Ranir, LLC v. Dentek Oral Care, Inc. USA, Inc.
OPINION; signed by Judge Robert Holmes Bell (Judge Robert Holmes Bell, sdb)
UNITED STATES DISTRICT COURT F O R THE WESTERN DISTRICT OF MICHIGAN S O U T H E R N DIVISION
R A N IR , LLC, a Michigan limited lia b ility company, P l a in tif f , F ile No. 1:09-CV-1056 v. H O N . ROBERT HOLMES BELL D E N T E K ORAL CARE, INC., a Tennessee corporation, D e f e n d a n t. / OPINION D e f en d a n t Dentek Oral Care, Inc. ("Dentek") moves for dismissal of Count I of P lain tiff Ranir, LLC's ("Ranir") complaint pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim. (Dkt. No. 6.) Dentek contends that Count I, which seeks a declaratory ju d g m e n t that Dentek cannot assert any claims against Ranir based upon principles of res ju d ic a ta , collateral estoppel, and equitable principles such as laches, estoppel, and unclean h a n d s, is subject to dismissal because the underlying basis for the claim that Ranir is in p riv ity with an entity that Dentek previously sued and lost to in another forum is not e s ta b lis h e d by Ranir's own allegations in the Complaint. For the reasons that follow, D e n te k 's motion will be granted in part and denied in part. I.
A 12(b)(6) motion to dismiss for failure to state a claim on which relief can be granted re q u ire s the Court to examine the allegations in Plaintiff's complaint. "`[T]o survive a m o tio n to dismiss, the complaint must contain either direct or inferential allegations re sp e c tin g all material elements to sustain a recovery under some viable legal theory.'" In r e Travel Agent Com'n Antitrust Litig., 583 F.3d 896, 903 (6th Cir. 2009) (quoting Eidson v . State of Tenn. Dep't of Children's Servs., 510 F.3d 631, 634 (6th Cir. 2007)). In reviewing th e motion, the Court must "`construe the complaint in the light most favorable to the p la in tif f , accept its allegations as true, and draw all reasonable inferences in favor of the p la in tif f ,'" but "`need not accept as true legal conclusions or unwarranted factual i n f e r en c e s.'" Hunter v. Sec'y of U.S. Army, 565 F.3d 986, 992 (6th Cir. 2009) (quoting J o n e s v. City of Cincinnati, 521 F.3d 555, 559 (6th Cir. 2008)). The complaint's factual a lle g a tio n s must be enough to "`raise a right to relief above the speculative level,'" and " `s ta te a claim to relief that is plausible on its face.'" In re Travel Agent Comm'n, 583 F.3d a t 903 (quoting Bell Atl. v. Twombly, 550 U.S. 544, 570 (2007)). II. B o t h Ranir and Dentek are in the business of producing consumer oral care products. (C o m p l ¶¶ 7, 10.) Prior to January 2009, PLACKERS dental flossers were manufactured an d sold by Placontrol, Inc. ("Placontrol"). (Id. at ¶ 9.) In January 2009, Ranir acquired c e rta in assets from Placontrol, including the PLACKERS brand. (Id.) Since 2006, the
p a c k ag in g for PLACKERS dental flossers has included the statement: "#1 Hi-Performance F lo s s e r Brand Worldwide." (Id. at ¶ 11.) On June 17, 2008, Dentek brought an action against Placontrol, Dentek Oral Care, In c . v. Placontrol, Inc., No. 3:08-CV-232 (E.D. Tenn.), alleging that Placontrol's use of the s ta te m e n t "#1 Hi-Performance Flosser Brand Worldwide" constituted false advertising under 1 5 U.S.C. § 1125(a) and unfair competition and injurious falsehood under state law. (Id. at ¶ 12; Compl. Ex. 2.) On August 26, 2009, Dentek was ordered to show cause why its action a g a in s t Placontrol should not be dismissed for failure to prosecute. (Compl. Ex. 3.) Dentek f a ile d to respond to the court's order, and on September 18, 2009, Dentek's Tennessee action w a s dismissed. (Id. at Ex. 4.) By letter dated November 11, 2009, Dentek advised Placontrol th a t it was prepared to file a new complaint against Placontrol