Choon's Design LLC v. Tristar Products, Inc.

Filing 28

ORDER Granting 19 Motion for Leave to File Second Amended Complaint and Denying 23 Motion to Dismiss for Lack of Subject Matter Jurisdiction and for Sanctions. Signed by District Judge Victoria A. Roberts. (LVer)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
CHOON’S DESIGN INC.,
a Michigan corporation,
Plaintiff,

CASE NUMBER: 14-10848
HONORABLE VICTORIA A. ROBERTS

v.
TRISTAR PRODUCTS, INC.,
a New Jersey corporation,
Defendant.
/
ORDER: (1) DENYING TRISTAR’S MOTION TO DISMISS FOR LACK OF SUBJECT
MATTER JURISDICTION AND MOTION FOR SANCTIONS (DOC # 23), AND (2)
GRANTING PLAINTIFF’S MOTION TO FILE A SECOND AMENDED COMPLAINT
(DOC # 19)
I.

INTRODUCTION & BACKGROUND

This matter is before the Court on Tristar’s Motion to Dismiss for Lack of Subject Matter
Jurisdiction and Motion for Sanctions, and Plaintiff’s Motion For Leave to File a Second
Amended Complaint under Federal Rules of Civil Procedure 12(b)(1) and 15(a)(2), respectively.
On February 24, 2014, Plaintiff filed this action as Choon’s Design LLC, alleging that
Defendant, Tristar Product, Inc. (“Tristar”), infringed upon its “Rainbow Loom” product, the
“565 Patent” and the “441 Patent.” Choon’s Design LLC did not own the rights to the patent on
the day the action was filed.
Indeed, on February 5, 2014, Choon’s Design LLC transferred its property to Choon’s
Design “Inc.” by executing a Certificate of Conversion, converting Choon’s Design LLC into
Choon’s Design Inc. The conversion became effective on February 13, 2014. Also on February
5, 2014, Choon’s Design LLC assigned the relevant patents to Choon’s Design Inc.

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Tristar was served with the Complaint on March 4, 2014. Before Tristar answered or
otherwise pled, Plaintiff filed an Amended Complaint substituting Choon’s Design Inc. for
Choon’s Design LLC.
Tristar moves to dismiss the Amended Complaint and for the imposition of sanctions,
arguing that the amendment was improper because: (1) Choon’s Design LLC lacked standing to
file the original complaint and (2) Choon’s Design Inc. was the real party in interest, given that
Choon’s Design Inc. owned the rights to the patents at the time of filing.
Additionally, on April 1, 2014 Plaintiff was issued the “420 Patent.” In its motion for leave
to file a Second Amended Complaint, Plaintiff seeks to add claims of direct and indirect
infringement related to the 420 Patent and to add claims of indirect infringement related to the
565 and 441 Patents.
The Court finds that Choon’s Design LLC and Choon’s Design Inc. were the same entity at
the time of filing; standing was proper. The real party in interest was appropriately substituted by
Plaintiff’s Amended Complaint. Finally, Choon’s Design Inc. did not act in bad faith or unduly
delay in filing its motion to amend, and Tristar will not be prejudiced by the amendment.
Tristar’s Motions are DENIED; Plaintiff’s Motion is GRANTED.
II.

STANDARD OF REVIEW
A. MOTION TO DISMISS AMENDED COMPLAINT

Under the Federal Rules of Civil Procedure, a party may assert as a defense, that the Court
lacks subject matter jurisdiction over the claims. Fed. R. Civ. P. 12(b)(1). “When subject matter
jurisdiction is challenged under Rule 12(b) (1), the plaintiff has the burden of proving
jurisdiction in order to survive the motion.” Madison–Hughes v. Shalala, 80 F.3d 1121, 1130
(6th Cir.1996).

