Opinion
02 Civ. 1151 (CBM)
January 3, 2003
Plaintiff: Gerard Dunne, Esq., New York, N.Y.
Defendant: Nelson M. Stern, Esq., New York, N.Y.
OPINION AND ORDER
Well-Made Toy Mfg. Corp. (`plaintiff' or "Well-Made"), a New York corporation with its principal place of business in Queens, has brought this copyright infringement action against Lotus Onda Industrial, Co., Ltd. ("defendant" or "Lotus Onda"), a Hong Kong corporation with its principal place of business in Hong Kong. Plaintiffs suit arises under the copyright statute, 17 U.S.C. § 101 et seq. Plaintiff invokes the jurisdiction of this court pursuant to 28 U.S.C. § 1338(a), diversity jurisdiction pursuant to 28 U.S.C. § 1332 and supplemental jurisdiction pursuant to 28 U.S.C. § 1367 for claims arising "under international copyright law." See Amended Compl. at 3.
Defendant now moves this court to dismiss plaintiffs complaint pursuant to Fed.R.Civ.Pro. Rule 12(b)(1) and Rule 12(b)(6). For the reasons presented herein, defendant's motion to dismiss is hereby DENIED. I. Background: Well-Made I
In order to gain a more robust understanding of the action now before the court it may be expedient to consider the historical context from which this litigation emerges. The parties to the present matter are strangers neither to each other nor, apparently, to a portion of the subject matter of plaintiffs Amended Complaint (the "complaint"). Less than a month before this case was filed, Magistrate Judge Eaton decided a copyright infringement claim brought by Well-Made against Lotus Onda and a co-defendant, the Lillian Vernon Corporation ("Lillian Vernon"), granting summary judgment to the defendants. See Well-Made Toy Mfg. Corp. v. Lotus Onda Industrial Co. Ltd. and Lillian Vernon Corporation, 2002 WL 72930 (S.D.N.Y.) (hereinafter referred to as "Well-Made I"). In that action, plaintiff claimed that defendant had infringed upon its copyright with respect to its use, in toy strollers, of fabric bearing a design known as "Quilted Hearts." Plaintiff brought its claim inWell-Made I under theories of direct infringement and third-party liability, including vicarious and contributory infringement. Id.
Pursuant to granting summary judgment to the defendants in Well-Made I, Magistrate Judge Eaton observed that plaintiff did not dispute those portions of Lotus Onda's Local Rule 56.1 statement which claimed, inter alia, that (1) defendant Lotus Onda had bought the fabric in the open market in Hong Kong from its regular Hong Kong supplier; (2) Lotus Onda had sold the strollers to defendant Lillian Vernon in Hong Kong; (3) the orders from Lillian Vernon were received in Hong Kong, which is where the goods were delivered by Lotus Onda to Lillian Vernon; and (4) Lotus Onda did not make any of the strollers in the United States. See Well Made I, 2002 WL 72930 at *2. Judge Eaton observed that Lotus Onda "[could] not be found liable for direct infringement given the absence of a predicate act [of infringement] in the United States." Id. at 1. In addition, the court went on to note that there could be no vicarious liability inasmuch as Well-Made failed to allege that Lotus Onda had control over or a financial stake in Lillian Vernon. Id. at 2. Moreover, the court ruled that Lotus Onda could not be liable under a theory of contributory infringement, as Lotus Onda did not have knowledge or constructive knowledge that Lillian Vernon was infringing a copyright. Id. Indeed, Lotus Onda denied having any knowledge of plaintiffs alleged copyright until November 15, 2000, and thereafter ceased to sell the stroller which incorporated the fabric at issue. Id.
According to Magistrate Judge Eaton, plaintiffs paltry evidentiary showing failed to bolster its conclusory allegations of infringement. "In sum," the court observed, "Plaintiff has not provided sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Id. at 9 (internal citations omitted). With the proffered paths to liability leading to dead-ends, Judge Eaton granted summary judgment to the defendants.
