Insuremax Insurance Agencies Inc et al v. Shanze Enterprises Inc
Filing
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Memorandum Opinion and Order granting 10 Motion to Dismiss Permissive Counterclaims Under FRCP 12(b)(1); granting 11 Motion to Dismiss Claims Under FRCP 12(b)(6) and 12(b)(1) & Motion to Strike Defenses Under FRCP 12(f). Baja h as failed to establish that this Court has either original or supplemental jurisdiction over its counterclaim for tortious interference, or that it has standing to assert its counterclaims for cancellation of the A-MAX mark or for a declaratory ju dgment of non-infringement or invalidity of the A-MAX mark. Those counterclaims are therefore DISMISSED without prejudice. Plaintiffs concede the challenged affirmative defenses and request for attorney's fees under the TDJA should be removed . Accordingly, the request for attorney's fees is DISMISSED, and the affirmative defenses are STRICKEN. As set forth in the Court's 7/17/2013, Scheduling Order, the parties may freely amend their pleadings without seeking leave until 10/25/2013. (Ordered by Judge Barbara M.G. Lynn on 8/7/2013) (axm)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
INSUREMAX INSURANCE AGENCIES, INC., §
ARMCO INSURANCE AGENCY, INC., and
§
WELSON HOLDINGS, INC., d/b/a A-MAX,
§
§
Plaintiffs,
§
v.
§
§
SHANZE ENTERPRISES, INC., d/b/a BAJA
§
AUTO INSURANCE,
§
§
Defendant.
§
No. 3:13-CV-1231-M
MEMORANDUM OPINION AND ORDER
Before the Court are five motions filed by Plaintiffs Insuremax Insurance Agencies, Inc.,
Armco Insurance Agency, Inc., and Welson Holdings, Inc. (collectively “Plaintiffs”): Plaintiffs’
Motion to (1) Dismiss Counterclaim for Tortious Interference [Docket Entry #10]; (2) Dismiss
Counterclaim Seeking Declaratory Judgment on Cancellation of A-MAX Trademark [Docket
Entry # 11]; (3) Dismiss Counterclaims Seeking Declaratory Judgment of Invalidity and NonInfringement of the Term A-MAX [Docket Entry #11]; (4) Strike Affirmative Defenses [Docket
Entry #11]; and (5) Dismiss Request for Attorney’s Fees [Docket Entry #11]. For the reasons set
forth below, the Motions are GRANTED.
I. BACKGROUND
This action concerns claims for trademark infringement and unfair competition.
Plaintiffs and Defendant Shanze Enterprises, Inc., d/b/a Baja Auto Insurance (“Baja”) sell
automobile and homeowner insurance policies. Plaintiffs sued Baja in state court, claiming its
use of a specific red and yellow color scheme constituted trade dress infringement and unfair
competition.
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Baja removed the case to this Court [Docket Entry #1], and filed an Amended Answer,
asserting six counterclaims and multiple affirmative defenses [Docket Entry #9]. In the first five
counterclaims, Baja sought cancellation of Plaintiffs’ A-MAX mark and A-MAX trade dress1
and declaratory judgments of invalidity and non-infringement of the mark and trade dress. In the
sixth counterclaim, Baja asserted a state law claim for tortious interference with contract, arguing
that Plaintiffs forced United Auto Insurance (“UAI”), an insurance underwriter, to cancel its
contract with Baja. Plaintiffs move to dismiss Baja’s counterclaims for tortious interference and
those for declaratory judgment relating to the A-MAX mark. They also move to dismiss Baja’s
request for attorney’s fees, and to strike a number of Baja’s affirmative defenses.
II. LEGAL STANDARD
A motion to dismiss under Fed. R. Civ. P. 12(b)(1) challenges a federal court’s subject
matter jurisdiction. See Fed. R. Civ. P. 12(b)(1). Federal courts are courts of limited
jurisdiction; without jurisdiction conferred by statute, they lack the power to adjudicate
claims. See Stockman v. Fed. Election Comm’n, 138 F.3d 144, 151 (5th Cir. 1998). A court
must determine whether it has proper subject matter jurisdiction over every claim and
counterclaim. Marshall v. Gibson’s Prods., Inc. of Plano, 584 F.2d 668, 672 (5th Cir. 1978).
“[T]he [claimant] constantly bears the burden of proof that jurisdiction does exist.” Rodriguez v.
Tex. Comm’n on the Arts, 992 F. Supp. 876, 879 (N.D. Tex. 1998) (Cummings, J.).