based on recent changes to the P la c k ers packaging which now included a more prominent statement that Plackers is the "#1 H i-P e rf o rm a n c e Flosser Brand Worldwide." (Id. at Ex. 5.) In Count I of its complaint, Ranir seeks a declaratory judgment that Dentek is barred b y principles of res judicata and/or collateral estoppel, or equitable principles, such as laches, e sto p p e l, and unclean hands, from asserting that Ranir's use of the advertising statement "#1 H i-P e rf o rm a n c e Flosser Brand Worldwide" violates federal or state law. Ranir contends that D e n te k 's false advertising and unfair competition claims were adjudicated on the merits by th e Tennessee district court, and that because a second action against Ranir would involve th e same legal claims directed toward the same advertising at issue in the Tennessee action,
D e n te k should be precluded from litigating these same issues a second time. Dentek moves f o r dismissal of Count I for failure to state a claim because Ranir's own allegations reveal th a t Ranier was not in privity with Placontrol. III. " T h e preclusive effect of a judgment is defined by claim preclusion and issue p re c lu s io n , which are collectively referred to as `res judicata.'" Taylor v. Sturgell, 553 U.S. 8 8 0 , 128 S. Ct. 2161, 2171 (2008). "Issue preclusion refers to the effect of a judgment in f o re c lo sin g relitigation of a matter that has been litigated and decided," while "[c]laim p re c lu s io n refers to the effect of a judgment in foreclosing litigation of a matter that never h a s been litigated, because of a determination that it should have been advanced in an earlier s u it." Rawe v. Liberty Mut. Fire Ins. Co. 462 F.3d 521, 528, n.5 (6th Cir. 2006) (quoting M ig r a v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 77 n. 1 (1984)). Both concepts a re intended to "relieve parties of the cost and vexation of multiple lawsuits, conserve ju d ic ia l resources, and, by preventing inconsistent decisions, encourage reliance on a d ju d ic a tio n ." Drummond v. Comm'r of Soc. Sec., 126 F.3d 837, 840 (quoting Allen v. M c C u r r y , 449 U.S. 90, 94 (1980)). The parties do not agree on what law governs the determination of the preclusive e f f e c ts of the prior adjudication. There can be no dispute that "[t]he preclusive effect of a f e d era l-c o u rt judgment is determined by federal common law." Taylor v. Sturgell, 553 U.S. 8 8 0 , 128 S.Ct. 2161, 2171 (2008) (citing Semtek Int'l Inc. v. Lockheed Martin Corp., 531
U .S . 497, 507-08 (2001)).
In diversity cases, "federal law incorporates the rules of
p re c lu s io n applied by the State in which the rendering court sits." Id. at 2171 n.4 (citing S e m te k , 531 U.S. at 508). In the prior Tennessee action Dentek included both federal and state claims, and a ss e rte d both federal question/supplemental jurisdiction as well as diversity jurisdiction. (C o m p l. Ex. 2, Tenn. Compl. ¶ 3.) Because the prior Tennessee action can be characterized a s either a federal question or a diversity action, the Court can, but is not required to, in c o rp o ra te the rules of preclusion applied by the state courts in Tennessee. It may also be a p p ro p ria te to look to state law regarding the issue of privity. See Fed. Ins. Co. v. Gates L e a r je t Corp., 823 F.2d 383, 386 (10th Cir. 1987) ("[W]here the question is whether there is privity between the parties in different diversity suits, a federal court must employ state ru les of privity."); Harnett v. Billman, 800 F.2d 1308, 1313 (4th Cir. 1986) (noting that f e d era l courts may properly adopt state law for issues that involve the stability of legal re latio n sh ip s, such as privity); see also 18B Charles Alan Wright et al., Federal Practice & P ro c e d u re Civil § 4472, n.48 (2d ed.) (noting that state law should be consulted in d e te rm in in g whether a non-party is bound by a federal judgment on a state-law question b e c au s e "privity" often is bound up with state substantive law in ways that should be re s p e c te d by federal courts). A. Issue Preclusion D e n te k moves for dismissal of Count I of Ranir's complaint on the basis of a lack of
