Beverly Hills Teddy Bear Company v. Best Brands Consumer Products, Inc. et al

Filing 222

MEMORANDUM OPINION AND ORDER: Because Beverly Hills' claim for declaratory judgment was mooted by its settlement agreement with GennComm, GennComm's motion to dismiss that claim for lack of subject matter jurisdiction is GRANTED. Because no claims remain against GennComm and GennComm has not brought any of its own claims, it is no longer a party to this action. The Clerk of Court is directed to terminate the motion pending at Dkt. No. 212 and to terminate Defendant GennComm from the caption of this case. (GennComm, LLC terminated.) (Signed by Judge Gregory H. Woods on 8/12/2021) (rro)

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------------------------------------- X
:
BEVERLY HILLS TEDDY BEAR COMPANY, :
:
Plaintiff, :
:
-against:
:
BEST BRANDS CONSUMER PRODUCTS, INC, :
BEST BRANDS SALES COMPANY, LLC, and
:
GENNCOMM, LLC,
:
:
Defendants. :
:
----------------------------------------------------------------- X
GREGORY H. WOODS, United States District Judge:
I.

USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: 8/12/2021

1:19-cv-3766-GHW
MEMORANDUM
OPINION AND ORDER

INTRODUCTION
Plaintiff Beverly Hills Teddy Bear Company (“Beverly Hills”) sued Defendants Best Brands

Consumer Products, Inc., and Best Brands Sales Company, LLC, (together, “Best Brands”) for
infringing on its copyrights in the popular Squeezamals line of foam plush toys. After the
completion of discovery, Best Brands learned that Beverly Hills might have assigned those
copyrights to GennComm, LLC, (“GennComm”) before filing the suit. That potential assignment
called into question Beverly Hills’ standing to bring the suit. As a result, the Court decided that
GennComm was a necessary party. Beverly Hills amended its complaint to add a claim for
declaratory relief against GennComm. Beverly Hills and GennComm subsequently entered into a
settlement agreement that provided that GennComm had no copyright interest in the Squeezamals
toys and that neither party would bring a lawsuit over the toys in the future.
GennComm now moves under Rule 12(b)(1) to dismiss Beverly Hills’ claim against it.
Beverly Hills does not oppose the motion. The Court agrees that it lacks subject matter jurisdiction
over Beverly Hills’ claim for declaratory judgment. Article III of the Constitution gives courts
jurisdiction to hear only cases and controversies. Beverly Hills and GennComm have settled the

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dispute underlying the claim for declaratory judgment. No live controversy exists between them
with respect to the copyrights at issue in this case. Beverly Hills’ claim for declaratory judgment is
therefore moot, and GennComm’s motion to dismiss Beverly Hills’ claim against it for lack of
subject matter jurisdiction is GRANTED.
II.

BACKGROUND
The Court assumes the parties’ familiarity with the facts and procedural history in this

