# JUUL LABS, INC. v. 4X PODS

> District Court, D. New Jersey · April 28, 2020

URL: https://www.frixlaw.com/law-library/cases/10268202

## Case

- **Court:** District Court, D. New Jersey
- **Decided:** April 28, 2020
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10268202

## How later opinions describe it (automated extraction)

- noting that a complaint is insufficient if it offers “labels and conclusions,” a “formulaic recitation of the elements of a cause of action,” or “naked assertions” devoid of “further factual enhancement”

## Opinion text

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
____________________________________
:
JUUL LABS, INC., : Civil Action No. 18-15444 (KM) (MAH)
:
Plaintiff, :
:
v. : OPINION
:
4X PODS, et al., :
:
Defendants. :
____________________________________:

I. INTRODUCTION
This matter comes before the Court on Juul Labs, Inc.’s (“JLI”) Motion for Leave to File
an Amended Complaint. D.E. 108. Pursuant to Federal Rule of Civil Procedure 78 and Local
Civil Rule 78.1, the Court decides this motion without oral argument. For the reasons set forth
below, the Court will grant JLI’s motion.
II. BACKGROUND1
Plaintiff brings claims for violations of the Lanham Act, copyright infringement, and NJ
common law. Plaintiff manufactures electronic nicotine delivery systems (“ENDS”). Complaint,
Oct. 30, 2018, D.E. 1, ¶ 2. The ENDS use two components: “(1) a device and (ii) disposable pods
(“JUUL pods”) prefilled with a proprietary mixture of vaporizer carriers, nicotine salt extracts, and
flavoring (together, “e-liquid”).” Id., ¶ 3. A user would insert the pod into the device and then
use the mouthpiece to inhale. Id. That causes the e-liquid in the pod to heat up and allows the

1 Because the Court writes for the parties, the Court briefly summarizes the pertinent facts. The
Court also assumes as true the factual allegations in the complaint for the purpose of this motion.
See Batoff v. State Farm Ins. Co., 977 F.2d 848, 851-52 (3d Cir. 1992).
user to inhale the vaporized e-liquid. Id. JLI has federally registered trademarks for its refill pods,
id., ¶ 22, and copyrights for the visual works depicted on JLI packaging. Id., ¶ 35.
JLI alleges that Defendants manufacture and sell a product known as “4X PODS,” and that
“[t]he 4X PODS product, on its face, copies virtually all components of the JUUL Pod Logo

Trademark, JUUL Packaging Trade Dress, and Copyrighted Works.” Id., ¶¶ 40-43. JLI further
alleges that “the 4X PODS brand packaging prominently bears the JUUL trademark, and slavishly
copies virtually all elements of the JUUL Packaging Trade Dress, which strongly indicates
Defendants' intent to copy, and necessary knowledge of, JLI's trademarks and trade dress.” Id., ¶
45. According to JLI, Defendant Gregory Grishayev organized and directed the alleged infringing
conduct, and Defendant Electric Tobacconist has engaged in the distribution and sale of 4X PODS
products. Id., ¶¶ 48-49. In terms of damages, the Complaint alleges that the alleged infringement
has caused confusion in the marketplace. Id., ¶ 42 & n.8-9, ¶¶ 54-55.
JLI now moves for leave to file an Amended Complaint to: (1) name Eonsmoke, LLC,
doing business as 4X PODS, as the corporate Defendant; (2) name Michael J. Tolmach as a

Defendant; (3) add an additional claim against Mr. Tolmach to hold him individually liable for the
alleged infringement of JLI’s copyrights, trade dress and trademarks; (4) add a claim for
infringement of JLI’s JUUL Wordmark, Registration No. 4818664; (5) plead that if it prevails on
its claims against Defendants, the Court in awarding relief should pierce the corporate veil of
Eonsmoke and hold Defendants Grishayev and Tolmach personally liable; and (6) plead additional
facts showing the harm to Plaintiff and its reputation. Defendants argue that the Court should deny
JLI’s motion to amend because the amendment is the result of undue delay and bad faith, it is
futile, and granting the motion would prejudice Defendants.
III. ANALYSIS
The first issue for the Court is whether Federal Rule of Civil Procedure 15 or 16 governs
Plaintiff’s motion to amend. Karlo v. Pittsburgh Glass Works, LLC, Civ. No. 10-1283, 2011 WL
5170445, at *2 (W.D. Pa. Oct. 31, 2011). Rule 15 states, in pertinent part, “a party may amend its

