Pereyra v. Sedky
| Decision Date | 03 December 2015 |
| Docket Number | Civil Action No. 15-cv-12854-ADB |
| Citation | 148 F.Supp.3d 134 |
| Parties | Roberto Pereyra and City Fitness Group, LLC, Plaintiffs, v. Herve Sedky, et al., Defendants. |
| Court | U.S. District Court — District of Massachusetts |
Stefan E. Cencarik, Grantham & Cencarik, P.C., Beverly, MA, for Plaintiffs.
Bernard A. Flanagan, Michael L. Chinitz, Rose, Chinitz & Rose, Boston, MA, for Defendants.
ALLISON D. BURROUGHS
, DISTRICT JUDGE
Plaintiffs Roberto Pereyra (“Pereyra”) and City Fitness Group, LLC filed this action against Defendants Herve Sedky (“Sedky”), and five limited liability corporations that Sedky allegedly controls: KLIO Fitness Clubs, LLC; KLIO Fitness BOS, LLC; KLIO Fitness Lynn, LLC; KLIO Fitness MHD, LLC; and KLIO, LLC.1 This case arises out of a 2013 asset purchase transaction in which Sedky and KLIO, LLC bought a chain of three health clubs from Pereyra. A number of disputes arose after the asset purchase was consummated, prompting Plaintiffs to file the instant Complaint on June 29, 2015. [ECF No. 1]. The Complaint asserts federal Lanham Act claims for service mark infringement, unfair competition, and cyberpiracy (Counts I—III), as well as state law claims for breach of contract (Count IV); violation of the Massachusetts Wage and Hour Act, Mass. Gen. Laws c. 149, § 148
(Count V); breach of fiduciary duty (Count VI); fraud and misrepresentation (Count VII); and violation of Massachusetts General Laws Chapter 93A (Count VIII).
On August 21, 2015, Defendants filed a Partial Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6)
. [ECF No. 21]. Defendants argue that Counts I, II, III (Lanham Act), Count VI (fiduciary duty), Count VII (fraud/misrepresentation), and Count VIII (Chapter 93A) of the Complaint should be dismissed for failure to state claims upon which relief may be granted. Defendants have not moved to dismiss the breach of contract or the statutory wage and hour claims alleged in Counts IV and V. Plaintiffs filed an Opposition on September 18, 2015 [ECF No. 28], and Defendants filed their Reply on October 9, 2015 [ECF No. 32]. The Court held a hearing on Defendants' Motion on November 18, 2015.
The Court has original jurisdiction over the federal Lanham Act claims alleged in Counts I, II, and III pursuant to 28 U.S.C. § 1331
(federal question jurisdiction), and 28 U.S.C. § 1338 (). The Court has supplemental jurisdiction over Plaintiffs' state law claims pursuant to 28 U.S.C. § 1367(a). For the reasons set forth in this Memorandum and Order, Defendants' Motion to Dismiss is ALLOWED as to the Lanham Act claims in Counts I, II, and III. Following input from the parties, the Court declines to exercise supplemental jurisdiction over the remaining state law claims, but notes that Plaintiffs may elect to pursue these claims in state court if they are so inclined. See 28 U.S.C. § 1367(c)
.
Plaintiffs' Complaint alleges the following facts, which the Court accepts as true for purposes of this motion.
Pereyra is the Manager and sole member of Plaintiff City Fitness Group, LLC (“City Fitness”), a Massachusetts limited liability company. . City Fitness, which operated under the trade name “Leap Fitness,” is the former owner and operator of three health and fitness clubs located in Boston, Marblehead, and Lynn, Massachusetts (the “Health Clubs”). [Id. ¶ 15]. City Fitness acquired the Lynn location in 2007, and the Boston and Marblehead locations in 2011. [Id. ¶ 16]. City Fitness entered into several equipment lease agreements to supply the Health Clubs with various pieces of gym equipment. [Id. ¶¶ 19-24]. Pereyra personally guaranteed these equipment leases. [Id. ¶¶ 20-24].
