Engineered Arresting Systems Corporation v. Atech, Inc. et al

Filing 81

MEMORANDUM OPINION - The Court DENIES defendants motion to dismiss (Doc. 23 ) and DENIES the motion to strike Ms. Deals declaration as MOOT. (Doc. 76 ). The pre-mediation discovery is due on September 30, 2015. The parties shall participate in mediation on or before November 16, 2015. On or before November 23, 2015, the parties shall file a joint status report updating the Court on the results of the mediation. Signed by Judge Madeline Hughes Haikala on 4/7/2015. (KEK)

FILED
2015 Apr-07 AM 09:40
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
NORTHEASTERN DIVISION
ENGINEERED ARRESTING
SYSTEMS CORPORATION,
Plaintiff,
v.
ATECH, INC., et al.,
Defendants.

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Case No.: 5:14-cv-00518-MHH

MEMORANDUM OPINION
This is a trademark infringement action. Plaintiff Engineered Arresting
Systems Corporation (ESCO) manufactures, distributes, and sells aircraft arresting
systems for military and commercial aircraft.

ESCO filed this action against

various defendants alleging trademark infringement, false designation of origin,
and false advertising under the Lanham Act, and common law unfair competition
and trademark infringement, in connection with a United States Air Force
solicitation seeking bids for a Polish Air Force contract. (Doc. 39).
Defendants SCAMA AB, Harald Åhagen, Atech, Inc., and Philip Åhagen
filed a motion to dismiss for lack of personal jurisdiction under Rule 12(b)(2),
failure to state a claim under Rule 12(b)(6), and failure to state fraud with

1

particularity under Rule 9(b). (Doc. 23).1 For the reasons discussed below, the
Court DENIES defendants’ motion to dismiss.
I.

STANDARD OF REVIEW

A.

12(b)(2)
To survive a motion to dismiss for lack of personal jurisdiction, ESCO need

only “present[] enough evidence to withstand a motion for a directed verdict.”
Stubbs v. Wyndham Nassau Resort & Crystal Palace Casino, 447 F.3d 1357, 1360
(11th Cir. 2006). A motion for a directed verdict must be denied where “there is
substantial evidence opposed to the motion such that reasonable people, in the
exercise of impartial judgment, might reach differing conclusions.” Carter v. City
of Miami, 870 F.2d 578, 581 (11th Cir. 1989). The Court must construe all
reasonable inferences in favor of the non-moving party. Stubbs, 447 F.3d at 1360.
B.

12(b)(6)
Rule 12(b)(6) enables a defendant to move to dismiss a complaint for

“failure to state a claim upon which relief can be granted.” Fed. R. Civ. P.
12(b)(6). Pursuant to Rule 8(a)(2), a complaint must contain, “a short and plain
statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ.
P. 8(a)(2). “Generally, to survive a [Rule 12(b)(6)] motion to dismiss and meet the

1

The defendants also raised subject matter jurisdiction and service of process arguments, which
the Court addressed in an earlier order. See Doc. 56.
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requirement of Fed. R. Civ. P. 8(a)(2), a complaint need not contain ‘detailed
factual allegations,’ but rather ‘only enough facts to state a claim to relief that is
plausible on its face.’” Maledy v. City of Enterprise, 2012 WL 1028176, at *1
(M.D. Ala. Mar. 26, 2012) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555,
570 (2007)). “Specific facts are not necessary; the statement needs only ‘give the
defendant fair notice of what the . . . claim is and the grounds upon which it rests.’”
Erickson v. Pardus, 551 U.S. 89, 93 (2007) (quoting Twombly, 550 U.S. at 555).
In deciding a Rule 12(b)(6) motion to dismiss, a court must view the
allegations in a complaint in the light most favorable to the non-moving party.
Watts v. Fla. Int’l Univ., 495 F.3d 1289, 1295 (11th Cir. 2007). A court must
accept well-pled facts as true. Grossman v. Nationsbank, N.A., 225 F.3d 1228,
1231 (11th Cir. 2000).
II.

