United States District Court, N.D. California, San Jose Division
September 16, 2005.
AUREFLAM CORPORATION, Plaintiff,
PHO HOA PHAT I, INC., ET AL, Defendants.
The opinion of the court was delivered by: RICHARD SEEBORG, Magistrate Judge
ORDER GRANTING PLAINTIFF'S MOTION TO DISMISS DEFENDANTS' SECOND
AND THIRD COUNTERCLAIMS
Plaintiff Aureflam Corporation ("Aureflam") moves to dismiss
the second and third amended counterclaims filed by defendants
Pho Hoa Phat I, Inc., Pho Hoa Phat II, Inc., and Johnny Lee
(collectively, "PHP") for failure to state sufficient claims
under Fed.R.Civ.Pro. 12(b)(6) and 9(b), or, in the
alternative, for a more definite statement under
Fed.R.Civ.Pro. 12(e). The motion is based on Aureflam's contentions that,
(1) PHP has failed to plead fraud with particularity as required
under Fed.R.Civ.Pro. 9(b); (2) statutory damages under
15 U.S.C. § 1120 are not available in the absence of a sufficient
averment of fraud; and, (3) PHP's claim for injunctive relief
under Cal. Bus. & Prof. Code § 17200 is unavailable under the
facts as plead in the complaint. The motion was fully briefed and
heard by the Court on September 14, 2005. Based on all papers
filed to date, as well as on the oral argument of counsel, Aureflam's motion to dismiss the second and third
amended counterclaims is granted, as explained below.
Aureflam operates a chain of restaurants serving
Vietnamese-style cuisine under the name "Pho Hoa" and is also the
owner of the federally registered service mark "Pho Hoa" covering
the field of "restaurant services," registered at the United
States Patent & Trademark Office ("PTO") on November 19, 1996
(Registration No. 2,017,091). PHP operates Vietnamese-style
restaurants that conduct business under the name "Pho Hoa Phat."
Prior to this lawsuit, Aureflam demanded that PHP cease and
desist the use of the name "Pho Hoa Phat," but PHP refused.
Thereafter, Aureflam filed a complaint, alleging infringement
of its federally registered service mark on the term "Pho Hoa" in
the category of restaurant services and alleging that PHP is
engaged in an unlawful business practice under California's
Unfair Competition Law, Cal. Bus. & Prof. Code § 17200. PHP filed
counterclaims for 1) cancellation of Aureflam's service mark
registration; 2) damages resulting from fraud upon the PTO; and,
3) injunctive relief under Section 17200. Aureflam moved to
dismiss those counterclaims. By order issued on June 24, 2005,
Aureflam's motion was granted in part and denied in part.
Specifically, Aureflam's motion to dismiss PHP's first
counterclaim was denied while the motion to dismiss the second
and third counterclaims was granted with leave to amend. On July
25, 2005 PHP filed amended counterclaims and Aureflam now moves
to dismiss the second and third amended counterclaims.
In ruling on a motion to dismiss, the court must accept as true
all allegations of material fact and must construe those
allegations in the light most favorable to the non-moving party.
Western Reserve Oil & Gas Co. v. New, 765 F.2d 1428, 1430 (9th
Cir. 1985). Any existing ambiguities must be resolved in favor of
the pleading. Walling v. Beverly Enterprises, 476 F.2d 393, 396
(9th Cir. 1973). That said, "A complaint. . . . should serve to
seek redress for a wrong, not to find one." Segal v. Gordon,
467 F.2d 602, 607-08 (2nd Cir. 1972). With these standards in
mind, the court now reviews the allegations contained in
IV. DISCUSSION A. PHP's Fraud Damages Counterclaim
Aureflam argues that PHP has again failed to meet its burden to
allege fraud in a trademark action under Fed.R.Civ.Pro. 9(b),
PHP's new allegation that Aureflam falsely and fraudulently filed
a "Declaration of Incontestability of a Mark" under the Lanham
Act notwithstanding. PHP responds that it has adequately pled
As stated in the Court's prior order, since PHP is pleading
fraud in its counterclaim for damages, it must fulfill the
heightened pleading requirements of Fed.R.Civ.Pro. 9(b). To
demonstrate fraud, a pleading must identify the "time, place and
nature of the alleged fraudulent activities"; however, "mere
conclusory allegations of fraud are insufficient." Moore v.
Kayport Package Exp., Inc., 885 F.2d 531, 540 (9th Cir. 1989). A
fraud claim must specifically state the alleged fraud itself.
"Plaintiffs may fairly be expected to identify with specificity
the defendant's alleged misrepresentations, though they are not
expected to plead with specificity the defendant's state of
mind." Concha v. London, 62 F.3d 1493, 1503 (9th Cir. 1995)
Aureflam relies on the requirements set forth in Intellimedia
Sport Inc. v. Intellimedia Corp., 43 U.S.P.Q. 2d 1203 (T.T.A.B.
1997) to support its motion to dismiss the claims that the oath
or declaration in its application for registration of the mark
was executed fraudulently. In that case, the court held that a
Must allege particular facts which, if proven, would
establish that: (1) there was in fact another use of
the same or confusingly similar mark at the time the
oath was signed; (2) the other user had legal rights
superior to applicant's; (3) applicant knew that the
other user had rights in the mark superior to
applicant's, and either believed that a likelihood of
confusion would result from applicant's use of its
mark or had no reasonable basis for believing
otherwise; and that (4) applicant, in failing to
disclose these facts to the Patent and Trademark
Office, intended to procure a registration to which
it was not entitled.
Id. at 1206.
