Canales v. ALM Media, LLC et al

Filing 85

REPORT AND RECOMMENDATIONS re 60 Motion to Dismiss filed by Ramiro Canales, 55 Motion to Dismiss filed by Ramiro Canales. The Court RECOMMENDS that the District Judge DENY Plaintiff/Counter-Defendant Ramiro Canaless Second Motion to Dismiss Counterclaims and Affirmative Defenses (Dkt. No. 55) and his Third Motion to Dismiss Counterclaims and Affirmative Defenses (Dkt. No. 60) in their entirety.. Signed by Judge Andrew W. Austin. (dm)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
RAMIRO CANALES
V.
ALM MEDIA, LLC, et al.

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A-12-CV-1036-LY

REPORT AND RECOMMENDATION
OF THE UNITED STATES MAGISTRATE JUDGE
TO:

THE HONORABLE JUDGE LEE YEAKEL
UNITED STATES DISTRICT JUDGE
Before the Court are the following motions and their associated responses and replies:
(1)

Plaintiff/Counter-Defendant’s Second Motion to Dismiss Counterclaims and
Affirmative Defenses (Dkt. No. 55);1

(2)

Plaintiff/Counter-Defendant’s Third Motion to Dismiss Counterclaims and
Affirmative Defenses (Dkt. No. 60).

The District Court referred the motions to the undersigned Magistrate Judge for report and
recommendation pursuant to 28 U.S.C. §636(b)(1)(A), FED. R. CIV. P. 72, and Rule 1(c) of Appendix
C of the Local Rules. The Court held a hearing on the motions on June 10, 2014.
I. ANALYSIS2
A.

Ramiro Canales’s Second Motion to Dismiss Defendants’ Counterclaims and
Affirmative Defenses (Dkt. No. 55)
In this motion, Plaintiff/Counter-Defendant Ramiro Canales (“Canales”) argues that the

submission of his Third Amended Complaint (Dkt. No. 53) before Defendant/Counter-Plaintiffs
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Canales filed his first Motion to Dismiss Counterclaims and Affirmative Defenses in
March, 2013. See Dkt. No. 27. The undersigned has already submitted a recommendation, adopted
by Judge Yeakel, on Canales’s first motion. Dkt. Nos. 38, 48.
2

Because the general and relevant background in this case has already been set forth in a
previous filing, the Court will not restate it here. See Dkt. No. 38 at 1–3.

ALM Media, LLC, and ALM Media Properties, LLC (collectively “ALM”), submitted their First
Amended Answer and Counterclaims to Canales’s Second Amended Complaint (Dkt. No. 54)
requires the Court to dismiss ALM’s filing. Canales accuses ALM of attempting to “resurrect” the
Second Amended Complaint by filing its First Amended Answer approximately thirty minutes after
Canales had filed his Third Amended Complaint. Dkt. No. 55 at 4. Canales also charges ALM with
“amateurish conduct” and failing to “stop and think” before filing its First Amended Answer. Id.
at 4–5. In response, ALM contends that Canales’s arguments are meritless as ALM was permitted
to file supplemental pleadings by the Scheduling Order in this case. Dkt. No. 58 at 2. Additionally,
ALM notes that Canales makes no discernible arguments under either Rules 12(b)(1) or 12(b)(6) for
why ALM’s First Amended Answer should be dismissed. Id. at 2–3.
After reviewing the parties’ filings, the Court will recommend that the District Judge DENY
Canales’s motion. The record clearly demonstrates that the parties were permitted to submit
amended pleadings by January 31, 2014. Dkt. No. 36. Canales’s assumption that ALM’s First
Amended Answer was exclusively a response to his Second Amended Complaint is misplaced.
Additionally, although Canales purports to move for dismissal of ALM’s First Amended Answer
pursuant to Rules 12(b)(1) and 12(b)(6), he has not articulated any reasoning for dismissal based on
these rules. There is no argument that ALM has failed to state a claim or that the Court does not
have subject matter jurisdiction over ALM’s counterclaims. Instead, Canales’s sole contention—one
that the Court finds to be without merit—appears to be that because ALM’s First Amended Answer
was filed approximately thirty minutes after Canales filed his Third Amended Complaint, ALM’s

