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Gristede's Foods, Inc. v. Poospatuck Nation

December 1, 2009

GRISTEDE'S FOODS, INC., PLAINTIFF,
v.
POOSPATUCK (UNKECHAUGE) NATION, A/K/A POOSPATUCK INDIAN TRIBE, A/K/A UNKECHAUG INDIAN NATION, A/K/A UNKECHAUG NATION; HARRY WALLACE; THE POOSPATUCK SMOKE SHOP AND TRADING POST; GOLDEN FEATHER CIGARETTE EXPRESS; KOKO SMOKE; POOSPATUCK INDIAN OUTPOST; MONIQUE'S SMOKE SHOP, A/K/A RAINBOW SMOKE; RED DOT & FEATHER SMOKE SHOP; SMOKING ARROW SMOKES; TDM DISCOUNT CIGARETTES; POOSPATUCK TRADING CO. & SMOKE SHOP; SMOKE WAREHOUSE; BARGAIN BUTTS, A/K/A BARGAINBUTTS.COM; SHAWN MORRISON; KEN DIMONEICO; RODNEY MORRISON; RONNIE BELL; JESSEY WATKINS; RAYMONG HART; JENNIFER DAVIS; DENISE PASCHALL; TOMISINA MACK; THE SHINNECOCK TRIBE, A/K/A THE SHINNECOCK INDIAN NATION; GORDELL WRIGHT; FREDERICK C. BESS; LANCE A. GUMBS, A/K/A LANCELOT GUMBS; SHINNECOCK TRADING POST LTD., A/K/A SHINNECOCK LTD.; SHINNECOCK SMOKE SHOP; RAINDROP'S QUICK STOP, A/K/A THUNDERBIRD COFFEE SHOP; TRUE NATIVE SMOKE SHOP; BNB TOBACCO PRODUCTS; JONATHON SMITH; DIANE C. VIEIRA; HOLLY DAVIS; BRIAN N. BESS; ANDRE DENNIS; TAOBI SILVA; AND JOHN DOES 1 THROUGH 100, DEFENDANTS.



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

MEMORANDUM & ORDER

Pending before the court is the plaintiff Gristede's Foods, Inc.'s ("Gristede's" or "plaintiff") motion, pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(6), to dismiss counterclaims by the defendants Shinnecock Indian Nation ("tribe" or "Shinnecock"), Gordell Wright, Frederick C. Bess, and Lance A. Gumbs, each sued in his official capacity as an alleged senior official of the Shinnecock Nation (together, the "Shinnecock tribal defendants"); and Lance A. Gumbs, in his individual capacity, and the Shinnecock Trading Post (together, "Gumbs defendants")(collectively, "Shinnecock defendants"). For the following reasons the plaintiff's motion is granted.

BACKGROUND

I. Procedural History

On March 20, 2006, plaintiff commenced this action against the Unkechauge Nation, a/k/a Unkechauge Poospatuck Tribe (the "Unkechauge" or "tribe") and the Shinnecock; individual defendants Harry Wallace ("Wallace"), Randall King, James W. Eleazer, Jr., and Lance A. Gumbs; and the Poospatuck Smoke Shop and Trading Post (the "Poospatuck Smoke Shop" or "Smoke Shop"); and Shinnecock, Ltd. Plaintiff, the owner of several supermarkets in the New York City metropolitan area and on Long Island, New York, alleged violations of RICO and the Lanham Act, and state law unjust enrichment, unfair competition, deceptive trade practices, and false advertising claims based upon defendants' tax-free cigarette sales and advertising. In July 2006, the defendants who were a party to the action at the time filed a motion to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, asserting that they are immune from suit by virtue of their sovereign immunity as Indian tribes. In an order of December 22, 2006, the court deferred ruling on the motion pending further briefing and an evidentiary hearing on the tribal status of the Shinnecock and Unkechauge defendants. After filing a motion for reconsideration, the defendants were granted leave to file new Rule 12 motions, and the motions to dismiss pursuant to Rule 12(b)(1) and for reconsideration were subsequently withdrawn without prejudice to reinstatement if the new Rule 12 motions were denied.

