Lokai Holdings LLC v. Twin Tiger USA LLC

306 F.Supp.3d 629

LOKAI HOLDINGS LLC, Plaintiff,

v.TWIN TIGER USA LLC, et al., Defendants.

15–CV–9363 (ALC)

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

Signed February 6, 2018

Amy Beth Goldsmith, Mark Jon Rosenberg, Tarter Krinsky & Drogin LLP, Joel Howard Rosner, New York, NY, Howard M. Cooper, Suzanne Elovecky, Todd & Weld LLP, Boston, MA, for Plaintiff.

Joshua G. Simon, Samuel G. Brooks, Scott P. Shaw, Call & Jensen, APC, Newport Beach, CA, Richard Scott Schurin, Steven Stern, Stern & Schurin LLP, Garden City, NY, for Defendants.

OPINION AND ORDER

ANDREW L. CARTER, JR., United States District Judge:

Lokai Holdings LLC ("Lokai," "Plaintiff," or "Counter–Defendant") brings this action for trade dress infringement, unfair competition, and false advertising against Defendants Twin Tiger USA LLC, Twin Tiger World Markets Ltd., Rory Coppock, and Troy Coppock (collectively, "Defendants," "Twin Tiger," or "Counter–Plaintiffs"). Twin Tiger, in turn, has asserted various affirmative defenses and counterclaims, alleging that Lokai has engaged in false advertising and unfair competition and has tortiously interfered with Twin Tiger's contractual and business relationships. Before the Court are Lokai's motions to dismiss certain counterclaims and to strike an affirmative defense. Specifically, Lokai seeks to dismiss Twin Tiger's false advertising, unfair competition, tortious interference, and attorney's fees claims under Fed. R. Civ. P. 12(b)(6) and to strike Twin Tiger's second affirmative defense of unclean hands under Fed. R. Civ. P. 12(f). For the reasons that follow, Lokai's motion to dismiss is GRANTED, and its motion to strike is also GRANTED.

BACKGROUND

Lokai is a socially responsible lifestyle brand company that sells bracelets. Sixth Amended Complaint ("SAC") ¶ 11. Lokai's beaded bracelets "have featured the same distinctive trade dress which includes substantially spherical silicone beads of substantially the same size and color integrated with each other at opposite poles with a single pair of contrasting colored beads diametrically opposed to each other." Id. ¶ 12. According to Lokai, the contrasting beads of its bracelets are intended to represent balance and the cycle of life with the dark bead filled with mud from the Dead Sea, the lowest point on earth, and the light colored bead filled with water from Mount Everest, the highest point on earth. Id. ¶ 13.

The Complaint alleges that in 2015 Twin Tiger began selling "unauthorized imitations" of Lokai's bracelets, marketing them as Life Bracelets. Id. ¶¶ 21–22. On that basis, Lokai filed suit on November 30, 2015. Lokai asserts claims for unfair competition and false advertising under the Trademark Act, California law, and the common law against Twin Tiger, alleging that they have infringed on its trade dress by selling confusingly similar bracelets and engaged in unfair competition and false advertising by making false claims in their promotional efforts that their bracelets contain "earth from below sea level" and "water from the mountains." After numerous amendments, Lokai filed its Sixth Amended Complaint on June 5, 2017.

Twin Tiger responded by filing on June 7, 2017 its Answer, Affirmative Defenses, and Counterclaims (the "Answer," "Affirmative Defenses," and "Counterclaims"). The first set of counterclaims that Lokai seeks to dismiss are the false advertising and unfair competition counterclaims (3rd, 4th, 5th, and 6th Counterclaims) under the Lanham Act, California law, and New York law. All four counterclaims rely on the same alleged conduct: (1) Lokai has failed to disclose that the water inserted in its bracelets does not permanently remain there, Counterclaims ¶¶ 20–23; and (2) Lokai has failed to disclose that it compensates various celebrities and influencers in exchange for their efforts to promote Lokai and its products. Counterclaims ¶¶ 28–31.

The second set of counterclaims consists of tortious interference claims: intentional interference with contractual relations (7th Counterclaim), intentional interference with prospective economic relations (8th Counterclaim), and negligent interference with prospective economic relations (9th Counterclaim). The conduct that forms the basis of these claims is that Lokai sent letters to Twin Tiger's customers, including Rue 21 and Five Below, requesting that they cease selling Twin Tiger's bracelets and threatening litigation based on infringement of Lokai's intellectual property rights. Counterclaims ¶¶ 74–75, 81–82, 87–89.

