In addition, Warnaco alleges that Defendants willfully caused WARNER's Licensed Products to be marked down and closed out at distress prices in a manner adversely impacting the reputation and value of the WARNER's Trademarks; that they subsidized retailers to sell WARNER's Licensed Products at discounts in excess of 30%; and that these subsidies and discounts, along with the lack of inventory of WARNER's Licensed Products have eroded the value and good will of WARNER's Trademarks.
Warnaco alleges that in February 1993, Defendants told buyers from major department stores and other retail accounts where WARNER's products previously had been sold that WARNER's products were being discontinued and replaced with Defendants' own GEMMA and INTIMA CHERRY brand intimate apparel products, and that Defendants have wilfully failed to make available to customers at least ten of the twenty-five top selling WARNER's styles.
Warnaco further alleges that Defendants have copied the colors and design of several of the best selling WARNER's styles and have been selling these products under their own GEMMA and INTIMA CHERRY labels, and that they placed on their brands of intimate apparel items hang tags and labels of the same color, lettering, size, and typeface as the WARNER's hand tags, and packaged GEMMA and INTIMA CHERRY products in the same boxes as WARNER's intimate apparel, even though GEMMA and INTIMA CHERRY products previously had hang tags and packaging that was of a different color and design.
As a result of the Defendants' actions, Warnaco alleges that Vivesa's sales of WARNER's products have declined from $ 9,232,000 in the first quarter of 1992 to $ 2,893,000 in the first quarter of 1993; that Vivesa's sales of WARNER's Licensed Products for the second quarter of 1993 were only $ 1,462,250, compared with sales in the second quarter of 1992 of approximately $ 8,336,706, and the second quarter of 1991 of approximately $ 9,629,223, reflecting declines of approximately 82% and 85%, respectively, over the two comparable prior periods.
Warnaco filed its complaint in this matter on July 8, 1993, and filed its First Amended Complaint on September 13, 1993. Argument was heard on the present motion to dismiss the First Amended Complaint on September 22, 1993. By letter of January 27, 1994, the attorneys for Warnaco supplied the Court with a copy of a letter, dated December 30, 1990, from Pedro Prat of Vivesa to Warnaco, and a copy of a letter, dated December 30, 1992, from Frank Pickard of Lee Bell to Warnaco. These motions were considered fully submitted as of January 28, 1994.
Standards for Dismissal Under Rule 12(b)(6)
Defendants' motion is brought pursuant to Rule 12(b)(6), the proper ground for which is failure to state a claim upon which relief can be granted. Defendants' memorandum, however, combines and confuses arguments addressed to subject matter jurisdiction, personal jurisdiction, and venue. Such arguments are properly the subject of motions under Rules 12(b)(1), (2), or (3), respectively. Defendants' Memorandum also attacks the substance of the claims alleged in the Complaint, which arguments are properly considered under Rule 12(b)(6). The Court will attempt to unravel these arguments below.
On a Rule 12(b)(6) motion to dismiss, the factual allegations of the complaint are presumed to be true and all factual inferences must be drawn in the plaintiffs' favor and against the defendants. See Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989); Dwyer v. Regan, 777 F.2d 825, 828-29 (2d Cir. 1985); Morin v. Trupin, 835 F. Supp. 126, 129 (S.D.N.Y. 1993); Aquino v. Trupin, 833 F. Supp. 336, 340 (S.D.N.Y. 1993).
A court may not dismiss a complaint unless the movant demonstrates "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, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); accord H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 249, 106 L. Ed. 2d 195, 109 S. Ct. 2893 (1989); Hishon v. King & Spalding, 467 U.S. 69, 73, 81 L. Ed. 2d 59, 104 S. Ct. 2229 (1984); Morin, 835 F. Supp. at 129; Aquino, 833 F. Supp. at 340. In ruling on a motion to dismiss, "the court simply determines [the complaint's] legal viability." Samuels v. Air Transp. Local 504, 992 F.2d 12, 15 (2d Cir. 1993).
The Court Assumes for Purposes of This Motion that VF is Bound by the Terms of the Termination Agreement
A parent corporation may become a party to its subsidiary's contract if the parent's conduct manifests an intent to be bound by the contract. This intent can be inferred from the parent's participation in the negotiation of the contract. Oy Noresin AB v. ICC Indus., Inc., 1991 U.S. Dist. LEXIS 11485, at *4 (S.D.N.Y. Aug. 16, 1991) (denying defendants' motion that it was not proper party to suit and allowing plaintiff to develop facts necessary to prove this theory of liability against parent corporation). A parent corporation that negotiates a contract but has a subsidiary sign it can be held liable as a party to the contract, if the subsidiary is a dummy for the parent corporation. A. W. Fiur Co. v. Ataka & Co., 71 A.D.2d 370, 422 N.Y.S.2d 419, 422 (App. Div. 1st Dep't 1979).
Moreover, a parent company may be liable on a contract signed by its subsidiary if the subsidiary is shown to be a mere shell dominated and controlled by the parent for the parent's own purposes. In In re Sbarro Holding, Inc., 91 A.D.2d 613, 456 N.Y.S.2d 416 (App. Div. 2d Dep't 1982), a holding company sought to stay an arbitration proceeding against it and other related corporations on the ground that the agreement that called for arbitration was between a franchisee and its subsidiary. The court held that all the related corporations could be compelled to participate in the arbitration proceeding, although they were not signatories of the contract. The court explained that:
The corporate veil will be pierced (1) to achieve equity, even absent fraud, where the officers and employees of a parent corporation exercise control over the daily operations of a subsidiary corporation and act as the true prime movers behind the subsidiary's actions, and/or (2) where a parent corporation conducts business through a subsidiary which exists solely to serve the parent.