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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O 1 2 3 4 5 6 7 United States District Court Central District of California 8 9 10 11 MIGHTY ENTERPRISES, INC., Case No. 2:14-cv-06516-ODW(RZx) Plaintiff /Counter-Defendant, 12 v. 13 ORDER GRANTING COUNTER- 14 SHE HONG INDUSTRIAL CO. LTD.; DEFENDANT’S MOTION TO 15 DOES 1 through 10, DISMISS COUNTERCLAIMS [24] Defendants/Counterclaimant, 16 17 I. INTRODUCTION 18 Defendant and Counterclaimant She Hong Industrial Co. Ltd. (“She Hong”) 19 brings two permissive counterclaims against Plaintiff and Counter-Defendant Mighty 20 Enterprises, Inc. (“Mighty”). (ECF No. 22 [“CC”].) Pending before the Court is 21 Mighty’s Motion to Dismiss Counterclaims. 22 counterclaims arise out of the allegedly unlawful advertising by Mighty following a 23 contract dispute. For the reasons discussed below, the Court GRANTS Mighty’s 24 Motion to Dismiss.1 25 II. 26 (ECF No. 24.) She Hong’s FACTUAL BACKGROUND Mighty is a California corporation that specializes in the distribution and 27 28 1 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. 1 service of heavy machinery. (CC ¶ 4.) She Hong is a Taiwanese manufacturer of 2 heavy machinery which it sells under the name “Hartford.” (Id. ¶¶ 3, 8.) On August 3 19, 2014, Mighty initiated this lawsuit by filing the Complaint against She Hong 4 alleging breach of contract, breach of implied contract, restitution, breach of good 5 faith and fair dealing, and fraud. (ECF. No. 1 [“Compl.”].) The basis for Mighty’s 6 Complaint is an alleged breach of an oral contract that granted Mighty the exclusive 7 rights to distribute and service She Hong’s Hartford machinery in the U.S. (Id. ¶ 1.) 8 Mighty alleges that in spring 2014 She Hong breached the oral contract by selling 9 Hartford machinery directly to Mighty’s U.S. dealers. (Id. ¶ 21.) 10 In response to the Complaint, She Hong filed an Answer which brings two 11 permissive counterclaims against Mighty: (1) false advertising under the Lanham Act, 12 15 U.S.C. § 1125(a), and (2) unfair competition under California’s Unfair 13 Competition Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200, et seq. (CC ¶¶ 32–54.) 14 She Hong alleges that it began manufacturing its machinery under the Hartford name 15 in 1970 and began selling its Hartford machinery in the U.S. in 1982. (Id. ¶¶ 8–10.) 16 In April 2014, Mighty allegedly filed an application for the trademark “Hartford” with 17 the U.S. Patent and Trademark Office (“USPTO”). (Id. ¶12.) Mighty allegedly 18 attached pictures of She Hong’s machinery to its trademark application, and She Hong 19 claims that Mighty knew the picture “it provided to the USPTO was from a brochure 20 produced and published by She Hong.” (Id. ¶¶ 17–19.) The USPTO then allegedly 21 approved Mighty’s application and issued Trademark Serial Number 86245625 to 22 Mighty for the Hartford trademark used in association with heavy machinery. (Id. 23 ¶ 15, Ex. B.) She Hong alleges that Mighty “wrongfully” applied for the trademark 24 “without the knowledge and permission of She Hong.” (Id. ¶ 22.) 25 26 Mighty’s conduct after obtaining the trademark—and not the application process itself—forms the factual basis for both of She Hong’s counterclaims: 27 Mighty has used and continues to use She Hong’s 28 “Hartford” trademark and 2 She Hong’s Promotional 1 Materials in [Mighty’s] advertising, attempting to attract 2 consumers of Hartford Machines, the same consumers She 3 Hong targets with its Promotional Materials. In so doing, 4 Mighty is including in its commercial advertising, among 5 other things, photos and descriptions of She Hong’s 6 “Hartford” goods. These advertisements are false because 7 they suggest to the consuming public that Mighty and/or 8 Mighty’s goods or services are affiliated, connected or 9 associated with She Hong, and/or Mighty is the manufacturer of “Hartford” branded products. 10 11 (CC ¶ 39.) 12 trademark ‘Hartford’ and represents to the consuming public on at least two third- 13 party websites . . . that it is the source or origin of good bearing the ‘Hartford’ 14 trademark. This representation is false.” (CC ¶ 29.) 15 She Hong alleges that Mighty now “advertises its goods under the III. LEGAL STANDARD 16 Pursuant to Rule 12(b)(6), a defendant may move to dismiss an action for 17 failure to allege “enough facts to state a claim to relief that is plausible on its face.” 18 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility 19 when the plaintiff pleads factual content that allows the court to draw the reasonable 20 inference that the defendant is liable for the misconduct alleged. The plausibility 21 standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer 22 possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 23 678 (2009) (internal citations omitted). For purposes of ruling on a Rule 12(b)(6) 24 motion, the Court “accept[s] factual allegations in the complaint as true and 25 construe[s] the pleading in the light most favorable to the non-moving party.” 26 Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). 