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Balady, Inc. v. Elhindi

United States District Court, E.D. New York

December 3, 2014

BALADY, INC., Plaintiff,
v.
JENIN ELHINDI AND BALADY WA BALADAK FOOD CORP., Defendants

Balady, Inc., Plaintiff: Leo L. Esses, LEAD ATTORNEY, Cohen Tauber Spievack & Wagner, LLP, New York, NY.

OPINION

Ramon E. Reyes, Jr., United States Magistrate Judge.

TO THE HONORABLE STERLING JOHNSON, JR., SENIOR UNITED STATES DISTRICT JUDGE

Balady Inc. (" Plaintiff") brought this action against defendants Jenin Elhindi (" Elhindi") and Balady Wa Baladak Food Corp. (collectively, " Defendants"), alleging federal and state law claims of trademark infringement and unfair competition, as well as state law claims of trademark dilution and breach of contract. (Dkt. No. 1.) Although Elhindi attended a Show Cause Hearing held in connection with Plaintiff's motion for a preliminary injunction, and spoke on behalf of herself and the corporate defendant, neither defendant has filed an answer. The Clerk of the Court noted Defendants' default pursuant to Federal Rule of Civil Procedure 55(a) (Dkt. No. 14), and Plaintiff subsequently moved for default judgment (Dkt. No. 15). Your Honor referred that motion to me for this Report and Recommendation.

I. BACKGROUND

Plaintiff owns Balady Foods, a halal food market that opened in Brooklyn, New York in 2003. (Compl. ¶ 12.) Plaintiff has been operating under the Balady mark continuously in the area since the store's inception. (Id.) The store provides halal services to customers and sells a wide variety of grocery products and imported Middle Eastern foods. (Id. ¶ 14.) Plaintiff also sells private label grocery goods under the Balady mark to both consumers and wholesalers in the New York metropolitan area. (Id. ¶ ¶ 17-18.) In addition to their in store sales, Plaintiff sells their goods across the country through internet and retail catalog orders. (Id. ¶ 17.) Plaintiff states that Balady, which means " my town" or " my place" in English, is a fitting name for a store that has become an " important and supportive part of the community." (Id. ¶ 15.)

Plaintiff contends that their extensive and costly marketing in the New York metropolitan area has helped the Balady mark gain widespread recognition. ( See id. ¶ ¶ 28-30.) This recognition and several instances of unsolicited media coverage of the store has, according to Plaintiff, led customers to recognize the source of goods bearing the Balady mark. (Id. ¶ ¶ 19-20.) Due to these factors, Plaintiff asserts that the Balady mark is " inherently distinctive as applied to its goods and services" ( id. ¶ 19), and a valuable source of good will among customers ( see id. ¶ 30).

Defendants opened Balady Wa Baladak in 2013. (Id. ¶ 31.) Plaintiff alleges that the two stores sell similar goods and services and that they operate in the same channels of trade and serve the same customer market. (Id. ¶ ¶ 34-35, 55) According to Plaintiff, Balady Wa Baladak translates to either " my town and yours" or " my place and yours." (Id. ¶ 33.) Thus, Plaintiff contends that Balady and Balady Wa Baladak " are substantially similar in sound and appearance and substantially identical in meaning and connotation." (Id. ¶ 56.) Because of these similarities in the marks, Plaintiff avers that potential purchasers are likely to be confused and falsely believe that the two stores are related. (Id. ¶ 57.)

Plaintiff owns New York State trademark registrations for the Balady mark covering retail grocery services and wholesale distribution of groceries. (Id. ¶ 27; Compl. Exh. E.) In August 2012, Plaintiff filed a federal trademark application for the Balady mark, and now owns a pending federal trademark application for retail grocery services and other applications. (Id. ¶ 24; Compl. Exh. D.)

Shortly after opening Balady Wa Baladak in May 2013, Elhindi filed a federal trademark application to register a Balady Wa Baladak Food Corp. mark for retail grocery services. (Id. ¶ 40; Compl. Exh. G.)[1] In an official action, the U.S. Patent and Trademark Office noted that there may be a potential bar to Defendants' Balady Wa Baladak Food Corp. registration due to the possibility of confusion with Plaintiff's Balady application. (Id. ¶ 43.) In the federal trademark application, Elhindi stated that she believed herself entitled to use the Balady Wa Baladak mark. (Id. ¶ 41.)

