Alzheimer's Foundation of America v. Alzheimer's Disease and Related Disorders Association, Inc. et al

Filing 33

OPINION re: 17 MOTION to Dismiss Defendant Alzheimer's Disease and Related Disorders Association, Inc.'s Motion to Dismiss Under Fed. R. Civ. P. 12(b) and (6). MOTION to Dismiss Defendant Alzheimer's Disease and Related Di sorders Association, Inc.'s Motion to Dismiss Under Fed. R. Civ. P. 12(b) and (6) filed by Alzheimer's Disease and Related Disorders Association, Inc., 5 MOTION to Dismiss Under Fed. R. Civ. P. 12(b)(1) and (6). MOTION to Dism iss Under Fed. R. Civ. P. 12(b)(1) and (6) filed by Alzheimer's Disease and Related Disorders Association, Inc., Northern Trust Bank, 20 MOTION to Dismiss Defendant The Northern Trust Company's Motion to Dismiss Under Fed. R. Ci v. P. 12(b)(6) filed by Northern Trust Bank. Based upon the conclusions set forth above, the motions to dismiss the Lanham Act claims and related claims are denied, the motion to dismiss the U.C.C., conversion libel are unjust enrichment claims are granted, and the motion to dismiss the Trust is granted. Leave to amend within 20 days is granted. The parties are directed to meet and confer on a schedule for further pleading, discovery and consolidation. (Signed by Judge Robert W. Sweet on 5/24/2011) (tro)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

-- -- ----- --x
ALZHEIMER'S FOUNDATION OF AMERICA, INC.,
d/b/a ALZHEIMER'S FOUNDATION,
Plaintiff,

10 Civ. 3314
10 Civ. 5013

against-

OPINION

ALZHEIMER'S DISEASE AND RELATED DISORDERS
ASOCIATION, INC., d/b/a ALZHEIMER'S
ASSOCIATION and NORTHERN TRUST BANK,
Defendants.

- -- -- --- -x
A P PEA RAN C E S:
Plaintiff
FENSTERSTOCK & PARTNERS LLP

30 Wall Street, 9th Floor

New York, NY 10005

By: Blair C. Fensterstock, Esq.

Eugene D. Kublanovsky, Esq.
Brooke K. Haley, Esq.
INGBER & GELBER, LLP

181 Millburn Avenue, Suite 202

Millburn, New Jersey 07041

By: Mark J. Ingber, Esq.

Attorney for Defendants
McDERMOTT WILL & EMERY LLC

340 Madison Avenue

New York, NY 10172

By: Joseph R. Robinson, Esq.

Motty Shulman, Esq.

Jack Wilson, Esq.

g'2S(rr··

Sweet, D.J.

These two actions have present
dismiss pursuant to Rule 12(b) (6).
10 Civ. 3314,

In

defendants Alzhe

dueling motions to
first filed action,

's Disease and Related

Disorders Association (the "Association") and Northern Trust
(the "Trust") have moved to dismiss

Amended Complaint of

Alzheimer's Foundation of Americas, Inc.
the second fil
to dismiss

(the "Foundation").

In

action, 10 Civ. 5013, the Foundation has moved
Association's complaint.

e two actions present the competing content

of

the Foundation and Association, both of which seek to
the ravages of Alzheimer's.

Ef

s to resolve this dispute

were unavailing despite the obvious desirability of such an
outcome s

be serving the public interest.
to di

and the Association purport to

both the Foundat

As set forth below,

ss are granted in part and denied in part.

Prior Prooeedings

10 Civ. 3314

1

motions

The Foundation filed its complaint against the
Association and the Trust on April 20, 2010.

The Foundation's

Amended Complaint ("FACIf) was filed on July 7, 2010.

The FAC has eight counts

leging

misrepresentation/false designation/unfair competition under the
Lanham Act

(Count I) i trademark

lution and unlawful deceptive

acts and practices under New York General Business Law (Counts
II, III) i unfair competition, unjust enrichment, conspiracy and
conversion

l

and tortious interference with prospective bus

s

advantage under New York common law (Counts IV, VI VII, VIII)

i

and payments on instruments with unauthorized signatures under
New York CLS U.C.C.

§

3-404

(Count VI) .

The FAC alleges the improper depositing of checks by
the Association when the Association accepted and deposited a
check for funds from the Harbaugh Trust and three other checks,
thereby held "itself out to the world as the rightful owner
the Foundation's Marks

lf

and implied "to the marketplace that

the Association and the Foundation are one and the same
"resulted in a likelihood

which

confusion in commerce, whereby
, and are I

numerous ordinary prudent donors have
be, misled

lf

believing that the Association and t

Foundation are the same organization.
2

1f

(FAC ~~ 59 61.)

to

The first check about which Plaintiff complains

lS

the

one for the bequest from the Harbaugh Trust which was the
subject of a 2007 Virginia state court action.

