United States District Court, S.D. California
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS
THIRD AMENDED COMPLAINT AND DISMISSING CASE WITH PREJUDICE
[ECF NO. 246]
Cynthia Bashant, United States District Judge
Crafty Productions, Inc. (“CPI”) and Crafty
Productions, LLC (“CPL”) (collectively
“Plaintiffs”) commenced this action against
numerous defendants alleging copyright infringement of
CPI's original craft designs and products, trade dress
infringement, intentional interference with prospective
business advantage, unfair competition, breach of contract,
and fraud. Many parties were listed as defendants in the
first complaint, but various defendants have been dismissed
for lack of personal jurisdiction. (ECF No. 213.) As relevant
here, Defendants The Michaels Companies, Inc. and Michaels
Stores, Inc. (collectively, “Michaels”) and Hobby
Lobby Stores, Inc. moved to dismiss Plaintiffs' complaint
for failure to state a claim. (ECF No. 90.) The Court granted
the motion to dismiss and granted Plaintiffs leave to amend.
(ECF No. 214.) Plaintiffs filed a second amended complaint
against Michaels; Plaid Enterprises, Inc.; Hobby Lobby
Stores, Inc.; Party City Holdings, Inc.; and Party City
Corporation. (“SAC, ” Second Amended Complaint,
ECF No. 232.) Plaintiffs alleged trade dress infringement,
intentional interference with prospective business advantage,
and unfair competition. Defendants filed a motion to dismiss
the second amended complaint, which the Court granted in its
entirety and dismissed the SAC without prejudice.
(“Prior Order, ” ECF No. 241.) Plaintiffs filed
their Third Amended Complaint, again alleging trade dress
infringement, intentional interference with prospective
business advantage, and unfair competition. (“TAC,
” Third Amended Complaint, ECF No. 245.) Michaels moves
to dismiss the TAC, (“Mot., ” ECF No. 246), and
the rest of the Defendants join the Motion, (ECF Nos.
247-249). Plaintiffs filed an Opposition to the Motion,
(“Opp'n, ” ECF No. 250), to which Michaels
replied, (“Reply, ” ECF No. 251).
Court held oral argument on this Motion on December 4, 2019.
For the reasons stated below, the Court
GRANTS Defendants' Motion and dismisses
Plaintiffs' Third Amended Complaint with prejudice.
CPI has created various “original product concepts and
designs, including many creative, decorative wood
products.” (TAC ¶ 10.) Sometime in 1995, CPI hired
Michelle Faherty as a sales representative for some of its
products. (Id. ¶ 12.) Ms. Faherty asked
permission to take samples of certain products so she could
obtain a manufacturing cost estimate from a factory she knew
in China. (Id.) She did so, and then CPI began using
a Chinese manufacturer owned by Kevin Xiao and/or Tony Zhu
for cost-saving purposes. (Id.)
or 2010, CPI learned that replicas of its products were being
sold in a crafts and toys product catalog from Zhejiang
Hongye Art & Craft Co., Ltd. (hereinafter,
“Hongye”). (Id. ¶ 14.) CPI had not
approved these sales and had never heard of Hongye.
(Id.) CPI learned that the Hongye factory was
shipping CPI's wood products to Michaels and Plaid
Enterprises, Inc. (“Plaid”). (Id. ¶
15.) Plaid is CPI's competitor that supplies products to
retailers including Hobby Lobby and Michaels. (Id.
insisted on visiting China to meet Zhu and see his
manufacturing facilities. (Id. ¶ 15.) On this
trip, CPI first visited the Hongye factory, where it saw on
display many of CPI's “original designs and
products.” (Id. ¶ 16.) Faherty allegedly
had to lie to the Hongye representative to arrange a tour of
the factory for CPI. (Id.) “There appeared to
be no effort by the manufacturer to disguise the fact that
they were producing unauthorized CPI products.”
(Id.) CPI alleges it saw a frame at the factory that
was “substantially similar to one of CPI's
designs” but had the name “Plaid” on the
back. (Id. ¶ 18.) CPI then visited Zhu's
manufacturing facility, which contained only a few of
CPI's products, and CPI was surprised that Hongye
appeared to have more of CPI's designs in its factory
than were in Zhu's factory. (Id. ¶ 17.)
Faherty told CPI that Zhu's factory was only
manufacturing CPI's products, not competitors'
products. (Id. ¶ 18.)
allege Faherty and Zhu arranged the manufacture of
“knock offs” of CPI's original designs and
products to sell to Plaid and other retailers. (Id.
¶¶ 29, 30.) Plaintiffs allege the only way the
Hongye factory would have access to CPI's products is if
a retail buyer or Faherty provided the designs to the
factory. (Id.) Plaintiffs allege Michaels was buying
the knock-off products from the Hongye factory.
(Id.) In support, Plaintiffs allege Michaels
purchased products from CPI for many years, but as of October
2014, “was buying very little from CPI” yet still
selling products. (Id. ¶ 44; see,
e.g., ECF No. 245-1, at 11, 16, 17 (images of products
being sold in Michaels' stores in 2014 and 2015).)
