Global Healing Center LP v. Spinogatti et al
Filing
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MEMORANDUM AND ORDER GRANTING 20 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM Regarding Fraud.(Signed by Judge Keith P Ellison) Parties notified.(sloewe)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
GLOBAL HEALING CENTER, LP,
Plaintiff,
v.
JOSH POWELL, INDIVIDUALLY AND
D/B/A BUYOXYPOWDER.COM, D/B/A
SECUREBILLINGONE, LLC, AND
D/B/A WORLD HEALTH PRODUCTS,
LLC, and CHRISTOPHER CERVINO,
INDIVIDUALLY AND D/B/A
BUYOXYPOWDER.COM, D/B/A
SECUREBILLINGONE, LLC, AND
D/B/A WORLD HEALTH PRODUCTS,
LLC,
Defendants.
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§ CIVIL ACTION NO. 4:10-CV-4790
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MEMORANDUM AND ORDER
Pending before the Court is Plaintiff’s Motion to Dismiss Defendants’
Counterclaim (Doc. No. 20). After considering the motion, all responses thereto, and the
applicable law, the Court finds that the motion must be granted.
I.
BACKGROUND
This is a trademark infringement suit brought by Plaintiff Global Healing Center
LP (“GHC”) against Defendants Josh Powell and Christopher Cervino (collectively, the
“Defendants”). On November 30, 2010, GHC filed a Complaint asserting claims for false
designation of origin and false descriptions in violation of the Lanham Act, dilution of
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trademark in violation of the Lanham Act, counterfeiting, copyright infringement, breach
of contract, unfair competition, fraud, and cyber piracy. (Compl. ¶¶ 1-2, Doc. No. 1.)
Generally, the Complaint alleges that GHC manufactures dietary supplements and
natural health care products, and that it distributes these products over the internet and
through authorized distributors and resellers. (Id. ¶ 10.) Oxy-Powder, the product at issue
in this case, is one such dietary supplement manufactured and sold by GHC. At some
point, GHC entered into an agreement with Defendants, which provided that Defendants
would sell Oxy-Powder in accordance with certain terms agreed upon by the parties. (Id.
¶ 10.) GHC alleges that Defendants violated the terms of this agreement by setting up
websites purporting to be official GHC websites, and selling counterfeit Oxy-Powder
through those websites. (Id. ¶¶ 11-13.) GHC claims that Defendants’ actions violate
GHC’s federally registered trademark, “Oxy-Powder.”
On November 30, 2010, the Court issued a temporary restraining order restraining
and enjoining Defendants “from selling, promoting, advertising, offering for sale,
distributing, or receiving payment for Oxy-Powder.” (Doc. No. 3.) On December 16, the
Court issued a preliminary injunction. (Doc. No. 10.)
On December 14, 2011, Defendants filed an Answer and Counterclaim (Doc. No.
15), in which they deny the majority of Plaintiffs’ allegations, assert eleven affirmative
defenses, and assert a Counterclaim for trademark cancellation. In their Counterclaim,
Defendants allege that GHC intentionally placed false and misleading statements in a
continued use affidavit submitted to the United States Patent and Trademark Office (the
“PTO”), and that GHC therefore obtained its trademark registration of Oxy-Powder
through fraud. (Id. ¶¶ 53-61.) On January 3, 2012, GHC moved to dismiss Defendants’
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Counterclaim under Federal Rule of Civil Procedure 12(b)(6). (Doc. No. 16.) GHC’s
motion asserted that Defendants do not have a real interest in the validity of the
trademark at issue and therefore lack standing to seek cancellation of the trademark. The
Court disagreed, and concluded that, because Defendants face liability in this suit for
alleged infringement related to GHC’s Oxy-Powder trademark, a finding that that
trademark was fraudulently obtained would affect their interests. (Doc. No. 19 at 5.)
