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Mga Entertainment, Inc v. Mattel

February 21, 2012

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 WITH PREJUDICE

Before the Court is a second Motion to Dismiss filed by Defendants Mattel, Inc., and Robert A. Eckert ("Defendants") against Plaintiffs MGA Entertainment, Inc. ("MGA"). After reviewing the motion, opposition, and reply, and after hearing oral argument, the Court concludes that MGA's antitrust claim is barred by res judicata and by Federal Rule of Civil Procedure 13(a). Accordingly, the Court GRANTS Defendants' Motion and DISMISSES WITH PREJUDICE.

I.Background

The gravamen of Defendants' Motion it that Plaintiff's antitrust claim in their First Amended Complaint ("FAC") is barred by res judicata and by Federal Rule of Civil Procedure 13(a). The Court provides the following procedural history, which includes facts derived from several documents judicially noticed by this Court.*fn1

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 appeal of the phase 1 orders. In vacating the constructive trust and injunction, the Ninth Circuit held that this 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 also discarded 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 Original Complaint

On February 3, 2011, two weeks into trial in the prior litigation, MGA filed a complaint ("Original Complaint") in a stand-alone action against Mattel and Eckert ("Defendants"). Original Complaint (11-1063 Dkt. 1). The Original Complaint pled three claims. First, MGA alleged 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." Id. at ¶¶ 52-53. Second, MGA alleged 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 alleged 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.

f.Conclusion of Phase 2 and Effect on Case 11-1063 Motion to Dismiss

On August 4, 2011, this Court rendered judgment on the merits pursuant to a jury verdict in case 04-9049. (Dkt. 10704). The judgment awarded MGA $85 million in compensatory damages, $85 million in exemplary damages, and $2,172,000 in attorneys' fees for MGA's counterclaim-in-reply for trade secret misappropriation. Judgment was entered against MGA regarding its claims for common law unfair competition, statutory unfair competition, trade dress infringement, trade dress dilution, RICO violations, unjust enrichment, and wrongful injunction. Judgment was also entered against Mattel regarding its remaining claims against MGA. MGA was awarded addition attorneys fees and costs of more than $100 million.

On September 12, 2011, Defendants filed a Notice of Finality with the Court indicating that, because a final judgment had been entered in the prior litigation, Defendants' Motion to Dismiss the present case is no longer properly analyzed under the theory of claim-splitting, but rather under res judicata. (11-1063 Dkt. 26).

g.First Motion to Dismiss Case 11-1063

On October 20, 2011, after hours of oral argument, this Court dismissed the Original Complaint. See Order (Dkt. 29). The Court held that Mattel's "conduct in the prior litigation- conduct which must have occurred before August 16, 2010"-is barred by res judicata and Rule 13(a). See id. at 9. However, the Court dismissed without prejudice because it did "not appear impossible for MGA to allege anticompetitive conduct after August 16, 2010." Id. at 20 (emphasis in original).

h.First Amended Complaint in Case 11-1063

On November 10, 2011, MGA filed its First Amended Complaint ("FAC"). The FAC brings one antitrust claim and primarily alleges conduct done by Mattel before MGA's last pleading in the prior litigation on August 16, 2010. See e.g., FAC ¶¶ 32 ("[b]y the late 1990s . . . Mattel's share was over 90% of the fashion doll market"), 33 ("Then came the competition"), 36 ("In June 2001, [MGA] was propelled into the limelight after its daring release of an innovative line of Bratz fashion dolls"), 38 ("Toy Fair in January 2001"), 49 ("By the end of 2003 and early 2004, the reality of Mattel's inability to compete had set in.").

