Creation Supply, Inc. v. Alpha Art Materials, Co., Ltd.

Filing 101

ORDER: The Court DENIES CSI's Motion for Summary Judgment 68 . Signed on 10/21/2013 by Judge Anna J. Brown. See attached 11 page Opinion and Order for full text. (bb)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON

CREATION SUPPLY, INC.,
Plaintiff,

3:13-CV-01033-BR

v.

OPINION AND ORDER

ALPHA ART MATERIALS, CO.,
LTD.,
Defendant.

RICHARD J. VANGELISTI
Vangelisti Law Firm LLC
121 SW Morrison Street, Suite 475
Portland, OR 97204
EDWARD L. BISHOP
NICHOLAS S. LEE
Bishop & Diehl, Ltd
1750 East Golf Road
Suite 390
Schaumburg, IL 60173
Attorneys for Creation Supply, Inc.
SUSAN D. PITCHFORD
ROBERT H. LYMAN
Chernoff Vilhauer McClung and Stenzel, LLP
601 S.W. Second Ave., Suite 1600
Portland, OR 97201
[phone]
Attorneys for Alpha Art Materials, Co., LTD
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- OPINION AND ORDER

BROWN, Judge.
This matter comes before the Court on Plaintiff's Motion
(#68) for Summary Judgment on Count I of its Complaint.

For the

reasons that follow, the Court DENIES Plaintiff's Motion.

BACKGROUND
Plaintiff Creation Supply, Inc. (CSI) is an Illinois
corporation.

Defendant Alpha Art Materials, Co., Ltd., is a

Korean corporation.

CSI and Alpha entered into a Memorandum of

Understanding (MOU) on approximately April 1, 2011.

Pursuant to

the MOU, CSI had the exclusive right to purchase Mepxy markers
from Alpha and to sell them in certain territories in the United
States.

Accordingly, CSI purchased Mepxy markers from Alpha and

sold Mepxy markers in the United States.
On April 25, 2012, CSI was sued in the District of Oregon in
Too Marker Products, Inc., and Imagination International, Inc. v.
Creation Supply, Inc., and John Gragg, Case No. 3:12-cv-00735-BR
(the Too Marker lawsuit).

The Too Marker lawsuit included Too

Marker’s assertion that, among other things, CSI’s sale of Mepxy
markers infringes Too Marker’s registered trade dress.

On or

about July 26, 2013, Too Marker and Imagination International,
Inc., accepted Alpha’s Offer of Judgment (#91), and on August 19,
2013, a Settlement Order (#92) was entered dismissing without
prejudice all claims asserted by Too Marker and Imagination
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- OPINION AND ORDER

International against CSI as well as the counterclaims that CSI
asserted against Too Marker and Imagination International.

The

only claims remaining in the Too Marker lawsuit are the thirdparty claims of CSI against Alpha.
On July 11, 2012, CSI filed this action in the Northern
District of Illinois, Eastern Division, which transferred this
action sua sponte to the District of Oregon on June 19, 2013.

In

this action CSI asserts Alpha breached the Warranty of Title and
Against Infringement (Count I) and Implied Indemnity (Count II),
and, as noted, CSI’s instant Motion seeks summary judgment on
Count I.

STANDARDS
Summary judgment is appropriate when “there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law.”

Washington Mut. Ins. v. United

States, No. 09-36109, 2011 WL 723101, at *8 (9th Cir. Mar. 3,
2011).

See also Fed. R. Civ. P. 56(a).

The moving party must

show the absence of a dispute as to a material fact.

Rivera v.

Philip Morris, Inc., 395 F.3d 1142, 1146 (9th Cir. 2005).

In

response to a properly supported motion for summary judgment, the
nonmoving party must go beyond the pleadings and show there is a
genuine dispute as to a material fact for trial.
burden is not a light one. . . .
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- OPINION AND ORDER

Id.

"This

The non-moving party must do

more than show there is some 'metaphysical doubt' as to the
material facts at issue."

In re Oracle Corp. Sec. Litig., 627

F.3d 376, 387 (9th Cir. 2010)(citation omitted).
A dispute as to a material fact is genuine "if the evidence
is such that a reasonable jury could return a verdict for the
nonmoving party."

Villiarimo v. Aloha Island Air, Inc., 281 F.3d

1054, 1061 (9th Cir. 2002)(quoting Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986)).

The court must draw all

reasonable inferences in favor of the nonmoving party.
v. Verity, Inc., 606 F.3d 584, 587 (9th Cir. 2010).

Sluimer

"Summary

judgment cannot be granted where contrary inferences may be drawn
from the evidence as to material issues."

