Neutron Depot, LLC et al v. All Web Leads, Inc. et al

Filing 284

ORDER DENYING 273 Motion for Partial Summary Judgment. Signed by Judge Sam Sparks. (dl)

ft ft
L.4

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION

is
CLEF

v

.L.. Lj/t

WE5TEFN

NEUTRON DEPOT, LLC,
Plaintiff,

3

L'T

uJRT
TEXAS
V

CAUSE NO.:
AU-16-CA-00901-SS

-vs-

I

t

rs

ALL WEB LEADS, INC. AND VERDANT
INDUSTRIES,
Defendants.

rg'

Vi

j

i

J

Ill

BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause,

and specifically, Defendant All Web Leads (AWL)'s Motion for Partial Summary Judgment
[#273], Neutron Depot's Response [#279] in opposition, and AWL's Reply [#281] in support.

Having reviewed the documents, the relevant law, and the file as a whole, the Court now enters
the following opinion and order.

Background
This is a trademark infringement action. In 1993, CSi Agency Services, Inc. (CSi) began
using the phrase "Insurance Depot" (the Mark) to advertise its insurance services, and in 1994,
the U.S. Patent and Trademark Office (USTPO) issued CSi a certificate of registration for use of

the term "Insurance Depot" as a service mark in promoting insurance agency services.1 Resp.
Mot. Sanctions [#231-1] Ex. A (Maxwell Decl.) at 2-4.

1

In the interest of consistency, all docket citations refer to CM/ECF pagination.

1

/

The president and sole owner of CSi is Jim Maxwell. Id. Maxwell also happens to be

manager and part owner of another company, Neutron Depot. Id. In August 2013, in his capacity
as president

of CSi, Maxwell licensed the Mark to Neutron Depot.2 Id. at 5.

Defendant All Web Leads (AWL) is a company that bids on

keywords.3

Supp. Mot.

Summ. J. [#276-1] Ex. B (Leirer Deci.) at 2-3. When a consumer uses a search engine to search

for a particular term or phrase containing a keyword that AWL has successfully bid on, AWL's
web page appears as one of the results. Id. AWL's web page is a "dynamic landing page," which
means that if a customer searches for a particular keyword and then clicks on a search result

linked to AWL's website, the searched-for keyword then appears on the AWL landing page. Id.
Between 2010 and 2013, AWL successfully bid on thousands of keywords, including the Mark.
Id. And because AWL uses a dynamic landing page, this meant the Mark would sometimes

appear on AWL's website if a consumer searched for the Mark and then clicked AWL's link. Id.
In November 2013, Neutron Depot sent AWL a letter indicating Neutron Depot had

licensed the right to use the Mark from CSi. Id. After it received this letter, AWL ceased using
the Mark as a keyword and blocked the term from appearing on its landing pages. Jd.

Nevertheless, Neutron Depot filed this suit against AWL in May 2014. Compl. [#1].
In prior orders, this Court dismissed Neutron Depot's claims under

§

32(1) and 43(c) of

the Lanham Act as well as its counterfeiting and state dilution claims. Order of November 29,

2017 [#261]; Order of March 12, 2018 [#282]. As a result, Neutron Depot's only remaining
claims against AWL are an unfair competition claim brought under

§

43(a)(1)(A) of the Lanham

2

Subsequently, during the pendency of this litigation, Maxwell executed an assignment of the Mark to
Neutron Depot. Fifth Am. Compl. [#207-2] Ex. 2 (the Assignment Agreement).

Neither AWL nor Neutron Depot explains how AWL actually makes money. See Mot. Summ. J. [#273]
at 2 (stating AWL bids on keywords "[a]s part of its normal course of business" but failing to explain what that
business is).
2

Act and,

arguably,4

a claim for unjust enrichment under Texas common law. See Fifth Am.

Compi. [#2071 at 10, 15-16. AWL now files a motion for partial summary judgment which is

ripe for review. Mot. Summ. J. [# 273].

Analysis

Legal Standard

I.

