T. V. D. B. Sarl et al v. KAPLA USA, LP et al

Filing 72

ORDER granting in part and denying in part 49 Motion for Summary Judgment; granting in part and denying in part 50 Motion for Summary Judgment. The parties are ORDERED to submit briefs on the proper conversion rate from Euros to Dollars within twenty one days of this Order. Signed by Judge B. Avant Edenfield on 12/16/2013. (loh)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF GEORGIA
SAVANNAH DIVISION
T.V.D.B. SARL; KAPLA FRANCE
SARL; and TOM'S TOYS, LLC,
Plaintiffs,
V

4: 12-cv-230

.

KAPLA USA, LP; KAPLA USA GP,
LLC; CITIBLOCS, LLC; and
MARJORIE I. CHAYETTE,
Defendants.
ORDER
I. INTRODUCTION
T.V.D.B. Sari ("TVDB"), Kapla France
SARL ("Kapla"), and Tom's Toys, LLC
("Tom") bring this action against KAPLA
USA, LP ("KAPLA USA"), KAPLA USA
OP. LLC ("GP"), CITIBLOCS, LLC
("CITIBLOCS"), and Marjorie I. Chayette
alleging breach of contract and numerous
business torts. Plaintiffs and Defendants
cross moved for summary judgment. ECF
Nos. 49; 50. The Court GRANTS IN PART
and DENIES IN PART both motions. The
Court also ORDERS the parties to submit
briefs on the proper conversion rate from
Euros to Dollars and the proper prejudgment interest rate.
II. BACKGROUND
This is the story of what happens when
an international business relationship
established to market children's building
blocks comes crashing to the ground.
Kapla, a French company, and TVDB, a
Moroccan company, are in the business of

manufacturing unique wooden toy blocks.
ECF No. 1 at 1, 3. The Dutch blocks are
made of French wood but are processed,
packaged, and shipped from Morocco. Id. at
3. Each block is "precision cut to a single
size and shape" with a ratio of 1 unit of
thickness to 3 units of width to 15 units of
length. Id. "[W]hen stacked, [the blocks]
remain in place through forces of gravity,
and owing to the distinct size and
configuration of the blocks." Id
In 2005, Kapla sought a new distribution
partner in the United States. Id at 4. Kapla
management interviewed and selected
Chayette, memorializing an exclusive
distribution relationship with her in 2005.
Id Chayette then formed KAPLA USA as
the corporate distributor of the wooden
blocks and also formed GP to serve as the
corporate general partner of KAPLA USA.
Id. From 2005 to 2008, the distribution
relationship proceeded as all parties
intended, with blocks shipping from
Morocco to Savannah and then on to 2,500
retailers throughout the United States. Id. at
4-5.
In September, 2008, KAPLA USA
placed two orders for blocks in the amounts
of €37,925 and €51,330. Id. at 5. KAPLA
USA never paid the invoice amounts to
Kapla.' ECF Nos. 1 at 6; 56 at 7-8.
KAPLA USA is now insolvent and out of
business. ECF Nos. 56 at 3. Kapla alleges
the failure to pay amounts to a breach of
contract, unjust enrichment, and conversion.
ECF No. 1 at 9, 18, 23. This dispute would

'Due to an accounting adjustment, Kapla claims that
KAPLA USA currently owes a total of €61,769.
ECF Nos. I at 6; 1-2at2-3.

El

be straightforward if it ended here, but the
story continues.

Court must dismiss Tom4 because it is
unable to demonstrate an injury, and thus the
claims are not justiciable under Lujan v.
Defenders of Wildlife, 504 U.S. 555, 560
(1992).

In October 2008, CITIBLOCS, a
company selling blocks very similar to those
that Chayette previously distributed for
Kapla, was formed ECF No. 1 at 8.
Plaintiffs allege that the CITIBLOCS
venture breaches fiduciary duties, breaches a
duty to properly represent business
information, violates state trade secret laws,
violates federal intellectual property laws,
amounts to unfair competition and deceptive
practices, and tortuously interferes with their
businesses? ECF No. 1 at 14-17, 18-21, 23.
Plaintiffs also ask the Court to hold
CITIBLOCS accountable for KAPLA
USA's debts through successor liability. Id
at 11-12. Finally, Plaintiffs allege that
Chayette is personally responsible and liable
for all breaches and torts, and asks the Court
to pierce the corporate veil. Id.

