Too, Inc. v. Kohl's Department Stores, Inc.
2003 WL 342837, 213 F.R.D. 138, 2003 U.S. Dist. LEXIS 2268 (2003)
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Rule of Law:
A district court has broad discretion under Fed. R. Civ. P. 14(a) to permit a defendant to implead a third-party defendant for contribution where the third-party's liability is derivative of the main claim, the third-party complaint states a meritorious claim, and the benefits of judicial economy outweigh any prejudice, undue delay, or complication; however, common-law indemnification is generally barred when the party seeking it is itself at fault.
Facts:
- Too, Inc. manufactures products with designs protected by copyrights and trademarks.
- Windstar Apparel, Inc. is a company that produces and sells apparel.
- In November 2000, Windstar hired Mia DeCaro as its Head Designer and Paula Abraham as its salesperson for the Kohl’s Department Stores, Inc. account, specifically to establish a girls' sleep-wear division.
- Windstar alleges that DeCaro represented to Jae C. Han, Windstar’s production manager, that she created the designs later alleged by Too to infringe its copyrights and trademarks, and that she knew these designs were to be sold by Windstar to retailers, including Kohl's.
- Windstar also alleges that Abraham proceeded to sell girls' sleep-wear containing the alleged infringing designs, knowing the sleep-wear potentially infringed Too’s copyrights and trademarks.
Procedural Posture:
- Too, Inc. filed a complaint against Windstar Apparel, Inc. in the United States District Court for the Southern District of New York alleging copyright infringement, trademark infringement, and unfair competition.
- Too, Inc. subsequently filed an Amended Complaint.
- Too, Inc. then filed a Second Amended Complaint.
- Windstar Apparel, Inc. moved the District Court for leave to file a third-party complaint under Fed. R. Civ. P. 14(a), seeking contribution and indemnification from its former employees, Mia DeCaro and Paula Abraham.
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Issue:
Should the District Court grant Windstar's motion for leave to file a third-party complaint seeking contribution from its former employees, Mia DeCaro and Paula Abraham, for alleged copyright and trademark infringement, and should it also grant leave for a claim of indemnification?
Opinions:
Majority - Marrero, District Judge
Yes, the District Court should grant Windstar's motion for leave to file a third-party complaint for contribution from DeCaro and Abraham, but no, it should deny the motion for leave to file a third-party complaint for indemnification. Under Fed. R. Civ. P. 14(a), impleader is appropriate to promote judicial efficiency when a third-party's liability is derivative of the main claim. The court must balance the benefits of settling related matters in one suit against potential prejudice, delay, or complication. For contribution, New York law and copyright law (17 U.S.C. § 1(e), 101) hold that one who, with knowledge, induces, causes, or materially contributes to infringing conduct is jointly and severally liable as a contributory infringer. Windstar's proposed complaint sufficiently alleges that DeCaro and Abraham had knowledge of the infringing activity and materially contributed, thus stating a non-unmeritorious claim. Although the motion was untimely, Too's Second Amended Complaint and the completion of discovery around the same time justify the delay. The court found that any additional discovery would not be extensive, a trial date had not been set, and DeCaro and Abraham's depositions were already taken, minimizing prejudice or undue delay. Therefore, the benefits of judicial economy outweigh these concerns. However, the court denied the motion for indemnification. Under New York law, common-law indemnification is barred when the party seeking it was itself at fault, as it applies only when liability is purely vicarious without actual fault. The court found it highly unlikely that Windstar would be deemed blameless if found liable for infringement, given the responsibilities of its production manager (Han) and officers (Park) in policing employee conduct and the general principle that those who participate in, control, or benefit from infringement are jointly and severally liable. Since Windstar could not escape all liability and did not plead blamelessness, the indemnification claim was clearly without merit.
Analysis:
This case clarifies the application of Fed. R. Civ. P. 14(a) in copyright and trademark infringement disputes, particularly regarding claims for contribution and indemnification. It underscores the judiciary's preference for consolidating related claims to promote efficiency, provided the third-party claims are legally sound and do not cause undue prejudice or delay. The decision also reinforces the distinction between contribution and common-law indemnification under New York law, affirming that indemnification is generally unavailable to a party that shares any degree of fault in the underlying wrongdoing. This case serves as a guide for parties seeking to implead potentially liable third-parties, emphasizing the importance of timely filing and demonstrating a non-speculative basis for derivative liability, while also highlighting the difficulty for corporations to claim blamelessness in employee-driven infringement.