In addition to the foregoing, Judge Eaton denied Well-Made's motion to compel further discovery in the previous action, making this rather striking observation:
I deny the motion [for additional discovery] for two reasons. It was served after Judge Koetl's June 20 deadline for procedural motions. Moreover, it appears that Plaintiff was merely seeking to learn about other U.S. companies it could sue. "When the purpose of a discovery request is to gather information in proceedings other than the pending suit, discovery should be denied." Liz Claiborne. Inc. v. Mademoiselle Knitwear. Inc., 1997 WL 53184, *5 (S.D.N.Y. Feb. 11, 1997 (Sweet, J.).
In the present action, which, the court hastens to repeat, was filed less than a month after Judge Eaton's decision in Well-Made I, plaintiff again claims that Lotus Onda infringed upon its copyright in the Quilted Hearts fabric design. In light of the timing of plaintiffs action, and the manifest similarity between portions of the complaint and the subject matter of the previous action in Well-Made I, the court feels compelled, as a point of departure, to offer a cursory comparison of the two cases. Perhaps this shall help the court, and the parties, to disentangle the matters and reveal the causes of action which may be crouching and hidden beneath.
First, rather than limiting its complaint to the use of copyrighted fabric in toy strollers, the plaintiff seemingly paints with broader brush. Plaintiff claims that defendant infringed upon the Quilted Hearts design "by manufacturing, or causing to be manufactured, and selling and causing to be imported into the United States and elsewhere or inducing others to import into the United States and sell toys including dolls having fabric prints which had been copied directly from and are substantially similar in appearance to the copyrighted Quilted Heart design of Well-Made." Amended Compl. ¶ 9 (emphasis added). According to its motion papers, however, plaintiffs complaint has a far narrower scope than initially meets the eye. Indeed, according to plaintiffs Memorandum in Opposition to Motion of Lotus Onda to Dismiss the Amended Complaint, "[t]he present matter before the court involves dolls sold by Lotus Onda in violation of two copyrights of Well-Made (including the copyright involved in the Lillian Vernon matter), and involves claims not involved in the Lillian Vernon matter that are made under Hong Kong law."See Pl's. Mem. in Opp. at 3 (emphasis added). Based on this statement, the court believes that the fabric design action in the instant case addresses the alleged use of the copyrighted Quilted Hearts design in dolls and only dolls. The balance of this opinion shall be based on this understanding which, prior to plaintiffs clarification, remained obscured both in the firmament of esoterica and, indeed, plaintiffs complaint.
Second, in addition to claiming infringement of the Quilted Heart fabric design, plaintiff claims that Lotus Onda infringed upon its copyright in a design for a soft sculpture plush doll known as the "Little Darlins" doll. See Amended Compl. ¶ 20.
Finally, plaintiff now seeks to establish the subject matter jurisdiction of this court pursuant to Hong Kong law. See Amended Compl. ¶ 3.
With these perfunctory observations in mind, the court commences its consideration of Lotus Onda's motion to dismiss.
II. Well-Made II: Plaintiff's Claims
Plaintiffs complaint alleges infringement by defendant and inducement of infringement by defendant's sale and delivery of (1) dolls bearing fabric with a design allegedly the same as plaintiffs copyrighted Quilted Heart fabric design; and (2) a doll allegedly the same as plaintiffs copyrighted Little Darlins doll.
With respect to the fabric copyright, plaintiff alleges in Count I of the complaint that defendant infringed upon Well-Made's copyright in the Quilted Heart fabric design by "manufacturing, or causing to be manufactured, and selling and causing to be imported into the United States and elsewhere or inducing others to import into the United States and sell toys including dolls having fabric prints which have been copied directly from and are substantially similar in appearance to the copyrighted Quilted Heart design of Well-Made." Amended Compl. ¶ 9. As a result of this manufacturing and selling and importing and inducing, plaintiff claims that defendant "induced the infringement of the Well-Made copyright by others in the United States and throughout the world." See Amended Compl. ¶ 10. Count II charges "inducement to infringe" the copyright to the Quilted Hearts fabric design by others, "including retailers of toys bearing the fabric design." See Amended Compl. ¶¶ 15-17. Count III charges infringement of plaintiffs copyright for the "Little Darlins" soft sculpture plush doll. The complaint alleges that defendant infringed upon the copyright of Well-Made's Little Darlins doll "by manufacturing, or causing to be manufactured, and causing to be imported into the United States and elsewhere or inducing others to import into the United States and sell dolls which had been copied directly from and are substantially similar in appearance to the copyrighted "Little Darlins' doll of Well Made."See Amended Compl. ¶ 22. Plaintiff offers as an example of such infringing the so-called "Especially Yours" doll, which plaintiff believes Lotus Onda sold to Toys R Us of Paramus, N.J. for sale throughout the United States. Id. Finally, Count IV alleges that defendant "has induced others to infringe the international copyright . . . in the "Little Darlins' doll by inducing others throughout the world to market unauthorized copies of the "Little Darlins' doll . . . ." See Amended Compl. ¶ 29.
