David Yurman Enterprises LLC, et al. v. Sam's East, Inc. et al

Filing 32

ORDER DENYING 10 MOTION to Dismiss Pursuant to Rule 12(b)(6) and Supporting Brief.(Signed by Judge Gray H. Miller) Parties notified.(rkonieczny, 4)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
DAVID YURMAN ENTERPRISES, LLC, et al.,
Plaintiffs,
v.
SAM ’S EAST , INC., et al.,
Defendants.

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CIVIL ACTION H-14-2553

O RDER
Pending before the court is defendants’ motion to dismiss pursuant to Federal Rule of Civil
Procedure Rule 12(b)(6). After considering the motion, the response, the complaint, and the
applicable law, the court is of the opinion that the motion should be DENIED.
I. BACKGROUND
Plaintiffs David Yurman Enterprises LLC, and David Yurman IP LLC (collectively,
“Yurman”) brought this case against defendants Sam’s East, Inc. and Sam’s West, Inc. (collectively,
“Sam’s Club”). Yurman designs, manufactures and supplies “unique fine jewelry and luxury jewelry
designs.” Dkt. 1 at 4. Yurman asserts that it is “the owner of numerous registrations for the famous
and highly distinctive trademark DAVID YURMAN, which is widely recognized by consumers as
identifying Yurman as the source of the jewelry.” Id. at 5. Yurman only sells its jewelry through
its own boutiques and authorized retailers who sign an Authorized Retailer Agreement
(“Agreement”) that “expressly prohibits the transshipment, diversion, or transfer of any Yurman
products to any other party.” Id. Yurman asserts that Sam’s Club was aware of the agreements
Yurman has with its authorized retailers prohibiting transfer of its products to other parties because

this requirement is well known in the retail industry, particularly among retailers of jewelry products.
Id.
According to Yurman, Sam’s Club operates as a national “wholesale club.” It is undisputed
that at least some Sam’s Club stores are selling authentic Yurman jewelry products. Id. at 6. It is
also undisputed that Sam’s Club is not a Yurman-authorized retailer of its jewelry. Id. Yurman
alleges that Sam’s Club intentionally sought out, directly or indirectly, and purchased, Yurman
jewelry from one or more of Yurman’s authorized retailers, even though it knew the retailers were
prohibited from engaging in such a transaction. Id. After purchasing the jewelry, Yurman alleges
that Sam’s Club prominently advertised and promoted the jewelry in its stores and on its website,
in an effort to drive traffic to its stores. Id. In the stores, Yurman asserts, Sam’s Club is displaying
Yurman products, placards and packaging displaying the Yurman trademark, and “what purport to
be Yurman-issued certificates of authenticity.” It is undisputed that the products being sold are
authentic Yurman products. The problem, Yurman explains, is that Sam’s Club’s “conduct creates
the false impression that Sam’s Club is among Yurman’s network of authorized retailers, and has
caused consumer confusion and disappointment.” Id. at 7. “For example, Sam’s Club has been
unable, at the point of sale, to service customers purchasing and/or attempting to purchase DAVID
YURMAN jewelry products sold in its stores, as would an authorized Yurman retailer.” Id.
Yurman brings five claims as a result of the harm it claims it has suffered due to Sam’s
Club’s actions: 1) Trademark infringement in violation of 15 U.S.C. § 1444; 2) False Designation
of origin in violation of 15 U.S.C. § 1125(a); 3) Tortious interference with a contract; 4) Unfair
Competition; and 5) Injunctive relief from Sam’s Club’s wrongful conduct. Sam’s Club has moved
to dismiss these first four claims pursuant to Federal Rule of Civil Procedure Rule 12(b)(6) for
failure to state a claim upon which relief can be granted. Dkt. 10. In short, Sam’s Club argues that
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Yurman’s trademark infringement claim is barred by the “first sale” doctrine, and therefore its false
designation of origin claim fails, too. Sam’s Club also argues that Yurman fails to state a claim for
tortious interference, and without some independent tort or other illegal conduct, the tort of unfair
competition is not a viable claim. Yurman has timely responded.
II. LEGAL STANDARD
A court may dismiss a complaint for “failure to state a claim upon which relief can be
granted.” Fed. R. Civ. P. 12(b)(6). To survive a Rule 12(b)(6) motion to dismiss, a plaintiff must
plead “enough facts to state a claim to relief that is plausible on its face.” Gines v. D.R. Horton, Inc.,
699 F.3d 812, 816 (5th Cir. 2012) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.
Ct. 1955 (2007)). “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.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937 (2009). “Factual allegations must
be enough to raise a right to relief above the speculative level . . . on the assumption that all the
allegations in the complaint are true (even if doubtful in fact).” Twombly, 550 U.S. at 555. As part
of the Twombly-Iqbal analysis, the court proceeds in two steps. First, the court separates legal
conclusions from well-pled facts. Iqbal, 556 U.S. at 678–79. Second, the court reviews the wellpled factual allegations, assumes they are true, and then determines whether they “plausibly give rise
to an entitlement of relief.” Id. at 679. Though a defendant can seek dismissal on an affirmative
defense, dismissal will only be granted if the defense is “established by the face of the complaint.”
Janvey v. Suarez, 978 F. Supp. 2d 685, 702 (N.D. Tex. 2013). Finally, because “a Rule 12(b)(6)
motion is viewed with disfavor and rarely granted, a complaint may not be dismissed unless it
appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would

