Whitaker v. Western Essentials et al
Filing
49
ORDER AND MEMORANDUM DECISION denying 38 Motion to Dismiss for Failure to State a Claim; granting 41 Motion for Leave to File Amended Complaint, except it strikes paragraphs 19 and 26 for failing to allege with particularity. Signed by Judge Tena Campbell on 6/17/16 (alt)
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
UTAH
NORTHERN DIVISION
KOREY WHITAKER,
Plaintiff,
ORDER AND
MEMORANDUM DECISION
vs.
WESTERN ESSENTIALS, LLC, and
MATT PERKINS,
Case No. 1:15-cv-00048-TC
Defendants.
Plaintiff Korey Whitaker filed this action claiming that Defendants
Western Essentials, LLC, and Matt Perkins (collectively, Mr. Perkins) infringed
Mr. Whitaker’s patent and in the process unfairly competed with Mr. Whitaker
and tortiuously interfered with Mr. Whitaker’s business relations. Mr. Perkins
has filed a motion to dismiss the claims that do not involve infringement (ECF
No. 38). In response, Mr. Whitaker moves for leave to amend the complaint
(ECF No. 41). For the reasons discussed below, the court denies the motion to
dismiss and grants Mr. Whitaker leave to file his proposed amended complaint.
(Mot. Leave Am. Compl. Ex. A, ECF No. 41-1 [hereinafter Proposed 1st Am.
Compl.].)
BACKGROUND
The following facts are derived from Mr. Whitaker’s Proposed First
Amended Complaint. 1
Mr. Whitaker has invented a roping dummy that grooms the ground as it is
pulled around a rodeo arena. This device allows users to practice roping a fake
calf as the mechanism is pulled behind an ATV or tractor.
Mr. Whitaker received a patent for his invention. Sometime later,
Mr. Perkins received a patent for a device that does some of the same things as
Mr. Whitaker’s invention and falls “within the scope of one or more claims of”
Mr. Whitaker’s patent. (Proposed 1st Am. Compl., para. 14)
1
Along with the Proposed First Amended Complaint, Mr. Whitaker submits the
declaration of Chip Bruegman as factual support for his motion for leave, (Mot.
Leave Am. Compl. Ex. B, ECF No. 41-2 (Bruegman Decl.)), but the court does
not consider, at this time, any statements that are outside of the allegations of the
complaint when considering the sufficiency of the pleading.
2
Mr. Whitaker alleges that Mr. Perkins infringed his patent (claims 1 and
2). 2 He also alleges that Mr. Perkins unfairly competed against him (claims 3 and
4) and interfered with his business relations (claim 5) by making false and
misleading statements about who invented Mr. Whitaker’s device.
According to the allegations of the Proposed First Amended Complaint,
Mr. Whitaker met a man named Chip Bruegman, who was the general manager of
Heel-O-Matic, Inc., a company that produces and sells training products for
roping athletes. Mr. Whitaker and Mr. Bruegman “tentatively reached an
agreement to purchase or license” Mr. Whitaker’s patent rights. (Id. para. 20.)
As part of the agreement, Heel-O-Matic requested that Mr. Whitaker delay the
public release of his product until they could launch it together at the National
Finals Rodeo in Las Vegas, Nevada, in December 2013.
In early May 2013, Mr. Perkins met with Kyle Stricklin, a member of
Heel-O-Matic’s sales team, at the Northern States Team Roping Championship in
Billings, Montana. Later that May, Mr. Perkins “spoke by telephone with
2
At the June 7, 2016 hearing, Mr. Perkins’s counsel told the court that
Mr. Perkins admitted infringement “for purposes of this case.”
3
Mr. Bruegman” (id. para. 21) about the sale of a roping ground-grooming device.
Mr. Perkins “falsely stated to Mr. Bruegman, by telephone in May of 2013, that
. . . [Mr.] Perkins, not Plaintiff Whitaker[,] had the rights to patent a ground
grooming device . . . .” (Id. para. 22.) Mr. Perkins made this statement despite
knowing that Mr. Whitaker invented his device before Mr. Perkins had designed
and produced his own device. Mr. Perkins had even “witnessed a demonstration
of” Mr. Whitaker’s invention before designing his own. (Id.)
In the Proposed First Amended Complaint, Mr. Whitaker concludes, “[o]n
information and belief” and “based on the statements of the parties involved” that
Mr. Perkins falsely told Mr. Stricklin—during the Billings, Montana, meeting—
that the roping and ground-grooming device was Mr. Perkins’s idea, that
he retained a patent on it, and Mr. Whitaker did not have a patent for the device.