This order 1) defines the appropriate
standard of review; 2) addresses the
dismissal of Tom's claims; 3) evaluates the
contract related claims; 4) evaluates the
claims related to CITIBLOCS's conduct; 5)
analyzes CITIBLOCS as a successor in
interest to KAPLA USA; and 6) analyzes
corporate veil piercing claims.

. 2

Ill. ANALYSIS
A. Standard of Review
Courts "grant summary judgment 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). Specifically,
the moving party must identify the portions
of the record which establish that there are
no "genuine dispute[s] as to any material
fact and the movant is entitled to judgment
as a matter of law." Moton v. Cowart, 631
F.3d 1337, 1341 (11th Cir. 2011). In
determining whether a summary judgment
motion should be granted, a court must view
the record and all reasonable inferences that
can be drawn from the record in a light most
favorable to the nonmoving parties. PeekA—Boo Lounge of Bradenton, Inc. v.
Manatee Co., Fla., 630 F.3d 1346, 1353
(11th Cir. 2011). Courts, moreover, may
consider all materials in the record, not just

Plaintiffs contend that they are entitled
to summary judgment on the breach of
contract claim and the unjust enrichment
claim against KAPLA USA, the claim under
the Georgia Deceptive Trade Practices Act,
and their claim that CITIBLOCS is the
successor in interest to KAPLA USA and
thus liable for its debts. ECF No. 49-1 at
11-21. Defendants contend they are entitled
to summary judgment on all claims for lack
of evidence except the breach of contract
claim against KAPLA USA. ECF No. 51 at
10-31. Defendants also contend that the

2

Chayette first became a member of CITIBLOCS in
June, 2009. ECF No. 49-8 at 3.
Plaintiffs also abandoned claims for breach of
contract accompanied by a fraudulent act, conversion
of customer lists, and defamation. ECF No. 55 at I.

' Tom is not present in the narrative discussing the
parties because it formed in May, 2009. ECF No. 51
at 31.

2

11

those cited by the parties. Fed. R. Civ. P.
56(c)(3).
B. Dismissal of all claims by Tom for
lack of standing

A plaintiff must demonstrate three things
to establish standing in federal courts under
Article III of the Constitution: 1) "he must
show that he has suffered an 'injury-infact;" 2) he must draw a "causal connection
between the asserted injury-in-fact and the
challenged action of the defendant;" and 3)
the injury must be redressable by a favorable
decision. Shotz v. Cates, 256 F.3d 1077,
1081 (11th Cir. 2001). "In addition,
standing must exist with respect to each
claim." Parker v. Scrap Metal Processors,
386 F.3d 993, 1002 (11th Cir. 2004).
Defendants argue that Tom has suffered
no injury-in-fact because it was not formed
until May, 2009, months after KAPLA USA
ordered and received the unpaid blocks.
ECF No. 51 at 31-32. The Court agrees that
Tom could not suffer injury from a breach of
contract that occurred prior to Tom's
existence. Tom's claims related to the
unpaid order therefore are dismissed.
Nevertheless, Tom correctly notes that
any ongoing use of Kapla's advertising
material by CITIBLOCS harms Tom's sales,
and it therefore has standing to assert claims
related to CITIBLOCS's conduct. 5 See ECF
No. 55 at 24-26.
Along similar lines, the Court rejects Defendants'
contention that all claims except the breach of
contract must be dismissed because Plaintiffs can
show no damages. ECF No. 51 at 32-34. Even if the
actual damages are immeasurable, the jury may
award nominal damages if "the violation of a right is
shown." MTW Inv. Co. v. Alcovy Props., Inc., 616
S.E.2d 166,169 (Ga. Ct. App. 2005).

C. Claims related to the unpaid order

1. Breach of Contract
Plaintiffs and Defendants both agree that
summary judgment is proper on the claim of
breach of contract against KAPLA USA.
ECF Nos. 49-1 at 11-12; 56 at 7-8. But the
analysis does not end there. Plaintiffs have
claimed an unpaid balance of €61,769.
Once a federal court determines damages
calculated in a foreign currency, it must
determine the "proper rate at which to
convert this amount into United States
dollars." Jam. Nutrition Holdings, Ltd. v.
United Shipping Co., 643 F.2d 376, 379 (5th
Cir. Unit A Apr. 1981). Neither party has
addressed the conversion issues. So, the
Court instructs the parties to submit briefs
on the proper conversion date and rate
within 21 days of this Order.
Furthermore, the parties must brief the
Court on the proper pre-judgment interest
rate in light of the proper date to select the
exchange rate, as a victorious party may not
reap a windfall by applying a favorable
interest rate to currency converted at a
favorable exchange rate. See Seguros Del
Estado, S.A. v. Scientific Games, Inc., 262
F.3d 1164, 1179-81 (11th Cir. 2001)
(holding that the district court erred by
applying the exchange rate from the date of
a contract breach and then applying a high
pre-judgment interest rate to the converted
sum that should have only applied to
deposits of Colombian pesos).
2. Unjust Enrichment
In Georgia, a claim for unjust
enrichment "does not lie where there is an
express contract." Arko V. Cirou, 700
S.E.2d 604, 608 (Ga. Ct. App. 2010). Both

