Bonnie L. Hemenway (BH 2246)

Barbra S. Levy (BL-3306)

JONES, DAY, REAVIS & POGUE

599 Lexington Avenue

New York, New York 10022

(212)326-3939

 

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

STARBUCKS CORPORATION, a

Washington corporation; and STARBUCKS

U.S. BRANDS, INC., a California corporation

Plaintiffs,

v.

WOLFE'S BOROUGH COFFEE, INC., a New

Hampshire corporation, dba BLACK BEAR

MICRO ROASTERY,

Defendant.

No. 01-CV- 5981 (LTS)(THK)

 

 

MEMORANDUM OF LAW IN SUPPORT OF PLAINTIFF'S MOTION FOR LEAVE TO

FILE AMENDED COMPLAINT 

 

INTRODUCTION

Plaintiffs Starbucks Corporation and Starbucks U.S. Brands Corporation (named herein as "Starbucks U.S. Brands, Inc.") ("Starbucks") seek to amend their complaint to reflect the fact that Starbucks has waived and withdrawn any claim for the recovery of actual damages from defendant Wolfe's Borough Coffee, Inc. dba Black Bear Micro Roastery ("Black Bear"). (Declaration of John C. Rawls ("Rawls Decl."), Ex. A ([Proposed] First Amended Complaint).) 

Justice requires the Court to permit Starbucks to file a First Amended Complaint because: (1) such an amendment will not in any way expand the legal or factual issues in this litigation (indeed, it will reduce the scope of disputed issues); (2) Starbucks has not been dilatory in requesting leave to file a First Amended Complaint; and (3) Black Bear will not be unduly prejudiced by the amended complaint.

Starbucks does not seek to add new parties, allege new facts, or even add new claims for relief. Rather, its First Amended Complaint would reduce the expense to the parties and the time the Court must devote to this action by eliminating claims not vital to the action. As such, this small modification to the complaint will reduce the expense that the parties are likely to face in discovery and reduce the resources the Court would otherwise have to devote to this case.

Nonetheless, Black Bear has refused to stipulate to the filing of the First Amended Complaint, not because it genuinely fears that resolution of the case will be delayed, that discovery will be expanded or that new claims will complicate its defense. Rather, Black Bear opposes the amendment solely because the elimination of Starbucks damage claim threatens to eliminate Black Bear's insurance coverage, and thus reduce Black Bear's ability to prolong and complicate this action in hopes of a better settlement.  In essence, Black Bear seeks to advance the absurd proposition that Starbucks should not be allowed to withdraw its damage claim because such an action would deprive Black Bear of a source of funds that Black Bear wants to use in a manner that will increase Starbucks' expense.

The quest for such tactical advantage, however, is not a legitimate basis upon which to deny Starbucks the right to file an Amended Complaint that simply confirms its prior waiver of its damage claim. Starbucks has made a rational and good faith decision that pursuing claims for actual damages is not cost effective because the amount and likelihood of any potential recovery is outweighed by the costs of litigating damage issues. Thus, the Court should grant Starbucks motion to file its First Amended Complaint, which will narrow the disputed issues to the propriety of injunctive relief, costs and attorneys fees. 

STATEMENT OF FACTS

This is an action for trademark infringement, trademark dilution and unfair competition arising out of defendant's use of the name "Charbucks" as the trademark for a brand of coffee that it sells in competition with plaintiffs' Starbucks® brand coffee products.  As is typical in such cases, Starbucks has prayed primarily for injunctive relief precluding further use of this close variation on the valuable Starbucks® trademark, but also for the actual damages, attorneys fees and costs that are recoverable under the statutes that form the basis for Starbucks claims for relief.

After filing and serving the Complaint, Starbucks made extensive efforts to resolve this litigation through settlement.  Among other things, the parties participated in a Settlement Conference held before Magistrate Judge Katz in November 2001, and counsel for the parties had a number of follow up communications regarding a negotiated resolution.  (Rawls  Decl. ¶ 5.)  These discussions continued through approximately December 20, 2001, but ultimately ended in failure. Id.

As a result of the information exchanged during the settlement discussions,  Starbucks sought to determine whether its damage claim was worth pursuing. Among other things Starbucks was concerned that any damage award might be so small as to be outweighed by the costs of litigating damage issues; for example. Black Bear might both argue that its sales of the infringing Charbucks product were minimal, thus resulting in little if any, recovery of lost profits, and at the same time seek expensive and time consuming discovery of Starbucks financial records under the theory that such data were relevant to the defense of a damage claim.  Further, Starbucks had (and has) serious doubts as to whether Black Bear has the resources to satisfy any substantial damage award. Thus, after a brief but thorough analysis of these issues,  Starbucks determined that pursing a damage claim was not worthwhile. (Rawls Decl. ¶ 6.)

