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LPD New York, LLC v. Adidas America, Inc.

United States District Court, E.D. New York

March 27, 2017

LPD NEW YORK, LLC, Plaintiff,


          MARGO K. BRODIE, United States District Judge

         On November 5, 2015, Plaintiff LPD New York, LLC (“LPD”) commenced the above-captioned action against Defendants Adidas America, Inc. and Adidas AG, bringing claims for breach of contract, defamation and unjust enrichment. (Compl. ¶¶ 1, 104-16, 126-31, Docket Entry No. 1.) Plaintiff also seeks declaratory relief pertaining to disputes regarding its use of Defendants' trademarks under the Declaratory Judgment Act, 28 U.S.C. §§ 2201, 2202. (Id. ¶¶ 117-25.) Defendant Adidas America moved to dismiss the Complaint for failure to state a claim upon which relief may be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. (Def. Adidas America Mot. to Dismiss (“Adidas Am. Mot.”), Docket Entry No. 20.) Plaintiff moved for partial summary judgment on its claims for breach of contract, defamation and declaratory relief, pursuant to Rule 56 of the Federal Rules of Civil Procedure. (Pl. Mot. for Summ. J. (“Pl. Mot.”), Docket Entry No. 24.)

         By order dated April 6, 2016, the Court referred both motions to Chief Magistrate Judge Roanne L. Mann. (Order dated Apr. 6, 2016.) By report and recommendation dated August 25, 2016, (the “R&R”), Judge Mann recommended that the Court grant Adidas America's motion to dismiss as to Plaintiff's breach of contract and declaratory judgment claims, deny the motion as to Plaintiff's defamation and unjust enrichment claims, and deny Plaintiff's motion for partial summary judgment. (R&R, Docket Entry No. 39.) Plaintiff objects to the R&R in part. (Pl. Obj. to the R&R (“Pl. Obj.”), Docket Entry No. 49.) Adidas America did not file objections.

         On June 27, 2016, after Adidas America moved to dismiss and Plaintiff moved for summary judgment, Plaintiff served Adidas AG with the summons and Complaint. (Adidas AG Ltr. dated July 18, 2016, Docket Entry No. 37.) On September 6, 2016, Adidas AG moved to dismiss the Complaint for lack of personal jurisdiction pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure and for failure to state a claim upon which relief may be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. (Def. Adidas AG Mot. to Dismiss (“Adidas AG Mot.”), Docket Entry No. 40.)

         For the reasons discussed below, the Court adopts Judge Mann's recommendations in their entirety, which recommendations are that the Court grant Defendants' motion to dismiss as to Plaintiff's breach of contract and declaratory relief claims, deny Defendants' motion to dismiss as to the defamation and unjust enrichment claims, deny Plaintiff's motion for summary judgment as to the defamation, breach of contract and declaratory relief claims and grant Plaintiff leave to amend the Complaint to assert quasi-contract claims. The Court also denies Adidas AG's separate motion to dismiss for lack of personal jurisdiction, which was filed after the R&R.

         I. Background

         LPD is a New York limited-liability company based in Brooklyn, New York; Adidas America is a Delaware corporation based in Portland, Oregon; and Adidas AG is a German company based in Herzogenaurach, Germany.[1] (Compl. ¶¶ 2-5.) According to Plaintiff, Adidas America conducts any and all operations related to the United States for Adidas AG. (Id. ¶ 6.) Defendants “conduct substantial business in New York, including advertising, promoting, marketing, distributing, and selling” Adidas merchandise through physical and online stores. (Id. ¶¶ 8-9.)

         LPD is a fashion company that creates “streetwear” products. (Id. ¶¶ 15-16.) In October of 2013, Defendants contacted LPD to discuss a possible “collaboration” in which LPD would create unique streetwear-style designs for Defendants' brand and five National Collegiate Athletic Association (“NCAA”) basketball teams sponsored by Defendants.[2] (Id. ¶ 19.) LPD expressed interest in the collaboration and later developed two design “capsules” for the collaboration: a “Classics Capsule” and a “Collaboration Capsule.” (Id. ¶¶ 20-21.) The Classics Capsule consisted of “a series of design proposals for NCAA Basketball Teams, which included prints for tee shirts, basketball jerseys, basketball shorts, and team jackets” that Defendants would help design in conjunction with LPD. (Id. ¶ 21.) The Collaboration Capsule consisted of “a series of design proposals for basketball jerseys, tee-shirts, outerwear, jackets, hats, shorts, sports bras, lanyards and pants” for an athletic-streetwear collection designed primarily by LPD. (Id.) After receiving some of the designs for the Classics Capsule, Defendants responded that they were “excited” about the designs. (Id. ¶¶ 22-23.)

