New York Business Litigation Lawyer Blog

In an ongoing litigation between Starbucks and an outfit called Black Bear Micro Brewery, the brewer of Mr. Charbucks and Charbucks Blend coffees, a New York Southern District judge found that notwithstanding the similarity in names and the fact that Charbucks was trying to capitalize on the Starbucks name, Charbucks did not violate trademark law.

One of the privileges provided by trademark law is a trademark holder's right to prevent another's use of a mark that, while not confusingly similar in a direct way, nevertheless "dilutes" the trademark holder's registered trademark. One way to dilute a mark is to "blur" it. Blurring is pretty much as it sounds: A competitor's use of mark that, in the court's words, "impairs the distinctiveness of the famous mark." When a mark is blurred, its "distinctiveness," that element of the mark by which it is known to the public, is weakened.

In this case, the Southern District court was faced with deciding whether the marks "Mr. Charbucks" and "Charbucks Blend" diluted the Starbucks trademark. To reach a conclusion, the court had to review six factors that, while not exclusive, provided guidance in determining dilution: "(i) [t]he degree of similarity between the mark or trade name and the famous mark; (ii) [t]he degree of inherent or acquired distinctiveness of the famous mark; (iii) [t]he extent to which the owner of the famous mark is engaging in substantially exclusive use of the mark; (iv) [t]he degree of recognition of the famous mark; (v) [w]hether the user of the mark or trade name intended to create an association with the famous mark; [and] (vi) [a]ny actual association between the mark or trade name and the famous mark." Because these elements are suggested but not exclusive, the overarching consideration is whether the blurring makes the distinctive registered mark less distinctive.

Despite conceding that Starbucks' claims satisfied the distinctiveness, exclusivity and recognition elements, and also agreed that Black Bear attempted to create an association between its product and Starbucks', the court refused to find dilution because the way that the respective marks were used were not similar and easily distinguished by the consumer. For example, the court noted that Charbucks was always preceded by "Mr."or "Mister," or in conjunction with "Blend" and its logo was very different that what Starbucks used. Presumably, though, had the mark "Charbucks" been used alone, Starbucks would have made out its dilution claim.

The court expressed its concern that preventing the use of the Charbucks mark would give Starbucks too broad a right to exclude any mark that troubled Starbucks, something not provided for under law, even where defendant intended to associate its coffee with Starbucks'.

This case highlights that while some surface confusion between marks may appear, a deeper examination is required before confusion becomes a concern. Succeeding on a dilution claim against a small competitor without a meaningful market presence is made more difficult with this decision, notwithstanding the change in law designed to avoid this type of outcome, which was enacted subsequent to the United States Supreme Court's decision in the seminal Victoria's Secret case. Seemingly, where a small competitor tries to piggy-back off the recognition of a large and well know company's trademark, a dilution claim seems to not always be enough to obtain an injunction.

For some tongue-in-cheek thoughts on this issue, take a look at a post by Ron Coleman, Esq.

Gregory Miglino, Sr., passed out at a gym one morning. While 911 was summoned, a gym employee that had been trained on an automated external defibrillator ("AED") went to assist Miglino. For some reason, perhaps because a doctor and medical student were on the scene, the employee did not attempt to use the AED. Miglino died upon his arrival at the hospital. His Estate sued the gym claiming that it was negligent in not using the AED. The gym sought dismissal arguing that while it was obligated to have an AED on site and someone on staff trained to use it, it had no obligation to use the AED, and because the Good Samaritan law insulates one from liability where medical assistance is voluntarily made, the gym could not be liable.

In an apparent split from the Appellate Division, First Department, the Second Department found the gym to have an affirmative obligation to not just have an AED on site and someone trained to use it, but to actually use it. The Second Department found it inconsistent that a law that would require the on site presence of an AED and someone to use it to assist club members, would not also require its use. Because the law was specifically designed to assist club members, the court found it "illogical to conclude that no duty exists" to use the AED, and refusing to recognize that principal, would "eviscerate the very purpose for which the legislation was enacted." Rhetorically, the court asked "why statutorily mandate a health club facility to provide the device if there is no concomitant requirement to use it?"

In Hogan v. Kelly, the Second Department decided that the 2008 changes to the Real Property and Procedure Law affecting adverse possession claims are not to be applied retroactively so that compliance with the old laws prior to 2008 will give rise to a claim for adverse possession. In this case, because the law before 2008 did not require a possessor to believe that he owned the property possessed, that the defendants knew the property not be theirs did not defeat their claim.

