Diece-Lisa Industries, Inc. v. Disney Enterprises, Inc. dba Walt Disney Studios Motion Pictures et al
MEMORANDUM OPINION AND ORDER granting 238 MOTION to Dismiss and/or Strike Portions of Plaintiff's Fourth Amended Complaint (Dkt. 228) filed by Disney Store USA, LLC, Disney Enterprises Inc, Disney Consumer Products, Inc., D isney Shopping, Inc. AND granting 239 Opposed MOTION to Quash filed by Disney Store USA, LLC, Disney Enterprises Inc, Disney Consumer Products, Inc., Disney Shopping, Inc. Signed by Magistrate Judge Roy S. Payne on 9/29/2017. (slo, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
DIECE-LISA INDUSTRIES, INC.,
DISNEY STORE USA, LLC ET AL.,
MEMORANDUM OPINION AND ORDER
In this trademark case, the Court now considers Defendants’ Motion to Dismiss
And/Or Strike Portions of Plaintiff’s Fourth Amended Complaint [Dkt. # 238]. The Court
will also consider Defendants’ Motion to Quash Notices of Deposition [Dkt. # 239]. For
the reasons set forth below, the Court concludes both motions should be granted.
Deice-Lisa Industries, Inc. (DLI) is the owner of United States Registration No.
3,361,849 for the trademark LOTS OF HUGS. 2d Am. Compl. [Dkt. # 46] ¶ 9. Since 1997,
DLI has sold stuffed toy bear products branded with the LOTS OF HUGS mark. Id. ¶ 13.
In 2010, Disney released Toy Story 3, an animated film featuring Disney heroes
Sherriff Woody and Buzz Lightyear. Id. ¶¶ 20–21. In the film, Woody and Buzz battle LotsO’-Huggin’ Bear (Lotso for short), a hot pink teddy bear with a big nose and a southern
accent. The film received five Academy Award nominations, won two Academy Awards,
grossed over $1 billion worldwide, became the highest-grossing film of 2010 and the third
highest-grossing animated film of all time, and was the first animated film to generate $1
billion in ticket sales. Id. ¶ 28. One source estimated Toy Story 3 merchandise would generate more than $7.3 billion in retail sales. Id.
This dispute relates to that merchandising revenue and, more specifically, Disney’s
marketing and sales of Lots-O’-Huggin’ merchandise. DLI alleges Disney’s sales of LotsO’-Huggin’ merchandise infringes DLI’s LOTS OF HUGS trademark. Id. ¶ 38. DLI further
alleges its property rights in the LOTS OF HUGS mark have been destroyed by the overwhelming success of Toy Story 3 and related infringing sales of Lots-O’-Huggin’ merchandise. Id. ¶ 39.
The relevant procedural history concerns DLI’s Second, Third, and Fourth Amended
Complaints. DLI lodged its Second Amend Complaint in January 2014, in which it alleged
Defendants Disney Store and Disney Shopping infringed DLI’s trademark rights by using
LOTS-O’-HUGGIN’ and LOTSO on labels, signs, prints, packages, products wrappers,
receptacles, and advertisements. 2d Am. Compl. [Dkt. # 46] ¶ 38.
In November 2014, DLI asked for leave to file its Third Amended Complaint. Relative to the Second Amended Complaint, DLI sought to join ten additional Disney-related
parties. The Third Amended Complaint also expanded the allegedly infringing activities to
use of the Lotso character at parks and resorts, on cruise ships, during touring ice shows,
and in books and gaming products. 3d Am. Compl. [Dkt. # 136] at 6–10 (¶¶ e.–n.).
Disney opposed leave, arguing that DLI’s Third Amended Complaint would create
jurisdictional and venue-related problems and significantly alter the nature and scope of
the case. Defs.’ Resp. [Dkt. # 141]. In particular, Disney noted all ten prospective defendants have Southern California offices, the overwhelming preponderance of evidence is in
California, there is no evidence in Texas, and there are no fact witnesses in Texas. Id. at 13.
Disney also asserted there was no admissible evidence of any kind to establish jurisdiction
in Texas. Id.