III. APPLICABLE LEGAL STANDARDS
A. Rule 12(b)(1)
In considering a motion to dismiss under Rule 12(b)(1), the court must view the complaint in the light most favorable to the plaintiff. See Yoder v. Orthomolecular Nutrition Inst., Inc., 751 F.2d 555, 562 (2d. Cir. 1985). When passing on a motion to dismiss, the court must "assum[e] the truth of all factual allegations contained in the complaint and draw all inferences in the plaintiffs favor." Boyd v. Nationwide Mut. Ins. Co., 208 F.3d 406, 409 (2d Cir. 2000). "However, argumentative inferences favorable to the party asserting jurisdiction should not be drawn." Atlantic Mut. Ins. Co. v. Balfour Maclaine Int'l Ltd., 968 F.2d 196, 198 (2d Cir. 1992) (citing Norton v. Larney, 266 U.S. 511, 515 (1925)). The court should not dismiss the complaint "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Sheppard v. Berman, 18 F.3d 147, 150 (2d Cir.), cert. denied, 513 U.S. 816 (1994) (internal quotations and citations omitted).
B. Rule 12(b)(6)
In considering a motion to dismiss pursuant to Rule 12(b)(6), the court must accept as true all well-pleaded factual allegations of the complaint and draw all inferences in favor of the plaintiff. See City of Los Angeles v. Preferred Communications. Inc., 476 U.S. 488, 493 (1986);Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993). In order to avoid dismissal, the plaintiff must do more than plead mere "[c]onclusory allegations or legal conclusions masquerading as factual conclusions." Gebhardt v. Allspect. Inc., 96 F. Supp.2d 331, 333 (S.D.N.Y. 2000) (quoting 2 James Wm. Moore, Moore's Federal Practice ¶ 12.34[a][b] (3d ed. 1997)). Dismissal is only proper when "it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); accord Cohen v. Koenig, 25 F.3d 1168, 1172 (2d Cir. 1994).
In response to the motion to dismiss, the plaintiff moves this court to treat defendant's motion as one for summary judgment. Plaintiff argues that defendant's Memorandum of Law relies upon affidavits which are outside the pleadings and that accordingly, the motion ought properly to be transferred into a Rule 56 motion for summary judgment.
The general rule is that if material outside the pleadings is presented with reference to a motion to dismiss under Rule 12(b)(6), the court "must either exclude the additional material and decide the motion on the complaint alone or convert the motion to one for summary judgment under Fed.R.Civ.P. 56 and afford all parties the opportunity to present supporting material." Friedl v. City of New York, 210 F.3d 79, 85 (2d Cir. 2000); see Fed.R.Civ.P. 12(b) ("If . . . matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment . . . ."). However, when, as here, a defendant is "challenging the district court's subject matter jurisdiction [under Rule 12(b)(1)], the court may resolve disputed jurisdictional fact issues by reference to evidence outside the pleadings, such as affidavits." Antares Aircraft. L.P. v. Fed. Republic of Nig., 948 F.2d 90, 96 (2d Cir. 1991), vacated on other grounds, 505 U.S. 1215 (1992); see also Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000) (emphasis added); First Capital Asset Management. Inc. v. Brickellbush. Inc., et. al., 218 F. Supp.2d 369 (S.D.N.Y. 2002).
Defendant asks the court to dismiss the complaint based on lack of subject matter jurisdiction pursuant to Rule 12(b)(1) or, in the alternative, failure to state a claim under Rule 12(b)(6). UnderAntares, then, the court would be free, if necessary, to consider the affidavits proffered by the plaintiff. Plaintiffs motion to convert this to a Rule 56 summary judgment proceeding is therefore DENIED.
