Unlimited Cellular, Inc. v. Red Points Sols. SL

677 F.Supp.3d 186

UNLIMITED CELLULAR, INC., Plaintiff, v. RED POINTS SOLUTIONS SL and Red Points Inc., Defendants.

21-cv-10638 (NSR)

United States District Court, S.D. New York

Signed June 14, 2023

Jason B. Lattimore, Law Office of Jason B. Lattimore, Esq., Morristown, NJ, for Plaintiff.

Christopher Michael Schafbuch, Rachel Maimin, Lowenstein Sandler LLP, New York, NY, Michelle Lea Goldman, Lowenstein Sandler LLP, Roseland, NJ, for Defendants.

ORDER & OPINION

NELSON S. ROMÁN, United States District Judge:

Plaintiff Unlimited Cellular, Inc. ("Plaintiff") brings this action against Red Points Solutions SL ("RP Solutions") and Red Points Inc. ("RP Inc." and collectively with Red Points Solutions, "Red Points" and the "Defendants"), asserting claims for Defamation, Tortious Interference with Prospective Business Relations, False Advertising under 15 U.S.C. § 1125(a) (the "Lanham Act"), violations of New York's Deceptive Acts and Practices statute (N.Y General Business Law § 349 ("GBL § 349")), and Aiding and Abetting Common Law Unfair Competition. (ECF No. 28 ("TAC").)

Presently before the Court is Defendants' Motion to Dismiss Plaintiff's Third Amended Complaint, which is brought pursuant to Federal Rule of Civil Procedure 12(b)(6), for failure to state a claim upon which relief may be granted (the "Motion"). (ECF No. 31.) For the following reasons, Defendants' Motion is GRANTED IN PART and DENIED IN PART.

BACKGROUND

I. Factual Background

The following facts as taken from Plaintiff's Third Amended Complaint are accepted as true and construed in the light most favorable to Plaintiff for purposes of this motion.

Plaintiff is an online non-authorized reseller of consumer products organized as a New York corporation with its principal place of business in Newburgh, New York. (TAC ¶¶ 1, 11, 37.) RP Solutions is a Spanish company with its principal place of business in Spain. (Id. ¶ 2.) RP Inc. is a Delaware corporation with its principal place of business at the same location as RP Solutions, in Spain. (Id. ¶ 3.) RP Inc. is an agent of RP Solutions which conducts business within the United States, and more specifically, in the state of New York. (Id.)

Red Points provides brand protection services through their automated software platform, which searches the internet for intellectual property infringements for their clients, reporting violations to the e-commerce website on which they are found (these violation reports are termed "VeRo reports"). (Id. ¶¶ 18-19.) Plaintiff lawfully operates as a non-authorized reseller on e-commerce website eBay.com ("eBay") (Id. ¶ 11.) eBay responds to such reported infringements by automatically removing the reported listing without warning to the seller, and reinstatement of the listing requires the trademark owner to retract the report. (Id. ¶ 13.) The reporting party is not required to submit any proof that the reported infringement is valid before removing the reported listing. (Id. ¶ 15.) When Red Points submits reports of intellectual property rights infringement to eBay, they certify that they have a good faith basis for the reports and that the reports are accurate. (Id. ¶ 27.) Red Points submits the reports of infringement without requiring their clients to confirm that the product listed is a counterfeit. (Id. ¶ 28.) E-commerce websites may suspend or terminate entire accounts based on alleged infringements, but they will not honor removal requests where the product is authentic. (Id. ¶¶ 16, 29.)

Red Points creates an email address for their clients, which is provided to e-commerce websites in connection with reports of intellectual property infringements. (Id. ¶ 32.) When an affected seller writes to the email address provided, an automated form response is sent which demands proof that the accused items are authentic. (Id. ¶ 33.) Red Points has no mechanism in place to ensure prompt retraction of erroneous reports even when the rights owner agrees to retract the report. (Id. ¶ 35.)

On November 2^nd and 5^th of 2021 Red Points reported two of Plaintiff's listings on eBay as infringing on the intellectual property rights of two of Red Points' clients. (Id. ¶¶ 38, 42.)

At the time of the November 2, 2021 report (the "November 2^nd Report"), Red Points reported to eBay that Plaintiff's inventory of "Hyperdrive USB-C Hub Adapter for IPAD Pro, Macbook Pro/Air, Power 9-in-1" ("USB Hub") was counterfeit, resulting in the removal of the listing. (Id. ¶ 42.) No verification of counterfeit status was requested from Red Points' client before submitting the report. (Id. ¶ 44.) That same day, Plaintiff sent an email to Red Points' client Sanho Corporation's Red Points email address confirming authenticity of the product and asking why the listing was reported. (Id. ¶ 46.) Defendants responded two days later with their form response. (Id.) Red Points refused to withdraw the report regarding the USB Hub despite the verifiable authenticity of the product listed by Plaintiff. (Id. ¶ 47.)

