Esbin & Alter, LLP v. Zappier et al, No. 1:2008cv00313 - Document 190 (S.D.N.Y. 2011)
Court Description: OPINION: Based on the conclusions set forth above, Plaintiff's motion to dismiss is granted as to counterclaim I and denied as to counterclaims II and III. So Ordered (Signed by Judge Robert W. Sweet on 3/17/2011) (js)
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UNITED STATES DISRICT COURT SOUTHERN DISTRICT OF NEW YORK --- --- --- --- --- ----X ESBIN & ALTER, LLP, aintiff, 08 Civ. 313 OPINION -against PAUL ZAPPIER, et al., Defendants. - --X A P PEA RAN C E S: At for Plaintiff ALTER & ALTER, LLP 300 East 42nd Street, 10th Floor New York, NY 10017 Daniel S. Alter, Esq. At for Defendants KILPATRICK STOCKTON LLP 31 West 42nd Street, 14th Floor New York, NY 10011 By: Frederick L. Whitmer, Marc A. Lieberstein, Esq. Sweet, D.J. Plaintiff Esbin & ter, LLP (flE&A!!) and counterclaim defendants Scott Esbin (IIEsbin") and Ilyssa Alter ("Alter") (collectively, the "Counterclaim Defendants!!) have moved pursuant to Rule 12(b) (6) of the Federal Rules of Civil aims alleged by Defendants Procedure to dismiss the counte Paul Zappier (" Zappier"), RAD Technologies, Inc. Advanced Trade Settlement, LC (!!ATS") flZappier Defendants"). ("RAD") and (collectively, the Based upon the conclusions set forth below, the motion is granted in part and denied in part. Prior Proceedings On January 14, 2008, E&A commenced this action against Zappier Defendants, alleging copyright infringement and commercial torts. The Zappier Defendants answered the complaint but did not counterclaim. On February 21, 2008, the Zappier Defendants filed a Motion to Dismiss supported by an affidavit of Zappier, dated February 4, 2008 ("Zappier Affidavit") in which he stated: 1 1) Plaintiff E&A has been talking to the prospective clients for ATS, stating among other things that E&A owns the rights to the ATS Softwarei 2) JP Morgan, a prospective client, communicated that they would not further pursue business with ATS regarding s software. Upon information and belief, they made this decision because of what they were told by E&Ai and 3) E&A's conduct has caused damages to ATS' business prospects and reputation, creating a cause of action that Zappier wished to pursue in this case. (Zappier Affidavit, ~~ 16 18). On January 7, 2010, the Plaintiffs filed an Amended Complaint adding Sabharwal, Globus & Lim, LLP ("SGL") as a defendant. On November I, 2010, the Zappier Defendants filed their answer and counterclaim to the Amended Complaint all ing fraud on the copyright office (Count I), trade libel (Count II) and Tortious Interference (Count III) . The instant motion was heard on January 19, 2011. 2 The Applicable Standard On a motion to dismiss pursuant to Rule l2(b) (6), all 1 inferences are factual allegations are accepted as true, and drawn favor of the pleader. 12 F.3d 1170, 1174 Mills v. Polar Molecular (2d Cir. 1993). ¢ I' The issue "is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.· Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir. 1995) (quoting Scheuer v. Rhodes, 416 U.S. 232, 235-36 (1974)). Though the pleading standard set forth ln Federal Rule Civil Procedure 8 is a liberal one, it is not without its demands: [T]he pleading standard Rule 8 announces ... demands more than an unadorned, the-defendant unlawfully harmed-me accusation. A pleading that offers labels and conclusion or a formulaic recitation of the a cause of action will not do. Nor does a elements complaint suffice if it tenders naked assertions devoid of further factual enhancement. A__h_c_r_o_f_t ___ _I~___ , 129 S.Ct. 1937, 1949 (2009) _s _ v. (quoting Bell Atl. Corp.v. Twombly, 550 U.S. 544, 555 (2007)). Thus, a complaint must allege sufficient factual matter to \\state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570) . 3 Id. (quoting In meeting this "plausibility standard," the plaintiff must demonstrate more than a "sheer possibility" unlawful actioni pleading facts that are "merely consistent with a defendantts liability ... stops short of the line between possibility and plausibility of entitlement to reI (quoting TwomblYr 550 U. S. at 557) f." Id. (internal quotations omitted) i see also F.3d 126, 131 (2d Cir. 2007) ("Although the pleading standard is a liberal one, bald assertions and conclusions of law will not suffice. To survive dismissal, the plaintiff must provide the grounds upon which [her] claim rests through factual allegations ficient to level.") se a right to relief above the speculative (internal quotations and citations omitted) i Gavish v. Revlon, Inc' r No. 00 Civ. 7291, 2004 WL 2210269, at *10 (S.D.N.Y. Sept. 30, 2004) ("[B]ald contentions, unsupported characterizations, and legal conclusions are not well-pleaded legations, and will not defeat a motion to dismiss.") (quoting