Innovation Ventures, LLC et al v. Ultimate One Distributing Corp. et al

Filing 893

ORDER granting in part and denying in part (842) Motion for Partial Summary Judgment filed by Quality King Distributors; granting in part and denying in part (855) Motion for Partial Summary Judgment filed by Food Distributors International and Scott Tilbrook. For the reasons stated in the enclosed Memorandum and Order, Quality King's motion for partial summary judgment is granted in part and denied in part. The FDI Defendants' cross-motion for partial summary judgment is granted in part and denied in part. Quality King is awarded $799,266.80 on its breach of contract claim against Food Distributors International. Ordered by Judge Kiyo A. Matsumoto on 3/31/2016. (McNulty, John)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
---------------------------------X
INNOVATION VENTURES, LLC; LIVING
ESSENTIALS, LLC; and INTERNATIONAL
IP HOLDINGS, LLC,
Plaintiffs,

MEMORANDUM AND ORDER
12-CV-5354 (KAM) (RLM)

-againstULTIMATE ONE DISTRIBUTING CORP.,
et al.,
Defendants.
---------------------------------INNOVATION VENTURES, LLC; LIVING
ESSENTIALS, LLC; and INTERNATIONAL
IP HOLDINGS, LLC,
Plaintiffs,

13-CV-6397 (KAM) (RLM)

-againstPITTSBURG WHOLESALE GROCERS, INC.,
et al.,
Defendants.
---------------------------------X
MATSUMOTO, United States District Judge:
Plaintiffs Innovation Ventures, LLC; Living
Essentials, LLC; and International Holdings, LLC (collectively,
“Living Essentials”) brought this consolidated action against
dozens of businesses and individuals allegedly involved the
manufacture, sale, and distribution of counterfeit 5-hour
ENERGY.

(See generally ECF No. 291, Seventh Amended Complaint

filed 12/28/12.)

Among the named defendants are Quality King

Distributors, Inc. (“Quality King”), 1 Food Distributors
International, Inc. (“FDI”), and FDI’s owner and president,
Scott Tilbrook (collectively, the “FDI Defendants”).
Pending before the court are cross-motions for partial
summary judgment filed by Quality King and the FDI Defendants.
Quality King moves for summary judgment on it cross-claims
against FDI for breach of contract, false designation of origin
and false advertising under the Lanham Act, breach of statutory
warranties under the Uniform Commercial Code, equitable
indemnity, and common law unfair competition.

(ECF No. 845,

Quality King’s Memorandum of Law in Support of Summary Judgment
(“Quality King Mem.”).) 2

The FDI Defendants move for summary

judgment on Quality King’s cross-claims for false designation of
origin and false advertising under the Lanham Act, equitable
indemnity, and common law unfair competition.

(ECF No. 855-1,

FDI and Scott Tilbrook’s Memorandum of Law in Support of Summary
Judgment (“FDI Mem.”).)

For the reasons set forth below, the

parties’ cross-motions are granted in part and denied in part.
BACKGROUND
The background of this case is comprehensively
described in the court’s Memorandum and Order dated March 31,

1

Living Essentials has settled its claims against Quality King.

2 Quality King also moved for summary judgment against named defendants
Universal Wholesale, Inc. and its principal, Joseph Sevany, but subsequently
settled its claims against those defendants. (See ECF No. 882.)

2

2016.

(See ECF No. 886, Mem. and Order.)

The court sets forth

below only those facts relevant to the present motion.
I.

Procedural History
On October 25, 2012, Living Essentials commenced this

action, captioned Innovation Ventures, et al. v. Ultimate One
Distributing Corp., et al. (“Ultimate Action”) in this court.
In its initial complaint, Living Essentials, the owner of 5-hour
ENERGY, alleged that more than twenty defendants had sold
counterfeit 5-hour ENERGY in violation of the Lanham Act, 15
U.S.C. §§ 1114 and 1125, the Copyright Act of 1976, 17 U.S.C. §
106, New York state law and common law. (See U.A. No. 1, Compl.
filed 10/25/12.)
defendants.