(FAC ~~ 31-48.)

The other three checks pleaded are described in the
FAC as follows:
Three examples of cancelled checks which were made
payable to the Foundation and sent to and deposited by
[the Association], are:
(1)
A check from Alana Greebel, dated April 19, 2010,
in the amount of $20.00;
(2)
A check from David Felmly and H. Kristen

Leesment, dated April 19, 2010, in the amount of

$10.00; and

(3)
A check from Sandra G. Horan and Thomas G. Horan,
dated March 25, 2010, in the amount of $5.00.

(FAC

~

53.)

In count I, the FAC alleges that by accepting and
depositing the checks intentionally mailed to the Association by
the Foundation's employees and their relatives, and by holding
itself out to the world as the owner of the Foundation's Marks,
the Association has made misrepresentations and has caused a
likelihood of confusion of "ordinary prudent donors" in commerce

3

under Lanham act, Section 43 (a), 15 U. S. C. § 1125 (a).

(FAC ~

61.)

Count II for dilution under New York state law alleges
that

Association has diluted or bl

of the

the distinctiveness

ion's Marks, most notably by endorsing the

aforement

checks.

Count III alleges unlawful decept

acts and

New York state law based upon a likelihood of or

practices
actual confus

in that "[t]he Association's

conversion of

table donations made payable to the

Foundation, and Northern Trust's acceptance
donations checks
confusion, mist

ance and

charitable

deposit, is likely to cause and is causing
,and deception among the general public."

(FAC ~ 71.)

the FAC alleges common law unfair

Count IV

competition by the "bad faith usage of the Foundation's Marks
conversion of the Foundation's

and goodwill, and
i.e., the checks.

(FAC

Count Vall
alleges tortuous

~

71.)

unjust enrichment and Count VIII
based upon the allegation that
4

"

Association "wrongfully used the Foundation's Marks, reputation,
and goodwill" and upon allegations of conversion.

(FAC

~

101.)

Plaintiff's Count VI alleges a U.C.C. claim for
payment on an instrument with an unauthorized signature.

Count VII alleges conversion or conspiracy in that
"defendants have exercised unlawful dominion over the funds
intended to be donated to the Foundation."

(FAC

~

94.)

10 Civ. 5013

The Association filed its complaint on June 28, 2010
and its Amended Complaint ("AAC") on July 30, 3010 naming the
Foundation and Eric J. Hall ("Hall"), Alana Greebel
David Felmly ("Felmly"), H. Kristen Leesment

("Greebel"),

("Leesment"),

Sandra Horan (liS. Horan") and Thomas Horan (liT. Horan") as
individual defendants.

The AAC alleges 16 claims,

(1) trademark

infringement pursuant to Lanham Act Section 32, 15 U.S.C.
1114(1) (a) i

§

(2) trademark infringement pursuant to Lanham Act

Section 32, 15 U.S.C.
falsehood/trade libeli

§

1114
(5)

(1)

(b)

i

(3)

libeli

(4)

injurious

false designation, false description

and false representation of fact pursuant to Lanham Act Section
43(a), 15 U.S.C.

§

1125(a)

(1) (A)i

5

(6

&

7)

false designation,

false description and false representation of fact pursuant to
Lanham Act Section 43 (a), 15 U.S.C.

§

1125(a) (1) (B);

(8)

dilution pursuant to Lanham Act Section 43(c), 15 U.S.C. §
1125(c);

(9)

fraud;

(10) tortious interference with prospective

economic advantage;

(11) injury to business reputation pursuant

to N.Y. Gen. Bus. Law
Gen. Bus. Law
enrichment;

§

360-1;

§

360-1;

(12) dilution pursuant to N.Y.

(13) unfair competition;

(14) unjust

(15) deceptive acts and practices pursuant to N.Y.

Gen. Bus. Law

§

349; and (16) conspiracy.

motions by the Association and the Foundation to
dismiss the FAC and the AAC were heard on October 13, 2010.

The Relevant Standard

On a motion to dismiss pursuant to Rule 12, all
factual allegations in the complaint are accepted as true, and
all inferences are drawn in favor
~P~o~l~a~r~M~o~I~~~~~~.,

the pleader.

Mills v.

12 F.3d 1170, 1174 (2d Cir. 1993).

survive a motion to dismiss pursuant to Rule 12(b) (6),

To

"a

complaint must contain sufficient factual matter, accepted as
true, to 'state a claim to relief that is plausible on its
face.'ff Ashcroft v. Iqbal,
(2009)

-- U.S.

129 S. Ct. 1937, 1949

(quoting __________~~______~~~, 550 U.S. 544, 570
6

(2007)). Plaintiffs must all

sufficient facts to "nudge[]

their claims across the line from conceivable to plausible."
Twombly
factual

I

550 U.S. at 570. Though the court must
legations of a complaint as true

accept as true a legal conc
allegation.