U

parties have concede that a contract exists
and therefore Plaintiff's unjust enrichment
claim fails as a matter of law.

grants Defendants' motion for summary
judgment on this claim.
4. Breach of Fiduciary Duty by KAPLA
USA

3. Conversion of Inventory
In Georgia, "[c]onversion consists of an
unauthorized assumption and exercise of the
right of ownership over personal property
belonging to another, in hostility to his
rights; an act of dominion over the personal
property of another inconsistent with his
rights; or an unauthorized appropriation."
Maryland Cas. Ins. Co. v. Weichel, 356
S.E.2d 877, 880 (Ga. 1987) (internal
quotations omitted). But not "every breach
of a contractual obligation to pay money"
constitutes conversion. LaRoche Indus., Inc.
v. AIG Risk Mgmt., 959 F.2d 189, 191 (11th
Cir. 1992). Instead, a pre-existing fiduciary
duty to the aggrieved party must also exist
for a breach of contract to become
conversion. See ULQ, LLC v. Meder, 666
S.E.2d 713, 718-19 (Ga. Ct. App. 2008).
Also, in Georgia, consent to possession of
the property is a valid defense to a
conversion claim. Lamb v. State Farm Mut.
Auto Ins. Cos., 522 S.E.2d 573, 575 (Ga. Ct.
App. 1999) ("[S]hould the jury find that
[plaintiff] provided his consent, no action
for conversion would lie as a matter of law
because an essential element of that tort,
unauthorized appropriation of personal
property, would be absent.").

Plaintiffs claim that KAPLA USA
breached a fiduciary duty to Kapla as
exclusive distributor and in the debtorcreditor relationship. EFC No. 1 at 14. The
Court first determines if such a duty exists
as a matter of law under these relationships
and then investigates whether the evidence
creates an issue of material fact as to a
breach.
In Georgia, when two parties enter into
certain business relationships, the courts will
enforce fiduciary duties between the parties.
Optimum Techs. v. Henkel Consumer
Adhesives, 496 F.3d 1231, 1249 (11th Cir.
2007).
[I]n order for a business arrangement
between two parties to rise to the
level of a confidential relationship, it
must be shown either that the parties
have a long history with each other,
or that the arrangement was not at
arm's length, but was in the nature of
a legal partnership or a joint venture.
A confidential relationship does
not arise, however, where the
business transaction is merely an
arrangement in which each party is
attempting to further [its] own
separate business objectives, rather
than entering into some sort of joint
venture.

The conversion claim fails because
Kapla consented to possession of the
inventory when it shipped the blocks to
KAPLA USA. See ECF No. I at 5. Even if
KAPLA USA owed a fiduciary duty to
Kapla as Plaintiffs contend, they cannot
overcome the defense of consent. The Court

Id (internal quotations omitted) (alterations
in original). "The burden is on the plaintiff
to establish that a confidential relationship
existed between the parties . . . ." Id.
4

I,

Evidence of such relationship includes a
right to share profits or equal control of the
putative business enterprise. Id.

LLC). "[O]fficers and directors may not...
use their position for the purpose of
preferring themselves over any creditor, and
any scheme or device the purpose of which
is to indemnify themselves against loss
constitutes legal fraud." Ware, 104 S.E.2d
at 559. "The test is the intent or purpose
which induced the making of the payment or
the giving of the security." Id.

In Optimum, the Eleventh Circuit held
that a typical distributor relationship—"one
in which [plaintiff] manufactured and
supplied its product and [defendant]
distributed it to retailers"—did not give rise
to a fiduciary relationship. Id. This is
exactly the relationship in this case. As
evidenced by the Plaintiffs' breach of
contract claim, Kapla sold blocks to KAPLA
USA. See ECF No. 1 at 9. KAPLA USA
then resold the blocks for its own benefit.
The parties had no sort of profit- or controlsharing agreement.

