Prograde Ammo Group LLC v. Perry et al

Filing 82

ORDER. ORDERED that plaintiff ProGrade Ammo Group LLC's Motion to DismissAmended Counterclaims [Docket No. 42] is GRANTED IN PART. ORDERED that defendants' second, fourth and fifth counterclaims are dismissed without prejudice. ORDERED that defendants third counterclaim is dismissed with prejudice. Defendants' first counterclaim remains pending. Entered by Judge Philip A. Brimmer on 03/09/15.(jhawk, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 14-cv-00884-PAB-MEH
PROGRADE AMMO GROUP LLC, d/b/a BVAC, a Delaware limited liability company,
Plaintiff,
v.
CURT PERRY, an individual,
KRISTEN PERRY, an individual,
AMMO KAN, a Colorado limited liability company,
AMMO CAN LLC, a Colorado limited liability company,
AMMO CAN LLC, a Wyoming limited liability company,
AMMO KAN FRANCHISE GROUP LLC, a Wyoming limited liability company,
HIGH COUNTRY SALES, LLC, a Colorado limited liability company,
HIGH COUNTRY WHOLESALE, LLC, a Wyoming limited liability company,
HIGH COUNTRY SPORT, LLC, a Wyoming limited liability company, and
JOHN DOES 1-5,
Defendants.
_____________________________________________________________________
ORDER
_____________________________________________________________________
This matter is before the Court on the Motion to Dismiss Amended
Counterclaims filed by plaintiff ProGrade Ammo Group LLC (“ProGrade”) [Docket No.
42]. The Court has jurisdiction pursuant to 28 U.S.C. § 1331.

I. BACKGROUND1
Plaintiff, a manufacturer of ammunition and related products, sells products
under the marks “Bitterroot Valley Ammunition & Components,” “Bitterroot Valley,” and
“BVAC” (the “BVAC Marks”). Docket No. 1 at 5, ¶¶ 20-21. Plaintiff and its predecessor
have used the BVAC Marks since 2008 in association with the sale of ammunition
products. Id. ¶ 23. Plaintiff brings claims against defendant Curt Perry, his wife Kristen
Perry, and a number of Colorado and Wyoming entities, each of which Mr. Perry is
either the sole owner and member or a principal and part owner of (the “Ammo Kan
Entities”).2 Id. at 2-4, ¶¶ 2-10. Plaintiff and/or its predecessor have supplied
ammunition to Mr. Perry and/or one of the Ammo Kan Entities since at least 2011 for
sale at Ammo Kan booths at gun shows and at an “Ammo Kan” retail facility in Littleton,
Colorado. Id. at 7, ¶¶ 30, 32. Between January and June 2013, Mr. Perry, purportedly
on behalf of defendant Ammo Kan LLC, ordered ammunition products from plaintiff and
promised to pay for them. Id. ¶ 33. Plaintiff was never paid for the orders, which

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The following facts are drawn from plaintiff’s complaint [Docket No. 1] and/or
defendants’ Amended Counterclaims [Docket No. 39]. The allegations in the Amended
Counterclaims are assumed to be true for purposes of resolving plaintiff’s motion to
dismiss pursuant to Rule 12(b)(6). See Alvarado v. KOB-TV, L.L.C., 493 F.3d 1210,
1215 (10th Cir. 2007). The allegations in plaintiff’s complaint are included for
background purposes, but are not presumed true for the purpose of resolving this
motion.
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Plaintiff alleges that Mr. Perry, as owner and/or principal of all of the Ammo Kan
Entities, exercises substantial dominion over them, controls their every business
decision and operations, co-mingles the entities’ funds with those of Mr. and Mrs. Perry,
and uses company funds and assets for his personal benefit. Docket No. 1 at 4, ¶ 16.
Given the number of similarly-named defendants involved and plaintiff’s alter ego
allegations, for ease of reference the Court will refer to Mr. Perry and each of the Ammo
Kan Entities collectively as “defendants.”
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resulted in an outstanding balance of $377,127.63 (the “outstanding balance”). Id. at 78, ¶¶ 33, 38.
The products that plaintiff sold to Mr. Perry and Ammo Kan Colorado included a
quantity of “plinkers,” ammunition that has cosmetic imperfections, but which is
nonetheless usable, and factory rejects, which did not pass plaintiff’s quality control
requirements but which Mr. Perry intended to re-manufacture by salvaging usable
components. Id. at 7-8, ¶¶ 34-35. Plaintiff does not authorize the use of the BVAC
Marks on plinkers or factory rejects. Id. at 8, ¶ 36.
In the summer of 2013, Mr. Perry told representatives of plaintiff that he lacked
the funds to pay the outstanding balance, but that defendants would pay plaintiff after
new business ventures were successful. Docket No. 1 at 8, ¶ 39. Around the sam e
time, one of plaintiff’s representatives visited defendants’ Littleton, Colorado facility and
observed that defendants had begun manufacturing ammunition. Id. During that visit,
Mr. Perry informed plaintiff’s representative that he planned to move his business
operations to Wyoming. Id.
Due to defendants’ non-payment of the outstanding balance, plaintiff brought a
lawsuit against Ammo Kan Colorado and Mr. Perry in the District Court, Douglas
County, Colorado (the “state court lawsuit”), which remains pending. Docket No. 1 at 89, ¶ 41. After the state court lawsuit was filed, plaintiff discovered that Mr. Perry had
begun operating an ammunition manufacturing facility in Laramie, Wyoming operating
under the name Maverick Ammunition. Id. at 9, ¶ 42.

