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Sussman-Automatic Corp. v. SPA World Corp.

United States District Court, E.D. New York

April 25, 2014

SUSSMAN-AUTOMATIC CORP., Plaintiff,
v.
SPA WORLD CORPORATION d/b/a STEAM SAUNA DEPOT, JOSEPH SCHWARTZ, an individual, and IRA SCHWARTZ, an individual, Defendants

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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For Plaintiff: Eleanor Martine Lackman, Esq., Scott Jonathan Sholder, Esq., Of Counsel, Cowan, DeBaets, Abrahams & Sheppard LLP, New York, NY.

For Joseph Zelmanovitz, Esq., Of Counsel, Defendants: Stahl & Zelmanovitz, New York, NY.

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MEMORANDUM OF DECISION AND ORDER

ARTHUR D. SPATT, United States District Judge.

On December 26, 2013, the Plaintiff Sussman-Automatic Corp. (the " Plaintiff" ) commenced this action against the Defendants Spa World Corporation d/b/a Steam Sauna Depot (" Spa World" ) and its principals, Joseph Schwartz and Ira Schwartz (the " Individual Defendants" )(collectively the " Defendants" ). According to the Plaintiff, the Defendants engaged in a " bait-and-switch" scheme, orchestrated by the Individual Defendants, whereby they purported to sell the Plaintiff's brand steam shower and spa products on their website and over the phone, but in reality, never actually stocked an inventory of those products. The Plaintiff further alleges

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that each time a customer ordered a Plaintiff-branded product, the Defendants' employees falsely told the customer that the requested product was " temporarily out of stock" and instead offered to sell the customer a Spa World branded product. In addition, the Plaintiff alleges that the Defendants attempted to " convert" the Plaintiff's customers to their products by misrepresenting material qualities of Defendants' products and by maligning the Plaintiff's products.

On March 19, 2014, the Plaintiff filed an amended complaint, asserting (1) trademark infringement under the Lanham Act, 15 U.S.C. § 1114(1); (2) unfair competition under the Lanham Act, 15 U.S.C. § 1125(a)(1)(A); (3) false advertising under the Lanham Act, 15 U.S.C. § 1125(a)(1)(B); (4) common law trademark infringement; (5) common law unfair competition; (6) deceptive acts and practices under New York General Business Law § 349; and (7) trademark dilution under New York General Business Law § 360-l, et seq.

On April 1, 2014, the Defendants moved pursuant to Federal Rules of Civil Procedure (" Fed. R. Civ. P." ) 12(b)(6), 12(b)(1), and 9(b) to dismiss the complaint for failure to state a claim upon which relief can be granted.

For the following reasons, the motion is granted.

I. BACKGROUND

Unless stated otherwise, the following facts are drawn from the amended complaint and construed in a light most favorable to the non-moving party, the Plaintiff.

The Plaintiff is a New York corporation with its principal place of business in Long Island City, New York. The Plaintiff is an innovator of commercial and residential steam shower and spa equipment, and under its flagship brand, " Mr. Steam," sells high-technology steam shower generators and systems for both commercial and residential markets. The Plaintiff is the owner of three trademark registrations in the United States Patent and Trademark Office for variations of the trademark " Mr. Steam." The Plaintiff sells its " Mr. Steam" products to re-sellers around the world, not including Spa World.

Spa World is a Delaware corporation with its principal place of business in Valley Stream, New York. Spa World operates a website called Steam Sauna Depot. Spa World, through Steam Sauna Depot, sells and distributes its products in interstate commerce throughout the United States.

The Individual Defendants are domiciled in Nassau County, New York and are the principal officers of Spa World and Steam Sauna Depot.

During the time period relevant herein, one of the brands Spa World purported to offer for sale on the Steam Sauna Depot website was the Plaintiff's branded product, " Mr. Steam." Spa World displayed " Mr. Steam" products on its website. Also, according to the Plaintiff, Spa World falsely represented to its customers, over the phone, that it sold " Mr. Steam" products.

However, in fact, Steam Sauna Depot did not maintain an inventory of " Mr. Steam" products. Nor was Steam Sauna Depot ever a distributor to which the Plaintiff sold " Mr. Steam" products for resale.

As noted above, whenever a customer expressed an interest in ordering a " Mr. Steam" product from Steam Sauna Depot, either over the phone or by placing that item in an online shopping cart after seeing the item offered for sale at Steam Sauna Depot, a Spa World employee contacted

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that customer to tell him or her that the " Mr. Steam" product was " temporarily" out of stock but would be restocked in several weeks.

The Plaintiff asserts that these representations were false in at least two respects. First, the statement was allegedly false in a literal sense because Spa World did not maintain an inventory of " Mr. Steam" products in the first instance. Second, it was impliedly false because it gave customers the false impression that, at one time, " Mr. Steam products" were in stock in Spa World's inventory and that, in the future, they would be regularly stocked.

The Spa World employee would also allegedly tell the customer that Spa World would instead " upgrade" the customer to Spa World's own SteamSpa brand product for the same or a lower price, and would encourage the customer to purchase the SteamSpa product as an alternative to " Mr. Steam."

The Spa World employee would also allegedly claim that SteamSpa was a superior product to " Mr. Steam" ; that its products were made in the United States; were certified by the " Underwriters Laboratories" (" UL" ); and were of high quality. The Plaintiff alleges that these statements were literally false because SteamSpa products were manufactured and assembled in China -- not the United States -- from inferior materials, such as plastics; exhibited inferior workmanship relative to " Mr. Steam" products; and were not UL certified.

On the Plaintiff's information and belief, employees of Spa World were specifically instructed and trained to " convert" prospective buyers of " Mr. Steam" products into buyers of SteamSpa products. The Plaintiff alleges that this " conversion" not only included the above-described " bait-and-switch" scheme and false " puffing" of Spa World's products, but included maligning the Plaintiff's Mr. Steam products.

The Plaintiff also alleges that it first learned of the " bait-and-switch" scheme when a sales manager at a " Mr. Steam" re-seller attempted to purchase a " Mr. Steam" product from the Steam Sauna Depot website, and was told that the website did not have the " Mr. Steam" products in stock. The Plaintiff asserts that the manager could not complete the sale because, in fact, Spa World never maintained an inventory of " Mr. Steam" products, nor did Spa World intend to maintain such an inventory in the future. The Plaintiff further alleges that some of its employees verified the Defendants' practices by placing similar phone calls, and received the same treatment.

The Plaintiff asserts that the Defendants' " bait-and-switch" scheme resulted in customer confusion and lost sales.

As previously mentioned, on December 26, 2013, the Plaintiff commenced the instant action. On February 27, 2014, the Defendants moved to dismiss the complaint for failure to state a claim upon which relief can be granted.

On March 19, 2014, the Plaintiff filed an amended complaint. As stated above, the amended complaint raised causes of action for (1) trademark infringement under the Lanham Act; (2) unfair competition under the Lanham Act; (3) false advertising under the Lanham Act; (4) common law trademark infringement; (5) common law unfair competition; (6) deceptive acts and practices under New York General ...


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