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entitle him to relief. Leleux v. United States, 178 F.3d 750, 754 (5th Cir. 1999) (emphasis added)
(internal quotations omitted).
III. LAW AND ANALYSIS
A.

Trademark infringement in violation of 15 U.S.C. § 1114

1.

Parties’ Arguments

Yurman alleges that it holds several registrations for the trademark David Yurman. Dkt. 1
at 8. Yurman also alleges that the display of the jewelry and its packaging; the prominent placement
of placards, certificates, and other Yurman materials; and the prominent advertisement of Yurman
products in its stores and on its website to create foot traffic to the stores, all create the false
impression that Sam’s Club is authorized to sell Yurman products and that its products have been
sourced directly from Yurman. Id. at 6–9. Yurman alleges that this use of the Yurman trademark
is likely to cause confusion or mistake as to an affiliation, connection or association between Yurman
and Sam’s Club, or as to the origin, sponsorship, or approval of Sam’s Club’s sale of Yurman
jewelry. Id. at 8.
Sam’s Club argues for dismissal by claiming that the trademark infringement claim is barred
by the “first sale” doctrine. More specifically, because Sam’s Club is reselling genuine goods under
the Yurman mark, it argues, there is no potential for consumers to be confused that the mark owner
is the source of the goods. Dkt. 10 at 5.
2.

Substantive Law

To prevail on a claim of trademark infringement under the Lanham Act, Yurman must show
1) Yurman possesses a valid mark; and 2) Sam’s Club’s use of Yurman’s trademarks creates a

