Fossil Grp. v. Angel Seller LLC

• Decision Date: 21 July 2022
• Docket Number: 20-CV-2441 (HG) (TAM)
• Parties: FOSSIL GROUP, INC. et al., Plaintiffs, v. ANGEL SELLER LLC et al., Defendants.
• Court: U.S. District Court — Eastern District of New York

FOSSIL GROUP, INC. et al., Plaintiffs,
v.
ANGEL SELLER LLC et al., Defendants.

No. 20-CV-2441 (HG) (TAM)

United States District Court, E.D. New York

July 21, 2022

REPORT AND RECOMMENDATION

TARYN A. MERKL, UNITED STATES MAGISTRATE JUDGE

This case, which started out as a trademark enforcement action, has become a war. In June 2020, Fossil Group, Inc. and Michael Kors, LLC (“Plaintiffs”) originally brought this action against Angel Seller LLC and others (“Defendants”) claiming that Defendants were selling counterfeit watches that infringed upon Michael Kors' trademarks through Defendant Angel Seller's Amazon.com store front. (See Complaint (“Compl.”), ECF No. 1; Amended Complaint (“Am. Compl.”), ECF No. 16, ¶¶ 1-2, 2224.) In support of these claims, the Amended Complaint details Plaintiffs' purchase of several watches they assert are counterfeit from Defendant Angel Seller between August 2019 and September 2020, including a purchase made following commencement of this lawsuit. (Am. Compl., ECF No. 16, ¶¶ 27-42.) Defendants dispute these accusations, claiming that the products they sell on Defendant Angel Seller's website are legitimate. (Amended Answer (“Am. Answer”), ECF No. 21, ¶ 22-24, Counterclaims ¶ 29.)

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Currently pending before this Court is Defendants' latest salvo:^[1] their motion to file another amended answer, to include counterclaims brought under the Racketeer Influenced and Corrupt Organizations (RICO) statute. (Mot. for Leave to Amend Counterclaims, ECF Nos. 123 (redacted) & 124 (unredacted).) Plaintiffs object. For the reasons that follow, Defendants' motion should be denied.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

I. Factual Allegations in the Complaint and Defendants' Original Counterclaims

This case commenced on June 2, 2020, with the filing of the original complaint. (Compl., ECF No. 1.) Shortly thereafter, the Hon. James Orenstein entered a scheduling order that set November 16, 2020, as the “[d]eadline for joinder of additional parties and amendment of pleadings.” (Scheduling Order, ECF No. 14, at 1.)

Following entry of the scheduling order, Plaintiffs filed an amended complaint on November 13, 2020, in which they allege, inter alia, that Plaintiffs Fossil Group and Michael Kors are the designers and distributors of some of “the most iconic, world-famous, and recognizable time pieces in the world.” (Am. Compl., ECF No. 16, ¶ 1.) Plaintiffs further allege that, despite being put on notice, Defendants have distributed, and continued distributing, counterfeit and knock-off watches that infringe on Michael Kors' distinctive watches, which are made and distributed by Fossil Group. (Id. ¶¶ 2-3.) Plaintiffs also contend that, by engaging in this conduct, Defendants have created a strong likelihood of confusion among consumers and have tarnished the goodwill

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associated with Plaintiffs and the watches they manufacture. (Id. ¶ 3.) Accordingly, Plaintiffs allege claims of trademark counterfeiting, in violation of 15 U.S.C. § 1114; trademark infringement, in violation of 15 U.S.C. § 1114; unfair competition, false designation of origin and false description, in violation of 15 U.S.C. § 1125(a); trademark dilution, in violation of 15 U.S.C. § 1125(c); and unfair and deceptive business practices, in violation of the New York General Business Law, Section 349. (Id. ¶¶ 51-87.) Plaintiffs additionally allege that after filing this very case, Defendants' offers for sales and sales of infringing products continued. (Id. ¶ 39.)

Defendants vigorously contest Plaintiffs' allegations, claiming that the Michael Kors watches sold on Angel Seller's website were genuine. In response to Plaintiffs' November 2020 amended complaint, Defendants filed an answer on December 11, 2020. (See Answer, ECF No. 19.) Then, on January 4, 2021, without seeking leave of court, Defendants filed an amended answer that included four counterclaims, alleging that (1) Defendant Angel Seller was entitled to a declaratory judgment finding that it has not sold counterfeit Michael Kors products or violated Michael Kors' or Fossil Group's trademarks or other rights (Am. Answer, ECF No. 21, Counterclaims ¶¶ 69-79);

(2) Plaintiffs engaged in false or misleading representations and unfair competition, in violation of 15 U.S.C. § 1125(a) (id. ¶¶ 80-97); (3) Plaintiffs engaged in tortious interference with Defendants' contract and business relations with Amazon (id. ¶¶ 98115); and (4) Plaintiffs' actions constituted defamation (id. ¶¶ 116-31). Plaintiffs thereafter moved to strike or dismiss all of Defendants' counterclaims. (Am. Answer, ECF No. 21, Counterclaims ¶¶ 69-131; see Mot. to Strike Am. Answer, ECF No. 30.) The Court denied Defendants leave to file three out of the four counterclaims, but permitted Defendants to file a second amended answer that included a defamation claim against

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Plaintiffs. See Fossil Grp., Inc. v. Angel Seller LLC, No. 20-CV-2441 (WFK) (TAM), 2021 WL 5409605, at *14 (E.D.N.Y. Aug. 27, 2021), report and recommendation adopted, 2021 WL 4520030 (E.D.N.Y. Oct. 4, 2021).

