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Pan American World Airways, Inc. v. Vetements

September 17, 2010

PAN AMERICAN WORLD AIRWAYS, INC., PLAINTIFF,
v.
VETEMENTS, INC. AND KINSER CHIU, DEFENDANTS.



MEMORANDUM OPINION AND ORDER

This order addresses plaintiff's motion for summary judgment and defendants' motion to dismiss and to amend.*fn1

I. Motion for Summary Judgment

Plaintiff seeks summary judgment on its claim that defendants infringed Pan Am's trademarks by selling Pan Am-branded products in March and April 2008, after Pan Am announced its termination of the Merchandise License Agreement ("MLA").

To prove trademark infringement under the Lanham Act, a plaintiff must demonstrate (1) that it has a valid mark that is entitled to protection under the Act and (2) that the defendant's actions are likely to cause confusion as to the mark. The Sports Authority, Inc. v. Prime Hospitality Corp., 89 F.3d 955, 960 (2d Cir. 1996). "But where the trademark holder has authorized another to use its mark, there can be no likelihood of confusion and no violation of the Lanham Act if the alleged infringer uses the mark as authorized." Segal v. Geisha NYC LLC, 517 F.3d 501, 506 (7th Cir. 2008). Thus, to succeed on a trademark infringement claim against a former licensee, the plaintiff must prove that it properly terminated the licensee's authority to use the marks. See McDonald's Corp. v. Robertson, 147 F.3d 1301, 1308 (11th Cir. 1998) ("[T]he Lanham Act's requirement that a franchisor demonstrate that unauthorized trademark use occurred to prevail on the merits of a trademark infringement claim against a franchisee necessitates some type of showing [at the preliminary injunction stage] that the franchisor properly terminated the contract purporting to authorize the trademarks' use, thus resulting in the unauthorized use of trademarks by the former franchisee.") (emphasis in original); Jordan v. Can You Imagine, 485 F. Supp. 2d 493, 506 (S.D.N.Y. 2007) (denying licensor's motion for summary judgment on infringement claims where fact issues existed as to validity of license termination); see also Krispy Kreme Doughnut Corp. v. Satellite Donuts, LLC, 10 Civ. 4272 (LAK) (S.D.N.Y. July 21, 2010) (analyzing propriety of trademark owner's termination of license agreement before granting preliminary injunction for infringement). Otherwise, the licensee's use of the marks was not "unauthorized" within the meaning of the statute, and the infringement claim fails.

Id.*fn2

Here, factual disputes make summary judgment inappropriate. The MLA granted Machine Project, Inc. ("MPI") authority to use the Pan Am marks from January 1, 2007 through December 31, 2011. (Def. Ex. T.) There exists a genuine issue of material fact as to whether defendant Chiu was acting for MPI and within MPI's contractual authority to use the marks when he made the allegedly infringing sales. Chiu claims he is President of MPI and owns one-half of its stock. (Def. 56.1 ¶¶ 66-67.) Numerous documents in the record support these assertions. (Def. Ex. L (MPI account-opening documents listing Chiu as "President" and Lucas as "Secretary" of the corporation); Def. Ex. T (MLA, bearing signatures of both Chiu and Lucas for MPI); Def Ex. K (lease agreement, signed by both Chiu and Lucas for MPI); Def Ex. M (Contract Amendment to original MLA, signed by both Chiu and Lucas for MPI); Def Ex. Z (Lucas proposal to Pan Am indicating that Chiu owned half of MPI); Def Ex. CC (same); Def Ex. II (same); Def. Ex. JJ (same).) The only opposing evidence plaintiff identifies is a declaration from its General Counsel, Culliford, stating his belief that Chiu's partner Lucas is the sole owner of MPI and that Lucas and his wife are the corporation's only officers and directors. (Pl. Br. at 20; Culliford Decl. ¶ 22.) But plaintiff does not submit any corporate documentation to corroborate Culliford's understanding. Moreover, at one point Culliford questioned Lucas's representation that Chiu had no power to act for MPI, (Def. Ex. VV), and plaintiff points to no evidence showing how and when Culliford overcame his doubts. For their part, defendants offer what appears to be an incomplete set of MPI's corporate documents. (Def. Ex. J.) The documents indicate that (1) Lucas was the sole shareholder; and (2) Lucas and his wife were the sole officers and directors. (Def. Ex. J.) Chiu states in his declaration that Lucas falsified these documents-they existed as blank forms in Chiu's office until Lucas removed them in January 2008, filled them out to his advantage, and then fraudulently backdated them to make it appear they had been completed within one week of the corporation's formation. (Chiu Decl. ¶ 2; Def. Ex. J.) The documents lend some support to this accusation-the notice of the shareholders' meeting and the meeting minutes bear inconsistent dates-as do Lucas's own acknowledgements of Chiu's stake in MPI. (Def Ex. L; Def Ex. Z; Def Ex. CC; Def Ex. II; Def. Ex. JJ.) On this record, a triable issue of fact exists as to whether Chiu had authority to act for MPI when he made the March and April 2008 sales of which Pan Am complains.

