Opinion
CIV. NO.: 2:16-1138 WBS EFB
11-30-2016
JOLI GRACE, LLC, a Louisiana Limited Liability Company, Plaintiff, v. COUNTRY VISIONS, INC., a California Corporation, Defendant. AND RELATED COUNTERCLAIMS.
MEMORANDUM AND ORDER RE: MOTION TO DISMISS FIRST AMENDED COUNTERCLAIM AND MOTION FOR PRELIMINARY INJUNCTION
Plaintiff Joli Grace, LLC ("Joli Grace") brought this action against defendant Country Visions, Inc. ("Country Visions") for breach of contract and declaratory relief arising from a series of franchise agreements for plaintiff's use of defendant's retail stores under the name "Apricot Lane." Country Visions brought a counterclaim against Joli Grace, Stacie Lancaster Children's Trust ("Trust"), Christine Thornhill, Arthur Lancaster, Love Grace Holdings, Inc. ("Love Grace"), and Stacie Lancaster (collectively "counter-defendants") for breach of contract, declaratory relief, violations of the Lanham Act, violations of California Unfair Competition Law, violations of Louisiana Unfair Trade Practices and Consumer Protection Law ("LUTPA"), tortious interference with contracts, fraud, and accounting arising out of the same franchise agreements. Before the court are counter-defendants' motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(2) and 12(b)(6) and Country Visions's motion for preliminary injunctive relief.
I. Factual and Procedural History
Country Visions is a California corporation that operates and grants franchises for Apricot Lane, a women's specialty clothing boutique. (First Am. Countercl. ¶¶ 1, 10 (Docket No. 14).) Joli Grace is a Louisiana corporation that the Trust solely owns, Stacie Lancaster manages, and Stacie Lancaster and her husband Arthur Lancaster founded. (Id. ¶¶ 1-2, 11, 13, 24.) Love Grace is a Delaware corporation that Arthur Lancaster solely owns and the Lancasters allegedly founded after the founding of Joli Grace. (Id. ¶¶ 4, 16, 44.)
Beginning in 2009, Joli Grace allegedly received approval and began opening a series of Apricot Lane boutiques as a franchisee. (Id. ¶ 2.) Stacie Lancaster, on behalf of Joli Grace, executed Franchise Agreements for these Apricot Lane stores, which contained non-compete clauses and held Stacie Lancaster personally liable for breaches of the Franchise Agreements. (Id. ¶¶ 22-23.) Stacie Lancaster allegedly manages the day-to-day tasks of Joli Grace on behalf of the Trust and Arthur Lancaster is in charge of financial responsibilities for Joli Grace. (Id. ¶ 25.)
The non-compete clauses prohibit Joli Grace and Stacie Lancaster from owning, engaging in, or having any interest in any business "that sells through any channel of distribution of [sic] any of the types of merchandise that are the same as or similar to the types of merchandise being sold through the Specialty Stores, unless granted prior approval in writing" by Country Visions. (Id. ¶ 28, Ex. K.)
By April 2015, Love Grace opened its first Blu Spero store. (Id. ¶¶ 29, 41.) Blu Spero boutiques allegedly sell the same brands and merchandise as Apricot Lane. (Id. ¶ 3.) Arthur Lancaster manages Blu Spero and is the sole owner, but a press release previously identified Stacie Lancaster as the founder of Blu Spero. (Id. ¶¶ 39, 43.) Country Visions alleges that Joli Grace and Stacie Lancaster have breached several aspects of the Franchise Agreements since the opening of the Blu Spero stores. (Id. ¶¶ 32-33, 35, 54(d).)
In August 2016, Country Visions specifically terminated the Franchise Agreement for Joli Grace's Apricot Lane store in Hattiesburg, Mississippi for failure to timely cure a default. (Id. ¶¶ 57-59.) Pursuant to the Hattiesburg Franchise Agreement, Country Visions allegedly informed Joli Grace that it intended to exercise its right to take possession of the premises of the Hattiesburg store. (Id. ¶ 59.) Joli Grace has not turned over the Hattiesburg Lease to Country Visions. (Id. ¶ 60.)
Joli Grace initiated this action against Country Visions, alleging breach of contract and seeking declaratory relief regarding the enforceability of the non-compete clauses. (See Docket No. 1.) Country Visions then filed a counterclaim against Joli Grace and the other counter-defendants, alleging the following causes of action: (1) breach of the Franchise Agreements; (2) breach of the personal guarantees; (3) breach of contract for failure to turn over the Hattiesburg Lease; (4) breach of contract for failure to pay past due royalties; (5) declaratory relief that the transfer of sole membership in Joli Grace from Stacie Lancaster to the Trust is void; (6) violation of the Lanham Act for the operation of Hattiesburg Apricot Lane store; (7) violation of the Lanham Act for the operation of the Blu Spero stores; (8) violation of California's Unfair Competition Law; (9) violation of LUTPA; (10) tortious interference with contracts; (11) fraud; and (12) accounting.