p riv ity. Ranir contends that privity is not required for application of the doctrine of issue p re c lu s io n , and that Dentek is precluded under the doctrine of issue preclusion from c o n te stin g issues that it raised, and that the Tennessee district court adjudicated, in the prior a c tio n . Under the doctrine of collateral estoppel or issue preclusion, "once an issue is actually a n d necessarily determined by a court of competent jurisdiction, that determination is c o n c lu s iv e in subsequent suits based on a different cause of action involving a party to the p rio r litigation." Montana v. United States, 440 U.S. 147, 153 (1979). Issue preclusion a p p lie s when: (1 ) the issue in the subsequent litigation is identical to that resolved in the e a rlie r litigation, (2 ) the issue was actually litigated and decided in the prior action, (3 ) the resolution of the issue was necessary and essential to a judgment on the m e rits in the prior litigation, (4 ) the party to be estopped was a party to the prior litigation (or in privity with s u c h a party), and (5 ) the party to be estopped had a full and fair opportunity to litigate the issue. W o l fe v. Perry, 412 F.3d 707, 716 (6th Cir. 2005) (quoting Santana-Albarran v. Ashcroft, 3 9 3 F.3d 699, 704 (6th Cir. 2005)). F o r purposes of issue preclusion, privity only comes into play in connection with the f o u rth element of the issue-preclusion test, which requires the party to be estopped to have b e e n "a party to the prior litigation (or in privity with such a party)." Id. Dentek was a party to the prior litigation, so the fourth element of the test is met. There is no requirement that
th e party asserting issue preclusion (i.e., Ranir) have been a party or in privity with a party to the prior action. Although the Court agrees with Ranir that it is not barred from raising issue preclusion o n the basis of its alleged lack of privity, the Court nevertheless finds that the doctrine of is s u e preclusion is not appropriately applied in this case. Dentek's Tennessee action against Placontrol was dismissed for failure to prosecute. T h e re is no dispute that this was a dismissal "on the merits" and "with prejudice." See Fed. R . Civ. P. 41(b) (providing that unless the dismissal order states otherwise, a dismissal for f a ilu re to prosecute operates as an adjudication on the merits); see also Semtek, 531 U.S. at 5 0 5 (noting that a dismissal with prejudice is a dismissal on the merits). Although the Tennessee court entered a judgment on the merits, it entered a judgment f o r failure to prosecute. Resolution of the issue of whether or not Placontrol engaged in false a d v e rtis in g with respect to the Plackers brand flosser was not "actually litigated" and was not " n e c e s s a ry and essential" to the judgment. See Cobbins v. Tenn. Dep't of Transp., 566 F.3d 5 8 2 , 590 (6th Cir. 2009) (holding that where prior action was dismissed without a decision o n any issue apart from the plaintiff's failure to prosecute, it did not support issue p re c lu s io n ). Accordingly, Dentek is not precluded under the doctrine of issue-preclusion f ro m raising a false advertising claim against Ranir. To the extent Dentek seeks dismissal o f Ranir's request for declaratory judgment that Dentek's claims are barred by the doctrine o f issue preclusion, the motion will be granted.
