Ritani, LLC v. Aghjayan

• Decision Date: 20 July 2012
• Docket Number: No. 11 CIV. 8928.,11 CIV. 8928.
• Citation: 880 F.Supp.2d 425
• Parties: RITANI, LLC, Plaintiff, v. Harout AGHJAYAN; Harout R, LLC; H. Ritani, Inc.; H. Ritani, LLC; H. Ritani, Corp.; and Amazing Settings, LLP, Defendants.
• Court: U.S. District Court — Southern District of New York

880 F.Supp.2d 425

RITANI, LLC, Plaintiff,

v.Harout AGHJAYAN; Harout R, LLC; H. Ritani, Inc.; H. Ritani, LLC; H. Ritani, Corp.; and Amazing Settings, LLP, Defendants.

No. 11 CIV. 8928.

United States District Court,

S.D. New York.

July 20, 2012.

Edwards Wildman Palmer LLP, by: Rory J. Radding, Esq., David I. Greenbaum, Esq., Jennifer L. Dereka, Esq., New York, NY, for Plaintiff.

Meyer, Suozzi, English & Klein, P.C., by: Erica B. Garay, Esq., Lynn M. Brown, Esq., Garden City, NY, for Defendants.

OPINION

SWEET, District Judge.

Defendants Harout Aghjayan (“Aghjayan” or the “Defendant”), Harout R, LLC (“Harout R”), H. Ritani, Inc. (“HR Inc.”), H. Ritani, LLC (“HR LLC”), H. Ritani, Corp. (“HR Corp.”) and Amazing Settings, LLP (“Amazing Settings”) (collectively, the “Defendants”) have moved pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure to dismiss the complaint (the “Initial Complaint” or “IC”) of plaintiff Ritani, LLC (“Ritani” or the “Plaintiff”) alleging numerous acts of misconduct by the Defendants, including, but not limited to, copyright and trademark infringement, misappropriation of trade secrets, breach of fiduciary duty, and breach of contract and unfair competition (the “Motion to Dismiss”).

While the Motion to Dismiss was sub judice, the Plaintiff moved pursuant to Rule 15(a)(2) of the Federal Rules of Civil Procedure to amend the complaint (“Motion to Amend”) and for leave to file their proposed amended complaint (the “Amended Complaint” or “AC”). The Defendants did not oppose the filing of the Amended Complaint, but referred the Court to the Defendant's Motion to Dismiss the Initial Complaint, the transcripts of the hearing on the Plaintiff's motion for a preliminary injunction, and the Court's June 11, 2012 ruling (the “June 11, 2012 Opinion”).

Based on the conclusions set forth below, the Defendants' Motion to Dismiss is granted in part and denied in part and the Plaintiff's motion to amend is granted.

I. Prior Proceedings

The Plaintiff filed its Initial Complaint on December 7, 2011 against the Defendant and his companies (the “Defendants Companies”), alleging (1) federal copyright infringement pursuant to 17 U.S.C. §§ 101 and 501 et seq.; (2) federal trademark infringement under the Lanham Act, 15 U.S.C. § 1114(1)(a); (3) unfair competition, false designation of origin and false and misleading representations in commerce under the Lanham Act, 15 U.S.C. § 1125(a); (4) false advertising under the Lanham Act, 15 U.S.C. § 1125(a); (5) state false advertising under N.Y.G.B.L. § 350; (6) common law trademark infringement under state law; (7) state unfair competition; (8) state trademark dilution under N.Y.G.B.L. § 360–1; (9) deceptive practices under N.Y.G.B.L § 349; (10) common law misappropriation of trade secrets; (11) tortious interference with business relationships under state law; (12) breach of implied covenant not to solicit business and reduce goodwill under state law; (13) breach of contract and common law noncompetition; (14) unjust enrichment; (15) common law breach of the duty of loyalty and breach of fiduciary duty; (16) breach of the implied duty of good faith and fair dealing; and (17) imposition of a constructive trust.

Invoking Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure, the Defendants moved to dismiss the entirety of the Initial Complaint on February 6, 2012.

The Motion to Dismiss was heard and marked fully submitted on March 15, 2012.

On May 30, 2012, the Plaintiff filed a motion seeking preliminary injunctive relief due to the alleged irreparable harm caused by the culmination of the Defendants' conduct. On June 11, 2012, the Court issued an opinion from the bench, denying the Plaintiff's motion for a preliminary injunction for failure to establish a prima facie case.

