Josie Maran Cosmetics, LLC v. Shefa Grp.
| Docket Number | 20-CV-3702 (NGG) (CLP) |
| Decision Date | 22 August 2022 |
| Parties | JOSIE MARAN COSMETICS, LLC, Plaintiff, v. SHEFA GROUP LLC, D/B/A MORNING BEAUTY, Defendant. |
| Court | U.S. District Court — Eastern District of New York |
Pending before the court is Plaintiff Josie Maran Cosmetics LLC's motion to dismiss Defendant Shefa Group LLC's counterclaims. For the reasons stated below, the motion to dismiss the counterclaims for a declaratory judgment, for unfair competition and misleading or false representation under federal law, and for unfair competition under New York common law is GRANTED, but the motion to dismiss the counterclaim for tortious interference with a business relationship is DENIED.
Plaintiff, Josie Maran Cosmetics, LLC (“JMC”), is a California based manufacturer and retailer of a cosmetic products, which bear various registered trademarks. (See Compl. (Dkt. 1) ¶¶ 3, 11.) JMC permits only authorized resellers to sell its products, and these authorized resellers must comply with JMC's Resale Policy, which imposes storage, handling, packaging, condition monitoring, safety, customer service, and recall program participation requirements. (See id. ¶¶ 15-41.) Defendant Shefa Group LLC (“Shefa”), which is doing business as Morning Beauty, is a Brooklyn-based reseller of consumer products. (See Countercl. (Dkt. 22) ¶¶ 6-7.) Shefa sells JMC products through its Amazon storefront. (See id. ¶¶ 7, 24-25J JMC alleges that Shefa is not an authorized reseller, and JMC is thus unable to ensure Shefa's compliance with the Resale Policy. (See Compl. ¶ 52.) JMC suspects, based on test purchases of Shefa's products and Shefa's low prices, that Shefa is selling used or returned products in violation of the Resale Policy, which could result in sales of spoiled, broken, or otherwise defective products. (See Compl. ¶¶ 71-74.) Further, the JMC products sold by Shefa are “inferior..., as they do not come with a warranty or the same suite of services” nor are they “handled with the same quality controls.” (Id. ¶ 74.) Shefa's sales of inferior and non-genuine products allegedly harm consumers and infringe on JMC's rights in its trademarks. (See id. ¶ 75.)
On or about November 16, 2018, JMC sent Shefa a letter, which stated that Shefa's sales of JMC products were unauthorized and violated JMC's intellectual property rights. (See Countercl. ¶ 41.) On November 29, 2018, Shefa responded, informing JMC that the products were genuine and accusing JMC of attempting to engage in unfair competition. (See id. ¶ 42.) Between February 3, 2020 and April 14, 2020, counsel for JMC sent Shefa at least four letters reiterating that these sales were unauthorized and in violation of JMC's intellectual property rights. (See Feb. 3, 2020 Ltr. (Dkt-1-2); Feb. 19, 2020 Ltr. (Dkt. 1-3); Mar. 20, 2020 Ltr. (Dkt. 1-4); Apr. 14, 2020 Ltr. (Dkt. 1-5).) Around the same time, in March 2019, JMC submitted at least three reports to Amazon (the “Amazon Reports”) that the JMC products sold by Shefa were inauthentic and infringed on JMC's trademarks. (See Coun-tercl. ¶¶ 44, 50.) Shefa contends that the Amazon Reports were made knowingly and in bad faith since JMC had conducted a test purchase and knew that the products were not “counterfeit.” (Id. ¶¶ 48-54.) Shefa further alleges that its listings were suspended from Amazon as a result of the reports. (See id. ¶ 60.)-Thus, on March 18, 2019, Shefa's counsel notified JMC that the Amazon Reports were “baseless and defamatory and demanded their retraction." (Id. ¶ 55.) The next day, JMC informed Amazon that the Amazon Reports “were filed in error.” (Id. ¶ 57.)
On June 8, 2020, JMC filed a complaint in the United States District Court for the Central District of California alleging, inter alia, trademark infringement arising out of Shefa's sales of JMC products. Shefa moved to dismiss the California action for lack of personal jurisdiction under Rule 12(b)(2) and for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. (See Countercl. ¶ 58.) On August 14,2020, JMC filed a voluntary dismissal of the California action and re-filed the instant action. (See id. ¶ 59.)
