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June 7, 1991


The opinion of the court was delivered by: Sand, District Judge.


The case is presently before the Court on three motions. First, defendant ZGI moves to dismiss the complaint in part pursuant to Fed.R.Civ.P. 12(b)(6). ZGI seeks to dismiss all counts except Schmid's unfair competition claim. Second, ZGI moves to set aside this Court's January 3, 1991 grant of Schmid's motion for a default judgment against the defendants Regalos and Zucker. ZGI urges this Court not to enter a final judgment against these two defendants. Finally, Schmid moves for the entry of a protective order pursuant to Fed.R.Civ.P. 26(c), pertaining to certain information to be produced by the parties which is allegedly confidential. For the reasons discussed below, ZGI's motions to dismiss and to set aside the default judgment are denied. Schmid's motion for a protective order is referred to a Magistrate Judge.


Since 1985, Schmid has been a distributor in the United States of figurines and other porcelain products manufactured by Goebel of Roedental, Germany. These porcelain products, known as "Hummels," are derived from and inspired by the art of Berta Hummel. On November 8, 1988, Schmid and Goebel signed a contract which gave Schmid "the permanent, exclusive right to distribute Goebel Hummel products in the United States and Puerto Rico." The contract obligates Goebel to "use its best efforts, consistent with applicable laws to prevent unauthorized importation of Hummels into the United States and Puerto Rico." Complaint ¶ 8.

Schmid alleges that there are United States retail dealers selling Hummels in the United States which were not obtained from Schmid. According to Schmid, ZGI, a company established in 1985 to sell gifts and camera equipment in the United States to the general public and retailers, is "one of the principal gray marketers of Hummels in this country." Plaintiff's Memorandum of Law in Opposition to Defendant's Motion to Dismiss the Complaint, p. 2. Plaintiff alleges that ZGI is importing into the United States Hummels which it illegally obtained through a shell corporation located in Panama. The alleged shell corporation, Regalos, is owned and operated by Edward Zucker, the president of ZGI. Regalos is registered as a Panamanian corporation, but has no retail or wholesale store in Central or South America and is not engaged in any business activities. The company's resident agent in Panama is a law firm.

Schmid alleges that Zucker and ZGI, through Regalos, have devised a scheme to deprive Schmid of the fruits of its exclusive distribution contract with Goebel through mail, telephone and other means, from ZGI's New York office. Allegedly, it is through Regalos that ZGI fraudulently purchases Hummels from Goebel and has them diverted to New York, where ZGI re-sells them. According to Schmid, "this is done by creating false commercial documents which purport to show orders and payments from shipments to Regalos even though the shipments are made directly to and paid for by ZGI in New York." Complaint ¶ 26. Schmid alleges that as a result of ZGI's illegal actions it has suffered "millions of dollars in damages from lost sales, injury to its goodwill, and other injuries." Plaintiff's Memorandum of law, p. 3.


I. Motion to Dismiss

ZGI argues that while Schmid may have been injured by increased competition from the importation of Hummels into the United States by Regalos there was no illegal action by ZGI and therefore Schmid has failed to state a claim upon which relief may be granted. Consequently, ZGI urges this Court to dismiss all but one count of the complaint. In a motion to dismiss, this Court looks to the four corners of the complaint and is required to accept plaintiff's allegations as true and construe those allegations in the light most favorable to plaintiff. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); Dacey v. New York County Lawyers' Ass'n, 423 F.2d 188, 191 (2d Cir. 1969), cert. denied, 398 U.S. 929, 90 S.Ct. 1819, 26 L.Ed.2d 92 (1970). The complaint will be dismissed only if plaintiff can prove no set of facts that would entitle him to relief.

A. Tortious Interference with Contract

To state a cause of action for tortious interference with existing contractual relations, a plaintiff must allege 1) the existence of a valid contract between plaintiff and another contracting party; 2) defendant's knowledge of that contract; 3) defendant's intentional procurement of a breach of that contract by the other party; and 4) damages. See Nifty Foods Corp. v. Great Atlantic & Pac. Tea Co., 614 F.2d 832, 839 (2d Cir. 1980); Walters v. Fullwood, 675 F. Supp. 155, 159 (S.D.N Y 1987); Guard-life Corp. v. S. Parker Hardware Mfg. Corp., 50 N Y2d 183, 406 N.E.2d 445, 428 N.Y.S.2d 628 (1980).

Defendant ZGI's knowledge of the contract between Schmid and Goebel and its intent to effectuate a breach of that contract by Goebel are in essence the claims at issue.*fn1 In its complaint, Schmid claims that the defendants knew that Schmid and Goebel were parties to an exclusive distributorship contract. ¶ 15. It was because of this knowledge, according to Schmid, that defendants fraudulently schemed and conspired through Regalos, an allegedly shell corporation controlled by Zucker, to import Hummels into the United States through a third country in circumvention of that agreement. ¶ 13. Schmid urges that by utilizing the Regalos "fiction and subterfuge" that Zucker and ZGI have and continue to transact business with Goebel in furtherance of a conspiracy to deprive Schmid of the fruits of its contract with Goebel. ¶ 14.

In support of its claim that the defendants intentionally caused Goebel to breach its contract, Schmid alleges that through Regalos, Zucker and ZGI send false documentation in the form of orders, invoices and bills of lading for purchases and shipments of Hummels. The purpose of this ploy allegedly is to avoid having to reveal to Goebel or overseas Goebel distributors that Zucker and ZGI were the true parties in interest. Schmid urges that by these misrepresentations and false statements, the defendants conspired to induce Goebel to sell Hummels in violation of its contract with ...

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