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Rothy's Inc. v. JKM Technologies, LLC

United States District Court, W.D. Virginia, Charlottesville Division

December 20, 2018

ROTHY'S, INC. Plaintiff,
v.
JKM TECHNOLOGIES, LLC, et al.. Defendants.

          MEMORANDUM OPINION

          Michael F. Urbanski Chief United States District Judge.

         Plaintiff Rothy's, Inc. ("Rothy's") manufacturers and markets a ballet flat shoe named The Flat. Defendant JKM Technologies, LLC d/b/a OESH Shoes ("JKM") manufacturers and markets a competing ballet flat shoe named the Dream Flat. Rothy's filed suit, alleging patent infringement and Lanham Act violations against defendants JKM and Dr. Casey '' Kerrigan (collectively, "Defendants"), based on perceived similarities between The Flat and the Dream Flat.

         This matter comes before the court on Defendants' Motion to Dismiss Pursuant to Rule 12(B)(6) (the "Motion"), ECF No. 19. Defendants ask the court to dismiss Kerrigan in toto, and dismiss the Lanham Act claims from Rothy's Complaint (the "Complaint" or "Compl."), ECF No. 1. For the reasons discussed below, the Motion will be GRANTED with respect to Kerrigan, and DENIED with respect to the Lanham Act claims.

         I. Background

         Plaintiff Rothy's Inc. manufacturers a ballet flat shoe named the Flat ("The Flat").[1]The Flat "has a distinctive shape and design such that it is recognized by consumers of footwear." Compl. ¶ 12. The Flat is "designed and seamlessly manufactured from recycled bottles using a proprietary 3D knitting process." Id. ¶ 9. This combination of features constitutes the trade dress of The Flat. To that end, Rothy's alleges that the shape and ornamental design of The Flat is nonfunctional. Id. ¶ 15.

         The Flat "quickly gained success in the market, selling more than $40 million dollars of product, and earn[ed] a reputation with consumers for its design, the comfortable fit and lightweight and extremely attractive aesthetic." Id. ¶ 11. The Flat has also received substantial media attention. Id. ¶ 14.

         Around March 20, 2018, Defendants, or someone acting on their behalf, purchased a pair of The Flat, where it was shipped to JKM's headquarters. Id. ¶ 19. Defendants began reviewing, researching, and copying The Flat. Id. ¶ 20. Around June 2018, Defendants began marketing a competing flat called the Dream Flat ("The Dream Flat"). The "shape, design and look [of The Dream Flat] ... is virtually identical to Rothy's The Flat product." Id. ¶ 21. Additionally, the look of The Dream Flat causes confusion among consumers. Id. ¶¶ 22-23. Defendants have profited from sale of The Dream Flat. Id. 25.

         II. Motion to Dismiss

         Defendants move under Federal Rule of Civil Procedure 12(b)(6) to dismiss all claims against Kerrigan and all Lanham Act claims against both Defendants.

         A. Legal Standard

         Rule 12(b)(6) permits a dismissal when a plaintiff fails "to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). To survive a Rule 12(b)(6) motion to dismiss, a complaint must contain sufficient "facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The complaint's "[f]actual allegations must be enough to raise a right to relief above the speculative level." Id. at 555.

         A court must construe factual allegations in the nonmoving party's favor and will treat them as true, but is "not so bound with respect to [a complaint's] legal conclusions." Dist. 28. United Mine Workers of Am., Inc. v. Wellmore Coal Corp., 609 F.2d 1083, 1085 (4th Cir. 1979). Indeed, a court will accept neither "legal conclusions drawn from the facts" nor "unwarranted inferences, unreasonable conclusions, or arguments." E. Shore Mkts., Inc. v. J.D. Assocs. Ltd. P'ship, 213 F.3d 175, .180 (4th Cir. 2000). Further, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Only after a claim is stated adequately may it then "be supported by showing any set of facts consistent with the allegations in the complaint." Twombly, 550 U.S. at 563.