Queens co-op owner installed an air conditioner in his unit, for use by his parents who resided there. The Co-op Board demanded that the air conditioner be removed as it extended through the wall of the building, in violation of the unit's lease. In response to the Board's threat to terminate the lease, the owner commenced an action seeking a declaration that there was no violation of the lease. The owner alleged that because his mother had an extreme allergy and needed the air conditioner for health purposes the air conditioner was necessary and proper, and by threatening to terminate the lease the Board discriminated against her due to her illness, in violation of the Federal Fair Housing Amendments Act. The court Hearing Officer agreed, finding that because the air conditioner was medically necessary for the residents' ordinary occupancy of the unit, preventing such use violated the Act, and State law. The unit owner also sought the recovery of attorneys' fees, which was denied by the Hearing Office. Upon the parties' appeal to the judge, the Hearing Officer's decision was upheld, except as to the denial of the attorneys' fees, which the judge determined could be awarded to the unit owner under the Act.

With the proliferation of websites that aggregate news and promise instant information, it is to be expected that one site or service will end up stepping on the toes of another. Investment advice in today's fast-moving markets is the setting for the most recent dustup.

Before discussing the particulars of this case, a brief and simplistic discussion of some legal dynamics in play here is necessary.

One of the ways that a plaintiff can bring a case in Federal Court is to assert a claim involving a Federal law or rule. If a plaintiff successfully does that, related State-based claims that concern the same facts can also be asserted in that Federal case. This allows a party to seek relief under both Federal and State laws in one case. However, there are certain Federal laws that provide that they are the exclusive basis upon which one can complain and seek relief, to the exclusion of any State laws that cover the same complaint. If that is the case, the State-based claim will be preempted by the Federal law and a Court will not consider the State-based claim, which will be dismissed. One example of this is a claim of copyright infringement. The Copyright Act, under which a copyright infringement claim is brought, provides that any complaint that resembles a copyright infringement can only be brought under the Copyright Act, to the exclusion of any claim that can be based on a State law. This convergence of a State-based claim and a claim brought under a Federal statute, sets up this situation where the Copyright Act will preempt any State-based claim alleging similar facts.

Turning now to the facts in our case. Flyonthewall.com ("Fly") learned the investing recommendations of major financial services firms before they were issued to their clients and sought to capitalize on that information. Fly would notify its own subscribers of those recommendations around the same time as when the firms did. Concerned that Fly was undermining their usefulness to their clients, Barclays Capital, Merrill Lynch and Morgan Stanley for Federal copyright infringement. Because a copyright infringement claim would not provide the banks with complete relief, which was to put Fly out of business, the banks also included in their Federal case a claim under the State common law tort of "hot-news" misappropriation, otherwise stated as reaping the benefits of what one has not sown (in the words of an earlier United States Supreme Court Decision). If that claim worked, the banks would have put Fly out of business.

The Federal district court considered prior appellate precedent, National Basketball Assoc. v. Motorola, Inc. ("NBA"), in making its decision. In that case, the NBA asserted claims against Motorola for its use of a pager system that reported real-time game scores and statistical information to its users. Because the scores were merely facts and not eligible for copyright protection, the NBA recognized that it couldn't stop Motorola with a copyright infringement claim. Therefore, the NBA resorted to arguing that Motorola was misappropriating the NBA's hot-news scores and asked the court to stop Motorola. The court considered the hot-news claim and determined that for the NBA to make it, it had to establish five elements. The NBA would have to allege that (i) it provided its information at some cost, (ii) the information had a value because it was time-sensitive, (iii) the defendant was piggybacking or free-riding off the plaintiff's information, (iv) the parties competed directly, and (v) allowing the republication to continue would substantially undermine the viability of the business or service in question. The hot-news claim was not made and dismissed, because the court found that Motorola did not compete with the NBA. Notwithstanding that dismissal, the NBA court considered the issue of Federal preemption of the hot-news claim under the Copyright Act. The NBA court determined that for a State hot-news claim to survive preemption, it had to contain something extra not found in a copyright claim. Applying the elements of the hot-news claim listed above, the NBA court found the second, third and fifth elements to be extra, as none of them were required to show copyright infringement. Thus, had the NBA satisfied the elements of a hot-news claim, it would not have been preempted by the Copyright Act.

