United States District Court, S.D. New York
March 31, 2004.
SYKEL ENTERPRISES, INC., Plaintiff, -against- PATRA, LTD., PAT DIPIETRANTONIO, individually, THE MAY DEPARTMENT STORES COMPANY, ABC RETAILER CORPORATIONS numbered 1-50, said names being fictitious and unknown, and XYZ PRINTER CORPORATIONS, numbered 1-50, said names being fictitious and unknown, Defendants
The opinion of the court was delivered by: THOMAS GRIESA, Senior District Judge
This is an action for copyright infringement and fraud brought by a
fabric distributer against garment manufacturers and retailers pursuant
to the Copyright Act, 17 U.S.C. § 101 et seq., and state
law. Plaintiff Sykel Enterprises, Inc. ("Sykel") is a New York
corporation that imports and distributes fabric patterns and printed
fabric. Defendant Patra, Ltd. ("Patra") is a New York corporation doing
business as a manufacturer of women's garments. Defendant Pat
DiPietrantonio ("DiPietrantonio") is the owner of Patra. Defendant The
May Department Stores Company ("May") is the owner and operator of
various department stores throughout the country, including Lord &
Taylor. Also named as defendants in the action, but not relevant to the
are unknown retailer defendants, ABC Retailer Corporations, and
unknown printer defendants, XYZ Printer Corporations.
Patra, May, and DiPietrantonio move to compel arbitration of Sykel's
copyright and fraud claims against Patra, to dismiss Sykel's copyright
claims against Patra and May insofar as they seek attorneys' fees and
costs, and to dismiss Sykel's fraud claim against DiPietrantonio. The
motion to compel arbitration is denied, the motion to dismiss the
attorney's fees and costs portions of the copyright claims is granted in
part, and the motion to dismiss the DiPietrantonio fraud claim is
The complaint alleges that Sykel is a bulk fabric distributer whose
business includes the importation of fabric patterns, the printing of
those patterns on fabric, and the sale of the printed fabrics to garment
manufacturers. The complaint states that upon purchasing a fabric pattern
from a designer, Sykel also acquires all rights associated with the
pattern, including but not limited to its copyright. Sykel's sales force
solicits and is solicited by manufacturers throughout the country to meet
and present samples of fabrics bearing patterns owned by Sykel.
The complaint alleges that on or about November 27, 2001 Sykel
purchased a pattern titled ROMA 3465 JOSS 1025 ("Pattern 3926") from a
French designer. The complaint alleges that in
addition to the pattern itself, Sykel purchased all of the
designer's rights in the pattern.
The complaint alleges that in or around April 2002 Patra contacted John
Feeney, a Sykel salesman, and expressed interest in viewing patterns and
fabrics appropriate for evening dresses known in the industry as
"after-five" dresses. Subsequently, Feeney met with Patra's in-house
designer and presented several appropriate patterns and fabrics,
including Pattern 3926.
The complaint alleges that soon after this meeting, a representative of
Patra contacted Feeney to inform him that Patra was interested in Pattern
3926, and to request sample yardage of Pattern 3926 printed on espresso
(brown) stretch velvet. On or about April 30, 2002, Sykel shipped four
yards of Pattern 3926 printed on espresso stretch velvet, and two yards
of solid espresso stretch velvet to Patra. This transaction was
memorialized in a sales agreement dated April 26, 2002. At the bottom of
the agreement was a paragraph stating, "This contract is subject to all
terms and conditions on this and the reverse side thereof, including the
provisions of paragraph 8 providing for arbitration of all disputes."
The complaint attaches the face of this document, but does not attach
the reverse side, which is said to contain the terms of the contract.
This was appropriate as far as the plaintiff was concerned, because
plaintiff is not suing under the sales
contracts per se. However, defendants in their motion
papers did not supplement the record by including this reverse side with
the terms of the contract. As will be described later, the issue of
whether Patra is or is not entitled to arbitration depends upon whether
claims in this case do or do not have a relationship to the terms of the
contract. Although Patra seeks arbitration, it has not furnished the
A Sykel sales invoice dated April 30, 2002 was also issued. At the
bottom of the invoice were several "fine print" terms, including an
arbitration clause: "All controversies arising out of, or relating to
this contract or any modification thereof or the breach thereof shall be
settled by arbitration, in New York, before and in accordance with the
Rules of the American Arbitration Association." The parties treat this as
the relevant arbitration clause in the motion papers.