II
----"~-

I

l

the

it is "not bound to

ion couched as a

129 S. Ct. at 1949 (quoting ----=-

I

550

U.S. at 555) .

The Motions To Dismiss The Lanham Act,

Dilution And Unfair Competition Claims Are Denied

The Lanham Act "serves to protect the holders
trademarks from the promotion and sale of competing products
likely to confuse consumers as to
USA Inc. v. U.S. Sun Star

ir source."
Inc'

--------------------~~----

Phil

Morris

------=-.::::..!.~-------=-.:;...

2010 WL 2133937, at *4

l

(E.D.N.Y. Mar. III 2010) report and recommendation adopted

l

2010

WL 2160058 (E.D.N.Y. May 27, 2010)

ernal quotation marks and

citations omitted).

I

15 U.S.C. § 1125(a)

l

term, name, symbol, or

Lanham Act § 43(a)

prohibits a person from using "any word
device

l

which is likely to

or any combination thereof
as to the origin

cause confusion .
of his or her goods
U.S.C. § 1125(a)

I

II

I

sponsorship or approval

In order to

a plaintiff must show that

serving of protection

l

I

il under 15
owns a mark

and that the mark is used in such a way
7

as to create a ftlikelihood
sponsorship

the defendant

& Bourke

Malletier v.

confusion" as to t
IS

source or

goods or services.

Louis Vuitton

Inc., 454 F.3d 108, 115 (2d Cir.

--------------------~----------~-----

2006) .

The elements of a cause of action of unfair
competition under New York common law mirror
claims stated under

requirements of

Lanham Act and similarly require that a

party demonstrate a valid, protectable mark and a likelihood
confusion between the marks of the alleged infringer and the
charging party. See

_E_S_P_N~__
I_n_c_.__v .~~__________~_I_n_c . ,
__
__

586 F.

Supp. 2d 219 (S.D.N.Y. 2008). In addition, a common law claim
for unfair competition requires that the plaintiff show actual
confusion in an action for damages or a 1

lihood of confusion

in an action for equitable relief. Id.

Non-profit and public service organizations are
entitled to the use and protection
Inc. v. Unit
Inc., 128 F.3d 86, 89 90
infringement

(2d

their trademarks. See
We Stand

r. 1997)

Am. New York

(ftThe right to enjoin

a trade or service mark 'is as available to

public service organizations as to merchants and
manufacturers.'ff) (quoting N.A.A.C.P. v. N.A.A.C.P.
_a_n_d_E_d_u_c_._ _---'-, 559 F. Supp. 1337, 1342 (D. D. C. 1983)
8

(subsequent

history omitted))

i

see also Planned Parenthood

'n of Am.,

Inc. v. Bucci, No. 97 Civ. 0629, 1997 WL 133313, at *6 (S.D.N.Y.
Mar. 24, 1997)

("fund-raising activities may bring a defendant's

actions within the scope of t

Lanham ActH).

The exploitation

of another charity's name is an actionable basis
violations

trademark law.

See

e.

"

claiming

Cancer Re

Inst.

--------~~~~~~~~

v. Cancer Research Soc'y, Inc., 694 F. Supp. 1051 (S.D.N.Y.
1988).

Indeed, this Court has noted that "although no explicit

legal theory supports the proposit

, public service or benefit

entities appear to receive greater protection than for-profit
busines s

0

rgan i z a t ions .

H

-=C..: : r--=e:. . :d:. . :l=-'t~-=C=-o=-u=-n-=s=-e~l-==--=,-_C-=-=-t-=r--=s-=.__o=-=-f~A=-m=-.~--=I-=n:....:c-=.=--v=-=-.

Budget & Credit Counseling Servs., Inc., No. 97 Civ. 1368, 1997
WL 115645, at *3 n.2 (S.D.N.Y. Mar. 13, 1997).

Since 2002, the Foundation
the name "Alzhe

provided services under

's Foundation H for individuals with

Alzheimer's disease and holds four trademarks related to its
name.

(FAC

~~

11 12, 17-18.)

The Foundation has functioned

under this name as a successful charity

nine years.

(FAC

11.)

While a compos
and a design

e mark (consisting

ement) must be cons

both a word
in its

entirety, trademark law recognizes that the word portion is
9

~

often more likely to be impressed upon a purchaserls memory
because it is the word that
and/or

ces.