Siding with DLI, the Court granted leave to amend. Order [Dkt. # 149]. The Court
concluded there would be substantial efficiencies in addressing DLI’s claims against all
defendants together. Id. at 3.
Shortly after the Third Amended Complaint became operative, the ten newly joined
defendants moved to dismiss under Fed. R. Civ. P. 12(b) and to transfer the case to the
Central District of California. Defs.’ Mot. to Dismiss [Dkt. # 164]; Defs.’ Mot. to Transfer
Venue [Dkt. # 165]. In opposing the motions, DLI did not address the new defendants’
evidence and instead advanced a “unified entity” theory of personal jurisdiction—that all
defendants are “one big company” for purposes of personal jurisdiction. Pl.’s Resp. to
Defs.’ Mots. To Dismiss [Dkt. # 168] at 5. The Disney defendants rejected this “unified
entity” theory, arguing it required the untenable result that “wherever any Disney company
is subject to personal jurisdiction, every Disney company is subject to personal jurisdiction.” Defs.’ Consolidated Reply [Dkt. # 172] at 5 (emphasis in original).
While considering the motions to dismiss and transfer, the Court concluded the
Third Amended Complaint “changed the nature of this case” and reconsidered its prior
order granting leave:
Recent proceedings have made clear that the added claims bear less connection to the original claims than the Court originally perceived. Even
Plaintiff’s recent papers have made this evident to the Court. (See Dkt.
No. 192 at 3 (“Although no case law was found directly on point”); Dkt.
No. 192 at 4 (“Because of the somewhat sui generis circumstances of this
case, no case law on point was discovered.”).
Mem. Order [Dkt. # 206] at 2–3. The Court then concluded it “improvidently granted”
DLI’s motion for leave and vacated the order, thus reviving the Second Amended Complaint. DLI lodged objections with Judge Schroeder. Pl.’s Objs. [Dkt. # 210].
While awaiting Judge Schroeder’s review, the parties jointly moved the Court to
vacate the then-current Docket Control Order and stay the case. Agreed Mot. to Vacate Am.
Docket Control Order [Dkt. # 215]. In the motion, the parties agreed:
Fact discovery is closed, and there will be no further discovery propounded, depositions taken, or other supplementation of the record or
assertion of additional claims, defenses, or theories of liability or damages by Plaintiff or Defendants, with the exception of any discovery
that may be ordered in connection with Plaintiff’s [then-pending] motions to compel (Dkt. 192, 204);
No new or supplemental expert reports shall be exchanged, and no
new expert opinions proffered, except any reports or opinions that (i)
Defendants may offer with respect to Plaintiff’s claims against the ten
defendants added by the Third Amended Complaint, should that be
restored as the operative pleading, and any rebuttals thereto; (ii) Plaintiff may offer with respect to damages against Defendant Disney Enterprises, Inc. should the Third Amended Complaint not be restored
as the operative pleading;
Except as set forth above, the only additional discovery to be conducted by any party will be expert depositions[.]
Id. at 4–5. The Court granted the motion shortly thereafter. Order [Dkt. # 216].
More recently, during a June 2017 status conference, DLI’s counsel informed the
Court that if its Third Amended Complaint was not reinstated, Defendants need only update
their previously produced financial information related to sales of Lotso merchandise.
Klieger Decl. [Dkt. # 239-1] ¶ 7.1 Plaintiff’s expert would then prepare a supplemental
damages report, which Defendants’ damages expert could rebut, and expert depositions
would be taken. Id. DLI’s counsel noted 90 days would be sufficient for these tasks. Id.
Shortly after the June 2017 status conference, Judge Schroeder overruled DLI’s objections. Mem. Op. & Order [Dkt. # 223]. The Court then issued a new scheduling order
based on counsels’ representations during the status conference. Am. Docket Control Order
[Dkt. # 224]. The Court’s new schedule set dates for, among other things, filing amended
pleadings, additional designations of expert witnesses, and a new discovery deadline.
