Conan Properties, Inc. v. Mattel, Inc.

• Decision Date: 26 September 1985
• Docket Number: No. 84 Civ. 5799 (KTD).,84 Civ. 5799 (KTD).
• Citation: 619 F. Supp. 1167
• Parties: CONAN PROPERTIES, INC., Plaintiff, v. MATTEL, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

619 F. Supp. 1167

CONAN PROPERTIES, INC., Plaintiff, v. MATTEL, INC., Defendant.

No. 84 Civ. 5799 (KTD).

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

September 26, 1985.

Hopgood, Calimafde, Kalil Blaustein & Judlowe, New York City, for plaintiff; Stephen B. Judlowe, John L. DuPré, Thomas M. Saunders, of counsel.

Reavis & McGrath, New York City, for defendant; Welsh & Katz, Chicago, Ill., Ralph C. Dawson, of counsel.

MEMORANDUM & ORDER

KEVIN THOMAS DUFFY, District Judge:

Plaintiff, Conan Properties, Inc. ("CPI"), brings this action against defendant, Mattel, Inc. ("Mattel"), alleging, inter alia, copyright infringement of its fictitious character CONAN THE BARBARIAN ("CONAN"). Defendant now moves for leave to amend its answer to file a counterclaim. Plaintiff opposes defendant's motion and cross-moves for leave to file a Third Amended Complaint. Plaintiff also requests reconsideration of that portion of Magistrate Dolinger's Memorandum and Order dated June 24, 1985 which disqualified Arthur M. Lieberman, Esq., from pre-trial matters.

DISCUSSION

I. Defendant's Motion for Leave to Amend its Answer

Defendant seeks to amend its answer to file counterclaims for fraudulent inducement and misrepresentation and alleged violations of certain sections of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 et seq. These counterclaims are asserted against CPI as well as six additional counterclaim defendants not previously parties to this litigation: Conan Licensing Company ("CLC"), Conan Merchandising Corporation ("CMC"), Merchandise Development Corporation ("MDC"), Summit Licensing Company ("SLC"), Sigma Merchandising Corporation ("Sigma"), and University Patents, Inc. ("UPI"). CPI objects (1) that SLC, Sigma, and UPI are improper parties, and (2) that Mattel's proposed counterclaim fails to state a cause of action.

A. SLC, Sigma, and UPI as Counterclaim Defendants

Rule 19(a) of the Fed.R.Civ.P. provides in relevant part:

A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties, or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest.

Mattel alleges, and CPI does not dispute, that SLC "is a partnership between MDC and Sigma ...," Counterclaim ¶ 8, Exh. A to Mattel's Notice of Motion, and that both SLC and Sigma have their principal place of business in New York. Counterclaim ¶¶ 8 and 9. Moreover, Mattel claims that it paid SLC $50,000 to terminate Mattel's license agreement with CPI. Counterclaim ¶ 37. Mattel now seeks to recover this money directly from SLC. Counterclaim Prayer for Relief, ¶ A. Thus, it is apparent that SLC is subject to service of process here in New York, its joinder will not destroy subject matter jurisdiction, and, without SLC, "complete relief cannot be accorded" to Mattel. Accordingly, SLC properly may be joined as a counterclaim defendant.

However, with regard to Sigma, Mattel only argues that, unless Sigma is joined to the action, MDC "may be subject to the risk of multiple litigation ... because MDC could arguably seek indemnification or contribution from Sigma if judgment is entered against it." Mattel's Reply Memorandum of Law In Support Of Motion For Leave To File A Counterclaim, 5. Mere speculation that MDC may seek indemnification from Sigma is not sufficient to justify joinder under Rule 19(a). Rule 19(a) requires either an allegation that (1) without Sigma, "complete relief cannot be accorded," or (2) "Sigma claims an interest relating to the subject of the action." Mattel makes neither of these allegations. Accordingly, Mattel is not permitted to include Sigma as a counterclaim defendant.

Mattel also seeks to join UPI as a counterclaim defendant on the ground that "MDC is ... a wholly owned subsidiary of UPI ... and MDC is the alter ego or mere instrumentality of UPI." Counterclaim ¶ 5. Because CPI concedes MDC may be properly joined as a counterclaim defendant, both CPI and Mattel agree that the sole issue in determining whether UPI also may be joined is whether UPI so controlled and dominated MDC as to justify "piercing the corporate veil." I find that Mattel has pled sufficient facts which, if proven, may justify disregarding the corporate formalities and holding UPI liable for MDC's obligations.