(Id. para. 23.)
After Mr. Bruegman spoke with Mr. Perkins, Mr. Bruegman told
Mr. Whitaker that Heel-O-Matic would not move forward with their “tentative
agreement to purchase or license” Mr. Whitaker’s patented invention and future
intellectual-property rights “because of” Mr. Perkins’s statements. (Id. para. 24.)
Mr. Perkins then called Mr. Whitaker to ask if he would join with Mr. Perkins
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and together sell their products to Heel-O-Matic because “Heel-O-Matic would
not work with either of them individually.” (Id. para. 25.)
At the December 2013 National Finals Rodeo, Mr. Whitaker alleges that
Mr. Perkins told “potential customers and licensees, who were awaiting the
launch of” Mr. Whitaker’s device that Mr. Perkins “was the inventor” of the
ground-grooming devices. (Id. para. 26.) Mr. Whitaker alleges this based “[o]n
information and belief.” (Id.; see also id. para. 19 (“On information and belief,
[Mr.] Perkins has made statements to potential customers and licensees interested
in [Mr. Whitaker’s invention] that [Mr.] Perkins was the inventor . . . .”).)
DISCUSSION
Mr. Perkins asks for dismissal of the third, fourth, and fifth claims, while
Mr. Whitaker asks for leave to amend his complaint. Normally, the court would
grant leave to amend “when justice so requires.” Fed. R. Civ. P. 15(a). But
Mr. Perkins objects arguing that the amendment would be futile because the
Proposed First Amended Complaint still fails to satisfy the pleading standards.
The court may properly “deny a motion for leave to amend as futile when the
proposed amended complaint would be subject to dismissal for any reason.”
Bauchman for Bauchman v. W. High Sch., 132 F.3d 542, 562 (10th Cir. 1997).
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Accordingly, the court will base its decision on whether the factual
allegations within the Proposed First Amended Complaint meet the pleading
standards. When doing so, the court “must accept all the well-pleaded allegations
of the complaint as true and must construe them in the light most favorable” to
the claimant. Thomas v. Kaven, 765 F.3d 1183, 1190 (10th Cir. 2014). But the
court is not required to accept legal conclusions as true; a pleading “must offer
specific factual allegations to support each claim.” Kan. Penn Gaming, LLC v.
Collins, 656 F.3d 1210, 1214 (10th Cir. 2011) (citing Bell Atl. Corp. v. Twombly,
550 U.S. 544, 555 (2007)). For a claim to survive dismissal, the pleading “must
have enough allegations of fact, taken as true, ‘to state a claim to relief that is
plausible on its face.’” Id. (quoting Twombly, 550 U.S. at 570).
Mr. Perkins argues that the claims for unfair competition and tortious
interference must meet the standards imposed by Federal Rules of Civil
Procedure 8 and 9. Hoverman v. Citimortgage, Inc., No. 2:11-cv-118-DAK,
20122 WL 3421406, at *5 (D. Utah Aug. 4, 2011) (unpublished) (recognizing
intentional misrepresentation as a fraud claim requires particularized pleading).
At the June 7, 2016 hearing, Mr. Whitaker conceded that Rule 9(b) applied to the
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claims, so the court will apply that standard. 3 To comply with Rule 9(b), the
claimant must state with particularity the circumstances constituting fraud,
including the “who, what, when, where, and how” of the misconduct charged.
3
It is unclear if a claim under the Lanham Act, 15 U.S.C. § 1125(a) (2012)—
which is the basis for one of Mr. Whitaker’s two unfair competition claims—must
meet the Rule 9(b) heightened pleading standard. Compare Greenway Nutrients,
Inc. v. Blackburn, 33 F. Supp. 3d 1224, 1239 (D. Colo. 2014) (“[T]he Court finds
that the claims for trademark infringement and false designation of origin are
sufficient to satisfy the pleading requirements set forth in Rules 8 and 10.”), and
Tempur-Pedic Int’l Inc. v. Angel Beds, LLC, 902 F. Supp. 2d 958, 966 (S.D. Tex.
2012) (“Given that section [1125(a)] does not contain a scienter element, the
Court finds that section [1125(a)] is not concerned with fraud and therefore
claims brought pursuant to this provision do not fall within the ambit of Rule 9 . .
. . The lower district courts in this circuit . . . have also concluded that the
sufficiency of these claims should be determined under Rule 8 rather than Rule
9.”) (citing Leatherman v. Tarrant Cnty. Narcotics Intelligence & Coordination
Unit, 507 U.S. 163, 168 (1993)), with Conditioned Ocular Enhancement, Inc. v.