Although defendant's motion ought not to be converted into a Rule 56 motion, the Second Circuit has observed that Rule 56 is relevant to the jurisdictional challenge inasmuch as Rule 56 "offers guidelines in considering evidence submitted outside the pleadings." Kamen v. American Telephone Telegraph Co., 791 F.2f 1006, 1011 (2d Cir. 1986). See also First Capitol Asset Management. Inc. v. Brickellbush. Inc., 2002 WL 1751268 (S.D.N.Y.) ("While the plaintiff has the ultimate burden of establishing subject matter jurisdiction and generally must establish jurisdiction by a preponderance of the evidence when the defendant makes a "factual challenge' on a Rule 12(b)(1) motion, where subject matter jurisdiction is so intertwined with the merits that its resolution depends on the resolution of the merits, the trial court should employ the standard applicable for a motion for summary judgment") (citingMakarova, 201 F.3d at 14) (internal quotation marks omitted);Transatlantic Marine Claims Agency. Inc. v. Ace Shipping Corp., 109 F.3d 105, 108 (2d Cir. 1997).
V. Subject Matter Jurisdiction Pursuant to the Copyright Act
Federal courts have original jurisdiction over any civil action arising under federal copyright law. 28 U.S.C. § 1338(a) (1994). It is not seriously disputed, however, that United States copyright laws do not have extraterritorial effect See e.g., Update Art. Inc. v. Modiin Publishing Ltd., 843 F.2d 67, 73 (2d Cir. 1988). The courts have treated this as a jurisdictional issue. Infringing acts which take place entirely outside of the United States are not actionable under United States copyright laws. A finding of direct infringement under U.S. copyright law must be based, at least in part, on a predicate infringing act in the United States. See Richard Feiner Co. v. Turner Entertainment Co., 1998 WL 78180, at *1 (S.D.N.Y. Feb. 24, 1998); Fun-Damental Too. Ltd. v. Gemm v. Indus. Corp., 1996 WL 724734, at *4 (S.D.N.Y. Dec. 17, 1996);Metzke v. May Dep't Stores Co., 878 F. Supp. 756, 760 (W.D.Pa. 1995); 3 Melville B. Nimmer David Nimmer, Nimmer on Copyright § 17.02 (1999) [hereinafter "Nimmer"].
As is so often the case, there are exceptions to the general rule. For example, a claim under United States law may arise for acts of infringement committed abroad "where those acts are permitted or initiated by predicate acts of infringement within the United States."Armstrong v. Virgin Records. Ltd., 91 F. Supp.2d 628, 634 (S.D.N.Y. 2000) (citations omitted). It is now generally accepted that there can be no liability under the Copyright Act for merely authorizing an act that could not itself constitute infringement of rights secured by United States law. See Subafilms. Ltd. v. MGM-Pathe Communications Co., 24 F.3d 1088, 1093-94 (9th Cir. 1994). See also Fun-Damental Too at *6 ("mere authorization and approval of copyright infringements taking place outside the United States is not a copyright violation and does not create jurisdiction over those extraterritorial acts"); PrimeTime, 24 Joint Venture, 1999 WL 163181, at *4 (indicating the court's acceptance of the 9th Circuit's position in Subafilms).
In the instant case, there is a dispute as to whether defendant committed any kind of predicate act within the United States. Plaintiff seems to believe, for example, that defendant's showroom in New York somehow facilitates acts infringement or acts of inducement to infringe within the United States. According to the affidavit of F.J. Penny Zahler, Lotus Onda has displayed, and may continue to display and solicit sales of, dolls and doll accessories from its New York showroom. Lotus Onda disagrees. The factual issue of the existence of a predicate act in the United States cuts to the heart of the issue of jurisdiction under the Copyright Act for direct infringement.