matter. Nonetheless, the Court recapitulates the aspects of the case relevant to this motion.
This case involves a copyright infringement claim regarding the popular Squeezamals toys.
Beverly Hills’ remaining claims are one cause of action against Best Brands under the Copyright Act,
17 U.S.C. § 501(a), and one request for declaratory judgment against GennComm regarding
ownership of the copyrights-in-suit. See Dkt. No. 117 at 17–18. Beverly Hills has alleged that Best
Brands has infringed on its copyrights in the Squeezamals toys. Id. ¶ 41. Beverly Hills has alleged
that it owns “both registered and unregistered copyrights in and related to the Squeezamals
Products,” id. ¶ 19, and that it is the “exclusive owner of the Squeezamals Works,” id. ¶ 72. Best
Brands has raised defenses on the issues of, inter alia, standing, copyright validity, and copyright
ownership. See Dkt. No. 121 at 9.
On January 6, 2020, the Court issued a scheduling order which established a February 29,
2020 deadline for the completion of all fact discovery. Dkt. No. 38. On July 14, 2020, after the
close of discovery, GennComm contacted Best Brands and informed it that GennComm had been
party to a non-exclusive license agreement with Beverly Hills since June 16, 2017 (the “Agreement”),
and that the Agreement covered the products at issue in this case. See Dkt. No. 90 at 2; Dkt. No. 90
Ex. 1 at 1; Dkt. No. 85 at 4:24–5:23, 7:15–8:13. In addition, Best Brands learned that Beverly Hills
and GennComm were then litigating two cases in California courts that directly involved the
Agreement and the Squeezamals products. Dkt. No. 90 at 2, 10, 12–13. Specifically, GennComm
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sued Beverly Hills in California state court to enforce its rights under the Agreement, and Beverly
Hills sued GennComm in federal court in the Central District of California, seeking a declaratory
judgment of invalidity and unenforceability with respect to two of GennComm’s patents. See id.
Exs. 11–15.
After reviewing briefing from Best Brands and Beverly Hills, the Court determined that it
could not decide the parties’ rights under the license agreement without affording GennComm, a
party to the agreement, an opportunity to present its position. See Dkt. No. 112. The Court ordered
that GennComm be joined to this action as a necessary party but deferred its decision as to whether
joinder was feasible and whether GennComm was an indispensable party. Dkt. Nos. 112, 115–16.
On November 10, 2020, Beverly Hills amended its complaint and added GennComm as a
defendant. Dkt. No. 117.
On December 21, 2020, the Court was informed that Beverly Hills and GennComm had
entered into a settlement agreement, resolving their claims in California. Dkt. Nos. 126–27. The
agreement was endorsed by the California state court as a stipulated judgment. On December 22,
2020, Beverly Hills and GennComm asked the Court to enter a consent judgment based on their
settlement agreement. Dkt. No. 130. The proposed consent judgment provided that those parties
stipulated to certain facts, including that “the License Agreement be deemed void ab initio,” that
Beverly Hills “has and at all times has had full ownership of all trademarks and copyrights relating to
the Squeezamals Products including the Squeezamals Works” and that GennComm “assigned nunc
pro tunc to [Beverly Hills] any and all rights that GennComm ever had (if any) relating to any
trademarks and copyrights used by [Beverly Hills] relating to Squeezamals Products, including but
not limited to the right to sue for copyright and trademark infringement (including past damages),
including the right to institute this action.” Id. Based on those stipulated facts, Beverly Hills and
GennComm requested that the Court order, judge, and decree “that GennComm has no rights in
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and to Plaintiff’s Squeezamals Works or this action” and be dismissed from this action. Id. at 5.
The Court declined to endorse the proposed consent judgment because the Court did not have any
factual or legal support upon which to conclude that the terms of the parties’ stipulation were
appropriate, and the facts included therein were disputed by Best Brands, which was not a party to
the settlement agreement. The Court took no position regarding the terms of the parties’ private
agreement. See Dkt. No. 141.
On May 10, 2021, Best Brands moved to supplement its answer to add one claim for
declaratory relief against Beverly Hills and another against GennComm. See Dkt. No. 186, Mot. to
Amend. Best Brands attached as an exhibit to its motion a proposed answer that included additional
allegations and prayers for relief. See Dkt. No. 186 Ex. 1 (“Best Brands’ Proposed Answer”) ¶¶ 10–
101, B, I, J, L. The proposed answer would have asked the Court to find that Beverly Hills,
GennComm, and their respective counsel (1) colluded to settle the dispute over the validity of their
license agreement in a way that would give Beverly Hills standing in this action; and (2) defrauded a
state court in California into entering a consent judgment declaring the license agreement between
Beverly Hills and GennComm void ab initio. See id. ¶¶ 85–86. Based on these findings, the proposed
answer would have asked the Court to dismiss this action for lack of standing, id. ¶ B, or to declare
“that the 2020 Settlement Agreement and California Consent Judgment are unenforceable against
Best Brands in the current proceedings, and cannot be used to the detriment of Best Brands’
defenses,” id. ¶ J. That declaration was styled as relief for two claims under the Declaratory
Judgment Act, one against Beverly Hills and the other against GennComm. Id. at 20, 24.
The Court denied that motion for leave to supplement, finding that the proposed claims
were futile because they would not survive a motion to dismiss. Dkt. No. 206 at 2. The claim
against GennComm would not have survived a motion to dismiss for lack of personal jurisdiction
because the proposed answer failed to make a prima facie showing of the Court’s personal
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jurisdiction over GennComm with respect to that claim. Id. at 7–11. The claim against Beverly Hills
would not have survived a motion to dismiss for lack of subject matter jurisdiction because the
claim was duplicative of one of Best Brands’ existing affirmative defenses, and the Court therefore
would have declined to exercise jurisdiction under the Declaratory Judgment Act. Id. at 11–15.
On July 9, 2021, GennComm filed a motion to dismiss under Rule 12(b)(1) for lack of
subject matter jurisdiction. Dkt. No. 212 (“GennComm Mot.”) at 2. In his attached declaration,
counsel for GennComm proffers that Beverly Hills does not oppose dismissal of its claim against
GennComm provided that dismissal be made without prejudice. Dkt. No. 212-1 ¶ 2. On July 30,
Best Brands filed a response to GennComm’s motion to dismiss in which it argues that the Court
has subject matter jurisdiction over Beverly Hill’s claim against GennComm, but that the Court lacks
personal jurisdiction over GennComm with respect to that claim and should dismiss the claim on
that basis instead. Dkt. No. 218 (“Best Brands Resp.”) at 1. On August 6, GennComm filed a reply
brief. Dkt. No. 221 (“GennComm Reply”).
III.