Summary judgment shall be rendered when the pleadings, the discovery and disclosure

materials on file, and any affidavits show that there is no genuine dispute as to any material fact
and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a);
Celotex Corp.

v.

Catrett, 477 U.S. 317, 323-25 (1986); Washburn v. Harvey, 504 F.3d 505, 508

(5th Cir. 2007). A dispute regarding a material fact is "genuine" if the evidence is such that a

reasonable jury could return a verdict in favor of the nonmoving party. Anderson

v.

Liberty

Lobby, Inc., 477 U.S. 242, 248 (1986). When ruling on a motion for summary judgment, the

court is required to view all inferences drawn from the factual record in the light most favorable
to the nonmoving party. Matsushita Elec. Indus. Co.

v.

Zenith Radio, 475 U.S. 574, 587 (1986);

Washburn, 504 F.3d at 508. Further, a court "may not make credibility determinations or weigh

the evidence" in ruling on a motion for summary judgment. Reeves

v.

Sanderson Plumbing

Prods., Inc., 530 U.S. 133, 150 (2000); Anderson, 477 U.S. at 254-55.
Once the moving party has made an initial showing that there is no evidence to support

the nonmoving party's case, the party opposing the motion must come forward with competent
summary judgment evidence of the existence of a genuine fact issue. Matsushita, 475 U.S. at
586. Mere conclusory allegations are not competent summary judgment evidence, and thus are

insufficient to defeat a motion for summary judgment. Turner
476 F.3d 337, 343 (5th Cir. 2007).
'

v.

Baylor Richardson Med. Ctr.,

Unsubstantiated assertions, improbable inferences, and

The parties dispute whether unjust enrichment is an independent claim under Texas law.

unsupported speculation are not competent summary judgment evidence.

The party

Id.

opposing summary judgment is required to identify specific evidence in the record and to
articulate the precise manner in which that evidence supports his claim. Adams
Indem. Co.

v.

Travelers

of Conn., 465 F.3d 156, 164 (5th Cir. 2006). Rule 56 does not impose a duty on the

court to "sift through the record in search of evidence" to support the nonmovant's opposition to
the motion for summary judgment. Id.

"Only disputes over facts that might affect the outcome of the suit under the governing
laws will properly preclude the entry of summary judgment." Anderson, 477 U.s. at 248.

Disputed fact issues that are "irrelevant and unnecessary" will not be considered by a court in

ruling on a summary judgment motion. Id. If the nonmoving party fails to make a showing
sufficient to establish the existence of an element essential to its case and on which it will bear
the burden of proof at trial, summary judgment must be granted. Celotex, 477 U.S. at 322-23.

II.

Application
Neutron Depot does not seek to recover actual damages. Resp. Mot. Summ. J. [#279] at

7-8. It does, however, seek disgorgement of AWL's profits, punitive damages, and an injunction
prohibiting AWL from infringing on the Mark in the future. Id. at 7-9; Fifth Am. Compi. [#207]

at 17-20. Neutron Depot also argues it has brought an independent claim against AWL for unjust
enrichment. Id. at 15-16; Resp. Mot. Summ. J. [#279] at 12. Meanwhile, AWL contends the

unclean hands doctrine bars Neutron Depot from recovering an award of profits or an unjust
enrichment award. Mot. Summ. J. [#273] at 6-7. In the alternative, AWL asks this Court enter a

Rule 56(g) order establishing for trial that AWL's profits earned through the alleged

infringement are no more than $9,347. Id. at 7-8. AWL also asks the Court find Neutron Depot's
claim for unjust enrichment fails as a matter of law. Id. at 9-10.

4

The Court proceeds by first addressing whether the unclean hands doctrine bars Neutron

Depot's ability to seek equitable relief, including an award of profits or unjust enrichment. It
then considers whether there is any dispute regarding the amount of AWL's profits derived from
the alleged infringement, such that the amount of profits can be established for trial under Rule
56(g). The Court also considers whether there is a dispute of material fact precluding summary

judgment on Neutron Depot's unjust enrichment claim. Finally, the Court considers whether

Neutron Depot is conceivably entitled to punitive damages.
A.

