United States District Court, S.D. New York
FERDO GRGUREV and OMER GRGUREV, individually and derivatively, Plaintiffs,
MILAN LICUL, BRANCO TURCINOVIC, DENNIS TURCINOVIC, FIVE “M” CORP., 268 SH RESTAURANT CORP., DELMONICO'S DISTRIBUTION LLC, and 268 SH RESTAURANT CORP., Defendants, and OCINOMLED LTD. and 50/50 RESTAURANT CORP., Nominal Defendants.
MEMORANDUM OPINION AND ORDER
GREGORY H. WOODS United States District Judge.
Omer and Ferdo Grgurev and Defendants Milan Licul and Branko
Turcinovic are experienced restaurateurs who have owned and
operated restaurants together for many years. Unfortunately,
the relationship between them has now gone to pot, devolving
into this acrid stew which, after long simmering, has now
come to a boil. The amended complaint asserts a smorgasbord
of fourteen derivative and direct claims ranging from
trademark infringement to tortious interference. Defendants
have asserted five counterclaims, including a petition for
dissolution of one of the corporations that they co-own with
Plaintiffs. In addition, all parties have informed the Court
of their intention to bring cross-motions for sanctions, and
Plaintiffs have recently moved for a preliminary injunction
barring Defendants from making any repairs, renovations, or
improvements to one of their jointly owned restaurants while
this action is pending. Now before the Court, however, is
Defendants' motion to realign the parties and to dismiss
twelve of Plaintiffs' claims. For the reasons that
follow, Defendants' motion to dismiss is GRANTED IN PART
and DENIED IN PART.
The Relationship Between the Parties
Omer and Ferdo Grgurev and Defendants Milan Licul and Branko
Turcinovic (the “Co-Owner Defendants, ” and
collectively with Plaintiffs, the “Co-Owner
Parties”) are equal co-owners of Nominal Defendants
Ocinomled Ltd. (“Ocinomled”) and 50/50 Restaurant
Corporation (“50/50”). ECF No. 26, Am. Compl.
(“AC”), ¶¶ 16-19. Because they each
hold a 25% ownership stake, the Plaintiffs together and the
Co-Owner Defendants together each represent half of the
voting power of each these entities.
Co-Owner Parties formed Ocinomled “in or around
1998” for the purpose of purchasing Delmonico's, a
restaurant located at 56 Beaver Street in
Manhattan. AC ¶ 16. Ocinomled is a closely held
corporation and does not have a governing operating agreement
or shareholders' agreement. AC ¶ 18, 97.
to forming Ocinomled, the Co-Owner Parties had partnered
together for many years in the operation of other
restaurants, including Scaletta. AC ¶ 19. Scaletta is
located at 50 West 77th Street in Manhattan and is operated
through Nominal Defendant 50/50. Id. The Co-Owner
Defendants have owned other restaurants separate and apart
from those that they own with Plaintiffs, including Murano
and Arno, the latter of which they own and operate through
Balarini Restaurant Corporation. AC ¶ 20.
to the amended complaint, Defendant Milan Licul was,
“at all relevant times, ” responsible for
maintaining the financial books and records of both
Delmonico's (through Ocinomled) and Scaletta (through
50/50). AC ¶ 21, 122. Licul engaged the same accountant
to maintain the books for both restaurants. AC ¶ 123.
Licul was also the president of 50/50. AC ¶ 193.
Delmonico's and the DELMONICO'S Marks
has been described by the New York Times as “possibly
the most famous name in American restaurant history.”
AC ¶ 27, Ex. A. “In operating and promoting its
restaurant, Ocinomled maintains the classic and upscale
ambience for which Delmonico's is famous, and its menu
includes classic Delmonico's dishes, such as Lobster
Newburg, Oysters Rockefeller, Baked Alaska, Eggs Benedict,
Chicken a la Keene and, of course, Delmonico's
Steak.” AC ¶ 23. According to Plaintiffs, the
“high-end reputation of the restaurant is inextricably
tied to the DELMONICO'S name.” Id.
