East West, LLC v. Rahman et al
Filing
68
MEMORANDUM OPINION re Defendants Motion to Dismiss. Signed by District Judge James C. Cacheris on 6/5/2012. (klau, )
IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF VIRGINIA
Alexandria Division
EAST WEST, LLC d/b/a
CARIBBEAN CRESCENT,
Plaintiff,
v.
SHAH RAHMAN, et al.,
Defendants.
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1:11cv1380 (JCC/TCB)
M E M O R A N D U M
O P I N I O N
This matter is before the Court on Defendants Shah
Rahman (“Rahman”) and Caribbean Crescent, Inc.’s (“CCI”)
(collectively, “Defendants”) Motion to Dismiss [Dkt. 60] (the
“Motion”).
For the following reasons, the Court will grant in
part and deny in part Defendants’ Motion.
I. Background
This case arises out of a business dispute involving
alleged acts of trademark and trade name infringement and breach
of contract.
A.
Factual Background
Plaintiff East West, LLC (“East West”) sells food
products including Jamaican and south Asian spices and halal
meat and fish in the Washington, D.C. metropolitan area and
surrounding communities.
(Second Amended Complaint (“SAC”)
1
[Dkt. 59] ¶ 2.)
On June 11, 2003, East West and Third Party
Defendants Naeem Zai and Mohammad Sadiq, who are East West’s
President and Vice President, respectively, (collectively, the
“Buyers”) entered into an “Agreement for Sale of
Inventory/Assets” (the “Sale Agreement”) with Defendants in
which they agreed to purchase the business assets known as
Caribbean Crescent.
(SAC ¶ 13; Ex. A (“Sale Agreement”) at 1.)
Defendants agreed to deliver to the Buyers all rights, title,
and interest in the business assets known as Caribbean Crescent
including the common law trademark CARIBBEAN CRESCENT (“the
CARIBBEAN CRESCENT Mark” or “the Mark”) and the trade name
Caribbean Crescent.
(SAC ¶¶ 17-18, 21; Sale Agreement § 1.)1
The Sale Agreement contained a non-compete provision
(the “Non-Compete Agreement”), in which Defendants agreed not to
compete with the business being sold to the Buyers for a period
of five years and within a five mile radius of the Washington
Metropolitan Area.2
(Sale Agreement § 21.)
Defendants were
entitled to “use [the] Carribean Crescent [as opposed to
Caribbean Crescent] trade name,” and to “continue [to] trade and
market products and services as Carribean Crescent [as opposed
1
On December 20, 2011, Zai and Sadiq assigned their rights to the trade name
Caribbean Crescent and the CARIBBEAN CRESCENT Mark, including the good will
and the right to sue for infringement to East West. (SAC ¶ 90; Ex. S.)
2
Under the Sales Agreement, the Washington Metropolitan Area was defined to
be consistent with the “U.S. Department of Labor publication defining
Standard Metropolitan Area or its successor government publication.” (Sale
Agreement § 21.)
2
to Caribbean Crescent] outside the Washington Metropolitan
Area.”
(Id.)
On June 17, 2003, the parties closed on the Sale
Agreement.
(SAC ¶ 34.)
The Buyers purchased the business
assets known as Caribbean Crescent as well as Defendants’
remaining inventory of goods.
(SAC ¶¶ 31, 36.)
The Buyers paid
$225,918 and executed a promissory note in the amount of
$215,918 in furtherance of the Sale Agreement.
Settlement Agreement.)
(SAC ¶ 40;
The Buyers satisfied the amount due
under the promissory note over a period of approximately two and
a half years.
(SAC ¶ 47.)
The parties executed an Articles of Sale and Transfer,
also on June 17, 2003, in which CCI transferred all of the
assets of Caribbean Crescent, including the trade name Caribbean
Crescent and the CARIBBEAN CRESCENT Mark to East West.
44; Ex. D.)
(SAC ¶
That same day, the parties entered into a Financing
Statement in which CCI was the Secured Party and Buyers were the
Debtor, and which covered all “Goodwill, the tradename
‘CARRIBEAN CRESCENT’ [sic] and all derivatives thereof; customer
lists; and telephone numbers.”
(SAC ¶ 45; Ex. E.)
The Buyers
thereupon began using the trade name Caribbean Crescent and the
CARIBBEAN CRESCENT Mark, and East West began doing business as
Caribbean Crescent.
(SAC ¶¶ 48-50.)
3
On February 23, 2004, East West and CCI entered into a
Commission Agreement, which provided that East West would handle
all sales of Defendants’ Jamaican patties product in the
Washington Metro Area.
(SAC ¶¶ 55-56; Ex. I.)
East West was
entitled to a twenty percent commission for such sales.
(Id.)
The Commission Agreement also established a five percent
commission to be paid by East West to CCI for all sales of East
West’s products made by Rahman.
(SAC ¶ 57.)
East West alleges
that Defendants have never paid any commissions on any of the
sales made pursuant to the Commission Agreement.
(SAC ¶ 59.)
Defendants allegedly violated the Non-Compete
Agreement and the sale and assignment of the trade name
Caribbean Crescent by competing against East West and using the
trade name Caribbean Crescent within a five-mile radius of the
Washington Metro Area “sometime between June 17, 2003 and June
16, 2008.”
(SAC ¶¶ 60, 62.)
