WorldHomeCenter.Com, Inc. v. KWC America, Inc.

Filing 14

MEMORANDUM AND ORDER: that defendant's motion to dismiss the complaint is granted. (Signed by Judge Naomi Reice Buchwald on 9/15/2011) Copies Mailed By Chambers. (ft)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------------X
WORLDHOMECENTER.COM, INC.,

M E M O R A N D U M

Plaintiff,

A N D

- against -

O R D E R

KWC AMERICA, INC.,
Defendant.

10 Civ. 7781 (NRB)

------------------------------------X
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE
Plaintiff

Worldhomecenter.com,

Inc.

(“Plaintiff”)

brought

this action against defendant KWC America, Inc. (“KWC”) alleging
violations of New York’s antitrust law, N.Y. Gen. Bus. Law § 340,
and consumer protection law, N.Y. Gen. Bus. Law § 349. Plaintiff
also

seeks

declaratory

and

injunctive

relief

for

alleged

violations of N.Y. Gen. Bus. Law § 369-a and § 369-b. Defendant
now moves to dismiss the action for failure to state a claim,
pursuant to Federal Rule of Civil Procedure 12(b)(6). For the
reasons discussed below, the motion is granted.
BACKGROUND
Plaintiff

is

a

New

York

corporation

that

sells

home

improvement products through its web sites, Homecenter.com and
Supplyhouse.com, and by telephone. (Compl. ¶¶ 4; 6.) Defendant is

-1-

a

Georgia

corporation

that

manufactures

and

sells

faucets,

plumbing accessories, and kitchen accessories to its exclusive
distributors for resale to the public. (Compl. ¶¶ 5; 7.) This
action was originally filed in the Supreme Court of the State of
New York, County of New York, and was removed to this Court based
on

diversity

of

citizenship,

pursuant

to

28

U.S.C.

§§

1332,

1441(a).
Plaintiff purchases KWC’s products directly from KWC and
other

distributors

and

offers

them

for

resale

to

customers

online. (Compl. ¶ 8.) According to the complaint, due to the low
overhead associated with an Internet business, plaintiff is able
to offer KWC’s products at lower prices than “traditional display
room retailers.” (Id.)
KWC

has

instituted

a

policy

known

as

the

Internet

Advertising Policy (“IAP”) which provides, in pertinent part:
KWC America has unilaterally determined that
it will sell its products only to those
accounts that . . . [d]o not use the Internet
. . . to advertise KWC America products to
the general public at a price that is more
than twenty percent (20%) for KWC branded
products and twenty-five percent (25%) for
HANSA branded products below the list price
set forth in the effective KWC and HANSA
Price Books.

-2-

(Haller

Decl.

Ex.

E.1)

According

to

the

IAP,

this

provision

“appl[ies] to all levels/pages on a website, other than pages
associated

with

an

intent

to

purchase.

Actual

prices

charged

customers [sic] may be provided by telephone, e-mail response,
and product purchase confirmation webpages or communications.”
(Id.) The IAP also specifies that “[t]his policy applies only to
advertised prices and does not apply to actual resale prices.”
(Id.)

Furthermore,

terminate

its

the

business

IAP

states

relationship

that
with

“KWC

America

will

any

account

that

violates this Policy.” (Id.)
According to the complaint, KWC has refused to ship and fill
orders submitted by plaintiff unless and until plaintiff complies
with the IAP. (Compl. ¶ 15.) The complaint also states that
plaintiff has “refus[ed] to agree to sell KWC’s products at a
fixed price” but does not indicate whether plaintiff has refused
to comply with the IAP. (Compl. ¶ 16.)
In addition to adopting the IAP, KWC has posted a disclaimer
on its website, KWCAmerica.com, concerning consumers who purchase
products from unauthorized dealers. The disclaimer provides:

1

A copy of the Internet Advertising Policy is attached to the defendant’s
motion as Exhibit E and is incorporated by reference. See Int’l Audiotext
Network, Inc. v. Am. Tel. & Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995) (per
curiam).