The Ultimate Action grew to include sixty-nine

(See U.A. No. 291, Seventh Am. Compl. filed

12/28/12.)
On October 26, 2012, Living Essentials filed the
action captioned Innovation Ventures, et al. v. Pittsburg
Wholesale Grocers Inc., et al. (“Pittsburg Action”), in the
United States District Court for the Northern District of
California.

In its initial complaint in the Pittsburg Action,

Living Essentials alleged substantially the same claims as in
the Ultimate Action against sixteen defendants based in
California.

(See P.A. No. 1, Compl. filed 10/26/12.)

On February 8, 2013, Quality King filed its crossclaims against FDI and Tilbrook in the Ultimate Action.
3

(U.A.

No. 367, Quality King’s Cross-Claims (“Cross-Claims”).)

The FDI

Defendants answered Quality King’s Cross-Claims on February 26,
2013.

(U.A. No. 408.)

On November 15, 2013, the Northern

District of California transferred the Pittsburg Action to this
district. (P.A. No. 530, Order Granting Mot. to Change Venue
dated 11/15/13.)

On March 3, 2014, the court granted a joint

request to consolidate the Ultimate Action and the Pittsburg
Action.
II.

(U.A. No. 680.)

Undisputed Material Facts
The following facts are taken from the parties’ Local

Civil Rule 56.1 statements and have not been specifically
disputed with admissible evidence unless otherwise indicated.
References to paragraphs of the parties’ Rule 56.1 statements
include materials cited therein and annexed thereto.
Quality King is a New York-based wholesaler of health,
beauty, and grocery products.

(ECF No. 846, Quality King’s Rule

56.1 Statement of Undisputed Material Facts (“Quality King
56.1”) ¶ 1; ECF No. 855-2, FDI Defendants Rule 56.1 Statement of
Undisputed Material Facts (“FDI 56.1”) at ¶¶ 1-2.)
Florida-based wholesaler of grocery products.

FDI is a

(FDI 56.1 ¶ 4.)

Scott Tilbrook is FDI’s sole owner and president.

(FDI 56.1 ¶

5.)
Both Quality King and FDI were wholesalers of 5-hour
ENERGY in 2012.

Between August 6, 2012 and November 1, 2012,
4

Quality King purchased from FDI approximately 878,688 bottles of
what FDI sold as 5-hour ENERGY, for a total price of over
$1,000,000.

(Quality King 56.1 ¶ 4.)

all of these bottles were counterfeit.

FDI does not dispute that
(See ECF No. 864-2,

Living Essentials’ Rule 56.1 Statement of Undisputed Facts (“LE
56.1”) ¶¶ 155-56; Quality King 56.1 ¶ 15.)

Of the 878,688

counterfeit 5-hour ENERGY bottles that Quality King purchased
from FDI, Quality King resold approximately 270,864 bottles to
downstream retail customers.

(Quality King 56.1 ¶ 13.)

The

607,824 counterfeit bottles that Quality King did not resell
were quarantined and transferred to the custody of Living
Essentials during the pendency of this action.
56.1 ¶ 5.)

(Quality King

It is undisputed that Quality King paid FDI

$799,266.80 for the counterfeit bottles that were unsold and
quarantined.

(Id.)

All of Quality King’s purchases from FDI between
August 6, 2012 and November 1, 2012 were made pursuant to
Quality King’s standard form purchase order.
¶ 16.)

(Quality King 56.1

The terms of the purchase orders (“Purchase Orders”)

include representations by FDI that “any and all merchandise
that is the subject of this purchase order (1) was obtained by
Supplier [FDI] without fraud, misrepresentation or violation of
any statute, regulation, or administrative court order, (2) can
lawfully be distributed in the United States in its present form
5

and packaging, and (3) is not the subject of any legal or
contractual restriction on its resale by Supplier [FDI] to
[Quality King].”

(Id.)

In addition, on or about February 17, 2009, FDI
entered into a vendor agreement with Quality King (the “Vendor
Agreement”) whereby FDI warranted and represented that FDI’s
products were genuine and not counterfeit.
17.)