FACTUAL AND PROCEDURAL HISTORY
Engineered Arresting Systems Corporation (ESCO) is a Delaware company

engaged in the business of manufacturing, distributing, and selling aircraft
arresting systems for military and commercial aircraft. (Doc. 39, ¶ 5). ESCO has a
trademark for its PORTARREST aircraft arresting system.

(Doc. 39-1).

Defendant SCAMA AB is a Swedish company that manufactures arresting
systems. (Doc. 39, ¶ 12). Defendant Harald Åhagen, a resident of Sweden, is
President of SCAMA. (Doc. 39, ¶ 13). SCAMA is the sole owner of defendant
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Atech, an Alabama corporation. (Doc. 39, ¶¶ 6, 37). Defendant Philip Åhagen, the
son of Harald Åhagen, is the President and Secretary of Atech. (Doc. 39, ¶ 10).
On October 23, 2012, the United States Air Force, through the Foreign
Military Sales Program, placed an official solicitation for products for the Polish
Air Force. (Doc. 39, ¶ 30). The solicitation included “two (2) BAK-12 Above
Grade Fixed Hook Cable Systems,” “one (1) PORTARREST-IV/BAK-12 ‘Mobile’
Hook Cable System,” and certain spare parts for the “PORTARREST-IV/BAK-12
‘Mobile’ Hook Cable System.” (Doc. 39-2, pp. 4–6). Because federal acquisition
regulations prohibit soliciting brand name products without justification and
approval, the Air Force also published a Brand Name Justification. (Doc. 39, ¶
32). The Brand Name Justification stated: “This brand name is required because
the Polish government specifically requested the BAK-12 Aircraft Arresting
System in the LOA (PL-D-GAL) with the US government. It is therefore in the
best interests of the Government to limit offers to procure the BAK-12 only.”
(Doc. 39-3, p. 3).
ESCO submitted a proposal in response to the Air Force Solicitation. (Doc.
39, ¶ 34). Atech also submitted a proposal and a letter of intent stating that if the
Air Force selected its bid, the team fulfilling the contract would consist of Atech,
SCAMA, and two other entities. (Doc. 39, ¶ 36). The proposal also stated that
SCAMA would acquire an ownership interest in Atech, that SCAMA had
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inspected Atech and its facilities, and that SCAMA’s processes, product assurance
methodologies, and other business practices would be used in fulfilling the
contract. (Doc. 39, ¶¶ 37–39).
The Air Force awarded the Polish Air Force contract (“PAF contract”) to
Atech. (Doc. 39, ¶ 45). ESCO alleges that defendants used ESCO’s trademarks in
an intentional attempt to mislead the USAF into believing that the defendants
could provide ESCO’s brand name systems. (Doc. 39, ¶ 44). ESCO also alleges
that when the USAF awarded the contract to the defendants, the USAF was
confused and incorrectly believed it was getting ESCO’s PORTARREST brand
and BAK-12 brand systems. (Doc. 39, ¶ 49). Finally, ESCO alleges liability on
the part of the Swedish defendants by asserting that Atech acted as a front or agent
for SCAMA in the submission of the proposal. (Doc. 39, ¶ 40).
ESCO filed its complaint on March 21, 2014, alleging trademark
infringement, false designation of origin, and false advertising under the Lanham
Act, as well as a common law claim for unfair competition and trademark
infringement. (Doc. 1). On April 21, 2014, defendants filed a motion to dismiss
raising the following issues: lack of personal jurisdiction over SCAMA and Harald
Åhagen under Rule 12(b)(2); failure to state a cause of action against SCAMA,
Philip Åhagen, and Harald Åhagen under Rule 12(b)(6); and failure to state fraud
claims with particularity against all defendants under Rule 9(b). (Docs. 23, 24).
5

ESCO filed an amended complaint on May 15, 2014. (Doc. 39). The Court treated
the previously-filed motion to dismiss as a motion to dismiss the amended
complaint. (Doc. 56).
ESCO filed a response in opposition (Doc. 35) and requested limited
discovery on personal jurisdiction, which the Court allowed.

