Belstone Capital LLC v. Bellstone Partners, LLC et al

Filing 43

ORDER signed by District Judge Kimberly J. Mueller on 03/27/17 ORDERING that defendants' 21 Motion to Dismiss plaintiff's second and third causes of action is GRANTED; plaintiff is GRANTED LEAVE 14 days to AMEND the Complaint; if plaintiff elects not to amend its complaint, this case will proceed solely on plaintiff's first claim, which is unaffected by this order. (Benson, A)

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UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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BELSTONE CAPITAL, LLC,

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No. 2:16-cv-01124-KJM-GGH

Plaintiff,
v.

ORDER

BELLSTONE PARTNERS, LLC;
BELLSTONE COMMERCIAL, INC.; and
BELLSTONESHARES, LLC,

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Defendants.

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This trademark infringement case comes before the court on the motion to dismiss

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brought by defendants Bellstone Partners, LLC.1 ECF No. 21. Plaintiff Belstone Capital, LLC

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opposes, ECF No. 26, and defendants replied, ECF No. 27. On January 13, 2017, the court held a

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motion hearing, at which Maurice Ross and Daniel Ballard appeared for plaintiff and Michael

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Thomas appeared for defendants. For the following reasons, the court GRANTS defendants’

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motion.

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The court notes that in some instances the complaint and parties’ moving papers
implicate only one defendant in a particular action. For simplicity, the court refers to defendants
collectively in this order but is aware of the distinction between them.
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I.

FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND
Plaintiff is a corporate finance company specializing in technology development

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and capital formation with a principal place of business in New York. Compl. ¶¶ 9, 11, ECF

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No. 1. Defendants are companies involved in real estate lending and real estate development with

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principal places of business in California. Id. ¶¶ 8, 12–15. Plaintiff’s and defendants’ businesses

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and customers do not overlap. See id. ¶¶ 10, 16. Defendants first began using the “Bellstone”

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trademark in June 2004, id. ¶ 37, and registered it as a word mark on August 3, 2010 with the

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U.S. Patent and Trademark Office (USPTO) in International Class (“IC”) 36 for “Lending

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consultant services,” Registration Number 3828103 (the “-103 registration”), id. ¶¶ 5, 26.

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Plaintiff has been using the “Belstone” mark since at least 2010. Id. ¶ 37. Plaintiff currently has

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a pending application with the USPTO to register its Belstone mark, Serial Number 86973133.

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Id. ¶¶ 6, 31. During more than six years of concurrent use, there has been no marketplace

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confusion caused by the parties’ use of their respective marks. Id.

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On April 20, 2016, plaintiff sent defendants a letter requesting that defendants

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enter into a co-existence, consent, and cross-license agreement whereby they would confirm that

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plaintiff and defendants could concurrently use their respective marks, and by agreement

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acknowledge that such use would not cause marketplace confusion among their respective

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customer bases or otherwise. Id. ¶ 20. Defendants rejected plaintiff’s request, and instead

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demanded plaintiff cease and desist infringing defendants’ mark. Id. ¶ 21. On May 6, 2016,

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defendants filed a new trademark registration application with the USTPO, seeking broader

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protection for their mark under IC 9 (computer software), 35 (business data analysis services in

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the field of real estate), 36 (capital investment in the field of real estate), and 42 (software for real

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estate investments). Id. ¶¶ 22–24. Defendants’ Serial Number for this application is 87027088

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(the “-088 application”). Id.

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Plaintiff alleges, however, that defendants cannot perform most of the services

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they list in their -088 application. Id. ¶ 25. Most of the services would require defendants to be

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registered as a real estate broker by the California Bureau of Real Estate. Id. Although the

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Managing Director for all three defendants, Robert B. Price IV, does have a real estate license, at
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least one defendant, Bellstone Partners, LLC, is not so licensed, and defendants without real

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estate licenses “may not lawfully provide lending consultant services for real estate development

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projects” under other parties’ licenses. Id. ¶¶ 25, 56. Additionally, defendants’ assertion in the

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application leading to their -103 registration, that they were using the “Bellstone” mark in

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interstate commerce for lending consulting services, was fraudulent because defendants provide

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their services under the trade name “Bellstone Partners, LLC,” not “Bellstone” alone, and then

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only in Southern California and Sacramento, not in interstate commerce. Id. ¶ 26.

