JTH Tax, Inc. v. Williams

310 F.Supp.3d 648

JTH TAX, INC. d/b/a Liberty Tax Service; and Siempretax, LLC, Plaintiffs,

v.Tiffany WILLIAMS ; and Maurice Williams, Defendants.

CIVIL ACTION NO. 2:18cv26

United States District Court, E.D. Virginia, Norfolk Division.

Signed May 4, 2018

Patrick K. Burns, Esquire, Gordon & Rees Scully Mansukhani, LLP, 1300 | Street NW, Suite 825, Washington, DC 20005, Peter G. Siachos, Esquire, Gordon & Rees Scully Mansukhani, LLP, 18 Columbia Turnpike, Suite 200, Florham Park, NJ 07932, for Plaintiff.

Todd M. Gaynor, Esquire, Gaynor Law Center PC, 440 Monticello Avenue, Suite 1800, Norfolk, VA 23510, for Defendant (Tiffany Williams).

W. Ryan Snow, Esquire, David C. Hartnett, Esquire, Crenshaw Ware & Martin PLC, 150 West Main Street, Suite 1500, Norfolk, VA 23510, for Defendant (Maurice Williams).

MEMORANDUM ORDER

Rebecca Beach Smith, Chief JudgeThis matter comes before the court on the Defendant, Maurice Williams's ("Mr. Williams") Rule 12(b) (6) Partial Motion to Dismiss First Amended Complaint ("Partial Motion to Dismiss") and corresponding Memorandum in Support, filed on March 20, 2018. ECF Nos. 31, 32. The Partial Motion to Dismiss was filed in response to the Plaintiffs' First Amended Complaint ("Amended Complaint"), ECF No. 24, and seeks dismissal of seven (7) counts against Mr. Williams: Count Five, False Designation and Misrepresentation of Origin; Count Seven, Misappropriation of Trade Secrets; Count Eight, Tortious Interference with an Existing Contract; Count Nine, Unjust Enrichment; Counts Ten and Eleven, Preliminary and Permanent Injunctive Relief; and Count Twelve, Conversion.¹

On April 3, 2018, the Plaintiffs filed a "Memorandum in Support of Plaintiff JTH Tax, Inc. d/b/a Liberty Tax Service and SiempreTax, L.L.C.'s Opposition to Defendant Maurice Williams' Partial Motion to Dismiss" ("Opposition"). ECF No. 34. On April 9, 2018, Mr. Williams filed "Reply Brief in Support of Maurice Williams' Rule 12(b)(6) Partial Motion to Dismiss" ("Reply"). ECF No. 36. The Partial Motion to Dismiss is now ripe for review.

I. FACTUAL HISTORY

The Plaintiffs are franchisors of Liberty Tax Service income tax preparation service centers located throughout the United States. Am. Compl. ¶¶ 9–11. Franchisees are granted licenses to use the Plaintiffs' trademarks, service marks, logos, and derivations thereof ("Marks") and to participate in Plaintiffs' business system pursuant to franchise agreements. Id. ¶ 13. The Defendant, Tiffany Williams ("Ms. Williams") entered into twenty-eight (28) franchise agreements for territories located in Arizona, while Mr. Williams supervised the day-to-day operations of the locations. Id. ¶¶ 18–19.

On January 3, 2018, the Plaintiffs terminated the franchise agreements for two (2) of Ms. Williams's franchises: Number 7763 and Number 7015. Id. ¶¶ 50–51. The dispute in this case arises from Ms. Williams's alleged violations of her post-termination obligations—including using the Plaintiffs' Marks and confidential information, as well as failing to return confidential files and records—and Mr. Williams's role in those alleged violations. Id. ¶¶ 55–60.

II. STANDARD OF REVIEW

Pursuant to Rule 12(b) (6), a complaint must be dismissed when a plaintiff's allegations fail to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b) (6). "To survive a motion to dismiss, a complaint 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 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). Facial plausibility means that a "plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955 ). It is, therefore, not enough for a plaintiff to allege facts demonstrating a "sheer possibility" of or "mere[ ] consist[ency]" with unlawful conduct. Id. (citing Twombly, 550 U.S. at 557, 127 S.Ct. 1955 ).

