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Margel v. E.G.L. Gem Lab Ltd.

February 9, 2010

GUY MARGEL, ET AL., PLAINTIFFS,
v.
E.G.L. GEM LAB LTD., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Pitman, United States Magistrate Judge

OPINION AND ORDER

I. Introduction

By notice of motion dated June 4, 2009, (Docket Item 109), plaintiffs move for leave to file a second amended complaint. The proposed amended complaint would add Jacob Tversky as a defendant. It would also include claims for fraud and unjust enrichment against Tversky and defendants Nachum Krasnianki and EGL Gem Lab Ltd. and claims for breach of contract and breach of the covenant of good faith and fair dealing against EGL Gem Lab Ltd. For the reasons set forth below, plaintiffs' motion is granted in part and denied in part.

II. Facts

This is an action among gem grading laboratories and their principals concerning, in essence, the right to use certain trademarks in the United States and the right to issue diamond grading certificates that bear those marks.

In 1974, plaintiff Guy Margel opened an international gem grading business (Proposed Second Amended Complaint, dated June 4, 2009, attached as Exhibit E to the Declaration of Paul H. Schafhauser (Docket Item 110), ("Am. Compl."), ¶¶ 13, 17). The business eventually grew to include gem grading facilities in Belgium, South Africa, France, Turkey, England, Israel, India, South Korea and the United States (Am. Compl. ¶¶ 13, 18). In 1980, Margel registered the trademarks "European Gemological Laboratory" and "E.G.L." (collectively, the "EGL Marks") in the United States for use in connection with his gem grading business (Am. Compl. ¶ 18).

In January 1986, Margel sold the assets and the business of his lab in the United States, European Gemological Laboratory, Inc., to N.K. Gemological Services, Inc., which then changed its name to E.G.L. Gem Lab Ltd. ("EGL-USA") (Am. Compl. ¶ 21). Defendant Krasnianski owned N.K. Gemological Services, Inc. and is an officer, director, and majority shareholder of EGL-USA (Am. Compl. ¶¶ 6, 21). As part of the transaction, EGL-USA acquired the right to use Margel's United States trademarks throughout the United States, but granted Margel a license to use the trademarks in the Los Angeles area (Am. Compl. ¶ 22; Declaration of Mark Gershburg, attached as Exhibit A to the Declaration of Paul H. Schafhauser (Docket Item 110), ("Gershburg Decl. I"), Ex. B ¶ 2). A related agreement ("Certificate Fee Agreement") also executed in January 1986 provided, inter alia, that Margel would provide EGL-USA with grading certificates on demand and that EGL-USA would pay Margel "$1.25 for each and every diamond certificate issued by [EGL-USA] to its customers" (Am. Compl. ¶ 27; Gershburg Decl. I Ex C).

A dispute among the parties arose in 1997 that was resolved in November 1998 through the execution of a settlement agreement and consent award as well as an agreement in principle ("Settlement Agreements") (Am. Compl. ¶¶ 65-67). The material terms of the settlement agreement and consent award provided, inter alia, that EGL-USA would pay certain certificate fees to Margel and would continue to pay Margel $1.25 for "each and every diamond certificate issued in the United States" (Am. Compl. ¶¶ 68-69). These terms were also memorialized in the agreement in principle, which further provided that the diamond certificates subject to the per-certificate payment included "full" certificates, "mini" certificates and "certificates after recut" (Am. Compl. ¶ 70; Gershburg Decl. I, Ex. F).

Plaintiffs allege that despite the fact that their uses of EGL Marks are entirely lawful, defendants have engaged in a publicity campaign that mischaracterizes plaintiffs' activities as illegal and has resulted in the tarnishing of plaintiffs' professional image (Am. Compl. ¶¶ 35-60). Plaintiffs also allege that since 2004, defendants have failed to pay $1.25 for each grading certificate EGL-USA issued (Am. Compl. ¶ 82). In their counterclaims, defendants allege that plaintiffs are using the EGL trademarks in the United States illegally, thereby committing, inter alia, trademark infringement, dilution, and false advertising (Am. Compl. ¶¶ 70-151).

In their proposed amended complaint, plaintiffs allege that either Krasnianski, or Tversky*fn1 , or both falsified monthly reports to Margel detailing the number of grading certificates issued by EGL-USA (Am. Compl. ¶¶ 72, 74-76). Specifically, plaintiffs allege that Krasnianski "and/or" Tversky, gave grading certificates names such as Gem ID Card, Mini Report, Micro Report, Mini Appraisal, and Diamond Analysis Report (Am. Compl. ¶ 75). Because these types of grading certificates were not named "diamond certificates," EGL-USA did not include them in monthly reports sent to Margel, and Margel was not paid for the issuance of these documents as required under the Certificate Fee Agreement and the Settlement Agreements (Am. Compl. ¶¶ 76, 79-80).

Plaintiffs further allege that Tversky, Krasnianski, and EGL-USA caused entities to issue grading certificates in names other than EGL-USA (Am. Compl. ¶ 81). These entities included EGL-LA, Inc., Gemology Headquarters International, Gemological Research, Inc., GHI India Pvt. Ltd., EGL Gem Lab, Ltd. (Canada), Jay Enterprises, Inc., J.T. Enterprises, Inc., A.M.D.B., Inc., and Universal Gemological Services, Inc. (Am. Compl. ¶ 81). When certificates were issued in the names of these other entities Margel was not paid for the issuance of these documents under the Certificate Fee Agreement and the Settlement Agreements (Am. Compl. ¶ 81).