The complaint alleges that Patra contacted Sykel on three additional
occasions in or around the beginning of May 2002, in or around
the middle of May 2002, and in or around June 2002 to reiterate
interest in Pattern 3926 and request that additional sample yardage of
the pattern printed on espresso stretch velvet be shipped. Sykel complied
on each occasion, shipping eleven additional yards of Pattern 3926. Each
of these transactions is memorialized in sales contracts identical to
that described above one dated April 30, 2002, another May 22,
2002, and the final
contract bearing no date. Each transaction also was memorialized in
an invoice identical to the invoice described above, dated May 7, 2002,
May 22, 2002, and July 16, 2002.*fn1
Thus, between April 30, 2002 and July 16, 2002 Patra received from
Sykel a total of fifteen yards of Pattern 3926 printed on espresso
The complaint alleges that soon after Patra received the final shipment
of Pattern 3926, DiPietrantonio contacted Feeney and inquired whether it
was possible to obtain more solid espresso stretch velvet to match the
fabric on which Pattern 3926 had been printed for prior shipments. Feeney
replied that the solid color was available. Later during the same
conversation DiPietrantonio requested a price quote for Pattern 3926
printed on espresso stretch velvet, as had been previously shipped. The
complaint states that Feeney furnished DiPietrantonio with the requested
price quote, and that DiPietrantonio indicated that he would let Feeney
know whether he was interested in placing an order. The complaint does
not specify whether the furnishing of the price quote and
DiPietrantonio's final remarks occurred during or subsequent to the
above-described telephone conversation.
It is relevant to note that the statements described above,
and contained in paragraphs 27 through 29 of the complaint, are
presented differently in paragraphs 80 and 81 of the complaint. While
paragraphs 27 through 29 of the complaint, describing the conversation
between DiPietrantonio and Feeney, contain no allegations other than
those set forth above, paragraph 80 of the complaint states that
DiPietrantonio represented to Sykel that he "was interested in placing an
order with the Plaintiff for espresso stretch velvet bearing Pattern
3926." Paragraph 81 states that "DiPietrantonio affirmatively represented
to Plaintiff that [he] was interested in placing an order with Plaintiff
for espresso stretch velvet bearing Pattern 3926." These statements are
clearly different from the complaint's earlier allegations, and it is
unclear whether paragraphs 80 and 81 add additional description of the
telephone conversation between Feeney and DiPietrantonio, refer to a
different conversation, or simply extrapolate from the comments alleged
to have been made in the conversation described above.
The complaint alleges that in the weeks following the conversation with
DiPietrantonio, Feeney was in contact with an unnamed Patra designer
regarding potential orders of patterns other than Pattern 3926. Feeney
inquired of this designer whether Patra intended to place an order for
Pattern 3926. The designer indicated to Feeney that Patra decided not to
include Pattern 3926 in its after-five line.
The complaint alleges that Sykel regularly conducted inspections of
national retail department stores to ascertain whether garments with
patterns or designs owned by Sykel were being sold without Sykel's
authorization. In or around November 2002 a representative of Sykel
making such an inspection of a Lord & Taylor store in Manhattan
noticed a dress for sale made from fabric printed with Pattern 3926.
Sykel subsequently contacted DiPietrantonio, who explained that, although
DiPietrantonio had wanted to order Pattern 3926 for the after-five line,
Patra had rejected the price quote given by Feeney. DiPietrantonio stated
that Patra had ordered Pattern 3926 printed on espresso stretch velvet
from another company.
On January 9, 2003 Sykel registered its copyright in Pattern 3926 with
the United States Copyright Office.