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On May 24, 2016, plaintiff filed the complaint in this court, seeking: (1) a
declaration of non-infringement of defendants’ trademark rights; (2) a declaration that defendants

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cannot register, via their -088 application, the “Bellstone” mark for services performed

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unlawfully; and (3) cancellation of defendants’ -103 registration of the “Bellstone” mark because

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it was obtained fraudulently. See generally id.

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After the time for responding to the complaint was extended by stipulation,

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defendants filed a motion to dismiss on September 9, 2016. Plaintiff opposes each of defendants’

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contentions, Opp’n, ECF No. 26, and defendants have replied, Reply, ECF No. 27.

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II.

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LEGAL STANDARD
Under Federal Rule of Civil Procedure 12(b)(6), a party may move to dismiss a

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complaint for “failure to state a claim upon which relief can be granted.” The motion may be

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granted only if the complaint “lacks a cognizable legal theory or sufficient facts to support a

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cognizable legal theory.” Hartmann v. Cal. Dep’t of Corr. & Rehab., 707 F.3d 1114, 1122 (9th

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Cir. 2013). Although a complaint need contain only “a short and plain statement of the claim

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showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), in order to survive a motion

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to dismiss this short and plain statement “must contain sufficient factual matter . . . to ‘state a

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claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting

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Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A complaint must include something

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more than “an unadorned, the-defendant-unlawfully-harmed-me accusation” or “‘labels and

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conclusions’ or ‘a formulaic recitation of the elements of a cause of action.’” Id. (quoting

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Twombly, 550 U.S. at 555). Determining whether a complaint will survive a motion to dismiss
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for failure to state a claim is a “context-specific task that requires the reviewing court to draw on

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its judicial experience and common sense.” Id. at 679. Ultimately, the inquiry focuses on the

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interplay between the factual allegations of the complaint and the dispositive issues of law in the

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action. See Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).

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In making this context-specific evaluation, this court must construe the complaint

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in the light most favorable to the plaintiff and accept its factual allegations as true. Erickson v.

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Pardus, 551 U.S. 89, 93–94 (2007). However, “‘conclusory allegations of law and unwarranted

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inferences’ cannot defeat an otherwise proper motion to dismiss.” Schmier v. U.S. Court of

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Appeals for Ninth Circuit, 279 F.3d 817, 820 (9th Cir. 2002) (quoting Associated Gen.

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Contractors of Am. v. Metro. Water Dist. of S. California, 159 F.3d 1178, 1181 (9th Cir. 1998)).

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III.

JUDICIAL NOTICE

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Defendants ask the court to take judicial notice of four public records they say are

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maintained on the USPTO website. See Defs.’ Req. for J. Notice (“RJN”) Exs. A–D, ECF

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No. 21-2. Plaintiff also asks the court to take judicial notice of a public record maintained on the

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USPTO website. Pl.’s RJN Ex. 3, ECF No. 26-1. “A court may take judicial notice of ‘matters of

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public record’ without converting a motion to dismiss into a motion for summary judgment, as

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long as the facts noticed are not subject to reasonable dispute.” Intri-Plex Techs., Inc. v. Crest

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Grp., Inc., 499 F.3d 1048, 1052 (9th Cir. 2007) (changes, brackets, citations and quotations

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omitted). Accordingly, the court takes judicial notice of the marks’ filings, though not the content

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of the documents themselves, because the filings are a matter of public record and their veracity is

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not in dispute.

