Opinion
03 Civ. 3089 (RLC).
October 25, 2006
Fred H. Perkins, Morrison Cohen Singer Weinstein, L.L.P., New York, NY.
Lewis Donald Prutzman, Jr., Tannenbaum Helpern Syracuse Hirschtritt LLP, New York, NY.
Norman H. Zivin, Cooper Dunham LLP, New York, NY.
Robert Thomas Maldonado, Cooper Dunham LLP, New York, NY.
Jennifer L. Barry, Latham Watkins LLP, San Diego, CA.
Kenneth M. Fitzgerald, Latham and Watkins LLP, San Diego, CA.
Oliver C. Bennett, Latham Watkins LLP (NY), New York, NY.
OPINION
BACKGROUND
The parties, plaintiffs and counterdefendants, New York Dermatologist Dennis Gross M.D. and M/D Skincare LLC (together, "MD SKINCARE") and defendant Bare Escentual, Inc. and counterclaimants, Bioceutix, Inc. and MD Beauty, Inc. (together, "MDB") are competitors in the skin care products business, who sell their products over the internet and through spas, salons and select retail locations. MDB holds the trademarks for the "MD Formulations" brand. This dispute arose over similarities between the logo and packaging design of the two competing lines of skin care products.
Both the "MD Formulations" and "MD Skincare" logos appear in all lowercase letters, with the "MD" appearing with no periods. The dispute also concerns similarities in packaging in terms of color scheme and accent color.
MD SKINCARE filed for declaratory relief in this court. In their complaint dated January 23, 2006, MD SKINCARE alleges that they have not infringed MDB's marks. On February 17, 2006, MDB filed an answer asserting six counterclaims: (1) trademark infringement; (2) unfair competition; (3) trademark dilution; (4) trade dress infringement; (5) common law trademark infringement; (6) unfair competition; (7) and trademark dilution in violation of New York law. Discovery commenced in March 2006.
MD SKINCARE, on September 20, 2006, moved to amend their complaint pursuant to Rule 15 (a), F.R. Civ. P. On September 26, 2006, MDB moved for permission to depose nine (9) additional individuals beyond the ten (10) depositions permitted pursuant to Rule 30, F.R. Civ. P. MDB seeks to depose members of M/D Skincare's sales force who MDB argues could provide evidence of "actual confusion" between "MD Formulations" trademarks and "MD Skincare" trademarks. MDB has identified thirty (30) individuals in M/D Skincare's sales force who they believe may have knowledge of confusion between the two products lines given their daily interactions with consumers. They propose deposing ten (one-third) of such individuals in an attempt to achieve a representative sample. MD SKINCARE opposes the motion.
The parties have agreed that expert witness depositions will not be included in the ten (10) depositions permitted under Rule 30, F.R. Civ. P.
I.
The Federal Rules of Civil Procedure presumptively limit the number of depositions that each side may conduct to ten. The purpose of Rule 30(a)(2)(A) is to "enable courts to maintain a `tighter rein' on the extent of discovery and to minimize the potential cost of `[w]ide-ranging discovery'. . . ." A party may request leave to conduct more than ten depositions, and the Court should grant such a request if it is "consistent with the principles stated in Rule 26(b)(2)." Accordingly, "[a]lthough a witness might have discoverable information, a party is not always entitled to depose that individual." Rule 30(a)(2)(A) was enacted to control discovery costs and prevent harassment or undue delay. A court has discretion to allow more than ten depositions if the party who is seeking discovery has shown why it is necessary.II.
Based on the sales force's daily interactions with consumers, MDB has made a persuasive argument for why their request to depose some of these employees should be granted. However, the court is skeptical of MDB's need to depose one-third of the thirty (30) individuals they identified as potentially having knowledge of confusion between the two products lines. The court will allow MDB to take four (4) additional depositions beyond the ten (10) depositions permitted pursuant to Rule 30, F.R. Civ. P. Thus, MDB will be able to depose five individuals from the sales force, which is one-half the number that they requested. MDB will limit, as proposed by MDB's counsel, the four (4) additional depositions to two (2) hours, to minimize the interruption to M/D Skincare's sales efforts. Should, after these depositions are completed, MDB desire further depositions, it may seek leave to take additional depositions at that time. It is the court's view that additional depositions, beyond those permitted herein, would be duplicative and would not provide MDB with sufficient new information to justify the burden on the plaintiffs.III.
Leave to amend under Rule 15(a) is liberally granted except where it would result in undue delay, where it would be futile, where it is sought in bad faith, where it would prejudice the opposing party, or where the moving party has repeatedly failed to cure deficiencies by amendments previously allowed. The decision to grant leave to amend is within the discretion of the trial court.
