby violating the Lanham Act, 15 U.S.C. §§ 1114 and 1125(a), New York General Business Law (GBL) § 349, and the common law of New York. Plaintiff seeks summary judgment as to liability on all claims, as well as "summary judgment on willfulness" under the Lanham Act, as a predicate to a later motion for statutory damages and attorneys' fees.

For the reasons stated below, plaintiff's motion will be granted with respect to liability under the Lanham Act. However, disputed issues of material fact prevent the entry of summary judgment as to willfulness or as to liability under New York law.

I. BACKGROUND

Plaintiff HBI is a limited liability partnership, headquartered in Phoenix, Arizona, that designs, manufactures, imports, markets, and sells RAW brand "smoking products and accessories, including RAW-brand rolling papers." Amend. Compl. (Dkt. No. 27) ¶¶ 6, 23. According to HBI, its rolling papers are used by consumers who prefer to "roll their own" cigarettes, often because such consumers view pre-made cigarettes as "artificial, over-processed, or environmentally unfriendly." Id. ¶ 25. RAW brand rolling papers are made in Alcoy, Spain from "high-quality ‘raw’ ingredients (such as hemp or wood pulp)," and use "minimally processed, unbleached ingredients, which give the rolling papers their characteristic translucent brown color." Id. ¶ 30. RAW is also "a lifestyle brand centered around smoking, smoking culture, and the particular culture that consumers of RAW-brand smoking products enjoy." Id. ¶ 33.

Defendant Galaxy is a New York corporation with an address at 746 Myrtle Avenue in Brooklyn, New York. Am. Compl. ¶ 13. Although the corporation has existed continuously since 1997, the business at issue in this action – a wholesale smoke supply store operating out of a storefront at the Myrtle Avenue address – began operations in January 2017, and is managed by Said Ghnaim. See Ghnaim Dep. Tr. (Dkt. No. 137-16) at 11:23-12:22, 39:2-10, 40:25-41:9.¹

A. Procedural History

HBI filed this action on May 31, 2017, alleging that eleven corporate and individual defendants sold counterfeit RAW rolling papers and related products at their various storefronts. Compl. (Dkt. No. 1) ¶¶ 5, 7-16. On June 22, 2017, HBI filed its Amended Complaint, stating claims for: (1) trademark infringement in violation of § 32 of the Lanham Act, 15 U.S.C. § 1114 ; (2) false designation of origin in violation of § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a) ; (3) deceptive acts and practices in violation of GBL § 349 ; and (4) common-law trademark infringement, unfair competition, and unjust enrichment. On August 11, 2017, the parties consented to proceed before a United States Magistrate Judge for all purposes pursuant to 28 U.S.C. § 636(c). (Dkt. No. 70.) On October 11, 2017, the Court approved a stipulated preliminary injunction prohibiting Galaxy from purchasing or selling counterfeit RAW products. (Dkt. No. 88.) Thereafter, all of the other defendants entered into stipulations of voluntary dismissal (Dkt. Nos. 96-99, 119-122) or defaulted (Dkt. No. 108), leaving Galaxy as the sole defendant.

On September 14, 2018, after discovery, HBI filed its motion for summary judgment against Galaxy, supported by a Memorandum of Law (Pl. Mem.) (Dkt. No. 136), the Declaration of Victoria Danta, one of HBI's attorneys (Danta Decl.) (Dkt. No. 137), and a Rule 56.1 Statement of Undisputed Facts (Pl. 56.1 Stmt.) (Dkt. No. 138).² Plaintiff argues that there are no genuine issues of material fact regarding its ownership of valid RAW trademarks or Galaxy's use of confusingly similar marks, Pl. Mem. at 14, because Galaxy "used spurious, counterfeit versions of the RAW® Trademarks and Trade Dresses on counterfeit rolling papers and trays, precisely for the purpose of confusing consumers and replacing authorized sales of authentic products." Id. at 17. Further, according to HBI, Ghnaim "knew he was purchasing and reselling counterfeits," or "at the very least was willfully blind," because he "ignor[ed] glaring red flags that confirmed counterfeiting," such as the "suspiciously low" prices charged by his suppliers; never asked them about their sources, even after being sued herein, id. at 22-23; and kept poor records. Id. at 24.