Defendants also allegedly began
using the CARIBBEAN CRESCENT Mark “sometime shortly after” the
sale and assignment of the Mark to East West.
(SAC ¶ 64.)
East
West alleges, on information and belief, that a number of the
products sold by Defendants under the trade name Caribbean
Crescent and bearing the CARIBBEAN CRESCENT Mark were first
introduced into the market in June or July of 2011.
63.)
4
(SAC ¶¶ 61,
On or about February 20, 2008, Defendants allegedly
filed a trademark application with the United States Patent and
Trademark Office for the CARIBBEAN CRESCENT Mark, despite having
sold and assigned the Mark to East West over four years earlier.
(SAC ¶¶ 65-66.)
Defendants allegedly made various fraudulent
statements regarding their purported ownership and use of the
CARIBBEAN CRESCENT Mark in filing and prosecuting the trademark
application.
(SAC ¶¶ 66-70.)
The PTO ultimately accepted the
trademark application and registered the CARIBBEAN CRESCENT
Mark.
(SAC ¶ 79.)
On or about October 30, 2008, Rahman sent a facsimile
to East West claiming ownership of the CARIBBEAN CRESCENT Mark.
(SAC ¶ 71.)
Rahman sent two subsequent facsimiles to East West
in which he expressed a desire to clear up their
misunderstandings.
(SAC ¶¶ 72-73; Exs. N, O.)
On December 15,
2008, East West sent a letter by counsel to Rahman asserting
that it had purchased all of CCI’s assets, including the trade
name Caribbean Crescent.
(SAC ¶ 74; Ex. P.)
In January 2009, Rahman advised Zai that Rahman’s
father, who was terminally ill with cancer, wished to meet with
him to help resolve the problems between the parties.
75.)
(SAC ¶
In February 2009, Sadiq and Zai visited Rahman’s father.
(SAC ¶ 77.)
Rahman was also present.
(Id.)
At that time,
Rahman’s father allegedly stated that Rahman had not honored the
5
agreements between the parties but that he would from that point
on.
(Id.)
Rahman himself allegedly agreed to honor the
parties’ agreements as well.
(Id.)
In February or March of 2011, Defendants hired a
former employee of East West named Ishmael Amin.
(SAC ¶ 82.)
According to East West, Amin had knowledge of its customers, its
business methods, and “other ‘company sensitive’ information.”
(Id.)
Much of this information was valuable, not known outside
of its business, was protected, and would be difficult, if not
impossible, for Defendants to acquire or duplicate.
(SAC ¶ 83.)
Defendants have allegedly obtained proprietary information and
knowledge of East West’s business relationships through Amin.
(SAC ¶¶ 85, 88.)
East West alleges that Defendants have begun
to interfere with East West’s business relationships and to use
its proprietary information.
(SAC ¶¶ 86-87.)
In June or July of 2011, Rahman approached Zai and
Sadiq with new products displaying the trade name Caribbean
Crescent and the CARIBBEAN CRESCENT Mark and asked if East West
would sell those products in the Washington Metropolitan Area.
(SAC ¶ 80.)
When Zai and Sadiq refused, Rahman informed them
that he would proceed to sell the products using a different
distributor.
(Id.)
East West asserts that this was the point
in time at which it “lost all hope” that Defendants would honor
6
the parties’ agreements despite the assurances previously made
by Rahman.
(Id.)
B.
Procedural History
On May 9, 2012, Plaintiff filed its Second Amended
Complaint (the “Complaint”).3
[Dkt. 59.]
The Complaint contains
thirteen causes of action: (1) federal trademark infringement,
false designation of origin, and false representations in
commerce under Section 43(a) of the Lanham Act, 15 U.S.C. §
1125(a); (2) common law trademark infringement; (3) federal
unfair competition, passing off, false advertising, trade name
infringement and/or false designation of origin under 15 U.S.C.
§ 1125(a); (4) common law unfair competition and trade name
infringement; (5) violation of the Virginia Consumer Protection
Act (“VCPA”), Va. Code § 59.1-196, et seq.; (6) violation of the
Virginia Criminal Code, Va. Code § 18.2-216, et seq.; (7) breach
of contract; (8) unjust enrichment; (9) conversion; (10)
cancellation of registration; (11) for permanent injunctive
relief; (12) tortious interference with business
relationship/intentional interference with economic advantage;
and (13) misappropriation of trade secrets in violation of the
Virginia Uniform Trade Secrets Act (“VUTSA”), Va. Code § 59.1–
336, et seq.
3
The complete procedural history of this case is outlined in the Court’s
Memorandum Opinion dated May 15, 2012. (See Mem. Op. [Dkt. 63] at 1-4.)
7
On May 10, 2012, Defendants filed a Motion to Dismiss
certain claims in the Complaint.
[Dkt. 60.]
Plaintiff filed
its opposition on May 24, 2012 [Dkt. 65], to which Defendants
replied on May 30, 2012 [Dkt. 66].
Defendants’ Motion is before the Court.
II.
Standard of Review
Rule 12(b)(6) allows a court to dismiss those
allegations which fail “to state a claim upon which relief can
be granted.”
Fed. R. Civ. P. 12(b)(6).
the legal sufficiency of the complaint.
521 F.3d 298, 302 (4th Cir. 2008).
A 12(b)(6) motion tests
Giarratano v. Johnson,
A court reviewing a
complaint on a 12(b)(6) motion must accept well-pleaded
allegations as true and must construe factual allegations in
favor of the plaintiff.
