Scheu & Scheu, Inc. v. Scheu et al

Filing 87

ORDER denying 62 Motion to Dismiss. Signed by Magistrate Judge Jonathan Goodman on 6/28/2017. (jdo)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO. 15-10147-CIV-GOODMAN
[CONSENT CASE]
SCHEU & SCHEU, INC.,
Plaintiff,
v.
CASEY SCHEU, VERONICA SCHEU,
and APE.COM, LLC,
Defendants.
____________________________________/
ORDER DENYING MOTION TO DISMISS STATE LAW CLAIMS
In “Never Let Her Go,” a song from Florida Georgia Line’s first EP, the countrymusic duo lamented, “How she got gone when I never let her go.” 1 Similarly, federal
courts can also refuse to let go -- of state law claims that form part of the same case or
controversy as federal law claims, but with better results, so long as no exceptions
apply.
Here, Defendants Casey Scheu; Veronica Scheu and APE.com, LLC contend that
the Court should let go of the state law claims against them because two exceptions exist
under 28 U.S.C. § 1367(c). Specifically, Defendants argue that the Court, in its discretion,

1

2010).

FLORIDA GEORGIA LINE, Never Let Her Go, on ANYTHING LIKE ME (Arista Nashville

should decline to exercise supplemental jurisdiction over those claims because they
substantially predominate over the federal law claims, or alternatively, dismiss the state
law claims after granting summary judgment in Defendants’ favor on the federal law
claims. [ECF No. 62].
Because the Court has already denied summary judgment as to the federal law
claims [ECF No. 84], it will not address that ground for dismissal. As to the other
ground, for the reasons discussed below, the Court denies Defendants’ motion to
dismiss.
I.

Background

On August 11, 2015, Plaintiff sued Defendants, bringing 10 counts stemming
from various purported transgressions against Plaintiff’s trademarks, internet domains,
and business in general. [ECF No. 1]. Plaintiff alleged that it has been in the business of
circuit board repair and related services for a long time under various trademarks -APE and A.P.E. -- and for a relatively shorter time, under similar domain names -APE.com, etc. [ECF No. 1 ¶ 9]. Plaintiff alleged that two of its former officers -Defendants Casey Scheu and Veronica Scheu -- secretly incorporated a competing
company bearing the same name as the protected marks -- Defendant APE.com, LLC -and then, among other things, improperly transferred Plaintiff’s domains to the
competing company. [ECF No. 1 ¶¶ 17–19].

2

Two claims arise under federal statutes. Under Count I, Plaintiff brought a claim
for trademark infringement under the Lanham Act, 15 U.S.C. § 1051 et seq. [ECF No. 1,
pp. 7–9]. Under Count IV, Plaintiff brought a claim under the Anticybersquatting
Consumer Protection Act (“ACPA”), § 1125(d). [ECF No. 1, pp. 12–13].
The remaining six claims against Defendants arise out of state law. They include
(1) common law trademark infringement (Count II); (2) common law unfair competition
(Count III); (3) breach of fiduciary duty (Count V); (4) conversion (Count VI);
(5) intentional interference with advantageous business relationships (Count VII); and
(6) civil conspiracy to intentionally interfere with advantageous business relationships
(Count VIII). [ECF No. 1, pp. 9–12, 13–18].

Two other state law claims against a

different defendant were voluntarily dismissed. [ECF No. 23].
On April 10, 2017, Defendants moved for summary judgment on both federal law
claims. [ECF No. 61]. The Court denied summary judgment. [ECF No. 84].
Also on April 10, 2017, Defendants filed a motion to dismiss the state law claims.
[ECF No. 62]. Plaintiff filed an opposition response. [ECF No. 71]. Defendants did not
file a reply.
The matter is specially set for a four-day trial, in Key West, Florida, beginning
July 24, 2017. [ECF No. 40].

3

II.