Easter v. Am. W. Fin.,

381 F.3d 948, 957 (9th Cir. 2004)(citing Sherman Oaks Med. Arts
Ctr., Ltd. v. Carpenters Local Union No. 1936, 680 F.2d 594, 598
(9th Cir. 1982)).
A “mere disagreement or bald assertion” that a genuine
dispute as to a material fact exists “will not preclude the grant
of summary judgment.”

Deering v. Lassen Cmty. Coll. Dist., No.

2:07-CV-1521-JAM-DAD, 2011 WL 202797, at *2 (E.D. Cal., Jan. 20,
2011)(citing Harper v. Wallingford, 877 F.2d 728, 731 (9th Cir.
1987)).

See also Jackson v. Bank of Haw., 902 F.2d 1385, 1389

(9th Cir. 1990).

When the nonmoving party's claims are factually

implausible, that party must "come forward with more persuasive
evidence than otherwise would be necessary."
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- OPINION AND ORDER

LVRC Holdings LLC

v. Brekka, 581 F.3d 1127, 1137 (9th Cir. 2009)(citing Blue Ridge
Ins. Co. v. Stanewich, 142 F.3d 1145, 1149 (9th Cir. 1998)).
The substantive law governing a claim or a defense
determines whether a fact is material.

Miller v. Glenn Miller

Prod., Inc., 454 F.3d 975, 987 (9th Cir. 2006).

If the

resolution of a factual dispute would not affect the outcome of
the claim, the court may grant summary judgment.

Id.

DISCUSSION
I.

The Law
The MOU provides, and the parties agree that Illinois law

governs the MOU:

“This MOU will be governed by and construed in

accordance with the laws of the State of Illinois.

The

interpretation and validity of this document will be according to
the Laws of the State of Illinois.”
Title 810 ILCS 5/2-312 provides:
Warranty of title and against infringement;
buyer’s obligation against infringement.
(1) Subject to subsection (2) there is in a contract
for sale a warranty by the seller that
(a) the title conveyed shall be good, and its
transfer rightful; and
(b) the goods shall be delivered free from any
security interest or other lien or encumbrance of
which the buyer at the time of contracting has no
knowledge.
(2) A warranty under subsection (1) will be excluded
or modified only by specific language or by circumstances which give the buyer reason to know that the
person selling does not claim title in himself or
that he is purporting to sell only such right or
title as he or a third person may have.
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- OPINION AND ORDER

(3) Unless otherwise agreed a seller who is a merchant
regularly dealing in goods of the kind warrants that
the goods shall be delivered free of the rightful
claim of any third person by way of infringement or
the like but a buyer who furnishes specification to
the seller must hold the seller harmless against any
such claim which arises out of compliance with the
specifications.
Emphasis added.
The elements of breach of an implied warranty against
infringement are:

(1) the seller was a merchant regularly

dealing in goods of the kind warranted, (2) the goods were
subject to a rightful claim of infringement by a third party upon
delivery, (3) the buyer did not furnish specifications to the
seller, and (4) the parties did not form another agreement.
Phoenix Solutions, Inc. V. Sony Elec., Inc., 637 F. Supp. 2d 683,
693 (N.D. Cal. 2009).
II.

Analysis
Alpha contends summary judgment is not available on Count I

because there are genuine disputes of material fact concerning
elements (2), (3), and (4) that preclude summary judgment.

Alpha

first asserts the Too Marker lawsuit does not contain a rightful
claim of trade-dress infringement because Too Marker’s claims for
trade-dress infringement in the Too Marker lawsuit were
exceptionally weak and, therefore, not “rightful.”

Alpha,

however, does not cite to nor can the Court find an Illinois case
on point to support Alpha's position.

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- OPINION AND ORDER

CSI, in turn, argues it is entitled to summary judgment on
its claim against Alpha for the breach of implied warranty of
noninfringement and contends there are not any genuine disputes
of material fact.

CSI relies on Pacific Sunwear of California,

Inc. V. Olaes Enterprises, Inc., 167 Cal. App. 4th 466 (Cal. Ct.
App. 2008), to support its position.

In Pacific Sunwear a

clothing retailer sued a t-shirt supplier for breaching a
statutory warranty similar to ICLS § 5/2-312(3).

The underlying

case for trademark infringement was settled under seal.

On the

ground that the buyer’s remedy arises immediately upon notice of
infringement (i.e., well before resolution of the claim), the
court found any “significant claim of infringement-whether or not
ultimately meritorious-triggers the . . . warranty.”

Id. at 475.

After considering the official commentary to an analogous
provision of the Uniform Commercial Code (U.C.C.) § 2-312
(amended 2011), the statutory scheme, and public policy, the
California court concluded “the warranty against rightful claims
applies to all claims of infringement that have any significant
and adverse effect on the buyer’s ability to make use of the
purchased goods, excepting only frivolous claims that are
completely devoid of merit.”

