Sebastian Intern., Inc. v. Russolillo
| Decision Date | 25 August 2000 |
| Docket Number | No. 00-03476-CM.,00-03476-CM. |
| Citation | 186 F.Supp.2d 1055 |
| Parties | SEBASTIAN INTERNATIONAL, INC., Plaintiff, v. Vincenzo RUSSOLILLO, an individual, et al., Defendants. |
| Court | U.S. District Court — Central District of California |
William C. Conkle, John A. Conkle, Eric S. Engel, Scott Hampton, Conkle & Olesten, Santa Monica, CA, Thomas J. Nolan, Joanne E. Caruso, Michael L. Turrill, Howrey Simon Arnold & White, LLP, Los Angeles, CA, for plaintiff.
Norman H. Levine, Alison F. Clarke, Michelle M. Lynn, Suann C. MacIsaac, Linda K. Netsch, Greenberg Glusker Fields Claman Machtinger & Kinsella, Los Angeles, CA, for Roger Ladd, Damian Christopher, Inc., defendants.
Robert W. Hodges, Melodie K. Larsen, J. Larson Jaenicke, Rintala Smoot Jaenicke & Rees, Los Angels, CA, for Qualify King Distributors, Inc., Rite Aid Corp., CVS Corp., defendants.
Jeffrey A. LeVee, Amy A. Stathos, Eric Patrick Enson, Jones Day Reavis & Pogue, Los Angeles, CA, Darryl E. Towell, Jones Day Reavis & Pogue, Irvine, CA, for TSA Distributing Inc., Ken Teepe, defendants.
Luis A. Carrillo, Luis A. Carrillo Law Offices, Montebello, CA, Steven H. Hibbe, Miami, FL, for Trapeza Overseas, Inc., Jose I. Arguelles, defendants.
Richard G. Simon, Richard G. Simon Law Office, San Bernardino, CA, for Farshid Ben-Cohen, defendant.
Eric Shih, Mark R. Bateman, Charles S. Barquist, Mary F. Panetta, Morrison & Foerster, Los Angeles, CA, for Phar-Mor, Inc., defendant.
Steven M. Perry, Devon A. Gold, Munger Tolles & Olson, Los Angeles, CA, for Randalls Food Markets, Inc., defendant.
Dennis G. Martin, Willmore F. Holbrow, III, Blakely Sokoloff Taylor & Zafman, Los Angeles, CA, John Emmett, John Emmett Law Offices, Dallas, TX, for Nortex Drug Distributors, Inc., defendant.
Roger V. Coven, Paul C. Workman, Holland & Knight, Los Angels, CA, for Dollars Sparay Aerosols, SRL, P. Francalancia, defendants.
Lee I Petersil, Morris Polich & Purdy, Los Angeles, CA, Eric H. Vance, Dale M. Heist, Camille M. Miller, Woodcock Washburn Kurtz, Philadelphia, PA, for Superbox Aerosols, SRL, defendant.
Edmund J. Towle, III, Michael C. Denison, Towle Denison Smith & Tavera, Los Angels, CA, for Tosvar Aerosol, SRL, Paolo Gioia, defendants.
Theresa M. Marchlewski, William E. Ireland, Haight Brown & Bonesteel, for Five stars Realty, Five Stars Mortgage, Inc., Five Star Intern investment Corp., Julio Daniel, Marlen Daniel, defendants.
Stacey L. Jaramillo, Michael J. Mills, Kutak Rock, Newport Beach, CA, for Harp's Food Stores, Inc., defendant.
C-Zors Beauty, Los Angeles, CA, pro se.
Rickey F. Ivie, Ivie McNeill & Wyatt, Los Angels, CA, for Christina's Hair Design, defendant.
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS CVS, QUALITY KING, TSA, AND KEN TEEPE'S MOTION TO DISMISS
Presently before the Court are Defendants CVS Corporation ("CVS"), Quality King Distributors, Inc. ("Quality King"), T.S.A. Distributing, Inc. ("TSA"), and Ken Teepe's ("Teepe") Motions to Dismiss pursuant to Federal Rule of Procedure 12(b)(6). Having read and considered the moving papers, oppositions, replies, and oral arguments in support thereof, the Court hereby grants in part and denies in part Defendants' Motion to Dismiss.
Plaintiff Sebastian International ("Sebastian"), a California corporation, is a designer and distributor of professional hair care products including hair sprays, shampoos, conditioners, coloring gels, and mousse. Sebastian does not distribute its products through retailers. Instead, Sebastian produces its products for use and sale at hair care salons and beauty schools. The salons and schools are contractually obligated to sell Sebastian products only to consumer clientele, and not to other retailers or distributors. Sebastian's more popular products bear a holographic label which is used to identify and track the product.
