Mighty Enterprises, Inc. v. She Hong Industrial Co. Ltd. et al

Filing 31

ORDER GRANTING COUNTERDEFENDANTS MOTION TO DISMISS COUNTERCLAIMS 24 . She Hongs Counterclaims are DISMISSED WITHOUT PREJUDICE by Judge Otis D. Wright, II. (lc) Modified on 1/22/2015. (lc).

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United States District Court
Central District of California

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MIGHTY ENTERPRISES, INC.,

Case No. 2:14-cv-06516-ODW(RZx)

Plaintiff /Counter-Defendant,

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v.

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ORDER GRANTING COUNTER-

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SHE HONG INDUSTRIAL CO. LTD.;

DEFENDANT’S MOTION TO

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DOES 1 through 10,

DISMISS COUNTERCLAIMS [24]

Defendants/Counterclaimant,

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I.

INTRODUCTION

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Defendant and Counterclaimant She Hong Industrial Co. Ltd. (“She Hong”)

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brings two permissive counterclaims against Plaintiff and Counter-Defendant Mighty

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Enterprises, Inc. (“Mighty”). (ECF No. 22 [“CC”].) Pending before the Court is

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Mighty’s Motion to Dismiss Counterclaims.

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counterclaims arise out of the allegedly unlawful advertising by Mighty following a

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contract dispute. For the reasons discussed below, the Court GRANTS Mighty’s

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Motion to Dismiss.1

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II.

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(ECF No. 24.)

She Hong’s

FACTUAL BACKGROUND

Mighty is a California corporation that specializes in the distribution and

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After carefully considering the papers filed related to the Motion, the Court deems the matter
appropriate for decision without oral argument. Fed. R. Civ. P. 78; L.R. 7-15.

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service of heavy machinery. (CC ¶ 4.) She Hong is a Taiwanese manufacturer of

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heavy machinery which it sells under the name “Hartford.” (Id. ¶¶ 3, 8.) On August

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19, 2014, Mighty initiated this lawsuit by filing the Complaint against She Hong

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alleging breach of contract, breach of implied contract, restitution, breach of good

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faith and fair dealing, and fraud. (ECF. No. 1 [“Compl.”].) The basis for Mighty’s

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Complaint is an alleged breach of an oral contract that granted Mighty the exclusive

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rights to distribute and service She Hong’s Hartford machinery in the U.S. (Id. ¶ 1.)

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Mighty alleges that in spring 2014 She Hong breached the oral contract by selling

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Hartford machinery directly to Mighty’s U.S. dealers. (Id. ¶ 21.)

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In response to the Complaint, She Hong filed an Answer which brings two

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permissive counterclaims against Mighty: (1) false advertising under the Lanham Act,

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15 U.S.C. § 1125(a), and (2) unfair competition under California’s Unfair

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Competition Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200, et seq. (CC ¶¶ 32–54.)

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She Hong alleges that it began manufacturing its machinery under the Hartford name

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in 1970 and began selling its Hartford machinery in the U.S. in 1982. (Id. ¶¶ 8–10.)

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In April 2014, Mighty allegedly filed an application for the trademark “Hartford” with

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the U.S. Patent and Trademark Office (“USPTO”). (Id. ¶12.) Mighty allegedly

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attached pictures of She Hong’s machinery to its trademark application, and She Hong

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claims that Mighty knew the picture “it provided to the USPTO was from a brochure

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produced and published by She Hong.” (Id. ¶¶ 17–19.) The USPTO then allegedly

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approved Mighty’s application and issued Trademark Serial Number 86245625 to

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Mighty for the Hartford trademark used in association with heavy machinery. (Id.

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¶ 15, Ex. B.) She Hong alleges that Mighty “wrongfully” applied for the trademark

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“without the knowledge and permission of She Hong.” (Id. ¶ 22.)

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Mighty’s conduct after obtaining the trademark—and not the application
process itself—forms the factual basis for both of She Hong’s counterclaims:

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Mighty has used and continues to use She Hong’s

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“Hartford”

trademark

and

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She

Hong’s

Promotional

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Materials in [Mighty’s] advertising, attempting to attract

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consumers of Hartford Machines, the same consumers She

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Hong targets with its Promotional Materials. In so doing,

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Mighty is including in its commercial advertising, among

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other things, photos and descriptions of She Hong’s

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“Hartford” goods. These advertisements are false because

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they suggest to the consuming public that Mighty and/or

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Mighty’s goods or services are affiliated, connected or

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associated

with

She

Hong,

and/or

Mighty

is

the

manufacturer of “Hartford” branded products.

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(CC ¶ 39.)

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trademark ‘Hartford’ and represents to the consuming public on at least two third-

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party websites . . . that it is the source or origin of good bearing the ‘Hartford’

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trademark. This representation is false.” (CC ¶ 29.)

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She Hong alleges that Mighty now “advertises its goods under the

III.

LEGAL STANDARD

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Pursuant to Rule 12(b)(6), a defendant may move to dismiss an action for

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failure to allege “enough facts to state a claim to relief that is plausible on its face.”