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Plaintiff also asks the court to take judicial notice of two emails sent from

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defendants’ counsel to plaintiff’s counsel, Pl.’s RJN Ex. 1, and a letter sent from plaintiff’s

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counsel to defendants’ counsel, Pl.’s RJN Ex. 2. These two emails and the letter each are

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referenced in plaintiff’s complaint. Compl. ¶¶ 20–21. In reviewing a motion to dismiss, the court

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may “consider documents in situations where the complaint necessarily relies upon a document or

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the contents of the document are alleged in a complaint, the document’s authenticity is not in

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question and there are no disputed issues as to the document’s relevance.” Coto Settlement v.
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Eisenberg, 593 F.3d 1031, 1038 (9th Cir. 2010). In this case, the complaint only references the

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emails and letter, but does not necessarily rely upon them. Because the complaint already alleges

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the substance of the emails and letter, because they are not public records, and they are not

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documents “necessarily relie[d] upon,” the court declines to judicially notice these documents.

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IV.

DISCUSSION

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The court notes defendants are not challenging plaintiff’s first claim seeking a

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declaration of non-infringement. Instead, defendants challenge plaintiff’s second and third claims

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for relief. Chronologically, plaintiff’s third claim concerns defendants’ -103 trademark registered

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in 2010, whereas plaintiff’s second claim concerns defendants’ -088 trademark application filed

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in 2016. Although defendants advance numerous arguments, the court addresses only

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defendants’ first two — incontestability and unlawful use — as they are dispositive.

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A.

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Trademark Incontestability
Defendants argue their -103 registration became incontestable as a matter of law in

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2015. Mot. at 11–12. Under the federal Lanham Act, a trademark registration becomes

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incontestable if and when the mark has been in continuous use for five years after the initial

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registration, there has been no final decision adverse to the registrant’s claim of ownership of the

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mark, there is no pleading challenge to the validity of the mark, and the registrant files an

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affidavit with the Commissioner of Patents within one year after the expiration of the initial five-

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year period, affirming the mark is still in use. 15 U.S.C. § 1065. Registration with the USPTO

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“constitute[s] ‘prima facie evidence’ of the validity of the registered mark and of the registrant’s

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exclusive right to use the mark on the goods and services specified in the registration.” Official

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Airline Guides, Inc. v. Goss, 6 F.3d 1385, 1390 (9th Cir. 1993) (quoting 15 U.S.C. § 1115(a)).

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“The incontestability provisions of the Lanham Act were designed to provide a means for a

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trademark holder to quiet title in the ownership of his mark.” Reno Air Racing Ass’n., Inc. v.

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McCord, 452 F.3d 1126, 1134 (9th Cir. 2006) (quotation omitted). In this case, defendants

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registered their -103 mark on August 3, 2010. Compl. ¶ 5. On August 3, 2015, defendants filed a

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“Combined Declaration of Use and Incontestability” with the USPTO regarding their -103 mark.

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See Compl. ¶¶ 52–55; Defs.’ RJN Ex. C at 1–2, Ex. D. Defendants’ mark therefore became

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incontestable in 2015. See id.

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As provided by 15 U.S.C. § 1119, courts have the power to cancel a registered

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trademark, as well as “any pending trademark applications relating to the [registered mark].” Airs

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Fragrance Prod., Inc. v. Clover Gifts, Inc., 395 F. App’x 482, 485 (9th Cir. 2010). After a mark

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has become incontestable, however, the court’s power is limited to the circumstances defined by

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statute, 15 U.S.C. § 1115; see Park ’N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189, 203

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(1985). The provisions of the Lanham Act enumerating the specific defenses and defects that will

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defeat incontestability are found in 15 U.S.C. § 1115(b). Plaintiff alleges two of these defects in

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its complaint, both of which defendants challenge: (1) fraud in the mark’s procurement, 15 U.S.C.

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§ 1115(b)(1); and (2) misrepresentation of the source of defendants’ services, id. § 1115(b)(3).

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See Compl. ¶¶ 62–64.

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According to plaintiff, defendants’ “procurement and maintenance of [their] -103

Fraud

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registration constitutes fraud and justifies cancelling the registration” because defendants

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knowingly made false representations during the registration process. Id. ¶ 62. Specifically,

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plaintiff pleads that defendants procured their trademark fraudulently by (1) averring before the

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USPTO that they were providing “lending consultant services” with their mark when they were

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not lawfully licensed to provide those services in California; and (2) averring before the USPTO

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that they used the mark continuously in interstate commerce for five years when, in fact, the mark

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they were actually using was materially different from the one depicted in the application for

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the -103 registration, and they did not use their mark in interstate commerce. Id. ¶¶ 62–63.

