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Pennacchio v. Powers

February 5, 2007

SALVATORE PENNACCHIO, INDIVIDUALLY AND ON BEHALF OF OLD WORLD BREWING COMPANY, INC., DERIVATIVELY; AND ON BEHALF OF YANKEE BREWING COMPANY, LLC, DERIVATIVELY, PLAINTIFF,
v.
ROBERT S. POWERS, STEPHEN C. DEMARIA, STEVEN A. SEGAL, STEPHEN PERILLO, MULTIMEDIA DISTRIBUTION, LLC, AND CERTAIN AS YET UNNAMED DEFENDANTS A-J, DEFENDANTS.



The opinion of the court was delivered by: Joseph F. Bianco, District Judge

MEMORANDUM AND ORDER

Plaintiff Salvatore Pennacchio ("Pennaccio") brings this action, individually and derivatively on behalf of Old World Brewing Company, Inc. (hereinafter, "Old World Brewing") and Yankee Brewing Company, LLC (hereinafter, "Yankee Brewing") against defendants Robert Powers, Stepehen Demaria, Steven Segal, Stephen Perillo, and Multimedia Distributing, LLC, alleging trademark infringement and other claims under the Trademark Act of 1946, 15 U.S.C. §§ 1051, et seq., as well as pendent state law claims for unfair competition, misappropriation, and breach of fiduciary duty. Defendants Steven Segal, Multimedia Distributing, LLC, Stephen C. DeMaria and Stephen Perillo*fn1 (collectively, "the moving defendants") now move (1) to dismiss the complaint for lack of federal subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1), and (2) to dismiss the fourth cause of action for improperly asserting a derivative claim on behalf of Yankee Brewing, which is a limited liability company, pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth below, defendants' motion to dismiss for lack of subject matter jurisdiction is denied and the motion to dismiss the derivative claim asserted on behalf of Yankee Brewing is granted.

I. BACKGROUND

A. Facts

The following facts are taken from the complaint and are not findings of fact by the Court, but rather are assumed to be true for purposes of deciding this motion to dismiss.

Pennacchio is the creator and developer of the beer lines and trademarks related to New York Harbor Ale. (Complaint, ¶ 11.) Pennacchio is also the founder and principal shareholder of Old World Brewing, for which he filed a trademark registration for New York Harbor Ale. (Id. ¶ 12.) From approximately 1987 until 2002, Pennacchio invested hundreds of thousands of dollars and significant amounts of labor into the development of the trademark for New York Harbor Ale. (Id. ¶ 23.)

In October 2004, Pennacchio allegedly discovered that defendants Powers and DeMaria fraudulently transferred the New York Harbor Ale trademark from Old World Brewing to Powers for $10. (Id. ¶¶ 13-16.) The complaint further alleges that all of the defendants misappropriated the New York Harbor Ale trademark and benefitted through, among other things, (1) the improper sale of beer and the ability to obtain leverage with which to expand to other businesses (Id. ¶¶ 19-20), and (2) producing illegal, improper and inferior beer and beer-related products, including illegally manufacturing beer out of state (Id. ¶ 24).

With respect to Yankee Brewing, the complaint alleges that all of the defendants misappropriated money and physical assets from Yankee Brewing. (Id. ¶ 27.) It is further alleged that the defendants "improperly and illegally took on credit, creditor, loans and debts" that wrongly hold both Pennacchio and Yankee Brewing liable. (Id. ¶ 29.)

Defendant Powers also was allegedly hired by Pennacchio and DeMaria to provide legal, managerial, and financial services for Old World Brewing and Yankee Brewing, and subsequently served as financial manager and attorney for Yankee Brewing. (Id. ¶ 33.) According to the amended complaint, Powers breached his fiduciary duty to Pennacchio and Yankee Brewing by, among other things, (1) acting in conflict of interest to the company, (2) misappropriating company assets and assisting others in doing so, (3) deliberately misinforming and misleading Pennacchio and giving him erroneous legal advice about the law, the status of the company and company documents, and (4) drafting, creating and completing documents that contained false information regarding the company and its ownership. (Id. ¶ 34.)

B. Procedural History

Plaintiff initiated this action by filing a complaint on February 22, 2005. On February 21, 2006, this case was re-assigned to this Court. Thereafter, the moving defendants filed a motion to dismiss the complaint on May 4, 2006. Oral argument was held on February 2, 2007.

II. STANDARD OF REVIEW

A motion to dismiss for want of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1) is reviewed under the same standards as a motion to dismiss for failure to state a claim under Rule 12(b)(6). See Coveal v. Consumer Home Mortg., Inc., No. 04-CV-4755 (ILG), 2005 U.S. Dist. LEXIS 25346, at *6 (E.D.N.Y. Oct. 21, 2005) (citing Lerner v. Fleet Bank, N.A., 318 F.3d 113, 128 (2d Cir. 2003), cert. denied, 540 U.S. 1012 (2003)). In reviewing a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted, the court must accept the factual allegations set forth in the complaint as true, and draw all reasonable inferences in favor of the plaintiff. See Cleveland v. Caplaw Enterprises, 448 F.3d 518, 521 (2d Cir. 2006); Nechis v. Oxford Health Plans, Inc., 421 F.3d 96, 100 (2d Cir. 2005). Dismissal is warranted only if it "appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Weixel, 287 F.3d at 145 (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). The appropriate inquiry is "not whether a plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to support the claims." Twombly v. Bell Atlantic Corp., 425 F.3d 99, 106 (2d Cir. 2005).

"A court presented with a motion to dismiss under both Fed. R. Civ. P. 12(b)(1) and 12(b)(6) must decide the `jurisdictional question first because a disposition of a Rule 12(b)(6) motion is a decision on the merits, and therefore, an exercise of jurisdiction.'" Coveal, 2005 U.S. Dist. LEXIS 25346, at *7 (quoting Magee v. Nassau County Med. Ctr., 27 F. Supp. 2d 154, 158 (E.D.N.Y. 1998)); see also Rhulen Agency, Inc. v. Alabama Ins. Guaranty Ass'n, 896 F.2d 674, 678 (2d Cir. 1990) ...


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