pleading only with the opposing party’s written consent or the court’s leave. The court should
freely give leave when justice so requires.” Fed. R. Civ. P. 15(a)(2). “Rule 16, on the other hand,
requires a party to demonstrate ‘good cause’ prior to the Court amending its scheduling order.”
Karlo, 2011 WL 5170445, at *2 (citing Fed. R. Civ. P. 16(b)(4)).
There is a recognized tension between Rule 15 and Rule 16 that has not been directly
resolved by the United States Court of Appeals for the Third Circuit. See Race Tires America, Inc.
v. Hoosier Racing Tire Corp., 614 F.3d 57, 84 (3d. Cir. 2010); Graham v. Progressive Direct Ins.
Co., 271 F.R.D. 112, 118 (W.D. Pa. 2010). However, courts “within the Third Circuit have
consistently reached the same conclusion: a party seeking to amend the pleadings after the
deadline set by the Court must satisfy the requirements of Rule 16(b)(4)—i.e., they must show

‘good cause.’” Karlo, 2011 WL 5170445, at *2 (citing Fed. R. Civ. P. 16(b)(4)) (emphasis added).
Here, JLI initially sought leave by letter application to file the proposed amended pleading
on October 31, 2019, before the deadline set by this Court for doing so, i.e., November 15, 2019.
Defendants filed a letter objecting to the proposed amendment on November 1, 2019. Therefore,
on November 4, 2019, the Court directed Plaintiff to file a formal motion to amend on or before
December 6, 2019. Plaintiff filed the instant motion on December 4, 2019. Based on these facts
in the record, the Court finds that Plaintiff’s request to amend its pleading was made before the
deadline for doing so. Accordingly, the Court need not consider Rule 16, and instead, will turn to
Rule 15 to determine whether to permit JLI to file its amended pleading.
Under Rule 15 of the Federal Rules of Civil Procedure, a plaintiff may amend his or her
complaint once as of right, and “courts may grant subsequent amendments ‘when justice so
requires.’” Fraser v. Nationwide Mut. Ins. Co., 352 F.3d 107, 116 (3d Cir. 2003) (quoting Fed. R.
Civ. P. 15(a)). Further, “leave to amend should be freely given when justice so requires, including

for a curative amendment unless such an amendment would be inequitable or futile.” Free Speech
Coalition, Inc. v. Att’y Gen. of U.S., 677 F.3d 519, 545 (3d Cir. 2012). The Court may deny leave
to amend the pleadings only when there is (1) undue delay, (2) bad faith or dilatory motive, (3)
undue prejudice, (4) repeated failures to cure deficiencies, or (5) futility of amendment. Foman v.
Davis, 371 U.S. 178, 182 (1962); Long v. Wilson, 393 F.3d 390, 400 (3d Cir. 2004).
Defendants argue that JLI has unduly delayed in seeking to amend its pleading. Br. in
Opp., Dec. 23, 2019, D.E. 134, at 3-4. Defendants also contend that JLI’s proposed amendment
to pierce the corporate veil to award relief if this litigation proves successful is brought in bad
faith. Id. at 4-6. Next, Defendants contend that they will suffer prejudice if the amendment is
granted because it will delay the final adjudication of the merits of this action and cause Defendants

additional expense. Id. at 6-7. Finally, Defendants maintain that JLI’s amendments to pierce the
corporate veil and add a claim for infringement of the JUUL wordmark claim are futile because
they will not survive a motion to dismiss or summary judgment. Id. at 7-8. The Court will take
each argument in turn.
A. Undue Delay
While delay alone is insufficient to justify denial of leave to amend, “at some point, ...
delay will become ‘undue,’ placing an unwarranted burden on the court ... [and] an unfair burden
on the opposing party.” Adams v. Gould Inc., 739 F.2d 858, 864 (3d Cir. 1984). When a party
fails to take advantage of previous opportunities to amend, without adequate explanation, leave to
amend is properly denied. Id. “[T]he question of undue delay requires that we focus on the
movant’s reasons for not amending sooner.” Cureton v. Nat’l Collegiate Athletic Ass’n, 252 F.3d
267, 273 (3d Cir. 2001). “Indeed, amendments may be made during trial, after the close of
testimony, or even after judgment.” Ajax Enterprises v. Fay, Civ. No. 04-4539, 2007 WL 766335,