(Docs. 32, 56).

ESCO filed its supplemental brief on personal jurisdiction on February 11, 2015,
along with a declaration from Jennifer Deal, ESCO’s attorney.

(Doc. 73).2

Defendants replied to ESCO’s brief on personal jurisdiction (Doc. 74) and moved
to strike Ms. Deal’s declaration. (Doc. 76)
On this record, the Court considers the merits of the motion to dismiss (Doc.
23) and the motion to strike the declaration of Jennifer Deal (Doc. 76).
III.

Analysis

A.

Motion to Strike
SCAMA and Harald Åhagen ask the Court to strike the declaration of

Jennifer Fairburn Deal, ESCO’s attorney. (Doc. 76). They assert that Ms. Deal’s
declaration contains hearsay and is not based upon personal knowledge. (Doc. 76,
p. 1). Ms. Deal offers her declaration to organize the extensive jurisdictional
discovery in this case. (See Doc. 73-2). In ruling on the defendants’ motion to
2

ESCO also stated that in the event that there was still a question regarding personal jurisdiction,
ESCO moved to compel defendants to provide documents and testimony that defendants
withheld on jurisdictional discovery. (Doc. 73). This alternative motion is MOOT because the
Court can determine personal jurisdiction over the Swedish defendants on the record before it.
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dismiss, the Court has relied only on the exhibits to the declaration, and not the
declaration itself. Therefore, the Court denies defendants’ motion to strike as
moot.
B.

Personal Jurisdiction
1.

Legal Standard for the Exercise of Specific Jurisdiction

Defendants challenge the Court’s personal jurisdiction over Swedish
defendants SCAMA and Harald Åhagen.

In determining whether to exercise

personal jurisdiction over a foreign defendant, a federal court must consider (1)
whether the exercise of jurisdiction is permitted by the state long-arm statute, and
(2) whether the exercise of jurisdiction would violate the Due Process Clause of
the Fourteenth Amendment to the United States Constitution. United Techs. Corp.
v. Mazer, 556 F.3d 1260, 1274 (11th Cir. 2009). Here, the two inquiries merge
because “Alabama’s long-arm statute permits service of process to the fullest
extent constitutionally permissible.” Sloss Indus. Corp. v. Eurison, 488 F.3d 922,
925 (11th Cir. 2007) (citing Ala. R. Civ. P. 4.2(b)).
In International Shoe Co. v. Washington, 326 U.S. 310 (1945), the Supreme
Court held that “a State may authorize its courts to exercise personal jurisdiction
over an out-of-state defendant if the defendant has certain minimum contacts with
[the State] such that the maintenance of the suit does not offend traditional notions
of fair play and substantial justice.” Daimler AG v. Bauman, 134 S. Ct. 746, 754
7

(2014) (internal quotations omitted).