On May 30, 2012, the Plaintiff concurrently made a motion to amend the Initial Complaint and for leave to file the Amended Complaint. The proposed Amended Complaint seeks to add certain factual details, to add a new Defendant, Aghjayan's wife, Shawndria Aghjayan (“Mrs. Aghjayan”), to remove HRI as a defendant, and to remove certain state causes of action. The proposed Amended Complaint alleges the following causes of action against all Defendants, unless otherwise specified: (1) federal copyright infringement pursuant to 17 U.S.C. §§ 101 and 501 et seq., against Aghjayan, Amazing Settings and Harout R (Count I); (2) federal trademark infringement under the Lanham Act, 15 U.S.C. § 1114(1)(a) (Count II); (3) unfair competition, false designation of origin and false and misleading representations in commerce under the Lanham Act, 15 U.S.C. § 1125(a) (Count III); (4) false advertising under the Lanham Act, 15 U.S.C. § 1125(a) (Count IV); (5) state false advertising under N.Y.G.B.L. § 350 (Count V); (6) common law trademark infringement under state law (Count VI); (7) state unfair competition (Count VII); (8) state trademark dilution under N.Y.G.B.L. § 360–1 (Count VIII); (9) common law misappropriation of trade secrets (Count IX); (10) tortious interference with business relationships under state law against Aghjayan and his companies (Count X); (11) breach of implied covenant not to solicit business and reduce goodwill under state law against Aghjayan and HR Corp. (Count XI); (12) breach of contract and common law non-competition against Aghjayan, Mrs. Aghjayan and HR Corp. (Count XII); and (13) common law breach of the duty of loyalty and breach of fiduciary duty against Aghjayan and Mrs. Aghjayan (Count XIII).

The Motion to Amend was heard and marked fully submitted on June 27, 2012.

II. Facts

The facts are taken from the Amended Complaint ¹ and the affidavits submitted by the parties and are not in dispute except as noted below.

Ritani is corporation of the State of New York and a successful designer, manufacturer and distributor of high-end designer jewelry.

Aghjayan and Mrs. Aghjayan are individuals residing in the State of New Jersey. The Amended Complaint alleges that the following companies are wholly owned by Aghjayan: (1) Harout R is a corporation of the State of New Jersey with offices in that state and is a designer, manufacturer and distributor of jewelry; (2) HR LLC is a corporation of the State of Delaware and is now listed as inactive by the Secretary of the State of Delaware. HR LLC is presently listed by Hoovers as incorporated in the State of New York and has a principal place of business in the State of New Jersey; (3) HR Corp. is a corporation of the State of New York which has offices in New Jersey; and (4) Amazing Settings is a corporation of the State of New Jersey with offices in that state and is a designer, manufacturer and distributor of jewelry. The Amended Complaint alleges that Aghjayan had an “intimate personal involvement and domination over each of the Defendant Companies, and played an active and conscious role, on behalf of these Defendants.”

In 1996, Aghjayan founded and wholly owned HR Corp., which manufactured and distributed high-end jewelry under the trademark Ritani. By March 2002, Aghjayan, needing an infusion of cash and managerial support, entered into negotiations with Julius Klein Diamonds, LLC (“JK”) and For Krunch, LLC (“Krunch”) for the sale of all of HR Corp.'s assets.

On March 26, 2002, Aghjayan, HR Corp., JK and Krunch executed a series of five agreements. By these agreements, Aghjayan and HR Corp. agreed to sell the business consisting of all of the rights, titles and interests in and the assets of HR Corp., including all of its copyrights, trademark rights, and all other intellectual property rights, as well as good will, to the newly formed entity, Ritani. Ritani was to be owned jointly by Aghjayan, HR Corp., JK and Krunch.

The first agreement entered into by the parties was a “Membership Interest Purchase Agreement” dated March 26, 2002. Under this contract, Aghjayan sold his 44% membership interest in Ritani, as well as all rights, titles and interests in and to the intellectual property of HR Corp., the trademark Ritani and other trademarks, copyrighted Ritani jewelry designs, the “[d]esign, concept and content of the Ritani website” and “all of the good will associated with the business of [HR Corp.]” to Ritani for the aggregate purchase price of $2,628,000.

The second agreement was a “Contribution Agreement” whereby HR Corp. and Aghjayan confirmed their sale of the “Contributed Assets” to Ritani in exchange for HR Corp.'s receipt of a membership interest in the newly formed company. As with the Membership Agreement, the Contribution Agreement similarly recited the Defendants' assignment of intellectual property to Ritani.

The third agreement was an “Assignment and Assumption Agreement” confirming HR Corp.'s sale, transfer and assignment of all of its right, title and interest in and to the properties listed in the Contribution Agreement to Ritani for Ritani's “own use and benefit forever from the date hereof.”

JK, Krunch, HR Corp., and Aghjayan also entered into an Operating Agreement (the “2002 Operating Agreement”) which recited the profit/ loss percentages for each of the members of the newly formed company, as follows: JK 10%; Krunch 5%; Aghjayan 44%; and HR Corp. 41%. In addition, JK and HR Corp. each possessed 50% voting rights.

The terms of the 2002 Operating Agreement required Aghjayan to concurrently execute an employment agreement (the “2002 Employment Agreement”) appointing him Chief Executive Officer (“CEO”) and President of Ritani. Aghjayan entered into the 2002 Employment Agreement, which states that he had a duty to render “exclusive services as Chief Executive Officer” for Ritani and to perform such services “to further the business and affairs of Employer.” The 2002 Employment Agreement also precluded Aghjayan from disclosing any confidential information, including but not limited to, trade secret information, even if it was “conceived, originated, discovered or...