The parties here disagree as to whether
Plaintiffs provide sufficient evidence to
create a jury issue. Defendants contend that
there is "absolutely no evidence" that
KAPLA USA was insolvent at the time it
placed the unpaid orders from Kapla, and
even if it was, it treated all creditors equally,
so Plaintiffs therefore did not breach
fiduciary obligations. ECF No. 51 at 22
(emphasis in original). Plaintiffs point to
Chayette's testimony that KAPLA USA
transferred money to CITIBLOCS instead of
paying Kapla because CITIBLCOS needed
the money. ECF No. 55 at 11.

Nor does five-year term of the
distribution agreement alter the nonfiduciary nature of the parties' relationship.
See ECF No. 55 at 10 (arguing that the
extended, fixed term of this relationship
distinguishes it from the business
relationship in Optimum.) Plaintiffs have
failed to produce evidence that this business
relationship was anything but an arm's
length transaction, so there is no fiduciary
duty based solely on KAPLA USA being an
exclusive distributor.

Defendants are wrong here for two
reasons. First, Georgia law does not require
that a debt be incurred at the time the
defendant is insolvent to create a fiduciary
duty, only that a transaction occur at the
time the defendant is insolvent. Ware, 104
S.E.2d at 559.
Here, KAPLA USA's
transfer of $30,000 to CITIBLOCS at the
time it owed Kapla for the unpaid orders is a
sufficient transaction. 6 See ECF 49-3 at 16
(discussing that KAPLA USA had
insufficient assets to pay off all creditors at

Both parties agree that "Georgia [c]ourts
may in limited circumstances impose
fiduciary obligations where a corporate
[d]efendant engages in transactions at the
time it is insolvent. . . ." ECF No. 51 at 22
(emphasis in original); ECF No. 55 at 10-12;
WOre v. Rankin, 104 S.E.2d 555, 558-59
(Ga. Ct. App. 1958); see also Tindall v. H &
S Homes, LLC, No. 5:10-CV-044, 2011 WL
5827227, at *2..3 (M.D. Ga. Nov. 18, 2011)
(applying the doctrine to members of an

6

Chayette testified that she may have transferred
more than $30,000 from KAPLA USA to
CITIBLOCS, ECF No. 49-8 at 3, so the damages for
this claim are not limited to $30,000.

5

the time that it transferred money to
CITIBLOCS).
Second, Chayette's testimony that she,
herself was a creditor of KAPLA USA, and
KAPLA USA made a choice to not pay
Kapla but rather transfer funds to
CITIBLOCS, thus favoring Chayette, rebuts
Defendants' contention that no evidence
supports a breach of fiduciary duty to
Plaintiffs.7 Plaintiffs have created a jury
issue on the claim of breach of fiduciary
duty by KAPLA USA as a creditor to
Plaintiffs.'
5. Negligent Misrepresentation by
KAPLA USA as to its intention to pay
Kapla for blocks purchased
Negligent misrepresentation requires
"(1) the defendant's negligent supply of false
information to foreseeable persons, known
or unknown; (2) such persons' reasonable
reliance upon that false information; and (3)
economic injury proximately resulting from
such reliance." Marquis Towers, Inc. v.
Highland Grp., 593 S.E.2d 903, 906 (Ga. Ct.
App. 2004). The parties argue over the
applicability of the economic loss rule to
this tort, but that issue is not dispositive
here. ECF No. 51 at 23-24; ECF No. 55 at
12-13.
Chayette became the sole member and manager of
CITIBLOCS in June, 2009. ECF No. 49-8 at 3.
8
The Court wishes to make clear that under Georgia
law, GP, CITIBLOCS, and Chayette may be liable
for breach of this fiduciary duty. Ware, 104 S.E.2d at
559. That said, "[s]uch an action does not pierce the
corporate veil. Instead, it simply rescinds improper
payments to shareholders or directors so that funds
are available for payment of corporate debts."
Hickman v. Hyzer, 401 S.E.2d 738, 740 (Ga. 1991).
Therefore, the Court's ruling on veil piercing or
successor interest liability does not apply to this
claim.

