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Star Mark Management, Inc. v. Soy

September 8, 2009

STAR MARK MANAGEMENT, INC., GREAT MARK CORPORATION, JIMMY ZHAN A/K/A YI Q. ZHAN, PLAINTIFFS,
v.
KOON CHUN HING KEE SOY & SAUCE FACTORY, LTD. DEFENDANT.



The opinion of the court was delivered by: Kiyo A. Matsumoto, United States District Judge:

MEMORANDUM & ORDER

Plaintiffs Star Mark Management, Inc., Great Mark Corporation, Jimmy Zhan a/k/a Yi Q. Zhan (collectively, "plaintiffs" or "Star Mark") filed the instant action against defendant Koon Chun Hing Kee Soy & Sauce Factory, Ltd. ("defendant" or "Koon Chun") under the Trademark Act of 1946 (the "Lanham Act"), 15 U.S.C. §§ 1051 et seq. Plaintiffs seek a declaratory judgment, cancellation of a trademark held by defendant, and additional relief. At this time, there are two motions before the court: (i) Koon Chun's motion to dismiss, pursuant to Rule 12(c) of the Federal Rules of Civil Procedure ("Rule 12(c)"), and for sanctions, pursuant to 28 U.S.C. § 1927 (see Defendant's Motion to Dismiss ("Def. Mot. to Dism."), Doc. Entry No. 21), and (ii) Koon Chun's motion for sanctions, pursuant to Rule 11 of the Federal Rules of Civil Procedure ("Rule 11") (see Defendant's Motion for Sanctions ("Def. Mot. for Sanc."), Doc. Entry No. 10). Plaintiffs consolidated their opposition to both motions into one memorandum. (See Plaintiffs' Opposition to Dismissal and Sanctions ("Pl. Opp."), Doc. Entry No. 27.) For reasons set forth below, both of defendant's motions are granted. The complaint is dismissed in its entirety and plaintiffs are sanctioned in the form of costs and reasonable attorneys' fees.

BACKGROUND

Star Mark is a New York-based food products distributor with a distribution center located in Brooklyn, New York. (Complaint, Doc. Entry No. 1 ¶¶ 5-6.) Koon Chun is a Hong Kong-based food products manufacturer. (Id. ¶¶ 9-10.) Koon Chun manufactures a variety of sauces and seasonings used in Asian cooking, including hoisin sauce. (Id. ¶ 10.) Hoisin sauce is a sweet and spicy sauce used both in cooking and as a condiment for Chinese foods. (Id. ¶¶ 12, 24.) Koon Chun uses the mark "Koon Chun Sauce Factory" on the labels on all of its products, and this mark is registered with the United States Patent and Trademark Office ("PTO"), Registration No. 1,410,790 (the "Koon Chun Mark"). (Id. ¶¶ 14-15.)

This action arises out of a prior litigation between the parties, in which Koon Chun sued Star Mark for trademark infringement based on Star Mark's sales of counterfeit versions of Koon Chun's hoisin sauce. See Koon Chun Hing Kee Soy & Sauce Factory, Ltd. v. Star Mark Mgt., Inc., Great Mark Corp., & Yi Q. Zhan, 04-CV-2293 (JFB)(SMG) (the "First Action"). In the First Action, discovery concluded and motion practice ensued: Koon Chun moved for summary judgment on the issue of liability, Star Mark sought partial summary judgment, seeking to preclude Koon Chun from recovering lost profits, and Koon Chun sought sanctions against Star Mark for filing its preclusion motion in the First Action.

