United States District Court, E.D. Wisconsin
Stadtmueller U.S. District Judge
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.
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).
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).
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.
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.
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.
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.
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.
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,
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.
filing this action, M&G filed a motion in the New York
case to transfer it here. On February 7, ...