Plaintiff asserts that Defendant had actual knowledge of the Balady mark and of Plaintiff's purported rights in the mark when applying for her federal trademark. (Id. ¶ 36.) Before Defendants' store opened, Plaintiff spoke with Elhindi about the use of the word Balady in connection with the business. ( See id. ¶ 39.) Elhindi reassured the Plaintiff that Balady Wa Baladak would not be competing with the Plaintiff. (Id.) Additionally, Plaintiff contends that prior to opening Balady Wa Baladak, Elhindi posted a question online inquiring about the legality of using the name Balady Wa Baladak given that it so closely resembled the established and nearby Balady store. (Id. ¶ ¶ 37-38; Compl. Exh. F.)

After Balady Wa Baladak opened, Plaintiff's counsel sent a cease and desist letter complaining that the Balady Wa Baladak mark infringes on the Balady mark and demanding Defendants refrain from using the name. (Id. ¶ 45; Compl. Exh. H.) In response, Plaintiff contends that Elhindi agreed, in writing, to refrain from using the " infringing" Balady Wa Baladak mark in exchange for Plaintiff's promise not to sue for trademark infringement (Id. ¶ ¶ 47-49, 82.) Plaintiff alleges that it deferred taking legal action and that Defendants' continued to use their infringing Balady Wa Baladak mark in breach of their promise to refrain from doing so. (Id. ¶ ¶ 51, 82, 84.)

II. PROCEDURAL HISTORY

Plaintiff filed this lawsuit against Defendants and immediately moved for a preliminary injunction. The Court held a Show Cause Hearing on February 11, 2014, at which Elhinidi attended. Elhindi represented to Court--as she had to counsel the day prior--that she no longer owned Balady Wa Baladak. She explained that she ceased being the owner as of September 22. (2/11/14 Tr. at 6:18-25, 7:9-10; see id. at 7:25-8:6.) She confirmed that Defendants " did contact [her] about the sign" and that she had agreed with Plaintiff's prior counsel to remove the sign. (Id. at 7:14-16, 7:24-25) Elhindi indicated that she has documents to show that she is no longer the owner ( id. at 11:18-22), but the record contains no evidence to demonstrate the business transfer. The Court denied Plaintiff's motion for a preliminary injunction.

III. LIABILITY

A defendant's default serves as an admission of all of the well-pleaded allegations of liability in a complaint. Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992). " Nevertheless, it remains for the court to consider whether the unchallenged facts constitute a legitimate cause of action, since a party in default does not admit conclusions of law." La Barbera v. ASTC Labs., Inc., 752 F.Supp.2d 263, 270 (E.D.N.Y. 2010) (internal quotation marks omitted).

Courts have adjudicated unregistered trademark infringement claims under 15 U.S.C. § 1125(a) on default judgment. See Ortho Sleep Prods. v. Dreamy Mattress Corp., No. 11-CV-6049 (CBA), 2012 WL 6621288, at *1 (E.D.N.Y. Aug. 29, 2012), adopted by, 2012 WL 6589208 (E.D.N.Y. Dec. 17, 2012); HTS, Inc. v. Boley, 954 F.Supp.2d 927, 963 (D. Ari. 2013); Michael Phelps Found. v. Schroeder, No. 10-CV-346-JAW, 2010 WL 4279166, at *1 (D. ME. Oct. 22, 2010). That Plaintiff's federal trademark application for the Balady mark was at one time pending before the United States Patent and Trademark Office is also not an impediment to the Court's ability to decide this case. See J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 32:49 (4th ed.); Tuvache, Inc. v. Emilio Pucci Perfumes Int'l, Inc., 263 F.Supp. 104, 105-06 (S.D.N.Y. 1967) (observing that a court may properly adjudicate a trademark infringement claim that does not require any specialized or technical expertise prior to a decision by the United States Patent and Trademark Office).

The well-pleaded allegations set forth in the Complaint establish the requisite elements to state a claim for trademark infringement and unfair competition under 15 U.S.C. § 1125(a)(1)(A) and state law, as well as liability for state law claims of trademark dilution and breach of contract.