On May 13, 2003 Sykel filed a complaint alleging that the conduct of
Patra, May, and unknown retailers and printers violated Sykel's exclusive
rights as owner of the copyright in Pattern 3926. The complaint seeks an
award of costs, attorney's fees, and disbursements on the copyright
The complaint also alleges that Patra and DiPietrantonio committed
fraud by inducing Sykel to send samples of Pattern 3926 for the sole
purpose of enabling Patra to copy the pattern and thereby infringe
Sykel's copyright. With respect to DiPietrantonio, the complaint alleges
that DiPietrantonio made
numerous misrepresentations to Sykel, including but not limited to
stating that DiPietrantonio was interested in placing an order with Sykel
for espresso stretch velvet bearing Pattern 3926. The complaint alleges
that DiPietrantonio made these misrepresentations with the intention of
procuring samples of Pattern 3926 that Patra would then illegally copy.
The complaint also states that Sykel relied on the misrepresentations
made by DiPietrantonio in providing Patra with the samples of Pattern
I. Motion to Compel Arbitration
Defendants argue that the arbitration clauses contained in the
above-described sales agreements require that Sykel's copyright and fraud
claims against Patra be arbitrated. Sykel, on the other hand, argues that
arbitration of these claims was not contemplated by the sales agreements
between Sykel and Patra because the contracts themselves, and performance
thereof, are not at issue in the claims.
A threshold issue to be addressed is whether federal or state law
governs the arbitration clause in question. The Federal Arbitration Act,
9 U.S.C. § 1 et seq. applies only to arbitration clauses
contained in "contracts evidencing a transaction involving commerce,"
meaning "commerce among the several States or with foreign nations."
9 U.S.C. § 1 and 2.
By contrast, if the arbitration clause is contained in a contract that
does not involve interstate commerce, Article 75 of the New York C.P.L.R.
governs the court's interpretation of the clause. See Bernhardt v.
Polygraphic Co. of America, 350 U.S. 198 (1956); 200 East 87th
Street Associates v. MTS, Inc., 793 F. Supp. 1237 (S.D.N.Y. 1992).
Although both parties raise this issue, they take no position on it,
citing both federal and New York law in the pleadings on the motion, and
arguing that both federal and New York law equally support both of their
The Court assumes, without deciding, that the FAA, and therefore
federal law, governs interpretation of the arbitration clause. The
complaint contains evidence that Pattern 3926 moved in interstate
commerce prior namely, from a French designer to Sykel
prior to its sale from Sykel to Patra. This fact would appear sufficient
to bring the arbitration clause within the reach of the FAA, under the
Supreme Court's expansive interpretation of the phrase "involving
commerce." See Allied-Bruce Terminix Companies, Inc. v. Dobson,
513 U.S. 265 (1995). In Allied-Bruce, the Court concluded that
a contract should be deemed to be "involving commerce" if the transaction
to which it pertains in fact involved interstate commerce;
whether the parties contemplated engaging in interstate commerce
in executing the contract was irrelevant. Id. at 279-81.
Moreover, the Supreme Court concluded that the fact that the materials
one party to the contract to carry out its obligations moved in
interstate commerce prior to performance of the contract was relevant to
determining that the contract involved commerce. Id. at 281.
Here, as noted above, Pattern 3926 was purchased by Sykel from a French
vendor before its resale to Patra.
In any case, it appears that the Court's analysis of the scope of the
arbitration clause in the instant case would be identical, whether
conducted under the FAA of under New York. Both the FAA and the C.P.L.R.
have been interpreted as evincing a strong policy favoring arbitration,
and New York courts have expressed an intention to, as much as possible,
bring New York arbitration law in line with federal arbitration law.
See Weinrott v. Carp, 32 N.Y.2d 190, 199-200 & n.2 (1973).
In determining whether a claim is within the scope of an arbitration
clause under the FAA, the court's first inquiry must be whether the
clause is broad or narrow. See Prudential Lines. Inc. v. Exxon
Corp., 704 F.2d 59, 63 (2d Cir. 1983). If the clause is broad, then
there is a presumption that the claims are arbitrable. Id. at
64. Here, the clause in question calls for arbitration of " [a]11
controversies arising out of, or relating to this contract or any
modification thereof or the breach thereof." This language of "arising
out of or relating to" has been classified by the Second Circuit as "the
paradigm of a broad clause." Mehler v. Terminix International Co.