Plaintiffs allege that Delmonico's “has been
extremely profitable for the last fifteen years” and
has averaged annual net revenues of at least $5 million for
the past several years. AC ¶¶ 29-30.
acquiring the Delmonico's restaurant, Ocinomled also
acquired the right to use the “Delmonico's”
name, as well as “all other rights” to that name
held by the seller, CIBE Beaver LLC. AC ¶ 17. In 2004,
Ocinomled filed an application with the U.S. Patent and
Trademark Office (the “USPTO”) for registration
of the DELMONICO'S service mark in Class 43 for
Restaurant Services (the “Restaurant Mark”). AC
¶ 24. That application is assigned U.S. Serial Number
76577253. Id. In 2007, Ocinomled filed an
application with the USPTO for registration of the
DELMONICO'S trademark and service marks for various
products and services covered by Classes 8, 16, 18, 21, 25,
29, 30, 34, and 41, including cutlery, cookbooks, bags and
briefcases, dinnerware, clothing, prepared foods, salad
dressings and sauces, cigars and cigar accessories, and
entertainment services (the “Product Mark, ” and
collectively with the Restaurant Mark, the
“Marks”). AC ¶ 25. That application is
assigned U.S. Serial Number 77301695. Id.
Ocinomled's registration applications are
“suspended in accordance with USPTO procedure pending
resolution of a concurrent use registration application made
by an unrelated party in connection with its operation of an
unrelated restaurant using the Delmonico's name in or
around Albany, New York.” AC ¶ 26.
alleges that the Marks “are famous and are an iconic
symbol of a fine dining steakhouse.” AC ¶ 27. They
also allege that the Marks “invoke the goodwill
associated with the historical roots of the Delmonico's
The Operation of Delmonico's and Scaletta
the Co-Owner Parties purchased Delmonico's through
Ocinomled, they closed the restaurant for refurbishment and
reopened it in mid-May 1998. AC ¶ 22. They “jointly
decided that none of them would be directly involved in the
day-to-day operations of the restaurant.” AC ¶ 31.
The Co-Owner Defendants devoted their time to managing their
other restaurants, Murano and Arno, while Plaintiffs
continued managing the day-to-day operations of Scaletta.
Co-Owner Defendants appointed Defendant Dennis
Turcinovic―Defendant Branko Turcinovic's
son―as one of two co-managers of Delmonico's. AC
¶ 32. As co-manager, he had regular access to the cash
received during the course of Delmonico's daily
operations. AC ¶ 103.
Milan Licul “conducts the bookkeeping” for
Delmonico's and “maintains the financial books and
records of Delmonico's at the offices of Arno, ”
the restaurant jointly owned by the Co-Owner Defendants. AC
¶ 33. Plaintiffs allege that Defendants Milan Licul and
Dennis Turcinovic “were and are responsible for
collecting all cash receipts from Delmonico's
restaurant.” AC ¶ 34.
Milan Licul also is responsible for maintaining the books and
records for the other restaurants jointly owned by the
Co-Owner Parties, including Scaletta. AC ¶ 96.
Co-Owner parties received regular salaries from Ocinomled,
which “were determined by Defendant Milan [Licul] and
paid out through the company's payroll.” AC ¶
35. Initially, Plaintiffs were paid $500 per week, but their
salaries were subsequently raised to $1, 500 per week. AC
¶ 36. Defendant Branko Turcinovic was also paid $1, 500
per week, while Defendant Milan Licul paid himself $2, 000
per week. Id.
Defendants' Alleged Unauthorized Exploitation of the
allege that, based on the success of Delmonico's
restaurant, the Co-Owner Defendants “saw an opportunity
to capitalize on the DELMONICO'S marks.” AC ¶
39. “[R]ather than expanding the brand for the benefit
of Ocinomled, ” however, the Co-Owner Defendants
“elected to pursue opportunities for their own benefit,
to the detriment of Ocinomled” by using the Marks in
connection with various sauces and other restaurants. AC
¶ 40; id. ¶¶ 40-90.
The Sauces and Delmonico's Distribution LLC
to the amended complaint, the Co-Owner Defendants
“undertook to manufacture, distribute and sell products
under the DELMONICO'S Product Mark, including
Delmonico's steak sauce . . . as well as other sauces,
salad dressings and marinades.” AC ¶ 41. The
Co-Owner Defendants presented Plaintiffs with the idea of
developing and marketing a steak sauce under the
DELMONICO'S Product Mark. AC ¶ 42. Based upon a
representation that royalties would be paid to Ocinomled for
that use of the Product Mark, Plaintiffs did not object to
the idea. AC ¶¶ 43-44. Thereafter, the Co-Owner
Defendants began manufacturing, distributing, and selling
steak sauce under the DELMONICO'S Product Mark, but
Ocinomled has not received any royalties or other
compensation. AC ¶ 44-45.
