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Mga Entertainment, Inc v. Mattel

October 20, 2011

MGA ENTERTAINMENT, INC., PLAINTIFF,
v.
MATTEL, INC., AND ROBERT A. ECKERT, DEFENDANTS.



The opinion of the court was delivered by: David O. Carter United States District Judge

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS WITHOUT PREJUDICE

Before the Court is a Motion to Dismiss filed by Defendants Mattel, Inc., and Robert A. Eckert against Plaintiffs MGA Entertainment, Inc. After reviewing the motion, opposition, and reply, and after hearing oral argument, the Court GRANTS Defendants' Motion, but dismisses without prejudice.

I.Background

a.Prior Litigation Between Mattel and MGA: Cases 05-2727 and 04-9049

On April 27, 2004, Mattel, Inc., ("Mattel") filed a state court complaint against a former employee Carter Bryant ("Bryant") alleging that Bryant breached his contractual and common law duties to Mattel by failing to disclose his concept sketches and sculpts of the Bratz dolls prior to leaving Mattel for MGA Entertainment, Inc. ("MGA") on or about October 4, 2000. (04-9049 Dkt. 1).

MGA intervened in Mattel's suit and, on April 13, 2005, filed a stand-alone complaint in federal court against Mattel for unfair competition, trade dress infringement, dilution, and unjust enrichment. (05-2727 Dkt. 1). That complaint alleges that Mattel infringed MGA's distinctive packaging and interfered with MGA's business relationships.

On June 19, 2006, the Honorable Stephen G. Larson consolidated these cases. (05-2727 Dkt. 47).

b.Phase 1 of Prior Litigation

Mattel entered into a settlement with Bryant on the eve of the "phase 1" trial, leaving the following claims against MGA and other defendants to be tried to the jury: (1) intentional interference with contract; (2) aiding and abetting breach of fiduciary duty; (3) aiding and abetting breach of duty of loyalty; (4) conversion; (5) statutory unfair competition; (6) declaratory relief; and (7) copyright infringement. (04-9049 Dkt. 3917 at 11). Mattel prevailed on each of its claims. On the basis of the jury's special and general verdicts and after independently examining the similarity between the concept sketches/sculpts and MGA's Bratz dolls, the district court placed the Bratz trademarks in a constructive trust and enjoined MGA from continuing to sell dolls that were substantially similar to Bryant's initial works. MGA appealed.

During the pendency of MGA's appeal of the phase 1 orders, discovery preceded on the claims not tried in the phase 1 trial. Mattel repeatedly amended its pleadings three times, ultimately filing the operative Fourth Amended Answer and Counterclaims ("FAAC"). (04-9049 Dkt. 7714). The FAAC alleged, among other things, MGA's violation of the Racketeering Influenced and Corrupt Organizations Act ("RICO") and trade secret misappropriation. These claims arose from MGA's relationships with Bryant and other former Mattel employees who allegedly stole Mattel's confidential information before leaving Mattel. The FAAC's claims also arose out of MGA's alleged litigation misconduct and unwillingness to comply with the phase 1 jury's verdicts, though many of these allegations were dismissed on August 2, 2010.

MGA, in turn, narrowed its trade dress infringement allegation to the two-pronged claim that Mattel copied MGA's trapezoidal and heart-shaped packaging.

c.Ninth Circuit Ruling Affecting Prior Litigation

On July 22, 2010, MGA prevailed on its appeal. In vacating the constructive trust and injunction, the Ninth Circuit held that the equitable relief was impermissibly broad and predicated upon jury verdicts tainted by erroneous instruction.

d.Phase 2 of Prior Litigation

On August 16, 2010, MGA filed counterclaims-in-reply alleging Mattel's RICO violations, trade secret misappropriation, and wrongful injunction. (04-9049 Dkt. 8583). MGA alleged that Mattel and its CEO, Robert Eckert, ("Eckert") engaged in illegal market research and aggressive tactics in preparation for and during the pending litigation, including discovery abuses, disregard for the statute of limitations, and the pursuit of injunctive relief after phase 1.

On October 5, 2010, the Court dismissed MGA's wrongful injunction claim but permitted MGA's other counterclaims-in-reply. (Dkt. 8892). The Court held that all MGA's counterclaims-in-reply, including the one for wrongful injunction, were compulsory. Id. at 14. However, the Court dismissed MGA's wrongful injunction counterclaim-in-replyon the merits, reasoning that MGA sought to "recover two categories of damages that are unavailable as a matter of law." Id.

On October 22, 2010, in response to the Ninth Circuit ruling, this Court granted MGA's motion for a new trial on all claims and issues tried to the jury in phase 1, finding that the indistinct and inseparable claims were all infected by instructional error. The Court separately discarded with the earlier bifurcation of claims, and ordered that all pending claims between the parties be tried in a single proceeding to commence on January 11, 2011.

On January 5, 2011, the Court granted Mattel summary judgment on MGA's claims for trade dress infringement, dilution, common law unfair competition, and unjust enrichment and MGA's counterclaim-in-reply for a RICO violation. (Dkt. 9600). The Court denied summary judgment as to MGA's claim for statutory unfair competition and MGA's counterclaim-in-reply for trade secret misappropriation.

e.Current Litigation and Motion to Dismiss: Case 11-1063

On February 3, 2011, two weeks into trial in the prior litigation, MGA filed a complaint, referred to here as MGA's "current complaint," in a stand-alone action against Mattel and Eckert ("Defendants"). (Dkt. 1). MGA's current complaint pleads three claims. First, MGA alleges that "beginning at least . . . in 2001 and continuing through the present time [Defendants have] been violating Section 2 of the Sherman Act by monopolizing and attempting to monopolize the sale and distribution of fashion dolls in the United States." (Compl. ¶¶ 52-53). Second, MGA alleges that Mattel sought a remedy in its prior litigation against MGA that "required the district judge to enter a ruling that was an abuse of discretion," giving rise to an abuse of process claim. Id. at¶¶ 59-60. Finally, MGA alleges that Mattel sold Wee 3 Friends "at prices which are below [Mattel's] fully allocated cost," giving rise to a claim under California Business & Professions Section 17043. Id. at ¶¶ 61-62.

The parties stipulated to extending Defendants' deadline for an Answer to March 17, 2011. (Dkt. 9). On March 17, 2011, in lieu of an answer, Defendants filed the present Motion to Dismiss that is before the Court.*fn1 (Dkt. 11). Defendants' Motion raises arguments both on procedural grounds and on the merits. Defendants contend that MGA's current complaint is procedurally barred under the principles of res judicata because: (1) the prior litigation is a product of claim-splitting; or (2) alternatively, because the current claims were compulsory under Federal Rule of Civil Procedure 13. On the merits, Defendants contended that: (1) the Noerr-Pennington doctrine protects litigation not brought in bad faith and thus bars MGA's antitrust and abuse of process claim; (2) California Civil Code Section 47(b) protects litigation that is not a malicious prosecution and thus bars MGA's abuse of process claim; (3) MGA's relief for damages is barred to the extent it arises from a claim for a wrongfully obtained injunction; (4) MGA fails to state an antitrust claim because it fails ...


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