Counter-defendants move to dismiss all causes of action against Love Grace, Arthur Lancaster, the Trust, and Thornhill for lack of personal jurisdiction, and some causes of actions on other grounds. Country Visions moves for preliminary injunctive relief requiring Joli Grace and Stacie Lancaster to turn over the Hattiesburg Lease, requiring counter-defendants to cease operating the Blu Spero boutique at the Hattiesburg store location, and preventing counter-defendants from using the Apricot Lane mark at the Hattiesburg store.
II. Discussion
A. Rule 12(b)(2) Motion
A plaintiff has the burden of establishing that the court has personal jurisdiction over a defendant. Doe v. Unocal Corp., 248 F.3d 915, 922 (9th Cir. 2001). Where the court does not hold an evidentiary hearing and the motion is based on written materials, the plaintiff need only establish a prima facie showing of personal jurisdiction. Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 2004). In such a case, "[u]ncontroverted allegations in the complaint must be taken as true" and "[c]onflicts between parties over statements contained in affidavits must be resolved in the plaintiff's favor." Id.
If there is no applicable federal statute governing personal jurisdiction, the court applies the law of the state in which it sits. Love v. Associated Newspapers, Ltd., 611 F.3d 601, 608-09 (9th Cir. 2010). "California's long-arm jurisdiction statute is coextensive with federal due process requirements." Id.; see also Cal. Code Civ. Proc. § 410.10. Due process requires that for a nonresident defendant to be subject to the court's jurisdiction, the defendant must "have certain minimum contacts with [the forum state] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice." Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (citation omitted). The strength of contacts required depends on which of the two categories of personal jurisdiction a litigant invokes: specific jurisdiction or general jurisdiction. Ranza v. Nike, Inc., 793 F.3d 1059, 1068 (9th Cir. 2015) (citing Daimler AG v. Bauman, 134 S. Ct. 746, 754 (2014)).
Specific jurisdiction exists when a case "aris[es] out of or relate[s] to the defendant's contacts with the forum." Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 n.8 (1984). The focus is on the "relationship among the defendant, the forum, and the litigation." Shaffer v. Heitner, 433 U.S. 186, 204 (1977). "[T]he relationship must arise out of contacts that the defendant himself creates with the forum state." Walden v. Fiore, 134 S. Ct. 1115, 1122 (2014). The court must thus "look[] to the defendant's contacts with the forum State itself, not the defendant's contacts with persons who reside there." Id.
Counter-defendants do not contest that the court has personal jurisdiction over Joli Grace and Stacie Lancaster. (See Mot. 7:10-14:26 (Docket No. 17-1).) Thus, the question is whether the court has personal jurisdiction over the remaining counter-defendants.
1. Personal Jurisdiction over Arthur Lancaster and Love Grace
Country Visions argues the court has personal jurisdiction over Arthur Lancaster and Love Grace because they are alter egos of Stacie Lancaster and Joli Grace or, alternatively, in connection with their tortious actions directed at Country Visions.
Country Vision, as the party bearing the burden of proving jurisdiction, does not distinguish between Arthur Lancaster and Love Grace when discussing whether the court has personal jurisdiction over them.
The court can exercise personal jurisdiction over an entity that would not ordinarily be subject to personal jurisdiction when it is an alter ego of an entity that the court has personal jurisdiction over. Ranza, 793 F.3d at 1070-71 ("As in the context of corporate liability, the veil separating affiliated corporations may also be pierced to exercise personal jurisdiction over a foreign defendant in certain limited circumstances."). This applies to individuals and corporations. Transamerica Corp. v. Compana, LLC, Civ. No. 05-00549 MJJ, 2005 WL 2035594, at *4 (N.D. Cal. Aug. 22, 2005) (quoting Patin v. Thoroughbred Power Boats Inc., 294 F.3d 640, 653 (5th Cir. 2002)). For a court to exercise personal jurisdiction over a defendant under an alter ego theory, two conditions must exist: "(1) there is such unity of interest and ownership that the separate personalities [of the entities] no longer exist and (2) that failure to disregard [their separate identities] would result in fraud or injustice." Ranza, 793 F.3d at 1073 (alteration in original) (quoting Unocal, 248 F.3d at 926).
The first prong looks for "pervasive control," id., and whether "the parent controls the subsidiary 'to such a degree as to render the latter the mere instrumentality of the former,'" Unocal, 248 F.3d at 926 (quoting Calvert v. Huckins, 875 F. Supp. 674, 678 (E.D. Cal. 1995) (Whelan, J.)). Factors to be considered include (1) commingling of funds and assets; (2) observation of corporate formalities; (3) use of the same offices and employees; (4) identity of directors and officers; (5) sole ownership of all stock by one individual or members of a family; (6) inadequate capitalization; (7) failure to maintain arm's length relationship; (8) use of the corporation as a shell for a single venture or the business of an individual or another corporation; and (9) manipulation of assets and liabilities between entities. Hall-Magner Grp. v. Firsten, Civ. No. 11-312 JLS POR, 2011 WL 5036027, at *3 (S.D. Cal. Oct. 24, 2011); Associated Vendors, Inc. v. Oakland Meat Co., 210 Cal. App. 2d 825, 838-40 (1st Dist. 1962). This is a high standard, and courts have found "no alter ego relationship [is] created [even when a] parent company guaranteed loans for the subsidiary, reviewed and approved major decisions, placed several of its directors on the subsidiary's board, and was closely involved in the subsidiary's pricing decisions." Ranza, 793 F.3d at 1074-75 (quoting Unocal, 248 F.3d at 928).
