Evo Brands, LLC v. Al Khalifa Grp. LLC

657 F.Supp.3d 1312

EVO BRANDS, LLC, a Delaware limited liability company;and PVG2, LLC, a Delaware limited liability company, Plaintiffs, v. AL KHALIFA GROUP LLC, California Limited Liability Company;Overseek Investments, LLC, a California Limited Liability Corporation;Xtra Ecig LLC, a California Limited Liability Corporation;Mohammad Khalifa, an individual; Abbas Khalifa, an individual;and Omar Fdawi, an individual, Defendants.

Case No.: 2:22-cv-03909-AB-MAR

United States District Court, C.D. California

Signed February 23, 2023

John Allan Conkle, Zachary T. Page, Conkle Kremer and Engel PLC, Santa Monica, CA, Carrie A. Shufflebarger, Pro Hac Vice, Thompson Hine LLP, Cincinnati, OH, Eric N. Heyer, Pro Hac Vice, Thompson Hine LLP, Washington, DC, for Plaintiffs.

Gary P. Simonian, Milord A. Keshishian, Milord and Associates PC, Los Angeles, CA, Stephanie V. Trice, Los Angeles, CA, for Defendants Al Khalifa Group LLC, Overseek Investments, LLC, Xtra Ecig LLC, Mohammad Khalifa.

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM

ANDRÉ BIROTTE JR., UNITED STATES DISTRICT COURT JUDGE

Pending before the Court is Defendants Al Khalifa Group LLC, Overseek Investments, LLC, Xtra Ecig LLG, and Mohammad Khalifa's ("Defendants") Motion to Dismiss Plaintiffs EVO Brands, LLC and PVG2, LLC's ("Plaintiffs") First Amended Complaint for failure to state a claim, filed October 21, 2022. ("Mot." or "Motion," Dkt. No. 27.) Plaintiffs filed an opposition ("Oppn." or "Opposition", Dkt. No. 29) and Defendants filed a reply ("Reply," Dkt. No. 30). Defendants filed two Requests for Judicial Notice. The first was filed with the Motion. ("First RFJN," Dkt. No. 27-1.) The second was filed with the Reply. ("Second RFJN," Dkt. No. 30-2.) Plaintiffs objected to the Second RFJN. (Dkt. No. 34.)

Having considered the materials and arguments submitted, and for the reasons discussed below, the Court GRANTS Defendants' Motion to Dismiss under Rule 12(b)(6) and DISMISSES this action with leave to amend.

I. BACKGROUND

Plaintiffs filed this action on June 8, 2022. ("Complaint," Dkt. No. 1.) Defendants filed a motion to dismiss on August 26, 2022. (Dkt. No. 21.) Before the motion to dismiss was ruled on, Plaintiffs filed an amended complaint on September 9, 2022. ("First Amended Complaint" or "FAC," Dkt. No. 25.) Defendants now move to dismiss the First Amended Complaint under rule 12(b)(6). (Mot., Dkt. No. 27.)

Plaintiffs and Defendants are in the business of selling electronic cigarette products containing nicotine, as well as other accessories to be used alongside electronic cigarettes (collectively, "Vape Products"). (FAC ¶¶ 13, 24-26.) Plaintiffs' current products use synthetic nicotine, which is created without the use of tobacco ("Synthetic Nicotine"), as opposed to Tobacco-Based Nicotine ("Tobacco-Based Nicotine").

Plaintiffs allege ownership of a family of marks incorporating the term "PUFF," as well as a distinctive cloud design ("The Marks"), under which Plaintiffs sell Vape Products. (FAC ¶¶ 13-23.) These marks include "PUFF BAR," "PUFF PLUS," "PUFF NANO," "PUFF FLOW," and "PUFF MAX." Id. The marks are usually stylized with the word "PUFF" appearing in the middle of the cloud design, with a line under it, below which the secondary word appears. Id.

Plaintiffs allege that Defendants began using confusingly similar marks around mid-to-late 2021. (FAC ¶ 28-34.) Defendants have historically sold Vape Products under the stylized trademark "XTRA." (FAC ¶ 27.) Around mid-to-late 2021, Defendants switched branding on their products to say "Puff Xtra" in a manner where the word "Puff" was significantly larger and more dominant than the word "Xtra." (FAC ¶ 28.) Plaintiffs provide a number of examples of the allegedly infringing products. (FAC ¶¶ 28-30.) Plaintiffs allege that Defendants' use of the allegedly infringing marks is causing actual consumer confusion, with harm to the value of Plaintiffs' trademarks as a result. (FAC ¶¶ 31, 39, 50, 54.)