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First Amended Answer should be dismissed.3 Moreover, ALM has timely filed an Original Answer
and Counterclaims to Canales’s Third Amended Complaint (Dkt. No. 56). Thus, any possible
complaint Canales has with regard to ALM’s Original Answer (Dkt. No. 52) or First Amended
Answer (Dkt. No. 54) is moot. Accordingly, the Court recommends the Canales’ Second Motion
to Dismiss ALM’s Counterclaims and Affirmative Defenses (Dkt. No. 55) be DENIED.
B.

Ramiro Canales’s Third Motion to Dismiss Defendants’ Counterclaims and Affirmative
Defenses (Dkt. No. 60)
Canales’s Third Motion to Dismiss asserts many of the same contentions that were raised in

his initial motion to dismiss in March, 2013. In the instant motion, Canales argues that (1) there is
no case or controversy in this suit that would sustain ALM’s counterclaim under the Federal
Declaratory Judgment Act based on ALM’s Answer to Canales’s Third Amended Complaint and
ALM’s responses to discovery requests; (2) ALM’s counterclaims two through six should similarly
be dismissed because there was no case or controversy at the time ALM filed its counterclaims;
(3) ALM’s counterclaim involving fraud on the United States Patent and Trademark Office
(“USPTO”) fails to meet the pleading standard set forth in Rule 9(b); and (4) all counterclaims
asserted by ALM Media Properties, LLC, should be dismissed because it lacks capacity to bring the
counterclaims. Dkt. No. 60.
The Court asked Canales at the hearing what new arguments were being made in his Third
Motion to Dismiss that had not already been addressed by the Court in ruling on his first such

3

Although the Court has attempted to construe Canales’s pleadings broadly, Canales’s
argument still remains somewhat ambiguous. For example, the Court notes that Canales also
appears to seek dismissal of ALM’s Original Answer to Canales’s Second Amended Complaint
(Dkt. No. 52) despite the fact that ALM’s Original Answer was filed prior to Canales’s Third
Amended Complaint. Dkt. No. 55 at 5.
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motion. In response, Canales narrowed his contentions to the following three points: (1) ALM’s
Answer to Canales’s Third Amended Complaint and responses to discovery demonstrate that there
is no case or controversy; (2) ALM has failed to plead its counterclaim involving fraud on the
USPTO with particularity; and (3) ALM Media Properties, LLC, does not have capacity to bring
counterclaims in this case. In response, ALM contends that (1) Canales’s arguments regarding the
lack of a case or controversy in this dispute and the failure to plead fraud with particularity have
already been addressed by this Court and (2) ALM Media Properties, LLC, has capacity to assert
counterclaims against Canales because the counterclaims arise out of interstate business, are
compulsory in nature, and ALM Media, LLC, is registered in Texas. Dkt. No. 62. After reviewing
the parties arguments, both in writing and at the hearing, the Court will recommend that Canales’s
Third Motion to Dismiss (Dkt. No. 60) be DENIED in its entirety.
1.

Standing

Canales re-asserts his argument that there is no controversy in the instant case. More
specifically, Canales contends that the Fifth Circuit’s decision in Vantage Trailers, Inc. v. Beall
Corp., 567 F.3d 745 (5th Cir. 2009), should control the Court’s analysis of ALM’s counterclaim
under the Federal Declaratory Judgment Act. Although the Court has already considered Canales’s
challenge to this particular counterclaim, see Dkt. Nos. 38, 48, he argues that ALM’s counterclaims
must be dismissed when ALM’s Original Answer (Dkt. No. 56) and its responses to discovery
requests are considered under the legal framework set forth in Vantage Trailers. However, the
Court’s review of the documents mentioned by Canales and the Vantage Trailers decision does not
alter its opinion that Canales’s motion to dismiss ALM’s counterclaim under the Federal Declaratory
Judgment Act should be denied.
4