(Quality King 56.1 ¶

Pursuant to the Vendor Agreement, FDI agreed to indemnify

Quality King for costs, expenses, losses, and attorneys’ fees
for any lawsuits arising out of FDI’s breach of the Vendor
Agreement.

(Quality King 56.1 ¶ 17; ECF No. 844-3, Declaration

of Andre Cizmarik dated 10/31/2014, Ex. C.)
Quality King asserts eight cross-claims against the
FDI Defendants: (1) breach of contract; (2) false designation of
origin under the Lanham Act; (3) false advertising under the
Lanham Act; (4) breach of the warranty of non-infringement
(U.C.C. § 2-312) and breach of the implied warranty of
merchantability (U.C.C. § 2-314); (5) equitable (i.e., common
law) indemnity; (6) equitable contribution; (7) declaratory
judgment; and (8) common law unfair competition.
King’s Cross-Claims at ¶¶ 24-51.)

(See Quality

In its opposition to the FDI

Defendants’ summary judgment motion, Quality King states it is no
longer pursuing its cross-claims against FDI and Tilbrook for
contribution and a declaratory judgment.
6

(ECF No. 858, Quality

King’s Opposition to FDI Defendants’ Motion for Summary Judgment
(“Quality King Opp.”) at 1 n.1.)

Nor is Quality King pursuing

its cross-claims against Scott Tilbrook, individually, for breach
of contract and breach of U.C.C. statutory warranties.

(Id.)

Accordingly, Quality King’s claims against FDI and Tilbrook for
contribution and a declaratory judgment, and against Tilbrook for
breach of contract and breach of U.C.C. statutory warranties, are
dismissed.
DISCUSSION
I.

Summary Judgment
“Summary judgment is appropriate where there is no

genuine dispute as to any material fact and the record as a
whole indicates that no rational factfinder could find in favor
of the non-moving party.”

Graves v. Finch Pruyn & Co., 353 F.

App’x 558, 560 (2d Cir. 2009) (citing Rodal v. Anesthesia Grp.
of Onondaga, P.C., 369 F.3d 113, 118 (2d Cir. 2004)).

“In

ruling on a summary judgment motion, the district court must
resolve all ambiguities, and credit all factual inferences that
could rationally be drawn, in favor of the party opposing
summary judgment and determine whether there is a genuine
dispute as to a material fact, raising an issue for trial.”
McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 202 (2d Cir.
2007) (quotation marks omitted).

“A fact is material when it

might affect the outcome of the suit under governing law.”
7

Id.

(internal quotation marks omitted).

Moreover, an issue of fact

is genuine only if “the evidence is such that a reasonable jury
could return a verdict for the nonmoving party.”

Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
“In order to defeat a motion for summary judgment
supported by proof of facts that would entitle the movant to
judgment as a matter of law, the nonmoving party is required
under Rule 56(e) to set forth specific facts showing that there
is a genuine issue of material fact to be tried.”

Ying Jing Gan

v. City of New York, 996 F.2d 522, 532 (2d Cir. 1993) (citation
omitted).

“[O]nly disputes over facts that might affect the

outcome of the suit under the governing law will properly
preclude entry of summary judgment.”

Anderson, 477 U.S. at 248.

The nonmoving party may not, however, “rely simply on conclusory
statements or on contentions that the affidavits supporting the
motion are not credible, or upon the mere allegations or denials
of the nonmoving party’s pleading.”

Ying Jing Gan, 996 F.2d at

532–33 (citations omitted).
The standard is the same when cross motions for
summary judgment are made.

See Morales v. Quintel Entm’t, Inc.,

249 F.3d 115, 121 (2d Cir. 2001); Eschmann v. White Plains Crane
Serv., Inc., No. 11-CV-5881, 2014 WL 1224247, at *3 (E.D.N.Y.
Mar. 24, 2014).

The court must examine each party’s motion

independently, and “in each case all reasonable inferences must
8

be drawn against the party whose motion is under consideration.”
Morales, 249 F.3d at 121 (citation omitted).
II.