LEGAL STANDARD
A.

Rule 12(b)(1)

“Dismissal of a case for lack of subject matter jurisdiction under Rule 12(b)(1) is proper
‘when the district court lacks the statutory or constitutional power to adjudicate it.’” Ford v. D.C. 37
Union Local 1549, 579 F.3d 187, 188 (2d Cir. 2009) (per curiam) (quoting Makarova v. United States,
201 F.3d 110, 113 (2d Cir. 2000)). “Jurisdiction must be shown affirmatively, and that showing is
not made by drawing from the pleadings inferences favorable to the party asserting it.” APWU v.
Potter, 343 F.3d 619, 623 (2d Cir. 2003) (brackets omitted) (quoting Shipping Fin. Servs. Corp. v. Drakos,
140 F.3d 129, 131 (2d Cir. 1998)). In resolving a motion to dismiss for lack of subject matter
jurisdiction, the Court may consider evidence outside the pleadings and make findings of fact. See
Makarova, 201 F.3d at 113. When a defendant makes a “fact-based Rule 12(b)(1) motion, proffering
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evidence beyond the [p]leading,” the plaintiff must then “come forward with evidence of [its] own
to controvert that presented by the defendant” if it “reveal[s] the existence of factual problems in
the assertion of jurisdiction.” Carter v. HealthPort Techs., LLC, 822 F.3d 47, 57 (2d Cir. 2016) (citation
omitted) (internal quotation marks omitted).
B.

Mootness

“Article III of the United States Constitution provides that the judicial power of the United
States extends to certain ‘cases’ and ‘controversies.’ The case-or-controversy requirement of Article
III encompasses both the requirement that the plaintiff establish standing to sue and the related
doctrine of mootness.” Stagg, P.C. v. U.S. Dep’t of State, 983 F.3d 589, 601 (2d Cir. 2020). “Under
the doctrine of mootness, the plaintiff’s ‘personal stake’ in the outcome of the litigation ‘must be
extant at all stages of review, not merely at the time the complaint is filed.’” Id. (quoting United States
v. Sanchez-Gomez, 138 S. Ct. 1532, 1537 (2018)). “A case becomes moot—and therefore no longer a
‘Case’ or ‘Controversy’ for purposes of Article III—when the issues presented are no longer ‘live’ or
the parties lack a legally cognizable interest in the outcome.” Already, LLC v. Nike, Inc., 568 U.S. 85,
91 (2013) (citation omitted) (some internal quotation marks omitted).
A claim for declaratory judgment satisfies the case-or-controversy requirement when the
dispute to be resolved by the judgment is “definite and concrete, touching the legal relations of
parties having adverse legal interests.” MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007)
(quoting Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240–41 (1937)). The dispute must “be ‘real and
substantial’ and ‘admi[t] of specific relief through a decree of a conclusive character, as distinguished
from an opinion advising what the law would be upon a hypothetical state of facts.’” Id. (brackets in
original) (quoting Aetna, 300 U.S. 227, 241). “Basically, the question in each case is whether the facts
alleged, under all the circumstances, show that there is a substantial controversy, between parties
having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a
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declaratory judgment.” Id. (quoting Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941)).
IV.

DISCUSSION
A.

