Houbigant, Inc. v. Development Specialists, Inc.
| Decision Date | 30 September 2002 |
| Docket Number | No. 01CIV7388LTSGWG.,01CIV7388LTSGWG. |
| Citation | 229 F.Supp.2d 208 |
| Parties | HOUBIGANT, INC., Etablissement Houbigant, Plaintiff, v. DEVELOPMENT SPECIALISTS, INC., et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Morrison Cohen Singer & Weinstein, LLP, by Edward P. Gilbert, New York City, Patton Boggs, LLP, by John Schryber, Read K. McCaffrey, Washington, D.C., for plaintiffs, Houbigant, Inc. and Etablissement Houbigant.
Gregory P. Joseph Law Offices, LLC, by Pamela Jarvis, New York City, for defendants, Development Specialists, Inc., William A. Brandt Jr., David H. Tolly.
Biedermann, Hoenig, Massamillo & Ruff, P.C., by Anthony W. Eckert III, New York City, Rooks, Pitts and Poust, by Robert K. Villa, Chicago, Illinois, for defendant, Nicholas J. Miller.
Houbigant, Inc. and Establissement Houbigant ("Plaintiffs") bring this action, alleging trademark infringement in violation of the Lanham Act, 15 U.S.C. sections 1114, 1117 and 1125, and asserting a variety of common law claims1 against Development Specialists, Inc. ("DSI") and its employees William A. Brandt Jr. ("Brandt") and David H. Tolly ("Tolly") (collectively "Defendants"), as well as Nicholas J. Miller ("Miller" or "Defendant"), Administrator of Dana U.K. Limited ("Dana U.K."). This matter comes before the Court on the motions of Defendants Development Specialists, Inc. ("DSI"), William A. Brandt Jr. ("Brandt") and David H. Tolly ("Tolly") pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss the complaint for failure to state a claim upon which relief may be granted and, pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, to dismiss the complaint for lack of subject matter jurisdiction. Defendant Nicholas J. Miller ("Miller") has also moved for dismissal of the complaint pursuant to Rules 12(b)(1), (2), (3) and (6) of the Federal Rules of Civil Procedure and for dismissal, in deference to a pending foreign action, of Counts VII through XI of the Complaint.
Plaintiffs assert that the Court has jurisdiction of this matter pursuant to 28 U.S.C. sections 1331, 1367 and 1338.
The Court has considered thoroughly all submissions and arguments related to these motions. For the following reasons, the motion of defendants DSI, Brandt and Tolly to dismiss is granted in part and denied in part; defendant Miller's motion to dismiss is denied.
Plaintiffs allege that they are the owners of various trademarks for perfume products licensed to Dana Perfumes Corporation ("Dana U.S."), Houbigant Limitée ("Limitée") (collectively, the "Licensees") and the Licensees' parent corporation, Renaissance Cosmetics, Inc. ("RCI" and, together, with the Licensees, the "Company"). (Compl.¶¶ 1, 16-19, 74.) In August of 1998, the Company retained defendants DSI and DSI's employees Brandt and Tolly as consultants to manage a "financial crisis." (Id. ¶ 38) In June of 1999, the Company filed voluntarily for protection under Chapter 11 of the Bankruptcy Code in federal court in Delaware (the "Bankruptcy Proceeding"). (Id. ¶ 76) Defendant Miller was the Administrator in receivership of Dana U.K., a wholly owned subsidiary of Dana U.S. (Id. ¶ 12)
In their Complaint, Plaintiffs allege that "the Licensees in the Spring of 1997 began a campaign of infringement of the Houbigant marks and the sale of Houbigant goods through the gray market." (Id. ¶ 36.) Plaintiffs assert that the infringement was a principal cause of the Company's "financial crisis" that led, among other things, to a June 1998 public disclosure that the Company had negative net worth and was insolvent. (Id. ¶¶ 2, 38.) Defendants DSI, Brandt and Tolly were hired as "crisis managers" by the Company in August 1998, pursuant to a professional services contract between DSI, on the one hand, and RCI and the Licensees, on the other. (Id. ¶ 38-40.) Brandt and Tolly became officers and directors of the Company. (Id. ¶ 38, 44.) They were not, however, put on the Company's payroll. Rather, their services to the Company were billed by DSI as professional services at rates ranging from $230-330 per hour. (Id. ¶ 45.) DSI, Brandt and Tolly also, according to the Complaint, caused the Company to hire and compensate outside advisors to whom the Company paid high fees and retainers. (Id. ¶ 46.)