C la im Preclusion A lth o u g h privity is not relevant to the question of issue preclusion under the facts of th is case, Dentek's contention that Ranir is not in privity with Placontrol is relevant to R a n ir's contention that Dentek's false advertising claim is barred by claim preclusion. Under federal law, "[a] final judgment on the merits of an action precludes the parties o r their privies from relitigating issues that were or could have been raised in that action." R a w e v. Liberty Mut. Fire Ins. Co., 462 F.3d 521, 528 (6th Cir. 2006) (quoting Federated D e p 't Stores, Inc. v. Moitie, 452 U.S. 394, 398 (1981)) (emphasis added in Rawe). An " a d ju d ica tio n upon the merits" under Rule 41(b) bars a party from refiling the same claim in the same court, but does not necessarily have claim-preclusive effect in other courts. S e m te k , 531 U.S. at 506. The Sixth Circuit applies a four-part test for determining whether a subsequent action is barred by the doctrine of claim preclusion. Claim preclusion is applied w h e re there is: `(1) a final decision on the merits by a court of competent jurisdiction; (2) a s u b s e q u e n t action between the same parties or their privies; (3) an issue in the su b se q u e n t action which was litigated or which should have been litigated in th e prior action; and (4) an identity of the causes of action." R a w e , 462 F.3d at 528 (quoting Kane v. Magna Mixer Co., 71 F.3d 555, 560 (6th Cir. 1995)). T h e parties' dispute centers on the privity requirement in the second element of the c la im - p r e c lu sio n test. Dentek contends that Ranir was not a successor in interest to
P la c o n tro l, and thus was not in privity with Placontrol, because Ranir's own allegations estab lish that Ranir only acquired Placontrol's assets, and did not assume Placontrol's 8
liab ilities . Ranir contends that it was a successor in interest to Placontrol, and was thus in p riv ity with Placontrol, because both Placontrol and Ranir had the same relationship to the p rop erty interest at issue in the prior action, i.e., the right to advertise Plackers dental flossers a s the "#1 Hi-Performance Flosser Brand Worldwide." The Sixth Circuit has noted that "those who are successors in interest to a party will b e bound by a judgment against that party." Becherer v. Merrill Lynch, Pierce, Fenner, and S m i th , Inc., 193 F.3d 415, 422 (6th Cir. 1999). However, the concern in this case is not w h e th e r Ranir would be bound by the Tennessee judgment, but whether Ranir can use claim p re c lu s io n defensively to bar Dentek from bringing a claim against it. Nonmutual claim preclusion is not a well-developed area of the law, but it has g e n e ra lly been used to protect indemnification or derivative liability relationships. 18A C h a rle s Alan Wright et al., Federal Practice & Procedure § 4464.1 (2d ed.). The Sixth C irc u it has recognized that "[f]ederal courts are no longer bound by rigid definitions of the p a rtie s or their privies for purposes of applying res judicata or collateral estoppel." Vulcan, I n c . v. Fordees Corp., 658 F.2d 1106, 1111 (6th Cir. 1981). "Traditionally, privity was s tric tly required for application of preclusion; a party could not enjoy the benefit of an earlier a c tio n unless they would have been bound by it." Peterson Novelties, Inc. v. City of Berkley, 3 0 5 F.3d 386, 395 (6th Cir. 2002), abrogated on other grounds by Exxon Mobil Corp. v. S a u d i Basic Indus. Corp., 544 U.S. 280 (2005). "More recently, however, many federal c irc u its have left behind the traditional mutuality requirement for some defensive uses of
c la im preclusion." Id. "[U]nder certain circumstances, a defendant in a subsequent action c a n take advantage of the claim-preclusive effect of a prior judgment involving the same p la in tif f and different defendants." Id. As the Third Circuit has observed, "a lesser degree o f privity is required for a new defendant to benefit from claim preclusion than for a plaintiff to bind a new defendant in a later action." Lubrizol Corp. v. Exxon Corp., 929 F.2d 960, 966 (3 d Cir. 1991). The Sixth Circuit has not definitively identified those circumstances where a nonp a rty to an initial suit can invoke claim preclusion as a defense in a later action. Several c o u rts have suggested that claim preclusion may properly be invoked against a plaintiff who h as previously asserted essentially the same claim against different defendants where there i s "a close or significant relationship" between successive defendants. See, e.g., Airframe S y ste m s , Inc. v. Raytheon Co., 601 F.3d 