Mott's LLP v. Comercializadora Eloro

507 F.Supp.3d 780

MOTT'S LLP, Plaintiff,

v.COMERCIALIZADORA ELORO, S.A. and Vilore Foods Company, Inc., Defendants.

No. 5:20–CV–651–DAE

United States District Court, W.D. Texas, San Antonio Division.

Signed December 14, 2020

Aaron D. Davidson, Cole Schotz, PC, Dallas, TX, for Plaintiff.

Aaron Fountain, DLA Piper LLP, Austin, TX, Jordan Chisek, Pro Hac Vice, DLA Piper LLP, San Francisco, CA, Matthew Ganas, DLA Piper LLP, New York, NY, Melissa A. Reinckens, DLA Piper LLP, San Diego, CA, for Defendants.

ORDER DENYING PARTIAL MOTION TO DISMISS AND DENYING MOTION TO STAY

David Alan Ezra, Senior United States District Judge

Before the Court are two motions filed by Defendant Vilore Foods Company, Inc. ("Defendant" or "Vilore"). The first is a partial motion to dismiss filed on August 10, 2020 (Dkt. # 16), and the second is a motion to stay the proceedings as to Vilore Foods Company filed on August 11, 2020 (Dkt. # 18). This Court held a hearing on the pending motions on November 24, 2020. (See Dkt. # 35.) After careful consideration of the memorandum filed in support of and against the motions, the Court—for the reasons that follow—DENIES both motions.

FACTUAL BACKGROUND

This lawsuit arises out of an ongoing trademark dispute between Comercializadora Eloro, S.A. ("Eloro") and Mott's LLP ("Plaintiff" or "Mott's").

Mott's, founded in 1842, produces juice and other products throughout the United States. (Dkt. # 1 ¶ 7.) It owns numerous trademarks, including U.S. Trademark Reg. No. 699,486 ("Clamato Trademark"). (Id. ¶ 8.) Mott's uses this trademark to market and sell Clamato tomato juice cocktail, which was invented in the 1960's. (Id. ¶¶ 9, 12.) The beverage has an additional flavor to clam broth and allegedly "created an entirely new category of blended juice beverages known as ‘seafood blends.’ " (Id. ¶¶ 10, 12.) According to Mott's, the Clamato tomato juice cocktail "was the first in its class, and the Clamato Trademark has maintained its prominent national recognition among seafood blend juice cocktails for decades." (Id. ¶ 13.)

Mott's had acquired Clamato from Nestle, who retained the rights to sell competing products in Mexico, including a beverage called "Kermato." The name was apparently created by combining the words "Clamato" and "Kerns." (Id. ¶ 14.) Kermato could be sold only in Mexico while Clamato could be sold only in the United States. In other words, the parties agreed not to compete across borders.

According to Mott's, Eloro acquired some beverages from Nestle but did not acquire Kermato. Eloro acted as a licensee in Mexico before Eloro began marketing and selling Kermato in the United States in 2015. (Id. ¶ 14.) Eloro registered the Kermato mark with the U.S. Patent and Trademark Office in April 2016. (Dkt. # 16, Ex. 1.)

Vilore is Eloro's domestic distributor of Kermato-branded products. (Dkt. # 1 ¶ 15.) According to Vilore's Partial Motion to Dismiss, Vilore began distributing Kermato products at some point between mid-2019 and early-2020. (Dkt. # 16.)

PROCEDURAL HISTORY

Plaintiff filed a lawsuit against Eloro in the Northern District of Texas in February 2018. See Complaint, Mott's LLP v. Comercializadora Eloro, S.A., Case No. 3:18-CV-00318 (Feb. 7, 2018 N.D. Tex.), ECF No. 1. Plaintiff, however, voluntarily dismissed the case without serving Eloro with process in Mexico. Id., ECF No. 10. In March 2018, Plaintiff also petitioned for cancellation of Eloro's Kermato trademark registration ("Cancellation Proceeding"), which remains pending before the Trademark Trial and Appeals Board ("TTAB"). (See Dkt. # 16, Ex. 3.) The Cancellation Proceeding has been suspended several times (Dkts. ## 20, 24), but it is near the close of discovery (Dkts. ## 18, 24).¹

More than two years later, Mott's has re-filed this lawsuit asserting the same causes of action against Eloro as in their 2018 action, but now adds Vilore as a defendant. (Dkt. # 1.) Mott's filed its Complaint on May 29, 2020 asserting four claims against Defendants: (1) trademark infringement under the Lanham Act; (2) trademark infringement under Texas law; (3) violation of the Texas Anti-Dilution Statute; and (4) unfair competition under Texas law. (Id. ) To this date, only Vilore has been served with process.² (Dkt. # 9.)

