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Marc Maghsoudi Enterprises, Inc. v. Tufenkian Import/Export Ventures

November 16, 2009

MARC MAGHSOUDI ENTERPRISES, INC., D/B/A GALLERIE ONE DISTINCTIVE RUGS, PLAINTIFF,
v.
TUFENKIAN IMPORT/EXPORT VENTURES, INC., TUFENKIAN CARPETS CHICAGO, LLC, AND TUFENKIAN HOLDINGS, LLC. DEFENDANTS.



The opinion of the court was delivered by: Judge Gottschall

MEMORANDUM OPINION AND ORDER

Defendants Tufenkian Import/Export Ventures, Inc., ("Tufenkian N.Y."), Tufenkian Carpets Chicago, LLC ("Tufenkian Chicago"), and Tufenkian Holdings, LLC ("Tufenkian LLC"), move to dismiss a Third Amended Complaint (the "Complaint") brought by Plaintiff Marc Maghsoudi Enterprises, Inc., d/b/a Gallerie One Distinctive Rugs ("Gallerie One"), an Illinois corporation. The Complaint states two new claims, adds a defendant,*fn1 and alleges fraud (Count I); tortious interference with a prospective economic advantage or business opportunity (Count II); tortious interference with contractual relations (Count III); tortious interference with business relations (Count IV); breach of contract (Count V); violation of the Illinois Trade Secrets Act, 765 Ill. Comp. Stat. 1065/1 (Count VI); and violation of the Deceptive Business Practices Act, 815 Ill. Comp. Stat. 510/2 (Count VII). Defendants move to dismiss the Complaint pursuant to Rules 12(b)(2) and 12(b)(6) of the Federal Rules of Civil Procedure. Defendants seek to dismiss Counts I-VII with prejudice to the extent they assert claims against Tufenkian LLC, and to dismiss I, V, VI and VII with prejudice against all Defendants. For the reasons set forth below, Defendants' motion to dismiss is granted on all counts as to Tufenkian LLC, as well as for Counts I, V, VI, and VII with regard to defendants Tufenkian N.Y. and Tufenkian Chicago*fn2. Defendant has not sought dismissal of Counts II, III, and IV as to defendants Tufenkian N.Y. and Tufenkian.

I. BACKGROUND*fn3

This case centers on an alleged oral agreement between Gallerie One and the Defendants. Gallerie One operates a business selling turkish rugs from the Chicago Merchandise Mart. In October 2005, Tufenkian N.Y. expressed interest in engaging Gallerie One as a dealer of Tufenkian N.Y.'s line of carpets. Under the terms of the alleged agreement, Tufenkian N.Y. required Gallerie One to purchase $75,000 worth of carpet samples and show those samples to potential customers. In return, Tufenkian N.Y. stated that it would fill orders for any of Tufenkian N.Y.'s merchandise that Gallerie One might sell. In December 2005, after paying Tufenkian N.Y. for the samples, Gallerie One began its promotion and sales campaign for Tufenkian N.Y.

Between December 2005 and March 2007, Gallerie One purchased approximately $164,000 of additional merchandise from Tufenkian N.Y. Gallerie One sold this merchandise to its customers for approximately $330,000, earning approximately $164,000 in profit over a seventeen-month interval. According to Gallerie One, the alleged oral agreement also required Gallerie One to expend an additional $15,000 during the first year of its relationship with Tufenkian N.Y. to promote the Tufenkian brand.

On March 12, 2007, sixteen months after Gallerie One and Tufenkian N.Y. began their business relationship, Tufenkian N.Y. sent a letter informing Gallerie One that Tufenkian N.Y. would no longer fill orders for any of Gallerie One's customers. Shortly thereafter, Tufenkian Chicago opened a showroom in the Merchandise Mart near Gallerie One and began to receive merchandise from Tufenkian N.Y. Gallerie One subsequently filed suit against Defendants.

II. ANALYSIS

A. Count VI -- Violation of Illinois Trade Secrets Act

The complaint alleges that Tufenkian LLC misappropriated Gallerie One's customer list in violation of the Illinois Trade Secrets Act, which defines a trade secret as:

'Trade secret' means [(1)] information, including but not limited to, technical or non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process, financial data, or list of actual or potential customers or suppliers, that: [(2)] is sufficiently secret to derive economic value, actual or potential, from not being generally known to other persons who can obtain economic value from its disclosure or use; and [(3)] is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality. 765 Ill. Comp. Stat. 1065/1.

The court must accept as true the allegations of the complaint and draw all reasonable inferences in favor of plaintiff on a 12(b)(6) motion. See Pisciotta v. Old Nat'l Bancorp, 499 F.3d 629, 633 (7th Cir. 2007) (internal citation omitted). Gallerie One pleads that the customer list is a trade secret, and the court therefore assumes that the list is a thing of value. See 765 Ill. Comp. Stat. 1065/1. However, Gallerie One also alleges that it sent the list to Tufenkian for use in a direct mail program entitled "Variations by Barbara Barry." Disclosure of a "trade secret to others who are under no obligation to protect the confidentiality of the information," extinguishes the right to trade secret protection. Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1002 (1984), Skoog v. McCray Refrigerator Co., 211 F.2d 254, 257 (7th Cir. 1954) (the property right was extinguished and treated as a public disclosure, despite alleged limited disclosure to the plaintiff). Here, Gallerie One failed to plead facts alleging that the parties had a confidentiality agreement, or that Tufenkian N.Y. had a legal obligation created by contract or law, requiring it to maintain the secrecy of the customer list. Moreover, the Complaint does not allege that any steps were taken to ensure that the list would remain confidential. See Ackerman v. Kimball Intn'l, 634 N.E.2d 778 (Ind. Ct. App. 1994) (Plaintiff is required to take "efforts reasonable under the circumstances to maintain the secrecy of the customer lists"). Because the Complaint alleges disclosure of the trade secret, but does not plead any facts related to an agreement to protect plaintiff's information, Gallerie One's trade secret claim is not plausible on its face. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 2007, see also Brooks v. Ross, 578 F.3d 574, 580 (7th Cir. Ill. 2009). Count VI is dismissed without prejudice.

B. Count VII -- Deceptive Business Practices Claim

The Complaint alleges that Tufenkian's conduct violated the Illinois Deceptive Trade Practices Act (the "DPA"). According to the DPA, "A person engages in a deceptive trade practice when, in the course of his or her business, vocation, or occupation, the person. causes likelihood of confusion or of misunderstanding as to affiliation, connection, or association with or certification by another." 815 Ill. Comp. Stat. 510/2. Gallerie One alleges that there is a likelihood of confusion between Gallerie One, which sold Tufenkian products, and the competitor store in Merchandise Mart named "Tufenkian Artesian Carpets," and that this confusion of connection or association violates the DPA.

The standard for "likelihood of confusion or misunderstanding" in the DPA is the same as the standard in trademark infringement cases. See Rock-A-Bye Baby, Inc. v. Dex Products, Inc., 867 F.Supp. 703, 713 (N.D. Ill. 1994). "Likelihood of confusion" exists when the defendant's use of a deceptive trade name, trademark, or other distinctive symbol is likely to confuse or mislead consumers as to the source or origin of the product or service. See J. Gilson, Trademark Protection and Practice, ยง ...


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