IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

MEGATEL HOMES, LLC, and ZACH 

IPOUR, 

§

§ 

§

Plaintiffs, §

§

v. §

§

Civil Action No. 3:22-cv-1715

§

CRYSTAL LAGOONS U.S. CORP., §

§

 

Defendant. § 

PLAINTIFFS MEGATEL HOMES, LLC, AND ZACH IPOUR’S MOTION TO 

DISMISS COUNT II OF DEFENDANT’S ANSWER AND COUNTERCLAIMS 

PURSUANT TO RULE 12(b)(6)

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Pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, Plaintiffs Megatel 

Homes, LLC and Zach Ipour (collectively “Megatel”) move to dismiss Count II of Defendant 

Crystal Lagoons U.S. Corp’s (“Crystal Lagoons”) Original Answer and Counterclaims

(“Answer”)—common law misappropriation—for failure to state a plausible claim for relief. 

INTRODUCTION

There are two types of common-law misappropriation under Texas law—misappropriation 

of an individual’s name, image, or likeness, which amounts to an invasion of privacy, and 

misappropriation of a product created through extensive time, labor, skill, and money, which is 

commonly referred to as misappropriation of a business opportunity. Jim S. Adler, P.C. v. Angel 

L. Reyes & Assocs. PC, No. 3:19-cv-2027, 2020 WL 5099596, at *12–13 (N.D. Tex. Aug. 7, 2020), 

report and recommendation adopted, No. 3:19-cv-2027, 2020 WL 5094678 (N.D. Tex. Aug. 29, 

2020). Although Crystal Lagoons only asserts one misappropriation counterclaim, it confusingly 

alleges both types of misappropriation. But regardless of its muddled pleadings, Crystal Lagoons 

fails to state a plausible misappropriation claim under either theory.

As to the first type of misappropriation, Texas law recognizes a claim for misappropriation 

of an individual’s name, image, and likeness, but does not allow corporations to bring the same 

claim. Doggett v. Travis Law Firm, P.C., 555 S.W.3d 127, 132 (Tex. App.—Houston [1st Dist.] 

2018, pet. denied) (finding that because Texas courts have not recognized a corporation’s right to 

privacy, defendant could not recover for invasion of privacy by appropriation of name or likeness). 

Thus, Texas law precludes Crystal Lagoons’ misappropriation claim based on this theory. 

Nor can Crystal Lagoons plead a claim for misappropriation under the second theory—

misappropriation of a business opportunity. To state a claim under this theory, a plaintiff must 

allege: (i) the creation of plaintiff’s product through extensive time, labor, skill and money; (ii) the 

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defendant’s use of that product in competition with the plaintiff, thereby gaining a special 

advantage in that competition (i.e., a “free ride”) because defendant is burdened with little or none 

of the expense incurred by the plaintiff; and (iii) commercial damage to the plaintiff. U.S. Sporting 

Prods., Inc. v. Johnny Stewart Game Calls, Inc., 865 S.W.2d 214, 218 (Tex. App.—Waco 1993, 

writ denied) (emphasis added). This type of claim is typically brought in cases involving 

counterfeit products. See, e.g., Mission Trading Co., Inc. v. Lewis, No. CV H-16-3368, 2017 WL 

4941408, at *6 (S.D. Tex. Nov. 1, 2017). But where a plaintiff alleges mere misappropriation of a 

trademark or trade name, courts in Texas and across the country have routinely held that such 

claims are not covered by misappropriation. See Jim S. Adler, P.C., 2020 WL 5099596, at *12–

13. Here, however, Crystal Lagoons does not and cannot allege that Megatel misappropriated any 

“product” of Crystal Lagoons, only that Megatel misappropriated Crystal Lagoons’ “name and 

trademarks.” Dkt. No. 10 ¶¶ 55–57. And this sort of claim unquestionably falls within the ambit 

of trademark law and not misappropriation, and therefore should be dismissed. See Opportune LLP 

v. Oportun, Inc., No. H-18-7, 2018 WL 8755511, at *3 (S.D. Tex. Apr. 24, 2018).

