Sarkis' Cafe, Inc. v. Sarks in the Park, LLC

Decision Date03 July 2014
Docket NumberCase No. 12 C 9686
Citation55 F.Supp.3d 1034
PartiesSarkis' Cafe, Inc., an Illinois corporation, Plaintiff, v. Sarks in the Park, LLC, an Illinois limited liability company, Defendant. Sarks in the Park, LLC, an Illinois limited liability company, Third–Party Plaintiff, v. Daniel K. Gallagher and Scott N. Jaffe, both individuals, Third–Party Defendants.
CourtU.S. District Court — Northern District of Illinois

Michael J. Victor, Jeffrey Ray Rosenberg, O'Halloran, Kosoff, Geitner & Cook, PC, Northbrook, IL, for Plaintiff/Third–Party Defendants.

Edward L. Bishop, Nicholas S. Lee, Benjamin Adam Campbell, Monique Ann Morneault, Bishop Diehl & Lee, Ltd., Schaumburg, IL, for Third–Party Plaintiff/Defendant.

Scott N. Jaffe, Highland Park, IL, pro se.

MEMORANDUM OPINION AND ORDER

JOHN Z. LEE, United States District Judge

Plaintiff Sarkis' Cafe, Inc. (Sarkis), an Illinois corporation, has sued Defendant Sarks in the Park, LLC (SITP), an Illinois limited liability company, for false designation of origin, trademark infringement, dilution, unfair competition, consumer fraud, deceptive trade practices, and injunctive relief. Defendant asserts counterclaims against Plaintiff seeking a declaratory judgment as to non-infringement of Plaintiff's trademark and cancellation of Plaintiff's trademark. Defendant also asserts three third-party claims against Daniel Gallagher and Scott Jaffe (the third-party Defendants). Plaintiff now moves to dismiss Defendant's counterclaims pursuant to Federal Rule of Civil Procedure (“Rule”) 12(b)(6) ; to strike Defendant's affirmative defenses pursuant to Rule 12(f) ; and to strike Defendant's third-party claims under 28 U.S.C. § 1367(c). For the reasons set forth herein, the Court: (1) grants in part and denies in part Plaintiff's motion to dismiss Defendant's counterclaims; (2) grants Plaintiff's motion to strike Defendant's affirmative defenses; and (3) denies Plaintiff's motion to strike Defendant's third-party claims.

Factual Background1

Gallagher sold SITP to Erin Knapp in March 2012. Def.'s Countercls. & 3d Party Cls. ¶¶ 9–10. Gallagher had been the sole owner of SITP starting in 2010. Id. ¶ 11. Prior to that time, he had owned SITP with a partner, Jose Alomia. Id.

During Gallagher's ownership in May 2009, he and Alomia were approached by Jaffe, who claimed to be the owner of Sarkis. Id. ¶¶ 12–13. On May 18, 2009, Jaffe entered into a letter agreement with Gallagher and Alomia, granting SITP permission to use Sarkis' “trade names, trademarks, recipes, names of suppliers and other intellectual property.” Id. ¶¶ 12, 14. The letter also included terms for a royalty and stated that Sarkis would briefly provide SITP with employees. Id. ¶ 15. SITP officially opened in Chicago's Lincoln Park neighborhood on or around July 10, 2009, and sent its employees to be trained at Sarkis. Jaffe approved of, participated in, and authorized this training. Id. ¶¶ 18–19.

Around this time, Sarkis displayed in its restaurant three articles from local publications touting SITP's relationship with Sarkis. For example, Sarkis displayed a Chicago Sun–Times article from June 29, 2009, stating that Sarkis was opening its first satellite location in Lincoln Park (referring to SITP). Id. ¶¶ 21–22. Sarkis also exhibited an August 1, 2009, article that touted SITP as an outpost of Sarkis. Id. ¶¶ 23–24. Another article stated that [Sarkis] has continued to thrive under its current owner, Scott Jaffe.” Id. ¶ 20. Jaffe himself also promoted SITP as Sarkis' new Lincoln Park location in an interview that was posted on Vimeo. Id. ¶ 25. Defendant alleges that, through these and other actions, Sarkis “held out and informed the public and others that Sarks in the Park was its Lincoln Park location.” Id. ¶ 26.

Despite this, on July 18, 2009, less than a month after SITP's opening, Sarkis' attorney informed Gallagher and SITP that the new restaurant's “use of the Sarkis name, mark, menu and logo would infringe upon Plaintiff's rights.” Id. ¶ 27. Accordingly, Sarkis believed as early as July 18, 2009, that its marks were being used by SITP without permission. Id. ¶ 28. Despite receiving this communication from Sarkis, Gallagher did not inform Knapp before selling SITP to him that Sarkis had objected to SITP's use of the “Sarkis” mark and its right to open or operate the restaurant. Id. ¶ 31.

