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M&G Partners LLP v. K7 Design Group Inc.

United States District Court, E.D. Wisconsin

May 30, 2018

M&G PARTNERS LLP, d/b/a FASHION ANGELS ENTERPRISES, Plaintiff,
v.
K7 DESIGN GROUP INC. and WALMART INC., Defendants.

          ORDER

          J. P. Stadtmueller U.S. District Judge

         Plaintiff, M&G Partners LLP (“M&G”), filed this action on November 3, 2017, alleging trademark infringement, unfair competition, and contract-based claims against Defendants, K7 Design Group, Inc. (“K7”) and Walmart Inc. (“Walmart”). (Docket #1). Two months earlier, K7 filed suit against M&G in the United States District Court for the Southern District of New York, asserting breach of contract and various other claims under federal and New York law. K7 believes that M&G's claims in the present action represent compulsory counterclaims that should have been brought in the New York action. As such, it has moved to dismiss or stay this case. (Docket #21). The motion is fully briefed and, for the reasons stated below, it will be granted.[1]

         1. LEGAL STANDARD

         Federal Rule of Civil Procedure 13(a)(1)(A) defines a compulsory counterclaim as one which the pleader has against his opponent at the time of service and which “arises out of the transaction or occurrence that is the subject matter of the opposing party's claim” and “does not require adding another party over whom the court cannot acquire jurisdiction.” Fed.R.Civ.P. 13(a)(1). A party usually must state compulsory counterclaims or else he will be precluded from doing so in later litigation. Ross ex rel. Ross v. Bd. of Educ. of Twp. High Sch. Dist. 211, 486 F.3d 279, 284 (7th Cir. 2007). By contrast, any counterclaim that is not compulsory is merely permissive, and failing to join such a claim will not bar a subsequent action thereon. Fed.R.Civ.P. 13(b).

         If a defendant believes that the plaintiff's claims are compulsory counterclaims that should have been brought in another pending action, the defendant may file a motion to dismiss under Rule 12(b). See Twin Disc, Inc. v. Lowell, 69 F.R.D. 64, 66 (E.D. Wis. 1975); Pace v. Timmermann's Ranch & Saddle Shop Inc., 795 F.3d 748, 752 (7th Cir. 2015). Alternatively, the court presiding over the second-filed action may enter a stay while the court presiding over the first-filed action considers whether to enjoin the second suit. See Harley-Davidson Motor Co. v. Chrome Specialties, Inc., 173 F.R.D. 250, 251 (E.D. Wis. 1997); Inforizons, Inc. v. VED Software Servs., Inc., 204 F.R.D. 116, 118 (N.D. Ill. 2001). Whatever the remedy, the court in this context accepts as true all well-pleaded allegations in the complaint and draws all reasonable factual inferences in the plaintiff's favor. Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736 (7th Cir. 2014).

         2. RELEVANT FACTS

         M&G is “a leading designer and manufacturer of tween girls' lifestyle and activity products.” (Docket #7 ¶ 8). One of its brands is called “Fashion Angels.” M&G owns federal registrations for the word mark FASHION ANGELS and several permutations thereof, as well as logos bearing the words “Fashion Angels.” Id. ¶ 10. Products sold under the “Fashion Angels” marks include, for example, beauty products, costume jewelry, and activity sets.

         This case and the New York action filed by K7 arise from a sales and distribution agreement that M&G entered into with K7 in December 2016 and the ensuing course of dealings between the parties. The relationship revolved around building a showroom in New York City and selling M&G's products under the “Fashion Angel” trademarks to at least twelve major vendors, including Walmart and Target.

         K7 brokered several deals on behalf of M&G with major retailers in early 2017. One such deal was with Walmart. K7 facilitated communications between M&G and Walmart starting in February 2017, with an eye toward putting “Fashion Angels” products on store shelves by the fourth quarter of that year. On April 28, 2017, K7 informed M&G that Walmart had approved visuals of M&G's products. M&G sent physical samples and pricing documents to Walmart that same day.

         The parties exchanged some emails in early and mid-June 2017 regarding the products. However, K7 did not notify M&G until June 26, 2017 that Walmart had selected two M&G products for sale at Walmart stores. That day, M&G was told that its products were to be sold at 2, 112 stores and had to be shipped by September 15, 2017.

         On June 30, 2017, M&G informed K7 that it could not meet that shorty delivery timeline. Walmart cancelled the order. It then sourced very similar products directly from K7 which were not genuine M&G products, yet were sold under the “Fashion Angels” trademarks. For these reasons, and others detailed in the complaint in the New York action, the parties' relationship soured.

         On September 12, 2017, K7 and its president, Isaac Kaplan, filed a complaint against M&G and several of its executives, alleging claims for breach of contract, unjust enrichment, fraudulent inducement, religious discrimination, failure to accommodate, and an accounting, in the United States District Court for the Southern District of New York, No. 1:17-CV-06943. The complaint was subsequently amended to include a cause of action for violation of the New York Labor Law, among other claims. The New York action contemplates not only the failed Walmart deal, which K7 blames on M&G, but also numerous other problems that arose from the parties' relationship, including K7's claim that M&G has not paid promised sales commissions. See (Docket #23-1, #23-2).

         Two months after K7 commenced the New York action, on November 3, 2017, M&G filed this action against K7. (Docket #1). M&G amended its complaint on December 12, 2017 to join Walmart as a defendant. (Docket #7). The amended complaint states six separate counts: (1) trademark infringement under 15 U.S.C. § 1114; (2) false designation of origin under 15 U.S.C. § 1125(a); (3) common law unfair competition and trademark infringement; (4) civil conspiracy; (5) breach of contract and the implied duty of good faith and fair dealing, brought solely against K7; and (6) tortious interference with prospective contracts, again brought solely against K7. Id. at 14-20.

         After filing this action, M&G filed a motion in the New York case to transfer it here. On February 7, ...


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