United States District Court, S.D. New York
FEDERAL TREASURY ENTERPRISE SOJUZPLODOIMPORT and OAO " MOSCOW DISTILLERY CRISTALL," Plaintiffs,
SPIRITS INTERNATIONAL B.V., SPI SPIRITS LIMITED, SPI GROUP SA, YURI SHEFLER, ALEXEY OLIYNIK, ALLIED DOMECQ INTERNATIONAL HOLDING B.V., ALLIED DOMECQ SPIRITS & WINE USA, INC., WILLIAM GRANT & SONS USA, WILLIAM GRANT & SONS, INC., and STOLI GROUP (USA) LLC, Defendants
For Plaintiffs: Marc L. Greenwald, Esq., Jessica A. Rose, Esq., Leron Thumim, Esq., Quinn Emanuel Urquhart & Sullivan LLP, New York, NY; Daniel H. Bromberg, Esq., Quinn Emanuel Urquhart & Sullivan LLP, Redwood Shores, CA.
For SPI: Emily J. Henn, Esq., Philip A. Scarborough, Esq., Covington & Burling, LLP, Redwood Shores, CA; Bingham B. Leverich, Esq., David M. Zionts, Esq., Covington & Burling, LLP, Washington, DC.
For Allied Doemcq: David H. Bernstein, Esq., Carl Micarelli, Esq., Michael Schaper, Esq., Rayna S. Lopyan, Esq., David Sandler, Esq., Debevoise & Plimpton, LLP, New York, NY.
For WGS: William M. Merone, Esq., Kenyon & Kenyon LLP, Washington, DC.
OPINION AND ORDER
Shira A. Scheindlin, United States District Judge.
In order to determine whether this Court has subject matter jurisdiction over this action, I must resolve thorny questions of first impression under Russian law. In earlier litigation among these parties, the Second Circuit ruled that plaintiffs Federal Treasury Enterprise Sojuzplodoimport (" FTE" ) and OAO " Moscow Distillery Crista!!" (" Crista!!" ) lacked standing to assert claims under Section 32(1) of the Lanham Act. In February 2014, plaintiffs brought a new action against defendants, which include Spirits International B.V., SPI Group SA, and SPI Spirits Limited (collectively " SPI" ); Allied Domecq International Holding B.V., and Allied Domecq Spirits and Wine USA, Inc. (collectively " Allied Domecq" ); William Grant & Sons USA and William Grant & Sons, Inc. (collectively " WGS" ); and Stoli Group (USA) LLC (" Stoli Group" ), arguing, in part, that FTE had cured the standing defect and should be allowed to re-assert its Lanham Act claims. On August 25, 2014, I issued an opinion (the " August 2014 Opinion" ) granting in part and denying in part defendants' motion to dismiss the new complaint. Important to today's opinion, the August 2014 Opinion denied defendants' motion to dismiss FTE's claims for lack of standing largely because the Court had not been presented with expert testimony on Russian law.
Since issuing the August 2014 Opinion, the Court has heard extensive expert testimony, pursuant to Rule 44.1 of the Federal Rules of Civil Procedure (" Rule" ), on the relevant Russian law issues impacting Lanham Act standing. In light of this expert testimony, I again address the question of whether plaintiffs have standing to bring their remaining claims. For the following reasons, I find that plaintiffs
lack standing and, pursuant to Rules 12(b)(1) and 12(h)(3), dismiss their remaining claims for lack of subject matter jurisdiction.
A. The Second Circuit Holding and FTE's Response
This case concerns defendants' alleged misappropriation of U.S. trademarks -- namely the iconic Stolichnaya vodka brand -- which FTE claims to own. As noted above, in August 2013, the Second Circuit held that FTE lacked standing to sue for trademark infringement because even though the Russian Federation " entrusted [FTE] with responsibility for using and enforcing the [trademarks], it had not assigned the trademarks to FTE."  In response to the Second Circuit's ruling, in February 2014 the Russian Federation issued a decree (" Decree 69" ) authorizing the transfer of ownership rights in the trademarks at issue from the Federation to FTE. Pursuant to Decree 69, FTE and the Russian Federation entered into an assignment agreement (the " Assignment" ), in which the Russian Federation purportedly assigned the trademarks to FTE and expressly relinquished any and all interest in the trademarks. FTE then filed a new lawsuit, alleging that Decree 69 and the Assignment cured the previous standing defect.