On November 5, 2007, the court denied in part the defendants' motion to dismiss pursuant to Rule 12(b)(6) and reinstated the parties' motion to dismiss pursuant to Rule 12(b)(1). The court set a discovery schedule and hearing for the proposed Rule 12(b)(1) motion. On December 21, 2007, plaintiff filed its Amended Complaint to include those claims sustained by the court - the false advertising claim under the Lanham Act and the state consumer fraud claims - and to properly name Lance A. Gumbs in his individual capacity for his ownership and operation of the Shinnecock Trading Post, previously identified as Shinnecock, Ltd. The Shinnecock, Randall King, James W. Eleazer, Jr., Lance A. Gumbs, and Shinnecock Trading Post defendants subsequently decided not to pursue the Rule 12(b)(1) motion and the court vacated the tribal status discovery schedule as to those defendants. (Doc. Order 1/4/08.)

On August 18, 2008, plaintiff filed a Second Amended Complaint which named Gordell Wright and Frederick C. Bess, in addition to other defendants who are not parties to this motion. On October 10, 2008, the Shinnecock tribal defendants and the Gumbs defendants filed Answers to the Second Amended Complaint and asserted counterclaims against plaintiffs. (Doc. Nos. 404, 405.)

The Shinnecock tribal defendants asserted the following counterclaims: (1) defamation based on the statement in plaintiff's Second Amended Complaint that "defendants place counterfeit tax stamps on cigarettes that they sell in order to conceal that the sales originated from Indian retailers;" (2) defamation based on the plaintiff's statement in the Second Amended Complaint that "[t]hese low cost cigarettes are purchased by under-aged teenagers who do not have to show proof of age and who could not otherwise afford full-priced cigarettes;" (3) defamation based on (a) a Newsday article by Keiko Morris published on December 7, 2007, which allegedly quotes plaintiff's attorney stating, "the Shinnecock Tribal Defendants are '[dis]honest business people . . . with black market cigarettes . . .' that hide in a 'veil of secrecy . . . under the cloak of so-called sovereign immunity . . . .' in order to engage in illegal activity,' and that the Shinnecock tribal defendants are "'complicit in funding terrorists and gangs,'"; and (b) defamation based on a report by United States Representative Peter T. King, of the United States House Committee on Homeland Security, entitled Tobacco and Terror: How Cigarette Smuggling is Funding our Enemies Abroad, which the Shinnecock tribal defendants allege contains a statement by plaintiff that "the Shinnecock Tribal Defendants 'funnel[] money to international terror groups . . .'"; (4) a claim for abuse of process based on plaintiff serving on the Shinnecock defendants "discovery requests compelling responses and production of certain documents," in retribution for the Shinnecock defendants' assertion of immunity; and (5) a claim of prima facie tort for initiating the present action and engaging in defamation. (Shinnecock Tribal Defs.' Answer ¶¶ 102-130.) (alterations in original.)

The Gumbs defendants' counterclaims (1)-(3) for defamation directly mirror those claims alleged by the Shinnecock tribal defendants, with the exception that the statements alleged from the Newsday article do not include those about the tribe's sovereign immunity. Additionally, the Gumbs defendants' counterclaims alleged the following: (4) a violation of New York General Business Law § 350 for falsely advertising the prices of items sold by plaintiff; (5) a violation of New York General Business Law § 349 for deceptive trade practices based on plaintiff's advertising of prices of items it sells; (6) a claim for interference with prospective advantage based on plaintiff's alleged interference with "proposed contracts" by wrongful means "includ[ing] but . . . not limited to commencement of the present action without cause and defamation"; and (7) a claim for prima facie tort for initiating the action and defamation. (Gumbs Defs.' Answer ¶¶ 98-138.)

Subsequently, the plaintiff filed a motion to dismiss the counterclaims alleged by both the Shinnecock tribal defendants and the Gumbs defendants pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure.

