Astroworkers, Inc. v. Astroexhibit, Inc.

• Decision Date: 11 March 2003
• Docket Number: No. 02 Civ.1427 SAS.,02 Civ.1427 SAS.
• Citation: 257 F.Supp.2d 609
• Parties: ASTROWORKS, INC., Plaintiff, v. ASTROEXHIBIT, INC. and Greg Zsidisin, Defendants. Greg Zsidisin, Third Party Plaintiff, v. Samuel Liebowitz, Kenneth Gee and Howard O'Brien, Jr., Third Party Defendants.
• Court: U.S. District Court — Southern District of New York

257 F.Supp.2d 609

ASTROWORKS, INC., Plaintiff, v. ASTROEXHIBIT, INC. and Greg Zsidisin, Defendants.

Greg Zsidisin, Third Party Plaintiff, v. Samuel Liebowitz, Kenneth Gee and Howard O'Brien, Jr., Third Party Defendants.

No. 02 Civ.1427 SAS.

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

March 11, 2003.

COPYRIGHT MATERIAL OMITTED

Andrew B. Small, McCarthy, Small & Associates, P.C., New York City, for Plaintiff and Third Party Defendants.

Michael T. Stewart, Sandra Calvert Nathans, Peri & Stewart, L.L.C., New York City, for Defendants and Third Party Plaintiff.

OPINION AND ORDER

SCHEINDLIN, District Judge.

Astroworks, Inc., is suing Astroexhibit, Inc. and its principal, Greg Zsidisin, for various claims arising from the parties' dueling websites, which each provide an "online database of space components, suppliers, service providers, industry news, conference listings and technologies available for licensing," http://www.astroexpo.com/about/about.asp. See also http://www.astroexhibit.com/base_pages/about.htm.¹ Zsidisin has asserted counterclaims against Astroworks and a third-party complaint against Samuel Liebowitz, Kenneth Gee and Howard O'Brien, Jr.—the officers, directors, and shareholders of Astroworks.²

Astroworks, Liebowitz, Gee and O'Brien (collectively, "Plaintiffs") now move to dismiss the Complaint pursuant to Rule 12(b)(6) for failure to state a cause of action. Liebowitz, Gee and O'Brien also move to dismiss under Rule 12(b)(1) for lack of subject matter jurisdiction, claiming they are shielded from liability by Astroworks' corporate form.

I have original jurisdiction over this case because Astroworks asserts claims of trademark and copyright infringement and a related claim of unfair competition, see 28 U.S.C. § 1338(a) & (b), and supplemental jurisdiction over the remainder of Astroworks' claims and Zsidisin's Complaint, see 28 U.S.C. § 1367.

For the reasons that follow, Plaintiffs' motion is granted in part and denied in part.

I. THE COMPLAINT

The following allegations, as pled in the Complaint, are assumed to be true for the purposes of this motion.

Greg Zsidisin is an outer-space enthusiast. Compl. ¶ 9. He sat on the board of directors of the National Space Society ("NSS") and was president of its New York chapter. Id. Zsidisin cultivated his interest in the extraterrestrial over a period of years and often dreamed of pursuing his hobby professionally. Id. ¶¶ 9-10.

In 1991, Zsidisin met Liebowitz—another space hobbyist—at an NSS meeting, and over the next eight years the two met occasionally to discuss their mutual interest in space. Id. ¶ 11. At one such meeting, in December 1999, Zsidisin revealed to Liebowitz his desire to run a space-related business. Id. At that time, Zsidisin was employed by a company that designed and manufactured valves used in space technology, id. ¶ 10, and Liebowitz was involved in importing Japanese videotapes, id. ¶ 12.

Four months later, in or about March 2000, Zsidisin and Liebowitz met with Karen Lewis. Id. ¶ 15. At that meeting, Zsidisin revealed his idea for a web-based space-related business, and discussed with Liebowitz and Lewis the best ways to realize his vision. Id. Lewis—who is not a party to these proceedings³—suggested that Zsidisin's idea might work best if he followed a business-to-business model, rather than a business-to-consumer model, id. ¶ 16, which caused Zsidisin to suggest a "virtual exhibit hall and online database" that would sell space-related products and services. Id.

Liebowitz was excited by the prospect of implementing Zsidisin's idea, id. ¶ 18, and suggested that Zsidisin and Liebowitz form a company, owned 60% by Liebowitz and 40% by Zsidisin (the "Company"), id. ¶ 19.⁴

Liebowitz's majority ownership in the Company, notwithstanding the fact that Zsidisin conceived of the business idea, was due to his representation that he would fund the Company with $75,000 of his own money. Id. ¶ 20. At the time that he made these representations, Liebowitz knew them to be false but made the misrepresentations anyway to induce Zsidisin to create the Company. Id. ¶ 19.

In fact, Liebowitz made a number of knowingly false misrepresentations, including: that Zsidisin would receive a 40% ownership interest in the Company, that Zsidisin's idea would be protected by the Company, and that Zsidisin and Liebowitz would work together as a team. Id. ¶ 21. Thus, in reliance on this litany of misrepresentations, Zsidisin agreed to form the Company with Liebowitz and shared and developed his idea with others. Id. ¶ 22.