Breach of Contract
To establish a breach of contract under New York law, 3

a plaintiff must show: (1) the formation of a contract between
the plaintiff and defendant; (2) performance by the plaintiff;
(3) failure by the defendant to perform; (4) resulting damages.
Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co. of
N.Y., 375 F.3d 168, 177 (2d Cir. 2004).
There is no dispute that Quality King has established
these elements.

The Purchase Orders and the Vendor Agreement

are valid, enforceable contracts between Quality King and FDI.
Quality King performed under the contracts by paying FDI for
what FDI represented was authentic 5-hour ENERGY.

FDI breached

the Purchase Orders and the Vendor Agreement by selling Quality
King counterfeit 5-hour ENERGY.
As to damages, FDI concedes that “it is liable to
[Quality King] for the price [Quality King] paid, should the
Court determine that the goods were counterfeit.”

(ECF No. 850,

FDI Defendants’ Opposition to Quality King’s Motion for Summary
Judgment, at 23.)

FDI does not dispute that the 5-hour ENERGY

bottles FDI sold to Quality King were counterfeit.

(LE 56.1 ¶¶

3 Quality King and FDI do not dispute that New York law applies and primarily
cite New York law in their cross-motions for summary judgment.

9

155-56.)

Accordingly, Quality King is entitled to damages for

FDI’s breach of contract in the amount of $799,266.80, which
represents the unreimbursed amount that Quality King paid FDI
for counterfeit 5-Hour ENERGY bottles that were unsold and
quarantined.

Quality King acknowledges that, on the current

record, factual disputes preclude determination of any
additional damages to which it may be entitled pursuant to the
Purchase Orders and/or Vendor Agreements.

(See ECF No. 853,

Quality King’s Reply in Support of Summary Judgment (“Quality
King Reply”) at 10.)
III. U.C.C. Statutory Warranties
Quality King also moves for summary judgment against
FDI on its cross-claims for breach of the warranty of noninfringement (U.C.C. § 2-312(3)) and breach of the implied
warranty of merchantability (U.C.C. § 2-314).

FDI does not

oppose Quality King’s motion for summary judgment on these
breach of warranty claims. 4
A.

Warranty of Non-infringement (U.C.C. § 2-312)

Section 2-312 of the New York Uniform Commercial Code
provides, in relevant part:
Unless otherwise agreed, a seller who is a
merchant regularly dealing in goods of the kind
Because Quality King only seeks a determination regarding FDI’s liability
for breach of statutory warranties, the court need not reach the issue of
whether the breach of warranty remedies available to Quality King are
duplicative of the remedies available for contractual indemnification
pursuant to the Vendor Agreement.
4

10

warrants that the goods shall be delivered free
of the rightful claim of any third person by way
of infringement or the like, but a buyer who
furnishes specifications to the seller must hold
the seller harmless against any such claim which
arises out of compliance with the specifications.
N.Y. U.C.C. § 2-312(3).

The Official Comment to § 2-312(3)

states: “When goods are part of the seller’s normal stock and
sold in the normal course of business, it is his duty to see
that no claim of infringement of a patent or trademark by a
third party will mar the buyer’s title.”

Id. cmt. 3.

To establish breach of the warranty of noninfringement under § 2-312, “the plaintiff-buyer must show that
the seller: (1) was a merchant regularly dealing in goods of the
kind; (2) the goods were subject to a rightful infringement
claim of any third party upon delivery; (3) the buyer did not
furnish specifications to the seller; and (4) the parties did
not form another agreement” that relieved the seller of the
warranty.

CGS Indus., Inc. v. Charter Oak Fire Ins. Co., 777 F.

Supp. 2d 454, 461 (E.D.N.Y. 2011), vacated on other grounds, 720
F.3d 71 (2d Cir. 2013); see also Phoenix Solutions, Inc. v. Sony
Elecs., Inc., 637 F.Supp.2d 683, 693 (N.D. Ca. 2009) (setting
forth identical elements to establish breach of warranty of noninfringement); 84 Lumber Co. v. MRK Technologies, Ltd., 145
F.Supp.2d 675, 678–79 (W.D. Pa. 2001) (mentioning the first
three elements as required under § 2–312(3)).