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likelihood of confusion as to source, affiliation, or sponsorship.1 Nat’l Bus. Forms &Printing, Inc.
v. Ford Motor Co., 671 F.3d 526, 532 (5th Cir. 2012). “The mere reproduction of a trademark does
not constitute trademark infringement if there is no likelihood of confusion.” Nat’l Bus. Forms, 671
F.3d at 526. (quoting 4 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition §
25:28 (4th ed. 2009)). A “likelihood of confusion” means that confusion is probable. Id. And, the
court “must consider the marks in the context that a customer perceives them in the marketplace.”
Id. (quoting Scott Fetzer Co. v. House of Vacuums Inc., 381 F.3d 477, 485 (5th Cir.2004)). This
includes how the mark is presented in advertisements, such as, for example, whether it is the only
mark on the advertisement or one of many marks on an advertisement. Fetzer, 381 F.3d at 485–86.
The “[p]rominent and pervasive use of a mark will suggest affiliation,” but “mere reference to a
marked product will not.” Nat’l Bus. Forms, 671 F.3d at 526.
The court also reviews the “first sale rule,” an argument raised by Sam’s Club for why
plaintiffs have not pled a claim upon which relief can be granted. Under the rule “a distributor who
resells trademarked goods without change is not liable for trademark infringement.” Mary Kay, Inc.
v. Weber, 301F. Supp. 2d 839, 852 (N.D. Tex. 2009) (internal quotations omitted). However, there
are two exceptions to the rule: 1) “[t]he doctrine does not protect alleged infringers who sell
trademarked goods that are ‘materially’ different from those sold by the trademark owner;” and 2)
the doctrine will not protected alleged infringers “if they have given off the false impression that they
are affiliated with or sponsored by” the trademark owner. Id. The second exception is relevant to
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Though a complete analysis of the likelihood of confusion is unnecessary at this point, courts consider the
following nonexhuastive list of “digits of confusion,” to assess the likelihood of confusion: (1) the type of mark
allegedly infringed, (2) the similarity between the two marks, (3) the similarity of the products or services, (4) the
identity of the retail outlets and purchasers, (5) the identity of the advertising media used, (6) the defendan’s intent,
and (7) any evidence of actual confusion; and (8) the degree of care exercised by potential purchasers. Bd. of
Supervisors for La. State Univ. Agric. & Mech. Coll. v. Smack Apparel Co., 550 F.3d 465, 478 (5th Cir. 2008). “No
single factor is dispositive, and a finding of a likelihood of confusion need not be supported by a majority of the
factors.” Id.

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this case. Under this rule, an unauthorized dealer may use a mark to advertise or promote truthfully
that it sells a certain trademarked product, so long as the advertisement or promotion does not
suggest affiliation or endorsement by the mark holder. Id. (quoting Fetzer, 381 F.3d at 484).
3.

Analysis

Yurman has pled that it possesses a valid mark. Therefore, the court focuses on whether
Yurman has pled sufficient facts to show that the use of the trademark creates a likelihood of
confusion about an affiliation between Sam’s Club and Yurman. Yurman has pled that the stores
had Yurman products and materials prominently displayed, which suggests the Yurman products
were highlighted more than other products. Further, Yurman has pled that Sam’s Club had
prominent advertisements of the Yurman products on its website in an effort to drive foot traffic to
its stores, which suggests the Yurman jewelry was featured in a way that other jewelry was not. The
context of the use was that Sam’s Club was featuring Yurman products more aggressively and
prominently than other products to gain more traffic to its stores. Because the “[p]rominent and
pervasive use of a mark will suggest affiliation,”Yurman has pled sufficient facts to state a plausible
claim for relief at this point based on a likelihood of confusion as to an affiliation between Sam’s
Club and Yurman. Nat’l Bus. Forms, 671 F.3d at 526.
However, much of Sam’s Club’s motion hinges on its “first sale rule” defense, arguing that
the rule renders Yurman’s claim meritless. But the defense must be apparent on the face of the
claim, and the rule does not apply if Sam’s Club has given off the false impression that it is affiliated
with Yurman. Mary Kay, Inc., 301F. Supp. 2d at 852. Sam’s Club relies heavily on Matrix
Essentials, a Fifth Circuit decision reviewing a district court’s summary judgment dismissal of a
false designation of origin claim, to say that the mere unauthorized stocking and sale of trademarked

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products is not a trademark violation, and therefore Yurman’s claim fails. Matrix Essentials, Inc.
v. Emporium Drug Mart, Inc., of Lafayette, 988 F.2d 587, 593 (5th Cir.1993).
As to this defensive argument, the parties do not dispute that the mere unauthorized stocking
and sale of trademarked products is not a trademark violation. Yurman, however, alleges more than
the mere unauthorized stocking and sale is occurring here. Yurman also alleges prominent and
aggressive advertising, including on the Sam’s Club’s website, and a prominent display of Yurman
materials and jewelry within its stores. Matrix Essentials anticipates that if more action is taken
beyond mere unauthorized stocking and sale of a trademarked product, a claim might survive
summary judgment. Of course, this court has already decided that sufficient facts have been pled
to support the trademark infringement claim, Sam’s Club only relies on Matrix Essentials’ analysis
of a false designation of origin claim to claim a defense applies at this point, and this court is only
at the motion to dismiss phase, where “a complaint may not be dismissed unless it appears beyond
doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to
relief.” Leleux, 178 F.3d at 754.
For all of these reasons, Sam’s Club’s motion to dismiss the trademark infringement claim
is DENIED.
B.

