CASE NO. C16-0168JLR
ORDER ON MOTIONS TO DISMISS
Before the court are Defendant Kevin Costanza's motion to dismiss Plaintiff Kische USA LLC's ("Kische") amended complaint (Costanza MTD (Dkt. # 54)) and Defendants JD Stellar LLC, Ali Simsek, and Diane Walker's ("Stellar Defendants") motion to dismiss Kische's amended complaint (Stellar MTD (Dkt. # 56)). The court has considered the motions, Kische's responses to the motions (Resp. to Costanza (Dkt. # 57); Resp. to Stellar (Dkt. # 61)), Defendants' replies in support of their motions (Costanza Reply (Dkt. # 60); Stellar Reply (Dkt. # 63)), the relevant portions of the record, and the applicable law. Being fully advised, the court GRANTS Mr. Costanza's motion and GRANTS in part and DENIES in part Stellar Defendants' motion.
No party requested oral argument, and the court determines that oral argument would not be helpful to its disposition of the motions. See Local Rules W.D. Wash. LCR 7(b)(4).
This case involves allegations that former Kische employees—Mr. Simsek and Ms. Walker—abused their positions to misappropriate Kische's assets and founded JD Stellar, a competing business. (See Am. Compl. (Dkt. # 53).) Kische accuses Mr. Costanza, its former attorney, of participating in this misconduct. (Id.)
Kische "design[s] and import[s] fashionable clothing from manufacturers in Turkey and [sells] them under the mark 'KISCHE' to prominent retailers in the U.S., including Nordstrom, T.J. Maxx, Marshalls, Ross[,] and others." (Id. ¶ 4.4.) Mehmet Uysal is the owner and sole member of Kische. (Id. ¶ 4.3.) Mr. Simsek and Ms. Walker "served as managers and employees of [Kische] for over six years." (Id. ¶ 4.6.) On February 8, 2010, Mr. Uysal updated Kische's Operating Agreement to delegate the management of Kische's "day-to-day affairs to 'one or more Managers'" and appointed Mr. Simsek as Kische's Chief Executive Manager. (Id. ¶ 4.20.) As Kische's Chief Executive Manager, Mr. Simsek had limited authority because "Mr. Uysal's written approval [was required] for a series of actions, including '[a]ny act, transaction, or occurrence not in the course of [Kische's] ordinary business." (Id. (quoting Uysal Decl. (Dkt. # 43) Ex. 7 ("Operating Agreement") ¶ 4.3).) //
Kische alleges that around late 2013, while still employed by Kische, Mr. Simsek and Ms. Walker began improperly competing with Kische, including by (1) forming JD Stellar, a competing company; (2) assigning one of Kische's registered trademarks—"Marseille"—to JD Stellar using Mr. Costanza's services and without Mr. Uysal's approval; (3) registering the trademark "Dantelle," which Kische alleges directly competed with Kische, on behalf of JD Stellar; (4) dissuading Kische's customers from doing business with Kische; (5) purposefully delaying Kische's payments to manufacturers and vendors; (6) stealing furniture, equipment, and clothing from Kische; (7) making payments from Kische to JD Stellar without Mr. Uysal's authorization; and (8) otherwise improperly utilizing Kische's resources. (See Am. Compl. ¶¶ 4.24, 4.28, 4.29, 4.31-4.33, 4.36, 4.38-4.40.) In addition, Kische alleges that it "expended considerable sums of money" and other resources developing the Kische brand (id. ¶ 4.5), and that prior to the alleged improper competition, Kische generated annual revenue of $13 million from another of Kische's trademarks, the "Kische" mark (id. ¶ 4.10). Kische further alleges that its revenue is now $0.00. (Id. ¶ 4.42.)
On February 4, 2016, Kische brought this suit against Mr. Simsek, Ms. Walker, Mr. Costanza, their respective marital communities, and JD Stellar. (See Compl. (Dkt. # 1) at 1.) Kische originally alleged unfair competition under the Lanham Act, 15 U.S.C. § 1051 et seq.; false description under the Lanham Act; common law passing off; common law misappropriation of trade secrets; violation of Washington's Uniform Trade Secrets Act ("UTSA"), RCW ch. 19.108; "common law injury to business reputation"; breach of contract; breach of fiduciary duty; intentional interference with contractual relations; conversion; business opportunity fraud under RCW ch. 19.110; and violation of the federal Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-68. (Id. at 12-19.) Kische alleged legal malpractice based on theories of negligence and breach of fiduciary duty against Mr. Costanza. (Id. at 19-20.)