A. Trademark Infringement & Unfair Competition

Section 43(a) of the Lanham Act prohibits a person from using " any word, term, name, symbol, or device" that " is likely to cause confusion . . . as to the origin, sponsorship, or approval" of goods or services. 15 U.S.C. § 1125(a). This section protects unregistered trademarks. Louis Vuitton Malletier v. Dooney & Bourke, Inc., 454 F.3d 108, 114 (2d Cir. 2006) (citation omitted). " [C]ourts use matching tests in analyzing claims for false designation of origin, trademark infringement, and unfair competition under the Lanham Act and New York common law." Romeo & Juliette Laser Hair Removal, Inc. v. Assara I LLC, No. 08-CV-0442 (TPG) (FM), 2014 WL 4723299, at *1 (S.D.N.Y. Sept. 23, 2014). See also Van Praagh v. Gratton, 993 F.Supp.2d 293, 301 (E.D.N.Y. 2014) (observing that courts apply " substantially similar standards"). The only deviation is that a common law unfair competition claim requires the plaintiff to establish an additional element of the alleged infringer's bad faith. Erickson Beamon LTD v. CMG Worldwide, Inc., No. 12-CV-5105 (NRB), 2014 WL 3950897, at *9 (E.D.N.Y. Aug. 13, 2014) (citing Empresa Cubana del Tabaco v. Culbro Corp., 399 F.3d 462, 485 (2d Cir. 2005)). Given the similarity in the legal standards, the claims for federal and state law claims for trademark infringement and unfair competition will be analyzed jointly under the Lanham Act standards.

As a threshold matter, Plaintiff must " demonstrate its own right to use the mark or dress in question." ITC Ltd. v. Punchgini, Inc., 482 F.3d 135, 154 (2d Cir. 2007) (citation omitted). A plaintiff may demonstrate this right by " asserting that [it] made prior use of the trademark." Dual Groupe, LLC v. Gans-Mex LLC, 932 F.Supp.2d 569, 573 (S.D.N.Y. 2013). " This means that the plaintiff claims to have made the first use of the mark to identify [its] goods or service and continues to use the mark commercially." Id. (citing ITC Ltd. v. Punchgini, Inc., 482 F.3d at 147). Here, Plaintiff operated continuously for nearly ten years under the Balady mark before Defendants entered the market in 2013. ( See Compl. ¶ ¶ 12, 6.) Plaintiff's prior and continuous use demonstrates its initial right to use the Balady mark as to the Defendants, thus satisfying the threshold requirement.

To prevail on a trademark infringement claim, " the plaintiff must prove that its mark is entitled to protection and, even more important, that the defendant's use of its own mark will likely cause confusion with plaintiff's mark." Gruner Jahr USA Pub., 991 F.2d 1072, 1074 (2d Cir. 1993)[2]

1. Entitlement To Protection

" The strength of a trademark in the marketplace and the degree of protection it is entitled to are categorized by the degree of the mark's distinctiveness . . . . " Id. at 1076 (citing Abercrombie & Fitch Co. v. Hunting World, Inc., 537 F.2d 4, 9 (2d Cir. 1976)).

A plaintiff may demonstrate that a mark is distinctive by showing that the mark is either " inherently distinctive, i.e., intrinsically capable of identifying its source, or by demonstrating that the mark has acquired secondary meaning." Louis Vuitton Malletier v. Dooney & Bourke, Inc., 454 F.3d at 116 (internal quotations and citations omitted).

Courts examine the mark's distinctiveness by reference to a continuum of four categories: " (1) generic, (2) descriptive, (3) suggestive, and (4) arbitrary or fanciful." Abercrombie, 537 F.2d at 9. At the extremes are generic marks, which are not entitled to protection, and fanciful marks, which are automatically entitled to protection. PaperCutter, Inc. v. Fay's Drug Co., Inc., 900 F.2d 558, 561-62 (2d Cir. 1990) (citation omitted). The Balady mark falls in between these two poles.

A suggestive mark is automatically eligible for trademark protection, and " as might be expected, suggests the product, though it may take imagination to grasp the nature of the product." Gruner, 991 F.2d at 1076. See e.g., Soil Solutions, Inc. v. Soil Solution Indus. Inc., No. 09-CV-2470 (JBW), 2009 WL 3753912 at *4 (E.D.N.Y. Nov. 6, 2009) (determining that " Soil Solutions" is a suggestive mark where the company was involved in soil removal and drilling services); Playtex Prods., Inc. v. Georgia-Pac. Corp., 390 F.3d 158, 163 (2d Cir. 2004), superseded on other grounds by statute as recognized in Starbucks Corp. v. Wolfe's Borough ...


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