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Motions to dismiss for lack of subject matter jurisdiction fall into two general categories:
facial attacks and factual attacks. United States v. Ritchie, 15 F.3d 592, 598 (6th Cir.1994). Here,
Tristar challenges the factual existence of subject matter jurisdiction. A factual attack is a
challenge to the factual existence of subject matter jurisdiction. Id. at 598. When considering a
factual attack, the Court is free to weigh the evidence and satisfy itself concerning the existence
of its power to hear the case. Id. In matters regarding subject matter jurisdiction, the court may
look to evidence outside the pleadings. Nichols v. Muskingum College, 318 F.3d 674, 677 (6th
Cir.2003).
B. MOTION TO AMEND
Under the Federal Rules of Civil Procedure, a party may request leave from the Court to
amend its pleadings. Fed. R. Civ. P. 15(a)(2). When considering whether to grant leave to
amend a pleading, a court should consider: (1) undue delay in filing; (2) lack of notice to the
opposing party; (3) bad faith by the moving party; (4) repeated failure to cure deficiencies by
previous amendments; (5) undue prejudice to the opposing party; and (6) futility of amendment.
Seals v. Gen. Motors Corp., 546 F.3d 766, 770 (6th Cir. 2005); Brumbalough v. Camelot Care
Centers, INC., 427 F.3d 996, 1001 (6th Cir. 2005).
III.

ANALYSIS OF THE CLAIMS
A. TRISTAR’S MOTION TO DISMISS

Tristar argues that Plaintiff cannot amend the original complaint and that the original
complaint should be dismissed because: (1) the “time of filing” rule dictates that “the jurisdiction
of the court depends upon the state of things at the time of the action brought;” (2) the Court
lacked subject matter jurisdiction over the original claims at the time of filing because Choon’s
Design LLC lacked standing; and (3) only Choon’s Design Inc., as the real party in interest, is

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entitled to bring this “civil action for infringement of [its] patent.” See Gupo Dataflux v. Atlas
Global Group, L.P., 541 U.S. 567, 570-71 (2004) (quoting Mollan v. Torrance, 9 Wheat. 537,
539, 8 L. Ed. 154 (1824)); Zurich Ins. Co. v. Logitrans, Inc., 297 F.3d 528, 531 (6th Cir. 2002);
35 U.S.C. § 281.
The Court agrees that while the real party in interest is Choon’s Design Inc., given that it was
entitled to enforce the asserted rights because of its ownership of the relevant patents, its
substitution for Choon’s Design LLC was appropriate because: (1) Choon’s Design LLC had
standing as well at the time of filing, since for all purposes, it and Choon’s Design Inc., were one
and the same; (2) any error in naming Choon’s Design LLC was an honest mistake; (3) there was
no unreasonable delay in substitution; and (4) Tristar did not suffer undue prejudice from a
substitution of the real party in interest.
Rule 17(a) provides:
The court may not dismiss an action for failure to prosecute in the name of the
real party in interest until, after an objection, a reasonable time has been allowed
for the real party in interest to ratify, join, or be substituted into the action. After
ratification, joinder, or substitution, the action proceeds as if it had been originally
commenced by the real party in interest.
Fed. R. Civ. P. 17
The real party in interest is “the person who is entitled to enforce the right asserted under the
governing substantive law.” Certain Interested Underwriters at Lloyd's, London, England v.
Layne, 26 F.3d 39, 43 (6th Cir. 1994). “The real party in interest analysis turns upon whether the
substantive law creating the right being sued upon affords the party bringing the suit a
substantive right to relief.” Id.
District courts should avoid “dismissal where ‘substitution of the real party in interest is
necessary to avoid injustice.’’ Hilgraeve Corp. v. Symantec Corp., 212 F.R.D. 345, 347 (E.D.

