Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_06-cv-00493/USCOURTS-azd-2_06-cv-00493-0/pdf.json

Nature of Suit Code: 840
Nature of Suit: Trademark
Cause of Action: 15:1125 Trademark Infringement (Lanham Act)

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

QUICKIE TIE-DOWN ENTERPRISES,

INC., 

Plaintiff, 

vs.

CAROLINA NORTH 

MANUFACTURING, INC., et al., 

Defendants. 

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No. CIV 06-0493-PHX-SMM

MEMORANDUM OF DECISION AND

ORDER

Pending before the Court is Defendants' Motion to Strike and to Dismiss for Lack of

Jurisdiction and Failure to State a Cause of Action, filed March 28, 2006. [Doc. No. 16]

Plaintiff responded on April 7, 2006 [Doc. No. 18], and Defendants filed a Reply on April

21, 2006. [Doc. No. 24] After considering the parties' briefs, the Court now issues the

following Memorandum of Decision and Order. Because the Court finds oral argument

would not be helpful, oral argument will not be conducted in this matter.

BACKGROUND

Plaintiff Quickie Tie-Down Enterprises ("QTD") and Defendant Carolina North

Manufacturing ("CNM") are competing businesses that develop and sell tie-down devices

to secure items during transport, such as on flatbed or pickup trucks. Defendant Kent

Southard is President of CNM. 

The parties have previously been involved in litigation. In 1999, CNM brought suit

against QTD for patent infringement in the United States District Court for the Middle

Case 2:06-cv-00493-SMM Document 27 Filed 05/24/06 Page 1 of 9
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District of North Carolina. In May 2000, District Judge Beaty entered a Preliminary

Injunction that enjoined QTD from selling any Quickie Tie-Down products. QTD then filed

a Motion for Clarification, which was granted, and the preliminary injunction was narrowed

to a specific type of tie-down product in July 2000. In the interim, CNM notified QTD's

vendors by letter of the injunction and expressed interest in doing business with them.

Following the clarified preliminary injunction, QTD wrote those vendors to inform them of

the narrow scope of the injunction and to assure them that those products were no longer

being produced. The patent litigation ultimately settled in 2001.

In August 2005, QTD entered into a licensing agreement with USA Products Group,

Inc. ("USA Products"), under which USA Products will sell QTD's products in exchange for

royalties. In November 2005, USA Products purchased booth space at an automotive

specialty products trade show in Las Vegas, Nevada, where it planned to exhibit QTD's

products. Defendant Southard and other CNM representatives were also at the show, and

they allegedly confronted trade show officials with the original, unaltered preliminary

injunction from the previous litigation. Southard and the CNM representatives allegedly

demanded that QTD's products be pulled from the trade show floor, and the officials

complied. These events apparently took place on the trade show floor in front of attendees

who included potential and current QTD customers.

After the trade show, CNM sent a letter to USA Products informing them of their

patents and the consequences of engaging in patent infringement. QTD believes that CNM

has continued to contact prospective and current QTD customers and falsely accuse QTD of

failing to comply with court orders and infringing on CNM's patents. As a result of

Defendants' conduct, QTD purportedly has suffered a significant drop in its business,

customers, sales representatives, and a loss of goodwill and damage to its reputation.

QTD filed a Complaint in this Court on February 15, 2006 alleging eight counts: (1)

unfair competition in violation of the Lanham Act, 15 U.S.C. § 1125(a); (2) false advertising

in violation of the Lanham Act, 15 U.S.C. § 1125(a)(1); (3) trade libel; (4) defamation; (5)

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1

The Court could consider the exhibit in the Rule 12(b)(6) Motion if it converted the

Motion to a Motion for Summary Judgment. However, the Court will not do so at this stage

in the litigation.

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intentional interference with prospective economic advantage; (6) inducing breach of

contract; (7) common law unfair competition; and (8) abuse of process.

Defendants filed the instant Motion to Strike and to Dismiss for Lack of Jurisdiction

and Failure to State a Cause of Action on March 28, 2006. [Doc. No. 16] Plaintiff responded

on April 7, 2006 and objects to Defendants' Exhibit to their Motion [Doc. Nos. 17, 18], and

Defendants replied on April 21, 2006. [Doc. No. 24]

The Court's exercise of jurisdiction over Counts I and II is proper under 28 U.S.C. §

1331, because the matter in controversy arises under the laws of the United States. The

Court has supplemental jurisdiction under 28 U.S.C. § 1367(a) over Counts III through VIII,

which are state law claims, because they share a "common nucleus of operative fact" with

the federal claims. United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 725 (1966). Venue

is proper under 28 U.S.C. § 1391(b).

