Evercrete Corp. v. H-Cap Ltd.

429 F.Supp.2d 612

EVERCRETE CORPORATION and Raymond Willis, Plaintiffs, v. H-CAP LIMITED, Evercrete Corporation, Rhoda Hardy Leonorah Glatthaar, and Harvey Boulter, Defendants.

No. 05 Civ. 9249(SAS).

United States District Court, S.D. New York.

April 27, 2006.

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Serhiy Hoshovsky, Gvozd & Hoshovsky, New York, New York, Maria A. Savio, Frank D. Decolvenaere, Gottlieb, Rackman & Reisman, P.C., New York, New York, for Plaintiffs.

Toby Soli, Michael P. Socarras, Robert L. Elam, Greenberg Traurig LLP, New York, New York, for Defendants.

OPINION AND ORDER

SCHEINDLIN, District Judge.

I. INTRODUCTION

This case turns on a dispute over ownership of Evercrete Corporation, a New York corporation ("Evercrete New York"), and the trademark EVERCRETE. Raymond Willis and Evercrete New York bring this action alleging trademark infringement, conversion, unjust enrichment, common law fraud, and mail and wire fraud in violation of the Racketeering Influenced and Corrupt Organizations Act ("RICO").¹ H-Cap Limited ("H-Cap"), Evercrete Corporation, a Delaware corporation ("Evercrete Delaware"), and Rhoda Hardy now move to dismiss and to realign Evercrete New York as a defendant.² For the following reasons, defendants' motion is granted in part and denied in part.

II. BACKGROUND³

A. The 1918 Formula and EVECRETE Mark

In 1918, a formula for concrete sealant was invented ("1918 Formula"), and at some point thereafter, Benjamin Hardy obtained the rights to that formula.⁴ In 1941, Benjamin Hardy incorporated Evercrete New York to sell concrete sealant made using the 1918 Formula.⁵ In 1942, Evercrete New York obtained United States Trademark Registration No. 397,748 for the mark EVERCRETE from the United States Patent and Trademark Office ("USPTO").⁶ From 1941 "onward," Evercrete New York actively used the EERCRETE mark for concrete sealant made pursuant to the 1918 Formula.⁷

In the early 1940s, Benjamin Hardy authorized his brother, Richard Hardy, to use the 1918 Formula to produce sealant on the West Coast and to sell that sealant under the EVERCRETE mark, as well as the brand name CRET0.⁸ In or about 1974, Richard Hardy conveyed his company, the 1918 Formula, the CRETO mark, its associated goodwill, and his license to use the EVERCRETE mark to William Myers.⁹ Evercrete New York authorized Myers and his company, Creto International ("Creto") to sell concrete sealant under the mark EVERCRETE.¹⁰ "[F]or many years thereafter," Myers and Creto sold sealant made pursuant to the 1918 Formula under the marks EVERCRETE and CRET0.¹¹

In 1982, Evercrete New York renewed the EVERCRETE mark for a twenty-year term.¹² Rhoda Hardy obtained an equity interest in Evercrete New York in 1985 after the death of her husband, Alan Hardy.¹³

B. Evercrete New York's Bankruptcy Proceedings

On February 25, 1986, Evercrete New York filed for bankruptcy protection in the Bankruptcy Court for the Southern District of New York.¹⁴ In that proceeding, Evercrete New York filed an Amended Disclosure Statement ("Disclosure Statement") providing that its "intangibles and tradename" assets had an estimated book value of "0" and an estimated liquidation value of "0".¹⁵ The Disclosure Statement also provided that the "general intangibles owned by [Evercrete New York] consist[ of the name `Re-Nu-It' under which the [Evercrete New York]'s product has been marketed," and that due to product failures and a lack of sales, "the value of the tradename is considered by [Evercrete New York] to be for all intents and purposes without value."¹⁶

At the time of the reorganization, Evercrete New York's sole equity interest holder was Rhoda Hardy, and Evercrete New York's largest creditor was Steven Offerman.¹⁷ Evercrete New York's Plan of Reorganization dated December 29, 1986 ("Plan") provided that "equity interest holders in the Debtor shall retain their interests."¹⁸ The Plan also provided that "[i]n order to obtain the requisite funds required to consummate the Plan, a corporation to be formed by Rhoda Hardy and Stephen Offerman will purchase all the Debtor's assets and pay therefore an amount equal to that necessary for consummation of the Plan."¹⁹

In accordance with the Plan, Hardy and Offerman formed Re-Nu-It Coatings, Inc. ("Re-Nu-It Coatings").²⁰ Plaintiffs allege that during the reorganization proceeding, all of Evercrete New York's assets, including the 1918 Formula and the mark EERCRETE, were transferred to Re-Nu-It Coatings.²¹ On July 22, 1987, the Bankruptcy Court entered an order confirming the Plan ("Confirmation Order").²² The Confirmation Order provided that the Plan would bind Evercrete New York, its creditors, and any entity acquiring property under the Plan.²³ After the confirmation, in or about 1988, Hardy conveyed all of her equity interest in both Re-Nu-It Coatings and Evercrete New York to Offerman.²⁴ By 1988, Evercrete New York had ceased doing business.²⁵ On October 8, 1992, Evercrete New York filed an application with the Bankruptcy Court to close the case, signed by Hardy as "Secretary" of Evercrete New York.²⁶ On October 26, 1992, the Bankruptcy Court entered a decree declaring the Plan "fully consummated as appears by the annexed application" ("Final Decree").²⁷