addition to the use of the Product Mark in connection with
the steak sauce, Plaintiffs allege that the Co-Owner
Defendants “unilaterally decided to use the
DELMONICO'S Product Mark for pasta sauces, salad
dressings and marinades.” AC ¶ 47. They did not
inform Plaintiffs of their plan to do so, nor did they obtain
a license or consent from Ocinomled for the use of the
Product Mark in connection with those products. AC ¶
Co-Owner Defendants formed Defendant Delmonico's
Distribution LLC (“Delmonico's Distribution”)
for the purpose of manufacturing, distributing, and selling
these sauces, and Plaintiffs allege that Delmonico's
Distribution “is currently selling these products
nationwide online and in stores” at the direction of
the Co-Owner Defendants. AC ¶¶ 51-52. Neither
Delmonico's Distribution nor the Co-Owner Defendants have
reported their earnings from the manufacture, distribution,
and sale of these products to Ocinomled or to Plaintiffs. AC
¶ 53. They also have not paid any license fees or
royalties. AC ¶ 54.
The Unauthorized Restaurants: Delmonico's Kitchen and
Delmonico's of Southampton
to the amended complaint, the Co-Owner Defendants also used
the DELMONICO'S name on other restaurants, including
Delmonico's Kitchen and Delmonico's of Southampton,
which are owned by corporations that the Co-Owner Defendants
alone own and control. AC ¶ 59-90. Neither Plaintiffs
nor Nominal Defendants Ocinomled and 50/50 have any ownership
stake in or affiliation with either of these restaurants. AC
¶¶ 62, 77.
Defendant Five “M” Corporation (“Five
M”), an entity which they own and control, the Co-Owner
Defendants converted Murano into Delmonico's Kitchen,
which is located at 207 West 36th Street in Manhattan. AC
¶¶ 60-61. The website of Delmonico's Kitchen
states that “Delmonico's, the country's first
fine dining restaurant, has expanded its premier location at
56 Beaver Street to Midtown Manhattan” and references
1837―the year in which the original Delmonico's
restaurant is believed to have opened. AC ¶ 69 & Ex.
B. Neither the Co-Owner Defendants nor Five M obtained
permission from Plaintiffs to use the DELMONICO'S name in
connection with that restaurant, nor did they obtain a
license or other form of consent from Ocinomled. AC ¶
64. As with the Product Mark, Plaintiffs allege that neither
the Co-Owner Defendants nor Five M have reported the revenues
earned from Delmonico's Kitchen to Ocinomled, and they
have not paid any licensing fees or royalties to Ocinomled
for their use of the Restaurant Mark. AC ¶ 65-66.
allege that the use of the Restaurant Mark in connection with
Delmonico's Kitchen has caused customers to confuse that
restaurant with Ocinomled's restaurant, as evidenced by
“several consumer reviews on public websites such as
Yelp” that “reflect that consumers believe that
Delmonico's Kitchen is affiliated with Ocinomled's
famous Delmonico's restaurant.” AC ¶ 71.
268 SH Restaurant Corporation (“SH”), another
entity that they own and control, the Co-Owner Defendants
opened a restaurant by the name of Delmonico's of
Southampton in 2013. AC ¶ 75. As with Delmonico's
Kitchen, the amended complaint alleges that neither the
Co-Owner Defendants nor SH received permission from
Plaintiffs or Ocinomled to use the DELMONICO'S name in
connection with Delmonico's of Southampton, nor did they
obtain a license or other form of consent for that use of the
Restaurant Mark. AC ¶ 79. Neither Plaintiffs nor
Ocinomled have received any report of the revenues earned
from Delmonico's of Southampton, and no license fees or
royalties have been paid to Ocinomled for the use of the
Restaurant Mark in connection with Delmonico's of
Southampton. AC ¶ 80-81.
to the amended complaint, the Co-Owner Defendants and SH
“encouraged customer confusion by mischaracterizing
Delmonico's of Southampton as an ‘offshoot' of
the Delmonico's flagship New York City location,
promoting the false assumption of a connection between
Ocinomled's restaurant and [Delmonico's of
Southampton].” AC ¶ 83. Several customers have
“confused Delmonico's of Southampton as being
affiliated with Ocinomled's restaurant.” AC ¶
85. For example, “several publicly available reviews
reflect that consumers believed that Delmonico's of
Southampton was another location of Ocinomled's famous
Delmonico's restaurant.” Id.
The Cease-and-Desist Letter and the Co-Owner Defendants'
November 12, 2013, Plaintiffs, through counsel, served a
cease-and-desist letter upon the Co-Owner Defendants. AC
¶ 91 & Ex. C. The letter advised the Co-Owner
Defendants that their use of the DELMONICO'S Restaurant
Mark in connection with Delmonico's Kitchen and
Delmonico's of Southampton was improper and unauthorized
and, because it was a usurpation of the name for their own
benefit, it was a breach of their “fiduciary obligation
as shareholders of Ocinomled Ltd.” AC ¶ 91 &
Ex. C, at 1. The letter also demanded that the Co-Owner
Defendants immediately cease their use of the name in
connection with the “unaffiliated restaurants.”