Applying the nine factors and taking conflicts between affidavits in favor of Country Visions, there are insufficient allegations that Love Grace and Arthur Lancaster are alter egos of Joli Grace and Stacie Lancaster. Most importantly, there is no under-capitalization in this case. See Firstmark Capital Corp. v. Hempel Fin. Corp., 859 F.2d 92, 94 (9th Cir. 1988) ("We have held that under California law the 'kind of inequitable result that makes alter ego liability appropriate is an abuse of the corporate form, such as under-capitalization . . . .'" (quoting Orloff v. Allman, 819 F.2d 904, 909 (9th Cir. 1987))). If an entity is a shell without assets, the plaintiff is effectively prevented from recovery. See id. Joli Grace has assets in excess of $2 million with a net worth in excess of $650,000. (Stacie Lancaster Decl. ("Stacie Decl.") ¶ 8, Ex. 1 (Docket No. 17-2).) Further, Country Visions has not alleged that Arthur Lancaster or Love Grace treat Joli Grace's assets as their own assets. Joli Grace's adequate capitalization weighs strongly in favor of finding Joli Grace is not an alter ego of Arthur Lancaster or Love Grace.
There is some evidence of commingling of assets, however. Country Visions alleges at least three Apricot Lane stores operated by Joli Grace sell Blu Spero merchandise. (First Am. Countercl. ¶ 42; Liming Decl. ¶¶ 2, 6 (Docket No. 26); Liming Decl. Exs. 2-4 (Docket Nos. 26-2 to -4).) Country Visions also alleges at least two former Apricot Lane stores are now Blu Spero stores operated by Arthur Lancaster and Love Grace, even though the Blu Spero stores still sell Apricot Lane clothing inside. (First Am. Countercl. ¶ 41; Petersen Decl. ¶ 21; Petersen Decl. Exs. N-O (Docket No. 25-14 to -15); Martin Decl. ¶¶ 3, 5, Exs. A-B (Docket No. 27).)
It is uncontroverted that Joli Grace maintains corporate formalities and Joli Grace and Love Grace have separate directors and officers. Stacie Lancaster, in her declaration, stated that Joli Grace maintains separate books and records. (Stacie Decl. ¶ 4.) Joli Grace's balance sheet also shows that Arthur Lancaster loaned Joli Grace money, suggesting Joli Grace is maintaining its corporate formalities. (See id. ¶ 6, Ex. 1); cf. Kramer Motors, Inc. v. Britis Leyland, Ltd., 628 F.2d 1175, 1177 (9th Cir. 1980) (holding no alter ego relationship was created when parent company guaranteed loans for subsidiary, among other factors). Both Stacie Lancaster and Arthur Lancaster affirm that there is no overlap between directors and officers in Love Grace and Joli Grace. (Stacie Decl. ¶ 4; Arthur Lancaster Decl. ("Arthur Decl.") ¶ 4 (Docket No. 17-3).) Both of these factors favor a finding of no alter ego.
Counter-defendants do not contest that some employees work for both Love Grace and Joli Grace. (Arthur Decl. ¶ 7.) This includes Arthur Lancaster, who has been Joli Grace's primary contact person with Country Visions for new stores, construction, royalties, and financial matters. (Petersen Decl. ¶¶ 5-6.) At Love Grace, Stacie Lancaster has her own phone extension where there is a voicemail that states, "You have reached Stacie Lancaster with Love Grace." (Petersen Decl. ¶ 13.) Counter-defendants also concede that Love Grace and Joli Grace have the same corporate address. (Arthur Decl. ¶ 7.) Such allegations, however, are insufficient to justify viewing Joli Grace as Love Grace and Arthur Lancaster's alter ego. See Ranza, 793 F.3d at 1074 (finding employees moving between entities is not enough to undermine the entities' formal separation); Martinez v. Manheim Cent. Cal., Civ. No. 1:10-1511 SKO, 2011 WL 1466684, at *6 (E.D. Cal. Apr. 18, 2011) ("The fact that [a parent corporation] is headquartered in the same place as its subsidiary and shares one common director with [the subsidiary] does not indicate that the two corporations have indistinct personalities.").
The ownership of Love Grace and Joli Grace also favors a finding of no alter ego. The Trust solely owns Joli Grace, and Stacie Lancaster manages Joli Grace as the trustor of the Trust. (Stacie Decl. ¶ 3.) Arthur Lancaster solely owns Love Grace. (Arthur Decl. ¶ 3.) While Stacie Lancaster, on at least one occasion, represented to the public that she is the founder of Blu Spero, (Petersen Decl. Ex. F (Docket No. 25-6)), her management of Love Grace and Joli Grace would not be enough to establish an alter ego relationship, Patterson v. Home Depot, USA, Inc., 684 F. Supp. 2d 1170, 1178-79 (D. Ariz. 2010) (holding that a parent and subsidiary having the same president was insufficient to justify disregarding the corporate form).