A negligent misrepresentation "claim
must be based upon misrepresentations
related to pre-existing or present fact and not
a promise of future conduct." Nat'l Elite
Transp., LLC v. Angel Food Ministries, Inc.,
No. 3:11-CV-41, 2011 WL 2728408, at *6
(M.D. Ga. July 12, 2011). Plaintiffs argue
that for this instance of negligent
misrepresentation, the false information is
KAPLA USA's promise to pay for the
blocks upon receipt. ECF No. 1 at 21.
Thus, Plaintiffs may not predicate a claim of
negligent misrepresentation on the breach of
the purchase contract and this claim fails.
D. Claims involving conduct of
CITIBLOCS
1. Misappropriation of trade secrets
Georgia protects trade secrets as
valuable intellectual property and provides
for injunctive and monetary relief when
defendants have misappropriated such
information. O.C.G.A. §§ 10-1-761 to 767.
A trade secret is:
information, without regard to form,
including, but not limited to
financial data. . . or a list of actual or
potential customers or suppliers
which is not commonly known by or
available to the public and which
information:
(A) Derives economic value, actual
or potential, from not being generally
known to, and not being readily
ascertainable by proper means by,
other persons who can obtain
economic value from its disclosure
or use; and

(B) Is the subject of efforts that are
reasonable under the circumstances
to maintain its secrecy.

2. Tortious Interference with Business
Relations
In Georgia, a plaintiff must support a
claim of tortious interference with business
relations with evidence that "defendant (1)
acted improperly and without privilege, (2)
purposely and with malice with the intent to
injure, (3) induced a third party or parties
not to enter into or continue a business
relationship with the plaintiff, and (4) for
which the plaintiff suffered some financial
injury." Amerigas Propane, L.P. v. T-Bo
Propane, Inc., 972 F. Supp. 685, 694 (S.D.
Ga. 1997).

§ 10-1-761(4); A plaintiff must present
evidence of both prongs of the definition to
survive summary judgment. Bacon v. Volvo
Serv. Dr., Inc., 597 S.E.2d 440, 443 (Ga. Ct.
App. 2004).
Defendants argue that suggested retail
prices and wholesale prices are not trade
secrets because they are of no value to the
Plaintiffs. ECF No. 51 at 17. Defendants
also argue that Plaintiffs took no steps to
protect any secret information because they
never demanded a confidentiality
agreement, never kept any records of
dissemination, and because they waited
three and a half years to pursue a lawsuit to
attempt to protect the secrets, likening the
facts to those in Bacon, 597 S.E.2d at 443.
Id at 19.

Defendants cleverly contend that
Plaintiffs only ever had one customer at a
time in the United States, and at the relevant
time it was KAPLA USA, so Defendant
could not have interfered with itself. ECF
No. 51 at 20-21. Plaintiffs counter that the
relevant third parties in this case were
former customers of KAPLA USA who
switched to purchase CITIBLOCS's
product. ECF No. 55 at 7. This is a valid
argument, but a "plaintiff must present
direct evidence that the relationships were
likely to develop absent the interference."
Trilink Saw Chain, LLC v. Blount, Inc., 583
F. Supp. 2d 1293, 1324 (N.D. Ga. 2008).
Circumstantial or, even worse, speculative
evidence of future business relationships is
insufficient. Id at 1325.

Plaintiffs counter that the factory costs,
or those that the Defendants would pay to
the factory for Plaintiffs' goods, are the
protected trade secret, and the testimony of a
former member of CITIBLOCS supports
this contention. ECF No. 55 at 5. The fact
that Plaintiffs did not provide this pricing
information to anybody but Chayette, they
argue, is sufficient evidence of reasonable
efforts to maintain secrecy, and is
distinguishable from Bacon, 597 S.E.2d at
443, where many low-level technicians had
access to the secrets. Id. The Court agrees.
Resolution of this debate is a material
question of fact for a jury, so the Court
denies Defendants' motion for summary
judgment as to the claim for
misappropriation of trade secrets.

Here, contrary to Plaintiffs' contentions
about CITIBLOCS interfering with
business, Tom speculated that prospective
relationships were actually harmed by
actions of other non-party block companies.
ECF No. 51-3 at 9. Not only have Plaintiffs
failed to produce direct evidence of potential
7

C

business relationships, they have actually
presented evidence harming their case. The
Court grants summary judgment to
Defendants on the tortious interference with
business relations claim.

Furthermore, the complaint boasts that
Kapla blocks, "when stacked, remain in
place through the forces or gravity, and
owing to the distinct size and configuration
of the blocks." ECF No. 1 at 3 (emphasis
added). Finally, the word "dimensions" is
just a sophisticated synonym for the word
"size," so dimensions, too, are functional
here.9 See Merriam-Webster's Collegiate
Dictionary 351 (11th ed. 2008).

