The opinion of the court was delivered by: LEONARD B. SAND
MAJ commenced this action on April 13, 1990, initially alleging claims of trademark infringement and unfair competition against Peacock. On Peacock's consent, a preliminary injunction was entered restraining Peacock from imitating, copying, counterfeiting, manufacturing or otherwise making unauthorized use of MAJ's trademark. MAJ thereafter applied for leave to amend its complaint to add claims under the Copyright and Gold Stamping Acts, which was granted without opposition. See Memorandum Endorsement dated November 19, 1990.
In June 1991, shortly before discovery was scheduled to close, Peacock moved for leave to amend its answer by adding counterclaims. After briefing and oral argument, this Court granted Peacock's motion. See Memorandum Endorsement dated July 2, 1992.
By Notice of Motion filed August 26, 1991, MAJ moved pursuant to Fed. R. Civ. P. 12(b)(6) and 9(b) to dismiss three of the four counterclaims asserted by Peacock. Specifically, MAJ sought dismissal of those counterclaims alleging violations of the Sherman Act, 15 U.S.C. § 2 (Supp. 1992), the Racketeer Influenced and Corrupt Organizations ("RICO") Act, 18 U.S.C. §§ 1961 et seq. (1984) and New York's law of unfair competition. Oral argument was held on the motion of September 30, 1991. During that hearing, and after MAJ had argued that Peacock's pleading suffered from numerous substantive and procedural deficiencies, this Court offered Peacock the opportunity to file an amended countercomplaint before we ruled on MAJ's motion. Peacock agreed to file such an amended countercompaint by October 15, 1991, and MAJ was given until October 29, 1991 to file a supplemental motion addressing it. See Transcript dated September 30, 1992 at 12 (hereinafter "September Transcript").
Although we had originally told the parties that we would decide MAJ's motion on submission, Peacock's amended countercomplaint contained several variations on the original counterclaims as well as a completely new claim under the Lanham Act, 11 U.S.C. § 1125 (1982 & Supp. 1992).
In addition, Peacock filed a motion to join Michael and Anthony Paolercio as counter-defendants. In light of those developments, MAJ requested further oral argument, which was held on November 21, 1991.
Currently before us are Peacock's motion to join and MAJ's motion for partial dismissal of the amended countercomplaint.
For the reasons that follow, the motion to join is granted and the motion to dismiss is granted in part and denied in part.
Peacock's amended countercomplaint asserts claims of copyright invalidity, monopolization and attempted monopolization, civil RICO, false advertising under the Lanham Act, and unfair competiton under New York law. Because an understanding of the nature of the parties' business is helpful in assessing the validity of the claims, some background is provided herein.
Although Peacock's amended counterclaims are asserted under a number of different legal theories, the factual backdrop to all of them is virtually identical. According to the allegations in the amended countercomplaint, MAJ engaged in a variety of unlawful practices, all with the intended purpose of increasing its share of the diamond-cut charm market and driving its competitors out of business.
Copying Charms, Obtaining Fraudulent Copyright Registrations, and Engaging in Sham Litigation.
Perhaps the most thoroughly developed allegations in Peacock's amended countercomplaint are those relating to MAJ's "practice of copying charms manufactured by others." 99. According to Peacock's pleading, MAJ gained access to its competitors' charms in a number of ways. In the first place, MAJ did casting for companies that lacked the facilities to cast their own charms. Because those companies had to leave their molds with MAJ to have them cast, MAJ had the opportunity to make duplicate molds.
One of the companies that had MAJ do its casting was the old Mr. Craftsman,
whose assets Peacock acquired in 1985. After Steven Wrona, an Old Mr. Craftsman employee, noticed that some of the charms resulting from molds left for casting with MAJ had different mold lines and bore markings indicating that they were copyrighted and/or trademarked by MAJ, Mr. Wrona deduced that MAJ had made unauthorized copies of the charms. 93-95. Mr. Wrona conferred with the Old Mr. Craftsman's President, and the two men demanded the return of the duplicate molds. MAJ complied, and the "several hundred" counterfeit molds were brought back to the Old Mr. Craftsman's premises where they remained unused for several years. 96, 98.