-3-

[w]e cannot assist with problems that may
occur
from
purchases
from
unauthorized
channels, this includes online auctions and
online purchases from dealers other than
those listed in our Where to Buy. We require
proof of purchase when processing warranty
claims. This means: No Internet Selling, No
Mail Order Sales, No Mass Merchants.
(Compl. Ex. B.) The disclaimer also states: “[i]f you purchase
KWC/HANSA products on the internet, be advised: WE WILL NOT HONOR
ANY

WARRANTY

INTERNET

CLAIMS

SELLERS.”

ON

(Id.)

PRODUCTS
According

PURCHASED
to

the

FROM

UNAUTHORIZED

complaint,

KWC

has

indicated that it will not honor warranties on KWC products sold
by the plaintiff. (Compl. ¶ 26.)
DISCUSSION
I.

Legal Standard

When deciding a motion to dismiss for failure to state a
claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure, the Court must accept as true all well-pleaded facts
alleged in the complaint and draw all reasonable inferences in
plaintiffs’ favor. Kassner v. 2nd Ave. Delicatessen, Inc., 496
F.3d

229,

237

(2d

Cir.

2007).

A

complaint

must

contain

“sufficient factual matter, accepted as true, to state a claim to
relief that is plausible on its face.” Ashcroft v. Iqbal, -- U.S.
--, 129 S. Ct. 1937, 1949 (citing Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007)). Where a plaintiff has not “nudged [its]
-4-

claims

across

the

line

from

conceivable

to

plausible,

[its]

complaint must be dismissed.” Twombly, 550 U.S. at 570. This
pleading standard applies in “all civil actions.” Iqbal, –– U.S.
––, 129 S. Ct. at 1953.
II.

Claims Asserted Against KWC

Plaintiff

asserts

four

causes

of

action

against

KWC.

We

address each in turn.
A.

Donnelly Act Claim

In its first cause of action, plaintiff alleges that KWC’s
policies constitute vertical price fixing in violation of New
York’s antitrust statute, the Donnelly Act. N.Y. Gen. Bus. Law
§ 340 et seq.
1.
The

Legal Standard

Donnelly

Act

declares

“every

contract,

agreement,

arrangement, or combination whereby . . . competition . . . in
the conduct of any business, trade or commerce . . . is or may be
restrained . . . to be against public policy, illegal and void.”
N.Y.

Gen.

Donnelly

Bus.
Act

‘unreasonable’

Law
has

§

340.

long

restraints

Despite

been
on

this

understood
trade.

broad
to

language,
prohibit

Anheuser-Busch,

Inc.

the
only
v.

Abrams, 71 N.Y.2d 327, 333, 525 N.Y.S.2d 816, 819 (1988) (citing
N. Pac. Ry. Co. v. United States, 356 U.S. 1, 5 (1958)). Courts

-5-

generally

construe

the

Donnelly

Act

in

accordance

with

its

federal analogue, the Sherman Act, 15 U.S.C. § 1 et seq., upon
which it was modeled. See People v. Rattenni, 81 N.Y.2d 166, 171,
597 N.Y.S.2d 280, 283 (1993). Indeed, the New York Court of
Appeals

has

stated

that

“the

Donnelly

Act

—

often

called

a

‘Little Sherman Act’ — should generally be construed in light of
federal precedent and given a different interpretation only where
State

policy,

differences

in

the

statutory

language

or

the

legislative history justify such a result.” Anheuser-Busch, Inc.
v. Abrams, 71 N.Y.2d 327, 335, 525 N.Y.S.2d 816, 820 (1988).
To plead a violation of the Donnelly Act, a plaintiff must
allege

that

either

the

the
rule

defendant’s
of

reason

conduct
or

the

is

per

anticompetitive
se

rule.

The

under

accepted

standard for evaluating most Donnelly Act claims is the rule of
reason. Rattenni, 81 N.Y.2d at 171, 597 N.Y.S.2d at 283. This
legal

standard

circumstances
practice

of

should

restraint

on

requires
a
be

case

the

court

in

deciding

prohibited

competition.”

to

as

Leegin

weigh
whether

imposing
Creative

“all
a

an

of

the

restrictive
unreasonable

Leather

Prods.

v.