         On November 17, 2013, LPD asked Defendants how the pieces from the Classics Capsule “should/will be branded (with both LPD and Adidas logos) and how/where they will be distributed (in Adidas' stores/distributors or otherwise).” (Id. ¶ 24.) Defendants responded that “the rules are really what [the parties] want them to be” because the project was the first time Adidas's basketball division was “coordinating with a fashion brand.” (Id. ¶ 25.) Defendants subsequently proposed that:

Branding Due to NCAA rules the uniforms can only be branded adidas. So our actual on court product we will be badged as adidas.
There is an opportunity for co-branding on your retail pieces and our Satin Jacket. Our designers could collab for a cool jocktag or woven label that would be badged with both logos.
If you want to just badge your product LPD only we understand the option but we would want to at least show a true collaboration to demonstrate “court to street.”
This part is also new. But after having [internal] discussion[s] . . . we have a few options of where we would retail. - Our own retail would love to feature this [as] an exclusive collection. Your retail pieces are at a price point where we could feature our retail shorts with your retail pieces and make it an exclusive release online.
Your retailers - because these pieces are at a higher price point than our sales reps deal with your access to boutique and footprint accounts.
NYC stop-in-shop. We would do an in-store collab where we split the store in half with your retail and some of our higher price point retail and highlight this collection but gain momentum for both brands.
Or the option of all 3. Let me know your thought as I think we will have to write our rules because this has not happened with an actual on-court kit before.

(Id. (alterations in original).) LPD replied that it liked the idea of the true collaboration and wanted to get to work on the tags and labels for the pieces, was interested in exploring all of the proposed retail options, and could get to work on “visuals” as soon as it had “samples of the first approved products.” (Id. ¶ 26.) In addition, LPD asked if “it would be possible to get a letter of intent for the collaboration.” (Id.) Defendants thought “a letter of intent [would be] perfect” and agreed to “work on putting some of this into a document with the purpose of this along with details.” (Id. ¶ 27 (alterations omitted).)

         On January 13, 2014, LPD informed Defendants that it was going to begin creating samples from the Classics Capsule design proposal. (Id. ¶ 29.) On February 25, 2014, LPD sent Defendants “a concept proposal for the Collaboration Capsule.” (Id. ¶ 33.) By March of 2014, Defendants had not responded, and LPD followed up to get Defendants' feedback regarding the Collaboration Capsule and a letter of intent. (Id. ¶ 34.) A week later, Defendants replied, stating that they approved of the designs for the Collaboration Capsule and that “[t]he letter of intent is a work in progress” due to some “developmental boundaries.” (Id. ¶ 35.) Defendants also provided “some key next steps, ” which included “[l]etter of intent finalization.” (Id.) LPD then asked how the parties would divide or allocate the “sales and profits, ” to which Defendants responded that the products from the Classics Capsule would be provided to the NCAA teams at no cost, Defendants' licensed apparel division would purchase the Collaboration Capsule materials related to the NCAA teams, and the “royalties [from those sales] would go to the schools, ” and the “capsule collection profits would likely be primarily profits to LPD because Defendants' products were mainly ‘on court school products.'” (Id. ¶¶ 36-37.) Defendants also stated that the details of the collaboration would be finalized and confirmed “once the mission statement is complete.” (Id. ¶ 37.) In response, LPD asked that Defendants “just let LPD know the specifics and that everything is confirmed once [Defendants] know for sure.” (Id. ¶ 38.)

