Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_14-cv-02955/USCOURTS-casd-3_14-cv-02955-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Contract Dispute

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

GRENDENE USA, INC., a Delaware

corporation; GRENDENE S.A., a

Brazil corporation,

Plaintiffs,

CASE NO. 3:14-cv-2955-GPC-KSC

ORDER:

(1) DENYING GRENDENE’S

MOTION TO CONSOLIDATE;

[ECF No. 8]

(2) DENYING THE BRADYS’

MOTION TO DISMISS;

[ECF No. 9]

(3) VACATING HEARING DATE

v.

JAMES W. BRADY; PATRICIA M.

BRADY,

Defendants.

I. INTRODUCTION

Before the Court are Plaintiff Grendene USA, Inc. and Grendene S.A.’s

(collectively, “Grendene”) Motion to Consolidate, (ECF No. 8), and Defendant James

W. Brady and Patricia M. Brady’s (collectively, the “Bradys”) Motion to Dismiss,

(ECF No. 9). The parties have fully briefed the motions. (ECF Nos. 8, 9, 14, 17, 18,

20.) The Court finds the motions suitable for disposition without oral argument

pursuant to Civil Local Rule 7.1(d)(1). Upon review of the moving papers, admissible

evidence, and applicable law, the Court DENIES Grendene’s Motion to Consolidate

and DENIES the Bradys’ Motion to Dismiss.

/ /

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II. BACKGROUND

On March 9, 2012, the Bradys filed a complaint against Grendene alleging

trademark infringement (the “Trademark Action”).Complaint, Brady v. Grendene USA,

Inc., No. 3:12-cv-0604-GPC-KSC (S.D. Cal. Mar. 9, 2012), ECF No. 1. On September

27, 2013, Grendene filed an answer in the Trademark Action. Answer, Brady v.

Grendene USA, Inc., No. 3:12-cv-0604-GPC-KSC (S.D. Cal. Sept. 3, 2013), ECF No.

56. On May 30, 2014, Grendene filed a motion for summary judgment in the

Trademark Action arguing that a February 16, 1995, settlement agreement between

Made inBrazil, Inc., the Bradys’ company, and the Ipanema Show Corporation (“ISC”)

(the “Settlement Agreement”) barstheBradys’trademark infringement causes of action

because Grendene has succeeded to ISC’s rights in the Settlement Agreement. Motion

for Summary Judgment, Brady v. Grendene USA, Inc., No. 3:12-cv-0604-GPC-KSC

(S.D. Cal. May 30, 2014), ECF No. 72.

On December 15, 2014, Grendene filed a complaint against the Bradys alleging

a breach of the Settlement Agreement. (ECF No. 1.) On January 6, 2015, Grendene

filed a motion to consolidate this action with the Trademark Action. (ECF No. 8.) On

February 27, 2015, the Bradys filed an opposition to Grendene’s motion to consolidate.

(ECF No. 14.) On March 13, 2015, Grendene replied to the Bradys’ opposition. (ECF

No. 20.)

On February 2, 2015, the Bradys filed a motion to dismiss this action. (ECF No.

9.) On February 27, 2015, Grendene filed an opposition to the Bradys’ motion to

dismiss. (ECF No. 17.) On March 13, 2015, the Bradys replied to Grendene’s

opposition. (ECF No. 18.)

In its complaint in this action, Grendene alleges that: (1) it is a successor to the

Settlement Agreement, and (2) the Bradys have breached that agreement’s covenant not

to sue by filing the Trademark Action. (ECF No. 1 ¶¶ 16, 21, 28.) Based on that breach,

Grendene seeks damages for “attorneys’ fees, costs and expenses.” (Id. ¶ 35.)

/ /

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III. LEGAL STANDARD

A. Motion to Dismiss

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the

sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001).

Dismissal is warranted under Rule12(b)(6) where the complaint lacks a cognizable

legal theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir.

1984); see Neitzke v. Williams, 490 U.S. 319, 326 (1989) (“Rule12(b)(6) authorizes a

court to dismiss a claim on the basis of a dispositive issue of law.”). Alternatively, a

complaint may be dismissed where it presents a cognizable legal theory yet fails to

plead essential facts under that theory. Robertson, 749 F.2d at 534. 

While a plaintiff need not give “detailed factual allegations,” a plaintiff must

plead sufficient facts that, if true, “raise a right to relief above the speculative level.”

