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City of New York v. New York Pizzeria Delicatessen

September 29, 2006

THE CITY OF NEW YORK, PLAINTIFF,
v.
NEW YORK PIZZERIA DELICATESSEN, INC., DEFENDANT.
NEW YORK PIZZA DEVELOPMENT, LLC AND NEW YORK PIZZERIA DELICATESSEN, INC., COUNTERCLAIMANTS,
v.
THE CITY OF NEW YORK, COUNTERCLAIM-DEFENDANT.



The opinion of the court was delivered by: Kenneth M. Karas, District Judge

OPINION AND ORDER

Before the Court is Plaintiff's Motion to Dismiss the Amended Counterclaims pursuant to Fed. R. Civ. P. 12(b)(6), and to strike the defenses alleged in paragraphs 81, 89, and 93-94*fn1 of the First Amended Answer, pursuant to Fed. R. Civ. P. 12(f), on grounds of legal insufficiency.*fn2

Also before the Court is Counterclaimants' request to consider the withdrawal of its tortious interference counterclaim as a withdrawal without prejudice to re-plead after further discovery. (Defs.' and Counterclaimants' Mem. of Law in Opp. to Pl.'s Mot. to Dismiss the Countercl. and Certain Defenses 14-17 ("Defs.' Mem.")) For the reasons stated herein, Plaintiff's Motion to Dismiss is denied, Plaintiff's Motion to Strike defenses is granted in part and denied in part, and Defendants' request to treat the withdrawal of their tortious interference counterclaim as a dismissal without prejudice to re-plead is denied without prejudice.

I. Background

A. Procedural Background

Plaintiff, The City of New York (the "City"), initiated this action by filing a Complaint on March 10, 2005. (Doc. No. 1) Defendant and Counterclaimant, New York Pizzeria Delicatessen, Inc. ("New York Pizzeria") and Counterclaimant New York Pizza Development, LLC (collectively "Defendants" or "Counterlcaimants"),*fn3 answered the Complaint and asserted counterclaims against the City on April 12, 2005. (Doc. No. 4) After Plaintiff timely filed its Motion to Dismiss Counterclaims and to Strike Certain Defenses, (Doc. No. 8) Defendants submitted their First Amended Answer with Counterclaims on June 14, 2005. (Doc. No. 9) Defendants' First Amended Answer with Counterclaims no longer contained Defendants' original second and third counterclaims asserting tortious interference and seeking declaratory judgment based on a claim of Unauthorized Tax due to a Violation of the New York City Charter. (Answer ¶¶ 14-33) Instead, the First Amended Answer asserted a new counterclaim, alleging breach of contract. (First Am. Answer ¶¶ 14-21)

B. Factual Background

The City alleges that it is the rightful owner of a number of registered trademarks associated with the New York City Police Department, including the letters "NYPD" and the distinctive New York City Police Department shield design. (Pl.'s Mem. 1) Defendants, which operate police-themed pizzerias, challenge the validity of these trademarks and maintain that they own valid "prior and senior" trademarks that incorporate the letters "NYPD" and a distinctive shield mark. (First Am. Counterclaim ¶ 7) Defendants further challenge the City's marks by alleging that the City's marks "lack source-indicating significance and are merely ornamental[,]" and that the City "has acquiesced in the proliferation of trademarks identical or confusingly similar to" the implicated marks. (Id. ¶¶ 9, 11)

The current action stems from a prior proceeding between the Parties. On August 7, 2002, after learning of Defendants' shield mark, the City filed a petition with the United States Patent and Trademark Office ("USPTO") seeking cancellation of Defendants' shield mark. (Compl. ¶ 36) That cancellation request led to the City and Defendant New York Pizzeria entering into a written settlement agreement on May 6, 2003 ("Settlement Agreement"). (Id. ¶ 37) Paragraph 3 of the Settlement Agreement provides: In order to avoid confusion between their respective marks, NY Pizzeria will not use its mark in such a manner as to suggest that it is in any way sponsored by or connected to the City or the NYPD. NY Pizzeria shall use its mark only as depicted in Exhibit B hereto, and shall not sell or offer for sale consumer goods such as tshirt[s], sweatshirts and/or hats to which its marks are affixed in any manner other than face-to-face sales to customers in its restaurant locations. To the extent that the mark incorporates "NYPD[,]" such letters shall be used only in connection with and in close proximity to the NY Pizzeria design logos in full as depicted in Exhibit B. NY Pizzeria shall not seek registration of any mark that contains a shield insignia or NYPD, other than as depicted in Exhibit B without the prior written consent of the City. Any applications or registrations for the mark depicted in Exhibit B shall be for restaurant services only.

(Id. Ex. A ¶ 3) Paragraph 5 of the Settlement Agreement, the "no-contest" provision, states:

NY Pizzeria shall not oppose the City and NYPD's use or registration of its marks for goods other than restaurant services and shall not contest or object to such use or registration. NY Pizzeria shall provide any documentation necessary to enable the City and NYPD to obtain registration of its insignia in any class with the exception of the class which includes restaurant services, including but not limited to, consents to such registration, if necessary.

(Id. ¶ 5) Plaintiff alleges, and Defendants acknowledge, that pursuant to the Settlement Agreement, Defendant New York Pizzeria and the City entered into a stipulation ("Stipulation"), under which New York Pizzeria agreed to delete its shield mark clothing registration from its trademark application, and the City agreed to withdraw its cancellation petition of New York Pizzeria's marks, "without prejudice." (Id. ¶ 39; First Am. Answer ¶ 39)

The Complaint alleges that Defendant New York Pizzeria is presently using New York Pizzeria's trademarks in a manner that violates the terms of the Settlement Agreement. (Compl. ¶¶ 40-48) Plaintiff seeks injunctive relief, monetary damages, attorneys' fees, and an order directing the cancellation of federal trademark registrations issued to Defendant New York Pizzeria Delicatessen, Inc. (Id. ¶ 1) In response, Defendants assert two Counterclaims. Defendants' First Counterclaim seeks an order canceling the City's trademark registrations for the NYPD acronym and the NYPD Shield Design. (First Am. Counterclaim ¶ 13) Defendants' Second Counterclaim alleges that by "bringing and maintaining its Complaint," the City "has materially breached the implied covenant contained in the [Settlement] Agreement, and thereby breached the [Settlement] Agreement." (Id. ¶ 17) The City has moved to dismiss Defendants' two Counterclaims. The City also has moved to strike Defendants' affirmative defenses that: (1) the City has been aware of third party use of its alleged marks and has failed to take action to police such marks; (First Am. Answer ¶ 81) (2) the City's alleged "NYPD marks lack source-indicating ...


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