Despite the contractual limitations imposed on salons, Sebastian products are sold by retailers. This is a result of so-called product diversion, whereby merchandise intended for sale and use in salons is diverted and sold to drug stores and supermarkets. Defendants are alleged to induce authorized distributors and salons to divert Sebastian-brand products and then remove the identifying holographic labels that have been placed on the products by Sebastian. By removing the labels, the identity of the supplying source is concealed.
Besides receiving and selling diverted products, Defendants are alleged to be involved in the distribution and sale of counterfeit Sebastian products. Sebastian alleges that Defendants remove Sebastian's holographic labels in order to pass off the counterfeit merchandise as genuine Sebastian products. Sebastian has notified certain of the defendants of the presence of counterfeit and diverted Sebastian products, and that defendants should not sell products without the holographic labels. Despite notice, some of the defendants have continued to sell diverted and counterfeit Sebastian products.
T.S.A. Distributing ("TSA") is a California corporation that also does business under the names TSA. Ken Teepe is the President of T.S.A. Sebastian makes few direct factual allegations regarding Teepe or TSA. TSA allegedly received for distribution and sale counterfeit Sebastian products which were imported from Italy. At the end of 1999, TSA was notified by Sebastian that it was suspected of selling counterfeit Sebastian products. According to Sebastian, a few months later counterfeit Sebastian products with TSA shelf tags were found stocked at an Albertson's grocery store. Finally, according to Sebastian, TSA induces distributors and salons to break their contracts with Sebastian and to divert products.
CVS ("CVS") is a Delaware corporation. Sebastian has notified CVS of the existence and substance of its contracts with distributors restricting the sale of its products to salons. In 1997, CVS was also informed that Sebastian had started using holographic labels on its products to prevent diversion and facilitate tracking. According to Sebastian, CVS induces distributors and salons to break their contracts with Sebastian and to divert products. At the end of 1999, Sebastian notified CVS of a scheme to market and warned CVS against selling such products. Despite Sebastian's warning, CVS has allegedly continued to stock and sell counterfeit products.
Defendant Quality King Distributors, Inc. ( "Quality King") is a distributor of consumer products, including hair care products manufactured and sold by Sebastian. In addition to distributors, Quality King also sells diverted Sebastian products through its web-site. Sebastian alleges that Quality King induces distributors of Sebastian products to defraud Sebastian by breaching their agreements only to sell to consumer clientele. In furtherance of its diversion scheme, Sebastian alleges, Quality King created phony distributorships, advanced money to fronts for purchase of diverted Sebastian products, and removed Sebastian's holographic labels, Sebastian further alleges that Quality King received shipments of counterfeit Sebastian products imported from Italy and supplied those products to retailers.
A Rule 12(b)(6) motion tests the legal sufficiency of the claims asserted in the complaint. A Rule 12(b)(6) dismissal is proper only where there is either a "lack of a cognizable legal theory" or "the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir.1988). Moreover, "it is axiomatic that the Motion to Dismiss for failure to state a claim is viewed with disfavor and is rarely granted." Hall v. City of Santa Barbara, 813 F.2d 198, 201, n. 9 (9th Cir.1986).
The issue on a Motion to Dismiss for failure to state a claim is not whether the claimant will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims asserted. Gilligan v. Jamco Development Corp., 108 F.3d 246, 249 (9th Cir.1997). When evaluating a Rule 12(b)(6) motion, the court must accept all material allegations in the complaint as true and construe them in the light most favorable to the non-moving party. Barron v. Reich, 13 F.3d 1370, 1374 (9th Cir.1994). The court is not required, however, to accept "conclusory legal allegations cast in the form of factual allegations if those conclusions cannot reasonably be drawn from the facts alleged." Clegg, 18 F.3d at 754-55.
Rule 12(b)(6) must be read in conjunction with Rule 8(a) which requires "a short and plain statement of the claim showing that the pleader is entitled to relief." 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1356 (1990). The notice pleading standard set forth in Rule 8 establishes "a powerful presumption against rejecting pleadings for failure to state a claim." Gilligan, 108 F.3d at 248 (citations omitted). Therefore, a court must not dismiss a complaint for failure to state a claim unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); U.S. v. City of Redwood City, 640 F.2d 963, 966 (9th Cir. 1981).
Where plaintiff's complaint should be dismissed for failure to state a claim, the plaintiff should be given "at least one more chance to amend the complaint" under Fed. R. Civ. Proc. 15(a) before dismissing the action with prejudice. Bank v. Pitt, 928 F.2d 1108, 1112 (11th Cir.1991). A plaintiff should be denied leave to amend a complaint, if the court determines that "allegations or other facts consistent with the challenged pleading could not possibly cure the defect." Schreiber Distributing Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir.1986).
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