L.P., 205 F.3d 44,
49 (2d Cir. 2000); Collins & Aikman Products Co. v.
Building Systems, Inc., 58 F.3d 16, 20 (2d Cir. 1995);
Weinrott, 32 N.Y.2d at 196. Thus, the Court must presume that
Sykel's claims are arbitrable.
That presumption can be rebutted, however, if "the dispute is in
respect of a matter that, on its face, is clearly collateral to the
contract." Id. at 23. If it appears that the factual
allegations in the complaint do not "touch matters" covered by the
agreement in which the arbitration clause is contained, see Genesco,
Inc. v. T. Kakiuchi & Co., Ltd., 815 F.2d 840, 846 (2d Cir.
1987), then the court should engage in the following analysis, elaborated
by the Second Circuit:
[A] court should test the presumption by reviewing
the allegations underlying the dispute and by
asking whether the claim alleged implicates issues
of contract construction or the parties' rights
and obligations under it. If the answer is yes,
then the collateral dispute falls within the scope
of the arbitration agreement; claims that present
no question involving construction of the
contract, and no questions in respect of the
parties' rights and obligations under it, are
beyond the scope of the arbitration agreement.
Collins & Aikman, 58 F.3d at 23; see also
Associate Brick Mason Contractors of Greater N.Y., Inc. v.
Harrington, 820 F.2d 31
, 35 (2d Cir. 1987) ("We will order
arbitration if the arbitration clause is broad and if the party seeking
arbitration has made a claim that on its face is governed by the
A. The Copyright Claim
To prevail on its claim of infringement, Sykel must prove
two elements: That it owned a valid copyright, and that Patra's
conduct amounted to infringement of that copyright. Yurman Design.
Inc. v. PAJ, Inc., 262 F.2d 101, 108-09 (2d Cir. 2001). As noted
above, Patra has not submitted the terms of the sales contracts.
Therefore, it is impossible to examine the contracts themselves. However,
it would appear that Sykel's copyright claim does not "touch matters"
contained within the sales contracts between Sykel and Patra,
i.e., the purchase and delivery of fabric. Thus, the Court
must inquire into whether the facts underlying Sykel's claim implicate
issues of contract construction or the parties' contractual obligations.
Sykel's copyright claim alleges that Sykel owned copyrighted material,
namely Pattern 3926, that Patra purchased fabric printed with this
pattern, and that Patra proceeded to copy the fabric in infringement of
Sykel's copyright. These allegations do not bear upon the terms of or
obligations under the sales contracts. The contracts between Sykel and
Patra are not alleged to affect or in any way speak to Sykel's ownership
of the copyright in Pattern 3926. Nor is either party's performance of
the sales contracts, which were fully executed, at issue in Sykel's
claims. Sykel alleges merely that Patra's purchase of Sykel's copyrighted
pattern was the means by which Patra infringed the copyright. Thus, this
case is distinguishable from those cited by defendants, in which claims
under the Copyright
Act were submitted to arbitration, where the terms of the contract
itself affected whether an unauthorized infringement had taken place.
See Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108 (2d
Cir. 1993).; Kamakazi Music Corp. v. Robbins Music Corp.,
684 F.2d 228 (2d Cir. 1982); JVN Music, Inc. v. Rodriguez, No. 99
Civ. 11889, 2000 WL 827702 (S.D.N.Y. June 27, 2000).
Therefore, Sykel's claims of copyright infringement against Patra are
not governed by the arbitration clauses in the sales contracts.
Defendants' motion to compel arbitration of the fraud claim against Patra
B. The Fraud Claim
To prevail on its claim that Patra obtained samples of Pattern 3926 in
order to defraud Sykel, Sykel must prove five elements: a material
misrepresentation or omission of fact by Patra, knowledge of the falsity
of the misrepresentation, intent to defraud, reasonable reliance by
Sykel, and damage to Sykel. See Schlaifer Nance & Co., Inc. v.
Estate of Warhol, 194 F.3d 323, 336 (2d Cir. 1999). Again, although
the terms of the sales contracts are not available for examination by the
Court, these issues do not appear touch matters contained within the
sales contracts between Sykel and Patra. Sykel does not contend that the
contracts themselves were fraudulently entered or executed.