DISCUSSION

With their Motion to Strike and Dismiss, Defendants attached one exhibit, a Mutual

Release and Covenant not to Sue between the parties dated January 2001. Plaintiff objects

to and moves to strike that exhibit. The Court will first address this objection, and will then

consider Defendants' Motion.

A. Plaintiff's Objection/Motion to Strike

Plaintiff objects to and moves to strike Defendants' exhibit on evidentiary grounds and

on the basis that courts may not consider material outside the pleadings in a Rule 12(b)(6)

or Rule 12(f) motion. Defendants have not responded to Plaintiff's objection.

The Court agrees with Plaintiff that when ruling on a Rule 12(b)(6) or Rule 12(f)

motion, the Court must not consider extrinsic materials.1

 Hal Roach Studios, Inc. v. Richard

Feiner & Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990) (12(b)(6) motion); see Fantasy, Inc.

v. Fogerty, 984 F.2d 1524, 1528 (9th Cir. 1993), rev'd on other grounds, in 510 U.S. 517

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The Court notes that Defendants' lack of subject matter jurisdiction arguments are

somewhat inconsistent. In their Motion, Defendants argue that the Lanham Act claims

should be dismissed for failure to state a claim and that the state law claims should be

dismissed for lack of subject matter jurisdiction. (Mot. at 6-7.) However, in their Reply,

Defendants argue that all of Plaintiffs claims should be dismissed for failure to state a claim.

(Reply at 6.)

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(1994) (12(f) motion). Rather, the grounds for granting those motions must be apparent from

the face of the pleadings themselves. Therefore, the Court will not consider the exhibit in

its analysis of Defendants' Motion, but declines to strike the exhibit. Moreover, for reasons

set forth below, the Court need not reach the subject matter of the proffered exhibit to make

its ruling.

B. Defendants' Motion to Strike and Dismiss

Defendants assert numerous grounds for their Motion. First, Defendants argue that

Plaintiff's claims should be held to the heightened pleading standard of Rule 9(b) and that,

because Plaintiff has failed to meet that standard, the offending portions of the Complaint

(including all of Plaintiff's factual allegations) should be stricken under Rule 9(b).

Defendants also argue that other allegations by Plaintiff should be stricken for various

reasons; they argue that some of Plaintiff's allegations are time-barred, some are covered by

the Covenant Not to Sue entered into by the parties in 2001, some do not comply with Rule

12(f), and some do not allege bad faith as required. Defendants then contend that after the

offending portions of the Complaint are removed, the Complaint fails to state a cause of

action and Plaintiff's claims should thus be dismissed under Rule 12(b)(6). Defendants also

argue that after the Lanham Act claims are dismissed pursuant to Rule 12(b)(6), the

remaining state law claims should be dismissed for lack of jurisdiction.2

 The Court now

addresses each of those arguments in turn.

Rule 9(b)

The first, and primary, grounds for Defendants' Motion is the particularity requirement

of Rule 9(b). Defendants move to strike paragraphs 28, 34-38, 42-43, 45-46, 52, and 54-55

of the Complaint under Rule 9(b).

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For example, compare Collegenet, Inc. v. Xap Corp., No. CV 03-1229(HU), 2004

WL 2303506 at *5-6 (D. Or. Oct. 12, 2004), with John P. Villano Inc. v. CBS, Inc., 176

F.R.D. 130, 131 (S.D.N.Y. 1997).

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a. Whether Plaintiff has averred fraud

Rule 9(b) of the Federal Rules of Civil Procedure provides, "[i]n all averments of

fraud or mistake, the circumstances constituting fraud or mistake shall be stated with

particularity." FED. R. CIV. P. 9(b). In Vess v. Ciba-Geigy Corp., the Ninth Circuit

examined Rule 9(b) and held:

In cases where fraud is not a necessary element of a claim, a plaintiff may

choose nonetheless to allege in the complaint that the defendant has engaged

in fraudulent conduct. In some cases, the plaintiff may allege a unified course

of fraudulent conduct and rely entirely on that course of conduct as the basis

of a claim. In that event, the claim is said to be "grounded in fraud" or to

"sound in fraud," and the pleading of that claim as a whole must satisfy the

particularity requirement of Rule 9(b).