At the time of the November 5, 2021 report (the "November 5^th Report"), Red Points reported to eBay that Plaintiff's inventory of "OYO Fitness Full Body Portable Equipment Training Set" ("Training Set") was counterfeit, resulting in the removal of the listing. (Id. ¶ 38.) No verification of counterfeit status was requested from Red Points' client before submitting the report. (Id. ¶ 40.) On November 17, 2021, Red Points retracted only this November 5, 2021 report from eBay as baseless; the November 2, 2021 report was not retracted (Id.)

II. Procedural Background

Plaintiff commenced the instant action on December 13, 2021 by filing the Complaint. (ECF No. 1.) By agreement among the parties, an Amended Complaint, Second Amended Complaint, and Third Amended Complaint were filed on January 11, 2022, March 28, 2022, and August 1, 2022, respectively. (See ECF Nos. 7, 17, and 28.)

Following Plaintiff's filing of the Third Amended Complaint, Defendants filed a request to file a Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). (ECF No. 29.) The Court granted Defendants' request (ECF No. 30), and Defendants filed their Motion to Dismiss on November 10, 2022. (ECF NO. 31.) The parties filed their respective papers in support of, and in opposition to, Defendants' Motion to Dismiss that same day. (ECF Nos. 32-35.) Defendants' Motion to Dismiss is at issue here.

LEGAL STANDARD

Under Federal Rule of Civil Procedure 12(b)(6), dismissal is proper unless the complaint "contain[s] 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)). When there are well-pled factual allegations in the complaint, "a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Id. at 679, 129 S.Ct. 1937.

While the Court must take all material factual allegations as true and draw reasonable inferences in the non-moving party's favor, the Court is "not bound to accept as true a legal conclusion couched as a factual allegation," or to credit "mere conclusory statements" or "[t]hreadbare recitals of the elements of a cause of action." Iqbal, 556 U.S. at 662, 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955). The critical inquiry is whether the plaintiff has pled sufficient facts to nudge the claims "across the line from conceivable to plausible." Twombly, 550 U.S. at 570, 127 S.Ct. 1955. A motion to dismiss will be denied where the allegations "allow[ ] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.

DISCUSSION

I. Defendants' Motion to Dismiss Plaintiff's Claim for Defamation is Denied

To state a claim for Defamation under New York law, a plaintiff must allege: (i) a false statement of fact of and concerning the plaintiff, (ii) published to a third party without authorization or privilege, (iii) made with the applicable level of fault ("negligence or actual malice depending on the status of the [defamed] party") on the part of the publisher, (iv) that either caused special harm or constitutes defamation per se. Electra v. 59 Murray Enters., 987 F.3d 233, 259 (2d Cir. 2021); see Sleepy's LLC v. Select Comfort Wholesale Corp., 909 F.3d 519, 528 (2d Cir. 2018) (quoting Albert v. Loksen, 239 F.3d 256, 265-66 (2d Cir. 2001)). A plaintiff must plead the defamatory statements with some particularity. N.Y. C.P.L.R. 3016(a) ("In an action for libel or slander, the particular words complained of shall be set forth in the complaint, but their application to the plaintiff may be stated generally." (emphasis added)). Under Federal Rule of Civil Procedure 8's liberal pleading standards, this requires a plaintiff to "identify the allegedly defamatory statements, the person who made the statements, the time when the statements were made, and the third parties to whom the statements were published." Neal v. Asta Funding, Inc., 13-CV-2176 (VB), 2014 WL 3887760, at *3 (S.D.N.Y. June 17, 2014).

First, Plaintiff adequately pleads a false statement of fact made by Red Points "of and concerning" Plaintiff. "The 'of and concerning' element in defamation actions requires that the allegedly defamatory comment refer to the plaintiff." Sparrow Fund Mgmt. LP v. MiMedx Grp., Inc., 18-CV-4921 (PGG) (KHP), 2019 WL 1434719, at *9 (S.D.N.Y. Mar. 31, 2019) (quoting Brady v. Ottaway Newspapers, Inc., 84 A.D.2d 226, 228, 445 N.Y.S.2d 786 (2d Dept. 1981)). Red Points submits these VeRo reports directly to eBay on behalf of their clients, and as a matter of policy, the reported listings are removed by eBay. (TAC ¶¶ 13, 27.) Because the listings are connected with the user accounts, as demonstrated by eBay's policy to suspend or terminate an account based on alleged intellectual...