11

There is no dispute that Quality King has established
all four elements: (1) Quality King and FDI are merchants that
regularly dealt in 5-hour ENERGY (Quality King 56.1 ¶¶ 2, 12);
(2) Quality King was subject to a rightful claim of trademark
infringement by Living Essentials for selling counterfeit 5-hour
ENERGY purchased from FDI; (3) Quality King did not furnish
specifications for 5-hour ENERGY to FDI; and (4) neither the
Purchase Orders nor Vendor Agreement eliminated the U.C.C.
warranty against infringement.

In the absence of any genuine

issue of material fact, or any opposition from FDI on this
claim, Quality King is entitled to summary judgment on its claim
for breach of the warranty of non-infringement.
B.

Implied Warranty of Merchantability (U.C.C. § 2314)

The implied warranty of merchantability in Section 2314 of the New York Uniform Commercial Code provides “a
guarantee by the seller that its goods are fit for the intended
purpose for which they are used and that they will pass in the
trade without objection.”

Caronia v. Philip Morris USA, Inc.,

715 F.3d 417, 433 (2d Cir. 2013) (quoting Saratoga Spa & Bath,
Inc. v. Beeche Sys. Corp., 656 N.Y.S.2d 787, 789 (N.Y. App. Div.
1997)).

Under New York law, “this guarantee is implied in a

contract for . . . sale if the seller is a merchant.”
U.C.C. § 2-314(1).

N.Y.

“A merchant breaches the UCC implied

12

warranty of merchantability if it sells goods that are not ‘fit
for the ordinary purposes for which such goods are used.’”
Caronia, 715 F.3d at 433. (quoting N.Y. U.C.C. § 2–314(2)(c)).
It is undisputed that the 5-hour ENERGY bottles that
FDI sold to Quality King were counterfeit and therefore unfit
for their intended purpose.

Accordingly, the court grants

Quality King’s motion for summary judgment on its unopposed
claim against FDI for breach of the implied warranty of
merchantability.
IV.

Common Law Indemnification
“The principle of common law, or implied,

indemnification permits one who has been compelled to pay for
the wrong of another to recover from the wrongdoer the damages
it paid to the injured party.”

Protostorm, LLC v. Antonelli,

Terry, Stout & Kraus, LLP, 834 F. Supp. 2d 141, 161 (E.D.N.Y.
2011) (quoting Bedessee Imports, Inc. v. Cook, Hall & Hyde,
Inc., 847 N.Y.S.2d 151 (N.Y. App. Div. 2007)).
This claim presents an initial question of whether
Quality King seeks reimbursement for losses it incurred to
resolve Living Essentials’ Lanham Act claims.

Common law

indemnification is unavailable for losses attributable to Lanham
Act claims because, as the court noted in a prior decision in
this action, indemnification “is neither provided for under the
Lanham Act’s extensive remedial provisions nor has federal
13

common law been implied to allow such remedies.”
Mem. and Order dated 3/28/2014.)

(ECF No. 711,

Quality King has settled

Living Essentials’ claims against it.

Although Quality King

contends “it is not seeking to be made whole for any loss it
incurred in paying a claim to [Living Essentials] under the
Lanham Act” (Quality King Mem. at 24 n.9), Quality King does not
explain the origin of the losses for which it does seek common
law indemnification from FDI.
Even if Quality King were not seeking reimbursement
for amounts paid to resolve Living Essentials’ Lanham Act
claims, it is well established that “a party who has itself
participated to some degree in the wrongdoing cannot receive the
benefit of the [common law indemnity] doctrine.”

Durabla Mfg.

Co. v. Goodyear Tire & Rubber Co., 992 F. Supp. 657, 660
(S.D.N.Y. 1998) (quoting Trustees of Columbia Univ. v.
Mitchell/Giurgola Assocs., 492 N.Y.S.2d 371, 375 (N.Y. App. Div.
1985)).