International Shoe gave rise to two

categories of personal jurisdiction: general jurisdiction and specific jurisdiction.
Daimler, 134 S. Ct. at 754. General jurisdiction “refers to the power of a court in
the forum to adjudicate any cause of action involving a particular defendant,
irrespective of where the cause of action arose.” Oldfield v. Pueblo De Bahia
Lora, S.A., 558 F.3d 1210, 1220 n.27 (11th Cir. 2009). Specific jurisdiction “refers
to jurisdiction over causes of action arising from or related to a defendant’s actions
with the forum.” Id.
In determining whether a forum has specific jurisdiction over a nonresident
defendant, a court must focus on “the relationship among the defendant, the forum,
and the litigation.” Walden v. Fiore, 134 S. Ct. 1115, 1121 (2014) (internal
quotation omitted). In other words, “the defendant’s suit-related conduct must
create a substantial connection with the forum State.” Id. The Eleventh Circuit
has applied a three-prong test for determining whether sufficient minimum
contacts exist for the exercise of specific jurisdiction: (1) “the defendant must have
contacts related to or giving rise to the plaintiff’s cause of action”; (2) “the
defendant must, through those contacts, have purposefully availed itself of forum
benefits”; and (3) “the defendant’s contacts with the forum must be such that it
could reasonably anticipate being haled into court there.” Fraser v. Smith, 594
F.3d 842, 850 (11th Cir. 2010). Once a showing of minimum contacts is made, a
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defendant must make a “compelling case” that the exercise of jurisdiction would
violate traditional notions of fair play and substantial justice. Diamond Crystal
Brands, Inc. v. Food Movers Int’l, Inc., 593 F.3d 1249, 1267 (11th Cir. 2010). “A
nonresident’s purposeful affiliation with a state for purposes of pecuniary gain has
long been deemed a sufficient contact to render the nonresident subject to suit in
the courts of that state in litigation related to that business transaction, even if the
nonresident has no physical presence in the state whatsoever.” Pepsi-Cola Bottling
Co. of Ft. Lauderdale-Palm Beach, Inc. v. Buffalo Rock Co., Inc., 593 F. Supp.
1559, 1565 (N.D. Ala. 1984) (citing McGee v. Int’l Life Ins. Co., 355 U.S. 220
(1957)).
2.

This Court has Specific Jurisdiction over SCAMA and Harald
Åhagen

There is sufficient evidence of specific jurisdiction in this case to withstand
a motion for a directed verdict. The jurisdictional discovery shows that SCAMA,
led by Harald Åhagen, purposefully affiliated itself with Alabama so that the
company could bid for and ultimately profit from the PAF contract.
In February 2012, Harald Åhagen e-mailed D’Salient, an Alabama
company, and Kyu Shin, Alabama resident,3 to discuss the possibility of forming a

