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Fish Kiss LLC v. North Star Creations, LLC

United States District Court, D. New Jersey

August 13, 2018

FISH KISS LLC & ANNE KLEIN, Plaintiffs,
v.
NORTH STAR CREATIONS, LLC; I ROOTED MADE; ROOTEDUSA; BERNADETTE GODWIN; ERIC BERNSTEIN; and JOHN DOES 1-10, | Defendants.

          Jessie Basner, Esq. CLEMENTE MUELLER PA Attorney for Plaintiffs.

          Robert McKinley, Esq. LAULETTA BIRNBAUM LLC Attorney for Defendants.

          OPINION

          JEROME B. SIMANDLE U.S. DISTRICT JUDGE.

         I. Introduction

         This case arises out of the alleged copyright infringement and breach of contract by Defendants North Star Creations, LLC; Rooted Made; Rooted USA; Bernadette Godwin, and Eric Bernstein. The action was brought by Fish Kiss, LLC, a corporation founded by Anne Klein who was later added as a plaintiff (collectively, “Plaintiffs”). [Docket Item 14.]

         Citing a lack of specificity as to the copyright claim, lack of standing, and lack of an enforceable contract, Defendants moved to dismiss all counts of Plaintiffs' complaint pursuant to Fed.R.Civ.P. 12(b)(6) or in the alternative, for an order requiring Plaintiffs to submit a more definite statement pursuant to Fed.R.Civ.P. 12(e). [Docket Items 13 (“First Motion to Dismiss”) and 51 (“Second Motion to Dismiss”).] Additionally, Defendants have alternatively moved for summary judgment under Fed.R.Civ.P. 56 with regard to Count 5.

         The issues to be decided include whether violation of the scope of an exclusive license can serve as the basis for a breach of contract claim; whether the “first sale” doctrine is applicable to Plaintiffs' copyright infringement claims; whether Plaintiffs have adequately pled their copyright infringement claims; the adequacy of the claims pled against the Individual Defendants; whether Plaintiffs state a claim under the Lanham Act (or whether summary judgment is warranted on that claim); and whether Plaintiffs have standing to pursue a claim under the New Jersey Consumer Fraud Act. For the reasons discussed below, the Court will grant in part and deny in part Defendants' Second Motion to Dismiss.

         II. Background

         A. Factual Background

         Plaintiff Anne Klein is the President of Fish Kiss, LLC (“Fish Kiss”). Fish Kiss is a “small lifestyle brand company that specializes in the creation of unique designs and artwork.” [Docket Item 45 at 1.] Fish Kiss owns fifty-one artwork designs for which each design is copyrighted (Copyright Registration no. VA 2-049-471). Id. at 2. Bernadette Godwin (“Godwin”) and Eric Bernstein (“Bernstein”)(collectively, “Individual Defendants”) are the owners of North Star, LLC (“North Star”). Id. at 15. North Star LLC is a manufacturer of textile products. The Individual Defendants, North Star, and its subsidiaries, RootedUSA and Rooted Made, are collectively referred to as “Defendants.” Id. at 2.

         On January 1, 2016, Plaintiffs and Defendants executed a one-year license agreement (“License Agreement”) for Fish Kiss Artwork. Id. at 3. The License Agreement granted Defendants the exclusive right to manufacture and sell Christmas stockings, Christmas tree skirts, adult kitchen aprons, cotton tea/dish towels and decorative pillows bearing Fish Kiss artwork (“Licensed Products”). Id. The term of the License Agreement began on January 1, 2016 and continued until January 1, 2017 with no residual sell-off period after termination. Id. Under the License Agreement, Klein had the right to review and approve new iterations of the Licensed Products for sample approval before they were permitted to be offered for sale. Id. Under the License Agreement, the Licensed Products were to consistently bear Fish Kiss branding, labeling, and packaging. Id. at 4. Under the Schedule of Artwork annexed to the License Agreement, Defendants were to pay Klein royalties of 15% of wholesale cost of Christmas stockings, Christmas tree skirts, adult kitchen aprons, and cotton tea/dish towels, and 20% of wholesale cost of decorative pillows. Id. Defendants were required to remit royalty payments within thirty days of the shipment of Licensed Products to Defendants' customers. Id.