Defendants moved to dismiss the original complaint for failure to state a claim upon which relief may be granted (Dkt. # 18); (Dkt. # 28), and the court granted in part and denied in part Stellar Defendants' motion to dismiss and granted Mr. Costanza's motion to dismiss (6/29/16 Order (Dkt. # 39)). Specifically, the court dismissed all of Kische's claims, except for breach of contract, breach of fiduciary duty, and tortious interference. (Id. at 18, 22.) The court's dismissal was without prejudice because the court concluded that "[t]hough Kische has not plausibly pleaded many of its claims, the court cannot say on the record before it that leave to amend would be futile or that any other relevant factors weigh against granting leave to amend." (Id. at 31.)
Kische filed an amended complaint on August 5, 2016. (See Am. Compl.) Kische asserts 12 causes of action—10 against Stellar Defendants and three against Mr. Costanza (id.)—and most of them are distinct from the causes of action Kische asserted in its initial complaint (compare Compl. with Am. Compl.). Against Mr. Costanza, Kische alleges legal malpractice on a negligence theory, breach of fiduciary duty, and civil conspiracy. (Am. Compl. ¶¶ 14.1-14.6, 15.1-15.4; see also Resp. to Costanza at 22 ("Plaintiff also pleaded a civil conspiracy claim against Costanza.").) Against Stellar Defendants, Kische alleges (1) a trademark infringement claim under the Lanham Act, 15 U.S.C. § 1114; (2) a false advertising claim under the Lanham Act, 15 U.S.C. § 1125(a)(1)(B); (3) a trademark dilution claim under the Lanham Act, 15 U.S.C. § 1025(c); (4) violation of Washington's Consumer Protection Act ("CPA"), RCW ch. 19.86; (5) breach of contract; (6) breach of fiduciary duty; (7) tortious interference with business relations; (8) conversion; (9) fraud; and (10) civil conspiracy. (Id. ¶¶ 5.1-13.10, 15.1-15.4.)
On August 17, 2016, Mr. Costanza filed a motion to dismiss for failure to state a claim. (Costanza MTD at 1-2.) Mr. Costanza argues that Kische Stellar Defendants filed their motion to dismiss on August 19, 2016. (Stellar MTD at 1.) They argue that Kische fails to state a claim for trademark infringement, false advertising, trademark dilution, violation of the CPA, breach of fiduciary duty, conversion, fraud, and civil conspiracy, but do not challenge Kische's claims for breach of contract and tortious interference with business relations. (Id. at 9.) Stellar Defendants' and Mr. Costanza's (collectively, "Defendants") motions to dismiss are now before the court.
Defendants move for dismissal under Federal Rule of Civil Procedure 12(b)(6). (See Costanza MTD at 3 n. 2; Stellar MTD at 2.) Accordingly, the court begins by addressing the legal standard that applies to motions under Rule 12(b)(6). The court then addresses Defendants' motions and whether leave to amend is appropriate.
A. Legal Standard
When considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the court construes the complaint in the light most favorable to the nonmoving party. Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir. 2005). The court must accept all well-pleaded allegations of material fact as true and draw all reasonable inferences in favor of the plaintiff. See Wyler Summit P'ship v. Turner Broad. Sys., Inc., 135 F.3d 658, 661 (9th Cir. 1998). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also Telesaurus VPC, LLC v. Power, 623 F.3d 998, 1003 (9th Cir. 2010). "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." Iqbal, 556 U.S. at 678.
The court, however, need not accept as true a legal conclusion presented as a factual allegation. Id. Although the pleading standard Federal Rule of Civil Procedure 8 announces does not require "detailed factual allegations," it demands more than "an unadorned, the-defendant-unlawfully-harmed-me accusation." Id. (citing Twombly, 550 U.S. at 555). A pleading that offers only "labels and conclusions or a formulaic recitation of the elements of a cause of action" will not survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). Id. A complaint does not survive dismissal where "it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Id. (quoting Twombly, 550 U.S. at 557). In addition, "[a] plaintiff suing multiple defendants 'must allege the basis of his claim against each defendant to satisfy Federal Rule of Civil Procedure 8(a)(2), which requires a short and plain statement of the claim to put defendants on sufficient notice of the allegations against them.'" Flores v. EMC Mortg. Co., 997 F. Supp. 2d 1088, 1103 (E.D. Cal. 2014) (quoting Gauvin v. Trombatore, 682 F. Supp. 1067, 1071 (N.D. Cal. 1988)). In deciding a motion to dismiss, the court may consider the pleadings, documents attached to the pleadings, and documents incorporated by reference in the pleadings. United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003) (citing Van Buskirk v. CNN, 284 F.3d 977, 980 (9th Cir. 2002)).