According to the Second Circuit, "in resolving claims that they lack jurisdiction, courts have acted in a fashion suggestive of [Rule] 56(f): they have required that the party asserting jurisdiction be permitted discovery of facts demonstrating jurisdiction, at least where the facts are peculiarly within the knowledge of the opposing party." Kamen at 1011 (citing Investment Properties International. Ltd. v. IOS, Ltd., 459 F.2d 705, 707-08 (2d Cir. 1972). The instant case invites the sort of inquiry into the existence of a jurisdictional fact that discovery might provide. Dismissal is thus not appropriate at this stage of the litigation. As the Second Circuit noted in Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1188 (1996):
Because of the more-than-occasional difficulties involved in parsing a claim alleging federal question jurisdiction to determine whether it fails to state a claim or fails to meet jurisdictional requirements, the federal courts have followed a general practice of granting jurisdiction in most cases and dismissing for lack of subject matter jurisdiction only under narrow circumstances.It is with great caution that the court thus DENIES defendant's Rule 12(b)(1) motion to dismiss with respect to the fabric copyright and the Little Darlins doll copyright. Defendant's motion pursuant to Rule 12(b)(6) fares no better. While perhaps not a model of clarity, plaintiffs complaint suffices under the liberal pleading standard embraced by the federal courts.
Defendant's request to submit samples of the dolls made by defendant is likewise DENIED. While plaintiff offered their dolls for the court's consideration at the October 29, 2002 hearing, the court did not compare, scrutinize, or consider the dolls in any manner.
The cash value of caution not being what it could be, and in light of Judge Eaton's denial of discovery to the plaintiff in Well-Made I, however, the court is compelled to issue the following admonition: if it can be established that plaintiffs action has the effect of multiplying the proceedings unreasonably and vexatiously; if it is established that plaintiff brought this action to evade a previous ruling; if it is established that plaintiff pursues any of these claims for illegitimate reasons, including but not limited to pursuit of information regarding additional companies that it can sue, this court will not hesitate to impose sanctions against plaintiff pursuant to any and all powers granted to it under federal law and the Federal Rules of Civil Procedure. See e.g., Pentagen Technologies International Limited v. United States, 172 F. Supp.2d 464 (S.D.N.Y. 2001).
The Fabric: Res Judicata
Though defendant was seemingly reticent to invoke the principles of collateral estoppel or res judicata, its motion presented, at least in part, an implicit argument for preclusion based on Judge Eaton's decision in Well-Made I. To put it simply, defendant argues that if there was no subject matter jurisdiction in the previous action, and if any putative distinctions between the present action and Well-Made I do not, as the saying goes, make a difference, then subject matter jurisdiction is still lacking and the case must be dismissed.
This is a simple enough argument which, unfortunately, was presented in an anemic and somewhat disingenuous fashion by the defendant. In ostensibly attempting to expose plaintiff as having tried to pull a fast one on the court, the defendant itself may be trying to pull a fast one on the court. First, while defendant cites Well-Made I as being axiomatically dispositive of this case (at least with respect to the fabric design), it utterly fails to address the issue of notice which was crucial to Judge Eaton's opinion with respect to the fabric. In Well-Made I, the court found, inter alia, that the alleged acts of infringement occurred before the defendant had notice of Well Made's copyright. There has not yet been such a finding in this case with respect to the use of the fabric.
Moreover, the plaintiff in the instant action insists that Lotus Onda did have notice of its copyright in the Little Darlins doll. Indeed, plaintiff claims that at the deposition of Daniel Chan, the president of Lotus Onda, in the previous matter, plaintiff informed Mr. Chan of its copyright in the doll and requested that Lotus Onda discontinue sales of its allegedly infringing doll to Toys R Us.
While it is curious that plaintiff now brings a claim with respect to the use of the fabric in a toy other than strollers, this, in and of itself, does not defeat its claim. What concerns the court, however, lies exposed in the transcript of the Daniel Chan deposition, which was taken pursuant to the action in Well-Made I. During the course of the deposition, counsel for Well-Made repeatedly asked Mr. Chan about his knowledge of the use of the Quilted Hearts fabric in dolls — the subject matter of the first claim in the present matter:
Q. Were there any dolls that were actually sold by Lotus Onda which are in the accused [Quilted Hearts] fabric that you referred to?
. . .
A. I think there were some.
Q. To any customers in the United States?
. . .