With that, the Fly district court, in its 90 page decision, found that the banks had made out a copyright claim for Fly's reproduction of their entire reports. But that did not help the banks when it came to Fly's republication of just the stock recommendation or price target, as that information was fact and ineligible for copyright protection. To force Fly to stop entirely, required enforcement of the banks' second claim for hot-news misappropriation of the recommendations and price targets.

The Fly district court examined the NBA factors and found that each of the five enumerated elements were met. It also determined that the banks had established that the hot news claim was outside the claim for copyright infringement and was therefore not preempted by the Copyright Act. The Fly court discussed the banks' incentive to issue their reports, which were very expensive to produce and done to prompt their customers to execute trades, generating commissions to the banks. The banks maintained that these recommendations remained "hot" for a few hours after they were issued. The district court therefore issued an injunction preventing Fly from republishing any of the banks' recommendations for 30 minutes after trading had begun for the day. Fly appealed, arguing that the Copyright Act preempted the hot-news claim. In its own long and detailed opinion, the appeals court agreed.

Continue reading ""Hot-News" Misappropriation Liability Cools Off" »

The owner of a parked 2000 Ford GT, described as "a rare collector's sports car rapidly appreciating in value" sued a drunk driver that wrecked it. The trial judge refused to allow an award based on the depreciation of the car, some $50,000, only the actual damage incurred in its repair, approximately $3,500. On appeal, the owner argued that once damaged, the car lost its "original condition" premium value, and that it was entitled to recover that difference. The appeals court agreed, finding that when evaluating the plaintiff's claims of damages, the proper measure of those damages is the amount necessary to make it whole, including the depreciation caused by the damage.

An appeals court recently reversed a New York County judge who dismissed a lawsuit brought by a landlord, claiming that its tenants were maliciously harassing it to prevent the landlord from collecting rent and managing the property.

In Chelsea 18 Partners, L.P. v. Sheck Yee Mak, the landlord of a 26 unit walk-up filed a 43 page complaint seeking damages from the tenants of two rent controlled apartments. Prior to this lawsuit, the landlord had served the tenants with notices of termination. The tenants refused to vacate. Instead of seeking their eviction in landlord-tenant court, the landlord commenced an action in supreme court alleging nuisance, and seeking possession and monetary damages. The tenants moved for dismissal, arguing that the case belonged in landlord-tenant court. The lower court agreed. Upon appeal, the court disagreed with the determination that the lawsuit was based on non-payment and more appropriately brought in landlord-tenant court. The appeals court found that the landlord had amply alleged details of nuisance by claiming that:

The tenants illegally altered plumbing in both apartments, switching the position of the sink and the bathtub, and added outlets, switches and fixtures creating a hazardous electrical condition with exposed wiring. They then complained to the New York City Department of Buildings (hereinafter referred to as "DOB") that the plumbing and electric in the apartments were defective, and the DOB and Environmental Control Board issued violations against the landlord requiring it to repair the tenants' handiwork. The tenants thwarted the landlord's attempts to cure the violations by refusing access to the apartment, and then applied for rent reductions based on the very same conditions that they refused to allow the landlord to repair. Over a period of three years, the tenants procured 76 Housing and Preservation Department violations against the landlord. No violations were lodged concerning other tenancies in the building.

The complaint further alleges that the tenants not only unjustifiably denied or failed to arrange access, but also, knowing of the agency and court-imposed deadlines, attempted to extort extra work from the landlord in return for access, such as a new linoleum floor and bathtub of the tenants' choosing; and that tenant Michael Mak attempted to coerce the building superintendent to agree to a $50,000 penalty if the workers were late or the work was not completed to code.

The harassment by the Mak tenants allegedly extended to the landlord and its staff: the tenants allegedly physically obstructed work, videotaped, and threatened and intimidated the landlord's workers by yelling and screaming at them. As a result, the building manager and superintendent were forced to remain in the apartments during the repairs to prevent altercations and to keep workers from walking off the job.

Michael Mak also allegedly accosted, harassed, and threatened the owner and operator of a café, the only commercial enterprise in the building, and filed meritless complaints with the New York Department of Environmental Protection for excessive noise. The tenants also threatened and intimidated the landlord's attorney, including following him out of court hissing and muttering. On another occasion, the tenants refused to leave the building manager's office after the landlord's attorney declined to renegotiate a stipulation, and the police were summoned.

