43 F. Supp. 3d 236
S.D.N.Y.2014Background
- Ezriel Polatsek founded Preferred Fragrance, Inc. and signed non-compete agreements after selling Preferred Fragrance to plaintiffs in 2011; Ezriel later joined Fragrance Acquisitions and engaged in ventures competing with plaintiffs.
- Plaintiffs alleged fraud in the sale and breaches of non-compete, asserting Ezriel competed via Exceed, Ouleaf, and other entities.
- Motions to dismiss/stay were decided earlier; the court denied abstention and allowed expedited discovery on non-compete issues.
- Plaintiffs sought leave to amend the Amended Complaint with 11 new claims (fraud, copyright/trade dress, unfair competition, tortious interference, fiduciary duties, unjust enrichment, civil conspiracy) and to add Exceed and other new defendants.
- The court granted in part: Counts 10 (breach of contract against Ezriel) and 13 (unjust enrichment against four new defendants) may proceed, while the proposed other claims are deemed futile.
- A Second Amended Complaint was ordered due by July 23, 2014, with next steps on jurisdiction and remaining discovery.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the proposed amendments are futile. | Plaintiffs seek to add multiple claims arising from Ezriel’s competing ventures. | Defendants argue many claims duplicate contract duties or misstate copyright/trade dress law. | Futile as to multiple claims; Counts 3,5,6,7,8,9,11,12,14 denied. |
| Whether the new breach of contract claim against Ezriel is permissible. | Count 10 alleges Ezriel breached non-compete and related duties. | Not challenged as futile; ok to amend to add Count 10. | Count 10 allowed. |
| Whether to allow unjust enrichment against new defendants. | Count 13 seeks unjust enrichment against Abraham, Liu, Ouleaf, Onlyou. | Not fully challenged; asserted against new defendants. | Count 13 allowed against four new defendants. |
| Whether adding Exceed as a defendant is permissible. | Exceed is part of the asserted scheme. | Exceed lacks independent basis against, should be denied. | Exceed denied as a defendant. |
| Whether the remaining proposed claims are preempted or inadequately pled. | Proposed claims cover unfair competition and other torts not fully duplicative of copyright. | Claims preempted or inadequately pled. | Claims rejected as futile for preemption/pleading reasons. |
Key Cases Cited
- Alitalia Linee Aeree Italiane, S.p.A. v. Airline Tariff Publ’g Co., 580 F.Supp.2d 285 (S.D.N.Y. 2008) (breach of fiduciary duty duplicative when based on contract claims)
- Northern Shipping Funds I, LLC v. Icon Capital Corp., 921 F.Supp.2d 94 (S.D.N.Y. 2013) (fiduciary duty duplicative of contract; aiding and abetting requires independent breach)
- Ellington Credit Fund, Ltd. v. Select Portfolio Servicing Inc., 837 F.Supp.2d 162 (S.D.N.Y. 2011) (duality of claims and duplicative theories analyzed in NY law)
- Gaito Architecture v. Simone Dev., 602 F.3d 57 (2d Cir. 2010) (substantial similarity question may be decided on a motion to dismiss when works attached)
- Samara Bros., Inc. v. Wal-Mart Stores, Inc., 529 U.S. 205 (U.S. 2000) (unregistered trade dress protection requires distinctiveness and likelihood of confusion)
- Yurman Design, Inc. v. PAJ, Inc., 262 F.3d 101 (2d Cir. 2001) (trade dress protection for distinctive packaging requires source-identifying elements)
- Marriott Int’l, Inc. v. Downtown Athletic Club of N.Y. City, Inc., 2003 WL 21314056 (S.D.N.Y. 2003) (fraud claims duplicative when based on intent to breach contract; cited for rule on contract duplicity)
- Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13 (2d Cir. 1996) (intent to perform under contract not fraud; duplicity standards)
- Manning v. Utils. Mut. Ins. Co., 254 F.3d 387 (2d Cir. 2001) (intent to perform under contract insufficient for fraud claim)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standards; plausibility inquiry)