In a Memorandum and Order dated January 8, 2007, District Judge Joseph F. Bianco consolidated and addressed the motions in the First Action. See Koon Chun Hing Kee Soy & Sauce Factory Ltd. v. Star Mark Mgt., Inc., 04-CV-2293 (JFB (SMG), 2007 WL 74304 (E.D.N.Y. Jan. 8, 2007). Judge Bianco granted partial summary judgment in Koon Chun's favor, finding Star Mark liable for trademark and trade dress infringement (15 U.S.C. §§ 1114(1), 1125(a)) and unfair competition (15 U.S.C. § 1125(a)). See id. at *8-11. He denied Koon Chun's motion to the extent that Koon Chun sought judgment on whether Star Mark's violation of the Lanham Act was willful. See id. at *11-13. He denied Star Mark's motion, holding that Koon Chun could seek recovery of lost profits. See id. at *13-14. Although Koon Chun prevailed on the preclusion motion, Judge Bianco declined to grant Koon Chun's request for sanctions against Star Mark. See id. at *14.

Nearly five months after Judge Bianco's decision on the motions in the First Action, Star Mark sought leave to amend its answer to add new defenses and counterclaims. (See May 31, 2007 Bing Li Letter, attached as Exhibit 3 to the Declaration of Anthony A. Coppola in Support of Sanctions ("Coppola Sanc. Decl."), Doc. Entry No. 12.) In its request for leave to amend its answer, Star Mark asserted that the Koon Chun Mark, which translates into "Koon Chun Factory Sauce," does not identify any specific goods. In spite of Judge Bianco's decision, Star Mark contended that the Koon Chun Mark did not protect any specific Koon Chun products and was invalid under the Lanham Act. (Id. at 1-2.) Additionally, Star Mark contended that use of the term "hoisin" translates into the words "fish" or "sea food" and was deceptive as Koon Chun's sauce contains no fish or sea food. Star Mark further contended that the absence of fish or sea food as an ingredient was a "surprise" both to Star Mark and consumers of Koon Chun products. (Id. at 2-3.) Based on these assertions, Star Mark sought leave to amend its answer to add the affirmative defenses of (i) trademark misuse, (ii) unclean hands (citing Section 1115 of the Lanham Act), and (iii) unfair and deceptive business practices (citing New York General Business Law § 349). (Id. at 3-4.) Additionally, Star Mark sought leave to amend to add counterclaims seeking cancellation of registration of the Koon Chun Mark pursuant to 15 U.S.C. § 1064. (Id. at 4.)

Magistrate Judge Gold held a status conference to address Star Mark's request to amend its answer and to add counterclaims.*fn1 (See June 20, 2007 Transcript of Civil Cause for Telephone Conference ("Status Conf. Tr."), attached as Exhibit 10 to the Declaration of Anthony A. Coppola in Support of Dismissal ("Coppola Dism. Decl."), Doc. Entry No. 21.) After hearing Star Mark's justifications for making such a request, Judge Gold stated:

[M]y feeling is that this motion is highly inappropriate at this juncture of the case. First of all, to suggest that a label is misleading because something is called seafood sauce and doesn't contain seafood when many sauces that we use don't -- aren't named by the dish -- based upon their ingredients but rather by the foods that they're used to accompany and where I am sure, even though nobody's mentioned it, the actual ingredients are listed somewhere on the label or it can't be marketed in the United States . . .

. . . And where all of this was knowable, whether known or not, during the extensive and difficult[] and closely managed discovery process and where the plaintiff has moved for and obtained summary judgment, it's stunning to me that such a motion would be contemplated much less pursued. And I will not disturb the summary judgment finding and I will not disturb the schedule for trial and I will not consider delaying any aspect of this case based upon the motion.

(Status Conf. Tr. at 13-14.)

Although Judge Gold noted that he had no authority to prohibit Star Mark from filing its motion or any other motion and that Star Mark could file the motion at any time, he further warned that:

[I]f it's made and I deem it appropriate, I will consider whether Section 1927 of Title 28 warrants some kind of a sanction because frankly, nothing you've said so far has explained to me what possible good faith basis there could be for it.

. . . [T]he procedural posture of the case is such that it would be highly irregular for this kind of relief to be sought now, much less obtained and I hope you will bear that in mind when you decide how to proceed.

