Crab House of Douglaston, Inc. v. Newsday, Inc.
| Decision Date | 03 March 2006 |
| Docket Number | No. 04-CV-0558 (DRH)(WDW).,04-CV-0558 (DRH)(WDW). |
| Citation | 418 F.Supp.2d 193 |
| Parties | CRAB HOUSE OF DOUGLASTON, INC. d/b/a Douglaston Manor; College Point Restaurant, Corp. d/b/a Gallagher's II; Ron Bon Pub, Inc. d/b/a Gallagher's; ET Week Publication, Inc.; Greenberg & Stein, LLP.; Joseph Mauro; Parallel Productions, Inc.; Park Avenue Aesthetic Surgery, PC; Scott A. Russo; and TAC Catering Inc., on Behalf of Themselves and All Similarly-Situated Persons and Entities, Plaintiffs, v. NEWSDAY, INC.; Hoy, LLC; United Media Distributors, LLC; Distribution Systems of America, Inc.; Harold Foley; Robert Garcia; Robert Haufman; Fred Herb; Robert Brennan; Louis S. Sito; Keith Potthoff; and "John Does" "1" Through, "25," Defendants. |
| Court | U.S. District Court — Eastern District of New York |
Giaimo & Vreeburg LLP, by Joseph O. Giaimo, Esq., Kew Gardens, NY, Wechsler, Harwood, Halebien & Feffer LLP, by Samuel Kenneth Rosen, Esq., & Robert Ira Harwood, Esq., New York, NY, for Plaintiffs.
Sidley, Austin, Brown & Wood, by Robert Wolfgang Hirth, Esq., New York, NY, for Defendants.
Clifford Chance U.S. LLP, by David Meister, Esq., & Mark Adam Weissman, Esq., New York, NY, for Defendant Halfmann.
Dechert. LLP, by Matthew J. Lang, Esq., & Edward A. McDonald, Esq., New York, NY, for Defendant Brennan.
Judd Burstein, P.C., by Judd Burstein, Esq., New York, NY, for Defendant Sito.
Defeis, O'Connell & Rose, P.C., New York, NY, by Gregory J. O'Connell, Esq., for Defendant Pothoff.
The present lawsuit involves circulation misstatements made by two Long Island newspapers, Newsday and Hoy. In fact, Newsday reported the scheme in its own pages:
Newsday announced yesterday that an internal audit discovered its circulation had been inflated and said it is cutting previously reported figures for a six-month period last year by about 40,000 daily and 60,000 Sunday . . . . In addition, the Spanish-language newspaper Hoy which Newsday launched and is now a subsidiary of Tribune, Newsday's parent organization, is cutting its figures for the September period by about 15,000 daily and 4,000 Sunday. . . . Newspaper circulation figures help determine rates that advertisers pay. Analysts expect Newsday and Hoy to give rebates or free space to some advertisers to compensate for the inflated figures.
(2d Am.Compl.("SAC") ¶ 75 (quoting N.Y. Newsday, June 17, 2004, at 1.).)
On behalf of those who purchased advertising based upon the bloated circulation figures, Plaintiffs Crab House of Douglaston, Inc., doing business as ("d/b/a") Douglaston Manor; College Point Restaurant: Corp. d/b/a Gallagher's II; Ron Bon Pub, Inc. d/b/a Gallagher's; ET Week Publication, Inc.; Greenberg & Stein, LLP; Joseph Mauro; Parallel Productions, Inc.; Park Avenue Aesthetic Surgery, PC; Scott A. Russo; and TAG Catering (collectively, "Plaintiffs") bring this putative class-action lawsuit against Corporate Defendants Newsday, Inc. ("Newsday"); Hoy, LLC ("Hoy"); United Media Distributors, LLC ("United"); Distribution Systems of America, Inc. ("DSA"), and Individual Defendants Harold Foley ("Foley"); Robert Garcia ("Garcia"); Thomas Langer ("Langer"); Robert Halfmann1 ("Halfmann"); Fred Herb ("Herb"); Robert Brennan ("Brennan"); Louis S. Sito ("Sito"); Keith Pothoff2 ("Pothoff'); and "John Does" "1" through "25" for violations of the Racketeer Influences and Corrupt Organizations Act of 1970 ("RICO"), 18 U.S.C. §§ 1962(c) and 1962(d); violations of § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); unjust enrichment; and common law fraud.
This Court's jurisdiction over the putative class-action is premised exclusively upon the federal claims, i.e. the RICO and Lanham Act claims. (See SAC ¶ 9(a) (citing to 28 U.S.C. § 1331).) Defendants acknowledge that the facts of this case smack of common law fraud, but insist that "[t]his is not a federal RICO or `unfair competition' case." (Id.) As a result, the Corporate Defendants and Individual Defendants Foley, Langer, Halfmann, Brennan, Sito, and Pothoff moved pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss the SAC for failure to state a claim as to each of the alleged federal causes of action and ask the Court to decline supplementary jurisdiction over the common law claims. For the reasons set forth herein, the Court GRANTS Defendants' motions, but also GRANTS Plaintiffs leave to submit a Third Amended Complaint.