PSKS, Inc., 551 U.S. 877, 907 (2007). When applying the rule of
reason,

“[a]ppropriate

specific

information

factors
about

to

the

-6-

take

into

relevant

account

business,

include
[]

the

restraint’s

history,

nature,

and

effect,

[and]

whether

the

businesses involved have market power.” Id. at 885-86 (internal
citations and quotations omitted).
In addition to the rule of reason, there is also a rule of
per

se

illegality

for

“certain

agreements

or

practices

which

because of their pernicious effect on competition and lack of any
redeeming virtue are conclusively presumed to be unreasonable.”
N. Pac. Ry. Co. v. United States, 356 U.S. 1, 5 (1958); Rattenni,
81 N.Y.2d at 171-72, 597 N.Y.S.2d at 283. For example, horizontal
agreements among competitors to fix prices or divide markets have
been deemed per se unlawful. Leegin, 551 U.S. at 886.
2.

Applicability of the Per Se Rule

In the present case, plaintiff contends that the per se rule
applies to its Donnelly Act claim whereas KWC argues that the
rule of reason standard applies. Plaintiff’s position is that the
KWC’s IAP is vertical resale price maintenance (“RPM”) agreement.
Vertical

RPM

agreements

are

generally

defined

as

agreements

between a manufacturer and its distributors to set the minimum
price at which distributors can sell the manufacturer’s goods.
Like horizontal RPM agreements, vertical RPM agreements were long
treated as per se violations of § 1 of the Sherman Act. See Dr.
Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373

-7-

(1911).

Some

New

York

courts

have

also

treated

vertical

RPM

agreements as per se Donnelly Act violations. See, e.g., George
C. Miller Brick Co. v. Stark Ceramics, Inc., 2 A.D.3d 1341, 770
N.Y.S.2d 235 (4th Dep’t 2003). However, in 2007, Dr. Miles was
overruled

by

the

Supreme

Court’s

decision

in

Leegin

Creative

Leather Products v. PSKS, Inc., which abandoned the per se rule
for

vertical

RPM

agreements

and

instead

applied

the

rule

of

reason to such claims. 551 U.S. 877, 907 (2007).
After

Leegin,

it

is

uncertain

whether

New

York

courts

evaluating vertical RPM claims brought under the Donnelly Act
will continue to apply the per se rule or will follow Leegin in
adopting the rule of reason. Specifically, the New York Court of
Appeals

has

applicable

not
to

addressed

vertical

RPM

whether

Leegin

claims

under

changes
the

the

rule

Donnelly

Act.

However, at least two courts in this district have addressed this
issue and concluded that the rule of reason now applies to such
claims. See WorldHomeCenter.com, Inc. v. PLC Lighting, Inc., No.
10 Civ. 4092 (RJS) (S.D.N.Y. July 5, 2011); WorldHomeCenter.com,
Inc. v. Franke Consumer Prods., Inc., No. 10 Civ. 3205 (BSJ),
2011 WL 2565284 (S.D.N.Y. June 22, 2011). Notably, both Franke
and PLC Lighting were brought by the present plaintiff against

-8-

other home accessories manufacturers with similar policies to
those at issue here.
Here, plaintiff contends that Leegin is inapplicable because
New York has a state policy that justifies a departure from
federal precedent. Specifically, in support of its argument that
the per se rule applies to its Donnelly Act claim of vertical
RPM, plaintiff argues that: section 369-a of New York’s General
Business Law evidences a state policy in New York against price
fixing;2

this

statute

and

its

legislative

history

justify

a

divergence in the way state and federal antitrust laws apply to
vertical RPM agreements; and therefore courts must treat such
agreements

as

per

se

violations

of

the

Donnelly

Act,

notwithstanding the decision of the Supreme Court of the United
States in Leegin.
We recognize this argument has its adherents. See Jay L.
Himes3, New York’s Prohibition of Vertical Price-Fixing, N.Y.L.J.
Jan. 29, 2008; Robert L. Hubbard4, Protecting Consumers PostLeegin, 22 Antitrust 41, 43 (2007). However, plaintiff’s position
2

Section 369-a is entitled “Price Fixing Prohibited” and provides, “any
contract provision that purports to restrain a vendee of a commodity from
reselling such a commodity at less than the price stipulated by the vendor or
producer shall not be enforceable or actionable at law.”