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 545 (2007). “To survive a motion to dismiss,

a complaint must contain sufficient factual matter, accepted astrue, to ‘state a claim to

relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

(quoting Twombly, 550 U.S. at 547). A claim is facially plausible when the factual

allegations permit “the court to draw the reasonable inference that the defendant is

liable for the misconduct alleged.” Id. In other words, “the non-conclusory ‘factual

content,’ and reasonable inferences from that content, must be plausibly suggestive of

a claim entitling the plaintiff to relief.” Moss v. U.S. Secret Service, 572 F.3d 962, 969

(9th Cir. 2009). “Determining whether a complaint states a plausible claim for relief

will . . . be a context-specific task that requires the reviewing court to draw on its

judicial experience and common sense.” Iqbal, 556 U.S. at 679.

In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the

truth of all factual allegations and must construe all inferences from them in the light

most favorable to the nonmoving party. Thompson v. Davis, 295 F.3d 890, 895 (9th

Cir. 2002); Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337–38 (9th Cir. 1996). Legal

conclusions, however, need not be taken as true merely because they are cast in the

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form of factual allegations. Ileto v. Glock, Inc., 349 F.3d 1191, 1200 (9th Cir. 2003);

W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981).

B. Motion to Consolidate

Federal Rule of Civil Procedure 42(a) grants the Court broad discretion to

consolidate separate actions. Investors Research Co. v. U.S. Dist. Court for Cent. Dist.

of Cal., 877 F.2d 777, 777 (9th Cir. 1989). Under Rule 42(a), the Court may

consolidate actionsthat involve common questions of law or fact. FED.R.CIV.P.42(a).

The Court should also consider weigh any time and effort saved by consolidation

against any “inconvenience, delay, or expense that it would cause.” Huene v. United

States, 743 F.2d 703, 704 (9th Cir.1984) (citations omitted).

IV. DISCUSSION

A. Compulsory Counterclaim

First, the Bradys argue that Grendene’s breach of contract cause of action is a

compulsory counterclaim that should have been raised in the Trademark Action. (ECF

No. 9-1, at 3–5.) Federal Rule of Civil Procedure 13(a) defines a compulsory

counterclaim as one that “arises out of the transaction or occurrence that is the subject

matter of the opposing party’s claim.” FED. R. CIV. P. 13(a) (emphasis added). The

Bradys cite Competitive Techs. v. Fujitus Ltd., 286 F. Supp. 2d 1118, 1139 (N.D. Cal.

2003), for the proposition that compulsory counterclaims can arise out of affirmative

defenses. (ECF No. 9-1, at 4.) But Competitive Techs. cites no Ninth Circuit precedent

and appears at odds with the text of Rule 13(a) which considers only the “opposing

party’s claim,” not any affirmative defenses thereto. See Sparrow v. Mazda Am. Credit,

385 F.Supp.2d 1063, 1069 n.3 (E.D. Cal. 2005) (discussing the weaknesses in

Competitive Techs.). Accordingly, the Court does not find it appropriate to consider

affirmative defenses when analyzing whether a counterclaimis compulsory under Rule

13(a).

In determining whether a counterclaim is compulsory, the Ninth Circuit applies

the “logical relationship test” which “analyze[s] whether the essential facts of the

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various claims are so logically connected that considerations of judicial economy and

fairness dictate that all the issues be resolved in one lawsuit.” Pochiro v. Prudential

Ins. Co. of Am., 827 F.2d 1246, 1249 (9th Cir. 1987) (quoting Harris v. Steinem, 571

F.2d 119, 123 (2d Cir. 1978)). Applying the logical relationship test, the “essential

facts” of the Bradys’ causes of action in the Trademark Action differ from those of

Grendene’s breach of contract cause of action. The Trademark Action involves facts

dealing with alleged infringement. Amended Complaint, Brady v. Grendene USA, Inc.,

No. 3:12-cv-0604-GPC-KSC(S.D. Cal. Mar. 6, 2012), ECF No. 4. This action involves

facts dealing with the Bradys decision to file a lawsuit based on that alleged

infringement. (ECF No. 1.) These are separate facts as the decision to bring a legal

cause of action is separate from the elements of that cause of action. Accordingly, the

Court finds that Grendene’s breach of contract cause of action was not a compulsory

counterclaim.

B. Attorney Fees

Second, the Bradys argue that Grendene has failed to state a claim for two

reasons: (1) Grendene has failed to allege bad faith under the standard articulated by

Artvale, Inc. v. Rugby Fabrics Corp., 363 F.2d 1002, 1007–08 (2d Cir. 1966); and (2) 

the Settlement Agreement does not provide for attorney fees in the absence of bad

faith. (ECF No. 9-1, at ; ECF No..) The Settlement Agreement statesthat it is governed

by New York law. (ECF No.7, Ex. A ¶ 8.) Under New York law, the general rule isthat

attorney fees are not awarded unless “authorized by agreement between the parties,

statute or court rule.” Hooper Assocs. v. AGS Computers, Inc., 74 N.Y.2d 487, 491

(N.Y. 1989) (citations omitted). 

