Crafty Prods., Inc. v. Michaels Cos.

389 F.Supp.3d 876

CRAFTY PRODUCTIONS, INC. et al., Plaintiffs,

v.The MICHAELS COMPANIES, INC., et al., Defendants.

Case No. 15-cv-719-BAS-JLB

United States District Court, S.D. California.

Signed June 10, 2019

Stephen M. Lobbin, Sml Avvocati P.C., La Jolla, CA, JoAnna Ardalan, One LLP, Newport Beach, CA, for Plaintiffs.

Tony Liu, Law Offices of Tony T. Liu, Santa Ana, CA, for Defendant Fuqing Sanxing Crafts Co. Ltd.

Michael G. King, Sheila Wirkus Pendergast, Hennelly and Grossfeld LLP, Marina del Rey, CA, Philip M. Giordano, Pro Hac Vice, Reed & Giordano, P.A., Boston, MA, for Defendant MRF Associates, Inc.

Jeffrey C. Briggs, Briggs Law Office, Hollywood, CA, for Defendant Plaid Enterprises, Inc.

Gordon E. Gray, Ben T. Lila, Joseph A. Mandour, III, Mandour and Associates, APC, Los Angeles, CA, for Defendants Party City Holdings, Inc., Party City Corporation.

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS

[ECF No. 233]

Hon. Cynthia Bashant, United States District Judge

Plaintiffs Crafty Productions, Inc. ("CPI") and Crafty Productions, LLC ("CPL") (collectively "Plaintiffs") commenced this action against numerous defendants alleging copyright infringement of CPI's original craft designs and products, trade dress infringement, intentional interference with prospective business advantage, unfair competition, breach of contract, and fraud. Many parties were listed as defendants in the first complaint, but various defendants have been dismissed for lack of personal jurisdiction. (ECF No. 213.) As relevant here, Defendants The Michaels Companies, Inc. and Michaels Stores, Inc. (collectively, "Michaels") and Hobby Lobby Stores, Inc. moved to dismiss Plaintiffs' prior complaint for failure to state a claim. (ECF No. 90.) The Court granted the motion to dismiss and granted Plaintiffs leave to amend. ("Prior Order," ECF No. 214.) Plaintiffs filed a second amended complaint against Michaels; Plaid Enterprises, Inc.; Hobby Lobby Stores, Inc.; Party City Holdings, Inc.; and Party City Corporation. ("SAC," Second Amended Complaint, ECF No. 232.) Plaintiffs allege trade dress infringement, intentional interference with prospective business advantage, and unfair competition. Michaels moves to dismiss the second amended complaint. ("Mot.," ECF No. 233.) Defendants Hobby Lobby; Party City Holdings, Inc.; Party City Corporation; and Plaid Enterprises, Inc. join the Motion to Dismiss with respect to paragraphs III(A)(1)-III(A)(4) and III(B) of the Motion. (ECF Nos. 235, 236, 238.) Plaintiffs filed an opposition to the Motion, ("Opp'n," ECF No. 239), and Michaels filed a reply in support of the Motion, ("Reply," ECF No. 240).

The Court finds this Motion suitable for determination on the papers and without oral argument. Civ. L. R. 7.1(d)(1). For the reasons stated below, the Court GRANTS Defendants' Motion.

I. FACTUAL BACKGROUND¹

Plaintiff CPI has created various "original product concepts and designs, including many creative, decorative wood products." (SAC ¶ 11.) Sometime in 1995, CPI hired Michelle Faherty as a sales representative for some of its products. (Id. ¶ 13.) Ms. Faherty asked permission to take samples of certain products so she could obtain a manufacturing cost estimate from a factory she knew in China. (Id. ) She did so, and then CPI began using a Chinese manufacturer owned by Kevin Xiao and/or Tony Zhu for cost-saving purposes. (Id. )²

In 2009 or 2010, CPI learned that replicas of its products were being sold in a crafts and toys product catalog from "Zhejiang Hongye Art & Craft Co., Ltd." (hereinafter, "Hongye"). (Id. ¶ 15.) CPI had not approved these sales and had never heard of Hongye. (Id. ) CPI learned that the Hongye factory was shipping CPI's wood products to Michaels and Plaid. (Id. ¶ 16.) Plaid is CPI's competitor and supplies products to retailers, including Hobby Lobby and Michaels. (Id. ¶ 19.)

CPI insisted on visiting China to meet Zhu and see his manufacturing facilities. (Id. ¶ 16.) On this trip, CPI first visited the Hongye factory, where it saw on display many of CPI's "original designs and products." (Id. ¶ 17.) Faherty allegedly had to lie to the Hongye representative to arrange a tour of the factory for CPI. (Id. ) "There appeared to be no effort by the manufacturer to disguise the fact that they were producing unauthorized CPI products." (Id. ) CPI alleges it saw a frame at the factory that was "substantially similar to one of CPI's designs" but had the name "Plaid" on the back. (Id. ¶ 19.) CPI then visited Zhu's manufacturing facility, which contained only a few of CPI's products, and CPI was surprised that Hongye appeared to have more of CPI's designs in its factory than were in Zhu's factory. (Id. ¶ 18.) Faherty told CPI that Zhu's factory was only manufacturing CPI's products, not competitors' products. (Id. ¶ 19.)