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As noted, under the Lanham Act, a court may cancel the registration of an

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incontestable trademark when “the right to use the mark was obtained fraudulently.” 15 U.S.C.

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§ 1115(b)(1). “Fraud in procuring a mark occurs when an applicant knowingly makes false,

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material representations of fact in connection with an application.” Quiksilver, Inc. v. Kymsta

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Corp., 466 F.3d 749, 755 (9th Cir. 2006) (quoting L.D. Kichler Co. v. Davoil, Inc., 192 F.3d

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1349, 1351 (Fed. Cir. 1999)).

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In this case, plaintiff does not plausibly allege that defendants committed fraud on

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the USPTO. Regarding plaintiff’s assertion that defendants cannot provide “lending consulting

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services” because they have not had a license to do so, plaintiff’s assertion is undermined by the

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factual allegation, found in its own pleadings, that the Managing Director for all defendants,

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Robert B. Price IV, does have the requisite license. Compl. ¶¶ 51, 56. Plaintiff alleges without

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citation to authority that defendants, and not merely defendants’ employees, must have a license

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for defendants to engage in the business of “lending consulting services,” but this allegation is

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overly formalistic and illogical on its face. By way of analogy, a courier delivery services

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company that transports packages in delivery trucks does not have a driver’s license; each of its

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drivers does. Such a company would not commit fraud by representing it is in the business of

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trucking. Plaintiff’s pleadings are insufficient to state a claim absent more particularized

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allegations as to why a particular corporate defendant must have a license.

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As for plaintiff’s allegation that defendants committed fraud when registering the

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name “Bellstone” alone, when it was clear from the specimen provided to the USPTO that

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defendants were in fact using the trade name “Bellstone Partners, LLC.,” this allegation is

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specious at best. See id. ¶¶ 52–53. To sufficiently allege fraud in the procurement, plaintiff must

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plead that defendants “knowingly ma[de] false, material representations of facts in connection

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with [their] application.” In re Bose Corp., 580 F.3d 1240, 1243 (Fed. Cir. 2009) (citation

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omitted); accord Quiksilver, 466 F.3d at 755. Instead, plaintiffs point to the very specimen

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defendants provided to the USPTO, which contains the word “Bellstone.” See Compl. ¶¶ 52, 54.

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In other words, plaintiff’s own pleadings demonstrate defendants provided the USPTO with the

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information plaintiff alleges defendants withheld, undermining any allegations of fraud.

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Although plaintiff may disagree with the USPTO’s decision to register the word mark “Bellstone”

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based on a specimen that reads “Bellstone Partners, LLC,” that disagreement does not make out a

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claim of fraud. Additionally, “[a] trademark is a proper adjective designating a particular thing

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and distinguishing it from other like things.” Highline Capital Mgmt., LLC v. High Line Venture
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Partners, L.P., No. 15-660, 2015 WL 10847688, at *3 (S.D.N.Y. Oct. 1, 2015) (citations

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omitted). Here, the addition of the words “Partners, LLC,” is “purely descriptive and . . . does not

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change the commercial impression of the mark.” See id. (citations omitted). Accordingly,

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plaintiff has not sufficiently alleged defendants committed fraud when registering the name

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“Bellstone” alone.

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Plaintiff’s allegation that defendants committed fraud by materially altering their

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mark fails for similar reasons. See Compl. ¶¶ 54–55. As with the specimen defendants provided

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the USPTO with its initial application for the -103 word mark, plaintiff’s alleged evidence of

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misrepresentation is again the very specimen defendants provided to the USPTO. Even given that

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defendants provided the USPTO with two specimens that appear different, plaintiff cannot

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plausibly allege fraud when defendants provided the USPTO with both. Cf. Levi Strauss & Co. v.

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Abercrombie & Fitch Trading Co., No. 07-03752, 2008 WL 4614660, at *9 (N.D. Cal. Oct. 16,

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2008) (“Statements of honest, but perhaps incorrect belief or innocently made inaccurate

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statements of fact do not constitute ‘fraud.’” (brackets and quotation omitted)).