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Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility

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when the plaintiff pleads factual content that allows the court to draw the reasonable

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inference that the defendant is liable for the misconduct alleged. The plausibility

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standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer

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possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662,

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678 (2009) (internal citations omitted). For purposes of ruling on a Rule 12(b)(6)

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motion, the Court “accept[s] factual allegations in the complaint as true and

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construe[s] the pleading in the light most favorable to the non-moving party.”

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Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008).

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Nonetheless, the Court need not accept as true allegations contradicted by

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judicially noticeable facts, and the “court may look beyond the plaintiff’s complaint to

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matters of public record” without converting the Rule 12(b)(6) motion into one of

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summary judgment. Shaw v. Hahn, 56 F.3d 1128, 1129 n.1 (9th Cir. 1995). The

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Court is not required to “assume the truth of legal conclusions merely because they are

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cast in the form of factual allegations.” Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th

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Cir. 2011) (internal quotation marks and citations omitted).

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allegations of law and unwarranted inferences are insufficient to defeat a motion to

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dismiss.” Adams v. Johnson, 355 F.3d 1179, 1183 (9th Cir. 2004) (internal quotation

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marks and citations omitted).

Mere “conclusory

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If the Court grants a motion to dismiss, it must determine whether to allow the

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plaintiff leave to amend. Although leave to amend “shall be freely given when justice

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so requires,” Fed. R. Civ. P. 15(a), leave to amend may be denied if the moving party

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has acted in bad faith, or if allowing amendment would unduly prejudice the opposing

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party, cause undue delay, or be futile. Leadsinger, Inc. v. BMG Music Publ’g, 512

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F.3d 522, 532 (9th Cir. 2008). Amendment would be futile if “the pleading could not

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possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122,

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1130 (9th Cir. 2000) (en banc) (internal quotation marks and citations omitted).
IV.

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DISCUSSION

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In its Motion to Dismiss Counterclaims, Mighty argues that both of She Hong’s

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counterclaims fail under both Rules 12(b)(6) and 9(b). (ECF No. 24 at 1.) The Court

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does not need to reach the Rule 9(b) issue because She Hong’s counterclaims both fail

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under Rule 12(b)(6).

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A.

She Hong’s Legal Theory

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She Hong’s legal theory—as alleged in the Counterclaim and in its Opposition

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Brief—is untenable because She Hong does not presently own the rights to the

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Hartford trademark. Obtaining a registered federal trademark “constitutes prima facie

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evidence of the validity of the registered mark and of [the registrant’s] exclusive right

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to use the mark” in commerce. Brookfield Commc’ns, Inc. v. West Coast Entm’t

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Corp., 174 F.3d 1036, 1047 (9th Cir. 1999) (internal citations omitted).

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In its

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Counterclaim, She Hong admits that Mighty owns the registered trademark to the

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Hartford name (CC ¶ 15), and thus Mighty enjoys the statutory presumption of

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ownership and exclusive right to use the Hartford trademark.

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§§ 1057(b), 1115(a). Despite this admitted ownership, She Hong’s sole legal theory is

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that Mighty’s use of the Hartford trademark is false advertising. She Hong argues that

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“by utilizing the ‘Hartford’ mark in advertisements and marketing materials Mighty is

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falsely representing it . . . has the right to utilize the mark[.]” (ECF No. 26 at 3.) She

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Hong put the cart before the horse—there can be no claim for false advertising against

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a company that advertises with a registered trademark it owns.

See 15 U.S.C.

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She Hong is clearly not enthused by Mighty’s decision to trademark the name

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of one of She Hong’s products, and based on the allegations in the Counterclaim, She

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Hong’s position is understandable. However, She Hong’s legal theory is dependent

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on owning the trademark rights to a trademark it does not own.

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pleadings and arguments, this not a cognizable cause of action for false advertising

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under the Lanham Act or UCL. See Clearly v. News Corp., 30 F.3d 1255, 1262–63

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(9th Cir. 1994) (“[S]tate common law claims of unfair competition and actions

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pursuant to California Business and Professions Code § 17200 are ‘substantially

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congruent’ to the claims made under the Lanham Act.”).

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B.

Based on the

Leave to Amend

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The alleged violations under the Lanham Act and UCL involve conduct that is

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separate and distinct from the alleged conduct in Mighty’s Complaint. Not only did

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the alleged Lanham Act violations occur at a separate time, but involve different facts,

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subject matter, and law.

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permissive and unrelated to the claims asserted by Mighty, and therefore a separate

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case and trial for She Hong’s counterclaims will not involve duplication of effort. The

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permissive nature of these counterclaims means that justice does not require leave to

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amend. Fed. R. Civ. P. 15(a). The Court also notes that She Hong amended its

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Answer and Counterclaim once. (ECF Nos. 17, 22.) The Court will consider a

The Court finds that She Hong’s Counterclaims are

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motion for leave to amend, but will expect an exceedingly persuasive argument from

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She Hong so as to not delay this litigation any further.
V.

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CONCLUSION

For the reasons discussed above, the Court hereby GRANTS Mighty’s Motion

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to Dismiss Counterclaims. She Hong’s Counterclaims are DISMISSED WITHOUT

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PREJUDICE.

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IT IS SO ORDERED.

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January 22, 2015

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____________________________________
OTIS D. WRIGHT, II
UNITED STATES DISTRICT JUDGE

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