Therefore

use to request the goods
I

the word portion is often accorded

weight in determining the 1
In re Dakinls Miniatures
1999 WL 1043923

1

at *3

Provisions Co. InC'

(T.T.A.B. Nov. 8, 1999)

3 U.S.P.Q.2d 1553

1

1

confusion. See

Inc., 59 U.S.P.Q.2d 1593

I

*1 (T.T.A.B. July 11 1987)
U.S.P.Q. 729

ihood

i

1

1554 1

1987 WL 124293

Amoco Oil Co. v. Amerco
1

United States Patent & Trademark Office l
§

protection

1207.01 (c) (ii)

a

at

1

Inc' l 192
1976)

i

Manual of

(6th ed' l rev. 21 2010).

ling reason for the enhanced j

A

1595-96 1

In re Appetito

i

1976 WL 21160 (T.T.A.B. Oct. 18

735 1

1

ci

tyls trademarks is the public

erest in

ensuring their contributions to charitable organizations are
received by the correct charity.
v. Children of the World Found.
(D.N.J. 2000)

I

See Deborah Heart

Ctr

------------------------~----

Ltd' l 99 F. Supp. 2d 481

1

494

("the public also has a right to know to whom they

are giving their money and who is administering these
. The consumers
organization is treat

To establi

ces .

services should likewise know which
them and which is not U

)

•

a claim for deceptive trade practices

under New York General Bus

ss Law
10

§

349

1

a plaintiff must

allege that "(1) the defendant's deceptive acts were directed at
consumers;

(2) the acts are misleading in a material way; and

(3) the plaintiff has been injured as a result."

Gucci Am. v.

Duty Free Apparel, Ltd., 277 F. Supp. 2d 269, 273

(S.D.N.Y.

2003)

(internal citations omitted) .

The Foundation has pled a claim for deceptive acts and
practices.

Donors are the consuming public for charitable

fundraising activities and are deceived, when a check intended
for one charity is cashed by another.

"[T]he public.

. has a

right to know for whom they are giving money and who is
administering services.

When donors choose to give money to

support [a particular charity], they should be assured they are
giving it to the [intended organization]." Deborah Heart, 99 F.
Supp. 2d at 494.

A certificate of registration on the Principal
Register is prima facie evidence of the validity of the mark and
its registration, as well as the registrant's ownership and
exclusive right to use the mark in commerce.
1057(b).

15 U.S.C.

§

Consequently, the Association's mark is presumptively

entitled to protection against infringement.

11

The Foundation's reliance on Miss World v. Mrs.
America Pageants, Inc., 856 F.2d 1445 (9th Cir. 1988), abrogated
In part on other grounds as recognized in Eclipse Assocs. Ltd.

v. Data Gen. Corp., 894 F.2d 1114 (9th Cir. 1990), is misplaced.
Miss World was the appeal of a denial of a preliminary
injunction and did not apply the standard used to analyze Lanham
Act claims in this circuit, pursuant to Polaroid Corp. v.
Polaroid Elects. Corp., 287 F.2d 492
denied, 368 U.S. 820 (1961).

(2nd Cir. 1961), cert.

In addition, unlike the present

case, in Miss World the parties were not agreed that a
likelihood of confusion exists.

The Miss World court also

distinguished cases that protected "Miss U.S.A." from "Miss Nude
U.S.A.",

"Little Miss U.S.A.", and "Miss Teen U.S.A." on the

basis that in Miss World, the defendant used a different marital
prefix and inserted connecting words.
1450.

Miss World, 856 F.2d at

The term "Alzheimer's Foundation" does not include any

connecting words to comparably distinguish itself from the
Association's mark.

Miss World does not warrant dismissal of

the Association's Amended Complaint.

Blinded Veterans Association v. Blinded American
Veterans Foundation, 872 F.2d 1035 (D.C. Cir 1989) is of no more
import than Miss World.

It is likewise from a different circuit

and was an appeal from an injunction entered after almost two
12

years

discovery.

BVA, unlike the present case, did not

involve any registered marks and so
were dif

than those here.

burdens in that case

The BVA court distinguished its

case from those involving registered marks that are presumed
non-generic. BVA, 872 F.2d at 1041. Here, unlike the marks in
BVA, Alzhiemer's Association is a regis

, incontestable mark

and is entitled to a presumption of distinctiveness and to
protection. 15 U.S.C.
warrant dismis

§

1057(b). Accordingly, BVA does not

of the Association's Amended Complaint,

either.

The As

ion's mark is a word mark, not a composite

word and design

Because it is incontestable and

registered, the As

ation's mark is statutorily granted "the

presumption of an exclusive right to use the mark

. on the

goods and services noted in the registration certificate." Savin
Corp. v. Savin Group, 391 F.3d 439, 457 (2d Cir. 2004); see also
15 U.S.C.

§

1065.

, the Association's

is assumed

to extend to:
Association services, namely promoting the interests
of those with neuro
ive brain disease before
the general public,
itical entities and health care
and long term providers; promoting the interests of
those concerned with
prevention, detection,
treatment and elimination of neuro degenerative brain
disease

* * * * *
13

e fundraising
* * * * *

medical research

* * * * *
providing information and support groups pertaining to
neuroive brain disease and dissemination of
medical
ion.

(AAC, Exh. A.)

e are activities in which the Foundation

recognized it is involved.