3

In February 2012, Kyu Shin owned SEI Manufacturing. (Doc. 73-3, p. 22). In May 2012,
defendants Kwae and Sang Shin sold Atech to Hyon Shin, Kyu Shin’s wife, for $7500. (Id.;
Doc. 30-1, p. 2). Hyon Shin sold Atech to SCAMA in August 2013 after Atech won the PAF
contract. (Doc. 73-39).
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partnership to bid on the PAF contract. (Doc. 73-4). Mr. Åhagen stated that
SCAMA could not win the contract “by our own force.” Mr. Åhagen also stated
that SCAMA would supply all of the engineering support, drawings, training, etc.
Finally, Mr. Åhagen stated that “a very important factor is the political support we
can expect from the State of Alabama!” (Doc. 73-4). After Mr. Shin agreed to
participate in efforts to bid on the PAF contract, Mr. Åhagen and Mr. Shin worked
together to draft the pre-solicitation paperwork. (Doc. 73-5, p. 2).
Ultimately, SCAMA, Atech, D’Salient, and DCM Support Services, Inc.,
formed a “bid team” to work on a bid for the PAF contract. (Doc. 73-3, p. 22).
SCAMA played a large role in the preparation of the bid, including but not limited
to conducting the site survey and designing the layout of the systems (Doc. 73-3, p.
34); drafting and providing warranties (Doc. 73-27); controlling the time schedule
for fulfilling the PAF contract (Docs. 73-20, 73-22); and drafting and revising
correspondence to be sent to the USAF (Doc. 73-23). In one e-mail, D’Salient
noted: “SCAMA has the money and is in-effect in control . . . Bottom line if
SCAMA does not have a handle on the situation no funds are coming . . . ” (Doc.
37-21). Atech had to get SCAMA’s approval before signing the contract. (Docs.
73-31, 73-32).
The paperwork that Atech submitted to the USAF represented that the bid
was coming from an “ATECH/SCAMA/DCM/SALIENT TEAM” whose focus
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would be to “[p]rovide a U.S. platform for manufacturing of SCAMA arresting
systems.” (Doc. 73-26, p. 26). The submission also represented that if the bid team
got the PAF contract, “SCAMA/DCM/SALIENT will become a consortium with
ATECH by executing the Letter of Intent and execute the ownership of all parties
in ATECH.” (Doc. 73-26, p. 36).
In fact, after the USAF awarded the PAF contract to the defendants,
SCAMA purchased Atech. (Doc. 73-39). The contract for that purchase included
Alabama choice of law and choice of venue clauses. (Doc. 73-39, ¶¶ 42–43). A
few days after SCAMA became Atech’s sole shareholder, SCAMA elected Harald
Åhagen as Atech’s sole board member. (Doc. 73-48). That same day, Harald
Åhagen hired his son, Philip Åhagen, to be the president and secretary of Atech.
(Doc. 37-3, p. 11). Philip had just graduated from University a year and a half
before and had worked for SCAMA after graduating. (Id.). During this transition,
Atech was severely underfinanced. SCAMA provided whatever money Atech
needed—millions of dollars—often without consulting its president, Philip
Åhagen. (Doc. 73-41; Doc. 73-3, p. 51). SCAMA and Atech have purchased
millions of dollars’ worth of goods from one another. (Doc. 73-3, pp. 44–45; Doc.
73-43; Doc. 73-45).
SCAMA is intimately involved in the day-to-day running of Atech,
including negotiating the lease on Atech’s property, hiring many of its employees,
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training the employees in Alabama, and paying for Philip Åhagen’s housing.
(Doc. 73-3, pp. 13, 14, 16, 17, 20). SCAMA representatives, including Harald
Åhagen, have made numerous visits to Alabama. (Doc. 73-11, p. 6). It also
appears that SCAMA and Harald Åhagen generally disregard Atech’s bylaws and
do not observe corporate formalities; Philip Åhagen does not have any duties as
Atech’s secretary, and Atech has not had official board or shareholder meetings.
(Doc. 73-3, pp. 13, 15, 20, 57).
There is sufficient evidence in the record to establish that Harald Åhagen
and SCAMA purposefully affiliated themselves with Alabama for the purpose of
pecuniary gain. The current action for trademark infringement arises directly from
the award of the PAF contract to Atech and SCAMA. Winning the PAF contract
was the primary goal of the Swedish defendants’ affiliation with Alabama, and the
Swedish defendants could reasonably anticipate being haled into court in Alabama
on issues related to this contract. SCAMA and Harald Åhagen cannot make a
compelling case that the exercise of jurisdiction would violate traditional notions
of fair play and substantial justice in this case, considering the closeness of
SCAMA’s ties with Alabama and the frequency with which SCAMA
representatives travel to Alabama. Because there is sufficient evidence of specific
jurisdiction to withstand a motion for directed verdict, the Court denies SCAMA
and Harald Åhagen’s motion to dismiss for lack of personal jurisdiction.
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C.

12(b)(6) and Fraud
ESCO has asserted claims for trademark infringement, false designation of

origin, false advertising, and common law unfair competition and trademark
infringement. (Doc. 39, pp. 17–21). Defendants move to dismiss all four causes of
action for failure to state a claim as to SCAMA, Harald Åhagen, and Philip
Åhagen. (Doc. 24, pp. 1–3). Defendants also move to dismiss the second, third,
and fourth causes of action for failure to state fraud with particularity as to all
defendants. (Id.).
1.