Stated another way, “[c]ommon law indemnification is

warranted where a defendant's role in causing the plaintiff's
injury is solely passive, and thus its liability is purely
vicarious.”

Protostorm, 834 F. Supp. 2d at 161 (quoting

Bedessee Imports, 847 N.Y.S.2d at 151).

Here, Quality King

admits that it resold at least 270,864 of the counterfeit 5-hour
ENERGY bottles it purchased from FDI.

(Quality King 56.1 ¶ 13.)

That admission suffices to establish that Quality King
14

“participated to some degree” in the wrongdoing by selling
counterfeit 5-hour ENERGY.

Cf. Durabla Mfg., 992 F. Supp. at

660 (rejecting plaintiff’s argument that its settlement of an
underlying strict liability claim was “passive” liability that
did not preclude indemnification and finding “there is nothing
passive about the role of a distributor of a defective or
hazardous product, and any analogy between strict liability and
instances in which liability is fixed on another without regard
to any volitional act is clearly flawed.”) (internal quotations
omitted).

Quality King is thus not entitled to common law

indemnification, and FDI is granted summary judgment on this
claim.
V.

Lanham Act Claims
Quality King seeks summary judgment on two causes of

action arising under Section 43(a) of the Lanham Act, 15 U.S.C.
§ 1125(a):

false designation of origin pursuant to §

1125(a)(1)(A), and false advertising pursuant to §
1125(a)(1)(B).
A.

The court will consider each claim in turn.

False Designation of Origin
Section 43(a)(1) of the Lanham Act provides, in

relevant part:
Any person who, on or in connection with any
goods or services or any container for goods,
uses in commerce any word, term, name, symbol, or
device, or any combination thereof, or any false
designation of origin, false or misleading
15

description of fact, or false or misleading
representation of fact which . . . is likely to
cause confusion, or to cause mistake, or to
deceive as to the affiliation, connection, or
association of such person with another person,
or as to the origin, sponsorship or approval of
his or her goods, services or commercial
activities by another person . . .
shall be liable in a civil action.

15 U.S.C. § 1125(a)(1).

“[I]t is well settled that the standards for false
designation of origin claims under Section 43(a) of the Lanham
Act (15 U.S.C. § 1125) are the same as for trademark
infringement claims under Section 32 (15 U.S.C. § 1114).”
Twentieth Century Fox Film Corp. v. Marvel Enter., Inc., 220 F.
Supp. 2d 289, 297 (S.D.N.Y. 2002) (citing Lois Sportswear
U.S.A., Inc. v. Levi Strauss & Co., 799 F.2d 867, 871 (2d Cir.
1986).

A plaintiff must establish that “(1) it has a valid mark

that is entitled to protection under the Lanham Act; and that
(2) the defendant used the mark, (3) in commerce, (4) in
connection with the sale . . . or advertising of goods or
services, (5) without the plaintiff's consent.”

1-800 Contacts,

Inc. v. WhenU.Com, Inc., 414 F.3d 400, 407 (2d Cir. 2005)
(internal quotation marks and citations omitted). 5

Quality King contends it need not “own the mark at issue” to establish a
claim for false designation of origin. (Quality King Mem. at 18-19.) But
even the case it cites in setting forth the elements of a false designation
of origin claim, Philip Morris USA Inc. v. U.S. Sun Star Trading, Inc., No.
08-cv-68, 2010 WL 2133937, at *4 (E.D.N.Y. May 27, 2010), states that “[a]
plaintiff can prevail on a claim for either trademark infringement or false
designation of origin if it can show that the plaintiff owns a valid
5

16

Because Quality King does not own (or have any
property interest in) a trademark at issue in this action, it
cannot satisfy the first element of its false designation of
origin claim.