The factor most indicative of an alter ego relationship is the lack of an arm's length relationship. At least one Apricot Lane store issues receipts stating "Follow us on Social Media @ BluSpero." (Petersen Decl. ¶ 22, Ex. P (Docket No. 25-16).) In one Blu Spero store that used to be an Apricot Lane store, an employee informed all customers that the store underwent a name change, "but everything else is the same." (Martin Decl. ¶ 4.) When emailing Country Visions on Joli Grace's behalf, Arthur Lancaster repeatedly represented that "we are not opening and [sic] new stores." (Id. ¶ 7 (emphasis added); Petersen Decl. Ex. C (Docket No. 25-3).) Viewed in Country Visions's favor, Arthur Lancaster's use of "we" demonstrates control and involvement in Joli Grace's operations. Even after Arthur Lancaster informed Country Visions that he would no longer be involved with the day-to-day operations of Joli Grace, he continued to act as the primary point of contact on financial and royalties matters. (See First Am. Countercl. ¶ 27, Ex. M; Petersen Decl. ¶ 7, Ex. D (Docket No. 25-4).)
Country Visions has presented a wealth of evidence in support of a relationship between Love Grace and Joli Grace, but this evidence does not show that there was such a unity of interest that their separate corporate personalities no longer existed. Unocal, 248 F.3d at 928; see Kramer Motors, 628 F.2d at 1177 (holding no alter ego relationship existed when parent guaranteed loans for the subsidiary, reviewed and approved major decisions, placed several of its directors on the subsidiary's board, and was closely involved in the subsidiary's pricing decisions). Country Visions has failed to show how the relationship between the parties "is typified by [Arthur Lancaster and Love Grace's] control of [Joli Grace]'s internal affairs or daily operations." See Unocal, 248 F.3d at 926. Because Country Visions has not met the unity of interest prong, the court need not address the second prong--whether failure to disregard the separate identities would result in fraud or injustice. See Ranza, 793 F.3d at 1073. The court will not exercise personal jurisdiction over Arthur Lancaster and Love Grace on the basis of an alter ego relationship.
The court likewise does not have specific jurisdiction over Arthur Lancaster and Love Grace for claims seven, eight, nine, and ten. In its opposition to counter-defendants' motion to dismiss, Country Visions argues Love Grace and Arthur Lancaster's actions were intended to harm a California entity--Country Visions--and thus they are subject to this court's jurisdiction. (Counter-claimant's Opp'n 29:26-30:3 (Docket No. 24).) However, "injury to [Country Visions] is not a sufficient connection to the forum." See Walden, 134 S. Ct. at 1125. "[T]he plaintiff cannot be the only link between the defendant and the forum." Id. at 1122. Country Visions has presented no evidence that Love Grace and Arthur Lancaster directed their actions to the forum state, and thus Country Visions has not met its burden establishing that the court has specific jurisdiction over Love Grace and Arthur Lancaster.
Accordingly, the court must grant counter-defendants' 12(b)(2) motion to dismiss Country Visions's claims against Arthur Lancaster and Love Grace.
Because the court lacks personal jurisdiction over Arthur Lancaster and Love Grace, the court need not consider Arthur Lancaster and Love Grace's motion to dismiss the First Amended Counterclaim under Rule 12(b)(6). See Fasugbe v. Willms, Civ. No. 2:10-2320 WBS KJN, 2011 WL 2119128, at *4, *7 (E.D. Cal. May 26, 2011) (holding defendant's Rule 12(b)(6) motion was moot once the court determined it did not have personal jurisdiction over defendant pursuant to Rule 12(b)(2)).
2. Personal Jurisdiction over Thornhill and the Trust
Counter-defendants also argue that the court does not have personal jurisdiction over the Trust or Thornhill. Country Visions contends it has personal jurisdiction over the Trust and Thornhill because of the forum selection clauses in the Franchise Agreements.
It is well established that personal jurisdiction is a waivable right. See, e.g., Burger King v. Rudzewicz, 471 U.S. 462, 472 n.14 (1985). Relevant here, a defendant may consent to personal jurisdiction through the execution of a valid forum selection clause. See id. ("[P]arties frequently stipulate in advance to submit their controversies for resolution within a particular jurisdiction."); Nat'l Equip. Rental, Ltd. v. Szukhent, 375 U.S. 311, 315-16 (1964) ("[P]arties to a contract may agree in advance to submit to the jurisdiction of a given court . . . .").
Here, the language of the pertinent forum selection clause is clear. The "Franchisee and Franchisor hereby submit and consent to the exclusive jurisdiction of the state and federal courts with proper subject matter jurisdiction located in the county or the judicial district in which Franchisor maintains its principal offices at the time of such litigation." (Petersen Decl. Ex. A ("Franchise Agreement") § 23.C (Docket No. 25-1).) It is undisputed that Joli Grace is the Franchisee, not the Trust or Thornhill. (Id. at 1.) Neither the Trust nor Thornhill are signatories to any agreement, let alone an agreement with a forum selection clause binding more than only Joli Grace as the Franchisee. Under the clear terms of the forum selection clause, the Trust and Thornhill did not waive personal jurisdiction.
Country Visions does not argue there is any other basis for the court to exercise personal jurisdiction over the Trust and Thornhill. The Trust is a Louisiana entity and Thornhill is a Louisiana resident, and there are no allegations that either counter-defendant has sufficient minimum contacts with California to justify the court exercising personal jurisdiction over the Trust or Thornhill. (See Stacie Decl. ¶ 3.)