See Randall v. United States, 30 F.3d
518, 522 (4th Cir. 1994).
A court must also be mindful of the liberal pleading
standards under Rule 8, which require only “a short and plain
statement of the claim showing that the pleader is entitled to
relief.”
Fed. R. Civ. P. 8.
While Rule 8 does not require
“detailed factual allegations,” a plaintiff must still provide
“more than labels and conclusions” because “a formulaic
recitation of the elements of a cause of action will not do.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007)
(citation omitted).
To survive a 12(b)(6) motion, “a complaint
8
must contain sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly,
550 U.S. at 570).
“A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the
misconduct alleged.”
Id.
However, “[t]hreadbare recitals of
the elements of a cause of action, supported by mere conclusory
statements, do not suffice” to meet this standard, id., and a
plaintiff’s “[f]actual allegations must be enough to raise a
right to relief above the speculative level . . . .”
550 U.S. at 555.
Twombly,
Moreover, a court “is not bound to accept as
true a legal conclusion couched as a factual allegation.”
Iqbal, 556 U.S. at 678.
III. Analysis
Defendants argue that the following claims are subject
to dismissal:
(1) breach of contract; (2) unjust enrichment;
(3) conversion; (4) violation of the Virginia Consumer
Protection Act; (5) violation of the Virginia Criminal Code; (6)
tortious interference with business expectancy; and (7)
misappropriation of trade secrets.
claim in turn.
A.
Breach of Contract
9
The Court will examine each
East West’s breach of contract claim is based on
Defendants’ alleged failure to pay commissions in accordance
with the Commission Agreement.
Defendants argue that the claim
is barred by the statute of limitations.
Their argument raises
several issues, including what law governs the statute of
limitations and whether it is clear from the pleadings when East
West’s breach of contract claim accrued.
1.
Choice of Law
The Court begins with the threshold choice of law
issue.
As a federal court exercising supplemental jurisdiction,
the Court applies the choice of law rules of the forum state.
Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496–97
(1941).
In Virginia, the statute of limitations is a procedural
issue governed by Virginia law.
Hunter Innovations Co. v.
Travelers Indem. Co. of Conn., 753 F. Supp. 2d 597, 602 (E.D.
Va. 2010).
Pursuant to Virginia Code § 8.01–246(2), the
limitations period for breach of contract claims based on a
written contract is five years.
Va. Code § 8.01–246(2).
However, Virginia has also enacted a borrowing statute which
“limits actions on contracts governed by the law of another
state to the limitations period of that state if its time limit
is more restrictive than Virginia’s.”
Hansen v. Stanley Martin
Cos., Inc., 266 Va. 345, 352 (Va. 2003) (citing Va. Code § 8.01247).
“For purposes of the borrowing statute, ‘[t]he law
10
governing a contract is the law relating to the validity and
interpretation of the contract itself, rather than the law
regarding performance and breach.”
Hunter Innovations, 753 F.
Supp. 2d at 602 (citing Fiberlink Commc'ns Corp. v. Magarity, 24
F. App’x 178, 2001 WL 1658914, at *3 (4th Cir. Oct. 16, 2001)).
Thus, whether East West’s breach of contract claim is subject to
the limitations period of Virginia or the more restrictive
limitations period of another state depends on what law governs
the contract.
In Virginia, it is well established that the nature,
validity, and interpretation of a contract is governed by the
“law of the place where made.”
Lexie v. State Farm Mut. Auto.
Ins. Co., 251 Va. 390, 394 (Va. 1996) (citations omitted).
A
contract is made “when the last act to complete it is
performed.”
Res. Bankshares Corp. v. St. Paul Mercury Ins. Co.,
407 F.3d 631, 635 (4th Cir. 2005).
However, when “a contract is
made in one jurisdiction but performed in another, the law of
the place of performance governs the contract.”
Hunter
Innovations, 753 F. Supp. 2d at 603 (citing Erie Ins. Exch. v.
Shapiro, 248 Va. 638, 640 (Va. 1994)).
Importantly, an
exception exists when the contract is to be performed more or
less equally among two or more states, in which case the law of
the state in which the contract was made should apply.
See
Roberts v. Aetna Casualty & Sur. Co., 687 F. Supp. 239, 241
11
(W.D. Va. 1988); see also Black v. Powers, 48 Va. App. 113, 13233 (Va. Ct. App. 2006) (applying the law of the Virgin Islands,
where the contract was made and partially performed).
Defendants argue that the District of Columbia’s
three-year limitations period applies to East West’s breach of
contract claim.
See D.C. Code § 12-301(7).
Specifically, they
contend that District of Columbia law governs the Commission
Agreement because the contract was to be performed there.
In
support of their position, Defendants point to a provision of
the contract, which states that “[a]ll sales in the Washington
Metro Area (for Caribbean Crescent, Inc. Jamaican Patties) will
be handled through East West LLC DBA Caribbean Crescent” and
that “[a] 20% commission of the net profit will be paid for all
handling/storage, delivery, and sales for the Jamaican Patties.”
(SAC Ex. I.)
Defendants argue that this provision, coupled with
the fact that East West’s principal place of business is located
in Washington, D.C., demonstrates that Washington, D.C. is the
place of performance.
