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California Expanded Metal Products Co. v. Klein

United States District Court, C.D. California

May 23, 2017

JAMES A. KLEIN, ET AL., Defendants.



         This matter comes before the court on the court's Order to Show Cause Re: Preliminary Injunction. Having considered the submissions of the parties and heard oral argument, the court enters a preliminary injunction against Defendants and adopts the following Order.

         I. Background

         The history of this case is well known to the parties and described in detail in this Court's prior Orders. In brief, Defendant James Klein (“Klein”) assigned various building material-related patents to a company he helped form, Defendant Blazeframe Industries, Ltd. (“Blazeframe”). Klein, Blazeframe, and Plaintiffs California Expanded M Products Company (“CEMCO”) and ClarkWestern Dietrich Building Systems LLC (“Clark”) litigated several questions regarding the ownership, licensing, and alleged infringement of the patents in a prior case before this court. See No. CV 12-10791-DDP(MRWx) (“the prior case”).

         The parties settled all claims in the prior case. The transcript of a settlement conference constitutes the Settlement Agreement.[1] Blazeframe agreed to transfer the patents to CEMCO, which would then license the patents to Clark and to Blazeframe. Among the material provisions of the Settlement Agreement were terms related to ownership and maintenance of safety certifications, or listings, issued by nonparty Underwriters Laboratories (“UL”). Many architects and contractors will not utilize products that are not UL-approved. At the settlement conference, Clark's counsel asked whether “CEMCO will be maintaining all the UL files . . . .” Blazeframe's counsel responded, “No.” Clark's counsel then said, “Let me ask it a different way. There will be a provision that all the UL files will be maintained - and - by someone, so - such that Clark Dietrich will have the benefit of them as it currently does.” Blazerframe's counsel replied, “I think that's correct.” Clark's counsel clarified that she was “actually talking about the[] UL approvals that are related to the products.” Blazeframe's counsel then stated, “Yes, that's correct. Those are not being transferred and neither is the trademark, but yes, that's all going to be maintained.”

         In the instant case, Plaintiffs allege that Defendants breached the Settlement Agreement and infringed upon the patents. On February 3, 2017, Plaintiffs filed an Ex Parte Application for a Temporary Restraining Order, asserting that Blazeframe had threatened to drop Clark from the UL listings for the licensed products. (Dkt. 53.) At hearing, Defendants agreed to take no further action to de-list Clark, and represented that they would do everything in their power to ensure that Clark either remained listed on the UL certifications or, in the event UL had already de-listed Clark, to reinstate Clark's UL listings. On the basis of that representation, the court vacated Plaintiffs' application for a TRO. (Dkt. 63.)

         Shortly after the February 7 hearing, UL revealed new testing standards, and indicated that the licensed products at issue here will need to demonstrate compliance with the new standards by August 2017. UL further required that listing entities submit new testing plans to UL no later than May 31, 2017. Plaintiffs assert that the parties were aware of impending changes to UL's testing requirements prior to the October 2015 settlement conference that resulted in the Settlement Agreement.

         On May 5, 2017, Plaintiffs filed another Application for A Temporary Restraining Order. (Dkt. 100.) Plaintiffs contended that, despite the representations made at the February 7 TRO hearing, Defendants were once again threatening to “dump” Clark from the UL listings. Indeed, Defendants' counsel represented to Plaintiffs that that “Blazeframe has no duties to ClarkDietrich whatsover.” (Declaration of Anne G. Schoen in Support of TRO, Ex. 5.) Defendants did not oppose Plaintiffs' application. On May 9, 2017, this Court entered a Temporary Restraining Order enjoining Defendants from taking, or failing to take, any action that would result in Clark's removal from any UL listing and requiring Defendants to mitigate the effects of any such actions that had already been taken. The court also ordered Defendants to show cause why a preliminary injunction along similar lines should not be entered. Defendants submitted a written opposition to the entry of a preliminary injunction and all parties appeared before the court on May 22, 2017.

         II. Legal Standard

         A private party seeking a preliminary injunction must show that: (i) it is likely to succeed on the merits; (ii) it will suffer irreparable harm in the absence of preliminary relief; (iii) the balancing of the hardships and equities between the parties that would result from the issuance or denial of the injunction tips in its favor; and (iv) an injunction will be in the public interest. Winter v. Natural Res. Defense Counsel, 555 U.S. 7, 20 (2008). Preliminary relief may be warranted where a party: (i) shows a combination of probable success on the merits and the possibility of irreparable harm; or (ii) raises serious questions on such matters and shows that the balance of hardships tips in favor of an injunction. See Arcamuzi v. Continental Air Lines, Inc., 819 F.2d 935, 937 (9th Cir. 1987). “These two formulations represent two points on a sliding scale in which the required degree of irreparable harm increases as the probability of success decreases.” Id. Under both formulations, the party must demonstrate a “fair chance of success on the merits” and a “significant threat of irreparable injury” absent the issuance of the requested injunctive relief.[2] Id.

         III. Discussion

         A. Likelihood of Success on the Merits Plaintiffs have demonstrated that they are likely to succeed on the merits of their UL listing-related claims. The Settlement Agreement clearly states that the UL listings will be “maintained” in such manner “that Clark[] will have the benefit of them . . . .” Blazeframe was very clear that it would retain those listings, and would not transfer them to CEMCO along with the patents. Thus, notwithstanding Blazeframe's counsel's representation that “Blazeframe has no duties to ClarkDietrich whatsover, ” it appears beyond dispute that Blazeframe agreed to “maintain” the listings for Clark's use.

         Defendants' opposition does not dispute that Defendants threatened and intend to drop Clark from the current UL listing, and have no intention of including Clark in any re-testing, re-certification, or updated listing to UL's revised standards. Instead, Defendants argue that Plaintiffs are unlikely to succeed on the merits because (1) Clark is manufacturing defective products and (2) Clark has the resources to conduct its own product testing and obtain its own UL listings at its own expense. These arguments are not persuasive.

         First, Defendants raised the same manufacturing defect arguments in response to Plaintiffs' February 3 application for a TRO. Although not briefed or supported in comparable detail by either party in connection with the current application, Defendants essentially argue that Clark's packaging methods do not sufficiently protect the licensed products during transport. As discussed at the prior hearing, Plaintiffs dispute not only Defendants' characterization of Clark's products and packaging, but also Defendants' methods of evidence gathering and the authenticity of the samples examined by Defendants. The court need not resolve this evidentiary dispute, however, as there has been no significant change in the evidence or arguments since the time of the first hearing, at which Defendants agreed to leave Clark's UL designations ...

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