~

(FAC

12.) The AAC has suggested

that the Foundation is an infringer.

The FAC all

s, inter alia, misrepresentation, false

designation of origin,
Act, 15 U.S.C.

§

unfair competition under the Lanham

1125(a) as well as trademark dilution under

N.Y. General Business Law

§

360-1, requiring an allegation that

there exists fta likelihood

confusion in commerce, whereby
been, and are likely to

numerous ordinary prudent donors
be, misled into believing that

Association and the

Foundation are the same organization."

At the same time, the AAC

(FAC

1

~

61.)

(i) the

s

Association's mark has been used in commerce s
14, Ex. A, 7/30/03 Response) and the Association
nationally through its website (AAC
14

~

22));

(ii)

1988 (AAC ~
ises
2008, the

Association raised over $78,000,000 and had assets of over
$120,000,000

(AAC ~ 21), millions

dollars have been

contributed to the Association, and t

Association has

dedicated millions of dollars to an ext ens
, outreach efforts, national

array of program

line services,

government advocacy efforts, research, and materials, under the
Assoc

's mark, including national and
(AAC, Ex. A,

ernational

7/30/03 Response));

Association is the largest non-pharmaceuti

(iii) the
private funder of

Alzheimer's research (AAC, Ex. A, 7/30/03 Re
the Associat

's mark is federally regi

)); and (iv)
on the Principal

Register and is incontestable (AAC, Ex. A, 7/30/03 Response)