Bonaventura, 458 F. Supp. 2d 704, 709 (N.D. Ill. 2006) (“Claims that allege false
representation or false advertising under the Lanham Act are subject to the
heightened pleading requirements of Fed.R.Civ.P. 9(b).”) (citing
MPC Containment Sys., Ltd. v. Moreland, No. 05–C–6973, 2006 WL 2331148,
at *2 (N.D.Ill. Aug. 10, 2006) (unpublished); Merix Pharm. Corp. v.
GlaxoSmithKline Consumer Healthcare, L.P., No. 05–C–1403, 2006 WL
1843370, at *2 (N.D.Ill. June 28, 2006) (unpublished)).
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U.S. ex rel. Sikkenga v. Regence Bluecross Blueshield, 472 F.3d 702, 726–27
(10th Cir. 2006). The court will address the allegations of each claim in order.
I.
Unfair competition in violation of the Lanham Act (Claim 3)
The third claim for relief alleges unfair competition under the Lanham Act,
15 U.S.C. § 1125(a). Subsection 1125(a) of Title 15 reads:
Any person who, on or in connection with any
goods or services, . . . uses in commerce any word,
term, name, symbol, or device, or any combination
thereof, or any false designation of origin, false or
misleading description of fact, or false or misleading
representation of fact, which—
(A) is likely to cause confusion, or to cause
mistake, or to deceive as to the affiliation,
connection, or association of such person with
another person, or as to the origin,
sponsorship, or approval of his or her goods,
services, or commercial activities by another
person, or
(B) in commercial advertising or promotion,
misrepresents the nature, characteristics,
qualities, or geographic origin of his or her or
another person’s goods, services, or
commercial activities,
shall be liable in a civil action . . . .
Mr. Whitaker’s allegations in the Proposed First Amended Complaint
furnish sufficient information to satisfy the heightened Rule 9(b) pleading
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standard for this claim based on the statements Mr. Perkins made to
Heel-O-Matic’s general manager and sales person. Mr. Perkins spoke with
Mr. Strickland in May 2013 at the Northern States Team Roping Championship
in Billings Montana. Later that month, he spoke to Mr. Bruegman by telephone.
In those conversations, Mr. Perkins told them that the ground-grooming roping
device was his idea, he had a patent to it, and Mr. Whitaker did not. These
allegations satisfy the “who, what, when, where, and how” requirements of Rule
9(b).
Paragraphs 19 and 26 of the Proposed First Amended Complaint give only
general allegations about Mr. Perkins making statements to “potential customers
and licensees.” These allegations fail to give the information about who, what,
where, and how the statements were made. That is what Rule 9(b) requires.
Sikkenga, 472 F.3d at 726–27.
The Tenth Circuit has made it clear that Rule 9 cannot be circumvented
with the “on information and belief” phrase without giving at least the factual
basis for the belief. “Allegations of fraud may be based on information and belief
when the facts in question are peculiarly within the opposing party’s knowledge
and the complaint sets forth the factual basis for the plaintiff’s belief.” Scheidt v.
9
Klein, 956 F.2d 963, 967 (10th Cir. 1992); see also Sikkenga, 472 F.3d at 728;
Koch v. Koch Indus., Inc., 203 F.3d 1202, 1237 (10th Cir.2000); U.S. v. StevensHenager Coll., ___ F. Supp. 3d. ___, No. 2:15-cv-119-JNP-EJF, 2016 WL
1261063, at *19 (D. Utah Mar. 30, 2016). Basing allegations on information and
belief does not give a plaintiff “license to base claims of fraud on speculation and
conclusory allegations.” Sikkenga, 472 F.3d at 728 (quoting U.S. ex rel.
Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th
Cir.1997)). Plaintiffs still need to give a sufficient “factual basis” for their
allegations. Id. (quoting Koch, 203 F.3d at 1237).
Mr. Whitaker cannot rely on the phrase “on information and belief” to
exempt himself from the particularity requirement. He has failed to allege the
information showing the who, what, where, and how of the statements made to
“potential customers and licensees.” (Proposed 1st Am. Compl., paras. 19, 26.)
His allegations do not lay any factual foundation for a conclusion that Mr. Perkins
told anything to potential customers other than Heel-O-Matic. So, while
Mr. Whitaker pleads enough about the statements made to Heel-O-Matic, he fails
to do the same statements made to other potential customers and licensees.
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II.