DISCUSSION

I. Standards for Motions to Dismiss

Under Rule 12(b)(1) of the Federal Rules of Civil Procedure, a claim may be dismissed for lack of subject matter jurisdiction. Fed. R. Civ. P. 12(b)(1); Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000) ("A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) when the district court lacks the statutory or constitutional power to adjudicate it.") In reviewing a motion to dismiss under Rule 12(b)(1), the court "must accept as true all material factual allegations in the [counterclaim], but we are not to draw inferences from the [counterclaim] favorable to plaintiffs." J.S. ex. rel. N.S. v. Attica Cent. Schs., 386 F.3d 107, 110 (2d Cir. 2004). A plaintiff (or, in this case, counterclaimant) asserting subject matter jurisdiction has the burden of proving by a preponderance of the evidence that it exists. Makarova, 201 F.3d at 113. In deciding a Rule 12(b)(1) motion to dismiss, the court may rely on and refer to evidence outside the pleadings. J.S., 386 F.3d at 110.

Similarly, under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a complaint may be dismissed "for failure of the pleading to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). The court must "accept as true all factual statements alleged in the [counterclaims] and draw all reasonable inferences in favor of the non-moving party." McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007) (citation omitted). "The issue is not whether a [counterclaim] plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims."

Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir. 1995) (quotations omitted).

Under Rule 12(b)(6), a trial court must determine whether the "[f]actual allegations . . . raise a right to relief above the speculative level, on the assumption that all the allegations in the [counterclaims] are true (even if doubtful in fact)." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citation omitted). Thus, to survive a Rule 12(b)(6) motion to dismiss, the allegations in the counterclaims must meet the standard of "plausibility." See id. at 556-557, 570. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (citing Twombly, 550 U.S. at 556). Twombly does not require that the complaint (or here, the counterclaims) provide "detailed factual allegations," however, "it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Id. Conclusory allegations "'will not suffice to prevent a motion to dismiss,'" Smith v. Local 819 I.B.T. Pension Plan, 291 F.3d 236, 240 (2d Cir. 2002) (quoting Gebhardt v. Allspect, Inc., 96 F. Supp. 2d 331, 333 (S.D.N.Y. 2000), and the court need not accept as true mere "'conclusions of law or unwarranted deductions of fact.'" First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 771 (2d Cir. 1994) (quoting 2A MOORE, JAMES WILLIAM & JO DESHA LUCAS, Moore's Federal Practice ¶ 12.08, at 2266-69 (2d ed. 1984)); see also Iqbal, 129 S.Ct. at 1950 ("[A] court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth.")

Although, in the Rule 12(b)(6) context, the court is "normally required to look only to the allegations on the face of the [counterclaim]," it may also "consider documents . . . that are attached to the [counterclaim] or incorporated in it by reference . . . ." Roth v. Jennings, 489 F.3d 499, 509 (2d Cir. 2007). Accordingly, in determining whether the Shinnecock defendants have failed to state a cause of action in their counterclaims, the court considers the allegations set forth in the counterclaims, in addition to the plaintiff's complaint, as the complaint is integral to the counterclaims, and the exhibits appended to the counterclaims. See id.; Fagan v. AmerisourceBergen Corp., 356 F. Supp. 2d 198, 220 n.7 (E.D.N.Y. 2004).

II. Rules 12(b)(1) and 12(b)(6) Motions to Dismiss the Gumbs Defendants' Counterclaims for Violations of New York General Business Laws and Interference with Prospective Advantage

a. Counterclaims for Violations of New York General Business Laws

Plaintiff argues that the Gumbs defendants' counterclaims in their fourth and fifth causes of action, alleging violations of sections 349 and 350 of New York General Business Laws ("GBL"), should be dismissed for lack of subject matter jurisdiction pursuant to Rule 12(b)(1). Alternatively, plaintiff argues that these claims should be dismissed for failure to state a claim, pursuant to Rule 12(b)(6). Because the court agrees that it lacks subject matter jurisdiction over the Gumbs defendants' GBL counterclaims, it does not reach whether dismissal under Rule 12(b)(6) would be appropriate.