To survive a Rule 12(b)(6) motion to dismiss, a pleading must contain “a short and plain
statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). In
analyzing a motion to dismiss under Rule 12(b)(6) for failure to state a claim, the court accepts
1
United States Trademark No. 3,506,940 covers the term “A-MAX” (“the A-MAX mark”). The A-MAX trade
dress refers to a yellow and red color scheme listed on the supplemental register as United States Registration No.
4,200,154 (“the A-MAX trade dress”). Plaintiffs also refer to their “specially painted Volkswagen Beetles,” for
which they have received a service mark, United States Registration No. 177, 199 (“the Beetle mark”). Plaintiffs do
not assert the A-MAX mark or the Beetle mark against Baja.
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all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff. Martin K.
Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004). The pleading
standard Rule 8 announces does not require “detailed factual allegations,” but it does demand
more than an unadorned accusation devoid of factual support. Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009). A satisfactory pleading must contain sufficient factual matter, accepted as true, to
state a claim to relief that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007). While a court must accept all of the claimant’s allegations as true, it is not bound to
accept as true “a legal conclusion couched as a factual allegation.” Iqbal, 556 U.S.at 678
(quoting Twombly, 550 U.S. at 555).
Rule 12(f) authorizes courts to “strike from a pleading an insufficient defense or any
redundant, immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P. 12(f).
III. ANALYSIS
A. Counterclaim for Tortious Interference
The single issue raised by the first Motion is whether the Court has subject matter
jurisdiction over Baja’s state law counterclaim for tortious interference. Baja contends the Court
can exercise jurisdiction over the counterclaim based on its relationship to the original claims,
through both the supplemental jurisdiction statute, 28 U.S.C. § 1367, and a grant of original
jurisdiction under 28 U.S.C. § 1338(b). The Court disagrees.
i. Supplemental Jurisdiction
Courts may exercise supplemental jurisdiction over state law claims if they form part of
the “same case or controversy” with a claim over which the court has original jurisdiction. See
28 U.S.C. § 1367(a). “The question under § 1367(a) is whether the supplemental claims are so
related to the original claims . . . that they ‘derive from a common nucleus of operative fact.’”
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Halmekangas v. State Farm Fire & Cas. Co., 603 F.3d 290, 294 (5th Cir. 2010) (citing Mendoza
v. Murphy, 532 F.3d 342, 346 (5th Cir. 2008)); see also United Mine Workers of Am. v. Gibbs,
383 U.S. 715, 725 (1966) (“The state and federal claims must derive from a common nucleus of
operative fact.”).
Baja’s counterclaim is not sufficiently related to the original claim to satisfy § 1367(a).
Resolving Plaintiffs’ infringement claim requires a two-step analysis to determine: (1) whether
the trade dress qualifies for protection, and (2) whether the trade dress has been infringed. Blue
Bell Bio–Medical v. Cin–Bad, Inc., 864 F.2d 1253, 1256 (5th Cir. 1989). Facts relevant to the
inquiry include evidence of the validity of Plaintiffs’ trademarks and of Baja’s use of protected
materials on its buildings and in its advertisements. On the other hand, to prevail on its tortious
interference counterclaim, Baja must prove: (1) the presence of a contract; (2) willful and
intentional interference by Plaintiffs; (3) proximate causation; and (4) actual damages. See
Juliette Fowler Homes, Inc. v. Welch Associates, Inc., 793 S.W.2d 660, 664 (Tex. 1990).
Relevant facts include evidence of Baja’s contractual relationship with UAI, and Plaintiffs’
alleged pressure on UAI to cancel the contract.
To the extent these claims overlap at all, they do so only at the margins; they do not share
a common nucleus of operative facts. Baja claims that Plaintiffs’ alleged interference in the
contract with UAI demonstrates Plaintiffs’ belief that the companies are competitors. According
to Baja, this belief is relevant to Plaintiffs’ infringement claim, for which it must prove a
likelihood of confusion between the marks. The Court doubts that Plaintiffs would rely on their
own alleged misconduct to buttress their infringement claim. Even if they do, this is a peripheral
point that joins the claims only at their edges.
