Kwality Foods LLC v. Babco Foods International LLC

Background

After ruling on Kwality Foods LLC’s motion for a preliminary injunction, the court considered pending motions to dismiss filed by Everest Holdings Ltd. (“Everest”), Pure Ice Cream Co., LLC (“Pure”), and Babco Foods International LLC (“Babco”). Everest and Pure moved under Federal Rule of Civil Procedure 12(b)(5), which concerns inadequate service of process, and Rule 12(b)(6), which concerns failure to state a legally sufficient claim. Babco moved under Rule 12(b)(6). The court treated Babco’s motion addressing an earlier complaint as applying to the First Amended Complaint.

Service on Everest and Pure

Everest received the civil cover sheet, summons, and original complaint by Federal Express at its Legal Department in Dubai, United Arab Emirates. Pure received the same materials by Federal Express at its Legal Department in Sharah, United Arab Emirates. The packages were sent by the Clerk of Court and required signed receipts. Neither defendant denied receiving the package or knowing about the case.

Kwality Foods relied on Rule 4(f)(2)(C)(ii), which permits service outside the United States by mail sent by the clerk that requires a signed receipt, unless the foreign country’s law prohibits that method. The court stated that the rule does not require the method to be expressly authorized by foreign law. Because the parties did not dispute that the United Arab Emirates had neither expressly allowed nor expressly prohibited this method, the court concluded that service was permitted and that Everest and Pure were properly served.

The four claims

The court concluded that each of the four claims stated a claim for relief at the pleading stage.

Count One is the only federal claim. It arises under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), which protects qualifying unregistered trademarks. The court explained that a plaintiff must plausibly allege a protectable mark and a likelihood that the defendant’s use will cause confusion. Although the court had previously found, when deciding the preliminary-injunction motion, that Kwality Foods was not likely to succeed in showing that its mark was protectable, it held that this earlier finding did not prevent the allegations in the First Amended Complaint from adequately stating a claim.

Count Two asserts New York common-law unfair competition and trademark infringement. The court held that the allegations plausibly described “palming off”—selling one manufacturer’s goods as those of another—and also included the required allegation of bad faith. Count Four asserts misappropriation under New York unfair-competition law. The court found that Kwality Foods plausibly alleged that the defendants misappropriated its skills, labor, expenditures, goodwill, and commercial advantage, and that the allegations included bad faith.

Count Three arises under New York General Business Law § 360-l and concerns injury to business reputation or dilution. The court held that Kwality Foods adequately and plausibly alleged facts supporting dilution by tarnishment, including that the accused products were inferior, consumers required a low level of sophistication to purchase them, the defendants acted in bad faith, and the KWALITY mark was diluted.

Disposition

The court denied the motions to dismiss filed by Everest, Pure, and Babco. The Clerk was requested to terminate the motions listed at ECF 34, 64, and 65. Judge Castel’s order addressed pleading sufficiency and service; it did not constitute a final determination of liability on the four claims.