In other cases, however, a plaintiff may choose not to allege a unified course

of fraudulent conduct in support of a claim, but rather to allege some

fraudulent and non-fraudulent conduct. In such cases, only the allegations of

fraud are subject to Rule 9(b)'s heightened pleading requirements.

317 F.3d 1097, 1103-04 (9th Cir. 2003). In addition, "[f]raud can be averred by specifically

alleging fraud." Id. at 1105.

To establish a claim for fraud in Arizona, "a plaintiff must show that the defendant

made a false, material representation that he knew was false or was ignorant of its truth, with

the intention that the hearer of the representation act on it in a manner reasonably

contemplated, that the hearer was ignorant of the representation's falsity, rightfully relied on

the truth of the representation, and sustained consequent and proximate damage." Haisch v.

Allstate Ins. Co., 5 P.3d 940, 944 (Ariz. Ct. App. 2000) (citing Echols v. Beauty Built

Homes, Inc., 647 P.2d 629, 631 (Ariz. 1982)). 

Although the law is unsettled as to whether the Lanham Act claims alleged by

Plaintiff are grounded in fraud,3

 the Complaint alleges in the Lanham Act claims that

Defendants' conduct is "fraudulent." (Compl. ¶¶ 48, 57) The Complaint also alleges in the

state law claims that "Defendants have engaged in conduct . . . such as to constitute

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The Court recognizes that Plaintiff alleged that Defendants' conduct as to the state

law claims constituted fraud or oppression or malice. However, by employing the word

"fraud" in those allegations, Plaintiff avers fraud as to those claims. Vess, 317 F.3d at 1105.

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oppression, fraud, or malice" (Id. at ¶¶ 66, 74, 80, 86, 91, 98) (emphasis added). Thus,

Plaintiff specifically alleges fraud as to each of its claims.4

In addition, although Plaintiff has pled no claims titled "fraud," Plaintiff's claims

encompass the elements of fraud under Arizona law. The claims center on Plaintiff's

allegations that Defendants deceived trade show participants and officials about the validity

of the preliminary injunction entered by Judge Beaty in the previous patent litigation (the

"preliminary injunction") and consequently misrepresented the preliminary injunction though

oral and written communications to Plaintiff's licensee and potential and existing customers.

Furthermore, Plaintiff characterizes Defendants' actions as "a crusade to destroy [Plaintiff's]

business" and a "campaign of misinformation." (Compl. ¶ 29, 36.) (emphasis added) Thus,

Plaintiff's claims allege a unified course of fraudulent conduct, rather than alleging some

fraudulent conduct and some non-fraudulent conduct. See Vess, 317 F.3d at 1103-04.

Plaintiff relies on that course of conduct as the basis for all of its claims. Also, Plaintiff avers

fraud by specifically alleging in each count of its Complaint that Defendants' conduct either

was "fraudulent" (Counts I and II) or constituted "fraud" (Counts III-VIII). See id. at 1105.

The Court therefore concludes that, despite Plaintiff's contention to the contrary in its

Opposition to the Motion to Dismiss, Plaintiff clearly averred fraud in each and every count

of the Complaint. 

Because Plaintiff relies on a unified course of conduct for the entirety of its claims,

the Complaint is considered "grounded in fraud" and Rule 9(b)'s particularity requirement

applies to the entire Complaint. Id. at 1103-04. The Court will therefore apply Rule 9(b)'s

heightened standard and consider whether the particularity requirement is met. 

b. Whether Plaintiff has met Rule 9(b)'s heightened pleading standard

"Averments of fraud must be accompanied by the who, what, when, where, and how

of the misconduct charged." Id. at 1106 (citation and internal quotation marks omitted). To

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comport with Rule 9(b), Plaintiff "must set forth what is false or misleading about a

statement, and why it is false." Id. (citation omitted). The mere incantation or conclusory

allegation of "fraud" does not satisfy Rule 9(b)'s particularity requirement. Moore v. Kayport

Package Exp., Inc., 885 F.2d 531, 540 (9th Cir. 1989).

The Court notes that there is an exception to the heightened pleading requirement of

Rule 9(b) in instances where a plaintiff is without sufficient knowledge to plead with

specificity. Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993). However, because

Plaintiff has not invoked this exception in its Complaint or in its Response to the instant

Motion, the Court declines to apply the exception to this case. Thus, the Court will apply the

heightened standard to Plaintiff's Complaint.