Among the factors a court should consider in determining whether to "pierce the corporate veil" are whether:

1 The parent corporation owns all or most of the capital stock of the subsidiary ;

2 The parent and subsidiary corporations have common directors or officers ;

3 The parent corporation finances the subsidiary ;

4 The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation ;

. . . . .

5 The parent corporation pays the salaries and other expenses or losses of the subsidiary ;

. . . . .

6 The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take their orders from the parent corporation in the latter's interest.

World Wide Carriers, Ltd. v. Aris Steamship Co., 301 F.Supp. 64, 67-68 (S.D.N.Y. 1968). Mattel has pled many facts which, if proven, would tend to support a finding that MDC is a mere instrumentality of UPI: (1) UPI owns all of MDC's stock, Counterclaim ¶ 5; (2) A. Sidney Alpert was simultaneously an officer of UPI and the President of MDC, Counterclaim ¶ 40; (3) through MDC, UPI entirely funded CLC, id.; (4) UPI at all times paid the salary of MDC's President and sole employee, Mr. Alpert, id.; (5) UPI caused MDC's inception by incorporating MDC in April, 1980, Counterclaim ¶ 5; (6) Mr. Alpert did not act in the independent interest of MDC, but rather acted in UPI's interest, at UPI's direction, from UPI's offices, Counterclaim ¶ 40. These allegations are at least sufficient to withstand CPI's opposition to Mattel's motion for leave to file a counterclaim against UPI. See Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962).

B. RICO Cause of Action

CPI also alleges that Mattel fails to state a RICO claim. Specifically, CPI asserts that (1) Mattel has failed to plead the majority of its predicate acts of fraud with adequate particularity, as required by Fed. R.Civ.P. 9(b), and (2) the two predicate acts of fraud which are pled with sufficient particularity do not satisfy the requirement that a "pattern of racketeering activity" be alleged. See 18 U.S.C. § 1962(c). Given that CPI concedes that two of Mattel's proposed predicate acts have been sufficiently particularized, I need only address CPI's argument that "two instances do not adequately allege a `pattern of racketeering activity'...."¹ Plaintiff's Memorandum In Partial Opposition To Defendant's Motion For Leave To Amend Its Answer To File A Counterclaim, 11. Although it is true that "two isolated acts of racketeering activity do not constitute a pattern," Sedima, S.P.R.L. v. Imrex Co., ___ U.S. ___, 105 S.Ct. 3275, 3285 n. 14, 87 L.Ed.2d 346 (1985), when two acts which relate to each other and arise out of the same scheme are alleged, the requirement of pleading a "pattern of racketeering activity" has been met. Beth Israel Medical Center v. Smith, 576 F.Supp. 1061, 1066 (S.D.N.Y.1983). Mattel has alleged at least two related and sufficiently particularized predicate acts and, thus, its RICO claim has been adequately pled.

In sum, Mattel's motion for leave to file a counterclaim is granted in its entirety with the single exception that Sigma may not be joined as a counterclaim defendant.

II. Plaintiff's Motion for Leave to File a Third Amended Complaint

CPI moves pursuant to Fed.R. Civ.P. 15(a) for leave to file a Third Amended Complaint which would include a cause of action under RICO. Plaintiff alleges as predicate acts to its RICO claim several securities law violations committed by Mattel between 1970 and 1974. CPI also alleges as predicate acts several mail and wire fraud violations committed by Mattel between 1980 and 1982. "CPI does not suggest that Mattel's predicate securities violations ... of 1970 to 1974 injured CPI,"² Plaintiff's Memorandum Of Law In Reply To Mattel's Opposition To Plaintiff's Motion For Leave To File A Third Amended Complaint ("Plaintiff's Reply Memo"), 2, nor does CPI contest the fact that there is no nexus between the alleged securities law violations and the alleged mail and wire fraud committed between 1980 and 1982, Plaintiff's Reply Memo, 4. Yet, plaintiff, without citing any authority to support its proposition, argues that it has standing to allege the past securities violations stating "a party injured by any part of a pattern of racketeering has standing under RICO to recover for that injury." Plaintiff's Reply Memo, 2. I disagree to the extent that this implies that one can allege any past act of another as a predicate act, regardless of whether he has been injured by that act or whether that act relates at all to the other alleged predicate acts. In Sedima, S.P.R.L. v. Imrex Co., the Supreme Court emphasized that it is the "factor of continuity plus relationship which combines to produce a pattern" of racketeering activity. 105 S.Ct. at 3285 n. 14 (emphasis in original) (quoting S.Rep. No. 91-617, p. 158 (1969)). There is clearly neither continuity nor relationship between the alleged securities violations and the alleged acts of mail and wire fraud. However, it does appear that a pattern of racketeering activity has been alleged at least with...