Violation of Utah’s Unfair Competition Act (Claim 4)
The fourth claim alleges that Mr. Perkins violated Utah’s Unfair
Competition Act, Utah Code Ann. §§ 13-5a-102 to -103 (LexisNexis 2013).
Under the Act, “a person injured by unfair competition may bring a private cause
of action against a person who engages in unfair competition.” Id. § 13-5a-103.
The statute further reads,
“unfair competition” means an intentional business act
or practice that:
(i) (A) is unlawful, unfair, or fraudulent; and
(B) leads to a material diminution in value
of intellectual property; and
(ii) is . . . infringement of a patent . . . .
Id. § 13-5a-102.
Again, Mr. Whitaker pleads enough to establish this claim in the First
Amended Complaint. Mr. Perkins allegedly made false and unfair statements that
convinced Heel-O-Matic to reverse its decision and to stop moving forward on
their tentative agreement, which so firm that Heel-O-Matic asked Mr. Whitaker to
delay his public release until the December rodeo. And whatever happened with
Heel-O-Matic, Mr. Whitaker lost the opportunity to launch his product at the
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rodeo in December, which likely reduced the worth of his patent. Moreover,
Mr. Perkins admits to having infringed Mr. Whitaker’s patent.
III.
Tortious interference with business relations (Claim 5)
To plead a tortious-interference claim, a plaintiff must allege: “(1) that the
defendant intentionally interfered with the plaintiff’s existing or potential
economic relations, (2) by improper means, (3) causing injury to the plaintiff.”
Eldridge v. Johndrow, 345 P.3d 553, 565 (Utah 2015). The economic
relationship must
be proved with some degree of specificity, at least to the
point that future profit be a realistic expectation and not
merely wishful thinking. It is true that where a
prospective advantage is alleged, the plaintiff need not
demonstrate a guaranteed relationship because
“anything that is prospective in nature is necessarily
uncertain. We are not here dealing with certainties, but
with reasonable likelihood or probability. This must be
something more than a mere hope or the innate
optimism of the salesman.”
Behrend v. Bell Tel. Co., 363 A.2d 1152, 1160 (Pa. Super. Ct. 1976) (quoting
Glenn v. Point Park College, 272 A.2d 895, 898–99 (Pa. 1971)), vacated on other
grounds, 374 A.2d 536 (Pa. 1977). To “establish . . . improper means, a plaintiff
must show ‘that the defendant’s means of interference were contrary to statutory,
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regulatory, or common law or violated an established standard of a trade or
profession.’” Anderson Dev. Co. v. Tobias, 116 P.3d 323, 331 (Utah 2005)
(quoting Pratt v. Prodata, Inc., 885 P.2d 786, 787 (Utah 1994)).
Mr. Perkins argues that the allegation about Mr. Bruegman’s notification
that Heel-O-Matic would no longer purchase or license Mr. Whitaker’s invention
shows that their relationship was too tenuous to qualify as an economic
relationship. The fact that Heel-O-Matic had not yet determined whether to
purchase the patent outright or whether to lease Mr. Whitaker’s rights does not,
by itself, expose a weak business relationship. Indeed, either a purchase or a
license would result in Heel-O-Matic paying Mr. Whitaker. Moreover, additional
allegations present a fairly matured business relationship: Mr. Bruegman was
contemplating a marketing plan and asked that Mr. Whitaker delay his public
release for over half a year until the December rodeo; Heel-O-Matic considered
purchasing or licensing Mr. Whitman’s future intellectual-property rights; and
when Heel-O-Matic’s commitment slackened, Mr. Bruegman contacted Mr.
Whitaker to inform him that it “would not be moving forward with its tentative
agreement.” (Proposed 1st Am. Compl., para. 24.) Informing someone that their
relationship has ended demonstrates its prior existence and its seriousness.
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The Proposed First Amended Complaint also establishes the impropermeans element by alleging the acts of either unfair competition or infringement.
Once again, Mr. Whitaker pleads enough facts to support a claim for tortious
interference with his relationship with Heel-O-Matic, but not with any other
potential customers and licensees. Paragraphs 19 and 26 do not sufficiently
provide a factual foundation to satisfy the particularized pleading standard.
ORDER
For these reasons, the court GRANTS the motion for leave to amend
(ECF No. 41) except it strikes paragraphs 19 and 26 for failing to allege with
particularity. The court also DENIES the motion to dismiss (ECF No. 38).
Dated this 17th day of June, 2016.
BY THE COURT:
TENA CAMPBELL
U.S. District Court Judge
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