GEEKY BABY, LLC. v. IDEA VILLAGE PRODUCTS, CORP.

Filing 26

OPINION. Signed by Judge Jose L. Linares on 9/12/16. (DD, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

GEEKY BABY, LLC,
Plaintiff,

Civil Action No. 15-3454 (JLL) (JAD)

v.

OPINION

IDEA VILLAGE PRODUCTS, CORP,
Defendant.

JOSE L. LNARES, U.S.D.J.
This matter comes before the Court upon Plaintiff Geeky Baby, LLC’s Objection to United
States Magistrate Judge Joseph A. Dickson’s July 14, 2016 Order denying Plaintiffs Motion to
Lift the Stay that was entered by this Court on August 21, 2015. (ECF No. 24.) In accordance
with Federal Rule of Civil Procedure 78, the Court did not hear oral argument on Plaintiffs
application. After having carefully considered the parties’ submissions, for the reasons below, the
Court vacates Judge Dickson’s July 14th Order and modifies its prior Order staying this case. In
short, the Court shall lift the stay for the breach of contract, declaratory judgment, and trademark
violation claims (Counts One, Two, Three, and Five) but the stay shall remain in place for the
indemnification claim (Count Four).
BACKGROUND1

‘Because the facts of this matter are not in dispute, and set forth at length in the Court’s August 21, 2015 Opinion
(ECF No. 14 at 1—4), the Court provides them in summary fashion as necessary to provide context for this Court’s
review. The Court accepts the allegations in the Complaint as true solely for purposes of this Opinion.

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Plaintiff Geeky Baby, LLC (“Geeky” or “Plaintiff’) and Defendant Idea Village Products,
Corp. (“Idea Village” or “Defendant”) entered into an agreement concerning the development,
marketing, and sale of a “single-piece case plastic loom which is used to create rubber band
bracelets and other items,” known as “FunLoom” in August 2013 (the “Agreement”) and an
addendum thereto in July 2014 (the “Addendum”). The Agreement provided that Idea Village was
to pay certain royalties to Geeky and to sell only certain types of replacement bands. A dispute
arose between the parties, and they entered into the Addendum in an effort to resolve it. As part
of the Addendum, Idea Village provided certain sales figures to Geeky, on which the Addendum
relied.
Separately, Choon’s Designs, LLC (“Choon’s”) marketed and sold a product known as the
Rainbow Loom, which is a competitor to the Fun Loom. Choon’s initiated a lawsuit in the Eastern
District of Michigan in August 2013, alleging patent and trademark infringement (the “Choon’s
Lawsuit”). Both Geeky and Idea Village were named as parties in the Choon’s Lawsuit. Geeky
advised Idea Village of the potential of the Choon’s lawsuit prior to Geeky and Idea Village
entering into the Agreement. Geeky ultimately settled with Choon’s, but Idea Village did not.
On May 19, 2015, Geeky commenced an action in this Court against Idea Village, alleging
breach of the Agreement and Addendum, premised, in large part, on a failure to pay royalties
(Counts One and Three); seeking declaratory judgment that certain changes made in the
Addendum are void on account of Idea Village providing false sales data (Count Two);
indemnification related to the Choon’s lawsuit (Count Four); and trademark infringement related
to Idea Village’s sale of competing products, such as the “Mini-funLoom” (Count Five). (ECF
No. 1.)

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On August 21, 2105, in response to Idea Village’s motion, this Court entered a stay in this
matter “pending resolution of the underlying patent and trademark infringement action pending in
the Eastern District of Michigan.” (ECF No. 15; Case No. 2:13-cv-13568 (E.D. Mich.).) This
Court’s analysis was premised almost entirely on the contingent nature of the indemnification
claims:
The Court agrees with Defendants that this case should be stayed
pending the outcome of the Choon lawsuit. As Defendant notes,
should Defendant prevail on the merits in the Choon Infringement
Action, there would be no basis for Plaintiffs claim for
indemnification against Defendant, notwithstanding its settlement
with Choon. However, an adverse finding against Defendant in the
Choon Infringement Action may give rise to a claim by Defendant
for indemnification against Plaintiff, which represented and
warranted to Defendant that Plaintiff was the rightful owner of the
intellectual property at issue both in the Choon Infringement Action
and in this case. Defendant notes, and the Court agrees, that this
Court would be rendering nothing more than an “if/then”
declaratory decision, which would be improper in this instance.
Given the contingent nature of the claims, this Court hereby stays
this action pending the outcome of the Choon lawsuit in the Eastern
District of Michigan. Once a decision has been rendered in the
Choon lawsuit, the stay in this case may be lifted in order for the
Court to adjudicate the remaining claims on their merits.
(ECF No. 14, at 7—8.)
On January 21, 2016, Geeky filed a Motion to Lift the Stay. (ECF No. 17). Geeky argued
that “[t]he Eastern District of Michigan has now ruled on claim construction in the Choon
Infringement Action.