The last counterclaim is a claim for attorney's fees pursuant to 35 U.S.C. § 285 (1st Counterclaim). Counterclaims ¶¶ 1–11. In its Second Amended Complaint, Lokai asserted a claim for design patent infringement under 35 U.S.C. § 271, but this cause of action was voluntarily dropped by Lokai and dismissed with prejudice. See Stipulation and Order, ECF No. 155. Twin Tiger alleges that Lokai committed fraud in obtaining a patent and that Lokai's founder Steven Izen committed perjury during the course of discovery in this case, and therefore Twin Tiger is entitled to an award of reasonable attorney's fees. Redundantly, Twin Tiger's prayer for relief includes a request for an award of attorney's fees as the prevailing party with respect to Lokai's patent infringement claim.

STANDARD OF REVIEW

To survive a motion to dismiss pursuant to Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A claim is facially 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." Id. (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955 ). A sufficiently pleaded complaint must provide "more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Id. A complaint that merely offers labels and conclusions, a formulaic recitation of the elements, or " ‘naked assertion[s]’ devoid of ‘further factual enhancement,’ " will not survive a motion to dismiss. Id. (quoting Twombly, 550 U.S. at 557, 127 S.Ct. 1955 ). The court must accept all factual allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor. City of Pontiac Gen. Emp. Ret. Sys. v. MBIA, Inc., 637 F.3d 169, 173 (2d Cir. 2011). "A motion to dismiss a counterclaim is evaluated under the same standard as a motion to dismiss a complaint." Orientview Technologies LLC v. Seven For All Mankind, LLC, No. 13 Civ. 0538, 2013 WL 4016302, at *2 (S.D.N.Y. Aug. 7, 2013) (internal quotations marks omitted).

DISCUSSION

A. False Advertising and Unfair Competition CounterclaimsLanham Act Counterclaim

Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), prohibits both false endorsement, § 1125(a)(1)(A), and false advertising, § 1125(a)(1)(B). Section 1125(a)(1)(A) prohibits a person from making a false or misleading description or representation of fact which is likely to "deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person." Section 1125(a)(1)(A) prohibits false or misleading descriptions or representations of fact "in commercial advertising or promotion" concerning "the nature, characteristics, qualities, or geographic origin of ... goods, services, or commercial activities." 15 U.S.C. § 1125(a)(1)(B). Twin Tiger challenges two acts or practices by Lokai.¹ First, Twin Tiger alleges that the following statement on Lokai's website is literally false and/or misleading: "Each Lokai is infused with elements from the highest and lowest points on Earth. The white bead carries water from Mt. Everest, and the black bead contains mud from the Dead Sea. These extreme elements are a reminder to the wearer to live a balanced life—staying humble during life's highs and hopeful during its lows" (the "Water Statement claim"). Counterclaims, ¶¶ 20–23. Second, Twin Tiger alleges that Lokai has not disclosed that it has made payments of money and giveaways of free bracelets to celebrities in exchange for their "wear[ing] Lokai product and/or post[ing] about Lokai on social media" (the "Failure to Disclose Compensation claim"). Counterclaims, ¶¶ 29–31. Both of these allegations are insufficient to raise a Lanham Act claim.

To establish false advertising under Section 43(a) of the Lanham Act, the plaintiff (here, counter-plaintiff) must first demonstrate that the statement in the challenged advertisement is false. Merck Eprova AG v. Gnosis S.p.A., 760 F.3d 247, 255 (2d Cir. 2014). To prove that first element, a plaintiff must show one of two different theories of recovery: the challenged advertisement is (1) literally false or (2) likely to mislead or confuse consumers ("impliedly false"). See id. Under either theory, a plaintiff must also demonstrate that the false or misleading representation involved an inherent or material quality of the product. Id.

For a statement to be "literally false" or false on its face, it must conflict with reality. Schering Corp. v. Pfizer Inc., 189 F.3d 218, 229 (2d Cir. 1999). Upon a showing that an advertisement is literally false, consumer deception is presumed and no further inquiry is needed on the advertisement's impact on the public. Time Warner Cable, Inc. v. DIRECTV, Inc., 497 F.3d 144, 153 (2d Cir. 2007). Under the "literally false" theory, "the message must be unambiguous; if the representation ‘is susceptible to more than one reasonable interpretation, the advertisement cannot be literally false,’ and the advertisement is actionable only upon a showing of actual consumer confusion." Merck Eprova AG v. Gnosis S.p.A., 901 F.Supp.2d 436, 450 (S.D.N.Y. 2012) (quoting Time Warner...