Q. Your e-mail . . . [indicates] that Lotus Onda used the accused fabric it had acquired from your supplier on some items among your doll arrangement.
. . .
Mr. G. Stern [counsel for Lotus Onda]: He is not going to be able to answer that question other than for Lillian Vernon.
Mr. Dunne [counsel for Well-Made]: Why not?
Mr. G. Stern: Because it's not —
Q. Mr. Chan, were there any other products in the doll arrangement that were used with the [Quilted Hearts] fabric, the accused fabric?
Mr. G. Stern: He's not going to be able to answer that.
See Chan Dep. Tr. at 107.
In its Memorandum in Opposition to Motion of Lotus Onda to Dismiss, plaintiff refers to the deposition of Mr. Chan, noting that counsel for defendant-Lotus Onda instructed Mr. Chan not to answer questions regarding products other than the stroller which may have used the Quilted Hearts fabric design. The excerpt included above rather clearly bears this out. Plaintiff claims that defendant-counsel's instructions were contrary to Rule 30(d)(1) of the Federal Rules of Civil Procedure. In addition, plaintiff suggests that Judge Eaton could have, and indeed should have, allowed additional discovery. of course, if the plaintiff believes that Judge Eaton erred in denying its motion, it ought not to seek redress here, but rather with the court of appeals. An obvious concern, then, is whether plaintiffs cause of action with reference to the fabric is tantamount to such an appeal or, even worse, an effort to skirt Judge Eaton's decision in Well Made I. Whereas Judge Eaton refused to allow plaintiff to cast a line in a fishing expedition in Well-Made I, this court is somewhat suspicious of plaintiffs intentions this time around. It is not unreasonable to wonder, given the deposition transcript, why Well-Made failed to bring the fabric-used-in-the-doll claim in the previous action along with the fabric-used-in-the-stroller claim that it brought against Lillian Vernon. In its complaint inWell-Made I, plaintiff notes that "[a]s a part of its design efforts, Well-Made creates original patterns or prints for many of the fabrics utilized in its soft sculpture plush toys and dolls." See Compl. ¶ 9. At the Chan deposition, plaintiff appears to have had information which could have supported an allegation of use of the fabric design in dolls. This raises the question of whether plaintiffs fabric claim should be precluded under the doctrine of res judicata. Accordingly, this court ordered supplemental briefing on the issue of the application of the doctrine of res judicata, or claim preclusion.
Res Judicata 5
" Res judicata challenges may properly be raised via a motion to dismiss for failure to state a claim under Rule 12(b)(6)." Thompson v. County of Franklin, 15 F.3d 245, 253 (2d Cir. 1994) (citations omitted). According to the Second Circuit, res judicata "prevents a plaintiff from relitigating claims that were or could have been raised in a prior action against the same defendant where that action has reached a final judgment on the merits." L-Tec Elecs. Corp. v. Cougar Elec. Org., Inc., 198 F.3d 85, 87-88 (2d Cir. 1999); see also Greenberg v. Board of Governors of the Fed. Reserve Sys., 968 F.2d 164, 168 (2d Cir. 1992) ( res judicata bars both issues actually decided in determining the claim in the first action and . . . issues that could have been raised in the adjudication of that claim") (citation omitted).
The burden is on the party seeking to invoke res judicata to prove that the doctrine bars the second action. See Computer Associates Int'l v. Altai, 126 F.3d 365, 369 (2d Cir. 1997). According to the Second Circuit, a plaintiff attempting to assert claim preclusion must show that (1) the previous action involved an adjudication on the merits; (2) the previous action involved the plaintiffs or those in privity with them; (3) the claims asserted in the subsequent action were, or could have been raised in the prior action. See Pike v. Freeman, 266 F.3d 78, 91 (2d Cir. 2001) (quoting Monahan v. New York City Dep't of Corr., 214 F.3d 275, 285 (2d Cir.), cert denied, 531 U.S. 1035 (2000)). The doctrine of claim preclusion holds that "a prior decision dismissed "on the merits' is binding in all subsequent litigation between the same parties on claims arising out of the same facts, even if based upon different legal theories or seeking different relief on issues which were or might have been litigated in the prior action but were not." Northern Insurance Company of America v. Square D Company, 201 F.3d 84, 87 (2d Cir. 2000) (citing EFCO Corp. v. U.W. Marx. Inc., 124 F.3d 394, 397 (2d Cir. 1997). Claim preclusion operates in two ways: it bars claims that were brought and decided in prior litigation; and it bars all other claims relating to the same transaction against the same defendant that could have been brought at the same time. Id.