Defendant now asserts two counterclaims against Plaintiff, the first seeking a declaratory judgment that it is not infringing upon Plaintiff's trademark pursuant to 28 U.S.C. §§ 2201 and 2202, and the second requesting cancellation of the Sarkis trademark pursuant to 15 U.S.C. § 1064(3). Defendant also brings claims against third party Defendants, Gallagher and Jaffe, alleging common law misrepresentation by Gallagher and Jaffe and breach of contract by Gallagher.

Discussion
I. Motion to Dismiss Counterclaims
A. Declaratory Judgment

Plaintiff first urges the Court to dismiss Defendant's declaratory judgment counterclaim, arguing that it is duplicative of the claims contained in Plaintiff's Complaint.

To survive a motion to dismiss pursuant to Rule 12(b)(6), a counterclaim must “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ; see Cozzi Iron & Metal, Inc. v. U.S. Office Equip., Inc., 250 F.3d 570, 574 (7th Cir.2001) (applying Rule 12(b)(6) standard to motion to dismiss counterclaims). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Additionally, when considering motions to dismiss, [the Seventh Circuit] accept[s] all well-pleaded factual allegations as true and view[s] them in the light most favorable to the plaintiff.” Lavalais v. Vill. of Melrose Park, 734 F.3d 629, 632 (7th Cir.2013) (citing Luevano v. Wal–Mart Stores, Inc., 722 F.3d 1014, 1027 (7th Cir.2013) ). At the same time, however, “allegations in the form of legal conclusions are insufficient to survive a Rule 12(b)(6) motion.” McReynolds v. Merrill Lynch & Co., Inc., 694 F.3d 873, 885 (7th Cir.2012) (citing Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 ). As such, [t]hreadbare recitals of the elements of the cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.

Defendant's first counterclaim seeks a declaratory judgment of non-infringement pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201. See Def.'s Countercls. ¶ 34. “To seek a [declaratory judgment], a party must demonstrate ‘a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of declaratory judgment.’ Meaden v. Meaden, No. 12 C 3534, 2012 WL 6019233, at *4 (N.D.Ill. Nov. 30, 2011) (quoting Boler v. Raydan Mfg., Inc., 415 F.Supp.2d 896, 901 (N.D.Ill.2006) ). Further, if issuing a declaratory judgment “will clarify and settle the legal relations at issue and afford parties relief from insecurity and uncertainty, the declaratory judgment action is usually heard.” Intervisual Comm., Inc. v. Volkert, 975 F.Supp. 1092, 1099 (N.D.Ill.1997).

In response, Plaintiff asserts that Defendant's declaratory judgment counterclaim should be dismissed because it is duplicative of the claims contained in the Complaint and will thus fail to serve a “useful purpose” in determining the outcome of this case. See Pl.'s Mot. Dismiss. Countercls. 2. The Court agrees. In this instance, a cognizable dispute already exists between Plaintiff and Defendant regarding the latter's use of Plaintiff's marks triggered by Count II of the Complaint. Where “the substantive suit would resolve the issues raised by the declaratory judgment action, the declaratory judgment action ‘serves no useful purpose’ because the controversy has ‘ripened’ and the uncertainty and anticipation of litigation are alleviated.” Intercon Solutions, Inc. v. Basel Action Network, 969 F.Supp.2d 1026, 1065 (N.D.Ill.2013) (internal citations and quotations omitted) (collecting cases); see Nielsen Co. (US), LLC v. Truck Ads, LLC, No. 08 C 6446, 2011 WL 221838, at *5 (N.D.Ill. Jan. 24, 2011) (striking without prejudice counterclaim seeking declaratory judgment of non-infringement). Here, once the Court rules on the merits of Count II of the Complaint, the question of whether Defendant infringed upon Plaintiff's marks will be resolved in its entirety. Therefore, the Court dismisses Defendant's declaratory judgment counterclaim pursuant to Rule 12(b)(6).

B. Cancellation of Sarkis Trademark

Defendant's second counterclaim seeks to cancel Sarkis' trademark. See Countercls.

¶¶ 42–57. Plaintiff argues that dismissal is warranted with respect to this claim on two grounds: (1) it is duplicative of one of Defendant's asserted defenses against Plaintiff's claims, and (2) Defendant lacks standing to bring such a claim because the Court cannot exercise jurisdiction over trademark cancellation claims. See Pl.'s Mot. Dismiss Countercls. 3.

Plaintiff's first argument is incorrect. Contrary to Plaintiff's assertion, Defendant's counterclaim is not duplicative of its claimed defense that Plaintiff's “Sarkis” trademark is invalid. Defendant asserts that the trademark was obtained by fraud and should be cancelled for that reason pursuant to 15 U.S.C. § 1064(3). Defendant seeks this relief separate and apart from its request that the Court declare the trademark invalid. Because Defendant's counterclaim seeking a cancellation of Plaintiff's mark based upon fraud may potentially afford Defendant different or additional relief than a finding of invalidity alone, the claim is not duplicative of Defendant's trademark invalidity defense. See, e.g., Am. Hosp. Supply Corp. v. Fisher Scientific Co., 713 F.Supp. 1108, 1110 (N.D.Ill.1989) (“Precedent suggests that the validity...

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