*2 (D.N.J. Mar. 7, 2007) (citing Wright, Miller & Kane, Federal Practice and Procedure Civil 2d
§ 1494, at 51–52). “Leave to amend a complaint should only be denied because of undue delay if
the delay causes the non-moving party to be prejudiced.” Cincerella v. Egg Harbor Tp. Police
Dept., Civ. No. 06-1183, 2007 WL 2682965, at *2 (D.N.J. Sept. 6, 2007). If the court extends the
deadline to amend, it is settled that the new deadline is the proper focus when inquiring as to the
timeliness of a motion to amend. See Tri 3 Enters., LLC v. Aetna, Inc., No. 11-3921, 2015 WL
758879, at *15 (D.N.J. Feb. 23, 2015) (noting that the amendment was timely and not the result of
undue delay because it was within the new deadline as determined by the court).
Defendants argue that the Court should deny JLI’s motion to amend because Plaintiff did
not begin taking any depositions until after the original deadline to amend, which was March 29,

2019. See Br. in Opp. at 3. Defendants also maintain that Plaintiff only filed a letter request
seeking leave to amend, rather than the requisite motion, requiring the Court to extend Plaintiff’s
deadline for moving to amend. Id. Defendants further posit that Plaintiff could have filed the
instant motion immediately after Eonsmoke’s initial document production and first round of
depositions, which occurred over six months ago. Id. Finally, Defendants maintain that permitting
the amendment at this late stage will require the Court to re-open discovery and extend the
deadlines in this case indefinitely. Id. at 4. These arguments fail. There is nothing in the facts
before this Court which indicates that JLI’s failure to amend the Complaint earlier in the litigation
is the product of “undue delay.”
The Court does not find evidence of undue delay for several reasons. First, any “delay”
in Plaintiff’s discovery timeline and subsequent motion to amend is directly attributed to
Defendants’ clear and consistent pattern of noncompliance with discovery requests. See Order,
Jul. 12, 2019, D. E. 77 (directing Defendants to produce certain discovery and extending

deadlines); Order, Oct. 4, 2019, D.E. 92 (ordering Defendants to produce a 30(b)(6) witness);
Order, Oct. 21, 2019, D.E. 98 (directing Defendants to renew their search for Skype messages
and produce them). Indeed, as Plaintiff points out, these delays led Plaintiff to discover important
Skype messages that are material to its case on October 17, 2019, almost one full year after they
had been requested, and only a few weeks prior to the deadline to amend. See Pl.’s Brief in
Support of Mot. To Amend at 13. Moreover, Defendants did not produce financial documents
related to the sale of the allegedly infringing products and raw invoice data, including sales
invoices until October 28, 2019 and November 5, 2019, respectively. Decl. of Arthur W.
Coviello, Esq., Dec. 4, 2019, D.E. 108-1, Exh. G, D.E. 109-4, Copy of the Document Produced
by Defendants on October 28, 2019, Bearing Bates Numbers EON029800-EON029826; Exh. H,