Cf. Greenwich Taxi, Inc. v. Uber Tech., Inc., 123

F. Supp. 3d 327, 338 (D. Conn. 2015) (dismissing federal false
designation of origin claim where plaintiffs failed to allege
their “associat[ion] with any recognizable marks or
associat[ion] with valid marks entitled to protection”); Zino
Davidoff SA v. Selective Distrib. Int’l, Inc., No. 07-cv-10326,
2013 WL 1234816, at *7 (S.D.N.Y. Mar. 27, 2013) (“simply
purchasing a product for resale does not give rise to an
interest in that product’s trademark sufficient to state a claim
for unfair competition”); Silverstar Enters., Inc. v. Aday, 537
F. Supp. 236, 241 (S.D.N.Y. 1982) (dismissing Lanham Act
trademark infringement claim where plaintiff sought to enforce
its own contractual rights rather than registrant’s trademark
rights).

The court therefore grants the FDI Defendants summary

judgment on Quality King’s false designation of origin claim.
B.

False Advertising
The Lanham Act prohibits false or misleading

descriptions or representations of fact “in commercial
advertising or promotion” concerning “the nature,
trademark, and that the defendant's use of that trademark is likely to cause
confusion regarding the source of the product” (emphasis added).

17

characteristics, qualities, or geographic origin of . . . goods,
services, or commercial activities.”

15 U.S.C. § 1125(a)(1)(B).

The Supreme Court recently explained that a plaintiff asserting
a false advertising claim “must plead (and ultimately prove) an
injury to commercial interest in sales or business reputation
proximately caused by the defendant’s misrepresentations.”
Lexmark Int’l, Inc. v. Static Control Components, Inc., 134 S.
Ct. 1377, 1395 (2014).

This is necessary to establish standing,

which is “an element of the [false advertising] cause of action
under the statute.”

Id. at 1391 n.6.

Quality King argues it has established standing
because two of its customers, Steerforth Trading, Inc.
(“Steerforth”) and CVS Pharmacy, Inc. (“CVS”), ceased purchasing
products from Quality King “[a]s a result of [Quality King’s]
sale of alleged counterfeit 5-hour ENERGY.”
at 11.)

(Quality King Mem.

According to Quality King, losing these customers has

caused substantial injury to its “commercial interest in sales
or business reputation.”
The FDI Defendants dispute these losses.

They note

that Quality King’s alleged lost sales to CVS and Steerforth are
supported solely by an affidavit from its vice-president, Louis
Assentato, without documentary evidence showing that CVS or
Steerforth terminated contracts with Quality King, or that CVS
or Steerforth did so as a result of buying counterfeit 5-hour
18

ENERGY from Quality King.

The FDI Defendants also submitted

uncontradicted evidence that Steerforth filed for bankruptcy in
2013, 6 which raises a fact issue of whether Steerforth ceased
purchasing products from Quality King due to its bankruptcy.
On the current record, material factual disputes
preclude a finding that Quality King suffered injury to its
“commercial interest in sales or business reputation” due to
counterfeit 5-hour ENERGY sales resulting from false
advertising.

Quality King also has not established that any

such injury it suffered was proximately caused by FDI’s
misrepresentations regarding the provenance of 5-hour ENERGY,
rather than Quality King’s independent decision to resell
counterfeit 5-hour ENERGY to CVS and Steerforth.

As the Supreme

Court cautioned in Lexmark, “a business misled by a supplier
into purchasing an inferior product is, like consumers
generally, not under the [Lanham] Act’s aegis.”

134 S. Ct. at

1390.
Furthermore, even assuming that Quality King has
standing to proceed under § 1125(a)(1)(B), it cannot prove the
requisite elements of false advertising.

In addition to

standing, a plaintiff alleging false advertising under the

See ECF No. 851, Declaration of Martin Saperstein dated 12/18/2014, Ex. H
(attaching Steerforth’s Chapter 7 Involuntary Petition filed in the United
States Bankruptcy Court for the Eastern District of New York on November 25,
2013).
6

19

Lanham Act must establish: “(1) a false or misleading statement;
(2) in connection with commercial advertising or promotion that
(3) was material; (4) was made in interstate commerce; and (5)
damaged or likely will damage the plaintiff.”