Pursuant to Rule 12(b)(1), courts may dismiss a claim for lack of subject matter jurisdiction.
The party asserting jurisdiction must demonstrate subject matter jurisdiction by a preponderance of
the evidence. Young v. United States, 727 F.3d 444, 446 (5th Cir. 2013). For declaratory judgment
actions, the plaintiff must establish that an actual controversy existed at the time the complaint was
filed. Vantage Trailers, 567 F.3d at 748 (citing Sierra Applied Sciences, Inc. v. Advanced Energy
Indus., Inc., 363 F.3d 1361, 1373 (Fed. Cir. 2004)). In Vantage Trailers, the Fifth Circuit applied
the Supreme Court’s decision in MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007), which
directed that “the dispute must be definite and concrete, real and substantial” and could not “be used
to seek an opinion advising what the law would be on a hypothetical set of facts.” Vantage Trailers,
567 F.3d at 748. Following MedImmune, the issue to be decided regarding standing in a federal
declaratory judgment suit is “whether the facts alleged, under all the circumstances, show that there
is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy
and reality to warrant the issuance of a declaratory judgment.” MedImmune, 549 U.S. at 127.
Even considering the standards set forth in Vantage Trailers, it is difficult for the Court to
understand Canales’s contention that there is no actual controversy in the instant case. Reduced to
its most basic recitation, the parties are disputing who acquired rights to the
“SUPREMECOURTINSIDER” mark first. As noted by the Court in its previous report and
recommendation, ALM’s contention is that it acquired superior common law rights in the mark
“SUPREMECOURTINSIDER” prior to any use in commerce by Canales. See, e.g., Dkt. No. 38 at
9–10; see also Dkt. No. 56, ¶¶ 84, 162, 224. Therefore, when Canales continued to use the mark on
his sites and when he submitted a Texas trademark application, he infringed upon ALM’s rights in
the mark. Again, Canales does not deny that he is continuing to use the mark on his websites nor
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does he dispute that he filed trademark applications in June and September of 2012. Thus, the
controversy between ALM and Canales is sufficiently immediate, real, and definite to satisfy ALM’s
standing requirements under Article III.
Rather, what Canales appears to be arguing (again) is that ALM’s Original Answer, Dkt. No.
56, and its discovery responses demonstrate that it abandoned the “SUPREMECOURTINSIDER”
mark when ALM changed the name of its newsletter to “Supreme Court Brief” in January, 2013.
As the Court stated at the hearing, the evidence suggests that ALM made the decision to rename the
newsletter as a result of the filing of suit, with the intention to use the mark if it prevails in the suit.
Further, whether ALM abandoned any claims it had to the “SUPREMECOURTINSIDER” mark is
not an issue that should be resolved when discovery is still ongoing. More importantly, this
contention misses the underlying theory of ALM’s counterclaim—that it is Canales who is
committing the infringing activity and continues to do so. The fact that ALM is not currently using
the mark does not somehow invalidate its assertion that it has superior common law rights in the
“SUPREMECOURTINSIDER” mark. Moreover, ALM clearly contends that it reserves the right
to return to the use of the mark under its common law rights and explicitly denies that it has
abandoned the mark. Dkt. No. 56, ¶ 84. Because Canales does not deny that he was using the mark
at the time ALM filed its counterclaims, ALM has standing to assert its declaratory judgment
counterclaim.