However, the Washington Metro Area
includes counties in Virginia, Maryland, and West Virginia.
See
Dep’t of Labor, May 2011 Metropolitan and Nonmetropolitan Area
Definitions, available at http://www.bls.gov/oes/current/
msa_def.htm.
Thus, contrary to Defendant’s assertion, the
Commission Agreement was not to be performed exclusively in
Washington, D.C.
Because the contract was to be performed in
12
multiple states (and there is no reason to believe that one
predominated over the others), the choice-of-law analysis
reverts back to the place where the contract was made.
East
West argues that the Commission Agreement was made in Virginia
-- a contention that Defendants do not contest and therefore
concede.
See Kinetic Concepts, Inc. v. Convatec Inc., No.
1:08cv918, 2010 WL 1667285, at *8 (M.D.N.C. Apr. 23, 2010)
(recognizing the general principle that “a party who fails to
address an issue has conceded the issue”) (collecting cases).
Accordingly, the Virginia statute of limitations applies to East
West’s breach of contract claim.
2.
Accrual Date
The next relevant inquiry is whether it is clear from
the pleadings when East West’s breach of contract claim accrued.
Defendants argue that the claim accrued in February 2004.
They
point to a letter from East West’s former counsel to Rahman,
which is attached as an exhibit to the Complaint.
The letter
reads, in pertinent part:
This is [] to notify you [Defendant] that we
[Plaintiff] are aware of certain sales which
you made during the five year period between
June 11, 2003 and June 11, 2008, in the
Washington, D.C. Metropolitan Area in
violation . . . of your Commission Agreement
dated February 22, 2004. . . . We estimate
that [Defendant] has had sales of
approximately $1 million per year in the
Washington D.C. Metropolitan Area since
February of 2004. Under the Commission
13
Agreement my clients should have been paid 5%
of those sales, or approximately $50,000.
(SAC Ex. P.)
This letter, however, appears to be based on a
misinterpretation of the parties’ contractual obligations.4
Specifically, the letter estimates sales made by Defendants over
a certain period of time, on which it claims East West should
have been paid a five percent commission.
But pursuant to the
Commission Agreement, East West was entitled to a twenty percent
commission on sales of Defendants’ Jamaican Patties product
handled by East West.5
The letter does not specifically identify
these sales and mixes up the commission percentage to which East
West is entitled.
Thus, viewing the pleadings in a light most
favorable to Plaintiff, it is not clear when exactly East West’s
breach of contract claim accrued.6
See Touchcom, Inc. v.
Berreskin & Parr, No. 07cv0114, 2010 WL 582173, at *6 (E.D. Va.
Feb. 12, 2010) (declining to “dismiss a complaint based on the
affirmative defense of the statute of limitations where all the
4
East West argues that the February 2004 date should not be considered
because it appears in an exhibit rather than the body of the Complaint. This
argument is without merit. In deciding a Rule 12(b)(6) motion, “a court
evaluates the complaint in its entirety as well as documents attached to or
incorporated into the complaint.” E.I. DuPont de Nemours & Co. v. Kolon
Indus., Inc., 637 F.3d 435, 448 (4th Cir. 2011). Moreover, “[i]n the event
of conflict between the bare allegations of the complaint and any attached
exhibit, the exhibit prevails.” United States ex rel. Constructors, Inc. v.
Gulf Ins. Co., 313 F. Supp. 2d 593, 596 (E.D. Va. 2004) (citing Fayetteville
Investors v. Commercial Builders, Inc., 936 F.2d 1462, 1465 (4th Cir. 1991)).
5
Under the Commission Agreement, it was Defendants who were entitled to a
five percent commission on sales they made for East West.
6
As such, the Court need not resolve East West’s arguments that Defendants
are equitably estopped from raising a statute of limitations defense and that
Defendants committed a series of breaches, each with an independent
limitations period.
14
facts necessary to do so do not ‘clearly appear’ on its face”).
Accordingly, East West’s breach of contract claim survives
Defendants’ Motion to Dismiss.7
B.
Unjust Enrichment
East West’s unjust enrichment claim is based on
Defendants’ registration of the CARIBBEAN CRESCENT Mark after
having sold all rights in the Mark to the Buyers.
Defendants
argue that East West’s unjust enrichment claim is time-barred.8
In Virginia, the statute of limitations for an unjust
enrichment claim is three years.9
Belcher v. Kirkwood, 238 Va.
430, 433 (Va. 1989); see also RMS Tech., Inc. v. TDY Indus.,
Inc., 64 F. App’x 853, 858 (4th Cir. 2003); Tao of Sys.
Integration, Inc. v. Analytical Servs. & Materials, Inc., 299 F.
Supp. 2d 565, 576 (E.D. Va. 2004).
“The statute of limitations
for unjust enrichment begins to run at the time the unjust
7
At oral argument, Defendants represented that an expert report produced
during discovery makes clear that East West is seeking damages on its breach
of contract claim for conduct which dates back to 2004. Of course, the Court
may not consider such evidence in ruling on a Rule 12(b)(6) motion.
8
Defendants also argue that East West’s unjust enrichment claim should be
dismissed because it is premised on the existence of an express contract and
because East West fails to allege that it conferred a benefit on Defendants.
Given the Court’s conclusion that the claim is untimely, the Court need not
address these arguments.