One week after the Court denied Plaintiff’s motion, Plaintiff filed the instant
12(b)(6) motion, which urges that Defendants’ Counterclaim fails to meet the heightened
pleading standards for fraud claims required by Federal Rule of Civil Procedure 9(b), and
that it must therefore be dismissed for failure to state a claim upon which relief can be
granted.
II.
LEGAL STANDARD
Federal Rule of Civil Procedure 8(a) requires that a plaintiff’s pleading include “a
short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.
R. Civ. P. 8(a)(2). If a plaintiff fails to satisfy Rule 8(a), a defendant may file a motion to
dismiss the plaintiff’s claims under Federal Rule of Civil Procedure 12(b)(6) for “failure
to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6); see also Bank
of Abbeville & Trust Co. v. Commonwealth Land Title Ins. Co., 2006 WL 2870972, at *2
(5th Cir. Oct. 9, 2006) (citing 5 Charles Alan Wright & Arthur R. Miller, Federal Practice
and Procedure § 1203 (3d ed. 2004)).
“To survive a Rule 12(b)(6) motion to dismiss, a complaint ‘does not need
detailed factual allegations,’ but must provide the plaintiff’s grounds for entitlement to
relief—including factual allegations that when assumed to be true ‘raise a right to relief
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above the speculative level.’” Cuvillier v. Taylor, 503 F.3d 397, 401 (5th Cir. 2007)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). That is, “a complaint
must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Twombly,
550 U.S. at 570). A claim has facial plausibility “when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). The plausibility standard is
not akin to a “probability requirement,” but asks for more than a sheer possibility that a
defendant has acted unlawfully. Id. A pleading need not contain detailed factual
allegations, but must set forth more than “labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555
(citation omitted).
Ultimately, the question for a court to decide is whether the complaint states a
valid claim when viewed in the light most favorable to the plaintiff. Shandong Yinguang
Chem. Indus. Joint Stock Co., Ltd. v. Potter, 607 F.3d 1029, 1032 (5th Cir. 2010) (citing
In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007)). The court must
accept well-pleaded facts as true, but legal conclusions are not entitled to the same
assumption of truth. Iqbal, 129 S. Ct. at 1950. The court should not “‘strain to find
inferences favorable to the plaintiffs’” or “accept ‘conclusory allegations, unwarranted
deductions, or legal conclusions.’” R2 Investments LDC v. Phillips, 401 F.3d 638, 642
(5th Cir. 2005) (quoting Southland Sec. Corp. v. Inspire Ins. Solutions, Inc., 365 F.3d
353, 361 (5th Cir. 2004)).
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Allegations of fraud must meet the stricter standards of Federal Rule of Civil
Procedure 9(b), which provides that, “[i]n alleging fraud or mistake, a party must state
with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b).
“At a minimum, Rule 9(b) requires allegations of the particulars of time, place, and
contents of the false representations, as well as the identity of the person making the
misrepresentation and what he obtained thereby.” Benchmark Elec., Inc. v. J.M. Huber
Corp., 343 F.3d 719, 724 (5th Cir. 2003) (quoting Tel-Phonic Servs., Inc. v. TBS Int’l,
Inc., 975 F.2d 1134, 1139 (5th Cir. 1992) (internal quotation marks omitted)). The Fifth
Circuit has explained that “Rule 9(b) requires ‘the who, what, when, where, and how’ [of
the alleged fraud] to be laid out.” Id. (quoting Williams v. WMX Techs., Inc., 112 F.3d
175, 179 (5th Cir. 1997)). A claim that a fraud allegation is insufficiently particular under
Rule 9(b) is properly raised by a Rule 12(b)(6) motion for dismissal for failure to state a
claim. United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 186 n. 8 (5th Cir. 2009);
Carter v. Nationwide Property and Cas. Ins. Co., 2011 WL 2193385, at *1 (S.D. Tex.
June 6, 2011).