         Defendants represented to Plaintiffs that they had total sales in the amount of $13, 895.00 from the Licensed Products from January 1, 2016 to December 31, 2016. Id. Plaintiffs allege that Defendants have willfully misrepresented the amount of sales of Licensed Products to avoid paying Klein appropriate royalties due. Id. at 5. As evidence, Plaintiffs submit that, in May 2016, Defendants requested an order for 1, 000 additional wrappers. Id. Defendants sold the wrappers for approximately $5.50 to $6.00 each. Id. Plaintiffs allege that the May 2016 sale alone would equal $5, 550 to $6, 000 in sales. Id. Nevertheless, in September 2016, Defendants sent Plaintiffs a proposal for renewal of the license, representing that their year-to-date sales of Licensed Products through August 31, 2016 amounted only to $5, 408. Id. Plaintiffs also point to an email Klein received in January 2017 from North Star sales representative Dan Kennedy, stating that he alone sold $11, 000 worth of Licensed Products. Id. at 4. Plaintiffs allege that they have discovered an additional $10, 561.50 in sales of Licensed Products unaccounted for in the $13, 895 figure presented by Defendants. [Id.]

         Plaintiffs received payments in the amount of $2, 143.65 as royalties for the time period of January 1, 2016 to December 31, 2016. Id. Plaintiffs allege that Defendants did not make royalty payments from sales made in November of 2016 until January 28, 2017, in violation of the License Agreement. Id. at 5. Plaintiffs allege that one of Defendants' customers, Quaile Connect, LLC, placed orders for Licensed Products on January 6, 2017. Id. at 5. Plaintiffs allege that Defendants sold Licensed Product to ETShops in February 2017. Id. Plaintiffs allege that Defendants posted an unauthorized alteration of a Fish Kiss Christmas Tree Skirt on eBay, id., and that Defendants sold new iterations of Licensed Products on eBay and Amazon without the approval of Plaintiffs. Id. at 6.

         B. Procedural Background

         On February 9, 2017, Plaintiffs sent a letter to Defendants alleging that Defendants violated the copyrights and demanded that Defendants cease manufacture, sale, and distribution of the Licensed Products. Id. at 7. The letter also requested a recalculation of Defendant's sales of Licensed Products as well as proper payment of royalties. Id. at 8.

         Plaintiffs subsequently filed the original complaint on October 12, 2017. [Docket Item 1.] Count 1 alleges a breach of contract for Defendants' failure to make timely royalty payments. Id. at 10. Count 2 alleges breach of contract for Defendants' failure to cease use and sale of licensed products upon termination of the license. Id. at 11. Count 3 alleges breach of contract for Defendants' failure to obtain approval of modified licensed products prior to distribution as well as failure to include Fish Kiss branding, labeling, and packaging. Id. at 12. Counts 4 and 5 allege copyright infringement for Defendant's violation of the license agreement under 12 U.S.C. § 504(b) and for violation of Plaintiffs' exclusive rights under 12 U.S.C. § 106, respectively. Id. at 18. Count 6 alleges vicarious and/or contributory liability for copyright infringement against the Individual Defendants. Id. at 18. Count 8 alleges False Advertising under the Lanham Act, 15 U.S.C. § 1125(a)(1), in connection with Defendants using a “Made in America” designation on the Licensed Products, as Plaintiffs allege that Defendants manufactured Licensed Products at least partially outside the United States. Id. at 19. Count 9 alleges violations of the New Jersey Consumer Fraud Act, N.J.S.A. 56-8-2 (“CFA”), in connection with the “Made in America” designation.

         Defendants then filed a motion to dismiss several of Plaintiffs' claims pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief may be granted. [Docket Item 13 (“First Motion to Dismiss”).] With regard to Counts 8 and 9, Defendants asserted in the First Motion to Dismiss that they manufacture all of their products in a facility in Medford, New Jersey. Id. at 16. Defendants requested dismissal of Count 8 for failure to state a claim or, in the alternative, summary judgment pursuant to Fed.R.Civ.P. 56. Id. at 13. Defendants also sought dismissal of Count 9 for lack of standing. Id. at 16. Defendants argued that because the Licensing Agreement was between Anne Klein and Defendants [Docket Item 1-11], Fish Kiss did not have standing as the real party in interest under Fed.R.Civ.P. 17(a) with regard to the contractual claims. [Docket Item 13 at 7.] Defendants also requested dismissal of Plaintiffs' copyright claims (Counts 4 & 5) pursuant to the first sale doctrine, 17 U.S.C. § 109(a). Id. at 10. Defendants requested dismissal (or, in the alternative, a more definite statement of a pleading pursuant to Fed.R.Civ.P. 12(e)) with regards to Plaintiff's copyright infringement claims (Counts 4-6). Id. at 12. Defendants also requested dismissal of Count 6 (claims against the Individual Defendants). Id.[1]