Subject Matter Jurisdiction

Beverly Hills’ claim for declaratory judgment is moot because Beverly Hills and GennComm
have settled their dispute regarding the ownership of the copyrights at issue. A claim for declaratory
judgment in an intellectual property case is moot when the parties to the claim have settled their
dispute by agreeing not to sue each other over the intellectual property at issue. See Nike, Inc. v.
Already, LLC, 663 F.3d 89, 97 (2d Cir. 2011), aff’d 568 U.S. 85 (2013). In Nike, the Second Circuit
drew on the totality-of-the-circumstances test endorsed by the Supreme Court in MedImmune and
counseled district courts to
consider, in addition to other factors: (1) the language of the covenant, (2) whether
the covenant covers future, as well as past, activity and products, and (3) evidence of
intention or lack of intention, on the part of the party asserting jurisdiction, to engage
in new activity or to develop new potentially infringing products that arguably are not
covered by the covenant.
Id. at 96. Applying those factors to the facts in Nike, the Second Circuit found that because the
plaintiff’s covenant not to sue encompassed all past and future products, “render[ing] the threat of
litigation remote or nonexistent,” the defendant’s claim for declaratory judgment of
noninfringement was moot. Id. at 97. That conclusion reflects the basic principle that claims for
declaratory judgment must, like all claims, satisfy Article III’s case-or-controversy requirement to be
heard in federal court. Already v. Nike, 568 U.S. at 90. When future litigation between the parties is
highly unlikely—as when the parties have agreed not to sue one another—there is no “case” or
“controversy” within the meaning of Article III. See id. at 92–95.
Beverly Hills’ claim for declaratory relief falls squarely within the holding of Nike. Here, as
in Nike, the only claim between the parties is one seeking a declaration regarding the owner of the
intellectual property at issue. See Third Am. Compl. ¶¶ 79–83, H (seeking “a declaration that
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GennComm has no right, title or interest in Plaintiff’s Squeezamals Works or this Action”). And
here, as in Nike, the parties have already resolved that question by private agreement:
GennComm hereby relinquishes any rights it ever had (if any) relating to those
trademarks and copyrights by operation of law or otherwise and assigns to [Beverly
Hills] all such rights (if any) nunc pro tunc that GennComm obtained, or might have
obtained relating to the trademarks, copyrights and associated goodwill pertaining to
Squishamals and Squeezamals®.
Dkt. No. 212-2, Settlement Agreement, ¶ 12. The parties have also, as in Nike, covenanted not to
bring any future claims over the intellectual property at issue:
Provided [Beverly Hills] complies with the terms of this Agreement, GennComm
promises to never file any lawsuit, claim, petition, or any proceeding asserting any
claim released by this Agreement, including but not limited to any patent or other
claim related to or arising from [Beverly Hills’] use, in any way, of memory foam in
plush, and the copyrights and trademarks in connection therewith. . . . GennComm,
and its officers, agents, assignees and affiliates, agree that they will not assist any other
person or entity with the prosecution of any claim, grievance, charge, complaint,
lawsuit, or legal action, or other process of any kind or nature, whatsoever, against
[Beverly Hills], without being compelled to do so by operation of law, relating to any
subject covered by this Agreement, including, but not limited to, [Beverly Hills’] use
of memory foam in plush and the copyrights and trademarks in connection therewith.
. . . Provided GennComm complies with the terms of this Agreement, [Beverly Hills]
promises to never file any lawsuit, claim, petition, or any proceeding asserting any
claim released by this Agreement.
Id. ¶¶ 7, 8. Because those covenants foreclose future litigation between GennComm and Beverly
Hills on the subject of the requested declaratory judgment, that judgment can make no difference to
the parties. The claim seeking that judgment is therefore, as both parties to the claim agree, moot.
Best Brands, which is not a party to Beverly Hills’ claim for declaratory judgment, argues
that a justiciable controversy exists between Beverly Hills and GennComm because Beverly Hills
brought the claim before settling it and “all challenges to subject matter jurisdiction are determined
on the basis of the state of things at the time the action is commenced.” Best Brands Resp. at 4.
That is incorrect. Although challenges to diversity jurisdiction and standing must consider only the
circumstances at the time of filing, challenges based on mootness consider subsequent events. As
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discussed above, “an actual controversy must exist not only at the time the complaint is filed, but
through all stages of the litigation.” Already v. Nike, 568 U.S. at 90. See generally 13B Charles Alan
Wright & Arthur R. Miller, Federal Practice and Procedure § 3533 (3d ed.) [hereinafter Wright &
Miller].
Best Brands’ citation to Grupo Dataflux v. Atlas Global Group for the proposition that only the
circumstances at the time of filing determine subject matter jurisdiction is inapposite. See Best
Brands Resp. at 4. As every part of Dataflux except the sentence quoted by Best Brands makes clear,
the “time-of-filing rule”—“taught,” Best Brands notes, “to first-year law students in any basic course
on federal civil procedure”—refers to the requirement that parties in diversity cases have diverse
citizenships at the time of filing. See Grupo Dataflux v. Atlas Glob. Grp., L.P., 541 U.S. 567, 570–71
(2004); Best Brands Resp. at 4. It does not mean that courts heed Article III’s case-or-controversy
requirement only when claims are first brought. See Already v. Nike, 568 U.S. at 90. Best Brands’
argument to the contrary flies in the face of longstanding Supreme Court authority. See, e.g.,
Arizonans for Off. Eng. v. Arizona, 520 U.S. 43, 67 (1997) (“To qualify as a case fit for federal-court
adjudication, ‘an actual controversy must be extant at all stages of review, not merely at the time the
complaint is filed.’” (quoting Preiser v. Newkirk, 422 U.S. 395, 401 (1975))); California v. San Pablo &
Tulare R.R. Co., 149 U.S. 308, 313–14 (1893).
B.