Another means by which MAJ gained access to its competitors' charms was by letting its employees use MAJ's facilities to do extra work for other companies. One MAJ employee who took advantage of that practice was Joseph Triburgo, who "moonlighted" for other companies by polishing their charms. When Mr. Triburgo did such work, Anthony Paolercio "often looked at the charms. . . . brought in for polishing" and "when one of the designs appealed to him he directed that the charm be copied." 100. MAJ, acting "at the discretion of Michael Paolercio and/or Anthony Paolercio," would thereafter
mark the copied charms with MAJ's own trademark and copyright notice. MAJ, therefore, would represent to the consuming ublic that MAJ had originated the design of the charms makred with its copyright notice, even though those charms may have been copied without permission from charms designed (and copyrighted) by others, or in the public domain.
As a final part of its scheme to dominate the market in diamond-cut gold charms and to harm its competitors, MAJ sought to enforce those copyrights by engaging in litigation against Peacock and others. According to the amended countercomplaint, such litigation was in bad faith in that MAJ attempted to enforce copyrights that it knew were invalid. 157, 158.
In addition to the charges of counterfeiting and copyright misuse, Peacock alleges that MAJ offered certain "unlawful inducements" to its customers and employees in an effort to bolster sales and foster employee loyalty. In terms of the inducements to customers, Peacock asserts:
MAJ offered membership in what was termed its "Million Dollar Club" to customers who purchased at least one million dollars worth of MAJ's products during any single year. Membership in the Million Dollar Club carried with it certain perquisites, among them, the provision of cocaine and prostitutes by MAJ.
114. Such perquisites were allegedly offered at dinner or Christmas parties, hosted by either or both of the Paolercios, and by bringing customers to a Connecticut brothel frequented by Michael Paolercio. 115-121.
In terms of the inducements to employees, Peacock alleges that Michael and Anthony Paolercio offered the employees cocaine in lieu of or in addition to their regular salaries. Such perquisites were allegedly offered to induce employees to work late and to foster loyalty to the company. 125-129.
A. Peacock's Motion to Join
Before turning to MAJ's motion to dismiss, we first address Peacocks's motion to join Michael and Anthony Paolercio as counter-defendants. According to the amended countercomplaint, Michael Paolercio is the President and Principal Executive Officer of MAJ. 3. In addition, he owns or controls approximately 1,734,000 shares of MAJ, which represents about 23.7% of its outstanding equity. 4. Anthony Paolercio is the Executive Vice President and Principal Operating Officer of MAJ. 5. He owns or controls approximately 1,714,000 shares of the company, which represents about 23.5% of its outstanding equity. 6. The amended countercomplaint alleges upon information and belief that the two Paolercios make or control all major policy and directional decisons on MAJ's behalf. 7.
Initially, MAJ did not oppose Peacock's motion to join on the assumption that it sought to join the Paolercios solely for the purpose of the RICO counterclaim and solely to the extent that that counterclaim was brought under 18 U.S.C. § 1962(c). At oral argument, however, Peacock's counsel stated that while one of the purposes of the motion was to satisfy § 1962(c)'s requirement that Peacock allege a RICO "person" separate from the RICO enterprise, it sought to add the Paolercios as counter-defendants in all of the amended counterclaims.
MAJ objects to this broader reading of Peacock's motion on the basis that it fails to proffer any particular reason for seeking the Paolercio's joinder. While MAJ is correct that the motion does ntoallege any particular grounds for joining the Paolercios, that obserrvation is counterbalanced by the fact that discovery relating to the countercliams began only recently and, given that Michael and Anthony Paolercio are alleged to have made all policy and directional decisions on MAJ's behalf, would encompass essentially the same issues regardless of whether or not they were added as counter-defendants.
B. MAJ's Motion to Dismiss
In reviewing MAJ's motion to dismiss, this Court is required to accept the allegations in the amended countercomplaint as true and to construe them in the light most favorable to Peacock. See Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974); Dacey v. New York County Lawyers' Ass'n, 423 F.2d 188, 191 (2d Cir. 1969), cert. denied, 398 U.S. 929, 26 L. Ed. 2d 92, 90 S. Ct. 1819 (1970). The contested counterclaims will be dismissed only if Peacock can prove no set of facts that would entitle it to relief. See Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); Goldman v. Belden, 754 F.2d 1059, 1065 (2d Cir 1985).
While the buld of Peacock's allegations need only conform to the liberal pleading requirements of Fed. R. Civ. P. 8(a), the mail fraud allegations underlying its RICO counterclaim and certain fraud-based aspects of the antitrust counterclaim must comply with the more stringent pleading requirements of Fed. R. Civ. P. 9(b) to survive dismissal.
Rule 9(b) provides that "In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall ...