HOTALING & CO., LLC v. LY BERDITCHEV CORP.

Not for Publication

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

HOTALING & CO., LLC and SANNITI LLC,

Plaintiffs, Civil Action No. 20-cv-16366

v.

LY BERDITCHEV CORP., OPINION

Defendant.

John Michael Vazquez, U.S.D.J.

This case concerns Defendant’s alleged unlawful marketing and sale of “LUXARDO

ORIGINAL MARASCHINO CHERRIES” (the “Brand Cherries”). Presently before the Court is

Plaintiffs’ motion to dismiss certain counterclaims and strike an affirmative defense. D.E. 27. The

Court reviewed the parties’ submissions1 made in support and in opposition and decided the

motion without oral argument pursuant to Fed. R. Civ. P. 78(b) and L. Civ. R. 78.1(b). For the

reasons stated below, Plaintiffs’ motion is GRANTED in part and DENIED in part.

I. BACKGROUND2

Defendant and Counterclaimant LY Berditchev Corp. (“LYB”) is a New York corporation

that resells consumer products through various channels, including through an Amazon storefront.

1 Plaintiffs’ brief in support of its motion to dismiss (D.E. 27-1) will be referred to as “Br.”;

Defendant’s opposition brief (D.E. 31) will be referred to as “Opp.”; and Plaintiffs’ reply brief

(D.E. 32) will be referred to as “Reply.”

2 The facts are taken from Defendant’s Amended Counterclaim (“ACC”), D.E. 24 at 9-34, which

“the Court accepts . . . as true and draws all inferences in the light most favorable to the non-

moving party.” Duke Univ. v. Akorn, Inc., No. 18-14035, 2019 WL 4410284, at *1 (D.N.J. Sept.

16, 2019) (citing Phillips v. County of Allegheny, 515 F.3d 224, 228 (3d Cir. 2008)).

ACC ¶¶ 1, 13. Plaintiff and Counterclaim Defendant Hotaling & Co., LLC (“Hotaling”) is a

California limited liability company that imports Brand Cherries into the United States. Id. ¶¶ 2,

9. Plaintiff and Counterclaim Defendant Sanniti LLC (“Sanniti”) is an authorized distributor of

Brand Cherries in the United States and sells Brand Cherries through an Amazon storefront. Id.

¶¶ 3, 10.

LYB acquires consumer products and resells them at a profit. Id. ¶ 23. A significant

portion of its business is derived from selling products through its Amazon storefront. Id. ¶ 22.

LYB alleges on information and belief that Hotaling and Sanniti made false complaints of

intellectual property infringement and defamatory statements to prevent LYB from selling genuine

Brand Cherries on Amazon. Id. ¶¶ 30-31. Specifically, Hotaling and Sanniti filed complaints with

Amazon alleging that LYB was selling counterfeit Brand Cherries. Id. ¶ 41. LYB continues that,

on information and belief, “the purpose of these false complaints was to damage LYB’s reputation

and goodwill, such that Amazon would suspend or terminate its relationship with LYB.” Id. ¶ 32.

According to LYB, Hotaling and Sanniti have no legitimate intellectual property claims because

LYB sells only genuine products through its Amazon storefront, id. ¶ 33, and the Brand Cherries

sold by LYB are genuine products manufactured and distributed by Girolamo Luxardo S.P.A.

(“GLS”), id. ¶¶ 49-50. LYB adds that Plaintiffs’ complaints were made maliciously and with the

intent to interfere with LYB’s business relationship with Amazon. Id. ¶ 96. As a result of Hotaling

and Sanniti’s complaints to Amazon, LYB’s listings of Brand Cherries were suspended, resulting

in loss of revenue. Id. ¶ 60.

On November 17, 2020, Plaintiffs filed a Complaint against LYB asserting federal and

common law unfair competition claims concerning the marketing and sale of Brand Cherries. D.E.

1. Defendant filed an Answer, Affirmative Defenses, and Counterclaim. D.E. 18. Defendant

subsequently filed an Amended Answer, Affirmative Defenses, and Counterclaim, asserting

various affirmative defenses and counterclaims for declaratory judgment, tortious interference

with contract and business relations, defamation, and cancellation. D.E. 24. Plaintiffs then filed

the present motion to dismiss Counterclaim II for tortious interference and Counterclaim III for

defamation. D.E. 27. Plaintiffs also seek to strike LYB’s third affirmative defense relating to the

exhaustion or first sale doctrine. Id.

II. STANDARD OF REVIEW

A. Motion to Dismiss Counterclaims

“Courts use the same standard in ruling on a motion to dismiss a counterclaim under

Federal Rule of Civil Procedure 12(b)(6) as they do for a motion to dismiss a complaint.” RBC

Bank (USA) v. Petrozzini, No. 12-155, 2012 WL 1965370, at *2 (D.N.J. May 31, 2012). Under

this standard, the counterclaim must contain sufficient factual matter to state a claim that is

plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.

Twombly, 550 U.S. 544, 570 (2007)). In evaluating the sufficiency of a counterclaim, the court

must separate the factual and legal elements. Fowler v. UPMC Shadyside, 578 F.3d 203, 210-211

(3d Cir. 2009). Restatements of the elements of a claim are legal conclusions, and therefore, are

not entitled to a presumption of truth. Burtch v. Milberg Factors, Inc., 662 F.3d 212, 224 (3d Cir.

2011). A court will, however, accept the counterclaim’s well-pleaded facts as true. Fowler, 578

F.3d at 210. Moreover, a district court must draw all reasonable inferences from the well-pleaded

facts in favor of the counterclaimant. Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir.

2008).

On a Rule 12(b)(6) motion to dismiss, a district court may not rely on matters extraneous

to the pleading sought to be dismissed. Fed. R. Civ. P. 12(d). A motion to dismiss a counterclaim

must be decided “on the face of the counterclaim.” Lukoil N. Am. LLC v. Turnersville Petroleum

Inc., 2015 WL 5455648, at *1 (D.N.J. Sept. 16, 2015). However, in certain circumstances, a court

may also consider undisputed and authentic exhibits as well as matters of public record. In re

Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1425 (3d Cir. 1997).

B. Motion to Strike Affirmative Defense

Rule 12(f) of the Federal Rules of Civil Procedure sets forth two standards for striking

matter from a pleading: (1) “an insufficient defense,” or (2) “any redundant, immaterial,

impertinent, or scandalous matter.” Fed. R. Civ. P. 12(f). “An affirmative defense is insufficient

if ‘it is not recognized as a defense to the cause of action.’” F.T.C. v. Hope Now Modifications,

LLC, No. 09-1204, 2011 WL 883202, at *2 (D.N.J. Mar. 10, 2011) (quoting Tonka Corp. v. Rose

Art Indus., Inc., 836 F. Supp. 200, 217 (D.N.J.1993)). Thus, a motion to strike an affirmative

defense “will only be granted ‘when a defense is legally insufficient under any set of facts which

may be inferred from the allegations of the pleading.’” F.D.I.C. v. Modular Homes, Inc., 859 F.

Supp. 117, 120 (D.N.J. 1994) (quoting Glenside West Corp. v. Exxon Corp., 761 F. Supp. 1100,

1115 (D.N.J.1991)). “As a general matter, motions to strike under Rule 12(f) are highly

disfavored.” Thompson v. Real Estate Mortg. Network, Inc., No. 11-1494, 2018 WL 4604310, at

*2 (D.N.J. Sept. 24, 2018) (citing F.T.C., 2011 WL 883202, at *1).

III. ANALYSIS

A. Privilege

Plaintiffs argue that they are immune from liability for statements made to Amazon relating

to LYB’s allegedly unlawful conduct because such statements are shielded by privilege. Br. at 7-

9. A privilege is an affirmative defense. See JNL Mgmt., LLC v. Hackensack Univ. Med. Ctr.,

Civ. No. 18-5221, 2019 WL 1951123, at *7 (D.N.J. May 2, 2019). The party raising privilege as

an affirmative defense bears the burden of establishing the existence of privilege from the face of

the pleading. Id. at *8 (quoting Mangan v. Corp. Synergies Grp., Inc., 834 F. Supp. 2d 199, 209

(D.N.J. 2011)).

Plaintiffs first contend that the notices they submitted to Amazon regarding LYB’s sale of

Brand Cherries are shielded by litigation privilege. Br. at 7-8. Under New Jersey law,3 the

litigation privilege extends to “any communication (1) made in judicial or quasi-judicial

proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of

the litigation; and (4) that have some connection or logical relation to the action.” Hawkins v.

Harris, 141 N.J. 207, 216 (1995). Here, Plaintiffs argue that their notice and takedown

communications with Amazon qualify as communications made in quasi-litigation procedures and

are therefore privileged. In support of their position, Plaintiffs cite to TP Link USA Corp. v.

Careful Shopper, LLC, Civ. No. 19-82, 2020 WL 3063956 (C.D. Cal. Mar. 23, 2020) and TD Bank,

N.A. v. Hill, Civ. No. 12-7188, 2014 WL 413525, at *6-7 (D.N.J. Feb. 3, 2014). But neither case

is analogous to the situation here. TP Link, an unpublished opinion from the Central District of

California, held that certain complaints submitted to Amazon fell within the protection of

California’s Anti-SLAPP statute. TP Link, 2020 WL 3063956, at *6-7. However, as LYB notes,

Plaintiffs do not explain how that statute is relevant to the communications at issue here. See Opp.

at 16 n.7. In TD Bank, the plaintiff filed suit against the defendant for copyright infringement and

notified online retailers to this alleged infringement after commencing suit. TD Bank, 2014 WL

3 The parties appear to assume that New Jersey law applies. Seeing no clear reason to deviate

from this assumption, the Court will apply New Jersey law. See Manley Toys, Ltd. v. Toys R Us,

Inc., No. 12-3072, 2013 WL 244737, at *2 (D.N.J. Jan. 22, 2013) (“Because the parties have

argued the viability of the remaining claims as though New Jersey substantive law applies, the

Court will assume that to be the case.”) (citing USA Mach. Corp. v. CSC, Ltd., 184 F.3d 257, 263

(3d Cir. 1999)).

413525, at *6. Thus, “TD Bank’s communications were made in connection with judicial

proceeding [sic].” Id.4 Here, conversely, Hotaling and Sanniti submitted complaints to Amazon

prior to commencing the present litigation. See ACC ¶ 54 (listing two complaints made on

September 30, 2020 and October 15, 2020).

The litigation privilege does not protect communications like Plaintiffs’ notice and

takedown complaints “not sent in connection with a judicial proceeding and not intended to

achieve the objects of any litigation.” Source Ent. Grp. v. Baldonado & Assocs., P.C., Civ. No.

06-2706, 2007 WL 1580157, at *7 (D.N.J. May 31, 2007). While Plaintiffs point to pre-suit

correspondence with LYB as evidence that they were contemplating litigation at the time the

statements at issue were made, the Court cannot consider the pre-suit correspondence at this stage

because it goes beyond the face of the pleading. Nor does the timing of Plaintiffs’ Complaint,

which was filed approximately one month after LYB received a notice from Amazon resulting

from Plaintiffs’ notice and takedown complaints, compare ACC ¶ 47 with D.E. 1, demonstrate that

the communications are connected to the current judicial proceeding. See D & D Assocs., Inc. v.

Bd. of Educ. of N. Plainfield, Civ. No. 03-1026, 2007 WL 4554208, at *21 (D.N.J. Dec. 21, 2007)

(declining to extend the litigation privilege “to all situations where the relationship between the

parties is contentious or adversarial, and it is possible that one of the parties will commence an

4 Plaintiffs argue in their reply that the privilege analysis does not change whether the takedown

notices were sent before or after litigation commenced, citing a later Third Circuit decision in the

TD Bank matter which noted that TD Bank sent takedown demands before filing suit. Reply at 5

(citing TD Bank N.A. v. Hill, 928 F.3d 259, 267 (3d Cir. 2019)). However, it appears that the

takedown demands were in fact sent one day after TD Bank commenced litigation. In any event,

the Third Circuit opinion does not discuss the issue of litigation privilege and therefore fails to

support Plaintiffs’ contention.

action in the future”) (emphasis added), aff’d, 552 F. App’x 110 (3d Cir. 2014). Thus, the Court

finds that Plaintiffs have not met their burden at this stage.5

Plaintiffs also assert that their statements are shielded by common interest privilege. Br.

at 8-9. Under New Jersey law, the common interest privilege protects communications made

“‘bona fide upon any subject-matter in which the party communicating has an interest, or in

reference to which he has a duty, is privileged if made to a person having a corresponding interest

or duty, although it contains criminatory matter which, without this privilege, would be slanderous

and actionable.’” Pro. Recovery Servs., Inc. v. Gen. Elec. Cap. Corp., 642 F. Supp. 2d 391, 400

(D.N.J. 2009) (quoting Williams v. Bell Tel. Lab. Inc., 132 N.J. 109, 121 (1993)). To determine

whether a communication is entitled to the common interest privilege, the Court must look to “(1)

the appropriateness of the occasion on which the defamatory information is published, (2) the

legitimacy of the interest thereby sought to be protected or promoted, and (3) the pertinence of the

receipt of that information by the recipient.” Id. at 401 (citing Bainhauer v. Manoukian, 215 N.J.

Super. 9, 37 (App. Div. 1987)). Here, Plaintiffs proclaim that “Amazon and sellers like Plaintiffs

share a common interest,” of ensuring that infringing products are not sold on the Amazon

platform. Br. at 9. However, Plaintiffs fail to cite to any authority reflecting that the common

5 An unpublished Northern District of Illinois court opinion, issued after the briefing, found that

statements made to Amazon during the notice and takedown period prior to the commencement of

a judicial proceeding were privileged as “communications preliminary to a proposed judicial

proceeding” because “the notice and takedown period may result in litigation if either party

disagrees with Amazon’s [sic].” Sunny Factory, LLC v. Chen, No. 21 C 3648, 2022 WL 742429,

at *3 (N.D. Ill. Mar. 11, 2022). However, the Court is not aware of any court within the Third

Circuit finding that litigation privilege applies under similar circumstances and declines to follow

the holding of Sunny Factory. If every communication made to Amazon pursuant to the notice

and takedown procedures were entitled to litigation privilege regardless of whether they were made

during the pendency of litigation, potential litigants would have ample opportunity to engage in

gamesmanship and abuse the notice and takedown process. See Hawkins v. Harris, 141 N.J. 207,

221 (1995) (“The absolute privilege does not extend to statements made in situations for which

there are no safeguards against abuse.”) (internal quotation omitted).

interest privilege applies in such a scenario. Nor do Plaintiffs demonstrate how the elements of

the privilege are met from the face of LYB’s Amended Counterclaim. Accordingly, Plaintiffs

have not met their burden of establishing the existence of the common interest privilege at this

stage.

B. Tortious Interference with Contract

LYB brings a counterclaim for tortious interference with contract, alleging that Plaintiffs

intentionally interfered with its contractual relationship with Amazon by falsely claiming that LYB

was selling counterfeit or otherwise infringing products. ACC ¶ 84-99. LYB claims that this

conduct caused “disruption” of its contract with Amazon and caused its Brand Cherry listings to

be suspended, resulting in loss of revenue. Id. ¶¶ 90, 94, 97. To state a claim for tortious

interference with contract, a plaintiff6 must allege “(1) an existing contractual relationship; (2)

intentional and malicious interference with that relationship; (3) loss or breach of a contract as a

result of the interference; and (4) damages resulting from that interference.” DiGiorgio Corp. v.

Mendez & Co., 230 F. Supp. 2d 552, 558 (D.N.J. 2002) (citing Printing Mart-Morristown v. Sharp

Elec. Corp., 116 N.J. 739, 751-52 (1989)).

Plaintiffs argue that LYB has not alleged that Plaintiffs’ conduct amounted to improper,

malicious interference. Br. at 10. Instead, according to Plaintiffs, LYB points to Plaintiffs’ use of

Amazon’s notice and takedown procedures “to assert valid, justified claims of infringement.” Id.

They continue that LYB has not alleged a loss or breach of its contract with Amazon as a result of

the allegedly improper interference; rather, LYB claims that Amazon suspended certain listings,

which is consistent with Amazon’s policy on infringement claims according to LYB’s pleading.

6 While LYB is a counterclaimant rather than a plaintiff, the Court uses the general vernacular in

its discussion of pleading the elements of a claim, as most opinions contemplate the typical

scenario of the plaintiff as the party pleading a claim.

Id (citing ACC ¶¶ 36-37). Defendant counters that they have adequately pled malicious

interference by alleging that Plaintiffs made false counterfeiting representations to Amazon for the

purpose of harming competition and that Plaintiffs’ attempt to raise factual disputes regarding the

validity of those statements is inappropriate at this stage. Opp. at 7-8. LYB also maintains that it

has alleged a loss or breach of its contract with Amazon because the Amended Counterclaim states

that LYB “‘was damaged by suspension of these listings by losing revenue related to LUXARDO

brand cherry products.’” Opp. at 9 (citing ACC ¶ 97).

The Court agrees with LYB that factual disputes regarding the validity of Plaintiffs’

complaints to Amazon are inappropriate for resolution at the pleadings stage. See AlphaCard Sys.

LLC v. Fery LLC, Civ. No. 19-20110, 2021 WL 2190901, at *4 (D.N.J. May 31, 2021) (finding

that the defendant had sufficiently alleged malice based on its claim that the plaintiffs made

disparaging allegations to manufacturers about the legality of the defendant’s sales on Amazon

and noting that whether the defendant placed fake reviews of its own products remained a question

of fact improper for consideration at the pleading stage).

However, LYB has not adequately alleged that Plaintiffs’ conduct resulted in the loss or

breach of its contract with Amazon. It merely claims that Plaintiffs caused “disruption” of its

contract, ACC ¶ 90, but does not detail the contractual provisions that were impacted or the

resulting breach or loss. Without more, LYB’s vague allegation of contract “disruption” is

insufficient. See loanDepot.com v. CrossCountry Mortg., Inc., 399 F. Supp. 3d 226, 236-37

(D.N.J. 2019) (finding that the plaintiff’s “broad allegation” that certain defendants had breached

their agreements by soliciting unidentified employees at unidentified times was too vague to set

forth a specific breach of contract in support of a tortious interference claim). Nor does LYB

allege that it lost its contract with Amazon as a result of Plaintiffs’ notice and takedown complaints.

Further, Defendant’s contention that it has adequately pled the loss or breach of contract element

by alleging loss of revenue caused by suspension of its listings conflates the third and fourth

elements of the claim. Loss of revenue resulting from suspension of LYB’s Brand Cherry listings

may be sufficient to plead “damages resulting from [Plaintiffs’] interference,” but it does not

necessarily show “loss or breach of a contract.” DiGiorgio Corp., 230 F. Supp. 2d at 558 (listing

elements of a tortious interference with contract claim).7 Because LYB has not adequately pled

breach or loss of its contract with Amazon, Plaintiffs’ motion to dismiss LYB’s counterclaim for

tortious interference is granted. See loanDepot.com, 399 F. Supp. 3d at 236-37 (D.N.J. 2019)

(dismissing tortious interference with contract claims because the allegations did not set forth a

specific breach of contract).

C. Tortious Interference with Business Relations

LYB also alleges that Plaintiffs tortiously interfered with its business relationship with

Amazon. ACC ¶¶ 84-99. Under New Jersey law, a plaintiff must show the following:

(1) the plaintiff’s existing or reasonable expectation of economic

benefit or advantage; (2) the defendant’s knowledge of that

expectancy; (3) the defendant’s wrongful, intentional interference

with that expectancy; (4) the reasonable probability that the plaintiff

would have received the anticipated economic benefit in the absence

of interference; and (5) damages resulting from the defendant’s

interference.

Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1167 (3d Cir. 1993) (citing Printing Mart-

Morristown, 116 N.J. 739 at 751-52).

7 This finding is consistent with AlphaCard Sys. LLC v. Fery LLC, Civ. No. 19-20110, 2021 WL

2190901 (D.N.J. May 31, 2021), which LYB cites in support of its argument. The AlphaCard

court found that the defendant had adequately plead economic damage by alleging that it suffered

economic harm as a result of the plaintiff reducing the number and variety of products it could

offer and disparaging the defendant’s customers. Id. The finding addressed the damages element

of the tortious interference claim rather than the requirement that the alleged interference resulted

in breach or loss of a contract.

Hotaling and Sanniti argue that LYB’s claim fails because they did not engage in any

wrongful activity but rather submitted the complaints to serve their legitimate business interest of

protecting themselves against unfair competition. Br. at 11-12. In support, Plaintiffs cite to

various cases from other jurisdictions. Id. at 11. Plaintiffs continue that at best, LYB alleges that

Hotaling and Sanniti acted to increase their profits and suppress competition, which does not

amount to malicious behavior. Id. at 12. In response, LYB points to its allegations that Plaintiffs

maliciously made false counterfeiting complaints to Amazon with the intent to interfere with

LYB’s business relationship with Amazon. Opp. at 11 (citing AlphaCard Sys., 2021 WL 2190901,

at *4).

LYB sufficiently states a claim for tortious interference with business relations. It alleges

that “Hotaling and Sanniti’s complaints to Amazon were false, were made maliciously and with

the intent to interfere with LYB’s business relationship with Amazon.” ACC ¶ 96. LYB also

alleges on information and belief that the purpose of these false complaints was to prevent LYB

from selling genuine Brand Cherries on Amazon and to cause Amazon to suspend or terminate its

relationship with LYB. Id. ¶¶ 31-32. These claims are supported by allegations that Hotaling

imports Brand Cherries into the United States and Sanniti sells Brand Cherries through an Amazon

storefront, id. ¶¶ 9-10, making Plaintiffs and LYB competitors. That Plaintiffs acted maliciously

in submitting the complaints can further be inferred by LYB’s allegation that Plaintiffs engaged in

a coordinated effort to preclude certain third parties, including LYB, from reselling genuine Brand

Cherries through online marketplaces by bringing false allegations of intellectual property

infringement, id. ¶ 30. LYB plausibly alleges that Plaintiffs were wrongfully acting to suppress

competition, as Plaintiffs themselves acknowledge. See Br. at 12 (“At best, [LYB] alleges that

Plaintiffs acted to increase their profits and to suppress competition”).

The Court does not find persuasive the cases cited by Plaintiffs. However, the Court does

find instructive AlphaCard Sys. LLC, 2021 WL 2190901, in which another court in this District

found that the defendant had adequately plead tortious interference with business relations under

similar circumstances. There, the defendant alleged that the plaintiffs were seeking to limit

competition in general, and with the defendant in particular, based in part on the plaintiffs’

“disparaging allegations to manufacturers that [the defendant’s] sales on the Amazon Marketplace

were illegal.” Id. at *1. The AlphaCard court found that the defendant had adequately pled malice

by alleging that the plaintiffs made disparaging allegations about the legality of the defendant’s

sales because such conduct was not “sanctioned by the rules of the game.” Id. at *4. Here,

similarly, LYB has alleged that Plaintiffs submitted false complaints that LYB’s Brand Cherries

were counterfeit products to prevent it from selling genuine Brand Cherries on Amazon.

Accepting LYB’s allegations as true and construing the Amended Counterclaim in the light most

favorable to LYB, the Court finds that LYB has sufficiently plead that Plaintiffs’ conduct

constituted wrongful or intentional interference.8 Thus, LYB’s tortious interference with business

relations claim may proceed.

8 Plaintiffs’ opening brief did not discuss whether the other elements of a tortious interference with

business relations claim were met, and LYB asserts that Plaintiffs therefore concede that LYB has

alleged each of these elements. Opp. at 10. In their reply, Plaintiffs deny that they made such

concessions and contend that the tortious interference claim “is also lacking in other elements, e.g.,

allegations that [LYB] had any reasonable expectation of being able to sell unauthorized, Italian-

labeled gray market products on the Amazon platform.” Reply at 7. However, because Plaintiffs

did not raise these arguments in their opening brief, the Court declines to consider them. See

Wilson v. Parker, Civ. No. 18-2954, 2018 WL 6696783, at *5 (D.N.J. Dec. 20, 2018) (declining

to entertain a new argument raised for the first time in a reply because “[i]t is axiomatic in federal

practice that arguments raised for the first time in a reply brief should be disregarded”).

D. Defamation

Plaintiffs also move to dismiss LYB’s counterclaim for defamation arising from their

statements to Amazon that LYB was selling counterfeit Brand Cherries. Defamation requires a

plaintiff to show that the defendant “(1) made a false and defamatory statement concerning the

plaintiff, (2) communicated the statement to a third party, and (3) had a sufficient degree of fault.”

Mangan, 834 F. Supp. 2d at 204 (citing Singer v. Beach Trading Co., 379 N.J. Super. 63, 80 (App.

Div. 2005)). As to the first element, “whether a statement is defamatory depends on ‘its content,

verifiability, and context.’” Id. at 204-05 (quoting Lynch v. N.J. Educ. Assoc., 161 N.J. 152, 167

(1999)). A party cannot make a prima facie case of defamation if the contested statement is

“essentially true.” Taylor v. Amcor Flexibles Inc., 669 F. Supp. 2d 501, 513 (D.N.J. 2009) (citing

Hill v. Evening News Co., 314 N.J. Super. 545 (App. Div. 1998)), aff’d, 507 F. App’x 231 (3d Cir.

2012). To satisfy the second element of a defamation claim, the complaint must “‘plead facts

sufficient to identify the defamer and the circumstances of publication.’” Mangan, 834 F. Supp.

2d at 206 (quoting Printing Mart–Morristown, 116 N.J. at 767). Finally, the third element requires

a showing of actual malice where the victim is a public figure, and negligence where the victim is

a private figure. Id. at 206 (citing McLaughlin v. Rosanio, Bailets & Talamo, Inc., 331 N.J. Super.

303, 314 (App. Div. 2000); Feggans v. Billington, 291 N.J.Super. 382, 391 (App. Div. 1996)).

Plaintiffs argue that LYB fails to state a claim for defamation because “the statements at

issue are privileged and thus cannot amount to defamation,” and because “the gist of the statements

made to Amazon were true,” and thus not defamatory. Br. at 13. The Court disagrees with the

argument as to privilege for the reasons stated above. Plaintiffs’ second argument fares no better.

The Court accepts as true LYB’s claim that Hotaling and Sanniti made false statements that LYB

was selling counterfeit Brand Cherries. See Fowler, 578 F.3d at 210. This claim is supported by

allegations that the Brand Cherry products sold by LYB “were, at all times and continue to be,

authentic products bearing the name of the manufacturer,” ACC ¶ 66, and that the Brand Cherry

product identified as counterfeit in the October 15, 2020 complaint was genuine, id. ¶ 49. Whether

the statements regarding LYB’s Brand Cherries were substantially true, as Plaintiffs contend, is a

question of fact not proper for resolution at the motion to dismiss stage. See Palladino ex rel. U.S.

v. VNA of S. New Jersey, Inc., 68 F. Supp. 2d 455, 476 (D.N.J. 1999) (declining to consider the

defendants’ argument that the allegedly defamatory statements were true and considering only the

plaintiff’s allegation that the statements were false because “this is a motion to dismiss, and not a

summary judgment motion”).9 Thus, dismissal of LYB’s defamation claim is unwarranted.

E. First Sale Affirmative Defense

Plaintiffs allege that Defendant sold unauthorized Brand Cherries that are materially

different from authorized Brand Cherries, and that “Defendant’s unauthorized marketing and sale

of Unauthorized Luxardo Brand Cherries infringes GLS’s rights and constitutes unfair competition

with GLS, Hotaling, Sanniti, and other authorized sellers...” Compl. ¶¶ 21, 26. LYB’s third

affirmative defense asserts that Plaintiffs’ claims are barred by the first sale doctrine because the

cherries sold by LYB are not materially different than the Brand Cherries authorized for sale in

the United States by GLS, the owner of the LUXARDO mark. D.E. 24 at 8. Plaintiffs now move

to strike this defense.

The first sale, or exhaustion, doctrine establishes that “a trademark owner’s authorized

initial sale of its product into the stream of commerce extinguishes the trademark owner’s rights

to maintain control over who buys, sells, and uses the product in its authorized form.” Iberia

9 Rockwell Automation, Inc. v. Radwell Int’l, Inc., Civ. No. 15-05246, 2019 WL 7288946, at *8

(D.N.J. Dec. 30, 2019), which Plaintiffs cite in their reply brief, discusses the material differences

doctrine and is unrelated to the merits of LYB’s defamation claim.

Foods Corp. v. Romeo, 150 F.3d 298, 301 n.4 (3d Cir. 1998). However, the Third Circuit’s

“‘material differences’ jurisprudence [] excludes unauthorized gray goods from the first sale

doctrine.” Rockwell Automation, Inc. v. Radwell Int’l, Inc., Civ. No. 15-05246, 2019 WL 7288946,

at *8 (D.N.J. Dec. 30, 2019). If the products sold by the alleged infringer and the trademark owner

contain identical marks but are materially different, then “the alleged infringer’s goods are

considered ‘non-genuine’ and the sale of the goods constitutes infringement.” Iberia, 150 F.3d at

299. Conversely, “[i]f there are no material differences between the products sold, then the

products offered by the alleged infringer are ‘genuine,’” and the infringement claim must fail. Id.

at 303.

Hotaling and Sanniti claim that LYB’s first sale defense fails as a matter of law because it

is not a defense to a charge asserting unfair competition based on the sale of materially different

gray market goods. Br. at 13-14. LYB counters that Plaintiffs misunderstand the first sale doctrine

and that, further, whether the first sale doctrine applies here is a factual question that cannot be

resolved at the motion to dismiss stage. Opp. at 19-21.

The Court finds that LYB’s first sale doctrine defense cannot be struck at this juncture.

Plaintiffs’ contention that the first sale doctrine is not a defense to an allegation of unfair

competition based upon the sale of materially different gray market goods, Br. at 13, assumes that

the cherries sold by LYB are indeed non-genuine goods. However, whether the cherries sold by

LYB were genuine Brand Cherries or counterfeit goods is a factual dispute at the heart of this

matter. See, e.g., Complaint ¶ 1 (“This is an action for federal and common law unfair competition

arising from Defendant’s unlawful importation, marketing, and/or sale of ‘gray market’

LUXARDO brand maraschino cherries…”); ACC ¶ 76 (“Hotaling and Sanniti, working in concert,

have submitted multiple complaints to Amazon that falsely stated that LYB sold counterfeit

LUXARDO brand cherry products and infringed, inter alia, the LUXARDO Registration.”). Thus,

whether the first sale doctrine applies here is a factual inquiry not appropriate for a motion to

dismiss. See Malibu Media, LLC v. Does 1, Civ. No. 12-2078, 2013 WL 1702549, at *8 (E.D. Pa.

Mar. 6, 2013) (denying motion to strike because whether the lawsuit was based on the unauthorized

reproduction and distribution of unlawful copies of the plaintiff's movies, and thus whether the

first sale defense was available to the defendants, was “‘a question of fact to be determined during

discovery and/or trial”); see also Microsoft Corp. v. Worth, Civ. No. 06-2213, 2007 WL 1975574,

at *3 (N.D. Tex. July 5, 2007) (denying motion to strike because “whether the first sale doctrine

is available as an affirmative defense rests on disputed factual issues”). Moreover, the Court is

mindful of the admonition that “motions to strike under Rule 12(f) are highly disfavored.”

Thompson, 2018 WL 4604310, at *2 (internal citation omitted). Accordingly, the Court denies

Plaintiffs’ motion to strike LYB’s third affirmative defense.

IV. CONCLUSION

For the reasons set forth above, Plaintiffs’ motion to dismiss Counterclaims II and II and

to strike LYB’s third affirmative defense is GRANTED in part and DENIED in part. An

appropriate Order accompanies this Opinion.

Dated: April 18, 2022

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