The complaint also chronicles the tenants' unjustified withholding of rent, forcing the landlord to bring three nonpayment proceedings in Housing Court in 2007, 2008 and 2010. Additionally, the allegations of objectionable conduct include the tenants' multiple, duplicative applications to the New York State Division of Housing and Community Renewal for rent and fuel cost reductions.

Given this conduct, the appellate court found that the case adequately addressed the nuisance and bad faith of the tenants and one that may be commenced in supreme court.

The Court of Appeals recently determined that defamatory postings to a blog do not create liability for the blog or its host. Ardor Realty Corp., headed by Christakis Shiamili, and the Real Estate Group of New York, Inc. ("REG"), controlled by Daniel Baum and Ryan McCann, competed in selling and renting apartments in New York City. REG operated a website and blog dedicated to the New York City real estate market. An anonymous poster to that blog made defamatory comments about Shiamili. After McCann highlighted that comment, additional defamatory comments were posted anonymously. Shiamili posted in his defense and requested that REG remove the post and comments. When REG refused, Shiamili filed suit, alleging not that REG posted the statements, but that it highlighted and hosted them.

The court's threshold issue in Shiamili v. The Real Estate Group of New York, Inc., concerned the applicability of §230 of the Federal Communications Decency Act (the "Act") to these facts. Although defamatory statements are actionable, a website or blog that simply allows others to post entries or comments, is immune from liability for those comments. The Act does this by determining that the host or blog is not "the publisher or speaker" of the defamatory statements. The Act also preempts any State from finding a host or blog liable. The court held that Congress determined that the Act balances the interests of free speech and defamatory speech by immunizing those that simply act as passive conduits for that speech, even if the speech is screened or modestly edited, and even if the blog or host highlights a post or comment, so long as it does not contribute materially to the post.

Applying this to the facts here, the court refused to hold REG liable, rejecting liability based on REG's allowing open, anonymous posts or for highlighting the defamatory post.

Continue reading "New York's Highest Court Considers a Website's Liability for Defamatory Statements" »

Apparently you can, but a Kings County judge won't allow you to sue someone for it.

In a recent case, the plaintiff sued after being fired from her position as a hospital psychiatrist, with the termination reported to the New York State Office of Professional Medical Conduct, New York State's regulatory authority. The plaintiff claimed that the termination was without basis. As part of her complaint, plaintiff sought damages for "compelled self-defamation." Plaintiff alleged that because she was fired, she is required to reveal to prospective employers that a report of why she was fired was filed with the State. By doing so, plaintiff is compelled to republish the defamatory statements made by the hospital, thus self-defaming herself.

Citing to appellate authority that refused to recognize defamation where the plaintiff herself republishes the defamatory statement, the court reluctantly dismissed that claim. In doing so, the court noted that other courts, including Federal courts, have recognized a claim for self-defamation. In fact, the court cited some of those Federal court decisions and predicted that New York State will one day recognize this claim.

But will you ever be able to sue yourself?

For someone to buy a life insurance policy on the life of another person, that purchaser must have an "insurable interest" in the insured. That insurable interest is a reason that the purchaser wants the insured to live. This requirement makes sure that the buyer is not betting (or hoping?) that the insured dies anytime soon. In today's marketplace, there is a strong business in buying the policies of those that may not have long to live. It even has a name with a catchy acronym: Stranger Owned Life Insurance or STOLI. This is permitted so long as the buyer can show an insurable interest. In these cases, the buyer of the policy pays the premiums and keeps the proceeds upon the insured's death. But can one buy a policy on his or her own life, satisfying the insurable interest requirement, but sell it to a stranger the day after its issued? Is that buyer just betting that the insured does not live long?

In a Court of Appeals case, an insured bought more than $50 million in insurance policies on his own life, placed the policies into trusts and promptly sold them or, more accurately, assigned the right to collect on them when he passed away to a third-party. After his passing, litigation ensued, and the question of assigning one's policy to one with no insurable interest was raised. Initially, the courts had no answers. After a process through Federal Court, the New York State Court of Appeals found the assignment valid. Although this transaction allows for an end-run of the insurable interest requirement, the court's strict reading of the applicable law left it no room for a different outcome. Interestingly, there was a strong dissent, who saw this arrangement for what it was, a wager on the life of the insured. This has been rendered largely moot, as laws have been enacted to prohibit this type of arrangement, but illustrates the creativity of some to beat the system.