D.E. 109-4, Excerpts of Documents Produced by Defendants on November 5, 2019, bearing
bates numbers EON018827-EON025820. This Court extended the deadline to amend the
pleadings to December 6, 2019; Plaintiff filed the instant motion on December 4, 2019, which
plainly falls within the December 6 deadline. D.E. 107, 109. Further, Plaintiff sought leave to
amend within six weeks of receiving the Skype messages, financial documents and raw financial
data which form the basis of the proposed amendments. Under these circumstances, the Court
cannot find that Plaintiff’s proposed amendments are the product of undue delay. Any delay is
due in significant part to Defendants’ failure to produce discovery in a timely manner.
Accordingly, the Court cannot find JLI’s amendment at this time is the product of undue delay.
B. Undue Prejudice
While the question of undue delay and bad faith focuses on the plaintiff’s motive for not
amending earlier, the issue of prejudice focuses on the effect on Defendant. Adams v. Gould Inc.,
739 F.2d 858, 868 (3d Cir. 1984). The factors have been interpreted to mean that “‘prejudice to

the non-moving party is the touchstone for the denial of an amendment.’” Lorenz v. CSX Corp., 1
F.3d 1406, 1414 (3d Cir. 1993) (quoting Cornell & Co. v. Occupational Safety & Health Review
Comm'n, 573 F.2d 820, 823 (3d Cir.1978)). An amendment that changes the legal and factual
basis may create undue prejudice, especially when new discovery, costs, and preparation are
required to defend against the new theories. Luciani v. City of Philadelphia, 13-4077, 2016 WL
861042, at *2 (3d Cir. 2016).
In deciding whether the proposed amendment would unfairly prejudice Defendants, courts
consider whether permitting the amendment would (1) require defendants to expend significant
additional resources to conduct discovery and prepare for trial, (2) significantly delay resolution
of the dispute, or (3) prevent a party from bringing a timely action in another jurisdiction. Long v.

Wilson, 393 F.3d 390, 400 (3d Cir. 2004). The Court does not find that granting Plaintiff’s
proposed amendment would unduly prejudice Defendants. Although Defendants argue that
granting Plaintiff’s motion would extend the litigation, mere inconvenience in defending a suit
does not constitute undue prejudice. See Harrison Beverage, 133 F.R.D. at 468 (“[I]ncidental
prejudice to the opponent is not a sufficient basis for denial of an amendment; such prejudice
becomes "undue" when the opponent shows it would be unfairly disadvantaged or deprived of the
opportunity to present facts or evidence which it would have offered.”) (citations omitted) (internal
quotation marks omitted). Defendants’ argument that they will be prejudiced if Plaintiff is
permitted to amend falls flat. First, Plaintiff aptly notes that most of the discovery pertinent to the
new claims had already been requested at the time the motion was filed. See Pl.’s Brief in Support
of Mot. To Amend at 15. At the time of filing, the depositions for the individual defendants had
not yet occurred, further bolstering Plaintiff’s claim that a significant expansion of discovery is
not needed. See Id. at 15-16. Any increased expenditure of resources to defend these new claims

account for merely the “incidental prejudice” contemplated by the Harrison Beverage court.
Indeed, it might have been the case that these claims could have been fully pled earlier in this
litigation had Defendants complied with Plaintiff’s reasonable discovery requests. Therefore,
Plaintiff’s motion cannot be denied on grounds of undue prejudice.
C. Bad Faith
Whether a party has acted in bad faith in moving to amend the pleadings focuses on the
movant’s motives for not amending the pleading earlier in the litigation. Adams, 739 F.2d at 868.
“[T]here generally must... be some extrinsic evidence to indicate that a litigant acted in bad faith
before a motion to amend will be denied on this ground.” See Diallo v. ALO Enters. Corp., Civ.
No. 12-3762, 2013 WL 3772827, at *3 (D.N.J. July 17, 2013) (citations omitted).

Defendants contend that Plaintiff’s attempt to utilize the “alter ego” theories against
Grishayev and Tolmach demonstrates bad faith because Plaintiff simply intends to harass and
intimidate these Defendants. See Br. in Opp. at 4. Defendants further argue that Plaintiff has
failed to allege a plausible basis to pierce the corporate veil simply because Grishayev and
Tolmach, as principals of a two-man operation, have been personally involved in their LLC’s
decisions. Id. at 4-6.
Measured against the high standard to find bad faith, Defendants’ arguments plainly fail.
Defendants argue that in seeking to amend the Complaint to pierce Eonsmoke, Plaintiff is acting
in bad faith. But a review of the amended pleading does not, as Defendants seem to suggest, show
any signs of harassment or intimidation. As will be discussed within the upcoming section
regarding futility, it is settled law that veil piercing is available within the context of the LLC and
its individual members. See Operative Plasterers & Cement Masons Int’l Ass’n Local 8 v. AGJ
Constr., LLC, No. 08-6163, 2009 WL 2243900, at *17-20 (D.N.J. July 24, 2009) (finding that the