Accordingly, the court will grant counter-defendants' Rule 12(b)(2) motion to dismiss Country Visions's claims against the Trust and Thornhill.
B. Rule 12(b)(6) Motion
On a motion to dismiss under Rule 12(b)(6), the court must accept the allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322 (1972). To survive a motion to dismiss, a plaintiff must plead "only 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). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "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. Under this standard, "a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable." Twombly, 550 U.S. at 556.
"Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678; see also id. at 679 ("While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.").
1. Violation of Lanham Act
In its seventh cause of action, Country Visions alleges counter-defendants violated the Lanham Act by using the federally registered "Apricot Lane" trademark, creating customer confusion through its use, and falsely representing the relationship between Apricot Lane and Blu Spero. Counter-defendants argue claim seven is two separate Lanham Act claims--false designation of origin and false advertising--which are subject to Rule 9(b)'s heightened pleading standard. In its opposition, Country Visions argues claim seven is a trademark infringement claim that is not subject to Rule 9(b)'s heightened pleading standard. See Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1104-05 (9th Cir. 2003).
First, it is unclear what cause of action Country Visions is alleging in claim seven. The claim is labeled "[v]iolation of the Lanham Act." (First Am. Countercl. 21:18.) The claim contains allegations relating to false advertising and misrepresentations--such as allegations that Blu Spero falsely claimed it is a "sister store" of Apricot Lane and allegations that Love Grace misrepresented the nature, characteristics, or qualities of its goods, services, or commercial activities. (Id. ¶ 108.) The claim also contains allegations relating to trademark infringement, such as the allegation that Apricot Lane is a federally registered trademark. (Id. ¶ 107.)
Second, even if the court construes this claim as a trademark infringement claim as argued by Country Visions, Country Visions fails to allege sufficient facts to meet the standard pleading requirements. To allege a trademark infringement claim, the plaintiff must allege (1) that it has a valid, protectable trademark and (2) that the defendant's use of the mark is likely to cause confusion. Applied Info. Scis. Corp. v. eBay, Inc., 511 F.3d 966, 969 (9th Cir. 2007). Country Visions sufficiently alleges it owns a federally registered trademark in "Apricot Lane." (First Am. Countercl. ¶ 107.)
Country Visions does not sufficiently allege likelihood of consumer confusion. Likelihood of confusion looks at "whether use of the plaintiff's trademark by the defendants is 'likely to cause confusion or to cause mistake, or to deceive as to the affiliation, connection, or association' of the two products." Mattel, Inc. v. Walking Mountain Prods., 353 F.3d 792, 807 (9th Cir. 2003) (quoting Cairns v. Franklin Mint Co., 292 F.3d 1139, 1149 (9th Cir. 2002)). There can be a high risk of consumer confusion when a terminated franchisee continues to use the former franchisor's trademark. See Dunkin Donuts, Inc. v. All Madina Corp., Civ. No. A 04-1399 (JAG), 2006 WL 842403, at *4 (D.N.J. Mar. 28, 2006); 4 McCarthy, supra, § 25:31. Here, the only allegation regarding Joli Grace's use of the Apricot Lane mark is that Joli Grace has "sold Blu Spero labeled merchandise in at least three Apricot Lane stores, thereby causing confusion amongst customers regarding the relationship between Apricot Lane and Blu Spero." (Id. ¶ 108.) There are no allegations that Joli Grace used the Apricot Lane mark after the termination of any Franchise Agreement. Likewise, Country Visions alleges Joli Grace sold Blu Spero products in Apricot Lane stores without its permission, but Country Visions does not allege that such permission was required under the Franchise Agreement. Absent an allegation that Joli Grace and Stacie Lancaster used the mark in an unpermitted manner, Country Visions does not adequately allege Joli Grace and Stacie Lancaster committed trademark infringement.
Country Visions also alleges misuse of the Apricot Lane mark by Love Grace and Arthur Lancaster at Blu Spero stores. However, as discussed above, the court does not have personal jurisdiction over Love Grace or Arthur Lancaster.
It is unclear whether claim seven is a cause of action for trademark infringement, false advertisement, or false designation of origin. Even if claim seven is a cause of action for trademark infringement, Country Visions fails to allege sufficient facts. Accordingly, the court must grant counter-defendants' motion to dismiss the Lanham Act claim.
Because the court will dismiss claim seven in its entirety, the court need not address counter-defendants' motion to dismiss claim seven as to Stacie Lancaster for failure to properly allege Stacie Lancaster is an alter ego of Joli Grace.
2. California Unfair Competition Law
In its eighth cause of action, Country Visions alleges counter-defendants violated California's Unfair Competition Law by engaging in "fraudulent and/or unfair competition" acts. (First Am. Countercl. ¶ 116.) California Business and Professions Code § 17200 et seq. prohibits unfair competition, which is defined to include "any unlawful, unfair, or fraudulent business act or practice." Cal. Bus. & Prof. Code § 17200. "Each prong of the UCL is a separate and distinct theory of liability . . . ." Kearns v. Ford Motor Co., 567 F.3d 1120, 1127 (9th Cir. 2009) (citing S. Bay Chevrolet v. Gen Motors Acceptance Corp., 72 Cal. App. 4th 861, 886 (4th Dist. 1999)).