Sussman-Automatic

Corp. v. Spa World Corp., 15 F. Supp. 3d 258, 269 (E.D.N.Y.
2014) (quoting C=Holdings B.V. v. Asiarim Corp., 992 F. Supp. 2d
223, 242 (S.D.N.Y. 2013)).
To qualify as “commercial advertising or promotion,”
the defendant’s representations must be commercial speech, “made
for the purpose of influencing customers to buy defendant's
goods or services” and “disseminated sufficiently to the
relevant purchasing public.”

Fashion Boutique of Short Hills,

Inc. v. Fendi USA, Inc., 314 F.3d 48, 56 (2d Cir. 2002).

The

“touchstone of whether a defendant's actions may be considered
‘commercial advertising or promotion’ under the Lanham Act is
that the contested representations are part of an organized
campaign to penetrate the relevant market.

Proof of widespread

dissemination within the relevant industry is a normal
concomitant of meeting this requirement.”

Id. at 57.

Quality King argues that the packaging and labeling on
counterfeit 5-hour ENERGY sold by FDI constitutes “commercial
advertising and promotion” that gives rise to its false
advertising claim.

(Quality King Reply at 6.)

However, there

is no evidence that the FDI Defendants created or labeled
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bottles of counterfeit 5-hour ENERGY.

Nor is there any evidence

that FDI engaged in a widespread, organized campaign to mislead
the public regarding 5-hour ENERGY.

Based on the record before

the court, FDI’s participation was limited to purchasing
counterfeit 5-hour ENERGY from two wholesalers and reselling
that product to another wholesaler, Quality King.
In Yves Saint Laurent Parfums, S.A. v. Costco
Wholesaler Corp., No. 07-cv-3214, 2010 WL 2593671 (S.D.N.Y. June
24, 2010), the court considered a false advertising claim
brought by Quality King under similar circumstances.

Quality

King was sued for reselling counterfeit perfume and brought a
federal false advertising cross-claim against the wholesaler
that sold Quality King the counterfeit product.

Id. at *1.

In

dismissing Quality King’s false advertising claim at the
pleading stage, the Yves Saint Laurent court found there were
not “any facts alleged which, if true, would establish that the
allegedly false statements constituted commercial advertising or
promotion.”

Id. at *8.

The same deficiency exists here.

FDI’s

limited offering and sale of 5-hour ENERGY to other wholesalers
did not rise to a widespread, organized, and public “commercial
advertising” campaign under Section 1125(a)(1)(B) of the Lanham
Act.

Accordingly, Quality King’s motion for summary judgment on

its false advertising claim is denied and the FDI Defendants’
cross-motion for summary judgment on this claim is granted.
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VI.

Unfair Competition
The “essence” of a claim for unfair competition under

New York law is the “bad faith misappropriation of the labors
and expenditures of another” in a manner “likely to cause
confusion or to deceive purchasers as to the origin of the
goods.”

Jeffrey Milstein, Inc. v. Greger, Lawlor, Roth, Inc.,

58 F.3d 27, 34-45 (2d Cir. 1995) (internal citations omitted).
To establish common law unfair competition, “the plaintiff must
state a Lanham Act claim coupled with a showing of bad faith or
intent.”

Katiroll Co., Inc. v. Kati Junction, Inc., 33 F. Supp.

3d 359, 370 (S.D.N.Y. 2014); see also Genesee Brewing Co., Inc.
v. Stroh Brewing Co., 124 F.3d 137, 149 (2d Cir. 1997)
(“[Plaintiff’s] state law claim of unfair competition is not
viable without a showing of bad faith.”).

Because Quality King

fails to state a Lanham Act claim, its unfair competition claim
against FDI is not viable.

The FDI Defendants are thus granted

summary judgment on this claim.

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CONCLUSION
For the foregoing reasons, Quality King’s motion for
partial summary judgment is granted in part and denied in part.
The FDI Defendants’ cross-motion for partial summary judgment is
granted in part and denied in part.

Quality King is awarded

$799,266.80 on its breach of contract claim against Food
Distributors International.

SO ORDERED.
Dated:

March 31, 2016
Brooklyn, New York
________/s/____________________
KIYO A. MATSUMOTO
United States District Judge

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