pleading standard was met because defendant LLC failed to observe corporate formalities in an
effort to avoid an adverse federal judgment). Plaintiff pleads facts that point directly to this lack
of corporate formalities, and it includes explicit language from Defendants that express an intent
to hinder and delay Plaintiff’s ability to collect a judgment. See Pl.’s Reply Brief in Support of
Mot. To Amend at 15 (“Mr. Tolmach: ‘…I’m not going to keep my $20 million in my business so
maybe you guys can win something for me in the future. This is what prudent businessmen do;
they sweep.’”); see also id. at 13-14 (“Q: [T]he 4X packaging was specifically designed to hide
the fact that it was affiliated with Eonsmoke, correct?... A: Yes.”) (citations omitted) (internal
quotation marks omitted). The Court finds that Plaintiff’s inclusion of a veil piercing and pursuit
of individual liability is grounded in a good faith belief that Defendants’ conduct meets the

threshold for liability.
To the extent Defendants argue that Plaintiff’s delay in bringing these additional claims is
the result of harassment or otherwise impermissible strategy, the Court is not persuaded.
Considering that Defendants’ recent discovery materials potentially implicated both of
Eonsmoke’s members, it simply cannot be said that Plaintiff was trying to harass Defendants rather
than trying to assert a reasonably viable claim of veil piercing. Based upon the record, and as
repeatedly noted throughout this Opinion, it appears that any delay in bringing these additional
claims are the direct result of Defendants’ noncompliance with discovery requests. For example,
Defendants delayed providing certain discovery requests for almost a full calendar year; these
materials directly related to the potential individual liability of Eonsmoke’s members, and the
materials were produced shortly before the deadline to amend. See Pl.’s Reply Brief in Support
of Mot. To Amend at 10 (“Defendants delayed producing these Skype messages for nearly a year
after JLI requested them in November 2018, despite JLI’s repeated requests, and despite the

Court’s Order that such communications be produced by August 15, 2019.”). Moreover,
Defendants offer no extrinsic evidence of bad faith, which, as stated above, is usually a requirement
to succeed on a claim of bad faith. Instead, Defendants rely upon conclusory allegations that only
focus on internal aspects of this case, without even mentioning the extrinsic evidence requirement.
See Br. in Opp. at 4-6. Accordingly, the Court declines to find that JLI’s motion to amend was
made in bad faith.
D. Futility
A court will consider an amendment futile if it “is frivolous or advances a claim or defense
that is legally insufficient on its face.” Harrison Beverage, 133 F.R.D. 463, 468 (D.N.J. 1990)
(citations omitted). To determine whether an amendment is insufficient on its face, the Court

employs the standard applied to Rule 12(b)(6) motions to dismiss. In re Burlington Coat Factory
Sec. Litig., 114 F.3d 1410, 1434 (3d Cir. 1997). Under this standard, the question before the Court
is not whether the movant will ultimately prevail, but whether the complaint sets forth “enough
facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007); see Harrison Beverage, 133 F.R.D. at 468 (“‘Futility’ of amendment is shown
when the claim or defense is not accompanied by a showing of plausibility sufficient to present a
triable issue.”). A two-part analysis determines whether this standard is met. Fowler v. UPMC
Shadyside, 578 F.3d 203, 210 (3d Cir. 2009) (citing Ashcroft v. Iqbal, 556 U.S. 662, 629 (2009)).
First, a court separates the factual and legal elements of a claim. Fowler, 578 F.3d at 210.
All well-pleaded facts set forth in the pleading and the contents of the documents incorporated
therein must be accepted as true, but the Court may disregard legal conclusions. Id. at 210–11;
West Penn Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85, 97 n.6 (3rd Cir. 2010); see also