JMC's complaint in this action alleges: (1) trademark infringement, under 15 U.S.C. §§ 1114 and 1125(a)(1)(A); (2) unfair competition, under 15 U.S.C. § 1125(a); (3) trademark dilution, under 15 U.S.C, § 1125(c); (4) common law trademark infringement; (5) dilution, under N.Y. Gen. Bus. L. § 360-1; and (6) deceptive business acts or practices, under N.Y. Gen. Bus. Law § 349. It also seeks a declaratory judgment that Shefa has no right to sell JMC products or use the trademarks, and injunctive relief to enjoin future Shefa sales of JMC products and the use of its trademarks. (See Compl. ¶¶ 87-167.) On February 18, 2021, Shefa filed its answer, which included the following counterclaims: (1) a request for a declaratory judgment that it has not sold counterfeit JMC products nor violated JMC's trademarks; (2) a claim of false or misleading representation and unfair competition, under 15 U.S.C. §1125(a); (3) a claim of unfair competition under New York common law; and (4) a claim of tortious interference with contract and business relations. (See Countercl. ¶¶ 73-126.) JMC filed a motion to dismiss Shefa's . counterclaims pursuant to Federal Rule of Civil Procedure 12(b) (6) on April 30, 2021. (See Mot. (Dkt. 29).)
On a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the court accepts as true all well-pleaded factual allegations and draws all reasonable inferences in favor of the non-moving party. See Trs. of the Upstate N.Y. Eng'rs Pension Fund v. Ivy Asset Mgmt., 843 F.3d 561, 566 (2d Cir. 2016).[1] To withstand a motion to dismiss, a pleading “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).[2] “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, does not suffice.” Id. at 678. A counterclaim is facially plausible when “the [counterclaimant] pleads factual content that allows the court to draw the reasonable inference that the [original claimant] is liable for the misconduct alleged.” Id. at 663.
Shefa seeks a declaratory judgment that it has not sold counterfeit JMC products and has not violated JMC's trademark rights. (Countercl. ¶¶ 81-82.) JMC argues that Shefa's declaratory judgment counterclaim is merely the “flipside” of JMC's infringement claim, so it should be dismissed as redundant. (Mot. at 3.) In op- . position, Shefa argues that (i) this counterclaim is not redundant because it enlarges the dispute beyond trademark infringement to include the Amazon Reports, which claimed that Shefa sells “counterfeit” products, and (ii) in the event that JMC withdraws this suit, the counterclaim allows Shefa to resolve the dispute and potentially obtain attorney's fees. (Opp. (Dkt, 30) at 6.) In its Reply, JMC contends that the counterclaim does not enlarge the scope of the dispute, and that Shefa has filed its answer in this case, so voluntary dismissal is prohibited under Federal Rule of Civil Procedure 41(a). (Reply (Diet. 31) at 1-3.)
Generally, a district court has discretion to exercise declaratory jurisdiction. See Muller v. Olin Mathieson Chemical Corp., 404 F.2d 501, 505 (2d Cir. 1968). To guide its exercise of discretion, courts within the Second Circuit primarily consider the following factors: (1) “whether the judgment will serve a useful purpose in clarifying or settling the legal issues involved; and (2) whether a judgment would finalize the controversy and offer relief from uncertainty.” Duane Reade, Inc. v. St. Paul Fire & Marine Ins. Co., 411 F.3d 384, 389 (2d Cir. 2005). On the first factor, courts will dismiss a declaratory judgment if it is the mirror image of a claim asserted in the complaint because “[t]he fact that a lawsuit has been filed that will necessarily settle the issues for which the declaratory judgment is sought suggests that the declaratory judgment will serve no useful purpose.” Amusement Indus., Inc. v. Stem, 693 F.Supp.2d 301, 311 (S.D.N.Y. 2010).
To assess whether a declaratory judgment counterclaim is the mirror image of a claim, two early Second Circuit cases are instructive. First, in Leach v. Ross Heater and Manufacturing Co., the plaintiff alleged that the defendant was selling products that infringed the plaintiffs patent. 104 F.2d 88 (2d Cir. 1939). The defendant counterclaimed, seeking a declaratory judgment that the patent was invalid, and the defendant had not infringed the patent. Id. at 89. The district court dismissed the declaratory judgment counterclaim. Id. The Second Circuit reversed because “the patentee may, for all that the defendant knows, withdraw his suit without prejudice and continue broadcasting assertions of infringement.” Id. at 91. Without judgment on the merits, a case or controversy would remain. The panel also noted that the plaintiff had threatened patent infringement actions against the defendant's customers, which highlighted the need for immediate relief. Id. Second, in Larson v. General Motors Corp., the district court retained jurisdiction over a patent validity declaratory judgment counterclaim after the plaintiff consented to the dismissal of its patent infringement claim on the merits. 134 F.2d 450, 452 (2d Cir. 1943). The Second Circuit reversed, holding that “the validity of the patent had ceased to have any substantial importance to the parties as soon as the plaintiffs...
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