Id. at 481.

The court reversed the

trial court’s grant of summary judgment on the ground that there
was “at least a ‘triable issue of material fact’ as to whether
SNCL’s infringement claim was a rightful claim.”

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- OPINION AND ORDER

Id. at 482.

The analysis in Pacific Sunwear was also applied in Phoenix
Solutions, Inc. V. Sony Electronics, Inc., 637 F. Supp. 2d, 683
(N.D. Cal. 2009).

Therein the court found Sony met its burden of

asserting a “rightful” claim and survived a summary-judgment
motion on the ground that the infringement claims against Sony
had a significant and adverse effect on Sony’s ability to make
use of the purchased computer system.

“Although Phoenix and Sony

entered into a settlement early in the litigation, the case
advanced beyond more than the mere filing of an action.

The

settlement terms, provided to the court under seal, indicate an
evaluative inquiry was made into the merits of the underlying
claim itself.”

Id. at 697.

Here, however, Alpha argues whether a claim is “rightful”
requires a substantive investigation of the underlying
infringement claims that allegedly give rise to the indemnity
obligation.

Alpha relies on 84 Lumber Co. V. MRK Tech., Ltd.,

145 F. Supp. 2d 675 (W.D. Pa. 2001), to support its position.
The court in 84 Lumber Co. determined it had subject-matter
jurisdiction over a warranty-against-infringement claim because
plaintiff’s claims could not be addressed without inquiring into
the nature of the underlying infringement claims.

The court

noted if claims of patent infringement are seen as marks on a
continuum, “whatever a ‘rightful claim’ is would fall somewhere
between purely frivolous claims, at one end, and claims where

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- OPINION AND ORDER

liability has been proven, at the other.”

Id. at 680.

“We must

have some indicia that Lemelson’s claim that the defendants
infringed his patents had merit.

We cannot impose liability on

the defendants based solely upon the plaintiff’s subjective
belief and representation that it thought Lemelson was likely to
win.”

Id.
Alpha also relies on EZ Tag Corp. V. Casio America, Inc.,

861 F. Supp. 2d 181 (S.D.N.Y. 2012), to support its position.
The EZ Tag court granted a motion to dismiss under the New York
Uniform Commercial Code in an action brought by EZ Tag "for
attorney's fees and costs incurred in defense of a patent
infringement action brought by Raylon LLC" in Texas.
Corp., 861 F. Supp. at 185.

EZ Tag

The Raylon court granted summary

judgment to EZ Tag and Casio and found there was not a patent
infringement.

The EZ Tag court noted the definition of the term

“rightful” was a question of first impression in that circuit
and that no court in that circuit had determined that a claim
was “rightful” following an affirmative adjudication of
noninfringement.

Id. at 184.

The EZ Tag court found a “claim of

infringement must have some merit beyond being ‘nonfrivolous’ for
Rule 11 purposes to support a breach of warranty claim.”

Id.

(citing 84 Lumber Co. and Sun Coast Merchandise Corp. V. Myron

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- OPINION AND ORDER

Corp., 393 N.J. Super. 55, 922 A.2d 782, 796-97 (2007)).

The EZ

Tag court concluded Raylon’s claims were not so frivolous as to
be sanctionable, but its claims “were not so substantial as to
impose a significant and adverse effect on EZ Tag’s ability to
make use of the goods.”
As noted, CSI argues in this case that Too Marker’s claims
against Alpha are “rightful” as demonstrated by Too Marker’s
acceptance of Alpha’s $40,000 Offer of Judgment as to Too
Marker’s trade-dress infringement claims, but Alpha asserts Too
Marker’s claims were “exceptionally weak” and, therefore, do not
give rise to a “rightful” claim.

These contradictory positions

as to the “rightfulness” of Too Marker's claims against Alpha are
not solely questions of law, but require resolution of the
factual dispute at least as to the “rightfulness” of that claim
as Alpha contends.

Accordingly, the Court concludes whether the

settlement between Too Marker and Alpha settled a “rightful
claim” within the meaning of Title 810 ICLS 5/2-312(3) is a
question of fact.

Based on the foregoing, the Court denies CSI’s

Motion for Summary Judgment.
Because the Court has concluded genuine disputes of material
fact preclude summary judgment, the Court need not address all of
Alpha’s remaining arguments.

10 - OPINION AND ORDER

CONCLUSION
For these reasons, the Court DENIES CSI’s Motion (#68) for
Summary Judgment.
IT IS SO ORDERED.
DATED this 22nd day of October, 2013.

/s/ Anna J. Brown
___________________________
ANNA J. BROWN
United States District Judge

11 - OPINION AND ORDER