         As LPD began making arrangements to prepare samples of products for both capsules, it contacted Defendants to determine whether Defendants or LPD would cover the costs of producing the samples and to specify the location of the manufacturing for the final products. (Id. ¶¶ 39, 41.) Defendants gave LPD a “budget code” to pay for the production of the samples and told LPD that the final products would be manufactured in Defendants' facilities. (Id. ¶¶ 40, 42.) Because LPD's “pattern-and-sample maker” refused to accept Defendants budget code to cover the sample production costs, LPD paid the costs and sought reimbursement from Defendants. (Id. ¶ 47.)

         On June 12, 2014, Defendants notified LPD that there was “a large re-alignment within its group[, ] so many of [Defendants'] projects had been on hold.” (Id. ¶ 50 (alterations omitted).) Nevertheless, Defendants told LPD that it wanted to finalize and launch the collaboration and instructed LPD to do the following: (1) send the “art” from the capsules for Defendants' to review, (2) send information regarding the Classics Capsule for Defendants' “teams” to “agree and sign off, ” and (3) keep any information regarding the teams involved in the collaboration confidential. (Id.) Defendants also agreed to reimburse the sample production costs and told LPD that further details regarding the collaboration should be handled in “the next few weeks.” (Id.) As to the prices for the collaboration products, LPD informed Defendants that they could not “pin down exact[] [pricing] since it depends on production (specifically whether LPD is producing the pieces here or at [Defendants'] facilities abroad and how many units . . . are ordered.” (Id. ¶ 51 (alterations omitted).) LPD also requested “some sort of confirmation that the collaboration . . . will be happening.” (Id.) Defendants responded that “the collaboration would only be confirmed once [Defendants] were ‘100% on board'” and could “dedicate more funding to the collaboration.” (Id. ¶ 52.)

         The following week, LPD followed up, again asking about the location of the manufacturing and also sending Defendants its final design proposal for the collaboration. (Id. ¶ 53.) Defendants responded that “upper management approved the designs” and gave LPD “permission to move forward with the collaboration.” (Id. ¶ 54.) Defendants subsequently sent LPD sample products that it produced based on the Classics Capsule and allowed LPD to pitch products from both capsules to potential buyers. (Id. ¶¶ 56-57.) Thereafter, LPD notified Defendants that its buyers were interested in the products and inquired as to the status of the reimbursement for the sample production costs it had incurred. (Id. ¶ 58-59.) Defendants expressed their intent to reimburse the sample production costs, noted that they were having a meeting soon to discuss “a marketing budget and promotional plan, ” and stated that they had “enough signoff to continue to push through and continue on with the collab[oration].” (Id. ¶ 60 (alterations omitted).) During a subsequent telephone call, LPD informed Defendants it would soon begin producing “marketing materials” to promote the collaboration. (Id. ¶ 63.)

         On September 8, 2014, LPD began selling women's clothing items from the collaboration.[3] (Id. ¶ 69.) LPD also secured promotional publications with several online and print media outlets and continued to promote the collaboration in various places. (Id. ¶¶ 69, 72- 73, 76.) As a part of its promotion efforts, LPD created a “provocative” marketing video for the Collaboration Capsule. (Id. ¶ 76.) In November of 2014, V Magazine reached out to LPD, seeking to secure an exclusive feature of the Collaboration Capsule. (Id. ¶ 77.) LPD agreed. (Id. ¶ 78.) After V Magazine published the feature, a representative from Defendants called one of V Magazine's senior editors and told her that the collaboration was “illegitimate.” (Id. ¶¶ 79- 80.) As a result, V Magazine withdrew the feature. (Id. ¶ 82.)

         LPD obtained the contact information for Defendants' representative that contacted V Magazine, and provided him with the information for the people LPD had been in contact with concerning the collaboration. (Id. ¶¶ 83-84.) LPD also reached out to their contacts at Defendants' company, seeking clarification of the basis for the statement made by Defendants' representative to V Magazine. (Id. ¶ 85.) Defendants responded that the promotional material regarding the collaboration “took another route” than that which the parties discussed and “raised some flags” with its public relations team. (Id. ¶ 86.) Defendants also told LPD that the executive who approved the collaboration was no longer with the company and while they “did provide initial green lights to proceed[, ] . . . all content needed to be approved by [Defendants'] higher ups.” (Id.) LPD expressed its confusion and sent Defendants copies of all the materials it had regarding the collaboration. (Id. ¶ 87.) Defendants then told LPD that “products are good to go” but the promotional video could not be show anymore and any sales from the Classics Capsule had to be placed on hold because it could cause legal issues with the NCAA teams. (Id. ¶ 88.)