C. Evercrete Asia

In or about 2000, Myers and Creto provided initial funding for Evercrete International (Asia) Ltd. ("Evercrete Asia"), a business venture formed by Leonorah Glatthaar to distribute Evercrete-branded concrete sealant in Asia.²⁸ In 2002, Harvey Boulter became a shareholder in Evercrete Asia.²⁹ At that time, Boulter and Glatthaar, who are husband and wife, began to sell "counterfeit" sealant alongside Myers' Evercrete sealant.³⁰ Boulter and Glatthaar formed H-Cap and Evercrete Delaware (collectively "H-Cap defendants") to legitimize their fraudulent scheme to deceive the trade into believing that their product was "genuine EVECRETE concrete sealant" made according to the 1918 Formula.³¹ The H-Cap defendants falsely stated that their sealant was produced in the United States, when in fact, it was produced in China.³²

D. Hardy Conveys the EVERCRETE Mark to H-Cap

In or about April 2002, the H-Cap defendants initiated contact with Hardy via telephone and offered to buy the EVECRETE mark and federal registration from Evercrete New York.³³ On August 21, 2002, Hardy executed an agreement on behalf of Evercrete New York assigning the EVERCRETE mark and associated goodwill to H-Cap for 84,000, which sum was "paid to Hardy personally."³⁴ In September 2002, H-Cap obtained a renewal of the registration of the mark EVECRETE and a declaration of continued use from the USPTO.³⁵

E. Offerman Conveys the EVECRETE Mark to Willis

Re-Nu-It Coatings dissolved in 2001 and Offerman became the sole owner of the 1918 Formula and the mark EVECRETE.³⁶ In August 2005, Offerman conveyed all of his equity interest in Evercrete New York, the 1918 Formula, the EVERCRETE mark, and the goodwill associated with that mark to Willis.³⁷ Willis has begun using the 1918 Formula and EVERCRETE mark "through a related company."³⁸

F. The Nevada Action

Plaintiffs allege that in or about October 2003, the H—Cap defendants "forced Myers to assign to defendant H—Cap such rights to the mark EVERCRETE which Myers and or his company Creto owned" through fraud, duress, threat, and intimidation.³⁹ In February 2004, Myers, Creto, and two other plaintiffs commenced suit in the United States District Court for the District of Nevada, alleging that H—Cap, Evercrete Delaware, and Leonorah Boulter (formerly Leonorah Glatthaar) had false represented that the concrete sealant they were selling under the mark EVE CRETE was based on the 1918 Formula (the "Nevada Action").⁴⁰ Willis was not a party to the Nevada Action. In September 2004, the parties to the Nevada Action reached a settlement, under which the plaintiffs assigned any rights "any of them, possess . . . in and to the mark[ EVE CRETE ... together with all rights and goodwill related thereto" to H—Cap.⁴¹ In turn, the defendants in the Nevada Action agreed to "refrain from stating or implying" that their products "have any relationship whatsoever to a 1918 formula."⁴²

On August 8, 2005, Willis submitted an affidavit in the Nevada Action as a "special projects officer" stating that he had "performed an investigation and discovered fraud perpetrated by [H—Cap]" in that action.⁴³ Willis requested that the Nevada court order his "testimony and presentation of evidence."⁴⁴ On August 17, 2005, the Nevada court entered a Permanent Injunction Order enforcing the settlement, without reference to Willis' affidavit ("Nevada Settlement Order").⁴⁵

G. H-Cap's Use of the EVERCRETE Mark

Since the conclusion of the Nevada Action, the H—Cap defendants have continued to market their products under the EERCRETE mark, to obtain additional registrations of that mark for various goods, and to represent to the trade that their sealant is made with the 1918 Formula.⁴⁶ Plaintiffs allege that the H—Cap defendants' "counterfeit product failed in projects where it was applied," and consequently damaged the goodwill associated with EVE RCRETE mark.⁴⁷ Plaintiffs allege that the H—Cap defendants have used the mail and wires to obtain trademark registrations and to sell their products under the false pretense that H—Cap has rights to the Evercrete brand.⁴⁸

Defendants now move to dismiss the action, arguing that Willis has no rights to Evercrete New York or the EVE CRETE mark. Defendants argue that prior Bankruptcy Court proceedings first, preclude plaintiffs' argument that either Evercrete New York or the EVE CRETE mark were ever transferred to Offerman,⁴⁹ and second, establish that plaintiffs' claim to the EVERCRETE mark rests on an alleged assignment that would have been invalid under the Lanham Act.⁵⁰

Defendants also move to dismiss plaintiffs' common law fraud and RICO claims, arguing that plaintiffs have...