3

The article identifies Jay L. Himes as the chief of the antitrust bureau of
the Office of the Attorney General of New York.

4

The article identifies Robert Hubbard as the director of litigation of the
antitrust bureau of the Office of the Attorney General of New York.

-9-

has not been endorsed by any court of which we are aware. See,
e.g., WorldHomeCenter.com, Inc. v. PLC Lighting, Inc., No. 10
Civ. 4092 (RJS), slip op. at 10 (S.D.N.Y. July 5, 2011) (“In the
absence of any authority construing § 369-a as relevant, much
less controlling, with respect to New York antitrust law, the
Court declines to adopt such a view”); WorldHomeCenter.com, Inc.
v. Franke Consumer Prods., Inc., No. 10 Civ. 3205 (BSJ), 2011 WL
2565284, at *4 (S.D.N.Y. June 22, 2011) (rejecting the theory
“that

pleading

a

violation

of

§

369-a

provides

a

means

to

establish per se liability under the Donnelly Act”); State v.
Tempur-Pedic Int’l, Inc., 30 Misc. 3d 986, 991, 916 N.Y.S.2d 900,
905 (Sup. Ct. N.Y. Cnty. Jan. 14, 2011) (rejecting the argument
that § 369-a of the General Business Law renders vertical RPM
agreements illegal in New York).
While we see no reason to depart from the decisions in PLC
Lighting, Franke, and Tempur-Pedic that the rule of reason is the
standard applicable to a vertical RPM claim under the Donnelly
Act, we are reluctant to reach the question of what standard a
New York court would apply before we are satisfied that the
complaint states a plausible claim under either standard. Because
we conclude that the complaint does not sufficiently allege a
Donnelly Act claim, we do not reach the issue of whether New York

-10-

law will diverge from federal law post-Leegin. See R.R. Comm’n of
Tex. v. Pullman Co., 312 U.S. 496, 499-500 (1941) (“[N]o matter
how seasoned the judgment of the district court may be, it cannot
escape being a forecast rather than a determination” of unclear
state law).
3.

Adequacy of the Allegations

Plaintiff alleges that the IAP is a vertical RPM agreement
because it “restrains price competition by purporting to disallow
communication of sales below the fixed price.” (Pl.’s Mem. Opp.
10.) KWC offers two reasons why its IAP is not a vertical RPM
agreement:

first,

because

it

disallows

communication

only

of

advertised prices, not of resale prices; and second, because it
is a unilateral policy, not an agreement. Indeed, the language of
the IAP is unmistakably clear on each of these points:
This Policy applies only to advertised prices
and does not apply to actual resale prices
. . .
This Policy is a unilateral statement of KWC
America’s preferences concerning the type of
account to which KWC America chooses to
distribute the products that are subject to
the Policy. It is not the intent or purpose
of this Policy to restrict, coerce, force or
reach agreement with a retailer to charge a
particular price for any KWC America product.
(Haller Decl. Ex. E.) Nonetheless, plaintiff contends, first,
that there is no distinction between advertised and resale prices

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on the Internet, and second, that agreements exist between KWC
and other distributors whose businesses are threatened by the
plaintiff’s

Internet

sales.

We

reject

both

of

plaintiff’s

arguments for the reasons set forth herein and discuss them in
turn.
a.

Distinction Between Advertised and
Resale Prices

First, plaintiff contends that a there is no distinction
between

advertised

prices

and

resale

prices

on

the

Internet.

Plaintiff’s theory turns on a comparison to traditional brickand-mortar

retailers.

Whereas

a

traditional

brick-and-mortar

retailer advertises to potential customers by “paying to post []
product prices elsewhere” and also communicates resale prices
directly to existing customers who are present at the store, an
Internet

retailer

simultaneously

by

may
posting

accomplish
a

single

both

of

price

on

these
its

goals

website.5

Plaintiff asserts that this feature of Internet retail collapses
the

distinction

between

the

price

at

which

a

product

is

advertised and the price at which it is sold.