         LPD continued to promote and sell items from the Collaboration Capsule but, in January of 2015, a buyer refused to accept delivery and pay for the items because he doubted the legitimacy of the collaboration. (Id. ¶¶ 90, 94, 95.) To resolve the issue, LPD requested that Defendants send the buyer a letter confirming the collaboration's legitimacy. (Id. ¶ 96.) Defendants sent the letter but the buyer requested additional assurance, and LPD requested further confirmation of the collaboration. (Id. ¶¶ 97-99.)

         In May of 2015, Defendants sent LPD a “back-dated licensing agreement” dated June 1, 2014, which provided that LPD had the right to “use the [A]didas name and Three-Stripes trademark” for both capsules “provided that LPD paid 10% royalties” to Defendants. (Id. ¶ 100.) The proposed licensing agreement also sought to “terminate LPD's right to manufacture and sell pieces from the Classics and Collaboration Capsules” as of May 1, 2015. (Id.) LPD refused to sign the agreement and again requested reimbursement for the sample production costs. (Id. ¶¶ 101-02.) Defendants threatened to sue LPD for trademark infringement. (Id. ¶ 102.)

         Based on the foregoing, LPD filed the Complaint in this action. (Id. ¶ 1.)

         II. Discussion

         a. Standards of review

         i. Report and recommendation

         A district court reviewing a magistrate judge's recommended ruling “may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge.” 28 U.S.C. § 636(b)(1)(C). When a party submits a timely objection to a report and recommendation, the district court reviews the parts of the report and recommendation to which the party objected under a de novo standard of review. Id.; see also United States v. Romano, 794 F.3d 317, 340 (2d Cir. 2015). The district court may adopt those portions of the recommended ruling to which no timely objections have been made, provided no clear error is apparent from the face of the record. John Hancock Life Ins. Co. v. Neuman, No. 15-CV-1358, 2015 WL 7459920, at *1 (E.D.N.Y. Nov. 24, 2015). The clear error standard also applies when a party makes only conclusory or general objections, or simply reiterates its original arguments. Chime v. Peak Sec. Plus, Inc., 137 F.Supp.3d 183, 187 (E.D.N.Y. 2015) (“General or conclusory objections, or objections which merely recite the same arguments presented to the magistrate judge, are reviewed for clear error.” (citation omitted)); see also DePrima v. N.Y.C. Dep't of Educ., No. 12-CV-3626, 2014 WL 1155282, at *3 (E.D.N.Y. Mar. 20, 2014) (collecting cases).

         ii. Rule 12(b)(2)

         On a motion to dismiss for lack of personal jurisdiction pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure, “[a] plaintiff bears the burden of demonstrating personal jurisdiction over a person or entity against whom it seeks to bring suit.” Troma Entm't, Inc. v. Centennial Pictures Inc., 729 F.3d 215, 217 (2d Cir. 2013) (citing Penguin Grp. (USA) Inc. v. Am. Buddha, 609 F.3d 30, 34 (2d Cir. 2010)); see also Thackurdeen v. Duke Univ., 660 F. App'x 43, 44-45 (2d Cir. 2016) (“In opposing a motion to dismiss for lack of personal jurisdiction, plaintiffs bear the burden of establishing that the court has jurisdiction over defendants.” (citations, alterations and internal quotation marks omitted)). The showing a plaintiff must make to meet that burden is governed by a “sliding scale, ” which “varies depending on the procedural posture of the litigation.” Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., 722 F.3d 81, 84 (2d Cir. 2013) (quoting Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir. 1990)). If a defendant challenges personal jurisdiction by filing a Rule 12(b)(2) motion, “the plaintiff need persuade the court only that its factual allegations constitute a prima facie showing of jurisdiction.” Id. at 85 (quoting Ball, 902 F.3d at 197); Eades v. Kennedy, PC Law Offices, 799 F.3d 161, 167-68 (2d Cir. 2015) (same). Prior to discovery, a plaintiff need only plead “an averment of facts that, if credited by the trier, would suffice to establish jurisdiction over the defendant.” Dorchester, 722 F.3d at 84 (quoting Ball, 902 F.3d at 197); see also Chirag v. MT Marida Marguerite Schiffahrts, 604 F. App'x 16, 19 (2d Cir. 2015) (“A prima facie case requires non-conclusory fact-specific allegations or evidence showing that activity that constitutes the basis of jurisdiction has taken place.” (citing Jazini v. Nissan Motor Co., 148 F.3d 181, 185 (2d Cir. 1998))). After discovery, the plaintiff's prima facie showing must be factually supported. Dorchester Fin. Sec., 722 F.3d at 85 (quoting Ball, 902 F.3d at 197).