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In early 2014, plaintiff began receiving complaints about ammunition bearing the
BVAC Marks that customers had purchased at gun shows from Ammo Kan booths.
Docket No. 1 at 10, ¶ 46. After investigating, plaintiff discovered that, on at least one
instance, at a gun show in March 2014, an Ammo Kan booth was selling ammunition
using the BVAC Marks that had not been manufactured by plaintiff. Id. ¶¶ 49-50.
Plaintiff alleges that defendants are either falsely selling ammunition manufactured by
Maverick using the BVAC Marks, or are inappropriately using the BVAC Marks on
ammunition that was sold as factory rejects, for which the use of the marks is not
authorized. Id. at 11, ¶ 53. Plaintiff brings claims for false designation of origin under
the Lanham Act, 15 U.S.C. § 1125(a), violation of Colorado’s Deceptive Trade
Practices Act, common law trademark infringement, common law unfair competition,
unjust enrichment, tortious interference with prospective business advantage,
fraudulent conveyance, alter ego, and civil conspiracy. See Docket No. 1.
Defendants assert five counterclaims, for declaratory judgment of noninfringement, breach of contract, “not properly named parties,” breach of the implied
warranty of merchantability, and breach of the implied warranty of fitness for a particular
purpose. See Docket No. 39. In support of their declaratory judgment claim,
defendants allege that plaintiff provided defendants with a tablecloth bearing one of the
BVAC Marks for use in selling defendants’ products at gun shows. Docket No. 39 at
17, ¶ 152. Defendants also allege that they received ammunition from plaintiff in boxes
marked with BVAC’s name, and were never advised that this ammunition could not be

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sold in those factory boxes. Id. at 18, ¶ 153. Finally, defendants allege that plaintiff
does not have a valid registration for the BVAC Marks. Id. ¶ 154.
In support of their remaining counterclaims, defendants allege that they had a
longstanding positive relationship with plaintiff’s predecessor company, Bitterroot Valley
Ammunition Company, before plaintiff purchased the company in late 2011 or early
2012. Docket No. 39 at 16, ¶ 146. In late 2012 and early 2013, however, defendants
purchased ammunition from plaintiff that was “defective, incompetently manufactured,
badly engineered, and/or sold to [defendants] under the guise of a higher quality
product.” Id. ¶ 147. Due to customer dissatisfaction with plaintiff’s allegedly inferior
product, defendants have suffered loss of good will and reputational damage within the
gun and ammunition community. Id. at 17, ¶ 150. Defendants have offered to return
the faulty and defective ammunition for a full reimbursement, but plaintiff has refused
defendants’ offer. Id. ¶ 151. Finally, defendants allege that Kristen Perry, Curt Perry,
Ammo Can, LLC (Colorado), Ammo Can, LLC (Wyoming), Ammo Kan Franchise
Group, LLC, High Country Sales, LLC, High Country Wholesale, LLC, and High Country
Sport, LLC were never a party to any contract or agreement with plaintiff and were
improperly named as defendants in this action. Id. at 21, ¶ 171.
II. ANALYSIS
Plaintiff moves to dismiss defendants’ counterclaims, arguing that (1)
defendants’ declaratory judgment counterclaim is redundant to plaintiff’s claim under
the Lanham Act, (2) the Court either lacks jurisdiction over or should abstain from
exercising jurisdiction over defendants’ breach of contract and breach of warranty