Plaintiffs allege Faherty and Zhu arranged the manufacture of "knock offs" of CPI's original designs and products to sell to Plaid and other retailers. (Id. ¶ 22.) Plaintiffs allege the only way the Hongye factory would have access to CPI's products is if a retail buyer or Faherty provided the designs to the factory. (Id. ¶ 32.) Plaintiffs allege Michaels was buying the knock-off products from the Hongye factory. (Id. ) In support, Plaintiffs allege Michaels purchased products from CPI for many years, but as of October 2014, "was buying very little from CPI" yet still selling products. (Id. ¶ 46; see, e.g. , ECF No. 232-2, at 14–22 (images of products being sold in Michaels' stores in 2014 and 2015).) Plaintiffs also allege CPI never sold wood alphabets to Michaels, yet Michaels has sold CPI's wood alphabets in its stores. (Id. ) Similarly, Plaintiffs allege Hobby Lobby purchased knock-offs of CPI's products through Faherty. (Id. ¶ 51.)

II. LEGAL STANDARD

A complaint must plead sufficient factual allegations to "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotation marks and citations omitted). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.

A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure tests the legal sufficiency of the claims asserted in the complaint. Fed. R. Civ. P. 12(b)(6) ; Navarro v. Block , 250 F.3d 729, 731 (9th Cir. 2001). The court must accept all factual allegations pleaded in the complaint as true and must construe them and draw all reasonable inferences from them in favor of the nonmoving party. Cahill v. Liberty Mut. Ins. Co. , 80 F.3d 336, 337–38 (9th Cir. 1996). To avoid a Rule 12(b)(6) dismissal, a complaint need not contain detailed factual allegations, rather, it 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, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A Rule 12(b)(6) dismissal may be based on either a ‘lack of a cognizable legal theory’ or ‘the absence of sufficient facts alleged under a cognizable legal theory.’ " Johnson v. Riverside Healthcare Sys., LP , 534 F.3d 1116, 1121 (9th Cir. 2008) (quoting Balistreri v. Pacifica Police Dep't , 901 F.2d 696, 699 (9th Cir. 1990) ).

III. ANALYSIS

Defendants' first argument is that Plaintiffs engage in improper "shotgun pleading." (Mot. at 13–14.) Rather than analyze the Complaint as a whole under this allegation, the Court will analyze the clarity and specificity of the allegations in its analysis of each cause of action below.

A. Copyright Infringement

The Court previously dismissed Plaintiffs' copyright infringement claims because Plaintiffs had not demonstrated "that the owner of the copyrights at issue—CPL—registered the copyrights with the Copyright Office before initiating this infringement action." (Prior Order at 10.) The Court then denied Plaintiffs' motion for reconsideration on the issue. (ECF No. 231.) At this point, it must be clear to all Parties that the claims have been dismissed and Plaintiffs are unable to cure the issue of prior registration of the copyrights. In the second amended complaint, Plaintiffs include the copyright claim "only for completeness." (SAC at 1 n.1.) The claim remains dismissed; thus, the Court does not analyze Defendants' Motion to Dismiss the copyright claim.³

B. Trade Dress Infringement / False Designation of Origin

"Trade dress refers generally to the total image, design, and appearance of a product and ‘may include features such as size, shape, color, color combinations, texture or graphics.’ " Clicks Billiards, Inc. v. Sixshooters, Inc. , 251 F.3d 1252, 1257 (9th Cir. 2001) (quoting Int'l Jensen, Inc. v. Metrosound U.S.A., Inc. , 4 F.3d 819, 822 (9th Cir. 1993) ). To plead a claim for trade dress infringement, a plaintiff must allege: (1) that its claimed dress is non-functional; (2) that its claimed dress serves a source-identifying role either because it is inherently distinctive or has acquired secondary meaning; and (3) that the defendant's product or service creates a likelihood of consumer confusion. Id. (citing Disc Golf Ass'n, Inc. v. Champion Discs, Inc. , 158 F.3d 1002, 1005 (9th Cir. 1998) ; Fuddruckers, Inc. v. Doc's B.R. Others, Inc. , 826 F.2d 837, 841 (9th Cir. 1987) ).

Defendants move to dismiss Plaintiffs' trade dress claim because "Plaintiffs fail to identify a protectable trade dress." (Mot. at 15.) Plaintiffs claim their trade dress is their "original designs and products." (SAC ¶ 61.) As examples of trade dress, Plaintiffs point to "all of the designs and products depicted" in Exhibits A through H and U. (Id. ) The referenced exhibits include hundreds of pictures of Plaintiffs' products. (ECF Nos. 232-2 to 232-9 and 232-22 to 232-23.) Plaintiffs include no further details as to what the general "design" of the products entails. Plaintiffs include examples of certain features of various products that they...