Accordingly, the Court again overrules Canales’s challenge that there is no

controversy that would sustain ALM’s counterclaims in this case.4

4

As for Canales’s assertion that ALM’s counterclaims two through six should also be
dismissed because there was no controversy at the time ALM filed its counterclaims, the Court
similarly rejects Canales’s contention for the reasons stated herein and in the Court’s previous report
and recommendation (Dkt. No. 38).
6

Additionally, the Court finds the facts in Vantage Trailers distinguishable from the instant
case. In Vantage Trailers, the Fifth Circuit held that there was no actual controversy between the
parties because the design of the allegedly infringing product was not “substantially fixed and
definite” when the plaintiff filed its declaratory judgment action. 567 F.3d at 749. The product in
question had not yet been produced. Under ALM’s contentions in this case, the infringing
activity—use of the “SUPREMECOURTINSIDER” mark—has and continues to occur as Canales
still uses the mark on his website. Thus, this is not a case where it is unclear whether the allegedly
infringing activity would occur in the future. It has occurred, and continues to occur. Consequently,
the Court’s recommendation here does not conflict with the Fifth Circuit’s determination in Vantage
Trailers.
2.

ALM’s Counterclaim Alleging Fraud upon the USPTO

To the extent Canales argues that ALM has failed to plead with requisite particularity its
counterclaim that Canales committed fraud upon the USPTO, the Court disagrees. A motion to
dismiss pursuant to Rule 9(b) tests the factual sufficiency of the plaintiffs’ allegations. See
Tel–Phonic Services, Inc. v. TBS International, Inc., 975 F.2d 1134, 1138 (5th Cir.1992). The rule
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). Pleading fraud with particularity requires “[a]t
a minimum. . .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.” Tel–Phonic
Services, Inc., 975 F.2d at 1139; see also Benchmark Elec., Inc. v. J.M. Huber Corp., 343 F.3d 719,
724 (5th Cir. 2003); Williams v. WMX Technologies, Inc., 112 F.3d 175, 177 (5th Cir. 1997).

7

Canales contends that the Court should adopt the approach taken in Global Healing Center,
LP v. Powell, No. 4:10-CV-4790, 2012 WL 1709144 at *4–6 (S.D. Tex. May 15, 2012), which found
that the defendants had failed to sufficiently plead the elements of a claim of fraud in the
procurement of a trademark registration. In Global Healing Center, the court stated that “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.” Id. at 4 (internal quotations and citations omitted).
Even if the Court were to evaluate ALM’s counterclaim under the rubric in Global Healing
Center, it would still find that Canales’s challenge fails.5 First, ALM has identified precisely when
Canales filed an application to register the “SUPREMECOURTINSIDER” mark with the
USPTO—September 25, 2012. See Dkt. No. 56, ¶ 215. ALM further alleges that Canales “falsely
and fraudulently claimed that he was the ‘owner of the trademark/service mark to be registered’ and
that ‘no other person, firm, corporation, or association has the right to use the mark in commerce’”
in a manner that would cause confusion, mistake, or deception. Id. ¶ 216. According to ALM, these
statements were made by Canales over two years after he became “fully aware” of ALM’s use of the
mark. Id. Moreover, ALM states that it has and will continue to incur fees to defend the claims
alleged by Canales in this suit even though ALM has already withdrawn its trademark application
as a result of Canales’s actions before the Trademark Trial and Appeal Board. Id. ¶¶ 217–219.

5

The Court notes that, while helpful, Global Healing Center is not controlling precedent in
this case.
8

These allegations sufficiently plead fraud with particularity under Rule 9(b) by identifying, “the
particulars of time, place and contents of the false representations,” Tel–Phonic Services, Inc., 975
F.2d at 1139, as well as the elements set forth in Global Healing Center. ALM’s allegation that
Canales submitted the purported false statements to the USPTO despite actual knowledge of ALM’s
usage of the mark implicitly alleges that Canales did so intending for the USPTO to rely on the
misrepresentation. The mere fact that ALM may not have explicitly stated as such does not convince
this Court that ALM’s counterclaim alleging fraud upon the USPTO should be dismissed at this
time, particularly given the specific facts that have been explicitly pleaded. Accordingly, the Court
rejects Canales’s contentions on this issue.
3.