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Finally, plaintiff’s allegation that defendants committed fraud by misrepresenting

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that they used their mark in interstate commerce fails in light of plaintiff’s allegations that

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defendants advertised their services and their mark through their website. See id. ¶¶ 15, 49–50.

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“Because the internet is an instrumentality of interstate commerce, courts have repeatedly held

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that the [ ] use of a trademark on the internet satisfies the ‘in commerce’ requirement.” AvePoint,

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Inc. v. Power Tools, Inc., 981 F. Supp. 2d 496, 512 (W.D. Va. 2013) (citing cases) (quotation

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omitted); see also Lobo Enterprises, Inc. v. Tunnel, Inc., 822 F.2d 331, 332 (2d Cir. 1987) (“It is

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well established that Lanham Act jurisdiction extends to the limit of Congress’s power to regulate

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interstate commerce.”); accord Thompson Tank & Mfg. Co. v. Thompson, 693 F.2d 991, 993 (9th

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Cir. 1982). Therefore, by plaintiff’s own pleadings, defendants have satisfied the “in commerce”

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requirement. See Atkins v. City of Chicago, 631 F.3d 823, 831–32 (7th Cir. 2011) (under

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Twombly and Iqbal courts need not accept as true allegations in the complaint that are fantastic or

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contradicted in the complaint itself).

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Plaintiff has not sufficiently pled defendants committed fraud to defeat the
incontestability of defendants’ mark.

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Plaintiff’s misrepresentation allegation is derivative of its fraud allegation.

Misrepresenting the Source of the Services

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Plaintiff contends a specific defendant, Bellstone Partners, LLC, was required to have, and did

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not have, a real estate broker license to perform lending consultant services under California law.

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Compl. ¶ 57. Plaintiff alleges that because this defendant could not lawfully provide lending

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consulting services, it must not have performed those services, and therefore it had to have made

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a material misrepresentation to the USPTO by stating it did. See Compl. ¶ 53, 55. This leap in

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logic is the type of “unwarranted inference [that] cannot defeat an otherwise proper motion to

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dismiss.” Schmier, 279 F.3d at 820. Nowhere in the complaint does plaintiff explicitly allege

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this defendant did not perform the services at issue. To the contrary, plaintiff implies throughout

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the complaint that the defendant did, in actuality, provide these services, as defendant’s providing

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these services is the basis for plaintiff’s fraud and misrepresentation allegations. See Compl.

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¶¶ 26, 53, 57, 63.

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Accordingly, plaintiff has not plausibly pled that defendants made a material
misrepresentation to the USPTO.

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For the reasons stated above, the court finds plaintiff has not pled facts showing

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fraud and misrepresentation sufficient to defeat the incontestability of defendants’ trademark.

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Defendants’ motion to dismiss plaintiff’s third claim for relief is GRANTED.

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B.

Unlawful Use
Plaintiff’s second claim for relief, that defendants cannot register a mark with their

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-088 application for services performed unlawfully, is similar to its fraud and misrepresentation

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allegations. More specifically, plaintiff alleges in its second claim for relief that “most, if not all,

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of the services that [defendants] list[ ] in . . . [their] -088 application must be” performed by a real

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estate broker licensed by the California Bureau of Real Estate. Compl. ¶ 43. Because defendants

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are not licensed real estate brokers, plaintiff argues, they cannot lawfully perform the services

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listed in their -088 application, and a trademark used unlawfully cannot be registered with the

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USPTO. Id. ¶ 44.

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Trademark rights arise from the use of a mark to identify goods or services in

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commerce, B & B Hardware, Inc. v. Hargis Indus., Inc., __ U.S. __, 135 S. Ct. 1293, 1299–1300

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(2015), and “use in commerce only creates trademark rights when the use is lawful,” CreAgri,

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Inc. v. USANA Health Scis., Inc., 474 F.3d 626, 630 (9th Cir. 2007) (emphasis in original). There

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are two rationales for this rule:

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First, as a logical matter, to hold otherwise would be to put the
government in the anomalous position of extending the benefits of
trademark protection to a seller based upon actions the seller took in
violation of that government’s own laws . . . . Second, as a policy
matter, to give trademark priority to a seller who rushes to market
without taking care to carefully comply with the relevant
regulations would be to reward the hasty at the expense of the
diligent.