3. Violation of Federal Trade Dress
Protection
The Lanham Act protects the trade dress
of products that inherently create a
secondary meaning to consumers because of
shape, color, or other non-functional
characteristic. 15 U.S.C. § 1125(a); e.g.
John H. Harland Co. v. Clarke Checks, Inc.,
711 F.2d 966, 980 (11th Cir. 1983). "In
order to prevail on a claim for trade dress
infringement under § [1125](a), plaintiff
must prove three basic things: [T]hat the
trade dress of the two products is
confusingly similar, that the features of the
trade dress are primarily non-functional, and
that the trade dress has acquired secondary
meaning." Id. (internal quotations omitted).

Plaintiffs attempt to save their claim by
contending that the color of the block is nonfunctional. ECF No. 55 at 3. This may be
true, but Plaintiffs failed to allege
infringement of the color of their blocks in
their complaint. Because the Plaintiffs have
not shown evidence of any properly-plead
non-functional infringing characteristic of
CITIBLOCS's blocks, the Court grants
summary judgment to Defendants on the
trade dress infringement claim.
4. Violation of the Georgia Uniform
Deceptive Trade Practices Act

The Defendants focus their argument on
the non-functional requirement of the trade
dress features, vehemently contending that
by Plaintiffs' own admission, the allegedly
infringed characteristics are functional. ECF
No. 51 at 14-16. After a close reading of the
complaint and deposition testimony, the
Court agrees that, as described by the
Plaintiffs, all allegedly infringed
characteristics are functional.

Both parties move for summary
judgment as to the deceptive trade practices
claim.
A person engages in a deceptive
trade practice when, in the course of
his business, vocation, or occupation,
he: (1) Passes off goods or services
as those of another; (2) Causes
likelihood of confusion or of
misunderstanding as to the source,
sponsorship, approval, or
certification of goods or services; (3)
Causes likelihood of confusion or of

Plaintiffs allege that Defendants
infringed the shape, size, and dimensions of
Kapla Blocks. ECF No. 1 at 18-19.
T.V.D.B. admits in its deposition that "the
CitiBlocs [blocks] size and shape, which is
identical [to Plaintiffs' blocks], is also
functional." ECF No. 51-1 at 64.

Plaintiffs also equated dimensions to ratio, ECF No.
55 at 3, but previously admitted that the ratio of the
blocks is also functional, ECF No. 51-I at 64.
8

W

misunderstanding as to affiliation,
connection, or association with or
certification by another; (4) Uses
deceptive representations or
designations of geographic origin in
connection with goods or services;
(5) Represents that goods or services
have sponsorship, approval,
characteristics, ingredients, uses,
benefits, or quantities that they do
not have or that a person has a
sponsorship, approval, status,
affiliation, or connection that he does
not have; . . . (7) Represents that
goods or services are of a particular
standard, quality, or grade or that
goods are of a particular style or
model, if they are of another; (8)
Disparages the goods, services, or
business of another by false or
misleading representation of fact; (9)
Advertises goods or services with
intent not to sell them as advertised;.
or (12) Engages in any other
conduct which similarly creates a
likelihood of confusion or of
misunderstanding.
O.C.G.A. § 10-1-372(a); ECF No. 49-1 at
17-18. A plaintiff "need not prove
competition between the parties or actual
confusion or misunderstanding" to prevail.
§ 10-1-372(b).
The Defendants argue that there is no
evidence that they ever sought to "deceive
anyone" or "otherwise engaged in any sort
of. . . deceptive behavior," ECF No. 51 at
30, but this is just not true. Plaintiffs present
photographs used as marketing material by
CITIBLOCS that featured Kapla's blocks.
ECF Nos. 49-12; 49-13; 49-14; 49-15. One

of the images clearly shows that
CITIBLOCS crudely removed the Kapla
logo from the picture. Compare ECF No.
49-12, with ECF 49-13. CITIBLOCS also
occupied a space at a toy fair originally
reserved for Kapla's products which
Plaintiffs contend is circumstantial evidence
of an intent to deceive consumers that they
were actually purchasing Kapla's blocks.
ECF No. 49-1 at 20.
On the same note, however, the Court is
unwilling to step into the shoes of the
factfinder and conclude that these acts by
CITIBLOCS caused confusion. The Court
denies both motions for summary judgment
as to the deceptive trade claims act and will
leave the resolution of this material dispute
of fact to the jury.
5. Negligent Misrepresentation by
CITIBLOCS as to the availability of
Kapla 's blocks in the United States
As initially discussed above, Georgia
recognizes the tort of negligent
misrepresentation, and the elements are "(1)
the defendant's negligent supply of false
information to foreseeable persons, known
or unknown; (2) such persons' reasonable
reliance upon that false information; and (3)
economic injury proximately resulting from
such reliance." Marquis Towers, Inc. v.
Highland Grp., 593 S.E.2d 903, 906 (Ga. Ct.
App. 2004). As to this claim, Plaintiffs
allege in their complaint that Defendants
falsely represented to Kapla 's customers
that Kapla products were no longer available
in the United States. ECF No. 1 at 21.
The Defendants argue that Plaintiffs can
show no reliance on the statements because
they were made to third parties, not directly