The second and third prongs discussed by the Second Circuit in Pike are seemingly fulfilled in this case; indeed, plaintiff offers no argument in its supplemental brief to the contrary. Both plaintiffs complaint inWell-Made I and the Chan deposition suggest that plaintiff could have brought the fabric copyright claim in the first action. Indeed, counsel for plaintiff indicated so much at the hearing in this matter. Moreover, the fabric claim is borne out of the same transaction or connected series of transactions addressed in Well-Made I. Rather than disputing this issue, plaintiff emphasizes two points in its supplemental brief. First, plaintiff argues that Judge Eaton's decision in Well-Made I constituted a dismissal for lack of subject matter jurisdiction. Since dismissal for lack of subject matter jurisdiction does not constitute an adjudication on the merits, plaintiff concludes that Judge Eaton's decision cannot have preclusive effect and res judicata does not apply.See Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1188 (2d Cir. 1996). Second, plaintiff argues that res judicata does not apply to rights discovered during the pendency of the prior action which might have been litigated in the prior action, but were not. See Pl's. Supp. Br. at 2. The court shall address these two points in hand.
THE COURT: I still think we have a serious question of claim preclusion here. This could have been raised at a prior action, it seems to me.
MR. DUNNE: The magistrate judge precluded us. I thought so, too, Your Honor, but that's not how the case turned.See Tr. at 20, pretrial hearing, October 29, 2002
First, plaintiff mischaracterizes the basis of Magistrate Judge Eaton's decision in Well Made I. Judge Eaton did not, as plaintiff suggests, grant summary judgment on the basis of lack of subject matter jurisdiction. Rather, the court addressed each of plaintiffs three proffered theories of liability — direct, vicarious, and contributory infringement — and proceeded to grant summary judgment on the merits. Plaintiffs confusion, if it can be characterized as such, may stem from what the Second Circuit in Nowak referred to as the "more-than-occasional difficulties involved in parsing a claim alleging federal question jurisdiction to determine whether it fails to state a claim or fails to meet jurisdictional requirements." 81 F.3d at 1188. As the court noted, quoting Professor Moore,
if a federal statute upon which a claim is premised is interpreted to be inapplicable, it could be argued that the plaintiff has failed to present a federal question and thus subject matter jurisdiction is absent. However, the courts have uniformly held that in such instances the preferable practice is to assume that jurisdiction exists and proceed to determine the merits of the claim pursuant to [Rule 12(b)(6)] or Rule 56.Id. at 1188 (citing 2A James W. Moore et. al., Moore's Federal Practice ¶ 12.07[2.-1], at 12-60 (2d ed. 1995)) (emphasis added). As then-district Judge Cabranes observed in Ensign Bickford Company v. ICI Explosives USA Inc., 817 F. Supp. 1018, 1023 (D.Conn. 1993): "It is well established that a court should not dismiss a federal claim for lack of subject matter jurisdiction based on the pleadings unless the claim "clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction' or the claim `is wholly insubstantial and frivolous.'" (citing Spencer v. Casavilla, 903 F.2d 171, 173 (2d Cir. 1990) (quoting Bell v. Hood, 327 U.S. 678, 682-83 (1946))). Magistrate Judge Eaton clearly followed this well-established path in Well Made I; a cursory examination of his opinion reveals that the case was, indeed, decided on the merits.