S

2006, the law has required only a likelihood of

dilution. 15 U.S.C. § 1125(c) (1); see also Starbucks
Wolfe's

1

Inc., 477 F.3d 765, 766

~~~~~~~~~~~~~~------

. v.

(2d Cir. 2007)

("Congress amended the FTDA in response to the Supreme Court's
decision in Mosely v. V Secret Catalogue,

Inc., whi

construed the FTDA to require a showing of actual
opposed to a likelihood of dilution.

had
lution as

The FTDA as amended

effective October 6, 2006, entitles the owner of a famous,

The AAC tracks the four non-exclusive factors that a court may consider
in determining the degree of fame of a mark under 15 U.S.C. § 1125(c) (2) (A);
(i) duration, extent, and geographic reach of advertising and publ
; (ii)
amount, volume, and geographic extent of sales of goods or services; (iii)
extent of actual recognition; and (iv) registration.

15

dist

tive mark to an injunction against the user of a mark

that is 'likely to cause dilution'").

When the correct law

pleadings and dilution

is applied, the Association's dilut
The

claims are well-pleaded.

Act claims are properly pleaded and injury to

business reputation and dilution claims under New York General
Bus

ss Law are also properly pleaded.

The Association's Motion To Dismiss The Foundation's
UCC And Conversion Claims Is Granted

The Foundation has alleged that the Association and
Northern Trust "continued to act as the paying bank on such
charitable donation checks, which endorsements were converted by
Defendants, in
89), based upon
Greebel, Leesment

Dismis
basis of collateral

ation of New York CLS DCC

§

3 404"

(FAC

deposit of the Harbaugh funds

~

and the

Felmley, and S. and T. Horan

with respect to the Harbaugh checks on the
is appropriate under Rule 12(b) (6).

See Houbigant Inc. v. Development Specialists, Inc., 229 F.
Supp.2d 208, 220 (S.D.N.Y. 2002)

("Rule 12(b) (6) dismis

is appropriate when it is clear, from the complaint and from

16

matters of which
pIa

court takes judicial notice, that

iff's claims are barred as a matter of law").

courts must give the same preclus

effect to a state court

decision as a state court would give to it.
see also Cowan v. Codel

Federal

17 U.S.C. § 1738;

, 149 F. Supp.2d 67, 73

(citing Brooks v. Giuliani, 84 F.3d 1454, 1463
Schulz v. Williams, 44 F.3d 48, 53

(S.D.N.Y. 2001)

(2d Cir. 1996);

(2d Cir.1994); Hennessy v.

Cement and Concrete Worker's Union Local 18A, 963 F. Supp. 334,
337-38 (S.D.N.Y. 1997)).

The Court takes judicial notice of the record of the
Virginia state court action.
937 F.2d 767, 773 74
70.

See Kramer v. Time Warner Inc.,

(2d Cir. 1991); Cowan, 149 F. Supp.2d at

The Association received an initial payment

$36,410.03

in October 2005 from the Harbaugh Trust made "TO THE ORDER OF
zheimer's Foundation, 225 N. Michigan Ave
Chicago, IL 60501-17

f1

(AAC

~

32.)

Receipt

Ste. 1700,
this payment

was pleaded in the complaint in the Virginia state court action.
The Association filed the Virginia state court action
nst the trustees of the

December 2007, for breach of trust

Harbaugh Trust since no further payments were made to the
Association, and the trustees had not responded to the
Association's request for informat
2008, answered and asserted the

The trustees, on July 9,
firmative defenses of unclean

17

hands, waiver and estoppel, failure to state a claim upon which
relief could be granted, laches, setoff and
fraud, and running of

, mistake,

statute of limitations.

counterclaims

They also

recoupment and conversion concerning

the Harbaugh Trust assets.

The trustees, on July 10, 2008,

the Foundation with a third party complaint for
indemnification, as the trustees had sent the rema
bequest to the Foundation.

of the

The Foundation on December 9, 2008,

answered and asserted the affirmative defenses that it accepted
an unsolicited gift and had no obligation to the trustees and
that

trustees had failed to state a claim upon which relief

could

granted.

The trustees, on July 7, 2009, answered the

amended complaint, asserting the same affirmative de
Foundation served discovery

ts on the Association

The
the

the Association responded.

Virginia state court action,

The

trustees moved to strike the Association's case-in-chief, and
the Associat

trustees' counterclaim.

moved to strike

hearing was held on December

8

t

A

2009, by the Honorable Bruce D.

White in the Circuit Court of Fai

Virginia.

It was:

ADJUDGED, ORDERED, and DECREED as follows:
Defendant Trustees' Motion to Strike Plaintiff's case
in chief is granted for the reasons stated from the
bench, and counterclaim defendantts motion to strike
counterclaims is granted for
reasons stated from
the bench;
1 claims for attorneys fees are denied;
Third Party Complaint is deemed moot.
{AAC, Ex. C.}
18

Under Virginia law, a party invoking collateral
estoppel must prove the following five elements:

(1) the

parties to the two proceedings must be the same or

privity;

(2) the prior proceeding must have resulted in a val
judgment

and final

t the party against whom preclusion is sought or

his privy;

(3) the factual issue to be precluded must have been

actually lit
issue to be

in the prior proceeding;

(4) the

essential to the judgment

luded must have

in the prior proceeding; and (5)

must be mutuality, "that

is, a party is generally prevented from invoking the preclusive
force of a judgment unless that party would have been bound had
the prior lit

ion of the issue

the opposite re

t./I

TransDulles Center, Inc. v. Sharma, 252 Va. 20, 22-23, 472
S.E.2d 274, 275 (1996)

(citing Norfolk

&

Western

Lumber Co., 221 Va. 638, 640 (1980)).

The Associat

and the Foundation were parties to the

Virginia state court action.

There was a

id and final

judgment against the trustees and the Association.
examined the facts, held a hearing, and dismis