5

In the year 2011, we assume general familiarity with the basic notion that
search engines locate and index webpages in order to present users with
appropriate results to search queries, including queries for the prices of
goods offered for sale.

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At
present

least

one

plaintiff

appears

to

have

district
and

court,

decided

been

in

prior

persuaded

a
to

by

case
the
this

brought
Leegin

by

the

decision,

reasoning.

See

Worldhomecenter.com, Inc. v. L.D. Kichler Co., No. 05 Civ. 3297
(DRH), 2007 WL 963206 (E.D.N.Y. March 28, 2007) (denying motion
to dismiss Sherman Act claim that an internet minimum advertised
price policy constitutes vertical price fixing). We, however, are
not persuaded.
It may be true that in certain circumstances any means of
communicating prices can also be a form of advertising. But the
advertised prices on a website are not the only means an Internet
retailer

has

at

its

disposal

to

communicate

resale

prices.

Indeed, as Judge Jones recently stated:
[u]nlike the prior cases cited by Plaintiff
where an advertising policy was held to
restrain prices, the [] policy here provides
internet retailers with more than one way to
communicate lower prices to clients, either
by allowing customers to call or email for a
price quote or by offering a coupon to be
applied at checkout.
WorldHomeCenter.com, Inc. v. Franke Consumer Prods., Inc., No. 10
Civ. 3205 (BSJ), 2011 WL 2565284, at *5 (S.D.N.Y. June 22, 2011).
That reasoning is equally applicable here. Like the policy
at

issue

in

Franke,

KWC’s

IAP

states

that

“[a]ctual

prices

charged customers may be provided by telephone, e-mail response,
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and product purchase confirmation webpages or communications.”
(Haller Decl. Ex. E.) By permitting these means of communicating
actual resale prices to customers, KWC did not prevent plaintiff
from selling its products at whatever price plaintiff wished, but
only set a floor on the discount prices that plaintiff could
advertise. See Campbell v. Austin Air Sys., Ltd., 423 F. Supp. 2d
61, 69-70 n.6 (W.D.N.Y. 2005) (holding policy that “restricts
only the minimum price for which a dealer could advertise on the
Internet” and “explicitly states that a dealer may sell [] for
any price” not to be vertical RPM agreement); Blind Doctor, Inc.
v. Hunter Douglas, Inc., No. C-04-2678 (MHP), 2004 WL 1976562, at
*2 & n.5 (N.D. Cal. Sept. 7, 2004) (“Courts have long recognized
that such advertising restrictions do not rise to the level of an
antitrust violation”).
Therefore, we conclude that the IAP cannot be the basis of a
vertical RPM claim because it does not restrain resale prices,
but merely restricts advertising. Accordingly, the per se rule is
inapplicable to plaintiff’s claim.6
6

We note that, even if plaintiff were correct that the policy at issue
constituted a vertical RPM agreement, we see little merit in plaintiff’s
theory that N.Y. Gen. Bus. Law § 369-a, which renders such agreements
unenforceable but not illegal, is a reason to treat them as per se violations
of the Donnelly Act.
To the contrary, while the Donnelly Act makes
unreasonable price restraints unlawful, section 369-a has the distinct aim of
preventing parties from seeking the assistance of the courts to enforce these
restraints. As there is no suggestion that KWC has ever sought to conscript
the courts into enforcing the IAP, § 369-a is not relevant here.

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b.

A Unilateral Policy is Not Evidence of
an Agreement or Conspiracy

We next turn to whether the IAP is nonetheless a non-price
restraint of competition in violation of the Donnelly Act. The
rule of reason is the standard applicable to vertical non-price
restrictions. See Continental T.V., Inc. v. GTE Sylvania, Inc.,
433 U.S. 36, 59 (1977).
Like
concerted