.

.

[which] severely dilute any connection between this case and the Choon

case. Specifically, it eliminates the contingent nature of Defendant’s potential indemnification
counterclaim.” (ECF No. 17-2, at 2). “More specifically, Defendant’s potential counterclaim for
indemnification is completely undone by the ruling in the Choon case.” (Id. at 4.) More generally,
“Geeky Baby cannot have violated any representations it made to Idea Village with regard to patent
infringement at the time the Marketing Agreement was executed, because it has now been held

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that the FunLoom did not infringe on any patent in existence at that time. Therefore, Idea Village
can have no indemnification claim.” (Id.) Accordingly, Geeky moved this Court to “exercise its
discretion to lift the stay, even if it does so solely with regard to all claims other than those for
indemnification. There are two reasons for this: (1) the claims other than indemnification are not
contingent upon anything that can happen in the Choon Patent Litigation; and (2) the prejudice to
Plaintiff from an indefinite stay is exceptionally high.” (Id. at 6.)
In opposition to Geeky’s Motion to Lift the Stay, Idea Village argued that “[w]hile it is
true that the Court has made rulings in favor of IdeaVillage

—

rulings which undercut Geeky’s

indemnification claims in this action predicated on an ill conceived settlement, the recent claims
construction ruling in the Underlying Infringement Action is not a final order.” (ECF No. 18, at
1.) Defendant contested Plaintiff’s assertion that the stay prejudices Plaintiff and argued that “[t]he
stay serves both the Parties’ and the Court’s interests to avoid inconsistent rulings. The Underlying
Infringement Action has not been fully and finally resolved. Until such time, the stay should
remain in place to prevent what would essentially b[e] an improper ‘if/then’ declaratory decision.”
(Id. at 5.) Defendant further argued that Plaintiffs request for a partial stay should be denied

“[b]ecause an adverse ruling against IdeaVillage in the Underlying Infringement Action based on
a finding that Fun Loom infringed upon Choon’s patent and trademarks would not only impact
Geeky’s claim for indemnification, it would also impact Geeky’s claims for declaratory judgment,
trademark violation and breach of contract against IdeaVillage, which all turn upon Geeky’s patent
and trademark rights and whether it violated its corresponding representations and warranties to
IdeaVillage under the subject Agreement.” (Id. at 6.)
Plaintiff replied arguing, among other things, that a partial stay is appropriate because “the
contingent nature of these claims is at least undermined (and we contend eliminated) by the claim

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construction ruling, and that significant prejudice is occurring to the Plaintiffi.]” (ECF No. 19, at
6.)

On July 14, 2016, United States Magistrate Judge Joseph A. Dickson entered an Order
denying Geeky’s Motion to Lift the Stay. (ECF No. 23.) Judge Dickson noted that this Court, in
its discretion, “did not stay this matter pending the decision of particular patent claims in the
Eastern District of Michigan, but rather the action in its entirety.” (Id. at 4.) Judge Dickson
concluded that
although the decision of particular patent claims in the Eastern
District of Michigan may ultimately impact this matter, the
condition of Judge Linares’ ruling staying this matter—”pending
resolution of the underlying patent and trademark infringement
action”—has not been met. The application of estoppel doctrines to
a finding in the Michigan action, involving different parties, that
fails to resolve the entire matter is too tenuous to conclude that Judge
Linares’ condition has been met[.]
(Id.)

On July 26, 2016, Geeky timely filed an appeal of Judge Dickson’s July 14th Order
pursuant to 28 U.S.C.

§ 636(b), Federal Rule of Civil Procedure 72, and Local Civil Rule

72.1(c)(1)(A). (ECF No. 24 (“Geeky Br.”).) On August 23, 2016, Idea Village filed opposition.
(ECF No. 25 (“IV Br.”).) The matter is now ripe for adjudication.
LEGAL STANDARD

“[A] judge may designate a magistrate judge to hear and determine any pretrial matter
pending before the court,” and “may reconsider any [such] matter.. where it has been shown that
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the magistrate judge’s order is clearly erroneous or contrary to law.”

28 U.S.C.

§ 636(b).

Similarly, Federal Rule of Civil Procedure 72(a) provides that, for “pretrial matter[s] not
dispositive of a party’s claim or defense [that are] referred to a magistrate judge to hear and decide,
[t]he district judge in the case must consider timely objections and modify or set aside any part

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of the order that is clearly erroneous or is contrary to law.” Fed. R. Civ. P. 72(a). The same
“clearly erroneous or contrary to law” standard is set forth in this District’s Local Civil Rules. See
L. Civ. R. 72.1 (c)( 1 )(A) (stating that a district judge shall “set aside any portion of the Magistrate
Judge’s order found to be clearly erroneous or contrary to law.”).
“A finding is clearly erroneous when, although there is evidence to support it, the reviewing
court on the entire evidence is left with the definite and firm conviction that a mistake has been
committed.” Bobian v. CSA Czech Airlines, 222 F. Supp. 2d 598, 601 (D.N.J. 2002) (citation and
internal quotation marks omitted). A ruling is “contrary to law if the Magistrate Judge [has]
misinterpreted or misapplied applicable law.” Marks v. Struble, 347 F. Supp. 2d 136, 149 (D.N.J.
2004).
DISCUSSION