In response, Vilore has filed a Partial Motion to Dismiss (Dkt. # 16) and a Motion to Stay the Proceedings (Dkt. # 18). Defendant moves to dismiss Plaintiff's state dilution claim and its request for statutory and treble damages. (Dkt. # 16.) Defendant seeks to stay the proceedings until the TTAB has rendered a decision in the Cancellation Proceeding. (Dkt. # 18.)

LEGAL STANDARDS

Federal Rule of Civil Procedure 12(b)(6) authorizes dismissal of a complaint for "failure to state a claim upon which relief can be granted." To survive a Rule 12(b)(6) motion to dismiss, a 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, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "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." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). In analyzing whether to grant a 12(b)(6) motion, a court accepts as true "all well-pleaded facts" and views those facts "in the light most favorable to the plaintiff." United States ex rel. Vavra v. Kellogg Brown & Root, Inc., 727 F.3d 343, 346 (5th Cir. 2013) (citation omitted). A court need not "accept as true a legal conclusion couched as a factual allegation." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.

A district court has broad discretion to stay proceedings to "control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants." Landis v. N. Am. Co., 299 U.S. 248, 254, 57 S.Ct. 163, 81 L.Ed. 153 (1936). The party moving for a stay bears a "heavy burden" to demonstrate that it is appropriate. See Coastal (Bermuda) Ltd. v. E.W. Saybolt & Co., 761 F.2d 198, 203 n.6 (5th Cir. 1985).

DISCUSSION

I. Partial Motion to Dismiss

In its Partial Motion to Dismiss, Defendant moves to dismiss Plaintiff's claim under the Texas Anti-Dilution Statute and its request for statutory and treble damages. For the reasons stated below, the Court denies Defendant's Partial Motion to Dismiss.

A. State Dilution Claim

In Defendant's Partial Motion to Dismiss, Vilore provides two reasons why Plaintiff has failed to state its state antidilution claim under Rule 12(b)(6). (Dkt. # 16.) First, Vilore alleges that Plaintiff's state dilution claim is barred under 15 U.S.C. § 1125(c)(6). (Id. ) Second, Vilore argues that Plaintiff has failed to plead any facts in support of its claim beyond conclusory allegations. (Id. )

According to Vilore, Plaintiff's state dilution claim is barred as a matter of law. The statutory bar, 15 U.S.C. § 1125(c)(6), states:

The ownership by a person of a valid registration ... on the principal register under this chapter shall be a complete bar to an action against that person, with respect to that mark, that—

(A) is brought by another person under the common law or a statute of a State; and

(B) (i) seeks to prevent dilution by blurring or dilution by tarnishment; or (ii) asserts any claim of actual or likely damage or harm to the distinctiveness or reputation of a mark, label, or form of advertisement.

15 U.S.C. § 1125(c)(6). Because Eloro's Kermato mark is registered with the U.S. Patent and Trademark Office, Vilore contends that the statute completely bars Plaintiff's state law claim. (Dkts. ## 16, 23.) Further, Vilore suggests that the statutory bar would be rendered meaningless if a party could circumvent it by merely adding a claim to challenge the trademark's validity. (Id. ) Plaintiff, on the other hand, argues that since it is currently challenging the validity of Eloro's trademark in the Cancellation Proceeding before the TTAB, this Court should not dismiss its state law claim. (Dkt. # 19.) Mott's focuses on several cases where federal courts have refused to dismiss state dilution claims in the early stages of litigation when the validity of the trademark at issue is being challenged. (Id. ) Mott's also points to the statutory language—which requires the registration to be "valid"—arguing that "courts must interpret the statutory language as creating a defense against anti-dilution claims only where there is no dispute as to the validity of the trademark registration." (Id. ) In the motion hearing, Mott's also pointed out that the word "owner" in the statute prevents Vilore from relying on the statutory bar because it is the distributor of Kermato, not the owner of the trademark.

The Court agrees with Plaintiff. First, the statutory text is clear that the bar on state dilution claims applies only to claims against the owner of the trademark. See 15 U.S.C. § 1125(c)(6) ("The ownership by a person of a valid registration ... on the principal register under this chapter shall be a complete bar to an action against that person, with respect to that mark."). There is not much authority with respect to this issue. Some courts have held that the statutory bar applies when the defendant is a parent corporation of a wholly-owned subsidiary that owns the trademark. See e.g., N.J. Physicians United Reciprocal Exch. v. Privilege Underwriters, No. 15-6911(FLW), 2016 WL 6126914, at *5 (D.N.J. Oct. 18, 2016). In N.J. Physicians, the district court held that when a wholly-owned subsidiary that is controlled by a parent corporation owns a trademark, the trademark can be treated as "the common property of the parent and the subsidiary corporation." Id. Therefore, both the parent company and the subsidiary are the "owners" for purposes of 15 U.S.C. § 1125(c)(6). Id. However, that is not the case here. Vilore is merely the United States distributor of the Kermato beverage—not a parent company...