Food Mkt. Merch., Inc. v. Cal. Milk Processor Bd.

FOOD MARKET MERCHANDISING, INC., Plaintiff, v. CALIFORNIA MILK PROCESSOR BOARD, Defendant.

CALIFORNIA MILK PROCESSOR BOARD, Counterclaimant, v. FOOD MARKET MERCHANDISING, INC.; MAGIC STRAWS, LLC;

REACH COMPANIES, LLC; JON TOLLEFSON; DIVERSIFIED CONSUMER GOODS,

LLC: DIVERSIFIED FLAVOR, LLC and PAUL HENSON, Counterdefendants.

No. 2:15-cv-01083-TLN-CKD

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA

May 5, 2020

ORDER

This matter is before the Court on Plaintiff and Counterdefendant Food Market Merchandising, Inc. ("FMMI") and Counterdefendants Reach Companies, LLC ("Reach"), Jon Tollefson ("Tollefson"), and Magic Straws, LLC's ("Magic Straws") (collectively, with FMMI, "Counterdefendants") Motions to Dismiss. (ECF Nos. 96, 98.) Defendant and Counterclaimant California Milk Processor Board ("CMPB") opposes both motions. (ECF Nos. 99, 100.) Counterdefendants filed replies. (ECF Nos. 102, 103.) For the reasons set forth below, the Court GRANTS in part and DENIES in part Counterdefendants' Motions to Dismiss.

I. FACTUAL AND PROCEDURAL BACKGROUND¹

CMPB owns the federally registered service mark and trademark GOT MILK? ("the Mark"). (ECF No. 91 at ¶ 37.) In November 2009, CMPB and FMMI entered into a written license agreement ("2009 License Agreement"), which granted FMMI a non-exclusive, non-transferable license to create, distribute, and sell flavored drinking straws, toys, novelties, household products, confections, and personal care products bearing the Mark. (Id. at ¶¶ 38, 65.)

In November 2010, a class action lawsuit titled Medical West Ballas Pharmacy Ltd. v. Food Market Merchandising, Inc, Case No. 10 SL-CC04659, was filed against FMMI ("Medical West"). (ECF No. 91 at ¶ 66.) CMPB alleges FMMI directed an employee to establish Reach and Magic Straws so FMMI could transfer assets bearing the Mark to the new entities in an effort to avoid paying any judgment associated with the class action. (Id. at ¶¶ 62, 69, 70, 73.) In February 2014, a former employee named Robert Spinner ("Spinner") also sued FMMI to recover unpaid commissions. (Id. at ¶ 78.) CMPB alleges FMMI formed Reach and Magic Straws to avoid creditors like CMPB, Spinner, and the Medical West class action plaintiffs. (Id. at ¶ 116.)

In November 2011, CMPB and FMMI entered into a new license agreement ("2011 License Agreement"). (Id. at ¶ 68.) CMPB alleges in August 2013, FMMI, Tollefson, and Paul Henson ("Henson") agreed Henson would attempt to convince CMPB that he was going to start his own independent company, unrelated to FMMI, and it should discount the remaining royaltypayments due from FMMI even though there was no basis in fact for doing so. (ECF No. 91 at ¶ 77.) During 2013 and 2014, CMPB alleges it negotiated the early termination of 2011 License Agreement as a result of FMMI's failure to pay royalties under the contract. (ECF No. 91 at ¶ 64.) In June 2014, CMPB alleges it terminated the 2011 License Agreement with FMMI by executing the First Amendment to the License Agreement ("FALA"), which required FMMI to stop distributing products bearing the Mark. (Id. at ¶ 82.) In July or August 2014, CMPB alleges it entered into a new license agreement ("2014 License Agreement") with Diversified Consumer Goods, LLC ("DCG") based on Henson's representation that he was no longer an Officer, Director, or employee of FMMI. (Id. at ¶¶ 80, 84.) CMPB also asserts it agreed to the FALA based on representations from FMMI, Tollefson, and Henson, which FMMI knew were false and fraudulent. (Id. at ¶ 199-202.)

CMPB alleges FMMI, Reach, Tollefson, Magic Straws, DCG, Diversified Flavor, LLC ("Diversified"), and Henson are all alter egos of each other. (See generally ECF No. 91 at 101-124.) CMPB specifically alleges FMMI, Reach, Magic Straws, DCG, and Diversified all share the same office space and telephone number. (ECF No. 91 at ¶¶ 38-43, 62.) CMPB further alleges FMMI transferred its employees' dental insurance and 401(k) plans to Reach in an effort to transfer assets and avoid creditors. (Id. at ¶ 75.) CMPB asserts Tollefson and Henson are the owners, Chief Executive Officers, Presidents, Managers or holders of a controlling interest in the corporate entities. (Id. at ¶¶ 43, 44.)