Personal Jurisdiction

Best Brands urges the Court to dismiss Beverly Hills’ claim against GennComm on personal
rather than subject matter jurisdiction grounds. Best Brands Resp. at 1–2. The Court is unable to
do so. “[S]ua sponte dismissal for lack of personal jurisdiction is generally only resorted to upon a
motion for default judgment.” Hewes v. Alabama Sec’y of State, No. 19-cv-9158, 2020 WL 4271708, at

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*4 (S.D.N.Y. July 23, 2020) (collecting cases). 1 GennComm did not raise personal jurisdiction in this
motion to dismiss. See GennComm Mot.; GennComm Reply at 1. Accordingly, the Court decides
this motion solely on the grounds of subject matter jurisdiction. 2
V.

CONCLUSION
Because Beverly Hills’ claim for declaratory judgment was mooted by its settlement

agreement with GennComm, GennComm’s motion to dismiss that claim for lack of subject matter
jurisdiction is GRANTED. Because no claims remain against GennComm and GennComm has not
brought any of its own claims, it is no longer a party to this action.
The Clerk of Court is directed to terminate the motion pending at Dkt. No. 212 and to
terminate Defendant GennComm from the caption of this case.
SO ORDERED.
Dated: August 12, 2021
New York, New York

__________________________________
GREGORY H. WOODS
United States District Judge

1 That is because raising the defense sua sponte deprives the defendant of the opportunity to waive or consent to
jurisdiction in the future. See Sinoying Logistics Pte Ltd. v. Yi Da Xin Trading Corp., 619 F.3d 207, 213 (2d Cir. 2010). For
example, a party might waive its personal jurisdiction defense by omitting the defense from a motion made under Rule
12. See Fed. R. Civ. P. 12(h)(1) (“A party waives any defense listed in Rule 12(b)(2)–(5) by . . . omitting it from a motion
[made under Rule 12]”); 5C Wright & Miller § 1391 (noting that defendants waive personal jurisdiction if they do not
raise it “at the time the first significant defensive move is made—whether it be by way of a Rule 12 motion or a
responsive pleading”).
2 Best Brands argues that because of the Court’s prior order denying Best Brands’ motion to supplement, “it is now the
law of the case that personal jurisdiction against GennComm does not exist.” Best Brands Resp. at 3. That
misunderstands both the Court’s prior order and the very nature of personal jurisdiction. When the Court denied Best
Brands’ motion to supplement for futility, it found that Best Brands’ proposed answer had failed to make a prima facie
showing of the Court’s personal jurisdiction over GennComm with respect to the proposed claim. Dkt. No. 206 at 8.
That was because Best Brands had attempted to establish personal jurisdiction solely on the grounds of implied consent,
even though GennComm had not substantially participated in this litigation. Id. The Court assessed only whether Best
Brands had met its pleading burden—not whether personal jurisdiction actually existed with respect to the claim.
Even if the Court had determined that it lacked personal jurisdiction over GennComm with respect to Best
Brands’ proposed claim, that would not have foreclosed the Court exercising personal jurisdiction over GennComm
with respect to other claims or later in the course of the litigation. Inherent in the distinction between specific and
general jurisdiction is the idea that courts may exercise specific jurisdiction over a party with respect to one claim but not
another. See Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011). And even when personal
jurisdiction does not exist at one time in the litigation, it may be created by waiver or consent at a later time. See Sinoying
Logistics, 619 F.3d at 213. The Court’s prior finding that Best Brands’ proposed answer failed to establish the Court’s
personal jurisdiction over GennComm with respect to Best Brands’ proposed claim therefore has no bearing on whether
the Court may exercise personal jurisdiction over GennComm at a later time and with respect to a different claim.

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