9
The parties fail to address the relevance, if any, of a choice of law clause
in the Sale Agreement which provides that the “Agreement shall be construed
and enforced in accordance with the laws of the District of Columbia.” (See
Sale Agreement § 29.) Assuming arguendo this clause is relevant, it would
not affect the Court’s analysis. As noted above, the statute of limitations
is a procedural issue governed by Virginia law.
Hunter Innovations, 753 F.
Supp. 2d at 602. And, Virginia’s borrowing statute would not apply because
the limitations period for unjust enrichment claims in the District of
Columbia is the same as in Virginia –- three years. Vila v. Inter-Am.
Investment, Corp., 570 F.3d 274, 283 (D.C. Cir. 2009) (citing News World
Commc’ns, Inc. v. Thompsen, 878 A.2d 1218, 1221 (D.C. 2005)).
15
enrichment occurred . . . not when a party ‘knew or should have
known’ of the unjust enrichment.”
Tao, 299 F. Supp. 2d at 576.
The Court rejects East West’s argument that a fiveyear limitations period applies to its unjust enrichment claim.
In Belcher, the Virginia Supreme Court held that a claim for
unjust enrichment was barred by the three-year limitations
period applicable to oral contracts.
238 Va. at 433.
In so
holding, the court reasoned that “in respect to the statute of
limitations equity follows the law; and if a legal demand be
asserted in equity which at law is barred by statute, it is
equally barred in equity.”
Id.
From this, East West contends
that the five-year limitations period applicable to written
contracts applies to its unjust enrichment claim because the
claim relates to the existence of a written contract, i.e., the
Sale Agreement.
See Va. Code § 8.01-246(2).
The Fourth Circuit
rejected this very argument in RMS Tech, 64 F. App’x at 857.
Contrary to East West’s assertion, the statute of limitations
for an unjust enrichment claim does not vary depending on
whether the claim is “related to” a written or oral contract.10
Rather, the three-year limitations period applicable to oral
contracts applies to all unjust enrichment claims because in
10
Indeed, East West’s argument is inconsistent with the well-established
principle that a claim for “unjust enrichment is quasi-contractual in nature
and may not be brought in the face of an express contract.” Acorn
Structures, Inc. v. Swantz, 846 F. 2d 923, 926 (4th Cir. 1988).
16
bringing such a claim, the plaintiff asks the court to imply a
contract in law, which is “necessarily unwritten.”11
Id. at 858.
East West’s unjust enrichment claim accrued on
February 20, 2008, the date that Defendants registered the
CARIBBEAN CRESCENT Mark.
(SAC ¶ 65; Ex. K.)
East West did not
file suit until December 22, 2011, more than three years later.
And, East West does not argue that equitable estoppel saves its
unjust enrichment claim.
Accordingly, the unjust enrichment
claim is dismissed with prejudice.
C.
Conversion
East West conversion claim is based on Defendants’ act
of registering the CARIBBEAN CRESCENT Mark.
Defendants argue
that East West’s conversion claim fails because a trademark is
not tangible property which can be converted.
The Court agrees
with Defendants that the conversion of a trademark is not an
actionable claim.
11
Bryan v. Nationwide Mutual Insurance Co., 65 Va. Cir. 233, 2004 WL 3142312
(Va. Cir. Ct. July 19, 2004), cited by East West, is inapposite. There, the
court merely held that Belcher’s reasoning that “if a legal demand be
asserted in equity which at law is barred by the statute, it is equally
barred in equity” was inapplicable to the plaintiff’s claim to reform a
contract –- a “device founded solely in equity” which, the court concluded,
could not “be perceived as having any connection to an action at law.” Id.
at *2. Many courts have, relying on Belcher, determined that under Virginia
law a three-year limitations period applies to claims for unjust enrichment.
See, e.g., Seale & Assocs., Inc. v. Vector Aerospace Corp., No. 1:10cv1093,
2010 WL 5186410, at *4 (E.D. Va. Dec. 7, 2010); Tao, 299 F. Supp. 2d at 576;
Tsui v. Sobral, 39 Va. Cir. 486, 1996 WL 1065581, at *2 (Va. Cir. Ct. July
26, 1996). Those few that have not actually applied the more restrictive
two-year limitations period set forth in Va. Code § 8.01-248. See Mich. Mut.
Ins. Co. v. Smoot, 183 F. Supp. 2d 808, 812 & n.1 (E.D. Va. 2001); see also
Pathak v. Trivedi, 61 Va. Cir. 572, 2001 WL 34157360, at *5 (Va. Cir. Ct.
Apr. 6, 2001). The Court respectfully disagrees with the latter cases.
17
In Virginia, a party bringing a claim for conversion
must allege the ownership or right to possession of the property
at the time of the conversion and wrongful exercise of dominion
or control over the plaintiff’s property, thus depriving
plaintiff of possession.
Airlines Reporting Corp. v. Pishvaian,
155 F. Supp. 2d 659, 664 (E.D. Va. 2001) (citing Universal
C.I.T. Credit Corp. v. Kaplan, 198 Va. 67, 75 (Va. 1956)).
The
tort of conversion generally applies to tangible property, but
may apply in some cases involving intangible property.
See E.I
DuPont de Nemours & Co. v. Kolon Indus., Inc., No. 3:09cv58,
2011 WL 4625760, at *3-5 (E.D. Va. Oct. 3, 2011).
Defendants
argue that Virginia courts have recognized the conversion of
intangible property in limited instances “where intangible
property rights arise from or are merged with a document, such
as a valid stock certificate, promissory note, or bond.”