The court first considers whether these counterclaims are compulsory or permissive. Counterclaims pursuant to Federal Rule of Civil Procedure 13(a) are considered compulsory and no independent basis of jurisdiction is needed for the court to adjudicate it, assuming there is federal jurisdiction over the main claim. Harris v. Steinem, 571 F.2d 119, 121-22 (2d Cir. 1978). Pursuant to Rule 13(a), a litigant must state "as a counterclaim any claim that -- at the time of its service -- the pleader has against an opposing party if the claim: (A) arises out of the transaction or occurrence that is the subject matter of the opposing party's claim . . . ." Fed. R. Civ. P. 13(a). To determine whether a counterclaim is compulsory -- i.e. whether it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim, the Second Circuit considers whether there is a "'logical relationship' between the counterclaim and a main claim." Jones v. Ford Motor Credit Co., 358 F.3d 205, 209 (2d Cir. 2004). "This inquiry is flexible and 'attempts to analyze whether the essential facts of various claims are so logically connected that consideration of judicial economy and fairness dictate that all the issues be resolved in one lawsuit.'" Computer Assocs. Int'l, Inc. v. Altai, Inc., 893 F.2d 26, 29 (2d Cir. 1990) (quoting Harris, 571 F.2d at 123). Non-compulsory, or permissive, counterclaims are permitted pursuant to Fed. R. Civ. P. 13(b). For the court to exercise jurisdiction over a permissive counterclaim it must have independent jurisdiction over the claim. Harris, 571 F.2d at 122.

Here, plaintiff argues that the Gumbs defendants' GBL counterclaims are non-compulsory and the defendants do not contend otherwise. (Pl.'s Mem. at 11; Defs.' Opp'n at 16-18.) The court agrees that the GBL counterclaims are non-compulsory and thus require an independent jurisdictional basis. Although the plaintiff's main claims and defendants' GBL counterclaims allege violations of the same state laws, they present different "essential facts." The Gumbs defendants' GBL counterclaims do not arise out of the same transaction or occurrence as the plaintiff's claims. Nor will the factual issues presented by the Gumbs defendants' GBL counterclaims be resolved by a determination of whether these defendants violated the same laws based on the facts alleged by the plaintiff. Jones, 358 F.3d at 209-210. As a result, the court finds that the Gumbs defendants' GBL counterclaims are permissive.

In determining that these claims are permissive, the court next addresses whether there is an independent basis for jurisdiction. As the plaintiff correctly notes, supplemental jurisdiction pursuant to 28 U.S.C. § 1367(a) provides the only possible basis for this court's jurisdiction over the Gumbs defendants' GBL claims. Section 1367(a) provides, in relevant part, that "the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution." 28 U.S.C. § 1367(a). Thus, a court "has the power to exercise supplemental jurisdiction over state claims if they derive from 'a . . . nucleus of operative fact' common to the jurisdiction-conferring claim and if they 'are such that [the claimant] would ordinarily be expected to try them all in one judicial proceeding . . . .'" Burgess v. Omar, 345 F. Supp. 2d 369, 371 (S.D.N.Y. 2004) (alteration in original). Pursuant to 28 U.S.C. § 1367(c), a court may decline to exercise jurisdiction pursuant to § 1367 in certain circumstances.

Although, as the defendants note, the Gumbs defendants' GBL claims allege false advertising and the plaintiff's claims allege the same, the operative factual nucleus of the GBL counterclaims is entirely different from the plaintiff's claims. The plaintiff's claims allege false advertising of one specific item, "tax-free" cigarettes, whereas the Gumbs defendants' counterclaims are based on allegations of various types of false advertising regarding, inter alia, shelf unit prices and stock-keeping unit prices, container weight, quantity of product, product expiration dates, and the taxable status of unspecified "items" sold by plaintiff's supermarkets. Furthermore, there is nothing to suggest that the allegedly false nature of the advertisements or the injury therefrom, as alleged in the claims by the plaintiff and the counterclaiming Gumbs defendants, are so related that they form part of the same case or controversy. The facts underlying the plaintiff's claims will not even provide background for the facts underlying the Gumbs defendants' GBL claims. See id. Although the claims and counterclaims allege violations of the same state law, they do not arise from a common nucleus of operative fact. Therefore, the court does not have subject matter jurisdiction over the Gumbs defendants' fourth and fifth causes of action alleging claims under GBL sections 349 and 350, and they are dismissed pursuant to Rule 12(b)(1).

b. Counterclaim for Interference with Prospective Advantage

Plaintiff argues that the Gumbs defendants' sixth cause of action for tortious interference with prospective advantage should be dismissed for failure to state a claim pursuant to Rule 12(b)(6), and for lack of subject matter jurisdiction pursuant to Rule 12(b)(1). The court agrees that dismissal is appropriate pursuant to Rule 12(b)(6).