Iqbal, 556 U.S. at 678 (noting that a complaint is insufficient if it offers “labels and conclusions,”
a “formulaic recitation of the elements of a cause of action,” or “naked assertions” devoid of
“further factual enhancement”) (alterations omitted) (internal quotations marks omitted)).
Second, as stated above, a court determines whether the plaintiff's facts are sufficient “to
state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570; accord Fowler, 578
F.3d at 211. As the Supreme Court instructed in Iqbal, “[a] claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” 556 U.S. at 678. Although the plausibility
standard is not a “probability requirement,” the well-pleaded facts must do more than demonstrate
that the conduct is “merely consistent” with liability so as to “permit the court to infer more than

the mere possibility of misconduct.” Id. at 678–79 (citations omitted) (internal quotation marks
omitted). This “context-specific task ... requires the reviewing court to draw on its judicial
experience and common sense.” Id. at 679.
Defendants attack two bases of Plaintiff’s case as being futile: (1) Plaintiff’s claim for
infringement of its registered mark, and (2) Plaintiff’s argument regarding the appropriateness of
piercing Eonsmoke’s corporate veil. Br. In Opp. at 6-7. As to Defendants’ first ground for futility,
Defendants seem to argue that use of a registered mark in a hashtag is presumptively or per se fair
use, but that is simply not the case.
1. Trademark Infringement

To establish a claim of trademark infringement under the Lanham Act, a plaintiff must
prove three elements: “(1) the marks are valid and legally protectable; (2) the marks are owned by
the plaintiff; and (3) the defendant's use of the marks to identify goods or services is likely to create
confusion concerning the origin of the goods or services.” Ford Motor Co. v. Summit Motor
Products, Inc., 930 F.2d 277, 291 (3d Cir. 1991).
The third element (likelihood of infringement) is shown “when the consumers viewing the
mark would probably assume that the product or service it represents is associated with the source
of a different product or service identified by a similar mark.” Id. at 292. The Third Circuit has
developed the following factors to be weighed during this inquiry:
(1) the degree of similarity between the owner's mark and the
alleged infringing mark; (2) the strength of owner's mark; (3) the
price of the goods and other factors indicative of the care and
attention expected of consumers when making a purchase; (4) the
length of time the defendant has used the mark without evidence of
actual confusion arising; (5) the intent of the defendant in adopting
the mark; (6) the evidence of actual confusion; (7) whether the
goods, though not competing, are marketed through the same
channels of trade and advertised through the same media; (8) the
extent to which the targets of the parties' sales efforts are the same;
(9) the relationship of the goods in the minds of the public because
of the similarity of function; (10) other facts suggesting that the
consuming public might expect the prior owner to manufacture a
product in the defendant's market.

Scott's Paper Co. v. Scott’s Liquid Gold, Inc., 589 F.2d 1225, 1229 (3d Cir. 1978). When these
factors are viewed through the lens of potential infringement by a competitor in the marketplace,
the first factor “takes on great prominence.” A&H Sportswear, Inc. v. Victoria’s Secret Stores,
Inc., 237 F.3d 198, 214 (3d Cir. 2000). Indeed, the “similarity of the marks” factor has been
deemed “[t]he single most important factor in determining the likelihood of confusion” when
dealing with competitor infringement. Id. at 216.
Framing the analysis within the context of social media, it has been established that the use
of a registered mark in a hashtag without consent can form the basis for a claim under the Lanham
Act. Chanel, Inc. v. WGACA, LLC, No. 18-2253, 2018 U.S. Dist. LEXIS 158077, at *5-6
(S.D.N.Y. Sep. 14, 2018). Chanel, Inc. (“Chanel”) sued WGACA, LLC (“WGACA”), a retail

business, under the Lanham Act for its wrongful use of Chanel’s registered brand name in
WGACA’s digital and social media marketing. Id. at *1. Of note to the instant case, WGACA
used the Chanel brand in its social media hashtags, such as “#WGACACHANEL.” Id. at *3. The
court expressly rejected WGACA’s argument that this qualified as nominative fair use, as the close
association between WGACA’s brand and products to this hashtag could create confusion as to
the true nature of the relationship between WGACA and Chanel, and these facts led the court to
deny WGACA’s motion to dismiss Chanel’s claim. Id. at *7-9.
Turning to the instant case, it is not disputed that Plaintiff’s mark is valid and legally
protectable, nor is it disputed that Plaintiff owns the mark. Thus, assessing the futility of Plaintiff’s
infringement claim turns on the third Lanham Act element. When weighing the factors, the