The question, then, is whether the facts underlying Sykel's claim
implicate issues of contract construction or the parties'
contractual allegations. The complaint alleges that Patra defrauded
Sykel by misrepresenting to Sykel that Patra was interested in placing an
order for espresso stretch velvet bearing Pattern 3926, when in fact
Patra was merely obtaining samples of the material for purposes of
copying it. As with Sykel's copyright claim, the only relevance of the
sales contracts to these allegations is the bare undisputed fact that the
contracts were entered into and fully executed. Sykel's allegation that
Patra's purchase of Pattern 3926 was the modus operandi of
Patra's fraud involves no questions of either contract interpretation or
the parties' rights under the contracts.
Defendants argue that Sykel's fraud claim essentially alleges fraud in
the inducement, and therefore is governed by a consistent body of cases
finding fraud in the inducement claims to be governed by broad
arbitration clauses. See, e.g., Prima Paint Corp. v. Flood
& Conklin Manufacturing Co., 338 U.S. 395 (1967);
Genesco, 815 F.2d at 854-55. However, Sykel's claim is
distinguishable. The crux of a fraud in the inducement claim is that
material misrepresentations made in the course of contractual dealings
procured the participation of a party to the contract under false
pretenses, thus rendering the contract voidable. In such a claim, both
the terms of the contract and the course of performance of the contract
itself are at issue.
Here, by contrast, the terms and performance of the sales contracts are
irrelevant to the misrepresentations alleged by Sykel and the reliance
they allegedly induced. Sykel's claim "is in respect of a matter
that . . . is clearly collateral to the contract." Collins &
Aikman, 58 F.3d at 23.
Because Sykel's claim does not present questions "involving
construction of the contract, and no questions in respect of the parties'
rights and obligations under it," it is beyond the scope of the
arbitration clause. See Id. Therefore, defendants' motion to
compel arbitration of the fraud claim-against Patra is denied.
II. Attorney's Fees and Costs
Defendants argue that Sykel's claims for copyright infringement against
Patra and May should be dismissed to the extent that they request
attorney's fees and costs.
Sykel requests in counts 1 and 2 that the Court award "costs,
reasonable attorney's fees, and disbursements . . . pursuant to
17 U.S.C. § 505." Section 505 of the Copyright Act provides that "[i]n any
civil action under this title, the court in its discretion may allow the
recovery of full costs by or against any party other than the United
States or an officer thereof." 17 U.S.C. § 505. However, the Act also
provides that a prevailing plaintiff is not entitled to attorneys' fees
in an action for infringement of copyright "after first publication of
the work and before the effective date of its registration, unless
such registration is made within three months after the first publication
of the work." 17 U.S.C. § 412.
Defendants rightly contend that Section 412 precludes Sykel from
recovering attorney's fees because the alleged infringement by Patra and
May occurred before January 9, 2003, the effective date of Sykel's
copyright registration. However, there appears to be no statutory bar to
Sykel's recovery of costs under § 505. Therefore, the motion to
dismiss counts one and two with respect to the request for attorney's
fees and costs is granted with respect to attorney's fees, and denied
with respect to costs.
III. The DiPietrantonio Fraud Claim
DiPietrantonio moves to dismiss Sykel's fraud claim on the ground that
Sykel has failed to plead reliance on DiPietrantonio's alleged
misrepresentations, and on the alternative ground that Sykel has failed
to plead its fraud claim with the particularity required by Fed.R. Civ.
P. 9(b). This is the only claim brought against DiPietrantonio in his
individual capacity. At this time, there are insufficient allegations in
the complaint to support a claim of fraud against DiPietrantonio. This
count is therefore dismissed, with leave to replead.
Defendants' motion to compel arbitration of the copyright and fraud
claims against Patra is denied. Defendants' motion to
dismiss the copyright infringement claims with respect to the
copyright infringement claims against Patra and May is granted with
respect to attorneys fees, and is denied with respect to costs.
Defendants' motion to dismiss the fraud claim against DiPietrantonio is