the

Sherman

action

the

the

in

Act,

form

Donnelly
of

a

Act

proscribes

contract,

only

agreement,

arrangement, or combination. N.Y. Gen. Bus. Law § 340. Indeed, a
manufacturer’s independent, unilateral actions are outside the
scope of the Donnelly Act. See State v. Mobil Oil Corp., 38
N.Y.2d 460, 464, 381 N.Y.S.2d 426, 428 (1976); see also TempurPedic Int’l, 30 Misc. 3d at 994 (“A manufacturer’s independent
acts to set minimum resale prices, without seeking agreement from
its retailers, do not amount to a contract.”).
Plaintiff alleges that KWC has obtained agreements from its
other distributors to adhere to the IAP (Compl. ¶ 33(a)), and
that these agreements supply the requisite element of concerted
action necessary to plead a Donnelly Act violation. KWC replies
that plaintiff has not alleged any specific facts indicating the
other distributors it refers to, the dates or places of any
alleged

agreements,

or

any

actions
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taken

to

enforce

them.

Further, the IAP itself declares that it is a unilateral policy
and that it is not intended to be an agreement. (Haller Decl. Ex.
E.)
Plaintiff has failed to allege “enough factual matter (taken
as true) to suggest that an agreement was made.” Twombly, 550
U.S. at 556. Plaintiff appears to argue that we may infer the
existence

of

agreements

between

KWC

and

other

distributors

because, without such agreements, the IAP would not be in KWC’s
own best interests. Thus, plaintiff asserts that there is a quid
pro

quo

in

which

the

IAP

protects

KWC’s

other

dealers

from

Internet competition, and in exchange, these dealers agree to
continue distributing KWC’s products. However, specific factual
allegations of such an arrangement are absent from the complaint
and therefore plaintiff fails to state a plausible claim under
the Donnelly Act.
Plaintiff’s argument is also a non sequitur. While KWC has
not offered a detailed explanation of its reasons for imposing
the IAP, and is not obligated to do so, it may have reasonable
justifications for its actions. For example, KWC may wish to
encourage traditional distributors to present KWC products in
display rooms where customers can view and touch sample fixtures,
see

demonstrations,

or

personally

-16-

interact

with

knowledgeable

employees. Absent an incentive to do so, these distributors may
not think it worth the trouble of providing these benefits to
customers, if their customers can then easily locate the same
products advertised at lower prices on the Internet. Thus, KWC
may have adopted the IAP to provide an incentive for display room
distributors

to

continue

devoting

energy,

expense,

and

floor

space to KWC products. See United States v. Colgate & Co., 250
U.S. 300, 306-07 (1919) (recognizing the “right of [a] trader or
manufacturer engaged in an entirely private business, freely to
exercise his own independent discretion as to parties with whom
he will deal . . . [and] announce in advance the circumstances
under which he will refuse to sell.”).
It does not follow from any of the above that an agreement
between KWC and these distributors has taken place, or that KWC’s
actions are contrary to its own interests. The mere observation
that the IAP is mutually beneficial to KWC and its non-Internet
distributors is not an adequate factual allegation of agreement
or conspiracy. Nor does plaintiff allege additional facts from
which an agreement could be inferred. Thus, plaintiff has failed
to

adequately

allege

a

violation

of

the

Donnelly

Act.7

Consequently, the Donnelly Act claim must be dismissed.

7

Even assuming plaintiff had adequately alleged an agreement, there have been

-17-

Finally, because we conclude that plaintiff’s fails to state
a claim under the Donnelly Act, we need not reach defendant’s
suggestion that the Sherman Act preempts the Donnelly Act.
B.

Deceptive Practices Claim

In its second cause of action, plaintiff alleges that KWC’s
warranty disclaimer is a false and deceptive trade practice that
violates New York’s consumer protection law, N.Y. Gen. Bus. Law §
349.
Under

section

349,

“deceptive

acts

or

practices

in

the

conduct of any business, trade, or commerce or in the furnishing
of any service in this state are hereby declared unlawful.” N.Y.
Gen. Bus. Law § 349. Although violations of this statute are
prosecuted by the New York Attorney General, see N.Y. Gen. Bus.
Law § 349(b)-(g), the statute was amended in 1980 to provide a
private right of action for citizens who wish to recover damages
or to enjoin an unlawful act or practice. See N.Y. Gen. Bus. Law
§ 349(h).
To state a claim under § 349(h), a plaintiff must show that
the defendant has engaged in: (1) consumer-oriented conduct that
no factual allegations regarding the relevant market, the actual effects of
the IAP on this market, or the market power of the parties, all of which would
be necessary to support a rule of reason analysis. Thus, even if KWC had
structured the IAP as an agreement with distributors, something it explicitly
did not do, the factual allegations in the complaint would still be
insufficient to state a Donnelly Act violation under the rule of reason
standard.