Some time ago, our newsletter article (see below) discussed some of the fine lines of allowable commercial competition. That issue was recently front and center before the Court of Appeals after the Federal courts could not make a decision. In Bessemer Trust Co., N.A. v. Branin, Branin was sued by Bessemer Trust for improperly competing.

Briefly, Bessemer Trust purchased the business owned by Branin (and others). Although Branin was to stay with Bessemer Trust, he left to a competitor. Bessemer Trust notified Branin's clients that he had left, and some of those clients contacted him on their own. While Branin did not solicit any of his old clients, he did respond to their unsolicited requests for information of his new employer, attended a few meetings, and assisted his new employer in devising a plan to have these past clients move their business to Branin's new employer. After a number of clients followed Branin, Bessemer Trust filed suit, claiming that Branin improperly solicited his old clients, inducing them to transfer their accounts from Bessmer Trust to Barnin's new firm.

The question the Court of Appeals addressed was the extent of participation in the solicitation of a former employer's client necessary to constitute improper solicitation. The court determined that while "a seller has an 'implied covenant' or 'duty to refrain from soliciting former customers,'" that a customer follows a departing employee is, standing alone, insufficient to find any wrongdoing on the departing employee's part. In finding no wrongdoing by Branin, the court focused on Branin's lack of solicitation of his former clients, or formally "selling" his new employer to his past clients, noting that those clients sought out Branin and followed up on his move with little encouragement from Branin.

For reasons not addressed, Bessemer Trust did not ask Branin to sign a non-compete/non-solicitation agreement, something which could have obviated the need for a lawsuit, and certainly a lawsuit of this complexity. This highlights, again, the importance of a properly drafted non-compete/non-solicitation agreement.

Our Firm assists companies and employees in addressing these issues throughout New York State and would be happy to discuss them with you.

Plaintiff, purchaser of defendant's credit card debt, sought court approval to settle the case. The court scheduled a conference to determine the fairness of the settlement terms and found that the defendant had been intimidated into signing the settlement agreement. The court decided that plaintiff's ability to prove its claims were questionable, the terms of the settlement agreement were onerous and agreed to without proper consideration, and allowed the defendant to void the settlement agreement.

Defendant denied the amount he owed to American Express. American Express submitted an affidavit of the Custodian of Records to establish the amount due. The court decided that although the affidavit looked "robo-signed, " it was sufficient to establish that something was owed, but insufficient to establish the amount, especially because the records relied on were only copies of part of the file.

In the normal course of events, two parties that enter into a contract are obligated to perform in accordance with that contract. Where a party fails to do so that party has breached the contract and will ordinarily be liable for any resulting damage to the other, non-breaching party. Although in most cases only the breaching party can be liable, there are limited scenarios where others may be liable as well. This article will discuss situations where a third- party that is not a party to the breached contract can also be liable to the non-breaching party. This third-party's liability is based on its improper interference with an existing contract, known as tortious interference with an existing contract.

Before discussing the details of this claim and liability, it is important to understand that courts will generally sanction and encourage legitimate business competition. Courts will not penalize a third-party's ordinary attempts to solicit business, even when doing so may result in the breach of a contract between two other parties. Therefore, the fact that a party to a contract breached that contract to respond to the solicitations of a third- party, does not automatically create liability for that third-party. As discussed below, the conduct of the third-party in soliciting the business often determines whether its conduct was proper.

For example, Tire Supply, Inc., has an exclusive contract to sell tires to Tire Depot, Inc., for $10 a tire. The agreement provides that Tire Supply may sell to no one other than Tire Depot and Tire Depot may purchase tires only from Tire Supply. Tire Meddler Corp., approaches Tire Supply and offers to buy all of its tires for $12 a tire, $2 more than Tire Supply receives from Tire Depot. Selling to Tire Meddler will require that Tire Supply breach and terminate its agreement with Tire Depot. Assuming that Tire Supply agrees to sell to Tire Meddler, and breaches its contract with Tire Depot, and is sued by Tire Depot for that breach, can Tire Depot sue Tire Meddler for causing Tire Supply to breach their agreement? Has Tire Meddler done anything legally wrong considering that from a strict business point of view, Tire Meddler did nothing more than offer Tire Supply a better deal?

Continue reading "Competition and Existing Contracts" »