Country Visions does not state which prong of the UCL it is relying upon. It alleges that counter-defendants were engaged in "acts of fraudulent and/or unfair competition," (First Am. Countercl. ¶ 116), while also alleging that counter-defendants "misle[d] the general public" through such "fraudulent business act or practice," (id. ¶ 117). The only specific factual allegation identified in Country Visions's UCL claim is that the counter-defendants actions will likely lead to public into believing Blu Spero and Apricot Lane are sister stores. (Id.) Country Visions does not allege which acts were fraudulent or constituted unfair competition. Thus, Country Visions's claim is vague and conclusory, regardless of which prong or pleading standard applies. See Randhawa v. Skylux Inc., Civ. No. 2:09-02304 WBS DAD, 2012 WL 5349403, at *2 (E.D. Cal. Oct. 26, 2012) (dismissing plaintiffs' UCL claims where it was unclear which prong of the UCL the plaintiffs rely upon).
Accordingly, the court will grant counter-defendants' motion to dismiss the UCL claim.
3. Louisiana Unfair Trade Practices and Consumer Protection Law
In its ninth cause of action, Country Visions alleges counter-defendants violated LUTPA by engaging in "unfair methods of competition or unfair or deceptive acts or practices in the conduct of any trade or commerce." (First Am. Countercl. ¶ 126.) LUTPA declares unlawful "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." La. Stat. Ann. § 51:1405. The elements of a cause of action under LUTPA are: "(1) an unfair or deceptive trade practice declared unlawful; (2) that impacts a consumer, business competitor, or other person to whom the statute grants a private right of action; (3) which has caused ascertainable loss." FloQuip, Inc. v. Chem Rock Techs., Civ. No. 6:16-0035, 2016 WL 4574436, at *16 (W.D. La. June 20, 2016). A practice is unfair "when the practice is unethical, oppressive, unscrupulous, or substantially injurious." Pinero v. Jackson Hewitt Tax Serv. Inc., 594 F. Supp. 2d 710, 720-21 (E.D. La. 2009) (citing Jefferson v. Chevron U.S.A. Inc., 713 So. 2d 785, 792 (La. App. 4 Cir. 1998)). A trade practice is deceptive when it amounts to "fraud, deceit or misrepresentation." Id. Thus, "LUTPA claims are not limited solely to allegations of fraud, but may be independently premised on a range of non-fraudulent conduct." Mabile v. BP, p.l.c, Civ. No. 11-1783, 2016 WL 5231839, at *24 (E.D. La. Sept. 22, 2016).
Similar to the UCL claim, Country Visions does not clearly state which prong of the LUTPA it is relying upon. In its nine line, five paragraph LUTPA claim, Country Visions alleges that counter-defendants "engaged in unfair methods of competition or unfair or deceptive acts or practices in the conduct of any trade or commerce." (First Am. Countercl. ¶ 126.) These allegations refer to conduct that is fraudulent and non-fraudulent as a basis for Country Visions's LUTPA claim. Country Visions has not provided notice of which basis it seeks to recover against counter-defendants under LUTPA. Cf. Randhawa, 2012 WL 5349403, at *2 (dismissing UCL claims for failure to identify which prong of the UCL the plaintiffs rely upon). This claim only contains allegations that are mere recitations of the elements of LUTPA and are vague and conclusory.
Accordingly, the court will grant counter-defendants' motion to dismiss the LUTPA claim.
4. Fraud
In its eleventh cause of action, Country Visions alleges Joli Grace and Stacie Lancaster fraudulently induced Country Visions to enter into Franchise Agreements. Counter-defendants seek to dismiss this cause of action because the economic loss rule precludes recovery.
The economic loss "rule 'prevent[s] the law of contract and the law of tort from dissolving one into the other.'" Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal. 4th 979, 988 (2004) (quoting Rich Prods. Corp. v. Kemutec, Inc., 66 F. Supp. 2d 937, 969 (E.D. Wis. 1999)). It precludes recovery for "purely economic loss due to disappointed expectations, unless [the plaintiff] can demonstrate harm above and beyond a broken contractual promise." Id.
Conduct "amounting to a breach of contract becomes tortious only when it also violates a duty independent of the contract arising from principles of tort law." Id. at 989 (quoting Erlich v. Menezes, 21 Cal. 4th 543, 551 (1999)). The California Supreme Court permits tort damages in contract cases in several limited scenarios, including when a party procured the contract through fraudulent inducement. Erlich, 21 Cal. 4th at 551-52. In such a case, "the duty that gives rise to tort liability is either completely independent of the contract or arises from conduct which is both intentional and intended to harm." Robinson, 34 Cal. 4th at 990 (quoting Erlich, 21 Cal. 4th at 552). Thus, the economic loss rule does not bar a properly pled fraudulent inducement claim. United Guar. Mortg. Indem. Co. v. Countrywide Fin. Corp., 660 F. Supp. 2d 1163, 1188 (C.D. Cal. 2009) ("[I]t has long been the rule that where a contract is secured by fraudulent representations, the injured party may elect to affirm the contract and sue for fraud." (quoting Lazar v. Superior Court, 12 Cal. 4th 631, 645 (1996))).