-18-

is

(2)

materially

misleading

and

that

(3)

plaintiff

suffered

injury as a result of the deceptive act or practice. City of New
York

v.

Smokes-Spirits.com,

Inc.,

12

N.Y.3d

616,

621,

883

N.Y.S.2d 772, 776 (2009). A plaintiff alleging an injury that is
indirect or derivative, such that it arises solely as a result of
injuries sustained by another party, lacks standing to pursue a §
349 claim. Id. at 622. (citing Blue Cross & Blue Shield of N.J.,
Inc. v. Philip Morris USA, Inc., 3 N.Y.3d 200, 207, 785 N.Y.S.2d
399, 404 (2004)). However, entities other than consumers, such as
business competitors, have been held to have standing to bring a
claim “so long as harm to the public at large is at issue.”
Securitron Magnalock Corp. v. Schnabolk, 65 F.3d 256, 264 (2d
Cir. 1995).
Plaintiff alleges that KWC’s stated policy of refusing to
honor

warranties

deceptive

for

practice.

customers
The

of

allegation

Internet
is

not

resellers
that

is

a

plaintiff’s

customers are deceived if they purchase KWC products unaware that
their warranties will not be honored; rather, it is that those
customers who read KWC’s warranty policy are deceived as to their
rights under the law in New York, specifically § 369-b of the
General

Business

Law,

which

provides

that

any

attempt

by

a

manufacturer to limit its warranty or guarantee of merchandise

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“solely

for

the

reason

that

such

merchandise

is

sold

by

a

particular dealer or dealers” will be void. Plaintiff’s theory
appears to be that if KWC actually refused to honor the warranty
of

a

New

York

consumer

because

that

consumer

purchased

KWC

products from plaintiff on the Internet, then KWC’s refusal would
be void under § 369-b, and therefore it is deceptive for KWC’s
policy to assert that KWC will take actions which are void under
the law.
Plaintiff’s effort to backdoor a § 369-b claim for which
there is no private right of action, see discussion infra, into a
deceptive practices claim, while clever, is unavailing. Plaintiff
has not identified any harm to itself or to the public at large
which might afford it standing to assert competitive harms, see
Securitron Magnalock, 65 F.3d at 264, and therefore has failed to
satisfy

the

third

element

of

a

deceptive

practices

claim,

sufferance of an injury. Specifically, plaintiff has not even
alleged the existence of any consumer whose warranty claim has
been denied by KWC as a result of having purchased a KWC product
from plaintiff, an occurrence of which it would presumably be
aware. Thus, any claim of “loss of profits, loss of established
business

dealings

and

prospective

business

opportunities,

and

damage to reputation” is purely speculative. (Compl. ¶ 41.) In

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fact, some consumers may care nothing at all about warranties and
simply want to locate KWC products at the lowest possible resale
price.

Astute

consumers

might

even

infer

that

unauthorized

sellers on the Internet have the best deals available since the
cost of warranty coverage is not built into their prices, thereby
benefitting plaintiff’s business.
Nor is it clear that KWC’s warranty policy would violate §
369-b. This is because KWC’s blanket disclaimer of warranties for
all products sold by “unauthorized Internet sellers” may be too
general to fit within the statutory language of § 369-b, which
voids warranty disclaimers for products “sold by a particular
dealer or dealers.” N.Y. Gen. Bus. Law § 369-b (emphasis added).
Therefore, for these several reasons, plaintiff’s deceptive
practices claim must be dismissed.
C. Declaratory and Injunctive Relief
In its third and fourth causes of action, plaintiff seeks
declaratory and injunctive relief. Specifically, plaintiff seeks
a declaratory judgment that KWC’s IAP is “void and unenforceable”
under section 369-a of the General Business Law and that KWC’s
warranty policy “constitutes a violation of” section 369-b of the
General Business Law. (Compl. ¶ 45-46.) In addition, plaintiff

