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WARNACO INC. v. VF CORP.

February 7, 1994

WARNACO INC. and WARNACO INTERNATIONAL INC., Plaintiffs,
v.
VF CORPORATION and VIVES VIDAL, S.A., a/k/a VIVESA, Defendants.


SWEET


The opinion of the court was delivered by: ROBERT W. SWEET

Sweet, D.J.

 Defendants VF Corporation ("VF") and Vives Vidal, S.A. have moved, pursuant to Rule 12(b)(6), Fed. R. Civ. P., for an order dismissing plaintiffs Warnaco Inc. and Warnaco International, Inc.'s (collectively, "Warnaco") first amended complaint (the "Complaint") in its entirety as to VF and dismissing Counts II, III, IV, and V of the Complaint as to Vives Vidal, S.A. For the following reasons, the Defendants' motion is granted in part and denied in part.

 The Parties

 Plaintiff Warnaco Inc. is a corporation organized and existing under the laws of the State of Delaware, having its headquarters in the City and State of New York. Plaintiff Warnaco International Inc. is a corporation organized under the laws of the State of Delaware, having an office and place of business in Bridgeport, Connecticut, and is a wholly-owned subsidiary of Warnaco Inc. Warnaco Inc. operates directly, as well as through its subsidiary Warnaco International Inc.

 Defendant Vives Vidal, S.A., also known as Vivesa ("Vivesa"), is a foreign corporation organized, operating, and existing under the laws of Spain, having its principal place of business in Igualada, Spain. Vivesa is licensed to manufacture and sell Warnaco's WARNER's brand intimate apparel in Spain and Portugal, and it also manufactures and sells intimate apparel in Spain and Portugal under its own GEMMA and INTIMA CHERRY brand names.

 Defendant VF is a corporation organized, operating, and existing under the laws of the State of Pennsylvania, having an office and place of business in Wyomissing, Pennsylvania. VF is a competitor of Warnaco in the United States and throughout the world. VF manufactures, among other things, intimate apparel.

 Facts

 On a motion to dismiss, all of the factual allegations in a complaint are accepted as true, Weiss v. Wittcoff, 966 F.2d 109, 112 (2d Cir. 1992); Ades v. Deloitte & Touche, 1993 U.S. Dist. LEXIS 12901, at *7 (S.D.N.Y. Sept. 16, 1993), and all allegations must be considered in the light most favorable to the party against whom the motion is made, Ades, 1993 U.S. Dist. LEXIS 12901, at *7. The facts below, therefore, are taken from Warnaco's Complaint and Memorandum of Law in Opposition to Defendants' Motion to Dismiss, and do not represent factual findings by the Court.

 Since 1874, Warnaco has used its WARNER's trademark, service mark, and trade name (the "WARNER's Trademarks") throughout the world on and in connection with its sale, both directly and through related companies and licensees, of women's intimate apparel. WARNER's brand intimate apparel is advertised worldwide by all means and types of advertising media. Warnaco claims to enjoy a favorable worldwide reputation for its merchandise, marketing, and customer service conditions. Warnaco also claims that the WARNER's Trademarks and the goodwill associated with them are of "inestimable" value to them, and that their business depends upon loyal consumers committed to basic carryover WARNER's styles.

 Since 1961, Warnaco has licensed its WARNER's Trademarks to Vivesa. Most recently, Warnaco and Vivesa executed a License Agreement dated January 1, 1990, and a related Design Agreement of the same date, pursuant to which Vivesa was licensed to use certain of the WARNER's Trademarks for specified licensed products (the "Licensed Products") in the territories of Spain and Portugal. By 1991, the WARNER's business in Spain and Portugal was generating annual revenues in excess of $ 37 million and commanded a brand market share of over 10% in Spain. Warnaco and Vivesa had also entered into a prior license agreement dated June 1, 1988, covering the use of certain of the WARNER's Trademarks for Licensed Products in the territory of Italy (together with the licenses issued for products in Spain and Portugal, the "Licenses").

 In 1991, control of Vivesa was transferred to an investment capital firm named Mercapital, S.A. Warnaco asserts that this transfer violated the terms of the Licenses and entitled Warnaco to cancel the Licenses. Warnaco filed lawsuits in Spain and Italy to enforce its notices of termination and its rights under the Licenses (the "Lawsuits").

 In 1992, Mercapital, S.A. began negotiating the sale of Vivesa to VF. In an effort to settle the Lawsuits and to facilitate VF's acquisition of Vivesa, Warnaco and Vivesa entered into the Termination Agreement which is the principal focus of this action. By letter of December 30, 1992, VIVESA informed Warnaco that "LEE BELL INC. ["Lee Bell"] -- a wholly owned subsidiary of VF CORPORATION -- has acquired, through an acquisition of shares of VIVESA, a majority control of the share capital of VIVESA."

 By separate letter of December 30, 1992, Lee Bell, by letter from Frank Pickard, informed Warnaco that Lee Bell "understood and accepted the terms and conditions of the Termination Agreement and agreed that it would abide by and be bound by the Termination Agreement." Warnaco claims that Frank Pickard is VF's Treasurer, and that by this letter VF, through Lee Bell, expressly agreed to be bound by the terms and conditions of the Termination Agreement.

 The Termination Agreement incorporated the Licenses and expressly required those bound by it to exercise their best efforts "to maximize the promotion, sale, and delivery of Licensed Products through suitable and appropriate channels of trade" through 1993. Among other things, the Termination Agreement prohibited those bound by it from taking "any extraordinary steps to sell off [their] inventory of Licensed Products or to disrupt the orderly transition of the continued sale of such Products bearing the Trademarks by Warnaco and [their] designated representatives." It was anticipated that on January 1, 1994, Warnaco would take exclusive control of the WARNER's business.

 The Termination Agreement expressly provided that in the event of a dispute between or among the parties, it would "be governed by and construed in accordance with the laws of the State of New York." It further provided that "any dispute or issue arising hereunder, including any alleged breach by VIVESA," would be litigated in the federal courts in New York City "which the parties hereby agree shall have proper jurisdiction over the issues and the parties." Further, the Termination Agreement states that "VIVESA hereby agrees to submit itself to the jurisdiction of the federal courts in New York and waives the right to make any objection based on jurisdiction or venue."

 Warnaco claims that the Defendants conspired and acted to destroy the WARNER's business in Spain and Portugal by willfully breaching the Termination Agreement for the purpose of weakening Warnaco's business in Spain and Portugal to reduce the competition with the Defendants' GEMMA and INTIMA CHERRY brands of intimate apparel.

 Warnaco alleges that the Defendants failed to use their best efforts to promote, manufacture, and sell WARNER's products in Spain and Portugal and by taking affirmative steps to disparage and weaken the WARNER's Trademarks. Specifically, Warnaco alleges that the Defendants failed to continue Vivesa's historical practice of introducing new WARNER's styles into the marketplace, thereby creating a false impression that the WARNER's brand was leaving the marketplace; that they failed to print a 1993 catalogue promoting WARNER's brand products and instead merely reprinted the 1992 catalogue; that they intentionally ceased to manufacture and maintain an inventory of basic carryover styles; that they took extraordinary steps to sell off WARNER's inventory and wilfully disrupted the marketplace and the orderly transition of the business of selling WARNER's Licensed Products. Warnaco claims that the Defendants' actions have created confusion among customers and consumers in the marketplace in Spain and Portugal as to the source of intimate apparel and as to the current and future availability of WARNER's brand products.

 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.

 Prior Proceedings

 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.

 Discussion

 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 ...

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