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Mich. 2003) (quoting Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 19 (2d
Cir.1997)). “In deciding whether to allow a real party in interest to substitute into an action for
the named plaintiff, the Court considers whether there has been an honest mistake as opposed to
tactical maneuvering, unreasonable delay, or undue prejudice to the non-moving party.” ToolPlas Sys., Inc. v. Camaco, LLC, 09-12003, 2010 WL 1347686 (E.D. Mich. Mar. 31, 2010) (citing
Esposito v. United States, 368 F.3d 1271, 1275–76 (10th Cir.2004); Jordan v. Fox, Rothschild,
O'Brien, & Frankel, 20 F.3d 1250, 1278 (3d Cir.1994)). “A Rule 17(a) substitution of plaintiffs
should be liberally allowed when the change is merely formal and in no way alters the original
complaint's factual allegations as to the events or the participants.” Zurich Ins. Co. v. Logitrans,
Inc., 297 F.3d 528, 534 (6th Cir. 2002) (quoting Advanced Magnetics, Inc. v. Bayfront Partners,
Inc., 106 F.3d 11, 20 (2d Cir.1997)).
i. INAPPLICABILITY OF THE TIME OF FILING RULE
The time-of-filing rule is strictly a diversity of citizenship doctrine; the basis for jurisdiction
here is federal question. See Grupo Dataflux, 541 U.S. at 571 (holding that the time of filing rule
“measures all challenges to subject-matter jurisdiction premised upon diversity of citizenship
against the state of facts that existed at the time of filing.”) (emphasis added)).
ii. CHOON’S DESIGN LLC’S STANDING
Standing was proper given that Choon’s Design LLC and Choon’s Design Inc. are the same
entity. The Court recognizes that, upon conversion, Choon’s Design LLC transferred its interests
to Choon’s Design Inc. MICH. COMP. LAWS § 450.4708(3)(c) (upon conversion, the “title to all
real estate and other property and rights owned by the domestic limited liability company remain
vested in the surviving business organization without reversion or impairment.”). Additionally,
Choon’s Design LLC transferred its rights when it assigned its rights to the patent. Intellectual

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Prop. Dev., Inc. v. TCI Cablevision of California, Inc., 248 F.3d 1333, 1345 (Fed. Cir. 2001)
(citing 35 U.S.C. § 261) (“A grant of all substantial rights in a patent amounts to an assignmentthat is, a transfer of title in the patent-which confers constitutional standing on the assignee to
sue another for patent infringement in its own name.”).
Choon’s Design LLC and Choon’s Design Inc. are the same entity. “The surviving business
organization is considered to be the same entity that existed before the conversion and is
considered to be organized on the date that the domestic limited liability company was originally
organized. MICH. COMP. LAWS § 450.4708(3)(f); see also MICH. COMP. LAWS § 450.1746(3)(f).
Conversion does not constitute dissolution of the domestic limited liability company nor does it
constitute the creation of a new entity. Id. at § 450.4708(3)(h); see also MICH. COMP. LAWS §
450.1746(3)(h). Finally, the business organization is owned by the same member, CheongChoon NG, both before and after the conversion.
Consequently, “[a] little common sense goes a long way to show that the complaint contains
mere misnomer, and that [Choon’s Design LLC and Choon’s Design Inc.] are one and the same.”
Hilgraeve Corp. v. Symantec Corp., 212 F.R.D. 345, 348 (E.D. Mich. 2003) (quoting Hemphill
Contracting.Co. v. United States, 34 Fed.CL. 82, 86 (Fed. Cl. 1995)). It is likely that Plaintiff did
not intentionally misname itself because, as is evident from the motion to dismiss, “the mistake
could only hurt plaintiff.” Hemphill Contracting.Co., 34 Fed.CL. at 86. As the Hemphill Court
stated, “[t]he claims asserted in the instant complaint are real; it is clear that some party
possesses the substantive right to sue here. It is equally clear that no other corporate entity, other
than [Choon’s Design Inc.] could possess this right.” Id. at 85.