The Court first considers the identity of the speakers of the alleged misrepresentations.

Plaintiff alleges Defendant Southard misrepresented the scope of the preliminary injunction

at the trade show, but Plaintiff also alleges that counsel for CNM, James Lester, sent a letter

to USA Products that is somehow misleading or misrepresentative of the previous litigation.

(See Compl. ¶¶ 36, 37.) Although Plaintiff sufficiently identifies the speakers of the

misrepresentations, the Court notes that Mr. Lester currently represents Defendants in this

matter and has not been named as a defendant in this action. The Court is not suggesting he

should be so named, however, and further notes that involving Mr. Lester as an actor raises

the specter of Mr. Lester as a witness in this action.

Though Plaintiff has sufficiently identified the speaker of the alleged

misrepresentations, Defendant Southard and CNM's attorney, the Court finds that Plaintiff

has not met the heightened standard of Rule 9(b). In particular, the Court is troubled by the

lack of specificity in the Complaint as to when Defendants' misrepresentations occurred.

Although it appears that the events leading up to this cause of action began at the November

2005 trade show, Plaintiff alleges no time frame in some counts and "November 2005 at the

latest" in others. (Compl. ¶¶ 61, 68, 93.) (emphasis added) By definition, the phrase

"November 2005 at the latest" includes all time before November 2005. Such an expansive

time frame, or no time frame at all, is insufficient to put Defendants on notice of the claims

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against them. See Vess, 317 F.3d at 1106 (the circumstances constituting the alleged fraud

must "be specific enough to give defendants notice of the particular misconduct . . so that

they can defend against the charge and not just deny that they have done anything wrong").

As noted previously by the Court in this Order, Plaintiff's claims seem to center on

Defendant's alleged misrepresentations at the trade show and in subsequent communications,

but by alleging such a broad time frame, a defendant cannot be certain as to what conduct

Plaintiff alleges because conduct occurring before "November 2005 at the latest" may also

be included. As Defendants contend in their Motion, statute of limitations issues, inter alia,

may arise if earlier conduct is indeed alleged by Plaintiff. Therefore, the lack of specificity

as to when the misrepresentations occurred raises uncertainty as to the scope of the conduct

Plaintiff alleges occurred, and thus how and where those misrepresentations took place.

Consequently, the Court concludes that Plaintiff has not met Rule 9(b)'s particularity

requirement.

If the Court determines that certain averments of fraud are insufficiently pled under

Rule 9(b), it should first "disregard" those averments or "strip" them from the claim and then

look to the remaining allegations and determine whether they state a claim. Vess, 317 F.3d

at 1105. In cases such as this one, however, where Plaintiff's claims rely on a unified course

of conduct and the Complaint is grounded in fraud, the Ninth Circuit has observed:

If insufficiently pled averments of fraud are disregarded, as they must be, in

a complaint or claim grounded in fraud, there is effectively nothing left of the

complaint. In that event, a motion to dismiss under Rule 12(b)(6) would

obviously be granted. Because a dismissal of a complaint or claim grounded

in fraud for failure to comply with Rule 9(b) has the same consequence as a

dismissal under Rule 12(b)(6), dismissal under the two rules are treated in the

same manner. As with Rule 12(b)(6) dismissals, dismissals for failure to

comply with Rule 9(b) should ordinarily be without prejudice. Leave to

amend should be granted if it appears at all possible that the plaintiff can

correct the defect.

Id. at 1107-08 (internal citations and quotation marks omitted).

 Because Plaintiff has failed to meet Rule 9(b)'s heightened pleading requirement as

to all claims, and because "there is effectively nothing left of the complaint," see id., the

Court will grant Defendants' Motion with leave to amend. Plaintiff will be given leave to

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amend with the level of specificity required by Rule 9(b) of the Federal Rules of Civil

Procedure, as it appears possible to the Court that Plaintiff can cure the Complaint's defect.

Because the Court will dismiss the Complaint pursuant to Rule 9(b), the Court need

not reach the remainder of Defendants' arguments.

CONCLUSION

Accordingly,

IT IS ORDERED that Defendants' Motion to Strike and to Dismiss for Lack of

Jurisdiction and Failure to State a Cause of Action [Doc. No. 16] is GRANTED.

IT IS FURTHER ORDERED that the Complaint is DISMISSED WITHOUT

PREJUDICE. Plaintiff is hereby given LEAVE TO AMEND the Complaint. 

 DATED this 23rd day of May, 2006.

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