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asks the Court to enjoin KWC from taking any actions to enforce
either policy.
As a threshold matter, neither section 369-a nor section
369-b expressly provides for a private right of action. See N.Y.
Gen. Bus. Law §§ 369-a, 369-b. Absent an express private right of
action, New York courts will only conclude that “a private right
of action may be fairly implied” where: (1) the plaintiff is one
of

the

enacted;

class
(2)

for

whose

recognition

particular
of

a

benefit

private

right

the
of

statute
action

was

would

promote the legislative purpose; and (3) creation of such a right
would be consistent with the legislative scheme. See Sheehy v.
Big Flats Community Day, 73 N.Y.2d 629, 633, 543 N.Y.S.2d 18, 20
(1989).
Notably, plaintiff has failed to address the factors we must
consider in order to find an implied private right of action.
Nonetheless, it is apparent that plaintiff is not among the class
for whose benefit § 369-a was enacted. Section 369-a applies only
to

contract

provisions

which

restrain

resale

prices,

yet

plaintiff was not a party to any contract regarding prices, but
rather was merely subjected to a unilateral policy restricting
advertising.

In

addition,

the

legislative

scheme

embodied

in

Article 24-A of the General Business Law, where § 369-a and §

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369-b

are

found,

only

envisions

enforcement

by

the

New

York

Attorney General, and does not refer to enforcement by private
citizens. See, e.g., N.Y. Gen. Bus. Law § 369-e, § 369-ee, § 369eee. The Attorney General is also empowered to take action under
N.Y. Executive Law § 63(12) against any person who demonstrates
“persistent fraud or illegality in the carrying on, conducting or
transaction of business.” We conclude that implying a private
right

of

action

would

be

inconsistent

with

this

legislative

scheme, and plaintiff may not pursue declaratory or injunctive
relief under § 369-a.
Similarly, private enforcement under § 369-b is inconsistent
with the legislature’s chosen scheme of enforcing Article 24-A
through actions by the Attorney General, and thus we conclude
that no private right of action can be implied under § 369-b.
In addition, even if a private right of action were found to
exist
injury

under

§

caused

369-b,
by

the

KWC’s

plaintiff

warranty

has

policy.

not
A

demonstrated
plaintiff

any

seeking

declaratory relief must suffer an ‘injury in fact.’ See Lujan v.
Defenders of Wildlife, 504 U.S. 555, 560 (1992). To meet the
requirement of injury in fact, a plaintiff must demonstrate “an
invasion of a legally protected interest which is (a) concrete
and particularized and (b) actual or imminent, not conjectural or

-23-

hypothetical.” Id. Plaintiff’s memorandum of law fails to address
this issue in any meaningful way. Nonetheless, the same failure
to identify any injury from KWC’s warranty policy, which required
dismissal
349(h),

of
also

plaintiff’s
demonstrates

deceptive
that

practices

plaintiff

claim

lacks

under

standing

§
to

challenge the validity of the policy directly under § 369-b.
Finally, because we conclude that plaintiff has not alleged
facts supporting irreparable harm or a likelihood of success on
the

merits,

it

is

clear

that

plaintiff

injunctive relief.

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is

not

entitled

to

CONCLUSION

reasons

For the

l

defendant/s motion to

smiss the

complaint is

New York

Dated:

l

New York
151 2011

UNITED STATES DISTRICT JUDGE

to

Copies of the foregoing Order
lowing:

Attorneys for Plaintiff
Lawrence R. Lonergan Esq.
Woods & Lonergan LLP
292 Madison Avenue 22nd Floor
New York NY 10017
l

l

I

l

Attorneys for Defendant
David W. Haller Esq.
Covington & Burling LLP
620 Eighth Avenue
New York NY 10018
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l

Michael J. Fanelli Esq.
Ross A. Demain Esq.
Covington & Burling, LLP
1201 Pennsylvania Avenue
Washington DC 20004
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l

I

NW

l

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mailed on this date