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A history of business disputes between Baja and Plaintiffs—including Plaintiffs’ alleged
“longtime scheme to put Baja out of business”—is likewise insufficient to establish a common
nucleus of operative facts between the claims. See, e.g., CheckPoint Fluidic Systems Intern., Ltd.
v. Guccione, No. 10-CV-4505, 2012 WL 195533, at *5–6 (E.D. La. Jan. 23, 2012) (background
information about the relationship between two parties is not an operative fact that satisfies
§ 1367(a)); Council of Unit Owners of the Wisp Condo, Inc. v. Recreation Indus., Inc., 793
F. Supp. 120, 122 (D. Md. 1992) (“[T]he ongoing and dispute-ridden relationship between the
parties [does not] create a sufficient basis for the exercise of supplemental jurisdiction.”);
Burgess v. Omar, 345 F. Supp. 2d 369, 370–72 (S.D.N.Y. 2004) (“[W]hile facts relevant to one
claim might provide background with respect to the other, more is required.”). Baja argues that
NatureSweet, Ltd. v. Mastronardi, Ltd., No. 3:12-CV-1424-G, 2013 WL 460068 (N.D. Tex. Feb.
6, 2013) (Fish, J.) supports the claim that the “ongoing scheme” between the parties satisfies
“relatedness” requirement of § 1367(a). It does not.
In NatureSweet, Judge Fish held that a court could exercise supplemental jurisdiction
over a defendant’s counterclaim for tortious interference with contract, but only because it was
causally related to an existing claim for trademark infringement. NatureSweet, 2013 WL
460068, at *6–7. The defendant there had formed an exclusive supply agreement with the
original owner of the trademarks in question. The original owner, under pressure from the
plaintiff, cancelled the supply agreement with the defendant and assigned its trademark rights to
the plaintiff. Since the cancelled supply agreement and subsequent assignment of rights led
directly to the defendant’s alleged acts of trademark infringement, the court found the two claims
“sufficiently connected” to form one case. Id. at *7. Even with this “causal” connection,
however, the issue of supplemental jurisdiction was a “close question.” Id. at *6.
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In this case, there is no causal relationship between Baja’s counterclaim and Plaintiffs’
trade dress infringement claim. At the core of the original claim is Baja’s allegedly unauthorized
use of protected material. In contrast, the counterclaim concerns only Plaintiffs’ alleged role in
the termination of Baja’s contract with UAI. Nothing in Baja’s pleading suggests that one
caused the other. The claims arose independently, and do not implicate one another. Thus,
Baja’s counterclaim for tortious interference is not sufficiently related to Plaintiffs’ infringement
claim for this Court to exercise supplemental jurisdiction over it.
ii.
Original Jurisdiction
The Court cannot, as Baja urges, exercise original jurisdiction over the counterclaim
under 28 U.S.C. § 1338(b). Section 1338(b) grants courts original jurisdiction over “any civil
action asserting a claim of unfair competition when joined with a substantial and related claim
under the copyright, patent, plant variety protection or trademark laws.” 28 U.S.C. § 1338(b).
As a threshold matter, it is not immediately clear that a claim for tortious interference
with contract qualifies as an unfair competition claim, as defined by § 1338(b). Arguing that it
does, Baja cites American Heritage Life Insurance Company v. Heritage Life Insurance
Company, 494 F.2d 3 (5th Cir. 1974). American Heritage described the law of unfair
competition as the “umbrella for all statutory and non-statutory causes of action arising out of
[dishonest] business conduct.” 494 F.2d at 14. But American Heritage addressed a claim
labeled as one for unfair competition, not a claim for tortious interference. Furthermore, at least
one court has found that § 1338(b) does not apply to all “business conduct” claims conceivably
covered by the broad language of American Heritage. See Schuchart & Assocs. v. Solo Serve
Corp., No. SA-81-CA-5, 1983 WL 1147, at *21 (W.D. Tex. June 28, 1983) (holding that claims
of unjust enrichment do not qualify as claims for unfair competition under § 1338(b)). Indeed,
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this Court is aware of no case construing tortious interference with contract as a claim for “unfair
competition” under § 1338(b). Ultimately, however, the Court need not resolve this issue
because Baja’s counterclaim is insufficiently related to the infringement claim to satisfy the
remaining requirement of § 1338(b).
The Fifth Circuit has not articulated the precise standard for determining when claims are
related for the purpose of § 1338(b), but its analysis seems to parallel the relatedness inquiry in
the context of supplemental jurisdiction. See River Brand Rice Mills, Inc. v. Gen. Foods Corp.,
334 F.2d 770, 772–73 (5th Cir. 1964); Warehouse Groceries Mgmt., Inc. v. Sav-U-Warehouse
Groceries, Inc., 624 F.2d 655, 658 (5th Cir. 1980). In River Brand Rice Mills, the Fifth Circuit
suggested that Congress intended to incorporate the supplemental jurisdiction relatedness
standard when it codified § 1338(b). 334 F.2d at 772. Therefore, it based its analysis of
§ 1338(b) on Hurn v. Oursler, 289 U.S. 238 (1933), the Supreme Court’s then-controlling case
on supplemental jurisdiction. From Hurn, the court concluded that to be related, as defined by
§ 1338(b), claims must be based in facts that are “substantially identical” or that “overlap
considerabl[y].” 334 F.2d at 772.