Award of Profits

The defense of unclean hands applies "when a party seeking relief has committed an

unconscionable act immediately related to the equity the party seeks in respect to the litigation."

Petro Franchise Sys.

v.

All Am. Props., 607 F. Supp. 2d 781, 799 (W.D. Tex. 2009) (internal

quotation marks and citation omitted). The unclean hands defense is available only where the
alleged misconduct is directly related to the merits of the controversy between the parties. See

Mitchell Bros. Film Grp.

v.

Cinema Adult Theater, 604 F.2d 852, 863 (5th Cir. 1979).

AWL argues Neutron Depot has unclean hands, because, during the course of this
litigation, Neutron Depot (1) executed a mid-litigation assignment in an attempt to bolster its
standing to sue; (2) provided false testimony about documentation of the Mark; and (3) forged,
withheld, and attemped to destroy relevant documents. Mot. Summ. J. [#273] at 6-7. In turn,

Neutron Depot argues AWL is "willfully misleading" the Court and "fabricating supposed

findings." Resp. Mot. Dismiss at 9-10.
Though both parties have launched serious accusations, neither has addressed the
allegations in sufficient depth to allow the Court to rule on AWL's unclean hands defense at this
point in time. See Mot. Summ. J. [#273] at 6 (re-urging allegations of false testimony and forged

documents but failing to further

elaborate);5

Resp. Mot. Summ. J. [#279] at 9-10 (posing many

rhetorical questions but neglecting to address allegations of false testimony and forgery). The
Court therefore denies AWL's motion for summary judgment on its unclean hands defense
without prejudice to re-urging at a future date. The Court also reserves the right to issue

sanctions as appropriate.

Amount of Profits

B.

Under Rule 56(g), if a Court does not grant all relief requested by a motion for summary

judgment, it "may enter an order stating any material factincluding an item of damages or
other reliefthat is not genuinely in dispute and treating the fact as established in the case." FED.
R. Civ. P. 56(g). "Rule 5 6(g) allows the court to weigh the cost

as established against the cost

United States

v.

of treating potential fact disputes

of resolving those disputes by other means, including trial."

Kellogg Brown & Root, Inc., No. 1:04-CV-42, 2015 WL 10937548, at

Tex. June 10, 2015) (internal citation omitted). "Even

*1 (E.D.

if the court believes that a fact is not

genuinely in dispute it may refrain from ordering that the fact be treated as established" if the
Court "conclude[s] that it is better to leave open for trial facts and issues that may be better

illuminated by the trial of related facts that must be tried in any event."

FED.

R.

Civ. P.

56(g)

Advisory Committee Notes.
AWL argues the Court should establish for trial that AWL's profits resulting from the
alleged infringement amount to "no more than" $9,347. Mot. Summ. J. [#273] at 8-9; id. [#27311] Ex. 7 at

7-8; Seatrax, Inc.

v.

Sonbeck Int'l, 200 F.3d 358, 369 (5th Cir. 2000) (observing a

AWL also observes the Court previously dismissed several of Neutron Depot's claims with prejudice on
the ground Neutron Depot engaged in "manipulative tactics" and acted litigiously by executing a mid-litigation
assignment of the Mark in a last-ditch attempt to shore up Neutron Depot's standing. See Order of November 30,
2017 [#2611 at 6-7 & n.4 (noting Neutron Depot had previously requested and received an extension of time to add
CSi as a party but instead executed a futile mid-litigation assignment in an attempt to cure its standing deficiencies
without adding CSi). However, on the evidence before the Court at this time, Neutron Depot's ill-advised midlitigation assignment does not rise to the level of an "unconscionable act" sufficient to sustain a defense of unclean
hands.

plaintiff who seeks an award of profits under

§

1117 is entitled only to those profits attributable

to the defendant's anticompetitive or infringing acts).

