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Harris v. Coleman

May 16, 2012


The opinion of the court was delivered by: Shira A. Scheindlin, U.S.D.J.



Joseph Harris and Conestoga Capital Partners LLS ("Conestoga") are suing Edward Coleman, That's Clever, Inc. ("TCI"), Seneca Products Corporation, Inc., A-Game Global, Inc. ("A-Game"), B.O.K. International Trading, Inc., B.O.K. International, Inc. ("BOK"), and Colin Jon, seeking monetary relief as well as a declaration that Conestoga owns the '635 Patent and the related trademark rights. In their answer to the Complaint, defendants (hereafter "counterclaim-plaintiffs" or "Coleman and TCI") bring counterclaims against Harris and Conestoga (collectively "counterclaim-defendants" or "Harris and Conestoga"). The counterclaims: (1) seek a declaration that Coleman owns the '635 Patent and the related trademarks; (2) allege that Harris and Conestoga are liable for a fraudulent conveyance; and (3) allege that Harris and Conestoga are liable for conversion and seek recovery of the value of the intellectual property at issue. Coleman and TCI also seek attorneys' fees pursuant to 35 U.S.C. § 285 and Debtor and Creditor Law ("DCL") § 276-a, and financial sanctions pursuant to Title 22 of the Official Compilation of Codes, Rules and Regulations of the State of New York ("N.Y.C.R.R."). Harris and Conestoga now move to dismiss all counterclaims pursuant to Rule 12(b)(6) for failure to state a claim and Rule 12(b)(1) for lack of standing. For the reasons stated below, this motion is granted in part and denied in part.


A. The Underlying Action

In 2003, Harris made an initial investment in TCI, a company owned by Coleman.*fn1 The purpose of the investment was to fund Coleman's development of a golf shoe that incorporated club-cleaning bristles in its outsole (the "Brisole golf shoes").*fn2 On September 11, 2007, TCI executed a Manufacturing and Distribution Agreement ("MDA") with BOK for the purpose of granting a license to BOK to manufacture, market and sell footwear with the Brisole Design.*fn3 In return, BOK agreed to pay TCI a royalty on its sales of the licensed products.*fn4

Additionally, under the MDA, TCI was an authorized direct distributor of shoes with the Brisole design.

Plaintiffs allege that on March 17, 2008, Coleman assigned the "entire right, title and interest" to the Brisole design to TCI ("the Coleman Assignment").*fn5

On November 7, 2008, Harris sued Coleman alleging that Coleman had falsified TCI financial records.*fn6 As part of a December 1, 2009 settlement agreement, TCI assigned Conestoga its rights to the Brisole Design and its rights under the MDA.*fn7

Additionally, TCI would continue to receive a share of the royalties from BOK as required under the MDA. Plaintiffs allege that BOK consented in writing to the TCI Assignment.*fn8 The December 1 settlement also provided that title to the intellectual property would revert to TCI after ten years, provided that Coleman and TCI did not default on their obligations pursuant to the settlement.

Further, plaintiffs allege that in connection with the December 1 settlement, the parties entered into a Stock Purchase Agreement on December 2, 2008. As part of this agreement, plaintiffs allege that Coleman agreed to make monthly payments to Harris under a Promissory Note, and that Coleman's companies, TCI and Seneca, would guarantee his obligations.*fn9 Plaintiffs allege that Coleman ceased making payments due under the Promissory Note in December 2010.*fn10 Plaintiffs also allege that BOK has failed to make royalty payments to Conestoga as required by the December 1 settlement.*fn11

Finally, plaintiffs allege that around the time that payments stopped, Coleman and Jon formed A-Game in Nevada.*fn12 Plaintiffs allege that A-Game has since succeeded TCI as the distributor and online retailer of the Brisole Golf Shoes in the U.S., and that Conestoga should have been -- but was not -- paid royalties on the sales of those shoes.*fn13

B. The Counterclaims*fn14

In their answer to the First Amended Complaint, Coleman and TCI assert that they are the ones who have been the target of fraud, and that Harris -- one of the counterclaim-defendants -- fabricated two legal documents purporting to assign or transfer the intellectual property rights at issue: (1) an assignment from Coleman to TCI; and (2) a transfer of intellectual property rights to Conestoga and Harris. Coleman asserts that he never executed an assignment transferring ownership of the '635 Patent to TCI or any another entity.*fn15 Nor did he discuss the provisions contained within the so-called Coleman Assignment with either Harris or Conestoga.*fn16 In fact, Harris and Conestoga only recorded the Coleman Assignment with the United States Patent and Trademark Office ("PTO") on July 14, 2011, more than one month after the filing of their initial Complaint, and only two days before the filing of the First Amended Complaint.*fn17 Finally, Coleman also alleges that because the Coleman Assignment was not included in the materials filed by Harris and Conestoga in either their original Complaint or First Amended Complaint, this establishes that it is a fabricated and fraudulent document.*fn18

1. Declaratory Judgment of Patent and Trademark Ownership

The first counterclaim alleges that Harris and Conestoga have incorrectly or fraudulently alleged that they are the rightful owners of the Brisole design intellectual property rights.*fn19 Therefore, Coleman and TCI ask this Court to declare: (1) that Coleman is the rightful owner of the '635 Patent; (2) that Coleman never assigned either his rights in the '635 patent or trademark rights to any person or entity; and (3) ...

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