Capacity

Canales’s final new point of contention is that ALM has admitted for the first time that ALM
Media Properties, LLC (“ALMMP”), is not registered in the state of Texas pursuant to the Texas
Business Organizations Code and consequently, lacks capacity to assert counterclaims in this case.
Dkt. No. 60 at 14–16; see also TEX. BUS. ORGS. CODE § 9.051(b). Canales argues that both ALM’s
admission and a Certificate of Fact issued by the Texas Secretary of State show that ALMMP is not
registered in Texas. Dkt. No. 60 at 15. In response, ALM submits that ALMMP is permitted to
maintain counterclaims in this case because (1) it conducts business in interstate commerce, and
(2) it has asserted compulsory counterclaims which are not precluded by TEX. BUS. ORGS. CODE
§ 9.051(b). Dkt. No. 62 at 9–13.
After reviewing the parties’ arguments, the Court declines to adopt Canales’s position and
will recommend that the District Judge deny his Third Motion to Dismiss on this point. TEX. BUS.
ORGS. CODE § 9.051(b) provides that:
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A foreign filing entity or the entity’s legal representative may not maintain an action,
suit, or proceeding in a court of this state, brought either directly by the entity or in
the form of a derivative action in the entity’s name, on a cause of action that arises
out of the transaction of business in this state unless the foreign filing entity is
registered in accordance with this chapter.
(emphasis added). Although Section 9.051(b) does not explicitly define the parameters of what
constitutes a “transaction of business in [Texas],” TEX. BUS. ORGS. CODE § 9.251 defines “activities
that do not constitute transaction of business in [Texas]” and includes in its non-exhaustive list the
activity of “transacting business in interstate commerce.” TEX. BUS. ORGS. CODE § 9.251(9). In this
case, ALMMP does not transact business in Texas; instead, it is an intellectual property holding
company that registers federal marks for ALM Media, LLC. Based on its business activities, it does
not appear that the limitations set forth by TEX. BUS. ORGS. CODE § 9.051(b) prohibit ALMMP from
maintaining its counterclaims. Moreover, ALMMP’s counterclaims clearly arise out of activities
conducted

in

interstate

commerce.

Both

parties

contend

that

they

used

the

“SUPREMECOURTINSIDER” mark in commerce prior to any use by the other party, thereby
obtaining superior rights in the mark. See, e.g., Dkt. No. 53, ¶ 35; Dkt. No. 56, ¶¶ 148, 162, 178.
ALM’s use of the “SUPREMECOURTINSIDER” mark in promoting and distributing its newsletter
and Canales’s subsequent attempt to register the mark with the USPTO demonstrate both parties’
use or intent to use the mark in interstate commerce. Accordingly, the Court finds that ALMMP is
not prohibited from maintaining its counterclaims by the Texas statute.
Additionally, the Court also concludes that ALMMP’s counterclaims are compulsory and
thus, not precluded by TEX. BUS. ORGS. CODE § 9.051(b) even if the statute were applicable in this
case. While neither Texas courts nor the Fifth Circuit have addressed the implication of TEX. BUS.
ORGS. CODE § 9.051(b) upon compulsory counterclaims, the Fifth Circuit has considered this issue
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in the context of a nearly-identical Mississippi statute. See Envtl. Coatings, Inc. v. Baltimore Paint
& Chem. Co., 617 F.2d 110 (5th Cir. 1980); see also Atrium Companies, Inc. v. ESR Assoc., Inc.,
No. 11-CV-1288, 2012 WL 4215103 at *8–9 (S.D. Tex. Sept. 18, 2012) (discussing the
Environmental Coatings decision and finding it persuasive in construing TEX. BUS. ORGS. CODE
§ 9.051(b)). In Environmental Coatings, the Fifth Circuit determined that a Mississippi statute
which barred suits by a foreign corporation that had not obtained a certificate of authority to do
business in Mississippi, did not preclude it from presenting compulsory counterclaims and thirdparty complaints. Envtl. Coatings, Inc., 617 F.2d at 111. The court specifically noted that the statute
permitted foreign corporations to “defend against suits, actions or proceedings brought in courts in
Mississippi” and reasoned that the legislature “would not have expressly permitted defense by
nonqualifying corporate defendants but impliedly circumscribed the scope of that defense by denying
the right to bring compulsory counterclaims or third-party complaints.” Id. at 112. Finding this
reasoning persuasive with regard to the Texas statute, the Court concludes that TEX. BUS. ORGS.
CODE § 9.051(b) does not bar ALMMP from maintaining its counterclaims.
As such, the remaining issue is whether ALMMP brings compulsory counterclaims. In
evaluating whether a counterclaim is compulsory, the Fifth Circuit has counseled that courts should
consider the following four questions:
(1) whether the issues of fact and law raised by the claim and counterclaim largely
are the same; (2) whether res judicata would bar a subsequent suit on defendant's
claim absent the compulsory counterclaim rule; (3) whether substantially the same
evidence will support or refute plaintiff’s claim as well as defendant's counterclaim;
and (4) whether there is any logical relationship between the claim and the
counterclaim.