(Defs.’ Mem. [Dkt. 61] at 14 (citing United Leasing Corp. v.
Thrift Ins. Corp., 247 Va. 299, 304 (Va. 1994).)
East West relies on DuPont to demonstrate that the
Eastern District of Virginia has adopted a more expansive view
of conversion than that suggested by Defendants.
In that case,
the court rejected the notion that a conversion claim is
necessarily fails when the allegedly converted property is
intangible property not merged into a document of title or
ownership.
Id. at *5.
Accordingly, the plaintiff’s conversion
18
claim, which related to paper and electronic copies of documents
containing confidential business information, survived the
defendant’s motion for judgment as a matter of law.
Id.
In
reaching its holding, the court reasoned that:
In this technology-driven world, the value
of intangible property cannot be disputed,
and a decision to limit conversion to
tangible property or intangible property
merged into a document would leave domain
name users, satellite programmers, owners of
telephone networks, and internet servers,
and others similarly situated unable to use
an action for conversion for substantial
interference with their rights.
Id.
The same reasoning, however, cannot be advanced to
support a claim for the conversion of a trademark.
In contrast
to the domain name users, satellite programmers, and owners of
telephone networks and internet servers, whose intangible
property has arisen in an environment of technologic
advancements and who may well depend on conversion actions to
protect their rights, a specialized field of law has existed to
protect trademark owners for over 100 years.
Indeed, according
to one leading commentator, every court to consider a “trademark
conversion” claim has rejected it.
4 J. Thomas McCarthy,
McCarthy on Trademarks & Unfair Competition 25:9.50 (4th ed.
2012) (collecting cases).
Professor McCarthy explains why such
a claim is inappropriate:
19
Were such a claim of “conversion” viable, it
would mean that the tort of conversion could
largely displace the IP laws traditionally
defining what is an infringement of patents,
trademarks and copyrights. For example,
could a plaintiff avoid the traditional
trademark infringement test of likelihood of
confusion and instead simply claim that
defendant “converted” its trademark? If so,
over 100 years of trademark law would be
discarded. . . . [O]ne cannot dispense with
the carefully constructed requirements for
trademark protection by blithely claiming
that defendant “converted” some symbol of
plaintiff which may or may not be capable of
trademark protection. Trademark law was
specifically constructed to balance the
private and public interests inherent in
commercial symbols: the tort of conversion
was not. It is the wrong tool for the job.
Id.
The Court agrees that a trademark is not the sort of
intangible property which can appropriately give rise to a
conversion claim.
East West also argues that the trademark registration
for the CARIBBEAN CRESCENT Mark is a tangible representation of
its property.
However, as another court noted when faced with
the same argument, the “proposed combination of federal
trademark law and [state] law governing conversion and chattel
just doesn’t work when the chattel at issue is a federal
trademark.”
Richmond ex rel. Liberty Inst. Trust v. Nat’l Inst.
of Certified Estate Planners, No. 06 C 1032, 2006 WL 2375454, at
*7 (N.D. Ill. Aug. 15, 2006).
That is because “[a] trademark
exists solely because a federal statute memorialized an idea and
thereby transformed it into intellectual property protected by
20
federal law.”
Id.; see also 3 McCarthy, supra, § 19.3
(“Although a federal registration will give the owner of a mark
important legal rights and benefits, the registration does not
create the trademark.”)
By contrast, “property that is
typically the subject of a conversion or trespass to chattel
action, whether tangible or intangible, exists independently
(e.g., a house, a satellite signal, a customer list, etc.).”
Richmond, 2006 WL 2375454, at *7.
For these reasons, East West
fails to state a claim for conversion.
The conversion claim is
dismissed with prejudice.
D.
Violations of the Virginia Consumer Protection
Act and Virginia Criminal Code
East West’s VCPA and Virginia Criminal Code claims are
based on food products bearing the CARIBBEAN CRESCENT Mark which
Defendants allegedly introduced into the market in the summer of
2011.12
Defendants argue that these claims are time-barred.
The limitations period for claims arising under the
VCPA and the Virginia Criminal Code is two years.
See Va. Code
§ 59.1-204.1 (two-year statute of limitations for VCPA claims);
Parker-Smith v. Sto Corp., 262 Va. 432, 440 (Va. 2001) (applying
the two-year limitations period set forth in Va. Code § 8.01-248
12
The VCPA prohibits sellers from “misrepresenting” goods or services. Va.
Code § 59.1-200. East West’s Virginia Criminal Code claim arises under Va.
Code § 18.2-216, which makes it unlawful to publish an advertisement
containing untrue, deceptive or misleading statements of fact, classifying it
as a Class 1 misdemeanor. Va. Code § 59.1-68.3 gives any person who suffers
a loss due to a violation of § 18.2-214, et seq., a cause of action for
damages similar to damages recoverable under the VCPA. See H.D. Oliver
Funeral Apartments, Inc. v. Dignity Funeral Servs., Inc., 964 F. Supp. 1033,
1039 (E.D. Va. 1997).
21
to false advertising claim brought under § 18.2-216).
In
actions ex contractu, such as this case, the claim accrues when
the breach of contract occurs and not when the resulting damage
is discovered.