Thus, since Crystal Lagoons’ factual allegations do not support a claim for 

misappropriation under either theory, the Court should dismiss this counterclaim with prejudice. 

FACTUAL BACKGROUND

Megatel builds homes throughout the State of Texas and had developed plans to build 

communities that would feature large, outdoor lagoons. Dkt. No. 9 ¶ 2. Beginning in July 2020, 

Megatel and Crystal Lagoons discussed a potential arrangement under which Megatel would 

license from Crystal Lagoons certain technology related to the design and operation of the lagoons 

Megatel planned to develop. Id. Pursuant to these discussions, the parties signed a non-disclosure 

agreement (“NDA”). Id. But after engaging in good-faith negotiations for several months, Megatel 

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ultimately decided to hire another company to lead the design and construction of its lagoons

without the need for Crystal Lagoons’ technology. Id. 

On August 8, 2022, Megatel filed a declaratory judgment action against Crystal Lagoons,

seeking a declaration that it had not breached the NDA or misused Crystal Lagoons’ name or 

confidential information by negotiating with Crystal Lagoons in good faith and ultimately 

choosing to work with a third-party contractor instead of Crystal Lagoons. Dkt. No. 1. On October 

24, 2022, Crystal Lagoons filed its answer, asserting breach-of-contract and misappropriation 

counterclaims against Megatel. Dkt. No. 10. Megatel’s motion is directed only at Crystal Lagoons’ 

misappropriation counterclaim. According to Crystal Lagoons, it has “devoted years of labor, skill, 

and money to establishing Crystal Lagoons’ product, brand, and related trademarks.” Id. at ¶ 53.

Yet, according to Crystal Lagoons, Megatel has “misappropriated Crystal Lagoons’ name, image, 

and trademarks for [its] own commercial use and monetary gain” and this “use of Crystal 

Lagoons’ name and trademarks [has given] [Megatel] a special competitive advantage” and 

damaged Crystal Lagoons. Id. at ¶¶ 55–57 (emphasis added).

Beyond those paper-thin allegations, Crystal Lagoons’ Answer does not contain much 

more detail regarding the basis for its misappropriation claim. Indeed, notably absent from Crystal 

Lagoons’ allegations are any allegations that Megatel misappropriated any “product” of Crystal 

Lagoons or that Megatel even used a product in competition with Crystal Lagoons. Instead, Crystal 

Lagoons’ misappropriation allegations resemble allegations asserted in trademark-infringement 

claims. Indeed, Crystal Lagoons alleges that Megatel—during the time it was considering hiring 

Crystal Lagoons—“invoked Crystal Lagoons’ name and trademarks during a meeting of the City 

Council of Anna, Texas, in August 2020 . . . [and] in connection with a September 2020 Forney 

City Council meeting.” Id. at ¶¶ 36–38. And, according to Crystal Lagoons, “this misuse has 

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prompted confusion regarding Crystal Lagoons’ involvement in, support for, and/or sponsorship 

of . . . Megatel development[s].” Id. ¶ 36. But likely realizing that any claim for trademark 

infringement would fail out of the gate, Crystal Lagoons attempts to shoehorn its allegations into 

a misplaced misappropriation claim. Yet misappropriation law is not the appropriate legal vehicle 

for differentiating infringing uses from legitimate uses of marks. Accordingly, the Court should 

not allow Crystal Lagoons to style its allegations as a misappropriation claim to avoid dealing with 

the legal standards of trademark infringement. 

LEGAL STANDARD

Rule 12(b)(6) empowers a court to dismiss a claim when a plaintiff has failed “to state a 

claim upon which relief can be granted.” FED. R. CIV. P. 12(b)(6). To survive a motion to dismiss 

under Rule 12(b)(6), the plaintiff must plead “enough facts to state a claim to relief that is plausible 

on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “Under the 12(b)(6) standard, 

all well-pleaded facts are viewed in the light most favorable to the plaintiff, but plaintiffs must 

allege facts that support the elements of the cause of action in order to make out a valid claim.”