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counterclaims because they are substantially similar to counterclaims that defendants
asserted in the pending state court lawsuit, and (3) defendants’ counterclaim for “not
properly named parties” is not a cognizable claim for relief. See Docket No. 42.
A. Declaratory Judgment Counterclaim
Plaintiff argues that, to the extent defendants contend that they have not
infringed the BVAC Marks in violation of the Lanham Act, their counterclaim will
necessarily be resolved in connection with plaintiff’s infringement claim. See Docket
No. 56 at 3. Defendants argue that their declaratory judgment claim seeks a
declaration both as to direct and indirect infringement, and is therefore not redundant to
plaintiff’s claim of false designation of mark. Docket No. 55 at 9.
The Declaratory Judgment Act provides, in pertinent part, that “[i]n a case of
actual controversy within its jurisdiction, . . . any court of the United States, upon the
filing of an appropriate pleading, may declare the rights and other legal relations of any
interested party seeking such declaration, whether or not further relief is or could be
sought. . . .” 28 U.S.C. § 2201(a). The Court “is not obliged to entertain every
justiciable declaratory claim brought before it.” State Farm Fire & Cas. Co. v. Mhoon,
31 F.3d 979, 982 (10th Cir. 1994). The Tenth Circuit has identified certain factors a
court should consider when determining whether to exercise jurisdiction over a
declaratory judgment claim:
[1] whether a declaratory action would settle the controversy; [2] whether it
would serve a useful purpose in clarifying the legal relations at issue; [3]
whether the declaratory remedy is being used merely for the purpose of
“procedural fencing” or “to provide an arena for a race to res judicata”; [4]
whether use of a declaratory action would increase friction between our

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federal and state courts and improperly encroach upon state jurisdiction; and
[5] whether there is an alternative remedy which is better or more effective.
Id. at 983.
Multiple courts have dismissed so-called “mirror image” noninfringement
counterclaims in intellectual property actions. See Sarkis’ Café, Inc. v. Sarks in the
Park, LLC, --- F. Supp. 2d ----, 2014 WL 3018002 at *2 (N.D. Ill. July 3, 2014)
(dismissing trademark non-infringement counterclaim because “once the Court rules on
the merits of Count II of the Complaint, the question of whether Defendant infringed
upon Plaintiff’s marks will be resolved in its entirety.”); see also Interscope Records v.
Duty, 2006 WL 988086 at *3 (D. Az. Apr. 14, 2006) (dismissing declaratory judgment
claim in copyright action because “[t]he issue of copyright infringement will be decided
by this court regardless of the declaratory judgment claim”). However, “a counterclaim
seeking a declaratory judgment is not duplicative or redundant if it asserts an
independent case or controversy which would remain viable after a dismissal of the
plaintiff’s claim.” Ferring B.V. v. Fera Pharm. LLC, 2014 WL 4829053 at *6 (E.D.N.Y.
Aug. 13, 2014) (citations omitted).
The Court finds that defendants’ declaratory judgment counterclaim is not a
mirror image of plaintiff’s claim for relief. Defendants’ counterclaim seeks a declaratory
judgment on the issue of both direct and indirect infringement, see Docket No. 39 at 19,
¶ 163, while plaintiff’s claim for false designation of mark addresses only direct
infringement. See Docket No. 1 at 11-12, ¶¶ 56-64. The Court determines that the first
two State Farm factors – whether a declaratory judgment action would settle a case or
controversy and the declaratory judgment claim’s usefulness in clarifying the legal
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relations at issue – weigh in favor of allowing defendants’ declaratory judgment
counterclaim. Conversely, plaintiff raises no argument that defendants bring their
counterclaim in order to “race to res judicata,” that it would increase friction between the
federal and state court systems, or that there is a superior alternative remedy.
B. Breach of Contract and Implied Warranty Counterclaims
Plaintiff argues that defendants’ second, fourth, and fifth counterclaims –
respectively, breach of contract, breach of the implied warranty of merchantability, and
breach of the implied warranty of fitness for a particular purpose – should be dismissed
because defendants have brought similar counterclaims in a state court action that
plaintiff filed in Douglas County, Colorado. In that case, plaintiff brought suit against
defendants Curt Perry and Ammo Kan, LLC for non-payment of the outstanding
balance. Docket No. 42 at 2. In response, def endants Curt Perry and Ammo Kan, LLC
brought a number of counterclaims related to the quality of plaintiff’s product. See
Docket No. 42-1 at 5-6, ¶¶ 60-63.
Plaintiff argues that defendants’ breach of contract and implied warranty claims
should be dismissed because the Court lacks subject matter jurisdiction over them, and
alternatively, because the Court is barred from entertaining the counterclaims by the
abstention doctrines outlined in Younger v. Harris, 401 U.S. 37 (1971), and Colorado
River Water Conservation District v. United States, 424 U.S. 800 (1976). As discussed
below, the Court finds that the Colorado River abstention doctrine is applicable here.
Accordingly, the Court need not discuss Younger abstention or plaintiff’s arguments
regarding subject matter jurisdiction.