On February 7, 2002, Starbucks counsel wrote to counsel for Black Bear, giving explicit notice that Starbucks was waiving all claims for actual damages. As a housekeeping matter, Starbucks counsel also enclosed a [Proposed] Amended Complaint that was consistent with this waiver, and asked that Black Bear stipulate to its filing. (Rawls Decl. ¶ 7.)   The First Amended Complaint is virtually identical to the original Complaint except that the claims for actual damages have been removed. (Rawls Decl., Ex. C (redlined version of the Complaint and the First Amended Complaint).)

Black Bear's counsel was contacted to remind them that Starbucks was waiting
for defendant's decision, but Black Bear did not respond substantively to the request for a
stipulation for one full month. Finally, on March 6,2002, Black Bear's counsel sent the
following two sentence response:

Please be advised that Defendant will not stipulate to your Amended Complaint.

Do not hesitate to contact me with any questions or concerns.

(Rawls Decl. Ex. D.)

Though this letter failed to explain the basis for Black Bear's position, was clearly part of a desperate effort to force Black Bear's insurer to continue paying defense costs.  Indeed, Black Bear has posted on its Web site a letter from Zurich Insurance Company stating that all coverage will be withdrawn as soon as the [Proposed] Amended Complaint is filed. (Rawls Decl. ¶ 9, Ex. E.)  It is for this reason alone that the simple, routine amendment sought by Starbucks is now before this Court.

ARGUMENT

PLAINTIFFS' MOTION FOR LEAVE TO AMEND SHOULD BE GRANTED

Rule 15 of the Federal Rules of Civil Procedure provides that when a responsive pleading has been served "a party may amend the party's pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires." Fed. R. Civ. P. 15(a). "[AJmendments are favored 'to facilitate a proper decision on the merits.'" Black Radio Network. Inc. v. NYNEX Corp.. 44 F. Supp. 2d 565, 573 (S.D.N.Y. 1999) (quoting Conley v.Gibson. 355 U.S. 41,48 (1957)).

Discussing the liberal rules of amendment, the United States Supreme Court has stated that:

In the absence of any apparent or declared reason — such as undue delay, bad faith or dilatory motive on the part of the motive, repeated failure to cure deficiencies by amendments previously  allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, ... the leave sought should, as the rules require, be "freely given.

"Foman v. Davis. 371 U.S. 178,182 (1962). The United States Court of Appeals for the Second Circuit has executed the mandate of Foman reasoning "[A]mendment should normally be permitted ... refusal to grant leave without justification is 'inconsistent with the spirit of the Federal Rules.'" Rachman Bag Co. v. Liberty Mut. Ins. Co., 46 F.3d 230, 234 (2d Cir. 1995) (quoting Foman. 371 U.S. at 182).

The burden is on the party opposing the motion for leave to amend to establish
that the amendment would be legally insufficient, frivolous or prejudicial. Fariello v. Campbell,  860 F. Supp. 54, 70 (E.D.N.Y. 1994).  Defendant cannot meet this burden. As set forth below, none of the factors preventing the free granting of a motion to amend the pleadings is present here and granting leave would be consistent with the spirit of the Federal Rules. Thus, Plaintiffs' motion should be granted.

Plaintiffs' amendment cannot be denied on the grounds of undue delay or prejudice to the Defendant. Delay alone is an insufficient reason for denying the motion for leave without a showing of undue prejudice to the opposing party.  State Teachers Retirement Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir. 1981) (where defendant claimed plaintiff knew of facts underlying new allegations two years before making the motion for leave to amend); International Bank v. Price Waterhouse & Co., 85 F.R.D. 140,142 (S.D.N.Y. 1980).  Moreover, Plaintiffs have not engaged in undue delay seeking this amendment. The Complaint, as is customary in trademark cases, sought both injunctive relief and damages. Subsequently, however, Starbucks has learned that Black Bear's revenue on the infringing product were too small to warrant the additional litigation expense necessary to prove damages. Starbucks thus seeks to streamline this action, dropping the claim for actual damages while preserving their demand for injunctive relief, costs, and attorneys' fees.

Nor can the amendment be opposed solely under the theory that the defendant has suffered or is threatened with prejudice. In considering the possibility of prejudice, the court must "weigh[] the potential for prejudice resulting from granting the amendment against the risk of prejudice to the moving party if the amendment is denied." H.L. Havden Co. v. Siemens Med. Svs., Inc. 112 F.R.D. 417, 419 (S.D.N.Y. 1986) (internal quotation marks and citation omitted).  Indeed, "One of the most important considerations in determining whether amendment would be prejudicial is the degree to which it would delay the final disposition of the action." H.L. Havden, 112 F.R.D. at 418-19. In H.L. Havden, the court denied the motion for leave to amend to add the parent company as a defendant where the request came more than a year and a half after the last date to amend provided under the court's scheduling order, after two years of "vigorous and contentious discovery," after prior requests to modify scheduling order with no indication of intent to add defendants' parent company, and where the request was made one week before defendants' summary judgment motion was to be filed. The court concluded that substantial additional discovery would be required and the final disposition of the action would be delayed.  Clearly, there is no undue delay here. Starbucks and Black Bear were actively engaged in settlement discussions through most of December 2001; the Scheduling Order set a deadline for amendments as of right of December 31,2001. When serious settlement discussions ended, Starbucks promptly conducted the analysis necessary to determine whether amendment was appropriate, and promptly contacted Black Bear's counsel to see if the amendment could be done by stipulation. Black Bear waited a month to respond, and then refused to cooperate.  There would not be any delay in the "final disposition" of this action because Starbucks is not attempting to add new parties or new facts. Moreover, by streamlining the discovery and evidentiary issues in this case, removing the actual damages claims from the complaint will aid in reaching a final disposition of this case more quickly and efficiently.