See Foman v. Davis, 371 U.S. 178, 182 (1962).
See id.
Plaintiff MD SKINCARE seeks to assert six causes of action in its' amended complaint: (1) declaratory judgment that the MD SKINCARE's marks do not infringe the MD Formulations marks; (2) trademark infringement of the plaintiffs' "Alpha Beta" trademark pursuant to Section 32(1) of the Lanham Act; (3) unfair competition by false designation of origin pursuant to Section 43(a) of the Lanham Act; (4) cancellation of the federal registrations pursuant to 15 U.S.C. § 1119; (5) common law unfair competition; and (6) deceptive trade practice in violation of General Business law § 349. Plaintiffs seek preliminary and permanent injunctive relief, damages and attorneys' fees. Defendant MDB opposes the additional causes of action for several reasons.
IV.
MDB contends that MD SKINCARE's proposed trademark infringement, unfair competition by false designation of origin, common law unfair competition and deceptive trade practice causes of actions are untimely and will not survive a motion to dismiss and are therefore futile. MDB also contends that the proposed claims will prejudice MDB by adding new claims deriving from a different set of facts. MDB argues that the addition of these claims a month prior to the discovery cut-off date will result in significant delay in the case going to trial. MDB does not oppose the addition of the fourth cause of action for cancellation of the MD Formulations marks.
MDB asserts that the proposed causes of action for trademark infringement and federal unfair competition are already the subject of a declaratory relief action in the Northern District of California, No. CV 06-5605(MHP), and therefore would not survive MDB's motion to dismiss on "first-to-file" grounds. The first-filed rule is not to be applied mechanically, however, but is intended to aid judicial administration by acting "as a `presumption' that may be rebutted by proof of the desirability of proceeding in the forum of the second-filed action." The law has established that "where the first-filed case is a declaratory judgment action precipitated by a demand letter and filed in anticipation of the later action, the secondfiled action will be permitted to go forward in a plaintiff's chosen forum."
See William Gluckin Co. v. Int'l Playtex Corp., 407 F.2d 177, 178 (2d Cir. 1969) ("The general rule in this Circuit is that, as a principle of sound judicial administration, the first suit should have priority").
See Hanson PLC v. MGM, 932 F. Supp. 104, 107 (S.D.N.Y. 1996) (Chin, J.).
Mass v. McClenaham, No. 93 Civ. 3290, 1993 U.S. Dist. Lexis 9218, at *4 (S.D.N.Y. July 2, 1993) (Martin, J.); see also Fleet Capital Corp. v. Mullins, No. 03-CV-6660, 2004 U.S. Dist. LEXIS 4425, at * 13-14 (S.D.N.Y. Mar. 18, 2004) (Holwell, J.).
Here, MDB filed for declaratory relief in California on September 13, 2006 upon learning that MD SKINCARE had a federal registration for the use of the term Alpha Beta. MD SKINCARE contends MDB filed the California declaratory relief action after they became aware of plaintiff's intent to move to amend their complaint to include the new Alpha Beta claims. The plaintiff's motion to amend was filed on September 20, 2006, making it the second filed action. The court finds that MDB's declaratory judgment action falls within the preemptive lawsuit exception to the "first-filed" rule. Therefore, MD SKINCARE will be allowed to amend its complaint to include its Alpha Beta claims and should seek either a stay or transfer of the action in California.
According to plaintiffs, on September 8, 2006, they gave notice to the defendants of their intention to amend the complaint, seeking the defendants' consent for such amendment, and on September 11, 2006, plaintiffs' counsel forwarded a copy of the proposed Second Amended Complaint to the defendants containing the Alpha Beta claims.
See McClenaham, 1993 U.S. Dist. Lexis 9218, at *5.
Next, MDB contends that the proposed common law unfair competition cause of action is futile under the unclean hands doctrine and untimely since it should have been brought within five years from when the initial use began or within the three years that the current action has been pending. The court notes that motions to amend are often granted after years of delay. In addition, this contention goes to the substantive merits of the claim and is more appropriately raised in a motion for summary judgment.
See Richardson Greenshields Securities, Inc. v. Lau, 825 F.2d 647, 653 n. 6 (2d Cir. 1987) (noting liberality in granting leave to amend and cataloguing cases granting leave following delays of three to five years).
See S.S. Silberblatt, Inc. v. East Harlem Pilot Block, 608 F.2d 28, 42-43 (2d Cir. 1979) (holding that where alleged futility of amended pleading rested on findings of fact, amendment should be permitted).