to the Plaintiffs. ECF No. 51 at 24 (citing
Potts v. UAP-GA AG CHEM Inc., 567
S.E.2d 316, 319 (Ga. Ct. App. 2002)).
Plaintiffs do not directly respond to this
argument, but rather try to recraft their claim
to Defendant's motion for summary
judgment to allege that the
misrepresentation was made directly to
Kapla. ECF No. 55 at 13. "Upon entering
into the exclusive distribution agreement,
and placing orders from Plaintiffs, KAPLA
USA represented that it was working
exclusively for Plaintiffs, and in Plaintiffs'
best interest." Id. Regardless of the merit of
this claim, Plaintiffs did not allege this in
their complaint so the Court may not
consider it. Because Plaintiffs fail to show
reliance on the statements made to the thirdparty customers, the Court grants summary
judgment on this allegation of negligent
misrepresentation.

outlets and customers; (5) similarity of
advertising media; (6) defendant's intent;
and (7) actual confusion. Of these, the type
of mark and the evidence of actual
confusion are the most important." Id.
As with their deceptive trade practices
claim, Defendants argue that there is no
actionable wrong here. ECF No. 51 at 30.
Plaintiffs, however, have presented evidence
of a deceptive act, specifically the alteration
and use of advertising material. See ECF
Nos. 49-12; 49-13; 49-14; 49-15. That
evidence creates a jury question on this
matter and the Court accordingly denies
summary judgment.
E. Liability of CITIBLOCS as
successor in interest to KAPLA USA
Both parties move for summary
judgment as to whether CITIBLOCS is a
successor in interest to KAPLA USA and,
thus, liable for the contractual debt. ECF
Nos. 49-1 at 14-17; 51 at 28-29. An entity
"is but a continuance of the old" entity "by
reason of such identity of name, objects,
assets, and stockholders." Ney-Copeland &
Assocs., Inc. v. Tag Poly Bags, Inc., 267
S.E.2d 862, 863 (Ga. Ct. App. 1980). The
identity need not be complete; only "some
identity of ownership" is necessary to apply
the successor-in-interest theory. Pet Care
Prof'l Ctr., Inc. v. BellSouth Adver. &
Publ'g Corp., 464 S.E.2d 249, 251 (Ga. Ct.
App. 1995) (emphasis eliminated).

6 Unfair Competition
"Any attempt to encroach upon the
business of a trader or other person by the
use of similar trademarks, names, or
devices, with the intention of deceiving and
misleading the public, is a fraud for which
equity will grant relief." O.C.G.A. § 23-255. "Fraud may be consummated by signs
or tricks, or through agents employed to
deceive, or by any other unfair way used to
cheat another." Id at § 23-2-56. Georgia
employs a seven-factor likelihood of
confusion test for unfair competition claims.
Caliber Auto. Liquidators, Inc. v. Premier
Chrysler, Jeep, Dodge, LLC, 605 F.3d 931,
935 (11th Cir. 2010). Those factors are "(1)
type of mark; (2) similarity of mark; (3)
similarity of the products the marks
represent; (4) similarity of the parties' retail

Plaintiffs argue that all signs here point
to a common identity between KAPLA USA
and CITIBLOCS: Chayette used the
KAPLA USA name to apply for a credit line
for CITIBLOCS, ECF No. 49-1 at 15; the
entities used the same bank accounts, id.;
10

Chayette is at the heart of both ventures, Id.
at 16; the employees of the companies are
the same, Id.; and the companies used the
same mailing address, id at 17. Defendants
contend that CITIBLOCS was wholly
separate from KAPLA USA with its own
contractors, facilities, operations,
manufacturers, and procedures, and the
absence of a transfer of stock precludes
successor liability. ECF No. 51 at 29 (citing
Bakers Carpet Gallery v. Mohawk Indus.,
942 F.Supp. 1464, 1471 n.7 (N.D. Ga.
1996)).

sufficient as described in Pet Care
Professional Center, 464 S.E.2d at 251—the
similarity of the names being the only
incompleteness. CITIBLOCS will be liable
for KAPLA USA's contractual debts.
F. Liability of Chayette by veil
piercing

Defendants move for summary judgment
to protect Chayette from veil piercing
through any of the other Defendants. ECF
No. 51 at 26-28. In order to pierce the veil
of a limited liability company, "there must
be evidence that [an individual defendant]
abused the forms by which the LLC was
maintained as a separate legal entity apart
from his personal business." Bonner v.
Brunson, 585 S.E.2d 917, 918 (Ga. Ct. App.
2003).