In United Mine Workers of America. v. Gibbs, the Supreme Court amended Hurn’s
“considerable overlap” standard, holding that courts may exercise supplemental jurisdiction only
when the claims “derive from a common nucleus of operative fact.” 383 U.S. at 725. Congress
subsequently codified the Gibbs standard for supplemental jurisdiction in 28 U.S.C. § 1367.
Since then, a number of courts have applied the Gibbs relatedness standard when analyzing
§ 1338(b). See Waterloo Gutter Prot. Sys. Co., Inc. v. Absolute Gutter Prot., L.L.C., 64 F. Supp.
2d 398, 404 (D.N.J. 1999) (“A patent claim is related [to a claim for unfair competition] if it is
derived from a common nucleus of operative fact.”); Rite-Hite Corp. v. Kelley Co., Inc., 99
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F.R.D. 332, 334 (E.D. Wis. 1983) (same); Leon Finker, Inc. v. Schlussel, 469 F. Supp. 674, 679
(S.D.N.Y. 1979), aff’d, 614 F.2d 1288 (2d Cir. 1979) (same). A district court in the Fifth Circuit
has reached the same conclusion. See J.M. Huber Corp. v. Positive Action Tool of Ohio Co.,
Inc., 879 F. Supp. 705, 710 (S.D. Tex. 1995) (holding that claims are related under § 1338(b) if
they derive from a “common nucleus of operative facts”).
The Fifth Circuit itself, however, has stopped short of explicitly applying Gibbs to
§ 1338(b). In Warehouse Groceries, the Fifth Circuit referenced Gibbs before holding that a
district court should have exercised jurisdiction over a state law unfair competition claim related
to a federal trademark claim. 624 F.2d. at 658. But it is not clear whether the Warehouse court
based its decision on a finding of supplemental jurisdiction or on § 1338(b).
Here, the original claims and Baja’s counterclaim are insufficiently related to satisfy
§ 1338(b), regardless of whether the statute requires claims with considerable factual overlap,
see River Brand Rice Mills, 334 F.2d at 772–73, or claims arising from a common nucleus of
operative fact, see Gibbs, 383 U.S. at 725. Baja’s counterclaim addresses the formation and
termination of its contract with UAI. Plaintiffs’ infringement claim, on the other hand, involves
Baja’s alleged use of Plaintiffs’ trade dress. The facts necessary to prove these claims do not
overlap considerably, nor do the operative facts arise from a common nucleus. This Court may
not, therefore, exercise original subject matter jurisdiction over the tortious interference
counterclaim pursuant to § 1338(b). Thus, Plaintiffs’ Motion to Dismiss the counterclaim is
GRANTED.
B. Counterclaims Seeking Cancellation of A-MAX Mark and Declaratory Judgment of
Non-Infringement and Invalidity
“A petition to cancel a registration of a mark” may be maintained “by any person who
believes that he is or will be damaged . . . by the mark.” 15 U.S.C. § 1064. “To establish
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standing” for a cancellation action, the claimant “need only plead and prove facts showing a ‘real
interest’ in the proceedings and a ‘reasonable’ basis for its belief of damage.” Farah v. Pramil
S.R.L., 300 F. App’x 915, 917 (Fed. Cir. 2008) (quoting Ritchie v. Simpson, 170 F.3d 1092, 1095
(Fed. Cir. 1999)). “The purpose” of the standing requirement is to “prevent litigation where
there is no real controversy between the parties.” Lipton Industries, Inc. v. Ralston Purina Co.,
670 F.2d 1024, 1028–29 (Fed. Cir. 1982).
Baja has not pleaded facts showing a real interest in cancelling the A-MAX mark or a
reasonable basis to believe it is damaged by the mark’s continued existence. Although Plaintiffs
reference the A-MAX mark in the Background section of their Original Petition, they base all of
their causes of action exclusively on Baja’s alleged infringement of the A-MAX trade dress. The
trade dress registration consists only of a red and yellow color scheme, and does not include the
term A-MAX. Nowhere do Plaintiffs accuse Baja of infringing the A-MAX mark, nor do they
give any indication that they plan to assert the mark against Baja in the future.
