Harris v. Coleman

• Decision Date: 16 May 2012
• Docket Number: No. 11 Civ. 3450(SAS).,11 Civ. 3450(SAS).
• Citation: 863 F.Supp.2d 336
• Parties: Joseph HARRIS and J. Harris LLC d/b/a Conestoga Capital Partners LLC, Plaintiffs/Counterclaim Defendants, v. Edward COLEMAN, That's Clever, Inc., Seneca Products Corporation, Inc., A–Game Global, Inc., B.O.K. International Trading, Inc., B.O.K. International, Inc., and Colin Jon, Defendants/Counterclaim Plaintiffs.
• Court: U.S. District Court — Southern District of New York

863 F.Supp.2d 336

Joseph HARRIS and J. Harris LLC d/b/a Conestoga Capital Partners LLC, Plaintiffs/Counterclaim Defendants,

v.Edward COLEMAN, That's Clever, Inc., Seneca Products Corporation, Inc., A–Game Global, Inc., B.O.K. International Trading, Inc., B.O.K. International, Inc., and Colin Jon, Defendants/Counterclaim Plaintiffs.

No. 11 Civ. 3450(SAS).

United States District Court,

S.D. New York.

May 16, 2012.

Wesley J. Paul, Esq., Paul Law Group, LLP, New York, NY, for Counterclaim–Plaintiffs.

Nicholas Gaglio, Esq., Axinn, Veltrop & Harkrider, LLP, New York, NY, John M. Tanski, Esq., Axinn, Veltrop & Harkrider LLP, Hartford, CT, for Counterclaim–Defendants.

OPINION AND ORDER

SHIRA A. SCHEINDLIN, District Judge.

I. INTRODUCTION

Joseph Harris and Conestoga Capital Partners LLC (“Conestoga”) are suing Edward Coleman, That's Clever, Inc. (“TCI”), Seneca Products Corporation, Inc., A–Game Global, Inc. (“A–Game”), B.O.K. International Trading, Inc., B.O.K. International, Inc. (“BOK”), and Colin Jon, seeking monetary relief as well as a declaration that Conestoga owns the '635 Patent and the related trademark rights. In their answer to the Complaint, defendants (hereafter “counterclaim-plaintiffs” or “Coleman and TCI”) bring counterclaims against Harris and Conestoga (collectively “counterclaim-defendants” or “Harris and Conestoga”). The counterclaims: (1) seek a declaration that Coleman owns the '635 Patent and the related trademarks; (2) allege that Harris and Conestoga are liable for a fraudulent conveyance; and (3) allege that Harris and Conestoga are liable for conversion and seek recovery of the value of the intellectual property at issue. Coleman and TCI also seek attorneys' fees pursuant to 35 U.S.C. § 285 and Debtor and Creditor Law (“DCL”) § 276–a, and financial sanctions pursuant to Title 22 of the Official Compilation of Codes, Rules and Regulations of the State of New York (“N.Y.C.R.R.”). Harris and Conestoga now move to dismiss all counterclaims pursuant to Rule 12(b)(6) for failure to state a claim and Rule 12(b)(1) for lack of standing. For the reasons stated below, this motion is granted in part and denied in part.

II. BACKGROUNDA. The Underlying Action

In 2003, Harris made an initial investment in TCI, a company owned by Coleman. ¹ The purpose of the investment was to fund Coleman's development of a golf shoe that incorporated club-cleaning bristles in its outsole (the “Brisole golf shoes”).² On September 11, 2007, TCI executed a Manufacturing and Distribution Agreement (“MDA”) with BOK for the purpose of granting a license to BOK to manufacture, market and sell footwear with the Brisole Design. ³ In return, BOK agreed to pay TCI a royalty on its sales of the licensed products.⁴ Additionally, under the MDA, TCI was an authorized direct distributor of shoes with the Brisole design.

Plaintiffs allege that on March 17, 2008, Coleman assigned the “entire right, title and interest” to the Brisole design to TCI (“the Coleman Assignment”).⁵ On November 7, 2008, Harris sued Coleman alleging that Coleman had falsified TCI financial records.⁶ As part of a December 1, 2009 settlement agreement, TCI assigned Conestoga its rights to the Brisole Design and its rights under the MDA.⁷ Additionally, TCI would continue to receive a share of the royalties from BOK as required under the MDA. Plaintiffs allege that BOK consented in writing to the TCI Assignment. ⁸ The December 1 settlement also provided that title to the intellectual property would revert to TCI after ten years, provided that Coleman and TCI did not default on their obligations pursuant to the settlement.