Plaintiffs second point presents a far closer question. The record suggests that during the discovery phase of Well-Made I, plaintiff may have been aware of the alleged fabric infringement which was subsequently advanced in the instant action. This suggests that the fabric claims could have been included in the previous complaint by way of amendment. Plaintiff counters this inference by observing that "[t]he scope of the litigation [for the purposes of res judicata] is framed by the complaint at the time it is filed." Computer Associates, 126 F.3d at 370 (internal citations omitted). The court in Computer Associates noted that claim preclusion does not apply "to new rights acquired during the action which might have been, but which were not, litigated." Id. at 370 (internal citations omitted). At issue, then, is whether the rights which inhere in the fabric claims in question ought properly to be apprehended as new rights acquired during the first action. If plaintiff acquired new rights during the pendency of Well-Made I which might have been, but which were not litigated, or if new claims arose from transactions which occurred after his first federal action was brought, res judicata would not apply. See Toro v. Depository Trust Co., 1997 WL 752729 at n. 6 (S.D.N.Y.) (citing Computer Associates, 126 F.3d at 370). On the other hand, if the rights in question had already attached, and plaintiff merely came upon new evidence which might support another claim in the first action, then res judicata might properly apply. "As a general rule, newly discovered evidence does not preclude the application of res judicata." Ulysses I Company. Inc. v. Feldstein, 2002 WL 1813851 at *12 (S.D.N.Y.) (citing Saud v. Bank of New York, 929 F.2d 916, 920 (2d Cir. 1991). "Exceptions to this rule exist when the evidence was either fraudulently concealed or when it could not have been discovered with due diligence."Id. Plaintiff fails to establish any reason why these exceptions ought to apply (other than its disagreement with Judge Eaton's denial of its request for additional discovery.)
The record before the court, including the statement of plaintiff's counsel at the October 29, 2002 hearing, cited supra, indicate that this is a case of newly discovered evidence rather than the acquisition of new rights. Accordingly, res judicata applies and the fabric claim is precluded.
VI. Subject Matter Jurisdiction Over Claims Asserted Under Foreign Copyright Laws
Plaintiff's complaint alleges that defendant's actions have violated Hong Kong copyright law. The issue before the court is whether, if defendant Lotus Onda committed an act of infringement abroad which is actionable under the laws of Hong Kong, this court may exercise subject matter jurisdiction over such claims. As Judge Sweet notes in Armstrong v. Virgin Records. Ltd., 91 F. Supp.2d 628 (S.D.N.Y. 2000), a number of authorities and commentators have indicated that the district court may exercise subject matter jurisdiction in cases of transnational copyright infringement See e.g., London Film Prods. Ltd. v. Intercontinental Communications, 580 F. Supp. 47, 48-50 (S.D.N.Y. 1984); Frink America. Inc. v. Champion Road Machinery Ltd., 961 F. Supp. 398, 404-05 (N.D.N.Y. 1997); 3 Nimmer § 17.03; 3 Paul Goldstein, Copyright § 16.2 (2000) [hereinafter "Goldstein"]. According to Professor Nimmer:
Even if the United States Copyright Act is clearly inoperative with respect to acts occurring outside of its jurisdiction, it does not necessarily follow that American courts are without [subject matter] jurisdiction in such a case. If the plaintiff has a valid cause of action under the copyright laws of a foreign country, and if personal jurisdiction of the defendant can be obtained in an American court, it is arguable that an action may be brought in such a court for infringement of a foreign copyright law. This would be on a theory that copyright infringement constitutes a transitory cause of action, and hence, may be adjudicated in the courts of a sovereign other than the one in which the cause of action arose.
3 Nimmer § 17.03; See 3 Goldstein § 16.2 ("Causes of action for copyright infringement are transitory and may be brought in any court that has jurisdiction over the defendant. Subject to jurisdiction requirements, a copyright owner may sue an infringer in United States courts even though the only alleged infringement occurred in another country. Under the territoriality principle, the copyright law of the other country, and not United States copyright law, will govern the action in the United States.")
As in Armstrong, this court would have subject matter jurisdiction over any claims properly arising under United States copyright law, "potentially allowing the court to exercise pendant jurisdiction over claims arising under foreign law." 91 F. Supp.2d at 637. There appears to be diversity between the parties to this action. Moreover, defendant concedes that the court has personal jurisdiction.
Pursuant to its inquiry into whether it has subject matter jurisdiction, this court ought not to consider whether it is "advisable, convenient or wise" for this court to hear such claims. Id. In any case, there is presently no motion to dismiss for forum non conveniens before the court.
Leave is granted for parties to challenge this court's subject matter jurisdiction over foreign claims at the close of discovery in this action.