Nearly all signs point to CITIBLOCS as
being a continuation of and successor in
interest to KAPLA USA. Chayette is indeed
at the heart of both ventures. ECF No. 49-3
at 3. Although she did not become a
CITIBLOCS member until June, 2009,
Chayette held herself Out as one in a credit
application for CITIBLOCS in May, 2009.
ECF No. 49-19 at 2. Chayette also claimed
CITIBLOCS owned 51% of KAPLA USA
and attached its financial statements to
CITIBLOCS's credit application. Id at 2, 916.

Plaintiffs make a compelling case that
Chayette comingled the KAPLA USA and
CITIBLOCS entities, ECF No. 55 at 16-18,
but this alone is insufficient to justify
piercing the corporate veil.
Insituform
Techs., LLC v. Cosmic TopHat, LLC,
F.
Supp. 2d -, No. 1:08-CV-333-TCB, 2013
WL 4038722, at *8 (N.D. Ga. Aug. 9,
2013). As the Defendants argue, KAPLA
USA and CITIBLOCS were validly
organized, maintained the corporate
formalities such as a registered agent,
maintained bank accounts separate from
Chayette, and borrowed money in the
corporate name. ECF No. 51 at 27.
Although Chayette prematurely identified
herself as a member of CITIBLOCS on the
credit application discussed above, the
"failure of a limited liability company to
observe formalities relating to the exercise
of its powers or the management of its

KAPLA USA and CITIBLOCS had at
least some of the same employees, and some
even worked for both companies
simultaneously. Compare ECF No. 49-3 at
3, with ECF No. 49-8 at 9. Mike Lauter, the
founding member of CITIBLOCS sold
KAPLA USA inventory and then received
payment from CITIBLOCS for his efforts.
ECF No. 49-8 at 9. CITIBLOCS occupied a
space at a toy fair reserved for and
designated as KAPLA USA. Id at 11.
KAPLA USA transferred at least $30,000 of
assets (cash) to CITIBLOCS to fund its
start-up. Id. at 3. The identity is more than
11

I.

Finally, the Court ORDERS the parties
to 1) submit briefs on the proper conversion
rate from Euros to Dollars and the proper
pre-judgment interest rate and 2) submit a
proposed joint pretrial order, all within 21
days of this order.

business and affairs is not a ground for
imposing personal liability on a member."
O.C.G.A. § 14-11-314. In light of Georgia
case law and statute,' ° Plaintiffs have failed
to present sufficient evidence to justify
piercing the corporate veil to reach
Chayette, and the Court grants summary
judgment in favor of Defendants on this
matter.'

This/lay of December 2013.

III. CONCLUSION
The Court GRANTS IN PART and
DENIES IN PART both motions for
summary judgment. The Court grants
summary judgment in favor of (1) the
Plaintiffs as to the breach of contract claim
and concludes that CITIBLOCS is a
successor in interest to KAPLA USA; and
(2) Defendants as to the unjust enrichment,
conversion of inventory, negligent
misrepresentation, tortious interference with
business relations, and federal trade dress
infringement claims and concludes that
Plaintiffs may not pierce the veil to reach
Chayette.

6~

e /// ,.
l
-

~

--

—

~

"
B. V ANf t ENFIELb, JUDGE
UNITED STATES DISTRICT OURT
SOUTHERN DISTRICT OF GEORGIA
'--'

The Court denies summary judgment
and leaves for the jury Plaintiffs' claims of
breach of fiduciary duty, misappropriation
of trade secrets, violation of the Georgia
Uniform Deceptive Trade Practices Act, and
unfair competition.

'° This issue rests with the State, and the Court will
respect Georgia's statutes and case law in its
decision. Given a clean slate, the Court would
strongly consider piercing the corporate veil.
This ruling does not completely absolve Chayette
of liability for two reasons: first, as stated above,
Chayette may be liable for breach of fiduciary duty,
see supra note 8, and second, "a corporate officer
who takes part in the commission of a tort committed
by the corporation is personally liable therefor."
Almond v. McCranie, 643 S.E.2d 535, 537 (Ga. Ct.
App. 2007).

12