Alesayi Beverage Corp. v. Canada Dry Corp., 89 Civ. 7221 (VLB).

• Decision Date: 31 August 1992
• Docket Number: No. 89 Civ. 7221 (VLB).,89 Civ. 7221 (VLB).
• Citation: 797 F. Supp. 320
• Parties: ALESAYI BEVERAGE CORPORATION, Plaintiff and Counterclaim Defendant, v. CANADA DRY CORPORATION, Defendant and Counterclaim Plaintiff.
• Court: U.S. District Court — Southern District of New York

797 F. Supp. 320

ALESAYI BEVERAGE CORPORATION, Plaintiff and Counterclaim Defendant, v. CANADA DRY CORPORATION, Defendant and Counterclaim Plaintiff.

No. 89 Civ. 7221 (VLB).

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

August 31, 1992.

Paul L. Perito, Paul, Hastings, Janofsky & Walker, Washington, D.C., for plaintiff.

John R. Bartels, Jr., Bartels & Feureisen, White Plains, N.Y., and Dennis P. Orr, Shearman & Sterling, New York City, for defendant.

MEMORANDUM ORDER

VINCENT L. BRODERICK, District Judge.

I

This litigation involves disputes concerning the implementation and termination of an agreement for distribution in Saudi Arabia and neighboring countries of Canada Dry beverage products by plaintiff, a Saudi Arabian entity. Plaintiff complains of cancellation of the agreement, and defendant Canada Dry Corporation ("Canada Dry") has interposed thirteen (13) counterclaims which plaintiff has moved to dismiss. Canada Dry's counterclaims fall into two basic categories: breach of contract; and intellectual property infringement.

BREACH OF CONTRACT COUNTERCLAIMS:

1. Direct breaches of contract — counts I, II, III and XIII

2. Unjust enrichment through breach of contract, which amounts to another claim of breach of contract and is treated as such — count IV

3. Negligent performance of contract, also in essence failure to perform under, and hence breach of, contract and also treated as such — counts V and VI

4. Declaratory judgment that the license agreement between the parties was breached and hence terminated — count VII

INTELLECTUAL PROPERTY INFRINGEMENT COUNTERCLAIMS:

1. Trademark infringement under the Lanham Act — counts VIII and IX

2. Trade dress infringement (Lanham Act) — count X

3. Misappropriation/palming off — count XI

4. Dilution and injury to business reputation — Count XII

For the reasons outlined below, I deny plaintiff's application to dismiss Canada Dry's contract counterclaims, but I grant plaintiff's application to dismiss the intellectual property infringement counterclaims.

II

Plaintiff is suing Canada Dry for improper termination of a contract between it and Canada Dry. The issue of whether plaintiff itself breached its contract with defendant Canada Dry cannot be avoided and concerns the same core events as the original complaint. Canada Dry's breach of contract counterclaims assert breaches of the contract between the parties both before and after termination and thus arise out of the same transactions or occurrences as the plaintiff's complaint and are compulsory counterclaims under Fed.R.Civ.P. 13(a). Moreover, it would be unjust to permit a plaintiff to charge a trading partner with breach and yet successfully to object to being charged in the same lawsuit with liability for its own breaches. Thus it would be appropriate to hear Canada Dry's contract counterclaims in this case even if they were treated as permissive, rather than as compulsory under Rule 13. It will not do for a court of the United States to function as a one-way street, allowing a party to assert claims arising in a foreign venue, while remitting its adversary to a forum in that foreign venue to assert closely related opposing claims.

That the same acts may also involve alleged intellectual property infringements does not affect their status as alleged breaches of contract. The contract prohibits the post-termination conduct asserted by Canada Dry. Article 4 of the agreement between the parties provides that "in the event that this agreement shall be terminated, plaintiff will not thereafter exercise any right granted to it hereunder and immediately discontinue use of any and all of Canada Dry's trademarks or trade names ..."

Plaintiff argues that termination of the agreement automatically terminates this clause as well, even though the clause explicitly deals with post-termination events. Such an interpretation would make the quoted language surplusage, hardly a construction to be favored. Such a construction would impede commercial relationships by making it impossible for contracting parties to agree on permissible conduct after the end of a relationship; the result would be harmful to both parties to future agreements. Inability of a contracting party to bargain with a trading partner at arm's length for commitments governing future use of privileges granted by contract would tend to impede licensing of intellectual and other properties and would hardly accord with the "sanctity of contractual arrangements," Oreck Corp. v. Whirlpool Corp., 579 F.2d 126, 133 (2d Cir.) (en banc), cert. denied, 439 U.S. 946, 99 S.Ct. 340, 58 L.Ed.2d 338 (1978).

Frequently, of course, the same conduct may violate intellectual property rights as well as contract provisions, making the distinction unimportant. See generally Bowmar Instrument Corp. v. Continental Microsystems, 497 F.Supp. 947 (S.D.N.Y. 1980); Best Resume Service v. Care, 602 F.Supp. 653, 656 (W.D.Pa.1985); McDonald's Corp. v. Robert A. Makin, Inc., 653 F.Supp. 401, 404 (W.D.N.Y.1986); Schneider, Hill & Spangler v. Cudmore, 325 F.Supp. 173, 174-75 (D.Conn.1971).

Span-Deck, Inc. v. Fabcon, 570 F.Supp. 81, 86-87 (D.Minn.1983), cited by plaintiff, supports the view that contract language governs; there, post-termination use of a trade secret...