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CreAgri, Inc., 474 F.3d at 630 (quotations and citations omitted).
However, “[t]here must be some nexus between use of a mark and an alleged

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violation before it can be said that the unlawfulness . . . has resulted in a trademark’s invalidity.”

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Id. at 631 (quotation omitted). Additionally, trademark protection is not precluded by violations

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of law that are “immaterial,” in other words when the unlawful violation is not “of such gravity

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and significance that the usage [of the mark] must be considered . . . so tainted that, as a matter of

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law, it [enjoys] no trademark rights.” Id. at 633 (quoting Gen. Mills Inc. v. Health Valley Foods,

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24 U.S.P.Q.2d 1270, 1274 (1992)). “[A] case by case determination is preferable to a blanket

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policy of finding every possible technical violation to result in cancellation of a registration, no

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matter how minor or harmless the violation may be.” Gen. Mills Inc., 24 U.S.P.Q.2d at 1274. It

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appears unsettled whether the unlawful use doctrine applies only when the trademark holder

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violates federal laws, or whether it also applies when the trademark holder violates only state

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laws. See Veronica’s Auto Ins. Servs., Inc. v. Veronica’s Servs., Inc., No. 13-01327, 2014 WL

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7149530, at *5 (C.D. Cal. Dec. 15, 2014) (comparing cases).

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Assuming without deciding that violations of state law can be grounds for

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cancellation of trademark protections under the unlawful use doctrine, plaintiff’s pleadings fail

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because, even if true, they do not establish that defendants violated state law as discussed above.

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Plaintiff acknowledges that each defendant’s Managing Director, Robert B. Price IV, is a licensed

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real estate broker. See Compl. ¶ 56. It also appears from the face of the complaint that one

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defendant, Bellstone Commercial, Inc., also has the requisite license. See id. Although plaintiff

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alleges one defendant may not offer lending consulting services under the license of a co-

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defendant or one of its employees, see id., plaintiff never pleads a specific instance when any

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defendant allegedly offered lending consulting services in violation of state law. Without such

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specificity, plaintiff’s pleadings fail to establish a claim as a matter of law.

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Additionally, in its second claim for relief plaintiff alleges that “most, if not all, of

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the services listed by [defendants]” in the -088 application would require defendants to be a

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licensed real estate broker. Id. ¶ 43. Pleading “most, if not all” is not the same as pleading “all,”

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and plaintiff has identified no specific instance in which defendants violated California law. For

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this reason too plaintiff does not adequately plead unlawful use because the complaint relies only

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on vague and conclusory innuendo, even when viewed in the light most favorable to the plaintiff,

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and does not establish that defendants ever acted unlawfully.

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Plaintiff has not sufficiently pled that defendants’ unlawful use of their mark

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would warrant a cancellation of their -088 application. Defendants’ motion to dismiss plaintiff’s

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second claim for relief is GRANTED.

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V.

CONCLUSION

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For the aforementioned reasons, defendants’ motion to dismiss plaintiff’s second

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and third causes of action is GRANTED. Federal Rule of Civil Procedure 15(a)(2) provides that

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“[t]he court should freely give [a party leave to amend its pleading] when justice so requires,” and

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the Ninth Circuit has “stressed Rule 15’s policy of favoring amendments.” Ascon Properties, Inc.

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v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir. 1989). Because amendment has not been shown

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to be futile, plaintiff is granted leave to amend its complaint within fourteen (14) days of the

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filing of this order. If plaintiff elects not to amend its complaint, this case will proceed solely on

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plaintiff’s first claim, which is unaffected by this order.

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This resolves ECF Nos. 21, 26, and 27.

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IT IS SO ORDERED.

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DATED: March 27, 2017.

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UNITED STATES DISTRICT JUDGE

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