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The Colorado River doctrine allows federal courts to “dismiss or stay a federal
action in deference to pending parallel state court proceedings” where the federal court
would otherwise have concurrent jurisdiction with the state court. Fox v. Maulding, 16
F.3d 1079, 1080 (10th Cir. 1994) (citing Colorado River, 424 U.S. at 817-18).
In order to defer to a state court under the Colorado River doctrine, a federal
court must first assess whether the state court suit is in fact “parallel” to the federal suit.
“Suits are parallel if substantially the same parties litigate substantially the same issues
in different forums.” Id. at 1081 (quoting New Beckley Mining Corp. v. Int’l Union,
UMWA, 946 F.2d 1072, 1073 (4th Cir. 1991)). In the T enth Circuit, a court assessing
whether state and federal proceedings are parallel should consider the actual posture
of the state proceedings, instead of considering “how the state proceedings could have
been brought in theory.” Id.
In this case, the Court finds that defendants’ breach of contract and implied
warranty counterclaims are parallel to the counterclaims that defendants brought in the
pending state court action. Defendants argue that the suits are not parallel because, of
the nine defendants named in this action, only Mr. Perry and Ammo Kan, LLC are
named as defendants in the state court action. Docket No. 55 at 14. Plaintif f replies
that, according to defendants’ own allegations, only defendant Ammo Kan would have
standing to assert defendants’ counterclaims because only Ammo Kan was party to any
contract with plaintiff. Docket No. 56 at 6.

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The Court agrees with plaintiff. Allegations in a complaint or counterclaim are
binding judicial admissions, which can properly be entertained on a motion to dismiss.3
Defendants allege that Curt Perry, Kristen Perry, and all of the Ammo Kan Entities
except for Ammo Kan, LLC have never had a commercial relationship with plaintiff.
Docket No. 39 at 21, ¶ 171. In opposition to plaintif f’s motion, defendants now argue
that applying the Colorado River doctrine would deprive those same defendants of their
right to bring breach of contract and implied warranty claims against plaintiff. Docket
No. 55 at 14. Based on defendants’ own admission, the only party with standing to
assert the breach of contract and implied warranty claims is Ammo Kan, LLC, which
brought similar counterclaims in the state court action. Moreover, the presence of
additional parties in this case does not preclude a f inding that the actions are parallel.
Clark v. Lacy, 376 F.3d 682, 686 (7th Cir. 2004) (“[t]he addition of a party or parties to a
proceeding, by itself, does not destroy the parallel nature of state and federal
proceedings.”) (citation omitted).
Defendants next argue that they did not assert either implied warranty claim in
the state court action. Docket No. 55 at 14. T o be sure, a review of defendants’
counterclaims in the state court action shows that defendants did not label their
counterclaims at all. See Docket No. 42-1 at 5-6. Instead, defendants in the state court
action seek recovery of unspecified “business losses” incurred due to plaintiff’s
3