         In lieu of a Response, Plaintiffs filed their First Amended Complaint (“FAC”) on December 20, 2017. [Docket Item 14.] In it, Anne Klein was named as a plaintiff, which addressed Defendants' arguments under Fed.R.Civ.P. 17(a) as to Fish Kiss's standing. Id. The FAC specified which copyrighted materials were allegedly being infringed (namely: products bearing Fish Kiss's Alabama, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Vermont, Virginia, West Virginia, Wisconsin, and Wyoming designs). Id. at 9. Plaintiff withdrew Counts 8 and 9 without prejudice and reserved the right to reinstate the claims upon the discovery of further corroborating evidence. Id. at 19. Subsequently, Plaintiffs filed a Response in Opposition to Defendants' Motion to Dismiss on December 20, 2017, addressing the other arguments in Defendants' First Motion to Dismiss. [Docket Item 15.]

         Defendants filed an Answer to the FAC (including the assertion of counterclaims against Plaintiffs). [Docket Item 16.]

         In apparent service of attempting to reinstate their false advertising claims, Plaintiffs contacted Defendants' cloth and fabric supplier via email on April 4, 2018, inquiring whether their “canvas material in both optic white and white is also milled in the U.S.A.” [Docket Item 40-6 at 12]. In response, the supplier stated that they “do not have any canvas fabrics that are Made in the USA. This is due to the lack of woven mills that exist in the USA today.” Id.

         By leave of the Court [Docket Item 44], Plaintiffs filed their Second Amended Complaint on May 14, 2018. [Docket Item 45 (“SAC”).] In light, apparently, of the information gained from the April 4, 2018 email exchange, Plaintiffs reinstated as Counts 7 and 8 their False Advertising and Unfair Trade Practices claims under the Lanham Act, § 43(a), and the CFA, N.J.S.A. § 56:8-2, respectively. Id. at 15-16.

         Because the SAC is now the operative Complaint in this case, the Court restates its claims, briefly:

1. Breach of Contract Against NSC Defendants (for failure to pay and make timely royalties due) [Docket Item 45 at 9-10];
2. Breach of Contract Against NSC Defendants (for failure to cease use of Fish Kiss Artwork and Sale of Licensed Product upon Termination of the Agreement) [id. at 10];
3. Breach of Contract Against the NSC Defendants (for failure to obtain approval of licensed products prior to distribution; failure to include Fish Kiss branding, labeling, and packaging; and unauthorized modification of Fish Kiss artwork) [id. at 10-11];
4. Copyright Infringement Against the NSC Defendants (for copyright infringement of Fish Kiss Kentucky artwork) [id. at 11-13];
5. Copyright Infringement Against the NSC Defendants (for copyright infringement of Fish Kiss artwork) [id. at 13-15];
6. Vicarious and/or Contributory Copyright Infringement Against Defendants Godwin and Bernstein [id. at 15];
7. False Advertising under the Lanham Act, § 43(a) Against the NSC Defendants [id. at 15-16]; and
8. “Violation of N.J. Unfair Trade Practices Act (N.J. § 56:8-2)” Against the NSC Defendants [id. at 16-17].

         In response, Defendants filed the Second Motion to Dismiss the SAC (along with a brief in support of that Motion) on June 29, 2018. [Docket Item 51.] The Second Motion (to dismiss the SAC) is, for all intents and purposes, identical to the motion to dismiss Plaintiffs' original complaint; it omits only Defendants' motion to dismiss the case on the grounds that Fish Kiss (but not Klein) lacked standing.[2] Again, in the interests of clarity, the Court restates its essential arguments:

1. Count Two should be dismissed for failure to state a claim because there can be no breach of contract after the License Agreement terminated;
2. Counts Four through Six should be dismissed under the “first sale” doctrine;
3. Counts Three through Six should also be dismissed for failure to allege sufficient detail about the nature of the alleged infringement;
4. Count Seven should be dismissed because Plaintiffs' claim of false advertising on Defendants' claim that the products are “made in the USA” or “made in America” cannot be sustained where the only allegation is that the materials used to make Defendants' products did not ...

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