False designation of origin in violation of 15 U.S.C. § 1125(a)

1.

Parties’ Arguments

Yurman reiterates its factual arguments from the infringement claim, asserting that through
Sam’s Club’s actions, it is “creating the false impression that it is authorized to sell DAVID
YURMAN-branded products at discounted prices at retail, that its sale of DAVID YURMANproducts has been authorized or sponsored by Yurman, and/or that such DAVID YURMAN-branded
products have been sourced directly from Yurman, when in fact none of these things are true.”
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Dkt. 1 at 8–9. Yurman also asserts that Sam’s Club’s creation of this false impression has harmed
Yurman and its relationships with authorized retailers. Id. at 7.
Sam’s Club responds that because false designation of origin claims stand or fall with
trademark infringement claims, Yurman’s false designation of origin claim fails for the reasons its
trademark infringement claim fails. Dkt. 10 at 7.
2.

Substantive Law

The Fifth Circuit regularly states the elements of a claim under 15 U.S.C. § 1125 to be: “(1)
A false or misleading statement of fact about a product; (2) Such statement either deceived, or had
the capacity to deceive a substantial segment of potential consumers; (3) The deception is material,
in that it is likely to influence the consumer’s purchasing decision; (4) The product is in interstate
commerce; and (5) The plaintiff has been or is likely to be injured as a result of the statement at
issue.” Pizza Hut, Inc. v. Papa John’s Int’l, Inc., 227 F.3d 489, 495 (5th Cir. 2000). In summary,
“a plaintiff must demonstrate that the commercial advertisement or promotion is either literally false,
or that if the advertisement is not literally false, it is likely to mislead and confuse customers.” Id.
(internal quotations omitted).

The Fifth Circuit has recognized that, while an affirmative

misrepresentation would certainly qualify as behavior in violation of section 1125, activity beyond
mere unauthorized stocking and sale of goods that serves to actively mislead customers to believe
the vendor is part of the trademark holder’s authorized sales network could also qualify. Matrix, 988
F.2d at 593.
3.

Analysis

Sam’s Club alleges that the defect in the false designation of origin claim is the same as that
for the trademark infringement claim, which was whether confusion or a false impression as to the
affiliation between Sam’s Club and Yurman had been properly pled. Sam’s Club also asserts that
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its false designation of origin claim will stand or fall with the infringement claim. The court has
determined that the trademark infringement claim stands, so Sam’s Club’s position is also that its
false designation of origin claim stands. However, even if the court analyzed whether Yurman had
properly pled a likelihood that Sam’s Club’s actions were likely to mislead and confuse customers,
Yurman would succeed. Using the same reasoning as with the trademark infringement claim, the
contention of aggressive and prominent displays and advertising in stores and on the website, in an
effort to bring more people into the stores, is sufficient for now to claim that customers are being
misled into thinking Sam’s Club is part of Yurman’s authorized sales network. Accordingly, Sam’s
Club’s motion to dismiss the false designation of origin claim is DENIED.
C.

Tortious interference with a contract

1.