Defendants moved to dismiss FTE's claims in their entirety pursuant to Rules 12(b)(1) and 12(b)(6), arguing, inter alia, that the Assignment and Decree 69 still failed as a matter of Russian law to confer full ownership rights of the trademarks to FTE. The August 2014 Opinion granted defendants' motion as to plaintiffs' non-Lanham Act claims on the ground of res judicata; however, the Court denied defendants' motion as to FTE's Lanham Act claims for trademark infringement, contributory infringement, rectification of register, and cancellation of registration. I noted at the time that the Court could not, without additional testimony from experts on Russian law, rule that FTE lacked standing.
B. Rule 44.1 Expert Testimony
Accordingly, pursuant to Rule 44.1, the parties offered expert reports and two days of expert testimony regarding relevant Russian law. On October 28, 2014, the Court heard summations. The key questions, which are explained in greater detail below, relate to FTE's ownership rights in trademarks under relevant Russian law, which is codified in the Russian Civil Code. In the main, the expert reports address two principal questions. First, through the Assignment and Decree 69, could the Russian Federation effect a legally valid transfer of full ownership rights in the trademarks at issue to FTE? Second,
if the Assignment was legally valid, did it also give FTE the right to sue the Allied Domecq and WGS defendants, who ceased selling vodka bearing the trademarks at issue years ago, for past damages?
Critical to both of these questions is an October 2014 amendment to the Russian Civil Code (the " Amendment" ), which took effect just days before the expert reports were filed. The Amendment states that " [t]he rules of Section [2 of the Civil Code] shall not be applied to the intellectual rights unless otherwise established by the rules of the present Section."  According to FTE's expert, this language confirms that FTE has full ownership rights of the trademarks at issue. Defendants and their experts vigorously dispute this claim.
III. LEGAL STANDARD
A. Subject Matter Jurisdiction
Rule 12(b)(1) provides for the dismissal of a claim when a federal court lacks subject matter jurisdiction. A federal court has an independent duty to determine that it has subject matter jurisdiction and, pursuant to Rule 12(h)(3), may raise the issue sua sponte at any time. " Rule 12(h)(3) is governed by the same standard as applied to a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1)."  Under that standard, the proponent of jurisdiction (typically the plaintiff) bears the burden of establishing subject matter jurisdiction by a preponderance of the evidence.
" In reviewing a facial attack to the [C]ourt's jurisdiction, we draw all facts -- which we assume to be true unless contradicted by more specific allegations or documentary evidence -- from the complaint and from the exhibits attached thereto."  However, to the extent that jurisdictional facts are in dispute, " 'jurisdiction must be shown affirmatively, and that showing is not made by drawing from the pleadings inferences favorable to the
party asserting it.'"  In fact, " in dismissing a complaint for lack of subject-matter jurisdiction under Rule 12(b)(1), a court may 'refer to evidence outside the pleadings.'"  Where questions of foreign law bearing on subject matter jurisdiction require testimony from foreign law experts pursuant to Rule 44.1, plaintiffs' factual allegations deserve closer scrutiny, and the Court is not limited to the allegations contained in the complaint.
B. Foreign Law Expert Testimony Under Rule 44.1
Pursuant to Rule 44.1, " [i]n determining foreign law, the court may consider any relevant material or source, including testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence."  " Although the Court may consider expert testimony, it need not accept the expert's opinions, and the ultimate determination of foreign law rests with the Court." 
IV. APPLICABLE LAW
A. Lanham Act Standing
Section 32(1) of the Lanham Act " protects only registered trademarks."  Under that section, a party has a cause of action " against any person who 'uses in commerce any . . . imitation of a registered mark . . . likely to cause confusion, or to cause mistake, or to deceive.'"  However, " [t]his cause of action is available . . . only to 'registrant[s]' of the trademarks at issue, a term the Act defines as embracing the actual registrant's 'legal representatives, predecessors, successors and assigns." '
Courts in the Second Circuit have long held that " a party is not an assign for standing purposes under the Lanham Act unless that party owns the mark at issue."  Moreover, the Second Circuit has " accepted that a transfer of an ownership interest in a mark is a predicate to standing for any putative assign." 
B. Relevant Russian Law
Because of the Lanham Act's requirement that an " assign" own the trademark
at issue, the Court must examine relevant Russian law, which governs the ownership rights of enterprises such as FTE. Integral to the Court's resolution of FTE's ownership rights in the trademarks at issue are two main areas of Russian law governed by the Russian Civil Code: (1) the nature of unitary enterprises, such as FTE, and their ownership rights, and (2) the Civil Code's definition of " property rights," especially as those rights relate to trademarks. First, I will review Decree 69 and briefly explain the organization and structure of the Russian Civil Code, an understanding of which is essential to interpret ...