Citibank, N.A. v. Itochu Intern. Inc., No. 01 Civ. 6007, 2003 WL 1 797847, * 1 (S. D . N . Y. Apr. 4, 2003)). The Claim for Fraud on the Copyright Office is Dismissed The Second Circuit has observed that courts IIhave considered challenges to the presumption of 4 [copyright] validity by way a defense to an where a showing has been offered infringement claim office. Fonar II that there has been fraud on the copyright . v. Domenick, 105 F.3d 99, 105 (2d Cir. 1997), cert. denied, 522 U.S. 908 (1997): see also Kwan v. Schlein, No. 05 Civ. 459, 2008 WL 4755345, at *2 30, 2008) (S.D.N.Y. Oct. ("a defendant in a copyright infringement case may claim fraud on the copyright office as a defense to rebut [the] presumption of [copyright] validity."); Lennon v ..... Seaman, 84 F. Supp. 2d 522, 525 (S.D.N.Y. 2000) ("An allegation of fraud on the Copyright Office is typically brought an infringement action as an affirmative defense to the enforcement of a registered copyright certificate"). But "there is no precedent supporting the use of a claim for fraud on the Copyright Office as an firmative cause action, rather than as a defense to a copyright certificate's validity." Kwan, 2008 WL 4755345, at *2. Section 506 of the Copyright Act is a penal statute, and § 506(e) specifically makes it a crime any person to "knowingly make[] a false representation of a material fact in the appl ion for copyright registration written statement filed U.S.C. § 506(e). , or in any connection with the application." Courts in this district and elsewhere have definitively concluded, however, "that Congress intended that 5 17 section 506 serve as a criminal statute and not give rise to private actions. Continent II Donald Frederick Evans and Assocs., Inc. v. Homes, Inc., 785 F.2d 897, 913 ------------------~------ (citing legislative 't Stores story) i (11th r. 1986) see also Barnhart v. Federated Inc., No. 04 Civ. 3668, 2005 WL 549712, at *9 (S.D.N.Y. Mar. 8, 2005) ("There is no corresponding private right of action ... under 17 U.S.C. claims to the Copyright Office.") i § 506(e) for making false Too, Inc. v. Kohl's Dep't Stores, Inc., 210 F. Supp. 2d 402,405 (S.D.N.Y. 2002) (§ 506(e) "has no corollary private right of action"); v. Ross, 728 F. Supp. 597, 602 (N.D. Ca. 1989) ("section 506(e) is solely a criminal statute that does not provide a private cause action"), aff'd, 916 F.2d 516 (9th Cir. 1990). The counterclaim is dismissed, no private right action having been established. The firmat defense remains, leaving the same issues open for discovery. The Allegations of Trade Libel and Tortious Interference are Adequate Initially, E&A sought dismissal of the trade libel and tortious interference claims on the grounds of the one-year statute of limitations provided by N.Y. C.P.L.R. 6 § 215(3). (Mem. in Support at 8, 13-14.) The Zappier Defendants have contended (1) that they have complied with the one-year statute fidavit filed by Zappier by virtue of a February 4, 2008 support of the Counter Plaintiffs' motion to dismiss, and (2) limitations for trade libel and that the appropriate statutes tortious interference are three years. though certain of operative facts underlying Claims II and III are set forth in the Zappier Affidavit, the Zappier Defendants cite no authority under which the affidavit can be treated for statute of I forth a counterclaim. tations purposes as setting The affidavit did not constitute compliance with the one-year statute. However, trade libel and tortious interference claims are species of unfair competition that fall under the statute of limitations of either three or six years, Hdepending upon the nature of the underlying tortious conduct. II Pat B0r:-gognone v. ia's Pizza & Pasta II, Inc., No. 10 Civ. 841, 2010 U.S. st. LEXIS 118171, at *5 (S.D.N.Y. Nov. 3, 2010) val lezioni (citing Mario d. v. AAK Ltd., 280 F. Supp. 2d 244, 257 --~~~~~~~~~~--~~------------- 58 (S.D.N.Y. 2003)) The statute of limitations for a claim for tortious interference with contractual and bus 7 relationships is three years. See N.Y. C.P.L.R. 214(4) Mario ente Collezioni, Ltd., 280 F. Supp. 2d at 254. E&A has contended that the unfair competition claims of trade libel and tortious interference are "defamation" claims, which fall under the one-year statute of limitations. The fact that "trade libel" reflects reputational injury does not convert trade libel into defamation. The counterclaim alleges harm as follows: Upon information and bel fl Zappier and ATS have not been able to market the ATS Software and services to this day because of the false public statements made by Counterclaim-defendants, and this has caused ier and ATS not only financial harm l but harm to their reputation{ in an amount exceeding twenty-f million dollars. (Counterclaim ~~ 38, 34 43). Contrary to the E&A contention, "where the