See Sovereign Bank v. BJ’s Wholesale Club, Inc., 533 F.3d 162, 181 (3d Cir.
2008) (“the allegation in the amended complaint is a binding judicial admission”); see
also Jackson v. Marion County, 66 F.3d 151, 153 (7th Cir. 1995) (same); Hakopian v.
Mukasey, 551 F.3d 843, 846 (9th Cir. 2008) (same); MorEquity, Inc. v. Naeem, 118 F.
Supp. 2d 885, 894 (N.D. Ill. 2000) (on a motion to dismiss, parties “can plead
themselves out of court by alleging facts that show that they have no claim”).
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allegedly defective ammunition. Id. at 5, ¶ 61. Cases are parallel for purposes of the
Colorado River doctrine “where (1) the parties are substantially similar and (2) [the
claims] are predicated on the same allegations as to the same material facts.” Romine
v. Compuserve Corp. 160 F.3d 337, 340 (6th Cir. 1998). “[E]xact parallelism . . . is not
required. It is enough if the two proceedings are ‘substantially similar.’” Nakash v.
Marciano, 882 F.2d 1411, 1416 (9th Cir. 1989) (applying Colorado River abstention
where both the federal and state dispute concerned the sam e underlying conduct).
Here, the same defendants have brought substantially similar counterclaims against
ProGrade in state and federal court seeking damages stemming from the same
conduct. Compare Docket No. 42-1 at 5, ¶ 61 (alleging that defendants suffered
damages by “selling ammunition provided and manufactured by [ProGrade] which were
defective, incompetently manufactured, [and] badly engineered”); with Docket No. 39 at
20, ¶ 166 (alleging damages as a result of defendants’ resale of ammunition that “was
defective, incompetently manufactured, [and] badly engineered”), 22, ¶ 174 (alleging
damage because the ammunition sold “was not of fair average quality”); 23, ¶ 178
(“[t]he shipped ‘BVAC’ ammunition was not suitable and/or fit to properly fire out of
firearms”). Although defendants in the state court action declined to identif y their
counterclaims with specificity, the suits are parallel for purposes of the Colorado River
doctrine.
Having determined that the proceedings are parallel in part, the Court “must then
determine whether deference to state court proceedings is appropriate” by looking at a
series of nonexhaustive factors: “(1) whether either court has assumed jurisdiction over

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property; (2) the inconvenience of the federal forum; (3) the desirability of avoiding
piecemeal litigation; and (4) the order in which the courts obtained jurisdiction.” Fox, 16
F.3d at 1082. The first Colorado River factor is inapplicable here as there is no real
property involved in the parties’ dispute. As to the second f actor, plaintiff concedes that
the federal forum is “no more inconvenient than the state forum,” as both are located in
the Denver area. Docket No. 42 at 13. The third factor, the potential for piecemeal and
inconsistent rulings, weighs heavily in favor of dismissal, as both the federal and state
counterclaims concern damages related to the same underlying conduct. Finally, the
state court was the first to obtain jurisdiction. Compare Docket No. 42-1 at 6
(counterclaim dated October 28, 2013) with Docket No. 1 (complaint filed March 26,
2014). Upon consideration of these factors, the Court concludes that the Colorado
River doctrine applies, and the Court will dismiss defendants’ second, fourth, and fifth
claims for relief. Since the Court is abstaining from exercising jurisdiction, such
dismissal will be without prejudice.
C. “Not Properly Named Parties” Counterclaim
Defendants’ third counterclaim, labeled “not properly named parties,” alleges that
defendants Kristen Perry, Curt Perry, Ammo Can, LLC (Colorado), Ammo Can, LLC
(Wyoming), Ammo Kan Franchise Group, LLC, High Country Sales, LLC, High Country
Wholesale, LLC, and High Country Sport, LLC were never party to any contract or
agreement with plaintiff. Docket No. 39 at 21, ¶ 171. Plaintiff argues that this
counterclaim should be dismissed because it is not a cognizable cause of action and
also that, if designated as an affirmative defense, the claim is irrelevant because

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plaintiff has not asserted a breach of contract claim against defendants. Docket No. 42.
The Court agrees with plaintiff. Although an improperly named defendant may be
grounds for a motion to dismiss, see, e.g., Jenkins v. Jackson, 538 F. Supp. 2d 31, 33
(D.D.C. 2008) (dismissing individual defendants from a Title VII employment
discrimination case when plaintiff named them only in their official capacities), plaintiff
has not identified, and the Court is not aware of, any authority that recognizes
improperly naming a defendant as an independent cause of action for which relief may
be granted.
III. CONCLUSION
For the foregoing reasons, it is
ORDERED that plaintiff ProGrade Ammo Group LLC’s Motion to Dismiss
Amended Counterclaims [Docket No. 42] is GRANTED IN PART. It is further
ORDERED that defendants’ second, fourth and fifth counterclaims are dismissed
without prejudice. It is further
ORDERED that defendants’ third counterclaim is dismissed with prejudice.
Defendants’ first counterclaim remains pending.

DATED March 9, 2015.
BY THE COURT:

s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge

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