But on July 25, 2017, DLI filed is Fourth Amended Complaint [Dkt. # 228]. Relative
to the Second Amended Complaint, the Fourth Amended Complaint—like the Third
Amended Complaint before it—expands the scope of allegedly infringing activities to use
of the Lotso character at parks and resorts, on cruise ships, during touring ice shows, and
Although there is no record of the status conference, DLI does not dispute Mr. Klieger’s
recollection. Moreover, Mr. Klieger’s declaration is consistent with the Court’s recollection of the status conference.
in books and gaming products. See, e.g., 4th Am. Compl. [Dkt. # 228] ¶ 70. The Fourth
Amended Complaint also, for the first time, asserts theories of vicarious liability for infringement. See, e.g., id. ¶ 80 (“because Defendant DEI is vicariously liable for the infringements committed by the other Disney entities that it licenses . . . D EI is liable for the
profits obtained by those other Disney entities from their infringement and for Plaintiff
DLI’s damages suffered”).
Then, in August 2017, DLI issued deposition notices and document requests relating
to receipts, revenue, and intercompany transfers among various Disney entities. See, e.g.,
[Dkt. # 239-2], [Dkt. # 239-3], [Dkt. # 239-4], [Dkt. # 239-5]. These requests contemplate
production of documents dating back to 2010 and relating to any Disney entities that in any
manner use the Lotso character. See, e.g., Pl’s 2d Am. Not. of Rule 30(b)(6) Dep. Of Disney
Consumer Products, Inc. [Dkt. # 239-3] at 6.
Disney now moves to strike DLI’s Fourth Amended Complaint and to quash DLI’s
deposition notices. Disney complains DLI’s Fourth Amended Complaint violates both the
letter and spirit of the Court’s prior orders and the agreement of the parties.
The Court will grant both motions. First, the parties agreed, among other things, that
fact discovery was closed and there would be no further discovery propounded, with the
exception of any discovery ordered in connection with then-pending motions to compel.
Moreover, the parties agreed they would not add new claims, defenses, or theories of lia-
bility. DLI’s Fourth Amended Complaint contravenes the parties’ agreement by adding theories of contributory infringement and vicarious liability.
Admittedly, the Court inadvertently overlooked this prior agreement of the parties
when issuing July 2017 Docket Control Order. But even so, the Court did not intend the
new DCO to allow DLI the unfettered right to again change the nature of this case.
Yet DLI’s Fourth Amended Complaint does just that. This is a federal trademark and
unfair competition case concerning DLI’s LOTS OF HUGS trademark. With its characteruse theory, DLI attempts to morph this case into a copyright or trade dress case, despite
never alleging those causes of action. The Court therefore agrees with Disney that DLI’s
Fourth Amended Complaint should be struck and the pending depositions should be
CONCLUSION AND ORDERS
First, the Court GRANTS Defendants’ Motion to Dismiss And/Or Strike Portions
of Plaintiff’s Fourth Amended Complaint [Dkt. # 238] and STRIKES Plaintiff’s Fourth
Amended Complaint. Plaintiff’s Second Amended Complaint remains the operative Complaint in this proceeding.
Second, the Court GRANTS Defendants’ Motion to Quash Notices of Deposition
[Dkt. # 239] and QUASHES these notices of deposition:
DLI appears to concede DLI’s depositions notices are only proper if the Fourth Amended
Complaint remains the operative pleading. See Pl.’s Opp’n [Dkt. # 243] at 2 (“For present
purposes what is important is that the deposition notices are within the scope of the Fourth
Amended Complaint . . . .”).
Plaintiff’s Second Amended Notice of Rule 30(b)(6) Deposition of Disney
Enterprises, Inc. (“DEI”) and First Notice of Deposition of Brian Rupp, a
Plaintiff’s Second Amended Notice of Rule 30(b)(6) Deposition of Disney
Consumer Products, Inc.;
Plaintiff’s Third Rule 30(b)(6) Notice of Deposition of Disney Store USA,
Plaintiff’s Third Rule 30(b)(6) Notice of Deposition of Disney Shopping, Inc.
SIGNED this 3rd day of January, 2012.
SIGNED this 29th day of September, 2017.
ROY S. PAYNE
UNITED STATES MAGISTRATE JUDGE
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