alleged harm suffered by the plaintiff is not !precisely the same as that caused by defamation' - namely, harm to reputation plaintiff's the Court should decline to construe a claim as one for defamation." Lindner v. IBM ., No. 06 Civ. 4751, 2008 U.S. Dist. LEXIS 47599, at *43 (S.D.N.Y. Jun. 18, 2008) (c at ions omitted) . In Lindner, the district court declined to treat a tortious interference claim as a defamation claim for statute of limitations purposes preci 8 "because the 'harm assertedly sustained by the plaintiff [was], at least in part, economic, and, therefore, not 'precisely the same as that caused by defamation.,n rd. at *44 45 (citations omitted). The second and third counterclaims allege financial injury in addition to reputational harm and, therefore, allege unfair competition, not defamation. Furthermore, the Zappier Defendants properly brought their counterclaims within the three year statute of 1 tations. E&A has also requested di ssal of Counterclaims II and IlIon the grounds that the necessary element of malice has not been adequately alleged. In order to state a claim for tortious interference with business relations, the claimant must show that: (1) they "had a [particular and existing] business relationship with a third party; (2) the defendant knew of that relationship and intentionally interfered with (3) that the fendant acted solely out of malice, or used dishonest, unfair, or improper means; and (4) the fendant's interference caused injury to the relationship." _F_a_i_v_e~l~L-~~~~~.~__ U_S_A.~__ . . .~.___.__....a.~b~t_e~c__~~_., I_n_c v W No. 10 Civ. 4062, 2010 WL 4860674, at *8 (S.D.N.Y. Nov. 29, 2010) Corp. v. Noonan, 350 F.3d 6, 17 (2d Molecular Re (quoting Carvel r. 2003)) i see Albany , No. 10 civ. 210, 2010 WL 5168890, at *7 (N.D.N.Y. Dec. 14, 2010); Mahmud v. 9 , 607 F. Supp. 2d 541, 560 (S.D.N.Y. 2009) (noting that the business relationship at issue must be "particular" and "existing") . To state a claim for trade libel, the Zappier Defendants must allege "knowing publication of se matter derogatory to the plaintiff's business of a kind calculated to prevent others from dealing with the business or otherwise interfering with its relation with others, to its detriment." ~K~a~s~a~d~a~~I~n~c~._v~.__ A~c~c~e~s~s~~~~~, __I_n~c~., No. 01 Civ. 8893, 2004 WL 2903776, at *15 (S.D.N.Y. Dec. 14, 2004) (citing Glo}:)al Merck, Inc. v. Lombard & Co., 234 A.D.2d 98, 99, 650 N.Y.S.2d 724 Dep't 1996) i see also Chao v. Mount Sinai 2869, 2010 WL 5222118, at *12 (1st ., No. 10 Civ. (S.D.N.Y. Dec. 17, 2010). The Zappier Defendants' Counterclaims II and III adequately plead both tortious interference and trade libel under the above standards. The counterclaims allege that the E&A Defendants made false public statements claiming that Zappier stole software from E&A to individuals with whom the Zappier Defendants did business, that these statements were made for the malicious purpose of destroying the reputation of Zappier and ATS, that, as a consequence, Zappier's business negotiations concerning the ATS Software with financial institutions came to a halt, that Zappier and ATS have not been 10 able to market the ATS Software and services because of these statements, and that Zappier and ATS have suffered financial harm. (Counterclaim, ~~ 33 38). The Zappier Defendants have alleged that Counterclaim to prospective clients Defendants made false statements of the of ATS for no purpose other than to destroy their business and reputation and to cause them financ ~~ 27, harm. (Counterclaim, 34 35). E&A also contends that the counterclaim never names which members of E&A actual (Mem. Support at 10). made the defamatory statements. However, the allegations identi named Defendants Esbin and/or Alter. at this stage. the Nothing more is necessary See Vietnam Ass'n for Victims of Dow Chemical Co., 517 F.3d 104, 115 (2d Cir. 2008) (A court considering a Rule 12(b) (6) motion to dismiss "must accept as true 1 allegations in the complaint and draw all reasonable inferences in favor of the non-moving party.") v. Consol. ------------------------~ , 488 F. 3d 586, 591 92 (quoting Gorman (2d Cir. 2007)). The core of Zappier's allegation is that "but for E&A's mal ious and illegal conduct and false public statements, Zappier would have entered into a contract 11 . for the sale of ATS Software in an amount exceeding twenty five million dollars." (Counterclaim/ ~ 43). This adequately alleges unfair competition by way of trade libel or intentional interference with business relations. Conclusion Based on the conclusions set forth above/ Plaintiff's motion to dismiss is granted as to Counterclaim I and denied as to Counterclaims II and III. It is so ordered. New York, NY March 17' 2011 T ROBERT W. SWEET U.S.D.J. 12
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