The following summary of facts is drawn from the SAC. The Court, as it must for the purposes of the present motion, accepts all of Plaintiffs' allegations as true, including the employment histories of the Individual Defendants.
Plaintiffs represent a putative class of corporations and individuals who purchased advertising with Newsday and Hoy from 1995 to the present (hereinafter, the "class period"). Though there are only ten named plaintiffs, Plaintiffs hypothesize that there are tens of thousands of class members.
Corporate Defendant Newsday is a corporation organized under the laws of the State of New York, a wholly-owned subsidiary of the Tribune company, and "a publisher and distributor or co-publisher and co-distributor of `Newsday' and `Hoy' newspapers." (SAC ¶ 65.) Corporate Defendant Hoy is a limited liability company organized under the laws of the State of New York, also a wholly-owned subsidiary of the Tribune Company, and "a publisher and or co-publisher and co-distributor of `Hoy' newspaper." (SAC ¶ 66.)
Corporate Defendant DSA, a corporation organized under the laws of New York and a wholly-owned subsidiary of the Tribune Company, has been the sole distributor of Newsday and Hoy from April 2, 1999, and has been delivering flyers to enumerated households from September 1990 to the present.
Corporate Defendant United is a limited liability company organized under the laws of the State of New York, the sole independent distributor of Newsday throughout the Greater New York metropolitan area from March 5, 1998 to April 2, 1999 and simultaneously the sole independent distributor of Hoy in the distribution area from November 15, 1998 to April 2, 1999. Unlike the other Corporate Defendants, United is not alleged to be a wholly-owned subsidiary of the Tribune Company. Rather, 51 percent of United stock was owned by DSA, 47.04 percent by Anthony Orlacchio ("Orlacchio"), President, and Michael Pouchie ("Pouchie"), Executive Vice President, and 1.96 percent by Defendant Langer.
The above corporations and limited liability companies are referred to as the "Corporate Defendants" as context demands.
Non-parties Volmar Distributors, Inc. ("Volmar") and American Media Distributors, Inc. ("American") combined with United, and DSA as the distributors of Newsday and Hoy (hereinafter, Volmar, American, United and DSA will be referenced, collectively, as the "Distributor"). Volmar was the sole independent Newsday distributor of Newsday in the distribution area from September 1981 until January 1997. American, a limited liability company organized on or about December 17, 1996 under the laws of the State of New York, was Volmar's successor in interest until its assets were acquired by United on or about March 5, 1998. Pouchie and Orlacchio were the principal stockholders of American, which was the sole independent distributor of Newsday in the distribution area from January 1997 to on or about March 5, 1998.
Individual Defendant Foley is a resident of Oneida County, New York, and is a computer programmer and an independent contractor for the Distributor. Foley allegedly created the computer programs that were used to conduct the distribution of Newsday and Hoy.
Defendant Garcia is a resident of Kings County, New York. During the class period, Garcia was an employee, agent, and sales manager for Newsday, overseeing the distribution of Newsday, and the circulation director for Hoy when it began publication in November 1998.
Defendant Langer is a resident of Westchester County, New York, and during the class period was an independent contractor, agent, and financial systems consultant for American; the chief financial officer of United; and an employee and agent of Newsday, Hoy, and DSA.
Defendant Halfmann is a resident of Suffolk County, New York, and during the class period was an employee, agent, and sales representative for Newsday, Hoy, and DSA.
Defendant Herb is a resident of Suffolk County, New York, and during the class period was an employee, agent, and sales representative for Newsday, Hoy, and DSA.
Defendant Brennan is a resident of Suffolk County, New York, and during the class period was an employee and agent for Newsday, Hoy, and DSA, and the Vice President of Circulation for Newsday. Brennan was either placed on administrative leave or terminated by Newsday on June 16, 2004, when the Tribune Company and Newsday publicly acknowledged that Newsday and Hoy had inflated their circulation volume. (See SAC ¶ 75 ().)
Defendant Sito is a resident of Suffolk County, New York, and during the class period was an employee and agent of Newsday, Hoy, and DSA and is the president of Hoy, Executive Vice President of Newsday, and Vice President and National Director of Hispanic publications for the Tribune Company.
Defendant Pothoff is a resident of Suffolk" County, New York, and during the class period was an employee of Newsday, Hoy, and DSA, and a former General Manager of United.
Defendants "John Does" "1" through "25" are officers, directors, employees, representatives, or agents of one or more of the Corporate Defendants who participated in the alleged enterprise and who, by reason of their positions, participated in, furthered, or exercised supervision and control over the alleged enterprise.
The above individuals are referred to as the "Individual Defendants" as context demands.
Finally, non-party Audit Bureau of Circulation ("ABC") is a...
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