11

Songcharoen v. Plastic & Hand Surgery Assoc., PLLC, No. 13–60315, 2014 WL 1304636 at *11
(5th Cir. Apr. 2, 2014) (citing Tank Insulation Int’l, Inc. v. Insultherm, Inc., 104 F.3d 83, 85–86 (5th
Cir. 1997)). “If any of the four questions results in an affirmative answer, the counterclaim is
compulsory.” The counterclaims brought by ALMMP are plainly compulsory. At the very least,
there is a logical connection between the claims and counterclaims in this case, which arise out of
the parties’ dispute over the use of the “SUPREMECOURTINSIDER” mark. An ultimate
determination on the merits would necessarily involve similar issues of fact and law and be based
upon substantially similar evidence.

Consequently, the Court concludes that ALMMP’s

counterclaims are compulsory and not barred by TEX. BUS. ORGS. CODE § 9.051(b).
II. RECOMMENDATION
In accordance with the preceding discussion, the Court RECOMMENDS that the District
Judge DENY Plaintiff/Counter-Defendant Ramiro Canales’s Second Motion to Dismiss
Counterclaims and Affirmative Defenses (Dkt. No. 55) and his Third Motion to Dismiss
Counterclaims and Affirmative Defenses (Dkt. No. 60) in their entirety.
III. WARNINGS
The parties may file objections to this Report and Recommendation. A party filing
objections must specifically identify those findings or recommendations to which objections are
being made. The District Court need not consider frivolous, conclusive, or general objections. See
Battle v. United States Parole Comm'n, 834 F.2d 419, 421 (5th Cir. 1987).
A party's failure to file written objections to the proposed findings and recommendations
contained in this Report within fourteen (14) days after the party is served with a copy of the Report
shall bar that party from de novo review by the District Court of the proposed findings and
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recommendations in the Report and, except upon grounds of plain error, shall bar the party from
appellate review of unobjected-to proposed factual findings and legal conclusions accepted by the
District Court. See 28 U.S.C. § 636(b)(1)(C); Thomas v. Arn, 474 U.S. 140, 150-53, 106 S. Ct. 466,
472-74 (1985); Douglass v. United Servs. Auto. Ass’n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en
banc).
To the extent that a party has not been served by the Clerk with this Report &
Recommendation electronically pursuant to the CM/ECF procedures of this District, the Clerk is
directed to mail such party a copy of this Report and Recommendation by certified mail, return
receipt requested.
SIGNED this 20th day of June, 2014.

_____________________________________
ANDREW W. AUSTIN
UNITED STATES MAGISTRATE JUDGE

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