Lord & Taylor Ecomm LLC v. Circle Business S.A.

Background

Lord & Taylor EComm LLC sued Circle Business S.A., Rocco Menga, and Gian Luigi Cacchiarelli. Lord & Taylor alleged that Circle supplied counterfeit designer merchandise despite repeatedly stating that the goods were authentic. From May 2021 through December 2022, Lord & Taylor paid Circle $3,820,037.57 for 33 purchase orders containing 7,557 items.

After customer complaints and returns, Lord & Taylor hired Luxury Appraisals & Authentication to examine merchandise. The expert examined 290 items and determined that 116 were counterfeit; the opinion states that all 116 had been sold to Lord & Taylor by Circle. Lord & Taylor removed Circle’s merchandise from its sales platforms and notified Circle of the findings. Lord & Taylor also faced a separate trademark case brought by Gucci and received a default judgment finding it liable for trademark infringement, counterfeiting, and dilution. The court noted that a later recommendation concerning damages in that separate case had not yet been adopted.

Defendants moved under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim, to dismiss the Second Amended Complaint in its entirety.

Claims Against Menga and Cacchiarelli

The court dismissed without prejudice all claims against Menga and Cacchiarelli. Lord & Taylor sought to hold them individually responsible by disregarding Circle’s separate corporate identity. Under the applicable standard, Lord & Taylor needed to allege facts showing that they completely controlled Circle concerning the transaction and used that control to commit a wrong that injured Lord & Taylor.

The complaint mentioned Menga and Cacchiarelli only twice and did not allege facts showing that either controlled Circle’s dealings with Lord & Taylor. Neither signed the letters or other documents attached to the complaint. The court therefore declined to disregard Circle’s corporate structure at this stage.

Breach of Contract

The court denied the motion to dismiss Lord & Taylor’s breach-of-contract claim against Circle. The claim was based on Circle’s express warranties that the merchandise was authentic. The court found that Lord & Taylor adequately alleged a warranty, reliance on that warranty, a breach, and financial injury.

Circle argued that Lord & Taylor failed to give timely notice of the alleged breach. The court held that the complaint did not conclusively establish that Lord & Taylor knew or should have known the merchandise was counterfeit when customers returned goods or complained. Circle had continued to assure Lord & Taylor that the goods were authentic, and Lord & Taylor notified Circle of the expert’s findings two weeks after receiving the report. On the limited record at the pleading stage, the court held that the timeliness of notice could not be resolved in Circle’s favor as a matter of law.

Fraud

The court denied the motion to dismiss Lord & Taylor’s common-law fraud claim against Circle. Lord & Taylor identified written statements in which Circle warranted that the products were genuine or authentic and attached an expert report indicating that at least some of those statements were false. The court also found that Lord & Taylor adequately alleged reliance on the representations when it sold the products to customers.

The court rejected Circle’s argument that Lord & Taylor failed to plead fraudulent intent with enough detail. Although the heightened pleading rule for fraud requires particular details about the alleged misrepresentations, intent may be alleged generally. The court held that nothing more was required at this stage.

Tortious Interference

The court dismissed Lord & Taylor’s tortious-interference claim against Circle. Lord & Taylor alleged that Circle interfered with its relationships with customers and designers by supplying counterfeit goods and misrepresenting their authenticity.

The court found the allegations insufficient because Lord & Taylor did not identify specific business relationships with which Circle interfered. General references to the public or to customers were inadequate. Although Lord & Taylor referred to Gucci’s decision to stop allowing sales of Gucci products on Lord & Taylor’s website, the complaint did not allege that Lord & Taylor had a prior business relationship with Gucci or that Circle directed its conduct at Gucci or intended to disrupt that relationship.

Common-Law Indemnification

The court granted the motion to dismiss Lord & Taylor’s common-law indemnification claim against Circle. Lord & Taylor sought indemnification for liabilities and expenses arising from claims by Gucci or others. The court explained that common-law indemnification generally allows a party held liable for another’s wrong to recover from the actual wrongdoer, but it is unavailable when the party seeking indemnification participated to some degree in the wrongdoing.

The court relied on Lord & Taylor’s default in the separate Gucci case, which constituted an admission of the well-pleaded allegations establishing liability. Based on that default, the court concluded that Lord & Taylor had participated to some degree in the wrongdoing and could not seek common-law indemnification for the Gucci claims. The court emphasized that it was not finding that Lord & Taylor knowingly or deliberately resold counterfeit goods; it had not reviewed evidence establishing that point. The dismissal did not prevent Lord & Taylor from later seeking indemnification in connection with another action based on defendants’ conduct, but the court found that any such prospective claim was not presently supported by an actual or imminent injury.

Lost Reputation

The court dismissed Lord & Taylor’s lost-reputation claim against Circle. New York law does not recognize loss of reputation as an independent cause of action; such a claim is treated as defamation. The court found that Lord & Taylor had not established the elements of defamation, including a false statement published to a third party with the required fault and resulting harm.

The court noted that dismissing this separate claim did not prevent Lord & Taylor from seeking reputation-related damages as part of its breach-of-contract claim if otherwise legally available.

Disposition

The court held that defendants’ motion to dismiss was granted in part and denied in part. The court dismissed in their entirety all claims against Menga and Cacchiarelli, Lord & Taylor’s tortious-interference claim against Circle, its common-law indemnification claim against Circle, and its lost-reputation claim against Circle. The court denied the motion as to Lord & Taylor’s breach-of-contract and fraud claims against Circle.