         In adjudicating a motion to dismiss, "a court evaluates the complaint in its entirety, as well as documents attached or incorporated into the complaint." E.I. du Pont de Nemours & Co. v. Kolon Indus.. Inc., 637 F.3d 435, 448 (4th Cir. 2011). A court cannot stray from these documents on Rule 12(b)(6). "[I]f it does, it converts the motion into one for summary judgment." Id. Converting a motion to dismiss into a motion for summary judgment "is not appropriate where the parties have not had an opportunity for reasonable discovery." Id. 448-49.

         B. Kerrigan

         Rothy's pleads all counts in the Complaint against both Kerrigan, in her personal capacity, and JKM. Kerrigan moves to dismiss all claims against her. Kerrigan argues that Rothy's fails to plead any facts sufficient to pierce the corporate veil and establish personal liability against her.

         "A corporation exists as a legal entity separate and distinct from its corporate shareholders." Cancun Adventure Tours, Inc. v. Underwater Designer Co., 862 F.2d 1044, 1047 (4th Cir. 1988). Usually, then, "each shareholder's responsibility for the acts of a corporation is limited to the shareholder's investment in that corporation." Id. Under most circumstances, a corporation's shareholders may be held liable for the corporation's debts only through veil piercing. See C.F. Trust, Inc. v. First Flight L.P., 266 Va. 3, 9-10, 580 S.E.2d 806, 809 (2003). "Traditional veil piercing permits a court to render an individual liable in a judgment against a business entity in which the individual has an interest, when the entity 'is in fact a mere instrumentality or alter ego of [the individual].'" Sky Cable, LLC v. DIRECTV, Inc., 886 F.3d 375, 385 (4th Cir. 2018) (alteration in original) (quoting Netjets Aviation, Inc. v. LHC Commc'ns, LLC, 537 F.3d 168, 176 (2d Cir. 2008)). But a court's decision to pierce the corporate veil "is an extraordinary act to be taken only when necessary to promote justice." C.F. Trust, 266 Va. at 10, 580 S.E.2d at 809.

         Nonetheless, the Fourth Circuit has also held that, in trademark infringement and unfair trade practices cases, "[a] corporate official may be held personally liable for tortious conduct committed by him, though committed primarily for the benefit of the corporation." Polo Fashions, Inc. v. Craftex, Inc., 816 F.2d 145, 149 (4th Cir. 1987); see also Farm Fresh Direct Direct By a Cut Above LLC v. Downey, Civ. No. ELH-17-1760, 2017 WL 4865481, at *5 (D. Md. Oct. 26, 2017) ("Moreover, when an individual defendant who is otherwise protected by an organization's limited liability shield commits a tort or violates die Lanham Act, she may be held individually liable.").

         Under the Polo Fashions rubric, courts have denied motions to dismiss against corporate shareholders and officers in Lanham Act cases were the plaintiffs alleged, for instance, that the individual defendant: (1) was "president and principal stockholder" of the corporation and "participated" in infringement, Polo Fashions, 816 F.2d at 147, 150; (2) "unfairly appropriated the success and reputation of [the plaintiff] as well as the trademark [at issue] and parlayed them into business for [the corporation]," Gorby v. Weiner, Civ. No. TDC-13-3276, 2014 WL 4825962, at *6-7 (D. Md. Sept. 23, 2014); (3) "personally participated in the selection of the [offending company] name" and "authorized and approved .. . counsel [to] file a trademark registration application," Planet Techs., Inc. v. Planit Tech. Grp., LLC, 735 F.Supp.2d 397, 405 (D. Md. 2010) (internal quotations omitted); and (4) "is the resident agent and incorporator" of the corporation, "filed its articles of organization to create a name confusingly similar to" plaintiff "for the purpose of selling [products] in competition with plaintiff," and "participated in alleged violations of the Lanham Act," even though the "allegations as to [the individual defendant] border on thin," Fresh Farm Direct, 2017 WL 4865481, at *6-7 (internal quotations and citations omitted). The common thread throughout these cases is that the plaintiff levies some particularized allegations against the individual defendant-that is, the individual defendant undertook some particular action vis-a-vis the underlying Lanham Act claims.

