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Star Pacific Corp v. Star Atlantic Corp.

June 10, 2011

STAR PACIFIC CORP., PLAINTIFF,
v.
STAR ATLANTIC CORP., A NEW JERSEY CORPORATION,
STAR ATLANTIC CORP., A FLORIDA CORPORATION, QI LU,
YAFEI ZHAO A/K/A ALFRED ZHAO, ZHENG LI A/K/A MICHAEL LI,
JOHN DOE #1-10, JANE DOE 1-10, AND XYZ CORPORATION #1- 10,
DEFENDANTS.



The opinion of the court was delivered by: Wigenton, District Judge.

Before the Court is Plaintiff Star Pacific Corporation‟s ("SPC") Motion for Summary Judgment against Defendant Qi Lu ("Defendant" or "Lu") pursuant to Fed. R. Civ. P. 56(c) ("Motion"). This Court has jurisdiction over this action pursuant to 28 U.S.C. §§ 1332, 1338 and 17 U.S.C. § 101 et seq. and supplemental jurisdiction pursuant to 28 U.S.C. §1367. Venue is proper in this District pursuant to 28 U.S.C. §§ 1391 and 1400(a). This Motion is decided without oral argument pursuant to Fed. R. Civ. P. 78. For the reasons discussed below, the Court grants Plaintiff‟s Motion, in part, and denies it, in part, and dismisses Defendant‟s counterclaims.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff is a corporation that manufactures, markets, distributes and sells rugs, bathroom mats and comforters. (First Am. Compl. (hereinafter "Am. Compl.") ¶¶ 5, 18.) Plaintiff alleges that most of the bathroom mats it sells are part of a three-piece set that includes a toilet cover, toilet foot rug and a sink mat. (Id. ¶ 18.) The bathroom sets are categorized into seven collections: (1) Excel 3PC, (2) Deluxe 3PC, (3) Ideal 3PC, (4) Grand 3PC, (5) Heather 3PC, (6) Fashion 3PC, and (7) Bravo 3PC. (Id.) Each collection has a unique design. For example, the Excel 3PC collection has two designs with "Flowers" and "Leaves;" the Deluxe 3PC collection has five different designs featuring "Flowers," "Palm Tree," "Dolphin," "Shell," and "Fish;" and the Bravo 3PC has one design with "Flowers." (Id. ¶¶ 19-21.) Additionally, Plaintiff sells Excel single mats with "Leaves," "Fish," and "Kite" designs, (id. ¶ 22), and a Deluxe single mat with a "Flowers" design. (Id. ¶ 23.) Plaintiff registered the copyright for the "Excel 3PC Collection" on April 12, 2005, the "Deluxe Palm Tree Collection" on June 16, 2005, and all designs under the title of "Star Pacific 2005 Collection" on November 3, 2005. (Id. ¶ 24.)

1.The State Court Action

Prior to the instant litigation, Chang-Sheng Liu ("C. Liu") was a shareholder of SPC with an ownership interest of forty percent.*fn1 (Liu Decl. Ex. B, at 2.) In 2006, C. Liu "fabricated the existence of a shareholder," Wang-Ren Fei ("Fei"), by "illegally and improperly" issuing him 400 shares of SPC, which represented a twenty percent*fn2 ownership interest in the company. (Pl.‟s Statement of Facts ¶ 8; Liu Decl. Ex. B, at 2) (internal quotation marks and citation omitted). With Fei‟s interest, C. Liu was vested with a majority of the shares in SPC. (Liu Decl. Ex. B, at 3.) Subsequently, C. Liu wrested control of the company from then president Frank Liu ("F. Liu") "and began to run the company on this illegitimate basis, propped up with documents forged at his direction, to the exclusion of the other shareholders, Frank Liu, Emma Hu [("Hu")], and [] [Douglas] Shin [("Shin")]." (Pl.‟s Statement of Facts ¶ 8.)

Consequently, on November 14, 2006, the other shareholders of SPC initiated a lawsuit against C. Liu in the Superior Court of New Jersey, Bergen County, alleging, among other things, breach of fiduciary duty and civil conspiracy to dilute the other shareholders‟ ownership interests and skim funds (the "State court action"). (Am. Compl. ¶ 31; Liu Decl. Ex. B, at 3.) A bench trial was conducted in February 2008. (Am. Compl. ¶ 33.) On June 27, 2008, the trial court found that C. Liu had a "complete lack of credibility, and . . . perpetrated a fraud upon the company, and its shareholders." (Liu Decl. Ex. B, at 11.) The court also found that C. Liu breached his fiduciary duty to SPC and his fellow shareholders, "diverted over one million dollars in assets and inventory of the company for his own benefit," and "caused the [] [other shareholders] to lose their investments" in the corporation. (Id. at 12, 13). The court further found that C. Liu‟s actions "were outrageous, calculated to inflict personal harm, [and] entirely beyond the pale of acceptable behavior." (Id. at 13.) Consequently, the court entered judgment in favor of F. Liu, Hu, and Shin and against C. Liu in the amount of $1,400,000 "for breach of fiduciary duty, and fraud, and conversion." (Liu Decl. Ex. B, "Judgment" at 3.) Furthermore, the court entered judgment in favor of the plaintiffs against C. Liu in the amount of $450,000 for punitive damages. (Id.)