Legal Standard

As codified in § 1367(a), “in any civil action of which the district courts have
original jurisdiction, the district courts shall have supplemental jurisdiction over all
other claims that are so related to claims in the action within such original jurisdiction
that they form part of the same case or controversy[.]” § 1367(a). Under § 1367(c),
however, “[t]he district courts may decline to exercise supplemental jurisdiction over a
claim” on various grounds. § 1367(c). The ground implicated here is under subsection
(c)(2) -- where “the claim substantially predominates over the claim or claims over
which the district court has original jurisdiction[.]” § 1367(c)(2).
“The exercise of supplemental jurisdiction is left to the discretion of the district
court[.]” PTA-FLA, Inc. v. ZTE USA, Inc., 844 F.3d 1299, 1304 (11th Cir. 2016).
III.

Analysis
A.

Substantial Predominance

As the Eleventh Circuit has explained, there is a difference between the Court’s
“power to exercise supplemental jurisdiction, § 1367(a), and its discretion not to
exercise such jurisdiction, § 1367(c).” Milan Exp., Inc. v. Averitt Exp., Inc., 208 F.3d 975,
980 (11th Cir. 2000) (internal quotations omitted) (emphasis added). Here, Defendants
do not argue that the Court lacks the power to exercise supplemental jurisdiction under
§ 1367(a). Although they denied Plaintiff’s supplemental-jurisdiction allegation in the
Complaint [ECF Nos. 1 ¶ 7; 10 ¶ 7], Defendants never argue that the federal law
4

claims and state law claims do not “form part of the same case or controversy.”
§ 1367(a). They also do not argue that the federal and state law claims do not “arise out
of a common nucleus of operative fact[,]” which is the standard for determining
whether the claims form part of the same controversy. Parker v. Scrap Metal Processors,
Inc., 468 F.3d 733, 743 (11th Cir. 2006).
Rather, Defendants argue that the Court should decline exercising its discretion
under § 1367(c)(2), because the state law claims “would substantially expand the scope
of this pending lawsuit beyond what would be necessary and relevant to the resolution
of the federal claims[.]” [ECF No. 62, p. 8]. “Substantial predominance exists ‘when it
appears that a state claim constitutes the real body of a case, to which the federal claim
is only an appendage.’” Morgan v. Christensen, 582 F. App’x 806, 808 (11th Cir. 2014)
(quoting Parker, 468 F.3d at 744). As authority for their arguments, Defendants rely
heavily on two district court decisions outside our circuit: TransCardiac Therapeutics, Inc.
v. Yoganathan, 85 F. Supp. 3d 1351 (N.D. Ga. 2014); and Beard v. Netco Title, Inc., No. CIV.
05-40252, 2005 WL 2072055 (E.D. Mich. Aug. 26, 2005).
The Court disagrees with Defendants’ position. Plaintiff’s Lanham Act claim and
ACPA claim are not “appendages” of its state law claims. The crux of this dispute -- at
least as the Complaint frames it -- is that former officers of Plaintiff usurped its
protected trademarks by forming a competing company bearing a protected name and
also by taking over related domain names. Distilled to its essence, this is a trademark
5

infringement and unlawful competition case. The former is a creature of federal statute,
and the latter is analyzed by the same rubric. See Planetary Motion, Inc. v. Techsplosion,
Inc., 261 F.3d 1188, 1193 n.4 (11th Cir. 2001) (“Courts may use an analysis of federal
infringement claims as a ‘measuring stick’ in evaluating the merits of state law claims of
unfair competition.”). 2 Thus, Plaintiff’s Lanham Act claim and ACPA claim are not
“appendages” of the state law claims.
The authorities Defendants rely on are readily distinguishable and unpersuasive.
In TransCardiac, the plaintiff brought “a host of state law claims, for breach of contract,
interference with business relations, fraud, conspiracy, and false advertising[,]” that
“arose from Defendants’ purported bad faith conduct and breach of contracts” relating
to a patent portfolio. 85 F. Supp. 3d at 1353. The plaintiff alleged that the defendants
“concealed and supported a competing startup, improperly disclosed to that startup
some confidential information concerning IP that is or should be within the [portfolio],
and ran a misleading public information campaign seeking to portray the individual
Defendants as the owners and inventors of [the] IP.” Id. The defendants removed the
case, but the matter was then remanded because the “Complaint did not sufficiently
implicate issues of patent inventorship and thus failed to establish federal jurisdiction
under 28 U.S.C. § 1338(a).” Id. at 1352.