AC, ¶ 92 & Ex. C, at 2.
receiving this letter, the Co-Owner Defendants and Defendants
Five M and SH “continued to willfully use the
DELMONICO'S name without authorization in connection with
their unaffiliated restaurants.” AC ¶ 93.
Plaintiffs allege that Defendants' continued
“misuse of the Restaurant Mark caused substantial
damage to Ocinomled.” AC ¶ 94.
Other Alleged Wrongful Conduct
Alleged Misappropriation of Funds
also allege that Defendants “misappropriated funds and
resources that rightfully belonged to Ocinomled and the
Plaintiffs.” AC ¶ 95. Specifically, they allege
that the Co-Owner Defendants and Defendant SH have
“used funds received at Delmonico's―which
belonged to Ocinomled―to purchase the building that
housed Delmonico's of Southampton, through another entity
controlled by Defendant Milan [Licul], Defendant  SH
Realty [Corporation (“SH Realty”)], and to
establish that restaurant.” AC ¶ 99. They also
allege that the Co-Owner Defendants and SH “may
have” put up Ocinomled's Delmonico's restaurant
as collateral, without authorization, for the loan they took
to develop Delmonico's of Southampton. AC ¶ 100.
Plaintiffs allege that the Co-Owner Defendants and Defendant
Five M used Delmonico's funds to “refurbish and
reinvent Murano restaurant into Delmonico's
Kitchen.” AC ¶ 101. This project cost
“approximately $600, 000, at least a portion of which
was paid for with Ocinomled's funds.” Id.
The Co-Owner Defendants also “repeatedly used
Delmonico's chefs and waiters at Delmonico's of
Southampton and Delmonico's Kitchen but, upon information
and belief, paid these employees from Ocinomled's
payroll, despite Ocinomled having no interest in these other
two restaurants.” AC ¶ 108.
further allege that the Co-Owner Defendants and Defendant
Delmonico's Distribution used Ocinomled's funds to
finance the creation, marketing, and distribution of the
various sauces, salad dressings, and marinades described
above. AC ¶ 102.
to the amended complaint, Defendant Milan Licul manipulated
Ocinomled's general ledger to conceal Delmonico's
actual cash receipts “in order to aid the transfer of
cash receipts to Five M, SH Realty, SH Restaurant,
Delmonico's Distribution, and Balarini Restaurant Corp.,
all to be applied to infringing products and
restaurants.” AC ¶ 105.
Dennis Turcinovic “provided a portion of that cash to
Defendant Milan [Licul] to be used for these improper
purposes, ” and Defendant Branko Turcinovic “was
aware of this regular ‘siphoning' of cash to
Defendant Milan [Licul], and assisted in those improper
transactions.” AC ¶ 103-104.
2015 Salary Changes
April 2015―the same time period during which the
Co-Owner Defendants were allegedly siphoning funds from
Ocinomled to benefit their other ventures―they also
“unilaterally elected to cut off Plaintiffs['] . .
. compensation, without explanation.” AC ¶ 37,
106. At the same time, Plaintiffs allege, Defendant Milan
Licul doubled Defendant Branko Turcinovic's compensation
to $3, 000 per week and increased his own compensation to $3,
500 per week. AC ¶ 38.
Alleged Misuse of FEMA Funds
Delmonico's restaurant sustained approximately $3 million
of flooding damage from Hurricane Sandy in 2012. AC ¶
112-113. The Co-Owner parties jointly decided to file a claim
with the Federal Emergency Management Agency
(“FEMA”) for those losses. AC ¶ 114.
Approximately two years later, Plaintiffs requested
information concerning the status of the FEMA claim, and
Defendant Milan Licul informed them that no money had ever
been paid on the claim. AC ¶ 115. “Upon further
inquiry, however, Plaintiffs learned from Ocinomled's
accountant that this statement by Defendant Milan [Licul] was
false, and that FEMA had in fact paid some funds” to
Ocinomled. AC ¶ 116. Accordingly, Plaintiffs allege that
Defendant Milan Licul “misappropriated the FEMA funds
that had been paid to Ocinomled and used them for his own
benefit and for the benefit of Defendants SH Restaurant, SH
Realty and Five M.” AC ¶ 117.