The gravamen of MGA's antitrust claim is that the prior litigation was sham litigation constituting an antitrust violation. The FAC alleges that the prior case was the product of Mattel's "'litigate MGA to death' strategy," in which Mattel "pursued a result"-a constructive trust over the idea of Bratz-that was "so extreme that no objective litigant could have expected it to survive full judicial review." Id. at ¶¶ 52, 59. The FAC alleges that Mattel knowingly litigated claims barred by the statute of limitations and committed discovery abuses that constituted "misrepresentations" to the court. Id. at FAC at ¶¶ 91, 93, 97-99, 87-88 ("after the January 2011 trial commenced, additional facts continued to be uncovered, which further demonstrate that . . . Mattel knew its original case was statute-barred and without any merit," specifically an "internal memo" about an "investigation filed in 2002 that related to whether Bratz was an infringement"); see also id. at ¶¶ 50 ("As MGA proved in the underlying litigation, Mattel's . . . strategy . . . consisted, in part, of anticompetitive practices . . . . Indeed, the jury found that Mattel . . . misappropriated 26 categories of MGA trade secrets . . . ."), 53 ("Carrying out this scorched earth strategy, Mattel filed and ruthlessly pursued claims against MGA . . . . Mattel's litigation strategy involved launching thousands of discovery requests, taking needless depositions, and filing hundreds and hundreds of motions."), 55 (citing cases in 2001 and 2003 recognizing Mattel's aggressive and sometimes sanctionable litigation practices).

The FAC also describes three instances of conduct that could have occurred after August 16, 2010: (1) "during the second trial," Mattel "wrongfully sought to withhold" Mattel's "communications with Kohl's Department Stores" and "35 boxes of Mattel documents," which this Court ordered to be produced (FAC at ¶ 94); (2) "on August 11, 2011," Mattel filed post-trial motions and appealed the adverse judgment it received in the prior litigation (id. at ¶ 79); and (3) Defendants "secured the appointment of an auditor and temporary receiver . . . based on false allegations" in court (id. at ¶ at 93).

Finally, the FAC alleges that this litigation conduct is continuing. See id. at 54 ("Mattel's 'litigate MGA to death' strategy continues unabated to this very day, with Mattel continually aggressively pursuing its baseless claims . . . ."); 80 ("Mattel has developed and continues to ruthlessly deploy a costly, lengthy 'litigate MGA to death' strategy, pursuing a case . . . to accomplish its anticompetitive objectives."). Specifically, the FAC alleges that "[b]eginning at least with the introduction of Bratz in 2001 and continuing uninterrupted through the present time, [Mattel and Eckert have] been continuously violating Section 2 of the Sherman Act by monopolizing and attempting to monopolize the sale and distribution of fashion dolls in the United States. Mattel destroyed the value of a competitive company by pursuing scorched earth, baseless litigation as an anticompetitive business objective." Id. at ¶ 104.

i.Present Motion to Dismiss Case 11-1063

On December 9, 2011, in lieu of an answer, Defendants filed the present Motion to Dismiss that is before the Court.*fn2 (Dkt. 36). In addition to arguments on the merits that this Order does not reach, Defendants contend that MGA's current complaint is procedurally barred either: (1) under the doctrine of res judicata; or (2) because the current claims were compulsory under Federal Rule of Civil Procedure 13(a).

II. Legal Standard

Under Federal Rule of Civil Procedure 12(b)(6), a complaint must be dismissed when a plaintiff's allegations fail to state a claim upon which relief can be granted. In order for a complaint to survive a 12(b)(6) motion, it must state a claim for relief that is plausible on its face. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1950 (2009). A claim for relief is facially plausible when the plaintiff pleads enough facts, taken as true, to allow a court to draw a reasonable inference that the defendant is liable for the alleged conduct. Id. at 1949. If the facts only allow a court to draw a reasonable inference that the defendant is possibly liable, then the complaint must be dismissed. Id. Mere legal conclusions are not to be accepted as true and do not establish a plausible claim for relief. Id. at 1950.Determining whether a complaint states a plausible claim for relief will be a context-specific task requiring the court to draw on its judicial experience and common sense. Id. Dismissal does not require the ...


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