         Defendants assume that Rothy's can only reach Kerrigan through veil piercing. See Mem. Supp. Defs.' Mot. Dismiss Pursuant Rule 12(b)(6) ("MTD Br."), ECF No. 20, at 6-7. Defendants characterize Kerrigan as "a shareholder of JKM, and argue that the "Complaint fails to assert any recognizable grounds to hold Dr. Kerrigan individually liable under any legal theory alleged in the Complaint." Id. at 7.

         Given Polo Holdings, Defendants are incorrect. Rothy's can plead a claim against Kerrigan personally if it makes particularized allegations that Kerrigan engaged in tortious acts meant to benefit JKM.

         The problem, however, is that Rothy's does not plead particularized facts regarding Kerrigan's actions. All relevant facts in the Complaint (other than facts relating to Kerrigan and jurisdiction) are pled as to "Defendants." The Complaint does not contain a single specific allegation as to Kerrigan. Rothy's failure to plead specific allegations as to Kerrigan takes the Complaint out of the ambit of Polo Fashions, In other words, Rothy's fails to state a claim against Kerrigan.

         That is not to say that Rothy's will be unable to state a viable claim against Kerrigan, however. The court will grant the Motion as to Kerrigan without prejudice. Rothy's is free to replead the allegations against Kerrigan, as long as the amended pleadings are consistent with Federal Rule of Civil Procedure 11.

         C. Lanham Act Claims

         Rothy's claims that Defendants have infringed upon Rothy's trade dress, in violation of the Lanham Act. Rothy's also claims that Defendants have engaged in unfair competition and false designation, also in violation of the Lanham Act. Both Lanham Act claims are predicated upon Section 43(a) of the Lanham Act. See Compl. ¶¶ 52, 57; 15 U.S.C. § 1125(a).

         "The trade dress of a product consists of its 'total image and overall appearance,' including its 'size, shape, color or color combinations, texture, graphics, or even particular sales techniques."' Ashley Furniture Indus., Inc. v. SanGiacomo NA. Ltd., 187 F.3d 363, 368 (4th Cir. 1999) (quoting Two Pesos, Inc. v. Taco Cabana. Inc., 505 U.S. 763, 764 n.1. (1992)). "In evaluating a trade dress claim, a court must not focus on individual elements, 'but rather on the overall visual impression that the combination and arrangement of those elements create." Sleep Sci. Partners v. Lieberman, No. 09-04200 CW, 2010 WL 1881770, at *3 (N.D. Cal. May 10, 2010) (quoting Clicks Billiards, Inc. v. Sixshooters, Inc., 251 F.3d 1252, 1259 (9th Cir. 2001)).

In other words, "[t]rade dress is the composite tapestry of visual effects." Id. In order to prove a claim for trade dress infringement under the Lanham Act, a plaintiff must show that "(1) its trade dress is primarily non-functional; (2) the alleged infringement creates a likelihood of confusion; and, (3) the trade dress either (a) is inherently distinctive, or (b) has acquired a secondary meaning."

Lance Mfg., LLC v. Voortman Cookies Ltd., 617 F.Supp.2d 424, 432 (W.D. N.C. 2009). (quoting Ashley Furniture, 187 F.3d at 368).

         1. Satisfaction of Pleading Requirements

         Defendants first argue that Rothy's has not pled sufficient facts to identify the purported trade dress.

         The Supreme Court has not specified what facts are sufficient at the pleading stage to identify the alleged trade dress. Nonetheless, "[t]he purpose of trade dress protection is to 'secure the owner of the trade dress the goodwill of his or her business and to protect the ability of consumers to distinguish among competing products.'" Coach. Inc. v. Farmers Mkt. & Auction, 881 F.Supp.2d 695, 702 (D. Md. 2012) (quoting 74 Am. Jur. 2d Trademarks & Tradenames § 36 (2012)). Additionally, determining whether a plaintiff has established a trade dress "involves an inherently factual review rarely resolved at the motion to dismiss stage." Stat Ltd. v. Beard Head, Inc., 60 F.Supp.3d 634, 638 & n.1. (E.D. Va. 2014). A Lanham Act plaintiffs complaint ...


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