Plaintiff’s common law trademark infringement claim also undergoes the same
analysis as a federal trademark infringement claim. Gift of Learning Found., Inc. v. TGC,
Inc., 329 F.3d 792, 802 (11th Cir. 2003).

2

6

After that inauspicious start, the defendants brought counterclaims and thirdparty claims for declaratory relief regarding ownership of two patents “that had never
before been mentioned by name in the lawsuit and which were not part of [the]
portfolio[.]” Id. at 1353. They then removed the case again, seeking “federal jurisdiction
over the entire case based on their counterclaims [] and third-party claims[.]” Id. at
1353–54.
The U.S. District Court for the Northern District of Georgia first found that the
“nine state law claims [did] not fall within the supplemental jurisdiction of [the] Court
under § 1367(a) because they [did] not arise out of a common nucleus of operative fact
with the Third–Party claim for a declaration of patent inventorship.” Id. at 1355. Then
the court found that even if § 1367(a) gave it the power to confer supplemental
jurisdiction, the court would nonetheless decline to take on the state law claims because
the “nine state law business tort and contract claims substantially predominate[d] over
the central, narrow issue of patent inventorship in the surviving third-party claims.” Id.
at 1356–57.
Here, Defendants do not even argue that the Court lacks the power to exercise
supplemental jurisdiction under § 1367(a). While there is a difference between the
Court’s power under § 1367(a) and its discretion under § 1367(c), Milan, 208 F.3d 975,
logically, a matter whose federal and state law claims do not even share a common
nucleus of operative fact, and that contains many more state claims than federal claims,
7

is more likely to fall under the § 1367(c)(2) exception. That is not the case before the
Court.
Moreover, trademark infringement and cybersquatting are not narrow issues in
this case. It is obvious that the TransCardiac declaratory judgment claims concerning
patent ownership were stuck unto a non-federal dispute to produce a basis for removal.
But here, the ownership and use of trademarks and related domain names lies at the
core of the parties’ dispute. Thus, TransCardiac is not analogous to this case.
In Beard, the plaintiff filed a complaint on August 12, 2005, alleging two claims
for violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C.
§ 1961 et seq. (“RICO”), and several state law claims for fraud, conversion, negligent
misrepresentation, and negligence. 2005 WL 2072055, at *1. Two weeks later, the U.S.
District Court for the Eastern District of Michigan dismissed the state law claims,
finding that they substantially predominated over the RICO claims because the state
law claims “would substantially expand the scope of this case beyond that necessary
and relevant to the federal claims under RICO.” Id. Moreover, the court concluded,
without giving an explanation, that “judicial economy, convenience, fairness, and
comity counsel against exercising supplemental jurisdiction in this case.” Id. Those are
factors set forth in United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 726 (1966), which
the Undersigned discusses later.

8

The lack of analysis in Beard makes it an unlikely candidate for persuasive
authority. The substance of the dispute in that case is not revealed, making it difficult to
ascertain what is the “appendage” and what is the body of those proceedings. And that
is especially true of its unelaborated application of the Gibbs factors. Although one
important distinction is readily apparent: while the Beard claims were dismissed just
two weeks after their inception, the Defendants here waited approximately a year and
eight months to seek dismissal of state law claims. More on that point later.
In addition, as the Court has already concluded, the federal claims in this case
arguably encompass the crux of the present dispute. Although some state law claims
will certainly require proof of different legal elements, the facts presented at trial will
likely remain unchanged even after a dismissal. In short, the Beard case does not
convince the Court to dismiss Plaintiff’s state law claims.
B.