Alleged Interference with the Renewal of Scaletta's
to the amended complaint, Defendant Milan Licul's
“misconduct was not just limited to
Delmonico's.” AC ¶ 119. Since 50/50 opened
Scaletta in 1988, it has operated in a leased space on the
Upper West Side of Manhattan. AC ¶ 124. As of the time
the amended complaint was filed on February 22, 2016, the
Scaletta lease was set to expire at the end of March 2016. AC
¶ 125. Plaintiffs allege that Defendant Milan Licul, on
behalf of 50/50, “unilaterally took control of
negotiations with the landlord to renew the current
lease” and “notified Plaintiffs . . . that he . .
. was the only person with authority to negotiate a new lease
for the restaurant.” AC ¶ 126. As of the date the
amended complaint was filed, 50/50 had been unable to reach
terms on a renewal of the lease with the landlord. AC ¶
allege that Mr. Licul is “acting solely out of
malice” by “intentionally stalling negotiations
and purposely refusing to reach terms on 50/50's lease
renewal” “in order to punish [Plaintiffs] for
disputing [his] misconduct with respect to Ocinomled, and to
pressure [Plaintiffs] not to assert claims with regard to his
other wrongdoing.” AC ¶¶ 128-130. This
conduct, Plaintiffs allege, is “risking the future of
Scaletta restaurant.” AC ¶ 131.
Demand Futility Allegations
have made no demand on Ocinomled aside from the letter
demanding that the Co-Owner Defendants cease and desist from
using the DELMONICO'S Marks in connection with their
unaffiliated restaurants. AC ¶ 132-134. Instead,
Plaintiffs allege that a litigation demand would be futile
for several reasons: First, the Co-Owner Defendants
“were and are the primary actors behind all of the
wrongful conduct” alleged in the amended complaint
“and face a substantial likelihood of being held liable
for . . . breaching their fiduciary duties . ., and are
therefore incapable of disinterestedly considering a demand
to vigorously prosecute this action against
themselves.” AC ¶ 134(a). Second, as 50%
shareholders in the Nominal Defendants, the Co-Owner
Defendants could “prevent any action taken on behalf of
the Nominal Defendants to remedy the actions taken against
it.” AC ¶ 134(b). Third, “[t]he actions
taken by Defendants are so egregious on their face that they
could not have been the product of sound business
judgment.” AC ¶ 134(d).
initiated this lawsuit on December 16, 2015. In the original
complaint, the Grgurevs joined Ocinomled and 50/50 as
plaintiffs. ECF No. 1, Compl., at 1. They brought federal
trademark claims as well as various state law claims. Compl.
¶¶ 132-191. On February 5, 2016, Defendants
answered the complaint and asserted counterclaims for breach
of the duties of care and loyalty owed to 50/50, conversion,
and unjust enrichment. ECF No. 18. Defendants also petitioned
for dissolution of 50/50. Id.
February 29, 2016, Plaintiffs amended their complaint to
replead certain of their claims as derivative and to rename
Ocinomled and 50/50 as nominal defendants. ECF No. 26, AC.
The amended complaint asserts ten derivative claims and four
direct claims, including claims for federal trademark
infringement and dilution, as well as state law claims for
breach of fiduciary duty, breach of the duty of loyalty,
conversion, unjust enrichment, deceptive trade practices, and
tortious interference with business relationship. AC
¶¶ 137-220. Plaintiffs also assert an equitable
claim for an accounting. AC ¶¶ 170-174. As relief,
Plaintiffs seek a permanent injunction barring Defendants
from using the Marks in connection with the unauthorized
restaurants and products, as well as compensatory and
punitive damages. AC at 33-34.
March 29, 2016, Defendants moved to dismiss twelve of the
fourteen claims asserted in the amended complaint. ECF No.
38, Mot. to Dismiss; ECF No. 40, Mem. of Law in Supp. of Mot.
to Dismiss (“Defs.' Mem.); ECF No. 39, Decl. of
Alan C. Trachtman (“Trachtman Decl.”). The only
claims they do not move to dismiss are the federal claims for
false designation of origin pursuant to 15 U.S.C. §
1125(a) and trademark dilution pursuant to 15 U.S.C. §
1125(c). See Defs.' Mem. In addition, Defendants
request in their motion that the Court re-align the parties
to recast the Nominal Defendants as plaintiffs. Defs.'
Mem. at 2-3. Plaintiffs filed an opposition brief on April
22, 2016. ECF No. 45, Mem. of Law in Opp'n to Mot. to
Dismiss (“Pls.' Mem.”); ECF No. 46, Decl. of
Jamie M. Brickell (“Brickell Decl.”). ...