Plaintiffs also allege CPI never sold wood alphabets to
Michaels, yet Michaels has sold CPI's wood alphabets in
its stores. (Id. ¶ 44.) Similarly, Plaintiffs
allege Hobby Lobby purchased knock-offs of CPI's products
through Faherty. (Id. ¶ 49.)
Plaintiffs allege trademark infringement, intentional
interference with prospective economic advantage, and unfair
competition causes of action against Michaels, Plaid, Hobby
Lobby, and Party City.
complaint must plead sufficient factual allegations to
“state a claim to relief that is plausible on its
face.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (internal quotation marks and citations omitted).
“A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the
misconduct alleged.” Id.
motion to dismiss pursuant to Rule 12(b)(6) of the Federal
Rules of Civil Procedure tests the legal sufficiency of the
claims asserted in the complaint. Fed.R.Civ.P. 12(b)(6);
Navarro v. Block, 250 F.3d 729, 731 (9th Cir. 2001).
The court must accept all factual allegations pleaded in the
complaint as true and must construe them and draw all
reasonable inferences from them in favor of the nonmoving
party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336,
337-38 (9th Cir. 1996). To avoid a Rule 12(b)(6) dismissal, a
complaint need not contain detailed factual allegations,
rather, it must plead “enough facts to state a claim to
relief that is plausible on its face.” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A
Rule 12(b)(6) dismissal may be based on either a ‘lack
of a cognizable legal theory' or ‘the absence of
sufficient facts alleged under a cognizable legal
theory.'” Johnson v. Riverside Healthcare Sys.,
LP, 534 F.3d 1116, 1121 (9th Cir. 2008) (quoting
Balistreri v. Pacifica Police Dep't, 901 F.2d
696, 699 (9th Cir. 1990)).
move to dismiss all three causes of action in the Third
Trade Dress Infringement / False Designation of
dress refers generally to the total image, design, and
appearance of a product and ‘may include features such
as size, shape, color, color combinations, texture or
graphics.'” Clicks Billiards, Inc. v.
Sixshooters, Inc., 251 F.3d 1252, 1257 (9th Cir. 2001)
(quoting Int'l Jensen, Inc. v. Metrosound U.S.A.,
Inc., 4 F.3d 819, 822 (9th Cir. 1993)). To plead a claim
for trade dress infringement, a plaintiff must allege: (1)
that its claimed dress is non-functional; (2) that its
claimed dress serves a source-identifying role either because
it is inherently distinctive or has acquired secondary
meaning; and (3) that the defendant's product or service
creates a likelihood of consumer confusion. Id.
first move to dismiss the trade dress claim on collateral
estoppel grounds. (Mot. at 14.) Defendants point out that
Plaintiffs were parties to an arbitration in February 2018,
and they argue the arbitrator's findings prevent
Plaintiff from arguing trade dress infringement here.
(Id.) The arbitrator analyzed Plaintiffs' trade
dress claim and found “no protectable trade dress in
this matter.” (Ruling After Full Arbitration, ECF No.
217-1, at 8.) The Defendants here were not parties to the
estoppel “bars the relitigation of issues actually
adjudicated in previous litigation between the same
parties.” Clark v. Bear Stearns & Co., 966
F.2d 1318, 1320 (9th Cir. 1992). Here, Defendants assert
non-mutual defensive collateral estoppel, which arises
“wherein a litigant not a party to a prior case seeks
to preclude relitigation of an issue by its current opponent
who was a party to the prior case and lost on the very issue
which the opponent seeks to relitigate in the current
action.” Scott v. Snelling & Snelling,
Inc., 732 F.Supp. 1034, 1038 (N.D. Cal. 1990) (citing
Blonder-Tongue Labs. v. Univ. of Illinois, 402 U.S.
313 (1971)). To prevail on an assertion of non-mutual
defensive collateral estoppel, Defendants must show:
1) the issue decided in a prior adjudication is identical
with that presented in the action in question; and
2) there was a final judgment on the merits; and 3)
the party against whom the plea is asserted was a party or in
privity with a party to the prior adjudication.
Clemmer v. Hartford Ins. Co., 22 Cal.3d 865, 874
to the first prong, Defendants assert that the issues decided
in arbitration are identical to those here, as Plaintiffs
sought trade dress protection in arbitration for the same
products at issue here. In response, Plaintiffs allege
“there is nothing in the arbitration ruling that
established as law of the case that the same product trade
dress rights asserted against these Defendants were assessed
in any way by Judge McCurine.” (Opp'n at 4.)
Notably, Plaintiffs do not say in any conclusive manner that
the arbitrator analyzed trade dress protection for products
different than the ones shown in the exhibits attached to
Plaintiffs' Complaint here. And while it is very likely
that at least some of the products analyzed by the arbitrator
are the same products before the Court now, this detail is
not specified in the record. The arbitrator notes that ...