aims.

Collateral estoppel applies even if

That court
everyone's

Foundation "did

not bring any claims against the Association to recover trust
assets in the Virginia state court action and the Association
19

did not file any claims

inst the Foundation l

party in the Virginia action "litigate[d] c
Northern Trust.

I,

ll

and even if no

ims against

(Mem. of Law in Opp/n to Def. Northern Trustls

Mot. to Dismiss PI.'s Am. Compl. 6.)

The Foundation has

contended that collateral estoppel should not apply because the
claim against it in Virginia was dismissed as moot.
The dismissal might affect res
collateral estoppel.

(rd.

at 9.)

udicata, but it is irrelevant to

See Hell's Kitchen Ne
Ass'n v.
--------------------~-------------------

Bloomberg, No. 05 Civ. 4806 1 2007 WL 3254393, at *4 (S.D.N.Y.
Nov. I, 2007)

("dismis

of an action for mootness 'is not a

final determination on the merits, and

fore, should not be

accorded res judicata effect beyond the question decided
therein. ' II)

(citations omitted) .

The Virginia court decided that the $36,410.03
Harbaugh check belonged to the Association and dismissed the
Association's claim that the Harbaugh trustees acted improperly
and dismissed as moot the trustees' claim for indemnification
against

Foundat

The proper ownership of the funds was

not dismissed as mootj it was a key issue that was finally
determined in the prior action.

Furthermore,

is no

requirement that the claim in the third-party complaint and the
present complaint must be identical.

Rather, it is only

necessary that the issue for which collateral estoppel is
20

ing

invoked is the same in the two proceedings.

See TransDulles,

252 Va. at 22 23, 472 S.E.2d at 275; Ward v. Harte, 794 F. Supp.
109, 112 (S.D.N.Y. 1992).

Here, the Virginia and present

actions involve the identical issue:

who owned the funds

represented by the Harbaugh Trust check.
Counts relating to
col

Accordingly, the

Harbaugh check are precluded by

eral estoppel.

The Assoc

ion did not violate the U.C.C. with

respect to the remaining checks or convert them because Greebel,
Leesment, Felmly, and S. and T. Horan never intended for the
Association to have an interest

those checks.

Greebel is an

executive assistant at the Foundation's New York offices;
Leesment is its Director of Development; Felmly is Leesment's
husband; S. Horan is the Foundation's Vice President of Business
and Finance and H. Horan is S. Horan's husband; each check was
mailed to the Assoc
boxes.

ion's main office or to one of its lock

When a drawer or maker of a check signs an instrument

such as a check with no intention for

payee to have an

interest in that check, the check is a bearer check.
U.C.C.

§

N.Y. CLS

3-405(1) (c); Kersner v. First Fed. Sav. and Loan Ass'n

of Rochester, 264 A.D.2d 711, 713, 695 N.Y.S.2d 369, 371 (2d
Dep't 1999)

("the 'fictitious payee' rules creates an exception

to the general principle that a drawer is not liable on a forged
21

instrument 'in situations

the drawer is the party best

able to prevent the loss'")

(citations omitted); Insurance Co.

of State of Pa. v. Citibank

Delaware, 145 A.D.2d 218, 223, 537

N.Y.S.2d 519, 522 (1st Dep't 1989); Phoenix Die Cast

Co. v.

Mfrs. and Traders Trust Co., 29 A.D.2d 467, 469, 289 N.Y.S.2d
254,

(4th Dep't 1968)

("we have a check payable to an existing

person not intended to have any
rument bearer paper")

erest in it which makes the

(citing U.S. v. Chase Nat'l Bank, 250

F. 105 (2d Cir. 1918); Trust Co. of Am. v. Hamilton Bank, 127
A.D. 515, 112 N.Y.S. 84 (1st Dep't 1908)).

The Foundation has challenged the U.C.C., conversion
and conspiracy claims by attacking the Association's application
the fictitious payee rule.

However " [n]othing in UCC 3-405

limits the protection of the fictitious

rule to banks.

Comment 4 to UCC 3-405 indicates that the
protect

was intended to

1 holders of negotiable instruments.

Petroleum

Travel

v. American

Inc., 90 N.Y.2d 322, 328 (N.Y. 1997).

"

Getty

ated Servs. Co.

"Equally s

ficant is

that the

s elf does not distinguish between bank and non

bank holders."

Id.

delivered to

The checks were intentionally addres

Association, the donors obviously intended

the Association to accept and deposit the checks.

22

and

The Motions To Dismiss The Unjust Enrichment Claims Are Granted

To est

ish a claim for unjust

plaintiff must all

chment, a

(1) the defendant benefitted,

(2) at the

plaintiff's expense, and (3) that equity and good conscience
require restitution.
Cir. 2000).

Kaye v. Grossman, 202 F.3d 611, 616 (2d

There are no sufficient allegat

the parties lost donors as a direct result of
wrongful activity

other.

unjust enrichment cIa

describing that
alleged

The motions to dismiss the

are therefore granted.

The Motion To Dismiss The Trade Libel Claim Is Granted

In order to state a claim for libel, a pI

iff must

properly allege (1) false and defamatory statement of
regarding the plaintiffi
i

(2)

(3) which is published to a third

and (4) which results

injury to the plaintiff.

warranty Corp. v. DiGiovanni, 810 N.Y.S.2d 807, 813 14
Sup. Ct. 2005)

i

(N.Y.

, 120 F.Supp.2d 361

(citing Idema v.

(S.D.N.Y. 2000)

Penn

Ives v. Guilford Mills, 3 F.Supp.2d 191

(N.D.N.Y.1998)).

In the July 19th Letter, the Foundation reported its
t

ion and advised the Foundation's donors of the
23

existence of the lawsuit and Association's actions.

It is

common for parties to commercial litigation to release
statements to the press and such statements are non-actionable
statements of opinion as to the probably outcome of the
litigation.

See 5 J. Thomas McCarthy, McCarthy on Trademarks &

Unfair Competition

§

27:109.50

(4th ed. 2009)

(public statements

"emphasizing the strength" of a party's litigation position are