Rule 9(b)’s particularity requirement is “supplemental to the Supreme Court’s
recent interpretation of Rule 8(a) requiring enough facts [taken as true] to state a claim to
relief that is plausible on its face.” Id. at 185 (quotations and footnote omitted). Thus,
Rule 9(b) “requires only simple, concise, and direct allegations of the circumstances
constituting fraud, which after Twombly must make relief plausible, not merely
conceivable, when taken as true.” Id. at 186 (internal quotations omitted).
III.
ANALYSIS
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In responding to the Motion to Dismiss, Defendants argue that Plaintiff is in
default for failure to serve a responsive pleading within fourteen days of the Court’s
denial of Plaintiff’s prior motion to dismiss, and that the Court therefore should not
consider this second motion to dismiss. Plaintiff seeks dismissal of Defendant’s fraud
Counterclaim for failure to state a claim upon which relief can be granted.
A. Procedural Issue
Before considering the merits of Plaintiff’s motion to dismiss, the Court must
address Defendant’s preliminary argument that the motion is procedurally barred as a
successive motion to dismiss. Although Defendant’s argument is vague, the Court
understands Defendant’s position to be that the instant motion fails to comply with Rules
12(g) and 12(h)(2) of the Federal Rules of Civil Procedure, which govern successive
motions to dismiss. Rule 12(g) curbs such motions, stating that “a party that makes a
motion under [Rule 12] must not make another motion under [Rule 12] raising a defense
or objection that was available to the party but omitted from its earlier motion.” Fed. R.
Civ. P. 12(g). Rule 12(h)(2) exempts from Rule 12(g) the defense of failure to state a
claim upon which relief can be granted, which may be raised “(A) in any pleading
allowed or ordered under Rule 7(a); (B) by a motion under Rule 12(c); or (C) at trial.”
Fed. R. Civ. P. 12(h)(2). A motion to dismiss is not a “pleading” within the meaning of
Fed. R. Civ. P. 7(a). Thus, while the defense of failure to state a claim is never waived, if
it is to be raised a second time, it technically must be raised in an answer, a motion for
judgment on the pleadings under Rule12(c), or at trial. In filing a successive motion to
dismiss, Plaintiff has failed to comply with the technical requirements of Rule 12(h)(2).
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Recognizing that the defense of failure to state a claim is never waived and
therefore will require adjudication at some point, many courts have applied these rules
more permissively to allow the defense to be asserted in a successive motion to dismiss.
See Tatum v. R.J. Reynolds Tobacco Co., 102CV00373, 2007 WL 1612580, at *6
(M.D.N.C. May 31, 2007) (emphasizing that all issues raised in the successive motion
had been fully briefed, and that consideration of those issues early in the litigation would
expedite the resolution of the case); Stoffels ex rel., SBC Concession Plan v. SBC
Communications, Inc., 430 F. Supp. 2d 642, 648 (W.D. Tex. 2006) (allowing successive
12(b)(6) motion where there was no evidence that the movant intended delay); In re
Westinghouse Sec. Litig., CIV. A. 91-354, 1998 WL 119554, at *6 (W.D. Pa. Mar. 12,
1998) (finding “no reason to put the defendant to the time and expense of filing an
answer, or both defendant and plaintiff to the time and expense of addressing an issue to
be raised later in a motion for judgment on the pleadings, when that issue can easily be
resolved now.”); Mylan Laboratories, Inc. v. Akzo, N.V., 770 F. Supp. 1053, 1059 (D.
Md. 1991) (noting that a complaint can always be challenged for legal sufficiency, and
finding it more efficient to treat such arguments prior to extensive discovery). Ultimately,
“[s]ince the basic purpose of Rule 12(h)(2) probably is to preserve the defenses, rather
than to delimit the precise timing of their assertion, this [more permissive] approach
seems sound and within the spirit, if not the letter, of the provision.” 5C Charles Alan
Wright & Arthur R. Miller, Federal Practice and Procedure § 1392 (3d ed. 2004).
