Red Rock Sourcing LLC v. JGX, LLC

Background

Red Rock Sourcing LLC and Coronado Distributing LLC alleged that JGX, LLC and other defendants participated in a scheme to counterfeit Coronado’s URBĀNE Brand hand sanitizer. The plaintiffs alleged that the counterfeit product used nearly identical packaging, was manufactured in Mexico, contained methanol, and was sold through distributors and retailers as genuine URBĀNE Brand sanitizer. The plaintiffs asserted claims under the Racketeer Influenced and Corrupt Organizations Act, the federal trademark statute known as the Lanham Act, New York statutes, and New York common law.

The plaintiffs sought permission to file a Second Amended Complaint. The proposed pleading would add eight defendants, including individuals and entities associated with the JGX Defendants and the Worldwide Defendants, and would add claims for fraudulent conveyance and alter ego or piercing the corporate veil. It would also add trademark claims against the proposed Retail Defendants, Pilot Travel Centers, LLC and Love’s Travel Stops & Country Stores, Inc.

Legal standard

Because the motion was filed more than a year after the deadline in the Court’s case-management schedule, the plaintiffs had to show “good cause” under Federal Rule of Civil Procedure 16(b)(4). The court explained that this standard primarily examines whether the moving party acted diligently. The court also considered whether the proposed amendments would be futile—that is, whether the new allegations were so clearly insufficient that they could not survive a motion to dismiss.

Worldwide Defendants

The plaintiffs sought to add Don Ghermezian, Syd Ghermezian, Nader Ghermezian, and Community Federal Savings Bank as defendants to existing claims. They also sought to add fraudulent-conveyance claims against Triple Five Worldwide, LLC and Don, Syd, and Nader Ghermezian, as well as alter ego or corporate-veil-piercing claims against Don, Syd, and Nader Ghermezian.

The court found good cause because the plaintiffs had diligently pursued discovery and obtained additional information after the amendment deadline. The court identified discovery concerning Don Ghermezian’s involvement in the sanitizer business, the management of Triple Five Worldwide, the alleged disregard of corporate formalities, and Community Federal Savings Bank’s handling of Triple Five Worldwide’s transactions. The court also found that the proposed additions were not so plainly futile that amendment should be denied. The motion was therefore granted as to the proposed amendments involving the Worldwide Defendants.

JGX Defendants

The plaintiffs sought to add Dib Jaradeh and Nouri Jaradeh as defendants to the existing claims. They also sought to add alter ego or corporate-veil-piercing claims against Jack Grazi, Dib Jaradeh, and Nouri Jaradeh concerning JGX, and against Dib Jaradeh concerning Isaac Import, Inc.

The court found good cause because discovery after the amendment deadline produced information about the defendants’ alleged collaboration, the creation of the counterfeit label, and the alleged failure to maintain separate corporate formalities. The court also found that the proposed claims and defendants were not plainly futile. It noted allegations that Dib Jaradeh helped create the counterfeit label and that Nouri Jaradeh researched Coronado’s ownership of the URBĀNE mark and prepared purchase orders. The motion was therefore granted as to the proposed amendments involving the JGX Defendants.

Retail Defendants

The plaintiffs sought to add trademark-infringement claims under the Lanham Act and New York common law against Pilot and Love’s based on their alleged receipt and sale of the counterfeit product.

The court denied this part of the motion for lack of good cause. It found that the plaintiffs had known the identities of the Retail Defendants and the possibility of claims against them since the beginning of the case, including during settlement discussions with Rigz. The plaintiffs had also alleged in their First Amended Complaint that the counterfeit product remained available through national chains, including Pilot, until around September 2020. The court concluded that the plaintiffs had the information needed to add these defendants when they filed the First Amended Complaint and had not given a persuasive reason for waiting.

The court also noted that allowing the amendment could prejudice Rigz because, according to Rigz, it was required to indemnify the Retail Defendants. The court therefore denied the plaintiffs’ motion to add claims against Pilot and Love’s.

Disposition

The court granted in part and denied in part the plaintiffs’ motion to amend. The plaintiffs were ordered to file a final version of the Second Amended Complaint consistent with the ruling within fourteen days. The court stated that, absent extraordinary circumstances, this would be the plaintiffs’ final opportunity to amend. The ruling addressed whether the complaint could be amended; it did not finally decide whether the alleged counterfeiting, trademark, fraudulent-conveyance, or corporate-veil claims would succeed.