According to plaintiffs, these new facts were brought to their attention as the result of two declarations executed by Mark Gershburg, the former Director and CEO of EGL-USA, in November 2008 (Memorandum of Law in Support of Plaintiffs' Motion for Leave to File a Second Amended Complaint Pursuant to Fed.R.Civ.P. 15, dated June 4, 2009 (Docket Item 111), ("Pl's Mem."), at 4). Based on these new facts, plaintiffs seek to amend their complaint to include Tversky as a defendant, add claims for fraud and unjust enrichment against Tversky, Krasnianki and EGL-USA, and add claims for breach of contract and breach of the covenant of good faith and fair dealing against EGL-USA. Defendants oppose amendment on the grounds that the proposed amendments are futile, untimely and will result in undue prejudice.

III. Analysis

A. Standards Applicable to a Motion to Amend

The standards applicable to a motion to amend a pleading are well settled and require only brief review. Leave to amend a pleading should be freely granted when justice so requires. Fed.R.Civ.P. 15(a); Foman v. Davis, 371 U.S. 178, 182 (1962); McCarthy v. Dunn & Bradstreet Corp., 482 F.3d 184, 200 (2d Cir. 2007); Aetna Cas. & Sur. Co. v. Aniero Concrete Co., 404 F.3d 566, 603-04 (2d Cir. 2005); Dluhos v. Floating & Abandoned Vessel, Known as "New York", 162 F.3d 63, 69 (2d Cir. 1998); Gumer v. Shearson, Hamill & Co., 516 F.2d 283, 287 (2d Cir. 1974); Aniero Concrete Co. v. New York City Constr. Auth., 94 Civ. 9111 (CSH), 1998 WL 148324 at *7 (S.D.N.Y. Mar. 30, 1998) (Haight, D.J.), aff'd sub nom., Aetna Cas. & Sur. Co. v. Aniero Concrete Co., 404 F.3d 566 (2d Cir. 2005). "Nonetheless, the Court may deny leave if the amendment (1) has been delayed unduly, (2) is sought for dilatory purposes or is made in bad faith, (3) the opposing party would be prejudiced, or (4) would be futile." Lee v. Regal Cruises, Ltd., 916 F. Supp. 300, 303 (S.D.N.Y. 1996) (Kaplan, D.J.), aff'd, 116 F.3d 465 (2d Cir. 1997); see McCarthy v. Dunn & Bradstreet Corp., supra, 482 F.3d at 200; Ellis v. Chao, 336 F.3d 114, 126-27 (2d Cir. 2003); Montefiore Med. Ctr. v. Am. Prot. Ins. Co., 00 Civ. 3235 (LTS), 2003 WL 21108261 at *1 (S.D.N.Y. May 14, 2003) (Swain, D.J.); Am. Home Assurance Co. v. Jacky Maeder (Hong Kong) Ltd., 969 F. Supp. 184, 187-88 (S.D.N.Y. 1997) (Kaplan, D.J.).

The Court of Appeals has also repeatedly noted that the trial court has "broad" discretion in ruling on a motion to amend. Local 802, Assoc. Musicians v. Parker Meridien Hotel, 145 F.3d 85, 89 (2d Cir. 1998); Krumme v. Westpoint Stevens Inc., 143 F.3d 71, 88 (2d Cir. 1998); see generally Grace v. Rosenstock, 228 F.3d 40, 53-54 (2d Cir. 2000).

To the extent a proposed amendment would add new parties, the motion is technically governed by Rule 21 rather than Rule 15(a). FTD Corp. v. Banker's Trust Co., 954 F. Supp. 106, 109 (S.D.N.Y. 1997) (Stein, D.J.). Rule 21 provides that "the court may at any time, on just terms, add or drop a party,". Fed.R.Civ.P. 21. However, "'the same standard of liberality' applies under either Rule." FTD Corp. v. Banker's Trust Co., supra, 954 F. Supp. at 109, quoting Fair Hous. Dev. Fund Corp. v. Burke, 55 F.R.D. 414, 419 (E.D.N.Y. 1972) and Expoconsul Int'l, Inc. v. A/E Sys., Inc., 145 F.R.D. 336, 337 n.4 (S.D.N.Y. 1993) (Preska, D.J.); see also Sly Magazine, LLC v. Weider Publ'ns L.L.C., 241 F.R.D. 527, 532 (S.D.N.Y. 2007) (Casey, D.J.); Chowdhury v. Haveli Rest., Inc., 04 Civ. 8627 (RMB)(JCF), 2005 WL 1037416 *1-*2 (S.D.N.Y. May 3, 2005) (Francis, M.J.).

B. The Parties' Contentions

As noted above, plaintiff seeks to amend the complaint to (1) add Tversky as a defendant, (2) include claims for fraud and unjust enrichment against Tversky, Krasnianski and EGL USA, and (3) include claims for breach of contract and breach of the covenant of good faith and fair dealing against EGL USA. Defendants oppose all of the proposed amendments on the grounds that they are futile, and that plaintiffs' assertion of the new claims is untimely and will result in prejudice. I shall ...


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