The Court finds that the spirit of Rule 12 would be furthered by considering
Plaintiff’s second motion to dismiss. The issues raised in the motion have been fully
briefed, and there is no indication that Plaintiff has filed the motion to delay this case.
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Indeed, swift resolution of Plaintiff’s failure to state a claim defense ultimately will
conserve resources, both of the Court and of the parties. The Court therefore proceeds to
consider Plaintiff’s motion to dismiss.
B. Fraud Counterclaim
Section 33(b)(1) of the Lanham Act provides a defense against a registered mark
when a “registration . . . was obtained fraudulently.” 15 U.S.C. § 1115(b)(1). “Generally,
in order to prevail on a claim of fraud in the procurement of a registration, a proponent
must plead and prove: ‘(1) a false representation regarding a material fact; (2) knowledge
or belief that the representation is false (‘scienter’); (3) an intention to induce the listener
to act or refrain from acting in reliance on the misrepresentation; (4) reasonable reliance
on the misrepresentation; (5) damage proximately resulting from such reliance.’” KingSize, Inc. v. Frank's King Size Clothes, Inc., 547 F. Supp. 1138, 1166 (S.D. Tex. 1982)
(quoting Robert B. Vance & Assocs., Inc. v. Baronet Corp., 487 F. Supp. 790, 797 (N.D.
Ga. 1979)). The Fifth Circuit has emphasized that, “[i]n order to show that an applicant
defrauded the PTO the party seeking to invalidate a mark must show that the applicant
intended to mislead the PTO.” Meineke Discount Muffler v. Jaynes, 999 F.2d 120, 126
(5th Cir. 1993). “[A]bsent the requisite intent to mislead the PTO, even a material
misrepresentation would not qualify as fraud under the Lanham Act warranting
cancellation.” In re Bose Corp., 580 F.3d 1240, 1243 (Fed. Cir. 2009) (citing King Auto.,
Inc. v. Speedy Muffler King, Inc., 667 F.2d 1008, 1011 n. 4 (CCPA 1981)).
1. False Representation of Material Fact
Defendants allege that Plaintiff falsely represented a material fact to the PTO by
stating, in a continued use application, that Oxy-Powder was being sold as an immune
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stimulant. (Doc. No. 15 ¶¶ 53-54.) In an effort to demonstrate the falsity of this
representation, Defendants point to the labeling on Plaintiff’s product, which Defendants
allege does not advertise that it is an immune stimulant. (Id. ¶ 56; 60.) Aside from
asserting, on information and belief, that the Oxy-Powder label “does not advertise that it
is an immune stimulant,”1 Defendants offer no allegations in support of their claim that
Oxy-Powder is not being sold as an immune stimulant.
Defendants’ conclusory allegation regarding the Oxy-Power label provides an
insufficient factual basis on which to state a fraud claim. Even accepting as true
Defendants’ allegation that the Oxy-Powder label fails to indicate that the product is an
“immune stimulant,” this allegation does not address whether Oxy-Powder is or is not
sold in commerce as an immune stimulant. That is, Defendants draw no connection
between the product’s labeling and how it is sold. Without more, the absence of “immune
stimulant” on the Oxy-Powder label, even if proven, does not demonstrate a
misrepresentation (much less a material misrepresentation).
Defendants appear to raise a second allegation regarding false representation.
Defendants assert that Plaintiff has advertised on its website that Germanium-132, an
ingredient contained in Oxy-Powder, has pharmaceutical properties that have not been
evaluated by the FDA. (Doc. No. 15 ¶ 58.) Defendants attach an exhibit from an FDA
evaluation in an apparent attempt to show that Germanium-132 has, in fact, been
evaluated by the FDA. (Doc. No. 15-A.) The questionable relevance of this particular
exhibit notwithstanding, Defendants fail to allege that Plaintiff made any statement
regarding the FDA’s evaluation on Plaintiff’s trademark application. Thus, the facts
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Defendants cite to “Exhibit C” in their discussion of the product label, but there is no such exhibit
attached to Defendants’ Answer. (Doc. No. 15 ¶ 56.)