To state a claim for tortious interference with prospective business advantage under New York law, a party must allege: "(i) business relations with a third party; (ii) the defendant's interference with those business relations; (iii) that defendants acted with the sole purpose of harming the plaintiff or used dishonest, unfair, or improper means; and (iv) injury to the business relationship." Nadel v. Play-By-Play Toys & Novelties, Inc., 208 F.3d 368, 382 (2d Cir. 2000). An allegation of an existing contract is not necessary, but the claim must allege "interference with a specific identified business relationship with a third party." Mobile Data Shred, Inc. v. United Bank of Switz., No. 99-CV-10315, 2000 U.S. Dist. LEXIS 4252, at *24 (S.D.N.Y. Apr. 5, 2000). The counterclaim must allege that the counterclaim plaintiff interfered with the specific business relationships between the counterclaim plaintiff and third party. Gianni Versace, S.P.A. v. Versace, No. 01-CV-9645, 2003 U.S. Dist. LEXIS 2587, at *5 (S.D.N.Y. Feb. 25, 2003) ("A properly pleaded counterclaim for this tort must allege relationships with specific third parties with which the respondent interfered.") Thus, "[g]eneralized allegations of impairment to plaintiff's ability to attract new business will not suffice." Mobile Data Shred, Inc., 2000 U.S. Dist. LEXIS 4252, at *24. "That interference must be 'direct interference with a third party, that is, the [counterclaim] defendant must direct some activities towards the third party and convince the third party not to enter into a business relationship with the [counterclaim] plaintiff.'" Gianni Versace, S.P.A., 2003 U.S. Dist. LEXIS 2587, at *5-6 (quoting Black Radio Network, Inc. v. NYNEX Corp., No. 96-CV-4138, 2000 WL 64874, at *4 (S.D.N.Y. Jan. 25, 2000). Additionally, to sufficiently allege a defendant's intent, the plaintiff must allege acts specifically aimed at inducing a third party to discontinue its business relationship with plaintiff. Mobile Data, 2000 U.S. Dist. LEXIS 4252, at *25 n. 10.

The Gumbs defendants' allegation of a business relationship with a third party with which plaintiff interfered is the "proposed contracts between the Gumbs Defendants and retail-sales customers." (Gumbs Defs.' Answer ¶ 130.) In its opposition to plaintiff's motion to dismiss, the Gumbs defendants further clarify that the business relations with which the plaintiff interfered was with "existing cigarette 'retail-sales customers.'" (Defs.' Opp'n at 20 (emphasis added).) Moreover, the Gumbs defendants' further allege that plaintiff intentionally and wrongfully interfered with the proposed contracts by the "commencement of the present action without cause and defamation," which resulted in damage to the Gumbs defendants when the contracts were not consummated. (Gumbs Defs.' Answer ¶¶ 130-133.) These allegations amount to nothing more than a "general allegation of interference with customers without any sufficiently particular allegation of interference with a specific contract or business relationship." McGill v. Parker, 179 A.D.2d 98, 105, 582 N.Y.S.2d 91, 95 (1st Dep't 1992). Therefore, the Gumbs defendants have failed to allege a business relationship with a third party with sufficient specificity.

Moreover, the Gumbs defendants have not alleged any activity by plaintiff directed at the third-party customers. While the initiation of a civil law suit could constitute improper conduct pursuant to New York law, Guard-Life Corp. v. S. Parker Hardware Mfg. Corp., 50 N.Y.2d 183, 191, 406 N.E.2d 445, 449, 428 N.Y.S.2d 628, 632 (1980), this act by plaintiff was directed solely at the Gumbs defendants, not third parties. Furthermore, the Gumbs defendants have not alleged any acts by plaintiff specifically aimed at inducing a third party to discontinue a relationship with them.

Finally, beyond bare conclusory allegations that, on a Rule 12(b)(6) motion, the court need not assume the truth of, the Gumbs defendants have not alleged facts supporting their allegation that the plaintiff filed the action with wrongful means or that the defendants suffered damages but for the plaintiff's conduct. Consequently, the Gumbs defendants' counterclaim for tortious interference with prospective business relations is dismissed for failure to state a claim under Rule 12(b)(6). Because the Gumbs defendants' counterclaims for tortious interference arise from "the commencement ...


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