Va. Code § 8.01-230; see also Bd. of Dirs. of
Lesner Pointe Condo. on the Chesapeake Bay Ass’n, Inc. v.
Harbour Point Bldg. Corp., No. CL00-1893, 2002 WL 32072394, at
*3 (Va. Cir. Ct. June 18, 2002).
Defendants assert that –- based on the Complaint and
the attached exhibits –- they allegedly commenced selling
products bearing the CARIBBEAN CRESCENT Mark in February 2004.
Thus, according to Defendants, the statute of limitations on the
VCPA and Virginia Criminal Code claims expired in February 2006.
In response, East West, does not argue that Defendants began
selling products with the CARIBBEAN CRESCENT Mark within the
limitations period or that equitable estoppel saves its claims.
Rather, it argues that the introduction of new products bearing
the CARIBBEAN CRESCENT Mark in the summer of 2011 re-triggered
the statute of limitations.
Defendants take issue with this
proposition, and argue that the introduction of new products to
the same line under the same trademark does not re-trigger the
statute of limitations.
East West counters that this rule only
applies when products are sold under the same line, and asserts
that it believes that the products sold by Defendants in the
summer of 2011 were under a different line.
22
In the cases cited by the parties, this issue arose in
the context of progressive encroachment.
See Black Diamond
Sportswear, Inc. v. Black Diamond Equip., Ltd., No. 06-3508-cv,
2007 WL 2914452, at *2 (2d Cir. Oct. 5, 2007); Deere & Co. v.
MTD Holdings, Inc., No. 00 Civ. 5936, 2004 WL 324890, at *20-21
(S.D.N.Y. Feb. 19, 2004).
A defendant may not raise the defense
of laches where he has “progressively encroached” on the
plaintiff’s trademarks.
ProFitness Physical Therapy Ctr. v.
Pro–Fit Orthopedic & Sports Physical Therapy P.C., 314 F.3d 62,
68 (2d Cir. 2002).
In other words, progressive encroachment
“excuses delay in filing suit where ‘defendant, after beginning
its use of the mark, redirected its business so that it more
squarely competed with plaintiff.’”
Black Diamond Sportswear,
2007 WL 2914452, at *2 (emphasis in original) (quoting Pro–Fit
Orthopedic & Sports Physical Therapy, 314 F.3d at 70).
To begin, it is questionable whether progressive
encroachment is applicable here, as it is a doctrine that
prevents the assertion of a laches defense to trademark
infringement claims.
Defendants do not raise a laches defense,
but rather argue that Defendant’s VCPA and Virginia Criminal
Code claims are barred by the statute of limitations.
East West
cites no cases where progressive encroachment pushed back the
limitations period (as opposed to the laches period) on consumer
protection claims, nor has the Court located any.
23
Moreover,
under Virginia law, East West’s VCPA and Virginia Criminal Code
accrued when Defendants allegedly breached the Sale Agreement by
using the CARIBBEAN CRESCENT Mark, and not when East West
discovered the resulting damage.
Progressive encroachment, by
contrast, is grounded in the notion that delay should be
“measured from the time at which the plaintiff knows or should
know she has a provable claim . . . .”
Angel Flight of Ga.,
Inc. v. Angel Flight Am., Inc., 522 F.3d 1200, 1207 (11th Cir.
2008)
But even assuming that the doctrine of progressive
encroachment were available to East West, the cases cited by the
parties make clear that East West has failed to plead facts that
would warrant its application.
In Black Diamond Sportswear, for
example, the plaintiff argued that the defense of laches did not
apply to its trademark infringement claim because certain
skiwear products sold by the defendant did not directly compete
with the bulk of its line.
2007 WL 2914452, at *2.
In so
doing, the plaintiff attempted to narrow the relevant clothing
category to “fleece skiwear.”
Id.
The court rejected this
argument, finding that the defendant’s skiwear products competed
directly at the outset with those of the plaintiff.
Id.
In Deere, the plaintiff raised a similar argument.
2004 WL 324890, at *20.
The court rejected the argument as to
certain products made by the defendant which retained the same
24
color scheme over time and, thus, did not progressively encroach
on the plaintiff’s trade dress.
Id. at *20-21.
The court
accepted the plaintiff’s argument, however, with respect to a
different product introduced at a later time which displayed a
color scheme more closely resembling that used by the plaintiff.
Id. at *21.
As these cases make clear, Defendants’ alleged
introduction of new products bearing the CARIBBEAN CRESCENT Mark
in the summer of 2011 would not, in and of itself, excuse East
West’s delay in filing suit.
Rather, the crucial factor to
consider is whether Defendants edged closer to East West in
product similarity.
See What-A-Burger of Va., Inc. v.
Whataburger, Inc. of Corpus Christi, Tex., 357 F.3d 441, 451
(4th Cir. 2004).
this sort.
East West, however, makes no allegations of
As such, the Court concludes that East West’s VCPA
and Virginia Criminal Code claims are time-barred.
The claims
are therefore dismissed with prejudice.
E.
Tortious Interference with Business Expectancy
In Count 12, East West alleges that Defendants
obtained knowledge of its business relationships through the
hiring of Ishmael Amin, a former East West employee.
(SAC ¶ 85)
East West further alleges that “Defendants have begun to
intentionally interfere with [its] business relationships with
its existing customers and/or its expectancy of business
25
relationships with new customers” which “has, or will shortly,
cause a termination of [its] business relationship[s] or
expectancy.”