City of Clinton v. Pilgrim’s Pride Corp., 632 F.3d 148, 152–53 (5th Cir. 2010). The Court must 

not “accept as true ‘[t]hreadbare recitals of the elements of a cause of action, supported by mere 

conclusory statements.”’ Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009)). 

ARGUMENT AND AUTHORITIES

Texas law recognizes two types of common-law misappropriation—misappropriation of 

an individual’s name, image, or likeness and misappropriation of business opportunity. Jim S. 

Adler, P.C., 2020 WL 5099596, at *12–13. However, Crystal Lagoons’ allegations that Megatel 

“misappropriated Crystal Lagoons’ name, image, and trademarks” fail under either theory. Dkt. 

No. 10 ¶ 55. First, because Texas law does not allow corporations to recover for misappropriation 

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of an individual’s name, image, or likeness, Crystal Lagoons’ allegations fail to state a claim under 

this theory of misappropriation. Second, because Crystal Lagoons has failed to allege that Megatel 

misappropriated a “product” of Crystal Lagoons, its factual allegations also do not support a claim 

for misappropriation of business opportunity. Accordingly, Crystal Lagoons’ misappropriation 

claim must be dismissed with prejudice. 

I. A Corporation Cannot Recover for Misappropriation of its Name or Image under 

Texas Law.

Crystal Lagoons alleges that Megatel misappropriated its “name” and “image.” Dkt. No. 

10 ¶ 55. Yet, Crystal Lagoons’ allegations fail to state a misappropriation claim because Texas law 

does not allow a corporation to recover for misappropriation of name or image. See Doggett, 555 

S.W.3d at 132.

Misappropriation of an individual’s name, image, or likeness is a type of invasion of 

privacy claim recognized under Texas law.1 Matthews v. Wozencraft, 15 F.3d 432, 437 (5th Cir. 

1994) (noting that misappropriation of “name or likeness of another is subject to liability to the 

other for invasion of privacy”); see also Busch v. Viacom Int’l, Inc., 477 F. Supp. 2d 764, 776 

(N.D. Tex. 2007) (treating a misappropriation claim based on image the same as a 

misappropriation claim based on name and likeness). That said, while Texas courts recognize an 

individual’s right to privacy, importantly, “[n]o Texas authority has recognized a corporation’s 

right to privacy.” Doggett, 555 S.W.3d at 130 (collecting cases); see also Abbott v. GameTech 

Int’l, Inc., No. 03-06-00257-CV, 2009 WL 1708815, at *7 (Tex. App.—Austin June 17, 2009, pet. 

denied) (“There is no Texas authority recognizing a right to privacy on the part of a corporation, 

1 The other two types of invasion-of-privacy claims recognized under Texas law are: (1) intrusion 

upon seclusion or solitude or into one’s private affairs; and (2) public disclosure of embarrassing 

private facts. Id. at 130; see also Cain v. Hearst Corp., 878 S.W.2d 577, 578 (Tex. 1994) 

(discussing cases recognizing each type of privacy right).

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and we decline to recognize one here.”). Thus, because Texas courts have not recognized a 

corporation’s right to privacy, there is no question that Crystal Lagoons, a Delaware corporation, 

cannot recover for invasion of privacy by appropriation of name or image. 

II. Crystal Lagoons Cannot State a Plausible Claim for Misappropriation of Business 

Opportunity Because a Trademark Is Not a “Product.”

“Misappropriation is a branch of the tort of unfair competition which involves the 

appropriation and use by the defendant, in competition with the plaintiff, of a unique pecuniary 

interest created by the plaintiff through the expenditure of labor, skill and money.” Seatrax, Inc. v. 

