United States District Court, S.D. New York
OPINION AND ORDER
August 7, 2017, Tesla Wall Systems, LLC ("Tesla")
filed the instant action against Related Companies, L.P.
("Related") and New Hudson Facades LLC
("NHF") seeking relief for defendants'
misappropriation of trade secrets in violation of the Defend
Trade Secrets Act ("DTSA") (18 U.S.C. § 1836)
and Related's false and misleading statements in
interstate commerce in violation of the Lanham Act (15 U.S.C.
§ 1125). See Am. Compl. ¶¶ 141-154, 160-165,
Dkt. 14. Tesla also brought seven state law claims for unfair
competition, tortious interference with contract, breach of
fiduciary duty, aiding and abetting breach of fiduciary duty,
breach of the covenant of good faith and fair dealing, common
law fraud, and unjust enrichment. See id.
¶¶ 155-159, 166-211.
the fourth suit arising out Tesla's "demise" in
2014, see id. ¶ 7, and the second pending
before this Court, see Related Companies, L.P. v.
Ruthling, No. 17 Civ. 4175 (JSR) (S.D.N.Y. 2017).
Defendants now move to dismiss Tesla's claims on various
grounds including improper claim splitting, res judicata,
laches, and failure to state a claim upon which relief can be
granted. See Memorandum of Law in Support of
Defendants' Motion to Dismiss Plaintiff's Complaint
("Def. Mem."), Dkt. 22.
reasons set forth below, the Court dismisses counts III,
VIII, and IX of plaintiff's complaint for failure to
state a claim and count IV as time barred, but denies
defendants' motion to dismiss counts I, II, V, and
pertinent allegations, as set forth in plaintiffs'
amended complaint, are as follows:
is a New York-based, multi-billion dollar real estate
developer. Am. Compl. ¶¶ 1, 9. Tesla is a
Nevada-based, vertically-integrated "curtain wall"
supplier that, for a period of several years, supplied
high-end glass facades to three of Related's building
projects. Id. ¶¶ 8, 25-29. NHF is a New
York-based affiliate of Related that manufactures and
installs curtain wall for Related's building development
projects. Id. ¶ 10.
is majority-owned by its founder Carleton Ruthling. Related
owns a non-controlling interest in Tesla, holds one of the
three seats on its Board of Directors, and has the right to
approve certain corporate actions.
to a "Term Sheet" executed in 2013, Tesla is
contractually obligated to distribute its cash in a
"waterfall" as follows: (1) in payment of taxes;
(2) in repayment of cash advances from Related, with accrued
interest at 9%; (3) 60% to Related and 40% to Skye Holdings
[controlled by Ruthling] until existing loans from Related
are paid off [approximately $6 million]/ and (4) 25% to
Related and 75% to Skye Holdings. See Related v.
Ruthling, Declaration of Nicholas A. Gravante, Jr. in
Support of Plaintiffs' Opposition to Defendant
Christopher Du's Motion to Dismiss, Ex. 6, Affidavit of
Dr. Carleton Ruthling ¶ 13, Dkt. 69.
of a dispute between Ruthling and Related over these terms,
Related ended its partnership with Tesla in 2014. Prior to
this dissolution and, in or around July 2013, Related, in an
effort to acquire Tesla's trade secrets allegedly
"began a concerted campaign to induce Budd to leave his
position as Tesla's President" and to work for
Related to form a competing curtain wall company that would
design, manufacture, and install curtain wall at reduced
costs. See Am. Compl. ¶ 73. Although Related knew that
Budd's employment agreement with Tesla included
confidentiality, noninterference, non-competition, and
non-solicitation clauses, see id. ¶¶
65-72, Related nonetheless held numerous secret meetings with
him, see id. ¶ 75.
about December 13, 2013, while Tesla was supplying curtain
wall to Related, and several months before Related indicated
it wanted to cease doing business with Tesla, Budd
distributed Tesla's business plan and financials to
Related executives without Tesla's knowledge or
permission. Id. ¶ 84. In January and February,
Budd travelled to New York to discuss potential projects for
a new, competing company, eventually incorporated as NHF,
see id. ¶ 85, and on March 7 Related extended
Budd a written offer of employment, see id. ¶
next day, Budd tendered his resignation with an effective
date of May 8, remaining President of Tesla for a further two
months. Id. ¶ 87. During this time, and
throughout his six-month non-interference period, Budd and
Related worked secretly to develop NHF and, at Related's
request, Budd solicited Tesla's U.S. employees in
violation of a non-solicitation agreement. Id.
¶ 94. Subsequently, Related induced Budd to breach his
obligations to Tesla by requesting and receiving Tesla's
confidential information and trade secrets. Id.
2015, following Tesla's "demise, " Related
sought to recover $3.3 million that a contractor on a Related
building project still owed Tesla in conjunction with
Tesla's work on that project. See id.
¶¶ 123-24. In response to Related's request,
the contractor sought an executed power of attorney showing
that Related had the authority to bill on Tesla's behalf.