Parties’ Arguments

Yurman alleges that it holds an Agreement with every one of the authorized retailers of its
products, and these Agreements prohibit the transshipment, diversion or transfer of its products to
any other party. Dkt. 1 at 9. Yurman alleges that Sam’s Club knew about its established contractual
relationships and about the prohibitions the Agreements contain, in part because the Agreements are
well known in the industry. Further, Yurman claims that, notwithstanding its knowledge of the
Agreements, Sam’s Club obtained significant inventories of Yurman products to sell in Sam’s Club
stores throughout the United States, including the seven stores in this judicial district. Id. at 6, 10.
Yurman also claims that Sam’s Club could not have acquired such large inventories of its products
without having intentionally induced Yurman retailers to breach their Agreements. Id. at 10. Based
on this, Yurman claims that Sam’s Club knowingly, wrongfully, maliciously, intentionally, and
tortiously interfered with Yurman’s contractual relationships with authorized retailers by inducing
sales from the authorized retailers. Yurman claims these actions have caused it various harms.
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Sam’s Club asserts that Yurman has not sufficiently pled willful and intentional interference
of a contract, and that Yurman has not alleged a proper factual basis for concluding that Sam’s Club
had knowledge of a contractual obligation between Yurman and its dealers, or that any agreement
existed at all.
2.

Substantive Law

The elements of tortious interference with a contract claim are: 1) the existence of a contract
subject to interference; 2) a willful and intentional act of interference; 3) which is the proximate
cause of plaintiff’s damages; and 4) actual damages or loss. Farouk Sys., Inc. v. Costco Wholesale
Corp., 700 F. Supp. 2d 780, 784 (S.D. Tex. 2010). “Liability for intentional interference may not
be based on a simple allegation that the defendant performed certain acts; instead, there must be a
finding that the defendant performed certain acts with the knowledge or belief that interference with
a contract would result.” Id.
3.

Analysis

Yurman has pled each legal element of a tortious interference claim, and has included facts
to support its claim. First, Yurman expressly pleads that it holds specific agreements with its
authorized retailers, including the contents of the agreements. Yurman then pleads that Sam’s Club
had actual knowledge of these Agreements because the fact that its authorized dealers sign these
Agreements is well known among industry jewelry retailers, including Sam’s Club. Even if Sam’s
Club did not actually know about the agreements originally, Yurman asked Sam’s Club to stop its
allegedly wrongful conduct of inducing the Yurman retailers to breach their agreements, at which
point the Agreements would have been known. Dkt. 1 at 11. Sam’s Club refused Yurman’s request.
Id. As to the element of intentional action, Yurman pled that it would not have been possible to have
acquired such a large inventory of merchandise without inducing a breach of contract. While this
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is a circumstantial factual pleading, the court finds that before discovery, these pleadings are
sufficient. See Farouk Systems, Inc. v. Costco Wholesale Corp., 700 F. Supp. 2d 780, 784–85 (S.D.
Tex. 2010) (court denied motion to dismiss because the pleadings of the elements of the claims were
supported by circumstantial factual support and discovery had not yet occurred to allow Farouk to
collect more direct evidence). The court finds that the pleadings are sufficient to defeat a motion to
dismiss. Sam’s Club’s motion to dismiss for tortious interference is DENIED.
D.

Unfair Competition

The parties agree that the tort of unfair competition requires allegations of an independent
tort. Sam’s Club argues that because no other claims remain, a claim for unfair competition that is
based on the same allegations should be dismissed. Dkt. 10 at 11. The parties also agree that the
same facts that support an action for trademark infringement would also support an action for unfair
competition. Dkts. 10 at 11, 13 at 17; Marathon Mfg. Co. v. Enerlight Prods. Corp., 767 F.2d 214,
217 (5th Cir. 1985) (per curiam). Because Yurman has properly pled a trademark infringement
claim, and has incorporated all of the allegations from the trademark infringement claim into its
unfair competition claim, the court finds that the unfair competition claim should also survive the
motion to dismiss. Accordingly, Sam’s Club’s motion to dismiss Yurman’s unfair competition claim
is DENIED.

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IV. CONCLUSION
For the foregoing reasons, Sam’s Club’s motion to dismiss Yurman’s claims is DENIED.
It is so ORDERED.
Signed at Houston, Texas on April 9, 2015.

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Gray H. Miller
United States District Judge

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