In determining the sufficiency of a complaint, the court must accept facts alleged in the complaint as true, and view those facts in the light most favorable to the plaintiff. See, e.g., Venkatraman v. REI Sys., Inc., 417 F.3d 418, 420 (4th Cir. 2005). However, pleadings that "are no more than conclusions, are not entitled to the assumption of truth." Iqbal, 556 U.S. at 679, 129 S.Ct. 1937. "[A] formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555, 127 S.Ct. 1955. Accordingly, the court's review involves separating the conclusory legal statements from the factual allegations. See Burnette v. Fahey, 687 F.3d 171, 180 (4th Cir. 2012). After doing so, the court should not grant a defendant's motion to dismiss if the plaintiff "articulate [s] facts, when accepted as true, that ‘show’ that the plaintiff has stated a claim entitling him to relief." Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009) (quoting Iqbal, 556 U.S. at 677–78, 129 S.Ct. 1937 ).

When considering a motion to dismiss, courts are "generally limited to a review of the allegations of the complaint itself." Goines v. Valley Cmty. Servs. Bd., 822 F.3d 159, 165–66 (4th Cir. 2016). The court may "consider documents that are explicitly incorporated into the complaint by reference, ... and those attached to the complaint as exhibits." Id. at 166 (citation omitted). Further, courts "may consider a document submitted by the movant that was not attached to or expressly incorporated in a complaint, so long as the document was integral to the complaint and there is no dispute about the document's authenticity." Id.

However, the court need not consider "new allegations or new facts" that were available to the plaintiff when it filed the complaint, but were only introduced "in an opposition to a defendant's motion to dismiss." Hooker v. Disbrow, No. 1:16cv1588, 2017 WL 1377696, at *4 (E.D. Va. Apr. 13, 2017) (citing Barclay White Skanska, Inc. v. Battelle Mem'l Inst., 262 F. App'x 556, 563 (4th Cir. 2008) ). In this case, the Plaintiffs attempt to raise new legal theories of liability and allege new facts that were not contained in the Amended Complaint. See, e.g., Pl. Opp'n at 10–12 (alleging claim for false advertising under the Lanham Act for the first time); id. at 15 (alleging agency relationship between Mr. Williams and Ms. Williams for the first time).² The Plaintiff does not argue that these legal theories and facts were unavailable at the time the Amended Complaint was filed.

Therefore, to the extent that any factual or legal allegations in the Plaintiffs' Opposition contradict or diverge from those in the Amended Complaint, the court will consider only the version of the allegations that appears in the Amended Complaint. See Marks v. Dann, 600 F. App'x 81, 89 (4th Cir. 2015) ("The district court properly deemed these matters outside the complaint and refused to consider them as part of its Rule 12(b)(6) analysis."); Morgan Distrib. Co. v. Unidynamic Corp., 868 F.2d 992, 995 (8th Cir. 1989) ("[I]t is axiomatic that a complaint may not be amended by briefs in opposition to a motion to dismiss.... To hold otherwise would mean that a party could unilaterally amend a complaint at will." (citations omitted) ).

III. COUNT FIVE: FALSE DESIGNATION AND MISREPRESENTATION OF ORIGIN

Count Five of the Amended Complaint alleges that the Defendants' conduct constituted false designation and misrepresentation of origin, in violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). Am. Compl. ¶¶ 91–97.³ Section 43(a) of the Lanham Act states, in relevant part:

(1) Any person who, on or in connection with any goods or services, ... uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which—

(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person

* * *

shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

15 U.S.C. § 1125(a) (1) (A).⁴

To state a false designation claim, the Plaintiffs must plead that the Defendants used a designation in interstate commerce in connection with goods and services; that the designation was "likely to cause confusion, mistake or deception as to origin, sponsorship, or approval of defendant's goods or services"; and that the Plaintiffs were, or are likely to be, damaged by these acts. Am. Online, Inc. v. LCGM, Inc., 46 F.Supp.2d 444, 449 (E.D. Va. 1998).

The Plaintiffs allege that Mr. Williams, "as manager of the franchise locations," promotes his "businesses using promotions that are almost identical to such promotions employed by Liberty, and for the purpose of promoting tax preparation businesses." Am. Compl. ¶ 93. These promotions are described as "dressing employees similarly to the Statue of Liberty and waiving to passers-by in an attempt to draw customers to the store, as well as offering customers $50.00 for tax preparation referrals." Id. ¶ 59. The Plaintiffs allege that these promotions, combined with the continued use of the franchise locations as Mr. Williams's tax preparation centers, "give customers the impression such stores are Liberty Tax stores," and, further, were undertaken by Defendants "to cause confusion, or to cause mistake, or to deceive." Id. ¶¶ 94, 96. From this conduct, the Plaintiffs allege "damages to the value of the Marks and to customer goodwill," monetary damages, and irreparable injury. Id. ¶¶ 95, 97.

Courts have found that facts alleging a defendant's use of marks that "deceive or confuse customers...