12(b)(6)

To state a claim for trademark infringement or unfair competition under the
Lanham Act and state law—ESCO’s first, second and fourth causes of action—
ESCO need only allege that (1) it owns valid rights in the trademarks at issue, and
(2) there is a likelihood of confusion between ESCO’s marks and the defendants’
use of those marks. 15 U.S.C. § 1114(1); Caliber Automotive Liquidators, Inc. v.
Premier Chrysler, Jeep, Dodge, LLC, 605 F.3d 931, 935 n.16 (11th Cir. 2010)
(citing Ross Bicycles, Inc. v. Cycles USA, Inc., 765 F.2d 1502, 1503–04 (11th Cir.
1985)). In its complaint, ESCO alleges it has a valid trademark on the term
PORTARREST and that Atech submitted a bid on behalf of SCAMA that
misleadingly misused ESCO’s trademarks, resulting in a likelihood of confusion
on the part of the USAF. (Doc. 39, ¶¶ 19, 40, 44). Additionally, ESCO alleges
13

that Philip Åhagen directed, controlled and ratified the actions of Atech and that
Harald Åhagen directed, controlled, and ratified the actions of SCAMA. (Doc. 39,
¶¶ 10, 13). “[A] corporate officer who directs, controls, ratifies, participates in, or
is the moving force behind the infringing activity, is personally liable for such
infringement . . . .” Babbit Electronics, Inc. v. Dynascan Corp., 38 F.3d 1161,
1184 (11th Cir. 1994). Thus, ESCO has plausibly alleged all necessary elements
for trademark infringement and unfair competition against Atech, SCAMA, Harald
Åhagen, and Philip Åhagen.
To sustain a claim for false advertising, ESCO must show “(1) the
advertisements of the opposing party were false or misleading; (2) the
advertisements deceived, or had the capacity to deceive, consumers; (3) the
deception had a material effect on purchasing decisions; (4) the misrepresented
product or service affects interstate commerce; and (5) the [plaintiff] has been—or
is likely to be—injured as a result of the false advertising.” Hickson Corp. v. N.
Crossarm Co., Inc., 357 F.3d 1256, 1260 (11th Cir. 2004). ESCO alleged that
defendants made misleading representations that they could manufacture ESCO’s
trademarked products and that these misleading statements led the USAF to
mistakenly award the PAF contract to defendants rather than ESCO. (See Doc. 39,
¶¶ 66–69). ESCO has plausibly stated a claim for false advertising.

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2.

Fraud

The defendants assert that Rule 9(b) applies to ESCO’s claims for false
designation of origin, false advertising, and common law unfair competition and
trademark infringement. (Doc. 24, p. 29). However, the Eleventh Circuit applies
Rule 8 to decide motions to dismiss trademark actions. See Synergy Real Estate of
SW Fla., Inc. v. Premier Property Mgmt. of SW Fla., LLC, 578 Fed. Appx. 959,
961–62 (11th Cir. 2015) (applying Rule 8 to motion to dismiss claim for unfair
trade practices in violation of the Lanham Act). As discussed above, ESCO’s
complaint alleges enough facts to provide defendants with fair notice of what
claims are being alleged and the grounds on which the claims rest. Therefore, the
Court denies the defendants’ motion to dismiss under Rule 9(b).
IV.

CONCLUSION
For the reasons explained above, the Court DENIES defendants’ motion to

dismiss (Doc. 23) and DENIES the motion to strike Ms. Deal’s declaration as
MOOT. (Doc. 76). The Court directs the Clerk to please TERM Docs. 23 and
76.
Pursuant to the discussion on the record at the March 10, 2015 hearing in
Huntsville, the parties shall engage in limited discovery in anticipation of
mediation. In the pre-mediation phase of discovery, each side shall be limited to 3
depositions. The pre-mediation discovery is due on September 30, 2015. The
15

parties shall participate in mediation on or before November 16, 2015. On or
before November 23, 2015, the parties shall file a joint status report updating the
Court on the results of the mediation.
The Court directs the Clerk to please mail a copy of this order to defendant
Kim Guimarin.
DONE and ORDERED this April 7, 2015.

_________________________________
MADELINE HUGHES HAIKALA
UNITED STATES DISTRICT JUDGE

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