There is no prejudice here to Defendant. Defendant has not propounded any discovery nor can it, at this point because the fact discovery deadline is April 5,2002.  Moreover, the proposed amendment introduces no new issues, and thus would not prejudice Defendant even if it had propounded discovery. Furthermore, Black Bear cannot argue prejudice (or bad faith, for that matter) on the basis that their insurance coverage will likely be lost if the Amended Complaint is deemed filed. The quest for such tactical advantage is not a legitimate basis upon which to deny Starbucks the right to file an Amended Complaint that simply confirms its prior waiver of its damage claim.

Courts have granted leave to amend in more extreme situations than the one presented here. Courts have held that "[g]enerally, [even] unexcused delay ... will not bar [amendment] if no prejudice will ensue to the other parties." H.L. Havden. 112 F.R.D. at 419.  Leave to amend has been granted not only when requested after the expiration of one year from the filing of the complaint, but in numerous cases with much longer periods of delay. See e.g., State Teachers Retirement Bd., 654 F.2d at 855-56 (permitting amendment after three year interval where no trial date had yet been set, no motion for summary judgment had yet been filed, and the amendment would "not involve a great deal of additional discovery"); Middle Atlantic Utilities Co. v. S.M.W. Dev. Corp., 392 F.2d 380, 384 (2d Cir. 1968 (granting amendment despite three year delay reasoning that delay "may be a factor to be considered ..., unless the motion either was made in bad faith or will prejudice defendant, delay by itself is not enough to deny the requisite relief); Rachman, 46 F.3d at 235 (leave to amend granted more than four years after complaint filed where court determined that the party's tardiness may have been attributable to uncertainty as to what issue to focus on). In short, Black Bear cannot demonstrate that Starbucks has engaged in undue delay seeking leave to amend.

There is no evidence to support an allegation of bad faith or dilatory motive on the part of the Plaintiffs. As explained more fully above, Starbucks analyzed the advantages and disadvantages of pursuing damages claims after the settlement negotiations disintegrated and determined that the damages claims should be waived. Subsequently, Black Bear, refused to stipulate to the filing of the First Amended Complaint, in a desperate attempt to avoid the loss of insurance coverage that will likely occur when the Amended Complaint is deemed filed.

Plaintiffs have not previously sought leave to file an amended complaint and, therefore. Plaintiffs have not failed to cure previous deficiencies by amendments previously allowed. Thus, the motion may not be properly denied on this basis.

In sum, justice requires the Court to grant Plaintiffs' motion for leave to amend the complaint because none of the limiting factors enunciated by the Supreme Court are present here.

CONCLUSION

For reasons set forth, Plaintiffs respectfully request that this Court grant its

Motion for Leave to File an Amended Complaint.

 

Dated: New York, New York

April 1, 2002

JONES, DAY, REAVIS & POGUE

 

By:

Bonnie L. Hemenway (BH-2246)

Barbra S. Levy (BL-3306)

222 East 41st Street

New York, New York 10017-6702

(212) 326-3939

 

Of Counsel:

John C. Rawls
JONES, DAY, REAVIS & POGUE

555 West Fifth Street, Suite 4600

Los Angeles, California 90013

(213)489-3939

 

Attorneys for Plaintiffs

CERTIFICATE OF SERVICE

 

GEORGE KOSTOLAMPROS, declares, pursuant to 28 U.S.C. Section 1746, as follows:

 

1. I am an attorney in the firm of Jones, Day, Reavis & Pogue, counsel for Plaintiffs Starbucks Corporation and Starbucks U.S. Brands Corporation (named herein as "Starbucks U.S. Brands, Inc.").

2. On April 1, 2002, I caused service of true copies of the within
Memorandum of Law in Support of Plaintiffs' Motion for Leave to File Amended Complaint to be made, by hand, upon:

Mark S. Kaufinan, Esq.

The Law Offices of Mark S. Kaufinan

36 West 44th Street, Suite 900

New York, New York 10036

and by First-Class U.S. Mail upon:

Michael K. Terry, Esq.

Konowitz & Greenberg

110 Cedar Street, Suite 250

Wellesley Hills, Massachusetts 02481-9527

 

Attorneys for Defendant Wolfe's

Borough Coffee, Inc., d/b/a Black

Bear Micro Roastery

 

3. I declare under penalty of perjury that the foregoing is true and correct.

Dated: New York, New York

April 1, 2002

_______________________

GEORGE KOSTOLAMPROS