Here, claim eleven alleges Joli Grace and Stacie Lancaster breached the Franchise Agreements by fraudulently inducing Country Visions to enter into the Franchise Agreements. (First Am. Countercl. ¶¶ 142-45.) Since fraudulent inducement is the violation of "a duty independent of the contract arising from the principles of tort law," the economic loss rule does not apply. Robinson, 34 Cal. 4th at 989, 991 ("We hold the economic loss rule does not bar Robinson's fraud and intentional misrepresentation claims because they were independent of Dana's breach of contract.").
Counter-defendants rely on Multifamily Captive Group, LLC v. Assurance Risk Managers, Inc., 629 F. Supp. 2d 1135, 1145-46 (E.D. Cal. 2009) (Damrell, J.), to argue that the economic loss rule will always preclude recovery of fraud claims when the misrepresentations arose from the underlying contract and caused the injured party to enter into a contract. However, such a view ignores the California Supreme Court's position that the economic loss rule does not preclude recovery for fraudulent inducement. Erlich, 21 Cal. 4th at 551-52; see Robinson, 34 Cal. 4th at 990.
Accordingly, the court must deny counter-defendants' motion to dismiss the fraud claim.
5. Accounting
In its twelfth cause of action, Country Visions alleges counter-defendants failed to properly account to Country Visions using Country Visions's point of sale system as required by the Franchise Agreements and must therefore account for all missing sales in Joli Grace's Apricot Lane stores. (First Am. Countercl. ¶ 157.) Under California law, a claim for accounting is not a stand-alone claim. Batt v. City & County of S.F., 155 Cal. App. 4th 65, 82 (1st Dist. 2007) (noting accounting "is not an independent cause of action but merely a type of remedy, an equitable remedy at that"). "Because [Country Visions's] accounting claim is related to [one of its] breach of contract claim[s], which [counter-defendants] do[] not address in [their] motion to dismiss, the court will interpret this claim as a prayer for relief attached to [its] breach of contract claim and will not dismiss it at this time." Rose v. J.P. Morgan Chase, N.A., Civ. No. 2:12-225 WBS CMK, 2012 WL 892282, at *5 (E.D. Cal. Mar. 14, 2012).
Accordingly, the court must deny counter-defendants' motion to dismiss the accounting claim.
C. Preliminary Injunction
Country Visions also seeks preliminary injunctions against counter-defendants. In order to obtain a preliminary injunction, the moving party must establish (1) it is likely to succeed on the merits, (2) it is likely to suffer irreparable harm in the absence of preliminary relief, (3) the balance of equities tips in its favor, and (4) an injunction is in the public interest. Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 20-21 (2008); Humane Soc. of the U.S. v. Gutierrez, 558 F.3d 896, 896 (9th Cir. 2009). Injunctive relief is "an extraordinary and drastic remedy, one that should not be granted unless the movant, by a clear showing, carries the burden of persuasion." Mazurek v. Armstrong, 520 U.S. 968, 972 (1997) (per curiam).
1. Preliminary Injunction Requiring the Turn-Over of Hattiesburg Store or Prohibiting Blu Spero from Operating in the Hattiesburg Store
Country Visions first seeks a preliminary injunction against Stacie Lancaster and Joli Grace that requires them to turn over the Hattiesburg store and lease pursuant to the terms of the Hattiesburg Franchise Agreement or, in the alternative, a preliminary injunction that prevents counter-defendants from operating the Blu Spero store that is currently operating at the Hattiesburg store location.
The court need not reach the merits of Country Visions's requests. Country Visions first seeks a mandatory injunction--which is subject to a higher standard--ordering Joli Grace and Stacie Lancaster to turn over the Hattiesburg Lease. See Stanley v. Univ. of S. Cal., 13 F.3d 1313, 1320 (9th Cir. 1994) ("A mandatory injunction goes well beyond simply maintaining the status quo pendent lite [and] is particularly disfavored." (alteration in original) (citations omitted)). Stacie Lancaster and Joli Grace already signed a document turning over the Hattiesburg Lease to Country Visions when they signed the Collateral Assignment of the Hattiesburg Lease. (Stacie Decl. Ex. 1, at 3-4 (Docket No. 32-1).)
The parties note that the Hattiesburg landlord did not accept the Collateral Assignment, but Country Visions contends that the landlord will accept a lease assignment upon an order by the court. The Hattiesburg landlord is not before the court, however. The court is unable to inquire into what will satisfy the landlord and cannot compel the landlord's actions. See Paccar Int'l, Inc. v. Commercial Bank of Kuwait, S.A.K., 757 F.2d 1058, 1061 (9th Cir. 1985) (vacating district court's order granting preliminary injunction for lack of personal jurisdiction); 11A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2956 (3d ed.) (noting a court does not have power to enjoin a non-party). The court is not going to draft, or order Joli Grace and Stacie Lancaster to draft, an order or assignment of the Hattiesburg Lease that satisfies the landlord. Absent the landlord's presence in this action, the court will not issue an affirmative preliminary injunction requiring the assignment of the lease.