In the absence of a pending or threatened action, a claimant can establish a real interest
when it reasonably believes its trademark is confusingly similar to the mark it seeks to cancel.
See Selva & Sons, Inc. v. Nina Footwear, Inc., 705 F.2d 1316, 1326 (1983). But Baja does not
allege that the terms A-MAX and Baja, by themselves, are confusingly similar. In fact, it seeks a
judgment declaring that they are not.
Baja claims instead that its “real interest” is rooted in the intertwined nature of the
A-
MAX trade dress and the A-MAX mark. According to Baja, “[t]he similarity of the terms BAJA
and A-MAX is an issue because each term forms part of the overall commercial impression of
the trade dress in which it is used.” Def.’s Resp. 13. It is true that Plaintiffs display the A-MAX
mark in combination with the trade dress, and that similarity of marks is “determined by
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considering the overall impression by the mark as a whole, rather than simply comparing
individual features of the mark.” See Exxon Corp. v. Texas Motor Exch. of Houston, Inc., 628
F.2d 500, 504–05 (5th Cir. 1980). In context, however, this means only that the fact finder must
decide whether the trade dress has acquired secondary meaning sufficient to justify legal
protection, or whether the color scheme distinguishes Plaintiffs from its competitors only in
conjunction with the A-MAX mark. It does not follow that Baja acquires an interest in the
validity of the A-MAX mark simply because it has been accused of infringing the A-MAX trade
dress. Baja cites no authority, and the Court is aware of none, that would extend the concept of
standing that far.
For similar reasons, Baja lacks standing to seek a declaratory judgment of invalidity and
non-infringement of the A-MAX mark. In the context of declaratory judgments, courts have
jurisdiction only over disputes presenting “substantial controversy, between parties having
adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a
declaratory judgment.” MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007) (citation
omitted). There is no immediate dispute regarding the A-MAX mark. Plaintiffs do not assert the
mark against Baja, and express no intention of doing so. The only disputes properly before the
Court are Plaintiffs’ claims stemming from Baja’s alleged infringement of the A-MAX trade
dress. Thus, Plaintiffs’ Motions to Dismiss the counterclaims for cancellation and for a
declaratory judgment of invalidity and non-infringement of the A-MAX mark are GRANTED.
C. Affirmative Defenses and Request for Attorney’s Fees
Plaintiffs move to strike the a number of Baja’s affirmative defenses, including the
assertion that (1) the trade dress “is not confusingly similar,” (2) the marks do not have a “single
source,” and (3) the trade dress is “descriptive[],” lacks “secondary meaning,” is “primarily
functional,” and “is not inherently distinctive.” Pls.’ Mot. 2–6. According to Plaintiffs, these
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defenses are merely “negative defenses” that negate an element of Plaintiffs’ prima facie case,
not “affirmative defenses” that offer a justification for Baja’s actions. Id. Consequently,
Plaintiffs claim they should be stricken as “redundant” and “immaterial” pursuant to Rule 12(f).
See F.T.C. v. Think All Pub. L.L.C., 564 F. Supp. 2d 663, 665–66 (E.D. Tex. 2008) (striking a
negative defense under Rule 12(f)). Baja acknowledges that the “affirmative defenses” in
question overlap with its denials, and seeks leave to amend its Answer to remove them.
Plaintiffs also move to dismiss Baja’s request for attorney’s fees under the Texas Declaratory
Judgments Act (“TDJA”). Baja concedes such a request is inappropriate in this federal action.
Plaintiffs’ Motion to Strike the “affirmative defenses” asserted in ¶¶ 29–31, 33–35, and
38 of the Amended Answer, and to dismiss the prayer for attorney’s fees under the TDJA, is
GRANTED.
III. CONCLUSION
Baja has failed to establish that this Court has either original or supplemental jurisdiction
over its counterclaim for tortious interference, or that it has standing to assert its counterclaims
for cancellation of the A-MAX mark or for a declaratory judgment of non-infringement or
invalidity of the A-MAX mark. Those counterclaims are therefore DISMISSED without
prejudice. Plaintiffs concede the challenged affirmative defenses and request for attorney’s fees
under the TDJA should be removed. Accordingly, the request for attorney’s fees is
DISMISSED, and the affirmative defenses are STRICKEN. As set forth in the Court’s July 17,
2013, Scheduling Order, the parties may freely amend their pleadings without seeking leave until
October 25, 2013.
SO ORDERED.
August 7, 2013.
_________________________________
BARBARA M. G. LYNN
UNITED STATES DISTRICT JUDGE
NORTHERN DISTRICT OF TEXAS
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