         The court must “construe the pleadings and any supporting materials in the light most favorable to the plaintiffs.” Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 732 F.3d 161, 167 (2d Cir. 2013) (citing Chloé v. Queen Bee of Beverly Hills, LLC, 616 F.3d 158, 163 (2d Cir. 2010)); Grundstein v. Eide, 598 F. App'x 45, 46 (2d Cir. 2015) (citing DiStefano v. Carozzi N. Am., Inc., 286 F.3d 81, 84 (2d Cir. 2001)). However, the court need not “accept as true a legal conclusion couched as a factual allegation.” In re Terrorist Attacks on Sept. 11, 2001, 714 F.3d 659, 673 (2d Cir. 2013), cert. denied sub nom. O'Neill v. Al Rajhi Bank, 134 S.Ct. 2870 (2014) (quoting Jazini, 148 F.3d at 185). In resolving a motion to dismiss for lack of personal jurisdiction pursuant to Rule 12(b)(2), a district court may consider materials outside the pleadings. Dorchester Fin. Sec., 722 F.3d at 86 (citing S. New Eng. Tel. Co. v. Global NAPs Inc., 624 F.3d 123, 138 (2d Cir. 2010)); Pinto-Thomaz v. Cusi, No. 15-CV-1993, 2015 WL 7571833, at *3 (S.D.N.Y. Nov. 24, 2015) (citing DiStefano, 286 F.3d at 84).

         In a case based on diversity jurisdiction, personal jurisdiction is determined by the law of the state in which the court sits. Ash v. Richards, 572 F. App'x 52, 53 (2d Cir. 2014) (citing Whitaker v. Am. Telecasting, Inc., 261 F.3d 196, 208 (2d Cir. 2001)). The court must first look to the state's long-arm statute. Whitaker, 261 F.3d at 208. If the court can exercise jurisdiction pursuant to the long-arm statute, the court must subsequently determine whether the exercise of personal jurisdiction over the defendant would comport with the Due Process Clause of the United States Constitution. Best Van Lines, Inc. v. Walker, 490 F.3d 239, 242 (2d Cir. 2007) (“If, but only if, our answer is in the affirmative, we must then determine whether asserting jurisdiction under that provision would be compatible with requirements of due process established under the Fourteenth Amendment to the United States Constitution.” (citing Int'l Shoe Co. v. Washington, 326 U.S. 310, 315 (1945))).

         iii. Rule 12(b)(6)

         In reviewing a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a court must construe the complaint liberally, “accepting all factual allegations in the complaint as true and drawing all reasonable inferences in the plaintiff's favor.” Concord Assoc's, L.P. v. Entm't Prop. Trust, 817 F.3d 46, 52 (2d Cir. 2016) (quoting Chambers v. Time Warner Inc., 282 F.3d 147, 152 (2d Cir. 2002)); see also Tsirelman v. Daines, 794 F.3d 310, 313 (2d Cir. 2015) (quoting Jaghory v. N.Y. State Dep't of Educ., 131 F.3d 326, 329 (2d Cir. 1997)). A complaint must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Matson v. Bd. of Educ., 631 F.3d 57, 63 (2d Cir. 2011) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)); see also Pension Ben. Guar. Corp. ex ...

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