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alleged could, at most, support a claim that Plaintiff has misleading information on its
website; there is no allegation that Plaintiff misrepresented facts regarding FDA
evaluation in its trademark application.
Although Defendants’ failure to allege a material misrepresentation warrants
dismissal of the Counterclaim, the Court briefly considers Defendants’ failure to plead
knowledge of falsity and intent to mislead the PTO.
2. Knowledge of Belief that the Representation was False
As explained by the Federal Circuit, a misrepresentation made as part of a
“conscious effort to obtain for his business a registration to which he knew it was not
entitled” is fraud. In re Bose Corp., 580 F.3d 1240, 1246 (Fed. Cir. 2009). An applicant
commits fraud only if his or her material misrepresentation is made knowingly. Id. at
1243. Defendants claim that GHC “intentionally filed a continuous use affidavit knowing
that it was not selling the Oxy-Powder product as an immune stimulant.” (Doc. No. 15 ¶
60.) While this pleading recites the necessary element—knowledge that Oxy-Powder was
not being sold as an immune stimulant—it alleges no facts in support of the contention
that Plaintiff actually knew that Oxy-Powder was not being sold as an immune stimulant
at the time the application was filed. Perhaps Defendants infer that Plaintiff must have
known about its failure to label Oxy-Powder as an “immune stimulant,” and therefore
must have known that the product was not being sold as an immune stimulant. However,
as discussed above, Defendants fail to allege how the absence of such a label indicates
the manner in which the product was sold; because no such connection is made, even
Plaintiff’s knowledge about its own labeling is insufficient to show knowledge that OxyPowder was not being sold as an immune stimulant.
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3. Intent to Mislead the PTO
Defendants’ pleading does not include even a conclusory recitation of this
element. The failure to plead this element confirms that Defendants fail to state a claim
for fraud.
C. Affirmative Defense
After urging that their fraud Counterclaim is adequately plead under Rule
12(b)(6), Defendants then change course and contend that their Counterclaim is actually
an affirmative defense mistakenly designated as a Counterclaim. Defendants complain
that Plaintiff “is attempting to circumvent [Defendants’] affirmative defense by filing
multiple motions to dismiss.” (Doc. No. 21 at 7.) Pursuant to Rule 8(c), a party who
mistakenly designates a defense as a Counterclaim is entitled to have the Court “treat the
pleading as though it were correctly designated.” Fed. R. Civ. P. 8(c). However, it is
apparent from the face of Defendants’ Counterclaim that the designation of fraud as a
Counterclaim, rather than an affirmative defense, was not a mistake. Defendants’
Counterclaim requests affirmative relief and seeks damages,2 two traits which clearly
qualify it as a Counterclaim. Thus, the Court rejects Defendants’ contention that the
Counterclaim was mistakenly designated.
IV.
CONCLUSION
For the foregoing reasons, Plaintiff’s motion to dismiss Defendants’ fraud
Counterclaim must be GRANTED. Defendants’ Counterclaim is dismissed. However, in
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Defendants request for affirmative relief states that “Plaintiffs have secured the
trademark registration of Oxy-Powder Fraudulently [sic] and plaintiff request [sic] its
cancellation;” and “Plaintiff Requests [sic] attorney fees for the damages caused by the
false registration.” (Doc. No. 15 ¶¶ 60-61.)
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light of Defendants’ argument that they intended to plead fraud as an affirmative defense,
and because justice would be served by allowing this affirmative defense, Defendants are
granted leave to amend their pleadings and include an affirmative defense of fraud on the
PTO. Defendants’ amended Answer must be submitted by May 22, 2012.
IT IS SO ORDERED.
SIGNED at Houston, Texas, on this the 15th day of May, 2012.
THE HONORABLE KEITH P. ELLISON
UNITED STATES DISTRICT JUDGE
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