2.The Federal Action

Subsequently, SPC initiated this suit against Defendants*fn3 as a result of the schism in the corporation. Plaintiff alleges that in March 2007, C. Liu, Yafei Zhao a/k/a Alfred Zhao ("Zhao"), who was a former sales manager at SPC, and Zheng Li a/k/a Michael Li ("Li"), SPC‟s former salesperson,*fn4 "funneled" money and inventory from SPC and formed a new corporation, Star Atlantic Corporation in Florida ("SAC-FL"). (Am. Compl. ¶¶ 36, 37.) Further, Plaintiff alleges that C. Liu, Zhao and Li "converted SPC‟s inventory and other valuable resources such as existing marketing channels, usurped Plaintiff‟s business opportunities, engaged in direct competition with SPC by selling [P]laintiff‟s products as their own through SAC-FL directly to [P]laintiff‟s existing customers," and "imported and sold large quantities of merchandise bearing SPC‟s copyrighted designs and in virtually identical SPC[] packaging." (Id. ¶¶ 41, 42; see also id. ¶¶ 45-47.) Although Zhao and Li were competing with SPC during this period, Plaintiff alleges that they were still receiving salaries from SPC. (Id. ¶ 43.)

Thereafter on April 20, 2007, Defendant Lu, on behalf of Beslun Fashion Inc., signed a Cooperation Agreement (the "Agreement") with SAC-FL. (Li Decl. Ex. O; Pl.‟ Statement of Facts ¶ 39.) Pursuant to the Agreement, Lu advanced SAC-FL "no less than" $350,000 as "working capital." (Id. at 1.) On October 29, 2007, Defendant allegedly formed a new corporation, Star Atlantic Corporation, New Jersey ("SAC-NJ"), which had its warehouse in Carlstadt, New Jersey. (Am. Compl. ¶ 50; Liu Decl. Ex. E.) Lu is named as the incorporator and agent of SAC-NJ in the corporation‟s incorporation papers. (Liu Decl. Ex. E.) He is also "an officer, shareholder and director" of the corporation. (Li Decl. Ex. N, ¶ 7.) Additionally, Defendant was a signatory of two of SAC-NJ‟s bank accounts, processed money from SAC-NJ‟s bank and other accounts to pay overseas vendors, and was listed as an employee on SAC-NJ‟s monthly payroll. (Li Decl. Ex. N, ¶ 7; Li Decl. Ex. I; Li Decl. Ex. D.)

Plaintiff maintains SAC-NJ was formed "to engage in direct competition with SPC." (Am. Compl. ¶ 49.) Subsequently, Lu, Zhao, Li, and C. Liu merged SAC-FL with SAC-NJ and continued to sell SPC‟s products. (Id. ¶¶ 51, 63.) Furthermore, Plaintiffs allege that a side-by-side comparison of its products with Defendant‟s products shows that Defendant copied its copyrighted designs. (Id. ¶¶ 64-66.) Additionally, Plaintiff asserts that Defendant used an identical packaging header as that used by SPC. (Id. ¶¶ 67-69.)

On October 8, 2008, Plaintiff initiated this action alleging copyright infringement in violation of 17 U.S.C. § 501 (Count I), (id. ¶¶ 75-89), trade dress infringement in violation of 15 U.S.C. § 1125(a) (Count II), (id. ¶¶ 90-99), unfair competition in violation of 15 U.S.C. § 1125(a) (Count III), (id. ¶¶ 100-107), and unfair competition in violation of N.J. Stat. Ann. 56:4-1 et seq. (Count IV), (id. ¶¶ 108-112), against Lu, individually and as an agent for SAC-NJ, and the other Defendants.*fn5 On that same day, Plaintiff filed an Order to Show Cause and made an application for a Temporary Restraining Order and an Order of Seizure and Impoundment. (Li Decl. Ex. B.) This Court issued an ex parte seizure order for the infringing goods at the New Jersey location. (Id.) However, prior to the issuance of this Court‟s October 8, 2008 Order, SAC-NJ had vacated the New Jersey warehouse and began operating from a warehouse in Norcross, Georgia. (Pl.‟s Statement of Facts ¶¶ 57-58.)

On November 21, 2008, Defendants filed an answer and counterclaim. Defendants assert that in March 2007, SPC informed Zhao that it was having financing troubles and Zhao might be terminated as a result. (Defs.‟ Countercl. ¶ 7.) Although SPC allegedly sought to terminate Zhao, it allegedly owed him a substantial amount of money for work he had performed for SPC. (Id. ¶ 9.) Defendants further allege that in lieu of Zhao filing a lawsuit against SPC to recover the unpaid wages, he entered into an agreement with C. Liu on May 7, 2007. (Id. ¶ 10.) The alleged agreement permitted Zhao and his business associates "to use, manufacture, resale, distribute, import and export any" of SPC‟s "copyrighted and non-copyrighted patterns, designs, drawings, product names and design numbers." (Id. ¶ 11.) Defendants maintain that this agreement provided them with a valid license agreement; therefore, their use and sale of SPC‟s products and designs is not actionable. (Id. ¶¶ 14-17.) Consequently, Defendants seek that the Court find they had a valid license agreement. Alternatively, Defendants maintain that even if the Court finds that they did not have a valid license, the Court should not impose any liability because they relied on the alleged license in good faith.

LEGAL STANDARD

Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The "mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247--48 (1986). A fact is only "material" for purposes of a summary judgment motion if a dispute over that fact "might affect the outcome of the suit under the governing law." Id. at 248. A dispute about a material fact is "genuine" if "the evidence is such that a reasonable jury could return a verdict for the ...


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