The arrangement seemed promising. Zsidisin and Liebowitz developed Zsidisin's idea by searching for a website developer and possible space-related companies that might be interested in using the website. Id. ¶ 23. For instance, they approached a prominent trade journal called Space News. Id. At the same time, they tried to raise more working capital. In or about May 2000, Liebowitz recruited Gee as an investor. Id. ¶ 24. Gee was to receive a 5% ownership interest (taken from Liebowitz's 60%) in return for his investment and his assistance in recruiting other investors. Id. Zsidisin, meanwhile, was actively promoting the new business. He worked full-time for the Company, id. ¶ 23, traveling to trade shows at his own expense. Id. ¶ 25. He also contributed $10,000 of his own money to the Company, which was never reimbursed. Id.

Then, at some unspecified point, things began to fall apart. Gee neither contributed any money to the Company, nor recruited any investors. Id. ¶ 24. Liebowitz registered the internet domain name astroexpo.com—presumably the agreed-upon address for establishing the business' website—but did so in his own name. Id. ¶ 27. Liebowitz also caused Astroworks to obtain a copyright on the website,⁵ id., effectively co-opting Zsidisin's idea. Finally, Zsidisin reduced his hours to part-time and eventually withdrew from the Company altogether. Id. ¶ 26.

Some time later, Zsidisin formed Astroexhibit and the website www.astroexhibit.com—a "Space Industry Virtual Trade Show"—to implement his idea and to compete with www.astroexpo.com—"The Space Industry Virtual Exhibit Hall." Subsequently, Astroworks sued Astroexhibit on a variety of claims stemming from the perceived similarity between the two web sites. See Amended Complaint for Copyright Infringement, Trademark Infringement, Unfair Competition, Violation of Federal Trademark Dilution Statute, Common Law Trademark Violation, Unfair Business Competition and Usurpation of Trade Secrets (July 29, 2002) ("Astroworks Compl"). Zsidisin countersued Astroworks and its officers, directors and shareholders for the conduct described above. The counterclaims allege (1) fraud in the inducement, (2) conversion, (3) "minority shareholder's suit—dissolution of plaintiff," ⁶

(4) breach of contract, (5) breach of the covenant of good faith and fair dealing, (6) unfair competition, and (7) unjust enrichment.

Plaintiffs now move to dismiss Zsidisin's Complaint.

II. LEGAL STANDARD

"Given the Federal Rules' simplified standard for pleading, `[a] court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.'" Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002) (emphasis added) (quoting Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984)). Thus, a plaintiff need only plead "`a short and plain statement of the claim' that will give the defendant fair notice of what the plaintiffs claim is and the grounds upon which it rests." Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).⁷

At the motion to dismiss stage, the issue "`is not whether a plaintiff is likely to prevail ultimately, but whether the claimant is entitled to offer evidence to support the claims. Indeed it may appear on the face of the pleading that a recovery is very remote and unlikely but that is not the test.'" Phelps v. Kapnolas, 308 F.3d 180, 184-85 (2d Cir.2002) (per curiam) (quoting Chance v. Armstrong, 143 F.3d 698, 701 (2d Cir.1998)).

The task of the court in ruling on a Rule 12(b)(6) motion is "`merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof.'" Pierce v. Marano, No. 01 Civ. 3410, 2002 WL 1858772, at *3 (S.D.N.Y. Aug. 13, 2002) (quoting Saunders v. Coughlin, No. 92 Civ. 4289, 1994 WL 88108, at *2 (S.D.N.Y. Mar. 15, 1994)). When deciding a motion to dismiss pursuant to Rule 12(b)(6), courts must accept all factual allegations in the complaint as true and draw all reasonable inferences in plaintiffs favor. See Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir.2002).

III. DISCUSSION

Plaintiffs now move to dismiss the Complaint, with the exception of the counterclaims against Astroworks for breach of contract (Claim IV) and breach of the covenant of good faith and fair dealing (Claim V).

A. The Complaint Adequately Alleges Causes of Action Against Liebowitz, Gee and O'Brien

As a threshold matter, third-party defendants Liebowitz, Gee and O'Brien move to dismiss the entire third-party complaint for lack of subject matter jurisdiction, see Fed.R.Civ.P. 12(b)(1). In particular, they argue that Zsidisin has impermissibly attempted to "pierce the corporate veil" of Astroworks, ie., to hold the corporation's officers, directors and shareholders personally liable for the corporation's alleged misconduct.⁸

In order to plead jurisdiction, a complaint must merely set forth "a short and plain statement of the grounds upon which the court's jurisdiction depends, unless the court already has jurisdiction and the claim needs no new grounds of jurisdiction to support it." Fed.R.Civ.P. 8(a).⁹

Plaintiffs rightly note that under New York law, "individuals [are allowed] to incorporate for the very purpose of avoiding personal liability," Gartner v. Snyder, 607...