PHP submits that it has met the Intellimedia Sports
requirement by stating that as of May 25, 1995, when Aureflam
applied for the mark:
there were many restaurants using the name "Pho Hoa"
as part or all of their name, in Vietnam, in the
United States and in other countries; the name "Pho
Hoa" is commonly known by those who share Vietnamese
culture as generically designating a restaurant that
serves pho; all restaurants had identical rights to
use such phrase drawn from Vietnamese culture; the
applicants knew that they had no legal claim to
exclusive use of the phrase; the applicants knew that
no trademark could rightfully be issued for "Pho Hoa"; and applicants
knew that they were falsely and fraudulently
declaring that "no other person, firm, corporation or
association has the right to use the above identified
mark in commerce, either in the identical form
thereof or in . . . near resemblance thereto."
(See Amended Counterclaim at pp. 6-7).
This generalized statement of Aureflam's alleged knowledge
containing conclusions but without factual support does not rise
to the level of particularity outlined in Intellimedia Sports
and required by Fed.R.Civ.Pro. 9(b). Similarly, the amended
counterclaim does not allege any particular facts to support
PHP's claim that the Declaration of Incontestability of a Mark
was filed falsely or fraudulently by Aureflam in November 2004.
If the only defect this Court found in the second amended
counterclaim was the failure by PHP to meet the requirements
under Rule 9(b), leave to amend might well be warranted one final
time. In this instance, however, leave to amend would be futile
as PHP has also failed to allege any new facts which satisfy the
direct injury requirement for a Section 1120 claim.
In granting Aureflam's prior motion to dismiss, the Court noted
that to claim damages under 15 U.S.C. § 1120, PHP must
demonstrate the allegedly fraudulent registration of the "Pho
Hoa" mark caused a legally cognizable injury. In arriving at that
conclusion, the Court relied on Gilbert/Robinson, Inc. v. Carrie
Beverage-Missouri, Inc., 989 F.2d 985, 990 (8th Cir. 1993), in
which the Eighth Circuit held that injury from Section 1120
counterclaims must arise from and at the time of registration
rather than through later use. In its amended counterclaim, PHP
simply disputes that conclusion instead of advancing facts that
demonstrate injury as a direct result of the allegedly fraudulent
service mark application. PHP again relies on Academy Award
Products, Inc. v. Bulova Watch Co., 129 F. Supp. 780 (S.D.N.Y.
1955), aff'd, 233 F.2d 449 (2d Cir. 1956) to support its
contention that it has been injured by Aureflam's continuing
violation. As noted in the previous order, however, Academy
Award Products is distinguishable in that, there, the plaintiff
obtained a fraudulent mark intentionally to harass the particular
defendant, an averment not present in the amended counterclaims.
As PHP did not exist when Aureflam registered the "Pho Hoa"
trademark, it simply cannot have been registered with the intent
to harass PHP. Likewise, PHP has not adequately averred how it
was damaged by the Declaration of Incontestability, which it
conclusorily labels as fraudulent.*fn1 As PHP has not alleged any new facts
sufficient to meet the pleading burden for fraud under Rule 9(b),
nor has it alleged any new facts sufficient to sustain a Section
1120 claim, Aureflam's motion to dismiss PHP's second amended
counterclaim is granted without leave to amend.
C. PHP's Unfair Business Practices Counterclaim
Aureflam's previous motion to dismiss the third counterclaim
was granted with leave to amend in light of the inadequacy of
PHP's underlying fraud claim and concomitant lack of actual
injury for purposes of Section 17200. Additionally, the Court
stated that PHP had not met the requirements of Cal. Civ. Code.
Proc § 382 in pleading its claim as a representative action.
In its amended counterclaim PHP has failed, as discussed above,
to plead properly its claim that the "Pho Hoa" mark was
fraudulently obtained. Therefore the "actual injury" required for
a Section 17200 claim is still missing. PHP argues that it has
suffered an actual injury by virtue of the attorneys' fees
incurred in responding to the principal claim filed by Aureflam.
The Court has not located, nor did PHP cite, any authority which
supports the proposition that attorneys' fees incurred in this
action may constitute an actual injury for purposes of a Section
17200 counterclaim. PHP argues that there are several cases on
review at the California Supreme Court involving the definition
of "actual damages" and that this uncertainty should caution
against dismissal. While it is true several of the cases
originally cited by Aureflam*fn2 are presently under review
at the California Supreme Court, they present the issue of the
retroactivity of the voter approved Proposition 64. Although it
is perhaps conceivable that a definition of "actual damages" may
emanate from the state Supreme Court on those cases that would
include attorneys' fees, there is no current authority which
provides that such fees constitute an actual injury for the
purpose of Section 17200.
Furthermore, even if PHP had alleged an actual injury, it would
also have to meet the representative action requirements set
forth in Cal. Civ. Code Proc. § 382. See Global Minerals &
Metals Corp. v. Sup. Ct., 113 Cal. App. 4th 836, 858 (2003).
PHP argues it has met those requirements and can "pursue this action as a representative of restaurant owners and operators who
use the phrase `Pho Hoa' in connection with their restaurants".
(See Opposition at p. 13). This general attempt to allege a
class, however, is too imprecise to constitute an ascertainable
class which would afford proper notice to its members or allow
Aureflam to frame an appropriate defense.
Accordingly, since PHP has not properly pled its claim that the
service mark was fraudulently obtained, and because attorneys'
fees do not appear to constitute an actual injury under the
statute, Aureflam's motion to dismiss PHP's third amended
counterclaim is granted without leave to amend.
D. Aureflam's Alternative Motion For a More Definite
As PHP's counterclaims have been dismissed, Aureflam's
alternative motion for a more definite statement is denied as
For the reasons stated herein, Aureflam's motion to dismiss
PHP's second and third amended counterclaims without leave to
amend is granted.
IT IS SO ORDERED.
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