II. Defendants' Proposed Third Amended Answer

Defendants now request leave to file a third amended answer, seeking to include RICO counterclaims against Plaintiffs. (See Mot. for Leave to File Amended Counterclaim, ECF Nos. 123 & 124.) The proposed RICO allegations claim that Plaintiffs Fossil and Michael Kors, together with their former attorney, Michael Lee, formed an enterprise “for the common purpose of preventing third parties from reselling genuine Michael Kors Products for their own financial gain.” (Proposed Third Amended Answer (“PTAA”), containing proposed counterclaims II & III, ECF No. 123-2, ¶ 189.)^[2]Defendants' PTAA further alleges that the participants in the enterprise committed multiple acts of extortion, in violation of 18 U.S.C. § 1951, and wire fraud, in violation of 18 U.S.C. § 1343. (Id. ¶¶ 196, 199.) In a nutshell, Defendants claim that the RICO enterprise operated in the following manner:

The Enterprise operates using the same model as a classic “protection racket.” It creates a problem (i.e a bogus allegation of counterfeiting), and then the Enterprise offers to solve that “problem” if the seller is willing to fork over money for protection - protection from the problem that the Enterprise itself is threatening.

(Id. ¶ 109.)

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As to the nature and purpose of the alleged RICO predicate acts, Defendants claim that:

Fossil, [Michael Kors], and Lee committed the acts of wire fraud, and conspired to commit wire fraud, by, inter alia: (1) submitting false reports to Amazon and Walmart, by email and other electronic means, that falsely alleged that the genuine Michael Kors Products sold by third parties were “counterfeit”; and (2) sending demand letters via electronic means to third parties reselling genuine Michael Kors Products that falsely alleged that the genuine Michael Kors Products sold by third parties were “counterfeit” and threatening litigation and/or complaints to Amazon unless the third parties meet Counterclaim Defendants' [Plaintiffs'] demand for payment.

(Id. ¶ 197.) The PTAA also includes lengthy detailed factual assertions regarding Plaintiffs' conduct in this litigation and with regard to other sellers. (See, e.g., PTAA, ECF No. 123-2 & PTAA (unredacted), ECF No. 124-3, ¶¶ 84-91; PTAA, ECF No. 123-2, ¶¶ 102-07; PTAA, ECF No. 123-2 & PTAA (unredacted), ECF No. 124-3, ¶¶ 112-140.) In addition, it details, at length, the history of the instant case from Defendants' perspective, asserting that Plaintiffs' allegations in this matter are a “sham.” (See, e.g., PTAA, ECF No. 123-2 & PTAA (unredacted), ECF No. 124-3, ¶¶ 141-71.)

Leave to file Defendants' proposed RICO counterclaims should be denied for several reasons. First, permitting Defendants to file the proposed RICO counterclaims would substantially broaden and delay this already-fraught litigation, which would result in significant undue prejudice to Plaintiffs. Second, Defendants' proposed RICO counterclaims are not properly pled under Twombly and Iqbal, principally because they fail to plausibly allege a RICO enterprise for two reasons: (1) the claims do not allege the existence of a RICO person distinct from the alleged RICO enterprise; and (2) the allegations fail to adequately articulate a cognizable RICO enterprise structure and describe how each enterprise member conducted and participated in the affairs of the

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enterprise itself. Accordingly, the Court respectfully recommends that Defendants' motion be denied.

DISCUSSION

I. Standards Applicable to Motions to Amend Counterclaims

Counterclaims must meet the standards applicable to all pleadings established by Twombly and Iqbal. GEOMC Co., Ltd., v. Calmare Therapeutics, Inc., 918 F.3d 92, 99 (2d Cir. 2019). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the alleged misconduct.” Id.

It is well established that “the grant of leave to amend the pleadings pursuant to Rule 15(a) is within the discretion of the trial court.” Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 330 (1971). “However, under Fed.R.Civ.P. 15(a), leave to amend a pleading may only be given when factors such as undue delay or undue prejudice to the opposing party are absent.” SCS Commc'ns, Inc. v. Herrick Co., 360 F.3d 329, 345 (2d Cir. 2004) (emphasis in original). Of particular relevance here, in analyzing whether to grant leave to file new counterclaims, the Second Circuit has held that courts must look to whether a proposed...