(SAC ¶ 86.)
Defendants argue that these
allegations are conclusory and that the claim should be
dismissed.
In order to plead a claim for tortious interference, a
plaintiff must allege: (1) the existence of a business
relationship or expectancy, with a probability of future
economic benefit to plaintiff; (2) the defendant’s knowledge of
the relationship or expectancy; (3) a reasonable certainty that
absent defendant’s intentional misconduct, plaintiff would have
continued the relationship or realized the expectancy; and (4)
damage to plaintiff.
Smithfield Ham & Prods. Co. v. Portion
Pac, Inc., 905 F. Supp. 346, 349 (E.D. Va. 1995).
Moreover, in
cases involving a business expectancy, such as this, “a
plaintiff must also demonstrate that the defendant employed
‘improper methods’ in causing the alleged interference.”
E.I.
DuPont de Nemours & Co. v. Kolon Indus., Inc., 688 F. Supp. 2d
443, 453 (E.D. Va. 2009) (citing Duggin v. Adams, 234 Va. 221,
226–27 (Va. 1987)).
Here, East West fails to plead facts establishing
which customer relationships Defendants allegedly interfered
with or how Defendants engaged in intentional misconduct or
employed improper methods to interfere with those relationships.
26
Cf. Brainware, Inc. v. Mahan, 808 F. Supp. 2d 820, 830 (E.D. Va.
2011) (dismissing tortious interference claim where plaintiff
alleged that a former employee interfered with its relationship
with a specific customer, but failed to allege facts
demonstrating reasonably certain business opportunities with
that customer or that such expectancies were lost as a result of
the defendant’s misconduct).
The bare assertions in the
Complaint amount to a mere recitation of the elements for a
tortious interference claim, and fail to raise East West’s right
to relief above the speculative level.
555.
See Twombly, 550 U.S. at
Accordingly, East West’s tortious interference claim is
dismissed without prejudice.13
F.
Misappropriation of Trade Secrets
In Count 13, East West alleges a violation of the
VUTSA.
Specifically, East West alleges that Defendants hired
its former employee, Amin, and that Amin “had knowledge of [East
West’s] customers, [] business methods, and other company
sensitive information.”
(SAC ¶ 82.)
Defendants argue that East
West fails to state a claim.
13
Defendants argue that dismissal of East West’s tortious interference claim
(and VUTSA claim) should be with prejudice, as East West has amended its
Complaint twice previously and further amendment, three weeks away from the
close of discovery, would be unfairly prejudicial. However, East West
asserted these claims for the first time in its Second Amended Complaint, and
states that it only recently became aware of the supporting facts. And,
although the discovery period is winding down, Defendants have had notice of
the tortious interference claim (and VUTSA claim) for a month and a half, as
they were included in the proposed Second Amended Complaint East West filed
along with its Second Motion for Leave to Amend on April 17, 2012. [Dkt. 461.] For these reasons, and because leave to amend should be freely given
when justice so requires, Fed. R. Civ. P. 15(a)(2), the Court dismisses the
tortious interference claim without prejudice.
27
To establish a claim under the VUTSA, a plaintiff must
establish that (1) the information in question constitutes a
trade secret, and (2) the defendant misappropriated it.
See
MicroStrategy, Inc. v. Bus. Objects, S.A., 331 F. Supp. 2d 396,
416 (E.D. Va. 2004).
The VUTSA recognizes misappropriation
where a trade secret is “disclosed or used without consent by a
person who, ‘at the time of disclosure or use, knew or had
reason to know that his knowledge of the trade secret was’
derived via improper means, in violation of a duty of
confidentiality, or acquired by accident or mistake.”
Softech
Worldwide, LLC v. Internet Tech. Broadcasting Corp., No.
1:10cv651, 2010 WL 4645791, at *5 (E.D. Va. Nov. 8, 2010)
(quoting Va. Code. § 59.1–336).
Here, East West fails to allege what trade secrets
Defendants allegedly misappropriated.
Instead, the Complaint
contains conclusory allegations that Amin possessed knowledge of
East West’s customers and business information, but is devoid of
factual allegations to support this assertion.
See All Bus.
Solutions, Inc. v. NationsLine, Inc., 629 F. Supp. 2d 553, 55859 (W.D. Va. 2009) (dismissing VUTSA claim consisting of
conclusory allegations that the defendant misappropriated
customer names, along with other trade secrets and confidential
information, and which lacked supporting factual allegations).
East West also fails to allege how Defendants have used this
28
information or that they did so knowing that the information was
confidential.
See Softech, 2010 WL 4645791, at *5 (emphasizing
that misappropriation “includes a knowledge element”) (emphasis
in original).
Because “‘naked assertion[s]’ devoid of ‘further
factual enhancement’” are insufficient to withstand a motion to
dismiss, the Court dismisses East West’s VUTSA claim without
prejudice.
See Iqbal, 556 U.S. at 678 (quoting Twombly, 550
U.S. at 557).
IV.
Conclusion
For these reasons, the Court will grant in part and
deny in part Defendants’ Motion to Dismiss.
An appropriate Order will issue.
June 5, 2012
Alexandria, Virginia
/s/
James C. Cacheris
UNITED STATES DISTRICT COURT JUDGE
29
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