similarity of the marks is likely sufficient to meet the pleading standard. This is not because the
mark used by Defendants are similar to Plaintiff’s mark; rather, this is because the mark is identical
to Plaintiff’s mark. Defendants clearly used hashtags such as “juulgang,” unequivocally using
Plaintiff’s registered mark without any alteration. See Prop. Amend. Compl., D.E. 109-1, ¶ 62.
Considering that this factor is the “single most important” factor in this analysis, and coupling that
principle with Defendants’ identical use of Plaintiff’s registered mark, it cannot be said that
Plaintiff has not met the pleading standard as to its Lanham Act claim.
Defendants’ fair use argument is plainly erroneous when measured against WGACA’s
hashtags in Chanel, Inc. For example, Plaintiff asserts that Defendants used hashtags such as
“#doit4juul” and “#juulnation,” all in conjunction with images of the Eonsmoke product. See Pl.’s
Brief in Support of Mot. To Amend at 4-5. The Court finds that this pairing of Plaintiff’s brand
name with images of Eonsmoke’s product may create the same potential confusion as to the
relationship between the two as in Chanel, Inc. Consequently, the Court finds that Plaintiff

plausibly pleads sufficient facts to allow the Court to draw the reasonable inference that
Defendants are liable for violating the Lanham Act, and as such, the claim is not futile.
2. Veil Piercing
Turning to Defendants’ argument that Plaintiff’s attempt at veil piercing is futile, the Court
disagrees. Courts in New Jersey apply a two-element test when determining whether veil piercing
is appropriate in a given case: “First, there must be such unity of interest and ownership that the
separate personalities of the corporation and the individual no longer exist. Second, the
circumstances must indicate that adherence to the fiction of separate corporate existence would
sanction a fraud or promote injustice.” State Capital Title & Abstract Co. v. Pappas Bus. Servs.,
LLC, 646 F. Supp. 2d 668, 679 (D.N.J. 2009) (citations omitted) (internal quotation marks

omitted). It is important to appreciate that veil piercing is not an independent claim, nor should it
be overlooked that avoiding personal liability is a common (and acceptable) reason to incorporate;
rather, veil piercing is “an equitable remedy designed to remedy a fundamental unfairness
perpetrated under the guise of the corporate form.” Linus Holding Corp. v. Mark Line Indus., LLC,
376 F. Supp. 3d 417, 424-25 (D.N.J. 2019). The unity of interest element entails a multi-factor
analysis:
gross undercapitalization . . . failure to observe corporate
formalities, non-payment of dividends, the insolvency of the debtor
corporation at the time, siphoning of funds of the corporation by the
dominant stockholder, non-functioning of other officers or directors,
absence of corporate records, and the fact that the corporation is
merely a facade for the operations of the dominant stockholder or
stockholders.

Craig v. Lake Asbestos of Quebec, Ltd., 843 F.2d 145, 150 (3d Cir. 1988) (quoting American Bell
Inc. v. Federation of Telephone Workers, 736 F.2d 879, 886 (3d Cir. 1984). As to the second
element (fraud or injustice), “a plaintiff need not prove common law fraud but instead demonstrate
that the defendants, via the corporate form, perpetrated ‘a fraud, injustice, or the like,’ a less
exacting standard.” Linus Holding Corp., 376 F. Supp. 3d at 425 (quoting Mall at IV Group
Props., LLC v. Roberts, No. 02-4692, 2005 WL 3338369, at *3 (D.N.J. Dec. 8, 2005)).
In an attempt to demonstrate why Plaintiff’s request to pierce the corporate veil is futile,
Defendants rely upon a recent decision by Chief Judge Wolfson in Linus Holding Corp.
Specifically, Defendants rely on Judge Wolfson’s discussion regarding undercapitalization and
why that, alone, is insufficient to satisfy the first element of the veil piercing test. Br. In Opp. at
5-6. However, Defendants overlook that Plaintiff relies on several other factors outlined in Linus
Holding Corp. to demonstrate that piercing the corporate veil is appropriate here.
Most notably, Plaintiff notes that Eonsmoke is merely a façade for the operations of its
individual members, Grishayev and Tolmach. See Prop. Amend. Compl., D.E. 109-1, ¶ 147. As
noted in Linus Holding Corp., establishing that an entity is merely a façade for its individual
members can satisfy the unity of interest element and form the basis for veil piercing. Linus
Holding Corp., 376 F. Supp. 3d at 425 (citing Craig, 843 F.2d at 150). At least two of Plaintiff’s