There are also factual disputes about whether Pan Am properly terminated MPI's rights to use the marks under the MLA. To identify one such issue, the MLA contains a 30-day cure provision: "This Agreement may be terminated by either party upon thirty (30) days written notice to the other party in the event of a breach of a material provision of this Agreement by the other party, provided that, during the thirty (30) days period, the breaching party fails to cure such breach." (Def. Ex. T § 4.D.) When Chiu learned of Pan Am's termination letter, he sought to invoke this provision by contacting Pan Am through counsel and announcing his intent to cure MPI's breaches. (Def. Ex. OO.) But Pan Am rebuffed his efforts. Culliford informed Chiu's counsel that although Pan Am appreciated Chiu's "interest in the success of Pan Am's branding program," he did not believe Chiu had authority to act for MPI and would not allow him any opportunity to cure. (Def. Ex. PP.) If Chiu was part-owner and President of MPI, as certain evidence suggests, Pan Am's refusal to allow him to cure MPI's defaults likely violated the contract.*fn3

Moreover, Pan Am's primary justification for terminating the MLA is that MPI failed to meet the contract's minimum performance requirement. Some record evidence indicates, however, that Pan Am's own failure to provide MPI with exclusive rights to use the trademarks in Japan (to which MPI was entitled under the contract) caused this breach.*fn4 (E.g.,Def Ex. EE, 12/28/07 email from Lucas to Pan Am ("[N]ot being allowed to enter the Japanese market has damaged sales significantly and curtailed sales by at least one third.").) Given these factual disputes, the Court cannot find as a matter of law that Pan Am properly relied on the minimum performance requirement to terminate the contract.

* * * Because there are genuine issues of material fact about whether Pan Am validly terminated MPI's authority to use the marks and whether Chiu was acting for MPI when he made the allegedly infringing sales, plaintiff's motion for summary judgment is denied. See McDonald's Corp., 147 F.3d at 1308; Jordan, 485 F. Supp. 2d at 506.

II. Defendants' Motion to Dismiss and to Amend

Defendants move to dismiss the complaint on the ground that MPI and Lucas are indispensable parties who cannot be joined; in the alternative, defendants move to compel joinder of Lucas and MPI as "necessary" parties. Defendants also seek leave to amend their Answer to add counterclaims.

A. Motion to Dismiss

Federal Rule of Civil Procedure 19 imposes two basic requirements. First, it requires joinder of any absent party that is "necessary" to the litigation. Fed. R. Civ. Proc. 19(a)(1); Viacom Int'l, Inc. v. Kearney, 212 F.3d 721, 724-25 (2d Cir. 2000). Second, if an absent party is necessary but cannot be joined for practical or jurisdictional reasons, the Rule requires dismissal if the absent party is "indispensable" to the litigation. Fed. R. Civ. Proc. 19(b); Kearney, 212 F.3d at 724-25.

Here, both MPI and Lucas are too closely intertwined in the issues raised by Pan Am's claims for the case to move forward without them. Failure to require their joinder here would create potential for entirely duplicative litigation in other forums. With regard to MPI, it is necessary under Rule 19(a)(1) because it is a party to the contract at issue in this case. See Ryan v. Volpone Stamp Co., 107 F. Supp. 2d 369, 387 (S.D.N.Y. 2000). Because Pan Am's claim requires proof that it validly terminated the MLA (unless Pan Am can prove Chui did not have authority to act for MPI), any relief the Court might grant on that claim would be "hollow" without MPI in the case, since MPI would remain free to raise the same contractual issue in a different court. Global Discount Travel Services, LCC v. Trans World Airlines, Inc., 960 F. Supp. 701, 708 (S.D.N.Y. 1997) (a judgment is hollow under Rule 19(a)(1) if it would permit "repeated lawsuits on the same essential subject matter."); Hooker Chemicals & Plastics Corp. v. Diamond Shamrock Corp., 520 F. Supp. 204, 206 (S.D.N.Y. 1981). Therefore, MPI must be joined as a party.*fn5 Ryan, 107 F. Supp. 2d at 387. Lucas is a necessary party for the same reasons-the outcome of the ...


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