Further, plaintiffs allege that in connection with the December 1 settlement, the parties entered into a Stock Purchase Agreement on December 2, 2008. As part of this agreement, plaintiffs allege that Coleman agreed to make monthly payments to Harris under a Promissory Note, and that Coleman's companies, TCI and Seneca, would guarantee his obligations.⁹ Plaintiffs allege that Coleman ceased making payments due under the Promissory Note in December 2010. ¹⁰ Plaintiffs also allege that BOK has failed to make royalty payments to Conestoga as required by the December 1 settlement.¹¹

Finally, plaintiffs allege that around the time that payments stopped, Coleman and Jon formed A–Game in Nevada.¹² Plaintiffs allege that A–Game has since succeeded TCI as the distributor and online retailer of the Brisole Golf Shoes in the U.S., and that Conestoga should have been—but was not—paid royalties on the sales of those shoes.¹³

B. The Counterclaims¹⁴

In their answer to the First Amended Complaint, Coleman and TCI assert that they are the ones who have been the target of fraud, and that Harris—one of the counterclaim-defendants—fabricated two legal documents purporting to assign or transfer the intellectual property rights at issue: (1) an assignment from Coleman to TCI; and (2) a transfer of intellectual property rights to Conestoga and Harris. Coleman asserts that he never executed an assignment transferring ownership of the '635 Patent to TCI or any another entity.¹⁵ Nor did he discuss the provisions contained within the so-called Coleman Assignment with either Harris or Conestoga.¹⁶ In fact, Harris and Conestoga only recorded the Coleman Assignment with the United States Patent and Trademark Office (“PTO”) on July 14, 2011, more than one month after the filing of their initial Complaint, and only two days before the filing of the First Amended Complaint.¹⁷ Finally, Coleman also alleges that because the Coleman Assignment was not included in the materials filed by Harris and Conestoga in either their original Complaint or First Amended Complaint, this establishes that it is a fabricated and fraudulent document.¹⁸

1. Declaratory Judgment of Patent and Trademark Ownership

The first counterclaim alleges that Harris and Conestoga have incorrectly or fraudulently alleged that they are the rightful owners of the Brisole design intellectual property rights.¹⁹ Therefore, Coleman and TCI ask this Court to declare: (1) that Coleman is the rightful owner of the '635 Patent; (2) that Coleman never assigned either his rights in the '635 patent or trademark rights to any person or entity; and (3) that Harris and Conestoga have brought and maintained the instant lawsuit based on false documentation.²⁰

2. Fraudulent Conveyance

Next, Coleman and TCI allege that Harris and Conestoga conspired to make a fraudulent conveyance by filing with the PTO a fabricated document showing that Coleman transferred the '635 patent to TCI, and by bringing the instant action “with actual intent to hinder, delay and defraud both present and future creditors of Joseph Harris and J. Harris LLC.” ²¹ Further, Coleman and TCI allege that Harris and Conestoga are the beneficiaries of this fraudulent conveyance, and that they have placed a “significant valuation upon their attempted ownership of the '635 patent.” ²² Finally, counterclaim-plaintiffs seek recovery of the value of their intellectual property as well as attorneys' fees incurred in defending this action.²³ They also seek “to recover punitive damages in an amount of at least $3 million, estimated at treble the amount of Counter[claim]-Defendants' valuation of the intellectual property they are attempting to take” based on their “willfulness and [ ] high degree of disregard for the requirements of moral or legal conduct ....” ²⁴

3. Conversion

Finally, Coleman and TCI allege that Harris and Conestoga converted their intellectual property by filing the instant lawsuit that requests a declaration of ownership, and by filing the fabricated assignment of rights in the '635 patent.²⁵ Counterclaim-plaintiffs seek recovery of the value of the intellectual property, with interest.²⁶

III. LEGAL STANDARDSA. Rule 12(b)(6)—Failure to State a Claim

In deciding a motion to dismiss pursuant to Rule 12(b)(6), a court must evaluate the sufficiency of a complaint under the “two-pronged approach” articulated by the Supreme Court in Ashcroft v. Iqbal.²⁷First, a court “ ‘can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth.’ ” ²⁸ “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice” to withstand a motion to dismiss.²⁹Second, “[w]hen there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.” ³⁰ To survive a Rule 12(b)(6) motion to dismiss, the allegations in the complaint must meet a standard of “plausibility.” ³¹ A counterclaim should not be dismissed if the counter-plaintiff has stated “enough facts to state a claim to relief that is plausible on its face.” ³² “A claim has facial plausibility when the [counter-plaintiff] pleads factual content that allows the court to draw the reasonable inference that the [counter-defendant] is liable for the misconduct alleged.” ³³ Plausibility “is not akin to a probability requirement;” rather, plausibility requires “more than a sheer possibility that a defendant has acted unlawfully.” ³⁴

“In considering a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), a district court may consider the facts alleged in the [counterclaim], documents attached to the [counterclaim] as exhibits, and documents incorporated by reference in the complaint.” ³⁵ However, a court may also consider a document, not incorporated by reference, “where the complaint ‘relies heavily upon its terms and effect,’ thereby rendering the document ‘integral’ to the complaint.” ³⁶

B. Fraudulent Conveyance

To state a claim for fraudulent conveyance in violation of DCL § 276, a plaintiff must allege that “[e]very conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors,...