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These entities, Choon’s Design LLC and Choon’s Design Inc. are one and the same, and
Choon’s Design LLC had standing to sue. Plaintiff had authority to amend to substitute Choon’s
Design Inc. as the Plaintiff.
iii. SUBSTITUTION OF THE REAL PARTY IN INTEREST
The substitution of Choon’s Design Inc. for Choon’s Design LLC was appropriate. Choon’s
Design Inc.’s error appears to be an honest mistake that can be corrected without undue delay
with the amendment already filed by Choon’s Design Inc. The conversion between the two
entities became effective only eleven days before the filing of the original complaint. Plaintiff’s
counsel did not oversee the conversion, and promptly sought to amend the complaint as soon as
he became aware of it.
Tristar will not suffer undue prejudice. Changing the name of the plaintiff in no way
substantively changes the case, and is a mere formality.
Tristar’s Motion to Dismiss the Amended Complaint is DENIED.
B. TRISTAR’S MOTION FOR SANCTIONS
Tristar argues that Choon’s Design Inc. should be sanctioned for its failure to agree to
dismiss the case. For all of the above reasons, Plaintiff was correct in resisting attempts by
Tristar to dismiss the case. The Court DENIES Tristar’s Motion for Sanctions.
C. CHOON’S DESIGN INC.’S MOTION TO AMEND
Tristar is not opposed to the addition of claims related to the 565 and 441 Patents. Tristar
argues that amendments adding claims relating to the 420 Patent should be denied because: (1)
there was undue delay because Choon’s Design Inc. waited over seven weeks from issuance of
the patent before seeking concurrence for the amendment; (2) Choon’s Design Inc. acted in bad
faith by delaying for seven weeks and requesting leave only after Tristar filed a declaratory

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judgment action in the District of New Jersey; and (3) Tristar suffered prejudice by having to
wait to discover if Choon’s Design Inc. would follow through on its initial indication that it
would amend. The Court disagrees.
When a party can no longer amend its complaint as a matter of course, that party “may
amend its pleading only with the opposing party's written consent or the court's leave. The court
should freely give leave when justice so requires.” Fed. R. Civ. P. 15(a)(2).
Additionally, “[o]n motion and reasonable notice, the court may, on just terms, permit a party
to serve a supplemental pleading setting out any transaction, occurrence, or event that happened
after the date of the pleading to be supplemented.” Fed. R. Civ. P. 15(d) (emphasis added).
Because Choon’s Design Inc.’s claims related to the 420 Patent arose after the filing of the
amended complaint, this motion is governed, in part, by Rule 15(d).
Choon’s Design Inc. did not unduly delay or act in bad faith. And, Tristar will not suffer
prejudice if the Court grants the motion.
Although Choon’s Design Inc. did not file its Motion to Amend until seven weeks after the
420 Patent had been issued, there was no undue delay because the parties were waiting on the
Court’s ruling on Tristar’s Motion to Transfer. This motion to amend was filed less than two
weeks after the Court denied the transfer request.
Tristar’s argument that Choon’s Design Inc.’s motion was filed in response to its declaratory
judgment action filed in the District of New Jersey has no merit. Choon’s Design Inc. indicated
in its response to Tristar’s Motion to Transfer that it intended to add claims related to the 420
Patent. Dkt. No. 14, at 5. Tristar has long been on notice of Choon’s Design Inc.’s intent to
amend the complaint.

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Tristar acknowledged that it “would suffer little prejudice if the Court grants Plaintiff’s
motion.” Dkt. No. 24, p. 7. Additionally, Tristar suffered little prejudice in waiting for Choon’s
Design Inc. to amend as it indicated that it would.
IV.

CONCLUSION

Tristar’s Motion to Dismiss for Lack of Subject Matter Jurisdiction and Sanctions are
DENIED. The Court GRANTS Plaintiff’s Motion for Leave to File a Second Amended
Complaint.
IT IS ORDERED.

S/Victoria A. Roberts
Victoria A. Roberts
United States District Judge
Dated: August 18, 2014
The undersigned certifies that a copy of
this document was served on the
attorneys of record by electronic means
or U.S. Mail on August 18, 2014.
s/Linda Vertriest
Deputy Clerk 

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