9, 17 (1st Cir. 2010) (applying the "close and sig n if ica n t relationship" test) ; Mars Inc. v. Nippon Conlux Kabushiki-Kaisha, 58 F.3d 616, 6 1 9 (Fed. Cir. 1995) (holding that because the relationship between a parent corporation and its wholly owned subsidiary was so close, and because there was no legally distinct basis for re c o v ery against the subsidiary, the final judgment against the parent corporation barred any f u r th e r proceedings against the subsidiary); Lubrizol, 929 F.2d at 966 (holding that where th e re was a close and significant relationship between a party to the first action and its wholly o w n e d subsidiary who was sued in the second case, claim preclusion barred the second a c tio n ). Whether a "close and significant relationship" exists between an original defendant
a n d a defendant only named in a later suit "varies with the facts." Airframe 601 F.3d at 17. It has been suggested that the best approach would be "a limited rule that permits nonmutual c la im preclusion only if the new party can show good reasons why he should have been jo in e d in the first action and the old party cannot show any good reasons to justify a second c h a n c e ." 18A Wright et al., supra, § 4464.1. The First Circuit applied this suggestion in Airframe. The court found a "close and s ig n if ic a n t relationship" sufficient to bar a second action where the first action named AIS, a division of Raytheon, and the second action named Raytheon only because it was the s u p e rio r organization that included AIS, not because of any wrongful action taken outside th a t division. Id. at 18. The court also noted that there was no unfairness to Airframe b e c a u s e it had chosen to bring the piecemeal and sequential litigation as a matter of strategy. Id . Under these facts, the court determined that this was a case "where `the new party can sh o w good reasons why [it] should have been joined in the first action and the old party c a n n o t show any good reasons to justify a second chance.'" Id. (quoting 18A Wright et al., s u p r a § 4464.1 ). P riv ity is defined under Tennessee law as follows: The words "privy" and "privity" do not necessarily have the same meaning in th e context of res judicata as they do in the context of contractual relationships. In the context of res judicata, "privity" means "an identity of interests relating t o the subject matter of the litigation, and it does not embrace relationships b e tw e e n the parties themselves." The existence of privity or identity of in te re st depends upon the facts of each case.
A c u ity v. McGhee Engineering, Inc., 297 S.W.3d 718, 735 (Tenn. Ct. App. 2008) (citations o m i tt e d ) . Under either Tennessee or federal law, the existence of privity depends upon the facts o f each case. This case is before the Court on a motion to dismiss, and the Court is c o n stra in e d to limit its analysis to the facts alleged in Plaintiff's complaint. The only p e rtin e n t facts alleged in Ranir's complaint are that Ranir acquired the Plackers brand assets f r o m Placontrol while the Tennessee action was pending, and that Ranir has continued to use th e same advertising for Plackers. Construing Ranir's complaint in the light most favorable to Ranir, this Court is satisfied that Ranir has stated a claim for claim preclusion that is p la u sib le on its face. Only after the facts are developed will this Court be able to determine w h e th e r Ranir can use claim preclusion as a defense in a second action by Dentek concerning th e Plackers brand advertising. Equitable Principles D e n te k has moved for dismissal of Count I in its entirety. In Count I Ranir asserts that D e n te k 's claims are barred not only by principles of issue preclusion and claim preclusion, b u t also by equitable principles such as laches, estoppel, and unclean hands. Dentek c o n t e n d s that these defenses are subject to dismissal on the basis of privity. To the extent p riv ity is a requirement for the assertion of these defenses, the facts alleged are sufficient to w ith s ta n d a motion to dismiss on the basis of lack of privity, as discussed above. IV.
F o r the foregoing reasons, Dentek's motion for partial dismissal will be granted to the e x te n t that it seeks dismissal of the issue preclusion claim in Count I. Dentek's motion for p a rtia l dismissal will be denied as to all remaining claims in Count I. An order consistent with this opinion will be entered.
August 16, 2010
/s/ Robert Holmes Bell ROBERT HOLMES BELL U N IT E D STATES DISTRICT JUDGE
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