On May 7, 2013, City Fitness registered a service mark with the United States Patent and Trademark Office for “Leap Fitness,” consisting of “the standard character mark, Word Mark, ‘Leap Fitness,’ Registration Number 4332014, International Class 41, relating to health club services providing for the instruction and equipment in the field of physical exercise.” [Id. ¶ 25]. Two weeks later, on May 21, 2013, City Fitness registered a second service mark for “Leap Fitness,” consisting of “a design plus words and/or letters, Word Mark, ‘Leap Fitness,’ ... Registration Number 4338272, International Class 41, relating to health club services providing for the instruction and equipment in the field of physical exercise.” [Id. ¶ 26]. A representation of that service mark appears visually as follows:
[Id. ]. Plaintiffs allege that City Fitness used these two service marks for identification and marketing purposes, by placing them on its letterhead, internal and external memoranda, business cards, t-shirts, indoor and outdoor signs, and website. [Id. ¶ 27].
Shortly after the servicemarks were registered, Pereyra and City Fitness entered into negotiations with Sedky regarding his potential purchase of the Health Clubs. On June 1, 2013, Pereyra and City Fitness Group, LLC entered into a written Memorandum of Understanding (“MOU”) with Sedky and one of Sedky's companies, KLIO, LLC, concerning the sale of all three Health Clubs, and the assets of City Fitness. [Compl. ¶ 31]. The MOU recited, inter alia , that Pereyra and City Fitness were “desirous of selling all three of its health clubs,” and that KLIO, LLC would purchase from City Fitness “all of City Fitness' right, title, interest in and of the business Facilities, including but not limited to, all of the assets, any and all customer lists, goodwill, name, equipment, leasehold improvements, security deposits, Accounts Receivables, computers, software, furniture and equipment, and any and all assets used in the business.” [ECF No. 1-2, (“MOU”) p. 1].2
Plaintiffs also allege that in June 2013, Sedky and KLIO, LLC made “oral and written representations to Pereyra” that they would assume liability and all future payments for the equipment leases. [Compl. ¶ 85]. Pereyra alleges that he relied on these representations when he later discontinued payments on the leases. [Id. ¶ 86]. Plaintiffs further allege that when Sedky made these misrepresentations to Pereyra, he did so with “reckless disregard for the truth, and/or with no intention of honoring such promises.” [Id. ¶ 85].
[Id. p. 16]. Schedule 1.1 then goes on to list a number of specific assets:
Id. Plaintiffs point out that the rights to the “Leap Fitness” service marks are not specifically enumerated among the Assets listed in Schedule 1.1.
The APA also sets forth the Purchase Price for the sale of the Assets, 75% of which would be paid to the Purchaser in cash on the closing date, with the remaining 25% to be paid by transferring to Pereyra a 25% ownership stake in KLIO Fitness, LLC. [Id. p. 2]. In addition, the APA recites that KLIO Fitness, LLC and Pereyra had executed an Employment Agreement [Id. at p. 7]. In the Employment Agreement,6 the parties agreed that Pereyra would be employed by KLIO Fitness Clubs, LLC as an at-will employee, for an agreed-upon salary and with other terms and conditions. Pereyra was to provide managerial and other services for the Health Clubs. [ECF No. 1-4 (“Employment Agreement”) ]. In addition, the APA provides that Pereyra would not solicit customers of, or compete with, KLIO Fitness, LLC anywhere within the immediate geographical area of Interstate Route 495, for a period of 24 months from the later of the Closing Date, or the date upon which Pereyra's employment should terminate. [APA p. 9].
The APA further states that the agreement shall be governed by and construed in accordance with Massachusetts law. [Id. p. 14]. The APA also contains an integration clause, stating that the APA “shall constitute the entire agreement between the parties hereto with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings, including but not limited to the NDA previously signed, with respect to such subject matter.” [Id. p. 12].
On or about September 3, 2013, KLIO Fitness, LLC took possession of the Health Clubs, and City Fitness ceased its ownership and operation of the clubs. [Compl. ¶ 42]. On the same date, Pereyra began working under the terms of his...
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