generally considered inactionable "opinion about the probable
outcome of the litigation"); L-7 Designs, Inc. v. Old Navy, LLC,
No. 09 Civ. 1432, 2010 WL 157494, at *11

(S.D.N.Y. 2010)

("'The

fact that a statement relates to the strength of one's position
in litigation, and is made to persons who know of the
litigation, militates strongly in favor of a finding that it was
opinion"')

(quoting Lewis Mgmt. Co. v. Corel Corp., No. 94-1903,

1995 WL 724835

(S.D. Cal. Jun. 28, 1995)); In re Polk's Model

Craft Hobbies, Inc., No. 92-23178, 1995 WL 908275 at *25
D.N.J. Dec. 28, 1995)

(Bankr.

(press release which implied that

plaintiff was making "knock offs" and that those who make such
products "rip off consumers" was statement of opinion) .

Similarly, a statement condemning an opponent's legal
claims as "baseless" is mere opinion and is not defamatory.
Gotbetter v. Dow Jones & Co., 259 A.D.2d 335, 687 N.Y.S.2d 43
(1st Dep't 1999)

(attorney's statement calling plaintiff's
24

lawsuit against his client "baseless" was merely an opinion was
not actionable)
Stouf

(citation omitted)

i

Scholastic

, 124 F. Supp.2d 836 (S.D.N.Y. 2000)

Inc. v.

(statement that

opponent's legal claims were "absurd," ridiculous" and
"meritless" and that opponent was a "golddigger" were
inactionable statements of opinion) .

In addition, in New York, a

and accurate report

of a judicial proceeding is privilege from 1
defamation.

"A civil action cannot

person, firm or corporation, for

lity for

maintained against any
publication of a fair and

true report of any judicial proceeding, legislative proceeding
or other official proceeding, or

any heading of the report

which is a fair and true headnote

the statement published."

N.Y. Civ. Rights Law

§

74.

The July 19th Letter not only

reflected the results of its

textual investigation, but also

included the factual statement that the Association's Chief
Operating Officer admitted under oath in the public Virginia
State Action that the Assoc
has "Alzheimer" as

ion will deposit any check that
the payee name.

As such, the motion to dismiss the libel claim is
granted.

25

The Motion To Dismiss The Association's Fraud Claim Is Granted

To establish fraud, a plaintiff must establish "'a
material, false representation, an intent to defraud thereby,
and reasonable reliance on the representation, causing damage to
the plaintiff.'"

May Dep't Stores Co. v. Int'l Leasing Corp.,

Inc., 1 F.3d 138, 141 (2d Cir. 1993)

(quoting Katara v. D.E.

Jones Commodities, Inc., 835 F.2d 966, 970-71 (2d Cir. 1987))

The Association has based the majority of its
allegations regarding fraud "upon information and belief."
Generally, allegations of fraud generally cannot be based upon
plaintiff's information and belief.

Watts v. Jackson Hewitt Tax

Service Inc., 579 F. Supp.2d 334, 351 (E.D.N.Y. 2008)
Segal v. Gordon, 467 F.2d 602, 608 (2d Cir. 1972)).

(citing
While this

pleading restriction may be relaxed where the matter is
peculiarly within the knowledge of the defendant, in such a case
the allegations must be accompanied by a statement of facts upon
which the belief is founded.
F.2d 997, 1003

Stern v. Leucadia Nat'l Corp., 844

(2d Cir. 1988); DiVittorio v. Equidyne Extractive

Industries, Inc., 822 F.2d 1242, 1247 (2d Cir. 1987); Segal, 467
F.2d at 608; Druyan v. Jagger, 508 F.Supp.2d 228, 242

(S.D.N.Y.

2007). See also Wexner v. First Manhattan Co., 902 F.2d 169, 172
(2d Cir. 1990). Neither is the case here.
26

stigation does not in itself constitute fraud .
See

. v. Int'l Collectors Soc'

456, 475 (D.N.J. 1998)
investigators to

679,

689

(accepting attorneys' use of undercover

tect ongoing violations of the law as not

ethically proscribed)
F. Supp.

15 F. Supp. 2d

i

see also Sega Enters. Ltd. v. MAPHIA, 857

(N.D.

employee/ in the course

. 1994)

("the fact that a plaintiff's

investigating a copyright or

trademark infringement, fails to identify herself as such to the
defendant does not provide a de
such identification would
The provision of checks to

to the infringement when
feated the investigation") .
Association determines the extent

of trademark infringement and use of funds by the Association.
It is not alleged that the Associat

reasonably relied on any

statement made by each Defendant, as

checks at issue were

designated as intended for the Foundation.

No allegation of

damage resulting from the alleged fraud has been set forth.
Accordingly, the motion to dismiss

Association's fraud claim

is granted.

The Motion To Dismiss Against the Trust Is Granted

The Trust is not referred to in the FAC
Count VII for purported violation of V.C.C.
27

§

3 404.

in
However,

the Foundation has referred each of its other counts to
"Defendants," in the plural.

For

arity, Counts I-VI, VIII and

IX as against the Trust are dismissed for failure to state a
claim.

As for Count VII, it is devoid of any factual
predicate for the alleged wrongful payment of any checks by the
Trust.

Moreover, Count VII it

f does not provide a single

factual allegation of Trust action upon which culpability could
be placed upon the Trust.
was the subject of

Indeed, but for the single check that

Virginia litigation described above, no

other mishandled checks are identified
motion to di

the complaint.

ss against the Trust is there

The

granted.

Conclusion

Based upon

conclusions set forth above, the

motions to dismiss the Lanham Act claims and related

aims are

denied, the motion to dismiss the U.C.C., conversion libel are
unjust enrichment claims are granted, and the motion to dismiss
the Trust is granted.

Leave to amend within 20 days is granted.

28

The parties are directed to meet and confer on a
schedule for further pleading, discovery and consolidation.

It is so ordered.

New York, NY
MaY)..
2011

'-I,

U.S.D.J.

29