MDB also asserts that the proposed deceptive trade practice cause of action is futile because it is barred by the statute of limitations and does not meet the statutory requirements.
N.Y.C.P.L.R. § 214(2); see Gaidon v. Guardian Life Ins. Co. of Am., 96 N.Y.2d 201, 208-209 (2001) (the applicable statute of limitations for claims under this section is three years); Securitron Magnalock Corp. v. Schnabolk, 65 F.3d 256, 264 (2d Cir. 1995) (the conduct must "affect the public interest in New York"); Gucci Am., Inc. v. Duty Free Apparel, Ltd., 277 F. Supp. 2d 269, 273 (S.D.N.Y. 2003) (Marrero, J.) ("Commercial claimants under § 349 must allege conduct that has "significant ramifications for the public at large" in order to properly state a claim.") (citation omitted).
Plaintiffs argue that the defendants continued use of a similar color scheme and of the terms Alpha Beta on the MD Formulations products and marketing material to this day constitutes an ongoing infringement of their marks. The court finds that MD SKINCARE's proposed cause of action is not barred by the statute of limitations because each time plaintiff discovers or should have discovered a new injury caused by violations of the statute, a new claim accrues, triggering a new three-year statute of limitations period.
See Blue Cross Blue Shield of N.J., Inc. v. Philip Morris, Inc., 178 F. Supp. 2d 198, 271-272 (E.D.N.Y. 2001) (applying the accrual rule to Section 349 claims).
With regard to the argument that the proposed claim does not meet the statutory requirements, Section 349 provides, in relevant part: "Deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state are hereby declared unlawful." N.Y. Gen. Bus. L. § 349(a). A party bringing a claim under Section 349 must show that: "(1) defendant engaged in a consumer-oriented act, (2) that the consumer oriented act was misleading in a material way, and (3) that plaintiff consequently suffered injury." The deceptive practice, whether a representation or omission, must be "likely to mislead a reasonable consumer acting reasonably under the circumstances." Additionally, "a plaintiff must prove `actual' injury to recover under the statute, though not necessarily pecuniary harm." A competitor may recover under the statute, so long as there is harm to the "public at large." Given MD SKINCARE's marks association with a medical doctor and both product-lines use of the term "MD," the potential for harm to consumers confused by similar logos and packaging is a legitimate concern raised by the plaintiffs. Therefore, the court will allow MD SKINCARE to amend their complaint to add a claim under Section 349.
Tiny Tot Sports, Inc. v. Sporty Baby, LLC, No. 04-CV-4487, 2005 WL 2044944, at *5 (S.D.N.Y. Aug. 24, 2005) (Cote, J.) (citing GTFM, Inc. v. Solid Clothing Inc., 215 F. Supp. 2d 273, 302 (S.D.N.Y. 2002) (Cote, J.)).
Stutman v. Chem. Bank, 95 N.Y.2d 24, 29 (2000).
Id.
Tiny Tot Sports, Inc., 2005 WL 2044944, at *5 (citation omitted).
See GTFM, 215 F. Supp. 2d at 302 ("By intentionally using the `05' designation in a manner confusingly similar to [plaintiff's] use of the `05' trademark, and causing actual confusion, [defendant] engaged in a consumer-oriented act that was misleading in a material way.").
In determining what constitutes "prejudice," courts consider "whether the assertion of the new claim would: (i) require the opponent to expend significant additional resources to conduct discovery and prepare for trial; (ii) significantly delay the resolution of the dispute; or (iii) prevent the plaintiff from bringing a timely action in another jurisdiction." The addition of these causes of action is unlikely to require expenditure of significant additional resources since they concern the same underlying facts and transactions described in the previous pleadings. Since discovery is still ongoing, the amendment will not significantly delay resolution of this matter. Further, amending the complaint may preserve judicial resources as the claims in the proposed Second Amended Complaint concern the same underlying facts and transactions described in the previous pleadings.
Block v. First Blood Assocs., 988 F.2d 344, 350 (2d Cir. 1993).
See Hanlin v. Mitchelson, 794 F.2d 834, 841 (2d Cir. 1986) (allowing amendment to add contract and negligence theories to malpractice complaint, where all claims arose out of same set of operative facts).
CONCLUSION
For the foregoing reasons, MDB's motion is GRANTED in part. MDB may depose four (4) additional individuals from the M/D Skincare's sales force. MD SKINCARE's motion to amend is GRANTED.IT IS SO ORDERED.