Geeky objects to Judge Dickson’s July 14th Order on grounds that it “fails to consider the
arguments forwarded by Plaintiff in its briefs, and excludes the possibility that y developments
in the Choon litigation could possibly warrant a reconsideration of the stay, unless the whole case
is completely over.” (Geeky Br. at 2.) Geeky argues that Judge Dickson failed to “meaningfully
weigh[]” the legal reasons underpinning the entry of the stay in the first play and the prejudice to
Geeky caused by continuing the stay. (Id. at 2—3.)
In opposition, Idea Village contends that “Geeky’s argument that Judge Dickson did not
fully consider Geeky’s prejudice is simply not correct and otherwise does not meet the ‘clearly
erroneous’ standard.” (IV Br. at 3.) Idea Village reiterates its arguments from the underlying
motion, and notes that
an adverse ruling against IdeaVillage in the Underlying
Infringement Action based on a finding that Fun Loom infringed
upon Choon’s patent and trademarks would not only impact
Geeky’s claim for indemnification, it would also impact Geeky’s

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claims for declaratory judgment, trademark violation and breach of
contract against IdeaVillage, which all turn upon Geeky’s patent and
trademark rights and whether it violated its corresponding
representations and warranties to IdeaVillage under the agreement
at issue in Geeky’s complaint.
Geeky cannot proceed with a
claim for breach of contract for unpaid royalties when the District
Court in the Eastern District of Michigan may find that Geeky
misrepresented to IdeaVillage its rights to the product[.j
.

.

.

(Id. at 6—7.)

The Court does not find that Judge Dickson’s Order was clearly erroneous or contrary to
law, as Judge Dickson correctly applied the facial terms of this Court’s August 21, 2015 Stay
Order. Nevertheless, given this Court’s broad, inherent power on this issue, it shall vacate Judge
Dickson’s Order and amend the August 21, 2015 Stay Order. As correctly noted by Judge
Dickson, “[i]t is well-established that a District Court maintains ‘broad power to stay
proceedings.” Garcia v. Ocean Cty., No. 07-5665 (FLW), 2011 WL 1375683, at *2 (D.N.J. Apr.
12, 2011) (quoting Bechtel Corp., v. Local 215 Laborers’ International Union ofNorth America,

544 F.2d 1207, 1215 (3d Cir. 1976)). “[T]he power to stay proceedings is incidental to the power
inherent in every court to control the disposition of the causes on its docket with economy of time
and effort for itself, for counsel, and for litigants. How this can best be done calls for the exercise
ofjudgment, which must weigh competing interests and maintain an even balance.” Landis v. N.
Am. Co., 299 U.S. 248, 254-55 (1936).
The Court has reconsidered the stay in this matter and concludes that it should be modified
in the interests of justice and efficiency. In short, the Court agrees with Geeky that the recent
claim construction rulings—which in essence state that FunLoom did not infringe on any
RainbowLoom patent in existence at the time FunLoom was created—severely undermine the
connection between this litigation and the Choon’s litigation. For example, Geeky’s claim for
declaratory judgment (Count Two) is premised largely in part on Idea Village purportedly

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providing false sales data to Geeky. It is unclear how facts relating to historical sales data provided
by Idea Village to Geeky is implicated by a claim that the FunLoom infringed Rainbow Loom
patents.

Likewise, trademark violations relating to Idea Village’s alleged sale of competing

products to FunLoom (Count Five), and whether Idea Village breached its obligations to pay
certain royalties under the Agreement and Addendum (Counts One and Three) have a minimal
connection to the Choon’s litigation. However, the Court does agree that it is premature to allow
the claim for indemnification (Count Five) to proceed, since that claim remains clearly intertwined
with the Choon’s litigation.
The Court notes the fact-intensive nature of Geeky’s claims, and the resultant need for
discovery. Once the facts of this case are more fully developed (i.e., at the close of discovery), the
parties may revisit the need for a stay in light of the Choon’s litigation.
Given the recent rulings in the Choon’s lawsuit, the attenuated connection between the
claims asserted here, and the prejudice alleged by Geeky as a result of the stay, the Court shall
reopen this case and allow Counts One, Two, Three, and Five to proceed.
CONCLUSION

F or the reasons above, the Court vacates Judge Dickson’s July 14th Order denying
Geeky’ s Motion to Lifi the Stay and amends its August 21, 2015 Stay Order. An appropriate
Order accompanies this Opinion.
Date: Septemberj%, 2016
iares
States District Judge

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