The Court declines to enter an order establishing the amount of AWL' s profits because

such an order would not substantially reduce the cost of resolving the matter at trial. AWL does
not seek a conclusive determination of the amount of its profits. Rather, it seeks to limit its
liability. Mot. Summ. J. [#273] at 7-9. Thus, even

if the Court were to grant AWL's Rule 56(g)

request, the parties would still have to present evidence at trial regarding the actual amount of

AWL's profits, whether they be $9,347 or some other, lesser amount. Given the meager benefits

of a Rule 56(g) determination in this context, the Court leaves open for trial the amount of profits
earned by AWL through its alleged infringement.
C.

Unjust Enrichment

Under Texas common law, an award for unjust enrichment is based upon the equitable

principle that a person has "wrongfully secured a benefit or has passively received one which it
would be unconscionable to retain." Eun Bok Lee

v.

Ho Chang Lee, 411 S.W.3d 95, 111 (Tex.

App.Houston [1st Dist.] 2013, no pet.). A party may recover under a theory of unjust
enrichment when one person has obtained a benefit from another by fraud, duress, or the taking

of undue advantage. Streamline, 851 F.3d at 462 (citing Heldenfels Bros., inc.

v.

City of Corpus

Christi, 832 S.W.2d 39, 41 (Tex. 1992)).
In a single sentence in its motion for summary judgment, AWL argues Neutron Depot is

not entitled to an unjust enrichment award because it has not alleged AWL took undue
advantage. Mot. Summ. J. [#273] at 9-10. To the contrary, however, Neutron Depot's complaint

alleges AWL took undue advantage by profiting off of Neutron Depot's registered mark without
authorization. Fifth Am. Compi. [#207] at 15-16. Moreover, Neutron Depot's claim for unjust

7

enrichment largely overlaps with its claim for unfair competition under
AWL has not sought summary judgment.6 Texas Pig Stands, Inc.

v.

§

1125, upon which

Hard Rock Café Int'l, 951

F.2d 684, 694-97 (5th Cir. 1992) (characterizing plaintiff's request for an award of profits under
§

1117 as a claim for unjust enrichment). In this context, the Court finds AWL has not met its

burden of showing it is entitled to judgment as a matter of law on Neutron Depot's unjust

enrichment claim and denies AWL's motion for summary judgment as to this claim.
D.

Punitive Damages

Finally, AWL contends Neutron Depot cannot recover punitive damages as a matter of

law because Neutron Depot seeks only an award of profits, as opposed to actual damages.
However, Texas courts "will not deny exemplary damages simply because an action is equitable,
rather than legal," Nabours

v.

Longview Sm's. & Loan Ass 'n, 700 S.W.2d 901, 904-08 (Tex.

1985), and AWL has presented no authority suggesting an unjust enrichment award may not

serve as the basis for an award of punitive

damages.7

Therefore, although the Court believes the

facts in this case are unlikely to support an award of punitive damages at trial, the Court denies

AWL's motion for summary judgment on the issue of punitive damages.
Conclusion
The Court denies AWL's motion for partial summary judgment and therefore, Neutron

Depot's unfair competition claim under § 1125 remains set for trial.
Accordingly,

6

Though AWL contends this overlap should preclude Neutron Depot's ability to seek unjust enrichment in
addition to an award of profits under § 1117, courts have historically allowed parties to bring both claims. See, e.g.,
Streamline Prod. Sys. v. Streamline Mfg., 851 F.3d 440,459,461(5th Cir. 2017).
AWL does argue an award of profits under § 1117 cannot serve as the basis for an award of punitive
damages. This argument misses the mark. To the extent Neutron Depot can recover punitive damages, it must do so
under Texas law, because § 1117 does not authorize punitive damages. See Taco Cabana Int'l v. Two Pesos, Inc.,
932 F.2d 1113, 1127 (5th Cir. 1991) (noting damages awarded under § 1117 "cannot be punitive").
[I]

[J

IT IS ORDERED that AWL's Motion for Partial Summary Judgment [#273] is

DENIED.
SIGNED this the 1stO day of May 2018.

SAM SPARKS
SENIOR UNITED STATES DISTRICT JUDGE