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Gaetano Associates Ltd v. Artee Collections

February 14, 2006


The opinion of the court was delivered by: Denise Cote, District Judge


This Opinion considers a motion to dismiss by Artee Collections, Inc. ("ACI"), Arti Bhandari ("Bhandari"), Amit Dugar ("Dugar"), Taffard Fabrics, Inc. ("Taffard"), and Woodrow Silk, Inc. ("Woodrow"). The complaint was filed by the plaintiff, Gaetano Associates, Ltd. ("Gaetano"), on March 29, 2005, and pleads eight claims under federal and state law. For the reasons stated below, defendants' motion to dismiss is granted in part and denied in part.


The pertinent facts, as alleged in the complaint, are as follows. Gaetano, a New Jersey corporation, designs, imports, and sells silk fabrics and wall coverings for the home furnishing market. Its products are manufactured by Lanova, a manufacturing company in Bangalore, India. Gaetano sells its products to private label businesses, who in turn market the fabrics under their own brand names. One of the keys to Gaetano's business model is that it has exclusivity agreements with its customers, whereby individual customers have exclusive rights to market specific fabric designs. Gaetano may not sell the specific designs to any other customer.

ACI is a Massachusetts corporation that is owned by Bhandari. Bhandari lives in Massachusetts. He is a citizen of India with a legal right to reside and work in America. Taffard and Woodrow are New York corporations that are owned by Dugar, who resides in New York. In September of 1997, Gaetano alleges that it entered into a contract with ACI such that ACI would act as its import and customs clearing representative. In essence, ACI's role was to arrange for the importation of the manufactured fabric from India and deliver it to Gaetano.

Gaetano alleges that ACI agreed to several restrictions. These included that ACI would not 1) solicit Gaetano's current or future customers in any manner on behalf of its own account, 2) make or trade in any Gaetano designed fabric on its own behalf, 3) make use of any intellectual property or nonpublic information held by Gaetano -- such as the prices that Gaetano's customers paid for different fabrics -- for its own benefit, or 4) compete with Gaetano for silk fabric sales, whether the silk fabric was designed by Gaetano or not, to Gaetano's customers or any other potential customer in the home furnishings industry.

The business relationship between Gaetano and ACI apparently functioned effectively from late 1997 until Gaetano brought this action against ACI in March of 2005. Gaetano accuses ACI and its owner Bhandari of violating the terms of their contract by, among other things, unlawfully taking Gaetano's fabric designs and using them for their own benefit, secretly dealing with Gaetano's customers, using Gaetano's confidential business information to compete with Gaetano in the home furnishings fabric industry, and using Taffard and Woodrow as distributors for Gaetano's products.

The complaint asserts causes of action for breach of contract against ACI; breach of fiduciary duty against ACI and Bhandari; conversion against ACI and Bhandari; tortious interference with contract against Bhandari, Taffard, Woodrow and Dugar; common law unfair competition against all defendants; violation of the Lanham Act, 15 U.S.C. § 1125(a)(2000), against all defendants; violation of New York General Business Law ("NY GBL") § 349 against all defendants; and common law fraud against all defendants. Gaetano demands compensatory and punitive damages and a permanent injunction preventing ACI and the other defendants from passing off and selling Gaetano products as their own; selling any silk textile products to Gaetano's former, present, or prospective customers; using any of Gaetano's confidential business information for their own advantage in the silk textile business; or representing to the trade that they are authorized to deal in Gaetano's products. On the Lanham Act claim, Gaetano also demands that the defendants recall all of their advertising materials that allegedly contain Gaetano designs and impound and destroy those materials.

The defendants maintain that the alleged contract between Gaetano and ACI was an oral agreement that lacks consideration and is therefore unenforceable; that the alleged contract is void under New York General Obligations Law § 5-701(a)(1), New York's Statute of Frauds; and that the breach of fiduciary duty, tortious interference, conversion, commmon law, state, and federal statutory unfair competition, and fraud claims are duplicative of the breach of contract claim. Additionally, the defendants assert that the commmon law, state, and federal statutory unfair competition and fraud claims are insufficiently pleaded, and that the defendants Bhandari and Dugar are not individually liable for any purported contract breaches or tortious actions performed by the corporate defendants ACI, Woodward, and Taffard.


When deciding a motion pursuant to Rule 12(b)(6), Fed. R. Civ. P., "a court must accept all factual allegations as true and draw all inferences in the plaintiff's favor." Levy v. Southbrook Int'l Invs., Ltd., 263 F.3d 10, 14 (2d. Cir. 2001). A court should not dismiss the complaint "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Cohen v. Koenig, 25 F.3d 1168, 1172 (2d. Cir. 1994) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).

1. Federal Trademark Infringement

Gaetano's claim under the Lanham Act, 15 U.S.C. § 1125(a), is a species of a false designation claim, known as a "reverse passing off." Reverse passing off occurs when a party "passes off" another party's goods or services as its own, and typically involves a manufactured product. Waldman Pub. Corp. v. Landoll Inc., 43 F. 3d 775, 780 (2d. Cir. 1994). In order to succeed on a Lanham Act reverse passing off claim, a plaintiff has to prove "1) that the work at issue originated with the plaintiff; 2) that origin of the work was falsely designated by the defendant; 3) that the false designation of origin was likely to cause consumer confusion; and 4) that the plaintiff was harmed by the defendant's false designation of origin." Lipton v. The Nature Co., 71 F.3d 464, 473 (2d Cir. 1995) (citing Waldman, 43 F.3d at 781-85).

Gaetano alleges that ACI and the other defendants represented to their customers that they, the defendants, created the designs for Gaetano's products, owned the manufacturing facilities where the designs were produced, and were authorized to sell Gaetano's products at a discount. These allegations are sufficient to assert that the defendants have falsely designated the origin of the products in question, which would likely ...

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