The Second Circuit in Artvale, arguably interpreting New York law, held that 1

attorney fees may be recovered as damages for a lawsuit “brought in obvious breach

See Kamfar v. New World Rest. Group, Inc., 347 F. Supp. 2d 38, 51 n.64

1

(S.D.N.Y. 2004) (“Judge Friendly’s opinion in Artvale did not state explicitly whether

its holding was based on New York or federal common law, but subsequent cases

implicitly or explicitly have treated Artvale as expressing the Second Circuit’s view of

New York law on this issue.”) (citations omitted).

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or otherwise in bad faith.” 363 F.2d 1002, 1008. As an initial matter, “Artvale appears

never to have been endorsed by the New York state courts” and cites no New York

state authority to justify its interpretation.Versatile Housewares &Gardening Systems,

Inc. v. Thrill Logistics, Inc., 819 F. Supp. 2d 230, 245 (S.D.N.Y. 2011). However, the

Court need not decide whether bad faith can justify attorney fees because, as discussed

below, Grendene has carried its burden under Rule 12(b)(6).

At least one New York appellate court has indicated that an agreement to pay

attorney fees is implicit in a covenant not to sue. See McMahan & Co. v. Bass, 673

N.Y.S.2d 19, 21 (N.Y. App. Div. 1998) (“Absent a covenant not to sue, there exists no

implicit agreement by defendants to pay the attorneys’ fees, as would result from

breach of a covenant not to sue.”). Indeed the court in McMahan made no reference to

bad faith as a requirement for obtaining attorney fees pursuant to a covenant not to sue.

See id. As Grendene’s complaint alleges that the Settlement Agreement contained a

covenant not to sue, that Grendene is a successor to that agreement, and that the Bradys

are in breach ofthat covenant, the Court findsthat Grendene has offered sufficient facts

to “state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 547. 2

Accordingly, the Court DENIES the Bradys’ motion to dismiss.

C. Consolidation

Third, Grendene moves to consolidate this action with the Trademark Action.

(ECF No. 8.) Grendene argues that both “actionsinvolve common questions of law and

fact.” (ECF No. 8, at 2.) The Bradys opposition to consolidation mainly restates the

same arguments made in their motion to dismiss, (see ECF No. 14, at 3–5), which the

Court has already rejected.

Grendene filed its motion to consolidate on January 6, 2015, a mere three weeks

after it filed its complaint in this action. (See ECF Nos. 1, 8.) Thus it appears that

Grendene filed this motion to consolidate as an end run around Grendene’s obligation

TheCourt is not deciding whether attorney fees are definitively available under

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New York law, but merely that, based on McMahan, such a claim is plausible.

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to satisfy both Federal Rule of Civil Procedure 16’s good cause requirement and the

Foman factors under Federal Rule of Civil Procedure 15 if it wished to amend its

answer in the Trademark Action to add a breach of contract counterclaim. See Foman

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v. Davis, 371 U.S. 178, 182 (1962) (discussing the factors that apply to a motion to

amend under Rule 15); Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 608–09

(9th Cir. 1992) (noting that a party must first meet Rule 16’s good cause requirement

if a scheduling order deadline has passed, and then show that amendment is proper

under Rule 15); FED. R. CIV. P. 15(a)(2) (“The court should freely give leave [to

amend] when justice so requires.”); FED. R. CIV. P. 16(b)(4) (“A schedule may be

modified only for good cause and with the judge’s consent.”). If Grendene wanted its

breach of contract counterclaim heard in the Trademark Action, it should have filed a

motion to amend its answer, yet it did not. In light ofsuch a bald-faced attempt to avoid

Rules 15 and 16, the Court declinesto exercise its discretion to consolidate the actions

and thus DENIES Grendene’s motion to consolidate.

V. CONCLUSION AND ORDER

Based on the foregoing, IT IS HEREBY ORDERED that:

1. Grendene’s Motion to Consolidate, (ECF No. 8), is DENIED;

2. The Bradys’ Motion to Dismiss, (ECF No. 9), is DENIED; and

3. The hearing set for April 3, 2015, is VACATED.

DATED: April 1, 2015

HON. GONZALO P. CURIEL

United States District Judge

The deadline to amend pleadingsin the Trademark Action was March 14, 2014.

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Scheduling Order, Brady v. Grendene USA, Inc., No. 3:12-cv-0604-GPC-KSC (S.D.

Cal. Feb. 11, 2014), ECF No. 62.

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