The Gibbs Factors

“Prior to the enactment of § 1367, the United States Supreme Court held that a
decision to exercise or decline supplemental jurisdiction lay in ‘considerations of
judicial economy, convenience[,] fairness to litigants,’ and comity.” Ingram v. Sch. Bd. of
Miami-Dade Cty., 167 F. App’x 107, 108 (11th Cir. 2006) (quoting United Mine Workers of
Am. v. Gibbs, 383 U.S. 715, 726 (1966)). The Gibbs factors, as they have come to be known,
survived the codification of § 1367. Id. “As a result, in a case where § 1367(a) justified
taking jurisdiction over a state claim but one of the adverse elements of § 1367(c) was
9

present, the court could exercise supplemental jurisdiction over that claim, after
considering the Gibbs factors.” Id.
Here, Defendants provided virtually no substantive application of the Gibbs
factors. Defendants’ whole argument is as follows:
consideration of the “Gibbs factors” weighs in favor of dismissal.
Specifically, there is already an action pending in state court, and in the
interest of judicial economy, all claims arising out of the same common
nucleus of facts should be resolved in the same forum. Further, Plaintiff
would not be prejudiced by the dismissal, as Plaintiff may simply file an
action in the 16th Judicial Circuit in and for Monroe County, and may
even do so within the pending action.
[ECF No. 62, p. 9]. These terse reasons are not convincing.
As Plaintiff points out, “the parties have already conducted extensive discovery,
are in the process of scheduling and completing the depositions of the parties and nonparties, and are preparing for the upcoming trial in July.” [ECF No. 71, p. 6]. Because of
the amount of effort and time expended by the litigants and the Court in developing
this case up to the trial level, judicial economy considerations weigh against dismissal.
See Pilkington v. United Airlines, Inc., 921 F. Supp. 740, 748 (M.D. Fla. 1996) (retaining
jurisdiction over state law claims after applying the Gibbs factors, explaining that “an
extensive amount of discovery has taken place, and the amount of time and effort
expended by the Court and the litigants in developing this case to this point has been
substantial.”).

10

It would also be highly inconvenient and unfair to the parties if they were forced
to litigate the state law claims in a separate forum when they are a few short weeks
from trial. This case has been pending since August 11, 2015. [ECF No. 1]. Defendants
did not move to dismiss the state law claims until April 10, 2017. [ECF No. 62].
Although Defendants can challenge subject-matter jurisdiction at any time, their delay
tips the Gibbs factors in Plaintiff’s favor. See Wise v. City of Lauderhill, No. 15-60686-CIV,
2016 WL 3747605, at *3 (S.D. Fla. July 13, 2016) (denying motion to remand even after
the only federal law claim had been dismissed, explaining, “The Court has ruled on a
substantive motion to dismiss, the parties have undergone the entirety of the discovery
period, interrogatories have been exchanged, the plaintiff’s deposition has been taken,
and trial is set to begin in approximately two months.”).
Moreover, while Defendants claim that a similar lawsuit is already pending in
state court, into which the dismissed claims would presumably be joined [ECF No. 62,
p. 8], Plaintiff disputes that the lawsuit is similar to the proceedings here. [ECF No. 71,
p. 6]. The Undersigned has no other facts to evaluate who is right or wrong in that
regard and no knowledge whatsoever as to the pendency of the state case. Defendants
have not provided countervailing reasons to decline trying the state law claims here
given the inconvenience dismissal will likely bring.
Lastly, Defendants do not explain how considerations of comity mandate or
justify dismissal. It is true that comity generally dictates that a state court judge is better
11

equipped than a federal court judge to resolve state law issues. Lawson v. City of Miami
Beach, 908 F. Supp. 2d 1285, 1292 (S.D. Fla. 2012). But in this case, federal principles
govern two of the state law claims. Gift of Learning Found., 329 F.3d at 802. The Court is
more than capable of resolving the remaining state law claims, which no party
maintains are novel or complex. And, on balance, the comity factor does not outweigh
the other Gibbs factors, which greatly tip in Plaintiff’s favor.
In conclusion, the Court denies Defendants’ motion to dismiss Counts II, III, V,
VI, VII, VIII of Plaintiff’s Complaint. 3
DONE AND ORDERED in Chambers, in Miami, Florida, on June 28, 2017.

Compare the (albeit somewhat repetitive) lyrics from the song “Never Let Me
Go” by English indie rock band Florence & The Machine: “Never let me go / Never let
me go / Never let me go / Never let me go.” FLORENCE & THE MACHINE, Never Let Me Go,
on CEREMONIALS (Island 2011).
3

12