On February 26, 2015, CMPB alleges it discovered FMMI was continuing to use the Mark in violation of the FALA, and FMMI continues to manufacture, distribute, and/or sell products bearing the Mark in violation of the FALA. (Id. at ¶¶ 87, 93.) CMPB further alleges Counterdefendants sold GOT MILK? flavoring straws past their expiration and in violation of the FALA. (Id. at ¶ 126.) CMPB contends consumers will likely be confused as to the source of the expired straws and will believe the unauthorized and non-genuine products originated from CMPB. (Id.) As a result, CMPB contends it will suffer damage to its business, reputation, and goodwill. (Id. at ¶¶ 129, 133, 137.)

/ / / On March 10, 2015, FMMI brought the instant action against CMPB for trademark abandonment in the Southern District of New York. (ECF No. 1.) On May 7, 2015, the action was transferred to this Court pursuant to 28 U.S.C. § 1404(a). (ECF No. 17.) On May 21, 2015, CMPB filed an answer and fourteen counterclaims for trademark infringement, unfair competition, false designation of origin, trademark dilution, counterfeiting, contributory trademark infringement, fraud, and breach of contract. (ECF No. 22.)

CMPB filed a Second Amended Answer and Counterclaims on September 20, 2015. (ECF No. 53.) On June 17, 2016, Counterdefendants filed motions to dismiss CMPB's counterclaims. (ECF Nos. 75, 76.) On May 31, 2018, the Court dismissed many of CMPB's counterclaims with leave to amend. (ECF No. 90.) On June 15, 2018, CMPB filed its Third Amended Answer and Counterclaims ("TAAC"). (ECF No. 91 at 44-68.) Counterdefendants filed the instant motions on June 29, 2018, and July 24, 2018.² (ECF Nos. 96, 98.)

II. STANDARD OF LAW

A motion to dismiss for failure to state a claim under Rule 12(b)(6) tests the legal sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Federal Rule of Civil Procedure ("Rule") 8(a) requires that a pleading contain "a short and plain statement of the claim showing that the pleader is entitled to relief." See Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009). Under notice pleading in federal court, the complaint must "give the defendant fair notice of what the claim . . . is and the grounds upon which it rests." Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007) (internal quotations omitted). "This simplified notice pleading standard relies on liberal discovery rules and summary judgment motions to define disputed facts and issues and to dispose of unmeritorious claims." Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002).

On a motion to dismiss, the factual allegations of the complaint must be accepted as true. Cruz v. Beto, 405 U.S. 319, 322 (1972). A court is bound to give plaintiff the benefit of every reasonable inference to be drawn from the "well-pleaded" allegations of the complaint. RetailClerks Int'l Ass'n v. Schermerhorn, 373 U.S. 746, 753 n.6 (1963). A plaintiff need not allege "'specific facts' beyond those necessary to state his claim and the grounds showing entitlement to relief." Twombly, 550 U.S. at 570. "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." Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. 544, 556 (2007)).

Nevertheless, a court "need not assume the truth of legal conclusions cast in the form of factual allegations." United States ex rel. Chunie v. Ringrose, 788 F.2d 638, 643 n.2 (9th Cir. 1986). While Rule 8(a) does not require detailed factual allegations, "it demands more than an unadorned, the defendant-unlawfully-harmed-me accusation." Iqbal, 556 U.S. at 678. A pleading is insufficient if it offers mere "labels and conclusions" or "a formulaic recitation of the elements of a cause of action." Twombly, 550 U.S. at 555; see also Iqbal, 556 U.S. at 678 ("Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice."). Moreover, it is inappropriate to assume that the plaintiff "can prove facts that it has not alleged or that the defendants have violated the . . . laws in ways that have not been alleged." Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983).

Ultimately, a court may not dismiss a complaint in which the plaintiff has alleged "enough facts to state a claim to relief that is plausible on its face." Iqbal, 556 U.S. at 697 (quoting Twombly, 550 U.S. at 570). Only where a plaintiff has failed to "nudge[] [his or her] claims . . . across the line from conceivable to plausible," is the complaint properly dismissed. Id. at 680. While the plausibility requirement is not akin to a probability requirement, it demands more than "a sheer possibility that a defendant has acted unlawfully." Id. at 678. This plausibility inquiry is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679.

If a complaint fails to state a plausible 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." Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000) (en banc) (quoting Doe v. United States, 58 F.3d 484, 497 (9th Cir. 1995)); seealso Gardner v. Marino, 563 F.3d 981, 990 (9th Cir. 2009) (finding no abuse of discretion in denying leave to amend when amendment would be futile). Although a district court should freely give leave to amend when justice so requires under Rule 15(a)(2), "the court's discretion to deny such leave is 'particularly broad' where the plaintiff has previously amended its complaint." Ecological...