Id. ¶ 129. As Related could not produce this,
Related directed a former Tesla employee working for Related
to create a false payment application to submit it to the
contractor. Id. ¶ 132. On January 16, 2015, a
Related employee accessed Tesla's billing portal without
authorization and fraudulently notarized a payment
application. See id. ¶¶ 133, 135.
Subsequently, Related received the $3.3 million. Id.
connection with these allegations, Tesla brings the
aforementioned nine claims for relief against Related and
NHF. Defendants move to dismiss these claims on various
grounds. They argue that plaintiff's Lanham Act, fraud,
and unjust enrichment claims (the "fraud claims"),
which are related to the $3.3 million defendants allegedly
stole, are barred by res judicata, as they should have been
raised as counterclaims in a New York State Court action,
The Related Companies, L.P. v. Tesla Wall Systems,
LLC, brought by defendants, which resulted in a $15.6
million judgment against Tesla. No. 650778/2015 (N.Y. Sup.
Ct. 2015). Plaintiff's remaining claims (its "trade
secrets claims"), defendants argue, should have been
raised in Tesla Wall Systems v. Budd, which resulted
in a final judgment against Related and is pending a retrial
on damages. No. 14 Civ. 8564 (LLS) (S.D.N.Y. 2014).
Defendants also contend that counts I, III, and VII fail to
state a claim and that counts II, IV, V, and VI are time
Court considers each argument in turn:
The Fraud Claims Counts III, VIII, and IX of
plaintiffs' complaint involve payment to Related - by a
third-party contractor - of $3.3 million owed to Tesla.
Count III: Lanham Act Violation
argue that plaintiff's complaint fails to state a claim
under the Lanham Act arising out of this incident.
Lanham Act provides that "any person who, on or in
connection with any goods or services . . . uses in commerce
any word, term, name, symbol, or device, or any combination
thereof, or any false designation of origin, false or
misleading description of fact or false or misleading
representation of fact, which . . is likely to cause
confusion . . . or to deceive as to the affiliation,
connection, or association of such person with another person
. . . shall be liable in a civil action by any person who
believes that he or she is or is likely to be damaged by such
act." 15 U.S.C. § 1125(a)(1)(A).
order to state a Lanham Act claim, Tesla must "show that
defendant's use of its mark is likely to cause 'an
appreciable number of ordinarily prudent purchaser's
'confusion as to the origin, sponsorship, or
approval' of the defendant's product." Louis
Vuitton Malletier S.A. v. Warner Bros. Entm't Inc.,
868 F.Supp.2d 172, 177 (S.D.N.Y. 2012) (quoting Savin
Corp. v. Savin Group, 391 F.3d 439, 456 (2d Cir. 2004)).
Tesla makes no allegations that Related used plaintiff's
mark "in commerce" either "on goods" -
meaning "on the goods or their containers or the
displays associated therewith or on the tags or labels
affixed thereto, or if the nature of the goods makes such
placement impracticable, then on documents associated with
the goods or their sale, and the goods are sold or
transported in commerce" - or "on services"
(meaning "used or displayed in the sale or advertising
of services"). 15 U.S.C. § 1127.
Lanham Act is designed to protect "trademark owners
against confusion as to 'affiliation, connection, or
association' in the marketplace."
V&S Vin & Spirit Aktiebolag (Publ) v. Absolute
Pub. USA Inc., No. 05 Civ. 4429 (RMB) (RLE), 2005 WL
3272828, at *2 (S.D.N.Y. Nov. 28, 2005), report and
recommendation adopted sub nom. V&S Vin & Sprit
Aktiebolag (publ) v. Absolute Publ'g USA Inc., 2006
WL 197001 (S.D.N.Y. Jan. 25, 2006) (quoting 15 U.S.C. §
1125(a) (1) (A) (emphasis added)). Tesla's claim here has
nothing to do with Related's use of Tesla's trademark
on its goods or services in the marketplace. It is more akin
to a conversion claim against Related for misrepresenting to
a third-party a right to receive monies allegedly owed to
Tesla. Thus, defendants' motion to dismiss count III is
Counts VIII and IX: Fraud and Unjust Enrichment
to plaintiff's unjust enrichment and common law fraud
claims, defendants argue that these claims are barred by res
New York law, "once a claim is brought to a final
conclusion, all other claims arising out of the same
transaction or series of transactions are barred, even if
based upon difference theories or if seeking a different
remedy." O'Brien v. City of Syracuse, 54
N.Y.2d 353, 357 (1981). "While New York does not have a
compulsory counterclaim rule (see, C.P.L.R. §
3011), a party is not free to remain silent in an action in
which he is the defendant and then bring a second action
seeking relief inconsistent with the judgment in the first
action by asserting what is simply a new legal theory."
Henry Modell & Co. v. Minister, Elders & Deacons
of Reformed Protestant Dutch Church of City of N.Y., 68
N.Y.2d 456, 461 (1986) (collecting cases)).
contends that Tesla remained silent in a state court case
brought by Related, which awarded Tesla the same $3.3 million
they now bring suit to recover. (In that case, The
Related Companies, L.P. v. Tesla Wall Systems, LLC,
Related won a $15 million judgment against Tesla, which was
$3.3 million lower, before interest, than it otherwise would
have been due to the contractor's 2015 payment to