allegations evince a plausible theory that Eonsmoke is a façade. First, Plaintiff presents messages
between Grishayev and Tolmach that expressed a decision to treat a “family account” as “the
Eon[smoke] checking acc[oun]t.” See Prop. Amend. Compl., D.E. 109-1, ¶ 141 (first alteration
added). Additionally, Grishayev and Tolmach actively tried to conceal the fact that Eonsmoke
even existed at all while they sold the 4X Pods product:
Defendants intentionally attempted to conceal the fact that 4X
PODS were an Eonsmoke product, including by lying to their
suppliers. Ex. 2 (Tolmach Tr.) 142:13-19 (“Q. You didn’t advertise
that 4X Pods was a brand of Eonsmoke when you sold the original
4X Pods packaging, correct? A Correct. No. Q You wanted to keep
that information hidden at the time, correct? A I did, uh-huh.”); Ex.
3 (Grishayev Tr.) 147:4-10 (“Q. [T]he 4X packaging was
specifically designed to hide the fact that it was affiliated with
Eonsmoke, correct?... A. Yes.”); id. 259:11-19 (“Q. But you would
agree that Eonsmoke was lying to its supplier Greensun about
Eonsmoke’s affiliation with 4X, correct? A. Again, I didn’t write
this statement. But we mentioned that it wasn’t us, yes. Q. And that
statement was not true, correct? A. Yeah, that was a false
statement.”).

Pl.’s Reply Brief in Support of Mot. To Amend at 13-14 (quoting deposition transcripts of
Grishayev, Decl. of Arthur W. Coviello, D.E. 143-1, Exh. 3, and Tolmach, Decl. of Arthur W.
Coviello,, D.E. 143-1, Exh. 2). Moreover, Plaintiff asserts that other unity of interest factors
considered by the Third Circuit in determining whether veil piercing is appropriate are present
here, such as: Eonsmoke’s gross undercapitalization, Tolmach and Grishayev’s siphoning of
Eonsmoke’s profits to their personal accounts, Tolmach and Grishayev’s failure to observe
corporate formalities, and Tolmach and Grishayev’s intention to transfer assets out of Eonsmoke
to ensure they would be judgment proof. See Prop. Amend. Compl., D.E. 109-1, ¶¶ 136-149.
As to the second element (perpetuating a fraud or injustice), Plaintiff plausibly pleads
sufficient facts to plausibly show that Defendants are perpetrating a fraud. Not only does Plaintiff
allege that Defendants’ conduct is plausibly fraudulent in that the corporate form was used to
infringe upon Plaintiff’s mark and potentially create confusion in the marketplace by attempting
to appear to own the Juul-related hashtags, but Plaintiff also asserts that Defendants’ use of the
corporate form perpetuates a plan to avoid FDA compliance while still marketing the 4X PODS.
See Prop. Amend. Compl., D.E. 109-1, ¶ 147. It could hardly be said, at least at this stage in the
litigation, that the possibility of using the corporate form to avoid regulation by the FDA is not an
injustice. Thus, the Court finds that Plaintiff pleads a plausible basis for piercing the corporate
veil.
IV. CONCLUSION
For the foregoing reasons, the Court grants JLI’s Motion for Leave to File an Amended

Complaint. An Order accompanies this Opinion.

s/ Michael A. Hammer___________
Hon. Michael A. Hammer
United States Magistrate Judge

Dated: April 28, 2020

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10268202. Public record. Not legal advice.