Sonbeck Int’l, Inc., 200 F.3d 358, 368 (5th Cir. 2000). To state a claim for common-law 

misappropriation of business opportunity, a plaintiff must plead sufficient facts to show: (1) the 

creation of plaintiff’s product through extensive time, labor, skill, and money; (2) the defendant’s 

use of that product in competition with the plaintiff, thereby gaining a special advantage in that 

competition (i.e., a “free ride”) because defendant is burdened with little or none of the expense 

incurred by the plaintiff; and (3) commercial damage to the plaintiff. U.S. Sporting Prods., Inc., 

865 S.W.2d at 218. Here, by parroting these elements, Crystal Lagoons attempts to assert a 

misappropriation of business opportunity claim. Cf. Dkt. No. 10 ¶¶ 53–57. Yet Megatel’s 

allegations fail to state a claim because Crystal Lagoons does not (and cannot) allege that Megatel 

misappropriated any “product” of Crystal Lagoons or even that Megatel “use[d] [any] product in 

competition with [Crystal Lagoons].” See U.S. Sporting Prods., Inc., 865 S.W.2d at 218. 

A. Trademarks Are Not “Products” As a Matter of Law.

As Judge Horan recently explained, “[m]isappropriation is a state common law offshoot of 

the general law of unfair competition and invoked when the plaintiff creates a valuable ‘thing’ that 

the defendant has ‘appropriated’ at little cost.” Jim S. Adler, P.C., 2020 WL 5099596, at *12 

(dismissing plaintiff’s claim for misappropriation of a trademark with prejudice because such a 

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claim is not recognized under Texas law). Importantly, Judge Horan noted the well-accepted 

principle that “[t]he ‘thing” that the plaintiff seeks to protect must not otherwise be protected by 

another theory of recovery—and specifically, not by traditional common law theories of unfair 

competition, such as trademark infringement.” Id. (citing Thomas McCarthy, McCarthy on 

Trademarks and Unfair Competition § 10:47-48 (4th ed.); Buc-cee’s, Ltd. v. Shepherd Retail, Inc., 

No. 4:15-cv-3704, 2017 WL 6387799, at *12 (S.D. Tex. July 21, 2017), report and 

recommendation adopted in part, rejected in part on other grounds sub nom, Buc-cee’s, Ltd. v. 

Panjwani, 4:15-cv-3704, 2017 WL 4221461 (S.D. Tex. Sept. 21, 2017); Mueller Co. v. U.S. Pipe 

& Foundry Co., No. 03–cv–170, 2003 WL 22272135, at *3 (D.N.H. Oct. 2, 2003) (“the 

misappropriation theory [ ] has been reserved for the vindication of commercial rights left 

unprotected by trademark principles”)). The treatise that Judge Horan cited further noted that 

misappropriation also should not be used to vindicate “breach of [a] confidential relationship.”

McCarthy § 10:47-48.

Because of this, courts have repeatedly held that a trademark cannot be a “product” for 

purposes of a misappropriation claim and have routinely dismissed claims based on similar 

allegations. See Jim S. Adler, P.C., 2020 WL 5099596, at *13 (dismissing plaintiff’s claim for 

misappropriation of a trademark with prejudice because such a claim is not recognized under Texas 

law); Opportune LLP, 2018 WL 8755511, at *3 (same); Buc-cee’s, Ltd., 2017 WL 6387799, at 

*12 (same); Pennell v. Triton Media, LLC, No. A-12-CA-706, 2013 WL 12131202, at *3 (W.D. 

