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Wahoo International, Inc. v. Phix Doctor, Inc.

United States District Court, S.D. California

June 23, 2015

PHIX DOCTOR, INC., a Florida Corporation; and DOES 1-10, Defendants. PHIX DOCTOR, INC., a Florida Corporation and ANTHONY GOWER, an individual, Counter-Plaintiffs,
WAHOO INTERNATIONAL, INC., a California Corporation; GARY FISHER, an individual; MARK CAPPA, an individual; and STAY COVERED, INC., and DOES 1-10, Counter-Defendants.


GONZALO P. CURIEL, District Judge.

Before the Court is Counterdefendants Wahoo International, Inc. ("Wahoo") and Gary Fisher's ("Fisher") motion to dismiss amended counterclaim pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(6). (Dkt. No. 107.) On May 15, 2015, Counterdefendants Mark Cappa and Stay Covered, Inc.'s ("Stay Covered") filed a notice of joinder to Wahoo and Fisher's motion to dismiss. (Dkt. No. 111.) On May 29, 2015, Counterclaimants Phix Doctor, Inc. and Anthony Gowen filed an opposition. (Dkt. No. 116.) Counterdefendants filed their replies. (Dkt. Nos. 117, 118.) Based on the reasoning below, the Court GRANTS Counterdefendants' motion to dismiss the amended counterclaim without leave to amend.

Procedural Background

On December 19, 2014, Defendants and Counterclaimants Phix Doctor, Inc. ("Phix Doctor") and Anthony Gowen ("Gowen") filed a counterclaim against Plaintiff and Counterdefendants Wahoo International, Inc., ("Wahoo"), Gary Fisher ("Fisher"), and Mark Cappa ("Cappa") for antitrust violations pursuant to 15 U.S.C. § 2, and wire fraud pursuant to the Racketeer Influenced and Corrupt Organization Act ("RICO") statute, 18 U.S.C. § 1343. (Dkt. No. 81 at 11.)

On February 19, 2015, the Court granted Counterdefendants' motion to dismiss with leave to amend. (Dkt. No. 101.) The Court concluded that the counterclaim failed to allege a claim under the Sherman Act and wire fraud under RICO. (Id.) On March 6, 2015, Counterclaimants filed an amended counterclaim against Wahoo and Fisher, and a third party complaint[1] against Stay Covered Inc. and its principal agent, Mark Cappa and added ten additional causes of action as to all Counterdefendants. (Dkt. No. 102.)

On May 1, 2015, Counterdefendants Fisher and Wahoo filed a motion to dismiss the amended counterclaim. (Dkt. No. 107.) On May 15, 2015, Mark Cappa and Stay Covered filed a notice of joinder in the motion. (Dkt. No. 111.) On May 29, 2015, Counterclaimants filed an opposition. (Dkt. No. 116.) On June 5, 2015, Counterdefendants filed their replies. (Dkt. Nos. 117, 118.)

Factual Background

Phix Doctor is a Florida corporation which sells resin for surfboards and other water related product repair. (Dkt. No. 102, Counterclaim ¶ 2.) Until August 2014, Phix Doctor was using the mark "Dura-Rezn" and prior to that "Dura-Rez." (Id.) Gowen is the President and main shareholder of Phix Doctor. (Id. ¶ 3.) Wahoo is a California corporation and a competitor in the resin industry with Phix Doctor. (Id. ¶ 4.) It conducts business in California and Florida. (Id.) Counterdefendant Fisher is the President of Wahoo. (Id. ¶ 5.) Mark Cappa is an agent of Phix Doctor and directly interfered with Phix Doctor's business relations. (Id. ¶ 6.) Stay Covered, Inc. is a California corporation which also contracts with Wahoo, and Cappa is its principal agent. (Id. ¶ 7.)

According to the amended counterclaim, the term "rez" has been trademarked in the resin industry since before the 1950s.[2] (Id. ¶ 10.) The term "rez" is a common and generic term for "resin." (Id.) In the 1980s, Sunrez was selling resin products to Wahoo and has overlapping business with Wahoo. (Id. ¶ 11.) One of Wahoo's product is a resin produced for repairing damage to fiberglass frames such as boats, surfboards, and pools. (Id. ¶ 12.) Wahoo trademarked "SOLAREZ" for its resin repair product and directly targets Florida and the rest of the country. (Id.) Phix Doctor also produced resin under the trademark name "Dura Rez" and was sued in the instant lawsuit for infringing "SOLAREZ." (Id. ¶ 13.) Wahoo claims it has a trademark on the suffix "rez" but it only has three registered trademarks, "Wahoo", "Bullyboard" and "SOLAREZ." (Id.) Moreover, there are other companies that also manufacture resin with the "rez" suffix which predate Wahoo's trademark. (Id.)