Plaintiffs' federal claims consist of trademark infringement, unfair competition, and false designation of origin in violation of 15 U.S.C. § 1125(a)(1)(A). (FAC ¶¶ 47-51.) Plaintiffs' state law claims consist of unfair of the California Unfair Practices Act, Cal. Bus. & Prof. Code §§ 17200, et seq. (FAC ¶¶ 52-56.)

Defendants argue that Plaintiffs were assigned ownership of the Marks by DS Technology Licensing, LLC. (First RFJN, Ex. 7.) Defendants also argue that Plaintiffs' predecessor in interest to their business is Umais Abubaker, d/b/a Puff Bar ("Plaintiffs' Predecessor"). (Motion at 4; First RFJN at 1.)

Defendants argue that Plaintiffs' Predecessor did not have a lawful right to the Marks because Plaintiffs and Plaintiffs' Predecessor only ever used the Marks were only ever used on adulterated or misbranded nicotine products, and therefore cannot demonstrate legal use in trade. (Motion at 4-7.) Defendants rely on two warning letters from the FDA to Plaintiffs' Predecessor in making this argument. (Motion at 4-5; Reply at 2-3.) The first warning letter, sent on July 20, 2020, states that Plaintiffs' Predecessor's Tobacco-Based Nicotine products were adulterated and misbranded. (First RFJN at 1, Ex. 1.) The second warning letter, sent on October 6, 2022, informs Plaintiffs' Predecessor that, under new law as of March 15, 2022, Plaintiffs' Predecessors Synthetic Nicotine products were adulterated and misbranded. (Second RFJN at 1, Ex. A.)

II. LEGAL STANDARD

Rule 8 requires a plaintiff to present a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Under Rule 12(b)(6), a defendant may move to dismiss a pleading for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6).

To defeat a Rule 12(b)(6) motion to dismiss, the complaint must provide enough factual detail to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The complaint must also be "plausible on its face." Id. That is, it "must contain sufficient factual matter, accepted as true, 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) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955). A plaintiff's "factual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555, 127 S.Ct. 1955. "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. Labels, conclusions, and "a formulaic recitation of the elements of a cause of action will not do." Id.

A complaint may be dismissed under Rule 12(b)(6) for the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dep't., 901 F.2d 696, 699 (9th Cir. 1988). When ruling on a Rule 12(b)(6) motion, "a judge must accept as true all of the factual allegations contained in the complaint." Erickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007). But a court is "not bound to accept as true a legal conclusion couched as a factual allegation." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quotation marks omitted).

If a court determines that a complaint should be dismissed, it must then decide whether to grant leave to amend. Under Rule 15(a), leave to amend "shall be freely given when justice so requires," bearing in mind "the underlying purpose of Rule 15 to facilitate decisions on the merits, rather than on the pleadings or technicalities." Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (alterations and quotation marks omitted). When dismissing a complaint for failure to state a claim, "a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Id. at 1130 (quotation marks omitted). Leave to amend generally shall be denied only if allowing amendment would unduly prejudice the opposing party, cause undue delay, or be futile, or if the moving party has acted in bad faith. Leadsinger, Inc. v. BMG Music Publ'g, 512 F.3d 522, 532 (9th Cir. 2008).

III. DISCUSSION

A. Judicial Notice

Judicial notice under Rule 201 permits a court to notice an adjudicative fact if it is "not subject to reasonable dispute." Fed. R. Evid. 201(b). A fact is "not subject to reasonable dispute" if it is "generally known," or "can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201(b)(1)-(2).

Just because the document itself is susceptible to judicial notice does not mean that every assertion of fact within that document is judicially noticeable for its truth. Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 999 (9th Cir. 2018). A court may not take judicial notice of the truth of disputed factual matters at the pleading stage. Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001).

A court may take judicial notice of matters of public record without converting a motion to dismiss into a motion for summary judgment. Fed. R. Evid. 201. However, a court cannot take judicial notice of disputed facts contained in such public records. Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 999 (9th Cir. 2018).

i. USPTO Records

Defendants seek judicial notice of five different items from USPTO records: (1) USPTO Trademark Status & Document Retrieval (TSDR) Documents Screenshot of U.S. Intent to Use Trademark Application No. 88550952, for PUFF BAR, plus design; (2) USPTO TSDR Documents Screenshot of U.S. Intent to Use Trademark Application No. 88729156 for PUFF PLUS, plus design; (3) USPTO TSDR Status Screenshot of U.S. Intent to Use Trademark Application No. 97358268, for...