Tex. Jan. 10, 2013) (same); see also McCarthy § 10.50 (“[T]he misappropriation doctrine should 

not be used in ordinary trademark infringement cases to short-circuit trademark law’s carefully 

crafted standards of protection.”). Federal courts applying similar state laws in other jurisdictions 

have held similarly based on the same reasoning. See Estate of Jenkins v. Paramount Pictures 

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Corp., 90 F. Supp. 2d 706, 714 n.26 (E.D. Va. 2000), aff’d, 2001 WL 401320 (4th Cir. Apr. 20, 

2001); Abbott Labs. v. Nutramax Prods., Inc., 844 F. Supp. 443, 447 (N.D. Ill. 1994); Sykes Lab., 

Inc. v. Kalvin, 610 F. Supp. 849, 855 (C.D. Cal. 1985). As many courts and leading commentators 

have recognized, if misappropriation could be based on use of trademarks, trademark law would 

be eviscerated. See McCarthy § 10:72 (“If there can be such a thing as misappropriation of 

another’s trademark, irrespective of distinctiveness and likelihood of buyer confusion, then a big 

step has been taken to wipe out the law of trademarks.”).

Courts that have allowed misappropriation claims to go forward that include trademarks

do so only because they also include (1) the sale of some product by the defendant, in competition 

with the plaintiff, and (2) the misappropriation of some additional “thing” not protected by 

trademark law or some other confidential relationship. See Mission Trading Co., Inc. v. Lewis,

No. CV H-16-3368, 2017 WL 4941408, at *6 (S.D. Tex. Nov. 1, 2017) (defendant allegedly sold 

counterfeit products in competition with plaintiff utilizing plaintiff’s trademarks, UPC codes,

images, and product descriptions); Sefton v. Jew, 201 F. Supp. 2d 730, 749 (W.D. Tex. 2001) 

(defendant allegedly republished without permission plaintiff's copyrighted photographs together 

with plaintiff's email address, service marks, and marketing text). 

Unlike Mission Trading Co and Sefton, however, Crystal Lagoons does not allege that 

Megatel marketed or sold competing products using Crystal Lagoons’ name or trademarks.

Instead, Crystal Lagoons plead that Megatel “invoked Crystal Lagoons’ name and trademarks 

during a meeting of the City Council of Anna, Texas, in August 2020 . . . [and] in connection with 

a September 2020 Forney City Council meeting.” Dkt. No. 10 at ¶¶ 36–38. As Judge Horan noted, 

such allegations would already be covered by either trademark law or another confidential 

relationship (here, specifically, the NDA). See Jim S. Adler, P.C., 2020 WL 5099596, at *12 

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(citing McCarthy § 10:47-48). But by styling its allegations as a misappropriation claim, Crystal 

Lagoons seeks to evade the lackluster claim it knew it could not plead, let alone win—trademark 

infringement—and ignores that its other claim already addresses the entirety of the dispute 

between the parties—breach of the NDA. 

Therefore, Crystal Lagoons’ pleadings do not allege a misappropriation claim and the 

Court should dismiss Crystal Lagoons’ misappropriation claim with prejudice. 

CONCLUSION

For the reasons above, Megatel requests that the Court dismiss Count II of Crystal 

Lagoons’ Answer with prejudice pursuant to FED. R. CIV. P. 12(b)(6). 

DATED: November 30, 2022 Respectfully submitted, 

WINSTON & STRAWN LLP

By:_/s/ LeElle B. Slifer__________ 

LeElle B. Slifer

Texas Bar No. 24074549

lslifer@winston.com

Thomas M. Melsheimer

Texas Bar No. 13922550

tmelsheimer@winston.com

Timothy J. Farina

Texas Bar No. 24123129

tfarina@winston.com

2121 N. Pearl Street

Suite 900

Dallas, TX 75201

(214) 453-6500 (telephone) 

(214) 453-6400 (telecopy) 

ATTORNEYS FOR MEGATEL HOMES, 

LLC AND ZACH IPOUR

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CERTIFICATE OF SERVICE

This is to certify that, on this 30th day of November, 2022, a true and correct copy of the 

above was served on counsel of record in accordance with the Texas Rules of Civil Procedure. 

 /s/LeElle B. Slifer 

 LeElle B. Slifer

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