(Id. at 14.) The parties further discussed the contemplated motion, at which point Judge Gold reiterated:

I do not see any bad faith in describing a sauce by food that it might accompany instead of by its ingredients. Number two, the ingredients are on the label. Number three, it could have been discovered before the summary judgment practice and there's no reason other than the fact that it didn't occur to anybody, that it wasn't, as is true of your remarks about the label. So given all of those factors, I just can't imagine how the motion could be responsibly granted but if you think I am overlooking something and are pronouncing those factors, feel free to make your motion. I certainly am not going to penalize you. If I impose anything under [28 U.S.C. §] 1927, it would be the costs of opposing the motion, the costs and fees incurred in opposing the motion.

(Id. at 15-16.) Again, Judge Gold warned:

I make no final judgment about [28 U.S.C. §] 1927. I just am alerting you that my preliminary reaction to this is so strong that I don't want you led into making this motion for some kind of tactical reason when it's hard for me to see any merit to it whatsoever from your letter.

(Id. at 17.)

Two days later, Star Mark filed a letter informing the court that it decided against filing the contemplated motion. (See Bing Li Letter, dated June 22, 2007, attached as Exhibit 11 to the Coppola Dism. Decl.) Star Mark's counsel further noted that:

Defendants will, instead, commence a separate action to challenge the registration and registrability of plaintiff's trademark. The Court's pronouncement that it will consider section 1927 sanctions when deciding the proposed motion creates a real and substantial risk on the part of the defendants.

(Id.)

Approximately one month later, on August 3, 2007, Star Mark commenced the instant action. (See Complaint, Doc. Entry No. 1.) In this action, Star Mark seeks: (i) a declaratory judgment that the Koon Chun Mark is not registrable, pursuant to 15 U.S.C. § 1051, (ii) a declaratory judgment that the Koon Chun Mark is not registrable, pursuant to 15 U.S.C. § 1052, (iii) cancellation of the Koon Chun Mark for abandonment, pursuant to 15 U.S.C. §§ 1064(3), 1127, (iv) cancellation of the Koon Chun Mark for fraudulent procurement, pursuant to 15 U.S.C. § 1064(3), and (v) any relief deemed appropriate for Koon Chun's deceptive acts and practices, in violation of New York General Obligation Law § 349. (See id.) Koon Chun answered, denying the allegations and raising numerous affirmative defenses. (See Answer, Doc. Entry No. 8.)

As noted previously, Koon Chun filed two motions, which are now before the court. First, Koon Chun moved for sanctions against Star Mark, pursuant to Rule 11. (See Def. Mot. for Sanc.) Second, Koon Chun moved for dismissal and sanctions, pursuant to Rule 12(c) and 28 U.S.C. § 1927. (See Def. Mot. to Dism.) Plaintiffs consolidated their opposition to both motions into one memorandum. (See Pl. Opp.) The court held oral argument on both motions on April 9, 2009.

On May 21, 2009, Judge Gold issued a Memorandum and Order in the First Action, ruling on the bench trial that he held from November 27, 2007 to December 4, 2007 on the issues of willfulness, damages, and injunctive relief. (See Koon Chun Hing Kee Soy & Sauce Factory, Ltd. v. Star Mark Mgt., Inc., et al., 04-CV-2293 (SMG) May 21, 2009 Memo. & Order, Doc. Entry No. 222 at 4-10, 12-20.) Judge Gold held that Star Mark had willfully violated the Lanham Act and awarded Koon Chun $82,964.40 in damages. He dismissed Koon Chun's state law and common law claims. (Id. at 25.) He directed the parties to meet and confer to agree on reasonable attorneys' fees and costs, and to delineate the terms of a permanent injunction. (Id. 25-26.) Koon Chun has sought reconsideration of the denial of lost profits. (See Koon Chun's Motion for Reconsideration, First Action, Doc. Entry No. 223.) At the time of the issuance of this memorandum and order, the parties are litigating the issue of attorneys' fees in the First Action.

I. Motion to Dismiss

DISCUSSION

A. Motion to Dismiss ...


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