27 Nonetheless, the Court need not accept as true allegations contradicted by 28 judicially noticeable facts, and the “court may look beyond the plaintiff’s complaint to 3 1 matters of public record” without converting the Rule 12(b)(6) motion into one of 2 summary judgment. Shaw v. Hahn, 56 F.3d 1128, 1129 n.1 (9th Cir. 1995). The 3 Court is not required to “assume the truth of legal conclusions merely because they are 4 cast in the form of factual allegations.” Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th 5 Cir. 2011) (internal quotation marks and citations omitted). 6 allegations of law and unwarranted inferences are insufficient to defeat a motion to 7 dismiss.” Adams v. Johnson, 355 F.3d 1179, 1183 (9th Cir. 2004) (internal quotation 8 marks and citations omitted). Mere “conclusory 9 If the Court grants a motion to dismiss, it must determine whether to allow the 10 plaintiff leave to amend. Although leave to amend “shall be freely given when justice 11 so requires,” Fed. R. Civ. P. 15(a), leave to amend may be denied if the moving party 12 has acted in bad faith, or if allowing amendment would unduly prejudice the opposing 13 party, cause undue delay, or be futile. Leadsinger, Inc. v. BMG Music Publ’g, 512 14 F.3d 522, 532 (9th Cir. 2008). Amendment would be futile if “the pleading could not 15 possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 16 1130 (9th Cir. 2000) (en banc) (internal quotation marks and citations omitted). IV. 17 DISCUSSION 18 In its Motion to Dismiss Counterclaims, Mighty argues that both of She Hong’s 19 counterclaims fail under both Rules 12(b)(6) and 9(b). (ECF No. 24 at 1.) The Court 20 does not need to reach the Rule 9(b) issue because She Hong’s counterclaims both fail 21 under Rule 12(b)(6). 22 A. She Hong’s Legal Theory 23 She Hong’s legal theory—as alleged in the Counterclaim and in its Opposition 24 Brief—is untenable because She Hong does not presently own the rights to the 25 Hartford trademark. Obtaining a registered federal trademark “constitutes prima facie 26 evidence of the validity of the registered mark and of [the registrant’s] exclusive right 27 to use the mark” in commerce. Brookfield Commc’ns, Inc. v. West Coast Entm’t 28 Corp., 174 F.3d 1036, 1047 (9th Cir. 1999) (internal citations omitted). 4 In its 1 Counterclaim, She Hong admits that Mighty owns the registered trademark to the 2 Hartford name (CC ¶ 15), and thus Mighty enjoys the statutory presumption of 3 ownership and exclusive right to use the Hartford trademark. 4 §§ 1057(b), 1115(a). Despite this admitted ownership, She Hong’s sole legal theory is 5 that Mighty’s use of the Hartford trademark is false advertising. She Hong argues that 6 “by utilizing the ‘Hartford’ mark in advertisements and marketing materials Mighty is 7 falsely representing it . . . has the right to utilize the mark[.]” (ECF No. 26 at 3.) She 8 Hong put the cart before the horse—there can be no claim for false advertising against 9 a company that advertises with a registered trademark it owns. See 15 U.S.C. 10 She Hong is clearly not enthused by Mighty’s decision to trademark the name 11 of one of She Hong’s products, and based on the allegations in the Counterclaim, She 12 Hong’s position is understandable. However, She Hong’s legal theory is dependent 13 on owning the trademark rights to a trademark it does not own. 14 pleadings and arguments, this not a cognizable cause of action for false advertising 15 under the Lanham Act or UCL. See Clearly v. News Corp., 30 F.3d 1255, 1262–63 16 (9th Cir. 1994) (“[S]tate common law claims of unfair competition and actions 17 pursuant to California Business and Professions Code § 17200 are ‘substantially 18 congruent’ to the claims made under the Lanham Act.”). 19 B. Based on the Leave to Amend 20 The alleged violations under the Lanham Act and UCL involve conduct that is 21 separate and distinct from the alleged conduct in Mighty’s Complaint. Not only did 22 the alleged Lanham Act violations occur at a separate time, but involve different facts, 23 subject matter, and law. 24 permissive and unrelated to the claims asserted by Mighty, and therefore a separate 25 case and trial for She Hong’s counterclaims will not involve duplication of effort. The 26 permissive nature of these counterclaims means that justice does not require leave to 27 amend. Fed. R. Civ. P. 15(a). The Court also notes that She Hong amended its 28 Answer and Counterclaim once. (ECF Nos. 17, 22.) The Court will consider a The Court finds that She Hong’s Counterclaims are 5 1 motion for leave to amend, but will expect an exceedingly persuasive argument from 2 She Hong so as to not delay this litigation any further. V. 3 4 CONCLUSION For the reasons discussed above, the Court hereby GRANTS Mighty’s Motion 5 to Dismiss Counterclaims. She Hong’s Counterclaims are DISMISSED WITHOUT 6 PREJUDICE. 7 IT IS SO ORDERED. 8 9 January 22, 2015 10 11 12 ____________________________________ OTIS D. WRIGHT, II UNITED STATES DISTRICT JUDGE 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6

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