Plaintiffs assert that defendants DSI, Brandt and Tolly took full control of RCI and the Licensees and, as a result of that undertaking, owed affirmative duties to Plaintiffs to preserve the value of Houbigant brands and to avoid actions resulting in breaches of the licensing agreements. According to Plaintiffs, they retained such control through August 1999. (Id. ¶¶ 38, 41, 42.) Plaintiffs claim that DSI, Brandt and Tolly had a duty to eliminate the infringement of Houbigant trademarks and the wasting of the license asset. (Id. ¶ 41.) Plaintiffs allege that DSI, Brandt and Tolly instead escalated the Licensees' infringement of the Houbigant marks (id. ¶ 49) and that Miller, who was designated Administrator of Dana U.K. after that company entered British Administration proceedings on or about October 12, 1998, exercised control over Dana U.K. that included "the direction of Dana U.K.'s unauthorized production and sale of counterfeit Houbigant products and infringement of the Houbigant marks." (Id. ¶ 58.) They assert that Miller's compensation rate was artificially inflated pursuant to a scheme among DSI, Brandt, Tolly and Miller. (Id. ¶ 64.) Plaintiffs further allege that Defendants DSI, Brandt, Tolly and Miller facilitated the manufacturing and distribution of counterfeit Houbigant products by unlicensed third-parties including Dana U.K. (id. ¶ 56, 57); that defendants DSI, Brandt, Tolly and Miller induced numerous breaches of the Houbigant licensing agreements (id. ¶ 66); and that none of the acts of infringement or breaches of licensing agreements was disclosed to Houbigant by Defendants. (Id. ¶ 70.) Plaintiffs also allege that Dana U.K. "and its componentry customers in the U.K. and the U.S." sold approximately $35 million of counterfeit goods, which arose principally through a transaction documented in a certain U.K. Asset Sale and Purchase Agreement dated March 12, 1999 (the "U.K. Agreement"). (Id. ¶ 62.) Brandt, Tolly and DSI are alleged to have affirmatively misled Houbigant as to the level of the Company's assets and its compliance with the Licenses. (Id. ¶ 71-72.)
MOTION TO DISMISS BY DEFENDANTS DSI, BRANDT AND TOLLY PURSUANT TO RULES 12(b)(1) AND 12(b)(6)
Defendants DSI, Brandt and Tolly move to dismiss the Complaint on several grounds. They assert that Plaintiffs lack standing to sue Brandt and Tolly for breach of fiduciary duty and that Plaintiffs' infringement allegations do not state a fiduciary duty claim. These Defendants further assert that Plaintiffs' professional negligence claim fails as a matter of law because DSI, Brandt and Tolly are not professionals within the meaning of New York law and because DSI did not owe a duty of professional care to Plaintiffs. Defendants argue that Plaintiffs cannot claim third-party beneficiary status with respect to the professionals' contractual obligations to the Company under certain retainer agreements dated August 1998 (the "August Retainer Agreement") and June 1999 (together, the "Retainer Agreements"), and that res judicata bars Houbigant's trademark infringement claims (Counts IV through IX) because Houbigant has already had a full and fair opportunity to litigate them in the Delaware Bankruptcy Proceeding. Defendants also contend that Houbigant's trade secret misappropriation claim must be dismissed because Plaintiffs fail to plead that the subject information was secret, and further argue that the misappropriation claim is barred by res judicata. Finally, Defendants assert that Houbigant's tortious interference allegations fail to state a claim.
Motion to Dismiss Breach of Fiduciary Duty Claim Pursuant to Fed.R.Civ.P. 12(b)(1)
Arguing that, as creditors, Plaintiffs lack standing to assert a breach of fiduciary duty claim against Brandt and Tolly for actions taken in connection with their work for the Company, these defendants assert that the Court lacks subject matter jurisdiction of the fiduciary breach claim asserted in Count I of the Complaint. A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) of the Federal Rules of Civil Procedure when the district court lacks the statutory or constitutional power to adjudicate it. See Makarova v. United States, 201 F.3d 110, 113 (2d Cir.2000). A plaintiff asserting subject matter jurisdiction generally has the burden, once challenged, of proving by a preponderance of the evidence that jurisdiction exists. See id.
Plaintiffs assert that Defendants "by virtue of their positions as officers and directors of the insolvent entities" owed Plaintiffs, as creditors, affirmative duties "to preserve the value of the Houbigant brands and to avoid actions resulting in breaches of the Licensing Agreements as well as to eliminate the infringement of the Houbigant trademarks and the wasting of the license asset, its intrinsic value, brand equity, sales, reputation and goodwill." (Compl. ¶ 48.) Plaintiffs allege that Defendants breached these duties by escalating and inducing the infringement and related improper conduct of the Company and third parties (id. ¶¶ 49, 66, 69), thus diluting the value of the Company's right to use the Plaintiffs' trademarks and reducing the value of the Company as a whole, to the detriment of Plaintiffs and all other creditors. (Id. ¶ 49-69.) Defendants assert that Plaintiffs lack standing to assert their breach of fiduciary duty claim because any claims against management arising from diminution of the Company's assets belong to the Company as debtor-in-possession in a pending Chapter 11 bankruptcy proceeding.2 Defendants argue that,...
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