As Phix Doctor obtained more market share, Wahoo took notice and decided to hurt competition and its competitor. (Id. ¶ 14.) In December 2012, Wahoo directed its attorneys to send a cease and desist letter to Phix Doctor claiming it had ownership of a family of marks, "rez", and that "Dura-Rez" was infringing its mark. (Id. ¶ 15.)

After discussions with Gary Fisher, he agreed that "Dura-Rezn" was an acceptable change to the mark to satisfy its claim of infringement. (Id. ¶ 16.) Phix Doctor relied on the agreement and statements from Fisher and spent significant resources to change its mark and branding. (Id. ¶¶ 16, 17.) The communications with Fisher were done via interstate channels of communications and/or U.S. mail. (Id. ¶ 16.) Fisher falsely represented that he would not pursue the infringement action when it made the representations to Phix Doctor regarding "Dura-Rezn." (Id. ¶ 17.) After Phix Doctor agreed to change its mark to "Dura-Rezn", Wahoo still insisted that its mark was being infringed upon. (Id. ¶ 18.)

Wahoo filed this case alleging trademark infringement, trademark dilution and other state law claims against Phix Doctor in June 2013 when it knew it had no reasonable belief in the allegations in the complaint or any reasonable belief "rez" was owned by Wahoo. (Id. ¶ 20.) The amended counterclaim alleges that Wahoo is a "trademark troll" by falsely claiming to have an exclusive right to the mark "rez" and bringing sham litigation against other competitors and attempting to extract a quick settlement and to hurt competition. (Id. ¶¶ 20-22.) Wahoo has used its position as the more established and senior producer of resin to prevent new competition from entering the market or thwarting new competition. (Id. ¶ 23.)

Moreover, since at least 2010, Wahoo was not using proper shipping labels as required when shipping hazardous material via U.S. mail. (Id. ¶ 24.) As a result, Wahoo paid less in shipping costs which gave it a competitive advantage in shipping resin products over its competitors that were properly labeling its products. (Id.) Furthermore, Wahoo is attempting to harm its competitor by filing this lawsuit, attempting to monopolize the mark, "rez", and harm Phix Doctor by having it expend money on legal fees. (Id. ¶ 25.) Counterclaimants assert that Wahoo's sham litigation and improper shipping allows it an anti-competitive advantage over competitors and impedes innovation. (Id. ¶ 27.)

Wahoo engaged in anti-competitive tactics when it, in July 2014, under the direction of Fisher, began sending cease and desist letters to distributors and retailers of Phix Doctor via interstate channels of communication such as facsimile, emails and letters that contained false allegations regarding its ownership of the "rez" trademark. (Id. ¶ 28.) Counterdefendants knew the letters were false, baseless and intended to disrupt the business relationships of Phix Doctor. (Id. ¶ 34.) When Phix Doctor informed Wahoo that it sold its rights to "Dura Rez" and "Dura-Rezn" to Sunrez, Inc., Wahoo has taken no steps to assert its trademark on Sunrez because its goal was directed at smaller competitors, such as Phix Doctor. (Id. ¶ 30.)

Phix Doctor[3] also believes that false information, through cease and desist letters, regarding ownership of the trademark was communicated to third party relationships of Phix Doctor but Wahoo did not intend to pursue litigation with the third parties. (Id. ¶ 31.) Wahoo intended to defraud third parties to end their business relationships with Phix Doctor. (Id. ¶ 32.) As a result, various independent sales agents of Phix Doctor and Wahoo were induced to stop selling Phix Doctor's products or sell more Wahoo's resin products. (Id. ¶ 33.)

In July 2014, Mark Cappa, an officer of Stay Covered, and one of Phix Doctor's representatives, told customers and distributors of Phix Doctor that they faced liability for selling its products. (Id. ¶ 35.) Cappa knew or was negligent in knowing the allegations were false. (Id.) Cappa was informed of the false information and instructed to participate in Wahoo's scheme and believed his company would profit by continuing to disseminate false information to its customers, which bought products from Wahoo and Phix Doctor. (Id. ¶ 37.) Counterdefendants were aware of the contractual and business relationship when they interfered and knowingly or falsely claims these third parties faced liability if they bought or sold Phix Doctor's products. (Id. ¶ 38.) As a result, various retailers and distributors refused to ...

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