The court will also not enjoin the operation of the Blu Spero store at the Hattiesburg store location. A district court has no authority to grant relief in the form of a preliminary injunction where it has no personal jurisdiction over the parties. Paccar Int'l, 757 F.2d at 1061; see Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 584 (1999) ("Personal jurisdiction, too, is an essential element of the jurisdiction of a district . . . court, without which the court is powerless to proceed to an adjudication." (alteration in original)). "A federal court may issue an injunction if it has personal jurisdiction over the parties and subject matter jurisdiction over the claim; it may not attempt to determine the rights of persons not before the court." Zepeda v. U.S. Immigration and Naturalization Serv., 753 F.2d 719, 727 (9th Cir. 1985).
Here, in order to grant Country Visions's desired relief--preventing the operation of a Blu Spero store at the Hattiesburg store location--the court must have jurisdiction over Love Grace. Both parties agree that Love Grace, not Joli Grace, currently possesses the Hattiesburg Lease and operates the Blu Spero store at that location. (Martin Decl. ¶¶ 3-5, Exs. A-B; Stacie Decl. ¶ 5.) The court cannot stop Joli Grace's operation of a store it does not operate. The court can only grant Country Visions's injunction by enjoining Love Grace. However, the court's jurisdictional reach fails to extend to Love Grace and the court cannot enjoin Love Grace. The court therefore cannot direct Love Grace either to turn over the Hattiesburg Lease or cease operating the Blu Spero store.
Even if Country Visions could satisfy all the Winter factors justifying extraordinary injunctive relief under Rule 65, the court simply lacks jurisdiction over Arthur Lancaster and Love Grace--whom Country Visions seeks to enjoin. See Carranza v. Brown, Civ. No. 3:14-0773 GPC BLM, 2016 WL 4376852, at *4-5 (S.D. Cal. Aug. 17, 2016) (refusing to issue an injunction where the court lacks jurisdiction over the parties plaintiff seeks to enjoin). Accordingly, the court will deny Country Visions's motion for a preliminary injunction requiring Stacie Lancaster and Joli Grace to turn over the Hattiesburg Lease or preventing counter-defendants from operating the Blu Spero store at the Hattiesburg location.
2. Preliminary Injunction Preventing Use of Apricot Lane Mark
Country Visions also seeks a preliminary injunction against Joli Grace, Love Grace, Stacie Lancaster, and Arthur Lancaster that prevents them from using the Apricot Lane mark in connection with the Hattiesburg store.
A plaintiff "must establish that irreparable harm is likely, not just possible, in order to obtain a preliminary injunction." All. for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1131 (9th Cir. 2011) (emphasis in original) (citing Winter, 555 U.S. at 22). "[A]ctual irreparable harm must be demonstrated to obtain a permanent [or preliminary] injunction in a trademark infringement action." Herb Reed Enters., LLC v. Fla. Entm't Mgmt., Inc., 736 F.3d 1239, 1249-50 (9th Cir. 2013). Courts do not presume irreparable harm once plaintiffs have shown a likelihood of success on the merits. Id. at 1250 ("Gone are the days when once the plaintiff in an infringement action has established a likelihood of confusion, it is ordinarily presumed that the plaintiff will suffer irreparable harm if injunctive relief does not issue.").
Here, there is no evidence that Joli Grace and Stacie Lancaster continue to use the Apricot Lane mark at the Hattiesburg store. Stacie Lancaster and Joli Grace have stopped operating the Hattiesburg Apricot Lane store, have assigned the lease to Love Grace, and thus lack the ability to use the Apricot Lane mark at the Hattiesburg store. (Stacie Decl. ¶¶ 4-6.) Country Visions has not shown that Stacie Lancaster and Joli Grace are able to use the Apricot Lane mark in a way that would likely cause irreparable injury to Country Visions.
Additionally, the court does not have personal jurisdiction over Arthur Lancaster and Love Grace, so the court will not enjoin them from selling products with the Apricot Lane mark at the Blu Spero Hattiesburg store.
Country Visions has failed to meet the second prong for a preliminary injunction. The court does not need to address the remaining prongs. See Winter, 555 U.S. at 20-21 (holding a plaintiff must establish that all four prongs are met and irreparable harm is likely, not just possible).
IT IS THEREFORE ORDERED that Arthur Lancaster and Love Grace's motion to dismiss be, and the same hereby is, GRANTED on the ground of lack of personal jurisdiction.
IT IS FURTHER ORDERED that the Trust and Thornhill's motion to dismiss be, and the same hereby is, GRANTED on the ground of lack of personal jurisdiction.
IT IS FURTHER ORDERED that Stacie Lancaster and Joli Grace's Rule 12(b)(6) motion to dismiss counter-claimant's first amended counterclaim be, and the same hereby is:
(1) GRANTED with respect to claims seven, eight, and nine; and
(2) DENIED in all other respects.
IT IS FURTHER ORDERED that counter-claimant's motion for preliminary injunction be, and the same hereby is, DENIED.
Counter-claimant has twenty days from the date of this Order to file an amended counterclaim, if it can do so consistent with this Order. Dated: November 30, 2016
/s/_________
WILLIAM B. SHUBB
UNITED STATES DISTRICT JUDGE