In opposition to plaintiff's motion, Galaxy submitted the Declaration and Opposition of Elio Forcina, its counsel (Forcina Decl.) (Dkt. No. 140), together with the Affidavit of Said Ghnaim (Dkt. No. 140-1), and defendant's Response to Statement of Undisputed Material Facts (Def. 56.1 Stmt.) (Dkt. No. 140-2).³ Ghnaim attests that he "never willfully purchased and distributed inauthentic RAW brand products," explaining that due to his youth and inexperience he "was not aware of what the actual market pricing was," saw no "red flags" when suppliers offered him RAW branded products for "better prices" than HBI itself, "didn't have any idea that there [were any] counterfeit RAW products in the market," and "had no way of differentiating between authentic and counterfeit products." Ghnaim Aff. ¶¶ 3, 4, 7, 20. His poor record-keeping, which has prevented HBI from estimating his revenues or profits from counterfeit RAW products, was similarly due to his "lack of experience" rather than any intent to hide bad behavior. Id. ¶ 13. Galaxy also argues that plaintiff has no "proof" that it actually sold counterfeit RAW products, Ghnaim Aff. ¶¶ 10-11; Forcina Decl. ¶¶ 10-11, and accuses plaintiff of failing to properly educate its distributors on the risks of counterfeits. Ghnaim Aff. ¶ 21; Forcina Decl. ¶¶ 35-36.

B. Facts

The relevant facts are taken from plaintiff's Rule 56.1 Statement and the underlying evidentiary materials to which it cites, and are undisputed unless otherwise noted. Where the evidence is susceptible of more than one interpretation, I have, as required, "resolv[ed] all ambiguities and draw[n] all factual inferences in favor of the party against whom summary judgment is sought." Cronin v. Aetna Life Ins. Co. , 46 F.3d 196, 202 (2d Cir. 1995) (citing Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ).

1. Plaintiff

HBI "designs, manufactures, imports, markets, and sells the ‘RAW’ brand of smoking products, including rolling papers and accessories like rolling trays." Pl. 56.1 Stmt. ¶ 1. HBI's "RAW" rolling papers come in several varieties, including RAW King Size Slim (RAW KSS) in "Classic," "Organic," and "Black" varieties, which are sold wholesale in 50-pack boxes with 32 paper "leaves" per pack, and cost approximately $38.70 to $40.50 per box. Id. ¶¶ 2-3. RAW KSS rolling papers "are subject to strict quality control standards" before they are distributed "to wholesale stores and retailers throughout the United States." Id. ¶ 4. HBI also sells accessories, including rolling trays, which "share design elements with RAW rolling paper packaging" and have a "distinctive look and feel" that "makes the connection to RAW and [HBI] clear to consumers." Id. ¶ 6. RAW brand products enjoy "strong consumer brand recognition," in part due to "strong sales and a strong social media presence." Id. ¶ 7.

HBI owns the "exclusive rights to a family of registered and common-law RAW® trademarks and trade dresses, which cover a variety of goods and services, including RAW® rolling papers and rolling trays," and have been used continuously and exclusively for this purpose since their first use dates. Pl. 56.1 Stmt. ¶ 8; Kobe Decl. (Dkt. No. 12) Ex. A.⁴ HBI also owns "the distinctive common-law ‘RAW® KSS Trade Dress,’ " which features non-functional design elements such as the "use of colors red, brown and tan," "one or more of the RAW® Trademarks," the terms "KING SIZED SLIM," "AUTHENTIC" and "UNREFINED," "PUREST NATURAL FIBERS" or "PUREST NATURAL HEMP FIBERS," and a "photograph of twine in brown and tan coloring crossing the package vertically and horizontally." Pl. 56.1 Stmt. ¶ 11.

2. Defendant

Galaxy sells a variety of RAW products from its storefront on Myrtle Avenue. Pl. 56.1 Stmt. ¶¶ 16, 17, 22. Although it also sells other brands of rolling papers, RAW rolling papers are the most popular. Id. ¶ 17; Ghnaim Dep. Tr. at 49:6-12. Galaxy sells a variety of RAW rolling papers, including RAW KSS and RAW 1¼ in both classic and organic varieties, RAW Connoisseur, and RAW 300s. Pl. 56.1 Stmt. ¶ 19; Ghnaim Dep. Tr. at 51:8-15. It also sells RAW rolling machines, RAW filter tips, RAW cases, and RAW rolling trays. Pl. 56.1 Stmt. ¶ 22; Ghnaim Dep. Tr. at 51:20-25.

Prior to opening Galaxy's Myrtle Avenue storefront in January 2017, Said Ghnaim worked as a "jobber," or middleman, selling, among other things, RAW products. Pl. 56.1 Stmt. ¶ 38; Ghnaim Dep. Tr. at 131:11-25. In September 2016, in anticipation of opening the store, Ghnaim made a "preparatory purchase" from My Import Warehouse (My Import),...