Defendants note in their motions to dismiss that Kische's complaint refers to documents outside the complaint and do not object to the court considering the material. (See Costanza MTD at 3 nn.3, 6; Stellar MTD at 9 n.2.) In opposing Stellar Defendants' motion, Kische argues that these documents are incorporated into the complaint by reference. (See Resp. to Stellar at 21.) However, in reply, Stellar Defendants argue that Kische did not file with the amended complaint the exhibits referenced in the complaint and that the exhibits should therefore not be considered in deciding this Rule 12(b)(6) motion to dismiss. (Stellar Reply at 5.) The court finds that the exhibits upon which Kische relies in opposing Defendants' motions are incorporated by reference into the amended complaint. See Ritchie, 342 F.3d at 908 ("Even if a document is not attached to a complaint, it may be incorporated by reference into a complaint if the plaintiff refers extensively to the document or the document forms the basis of the plaintiff's claim."). Accordingly, the court considers these materials in ruling on Defendants' motions to dismiss. But to the extent that Kische opts to amend any defective claims, see infra § III.D, Kische must attach any materials upon which the complaint relies.
At the outset, the court notes that Kische's amended complaint is replete with case citations, recitation of legal elements, legal argument, and other extraneous material. This material obscures Kische's factual allegations, and, in most instances, does not help nudge Kische's claims any closer to plausibility than would straightforward, clearly stated factual allegations. See Harrell v. Hornbrook Cmty. Servs. Dist., No. 2:14-cv-01595-KJM-GGH, 2015 WL 5329779, at *4 (E.D. Cal. Sept. 10, 2015) ("While documents definitional to a claim may be attached to the complaint, . . . it is not appropriate to submit a myriad of evidentiary exhibits. The complaint becomes a large evidentiary mess where the defendant is unsure of what to plead to, and unsure of what is presumed true for the purposes of a motion to dismiss."); Harrison v. Inst. Gang of Investigations, No. C 07-3824 SI (pr), 2009 WL 1277749, at *1 (N.D. Cal. May 6, 2009) ("Legal argument, case citations[,] and refutation of arguments that are anticipated are not necessary or appropriate in a pleading . . . ."); see also Twombly, 550 U.S. at 570 ("Because the plaintiffs here have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed."). Accordingly, the court cautions Kische that any future amended complaint should comply with Federal Rule of Civil Procedure 8's requirement that a pleading contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2); see also infra § III.D (discussing leave to amend).
B. Mr. Costanza's Motion
1. Legal Malpractice and Breach of Fiduciary Duty Claims
Kische advances a legal malpractice claim and a breach of fiduciary duty claim against Mr. Costanza. (See Am. Compl. ¶¶ 14.1-14.15.) In its complaint, Kische addresses the two claims together and relies on the same allegations for both claims. (Id.) The court also addresses the claims together.
"To establish legal malpractice, a plaintiff must show '(1) the existence of an attorney-client relationship giving rise to a duty of care to the client, (2) [an] act or omission in breach of the duty, (3) damages to the client, and (4) proximate causation between the breach and damages.'" Estep v. Hamilton, 201 P.3d 331, 336 (Wash. Ct. App. 2008) (quoting Smith v. Preston Gates Ellis, L.L.P., 147 P.3d 600, 602 (Wash. Ct. App. 2006)). An attorney-client relationship exists when "the conduct between an individual and an attorney is such that the individual subjectively believes such a relationship exists." Dietz v. Doe, 935 P.2d 611, 615 (Wash. 1997). "To comply with the duty of care, an attorney must exercise the degree of care, skill, diligence, and knowledge commonly possessed and exercised by a reasonable, careful, and prudent lawyer in the practice of law in [Washington]." Id. (alternation in original) (quoting Hizey v. Carpenter, 830 P.2d 646, 652 (Wash. 1992)). An attorney's violation of the Rules of Professional Conduct does not alone demonstrate breach of the duty of care. Hizey, 830 P.2d at 652.
An attorney may also be liable for breach of a fiduciary duty, "which focuses on the loyalty owed by the attorney to the client." See Bronzich v. Persels & Assocs. LLC, No. C10-0364EFS, 2011 WL 2119372, at *10 (E.D. Wash. May 27, 2011). A claim for breach of fiduciary duty requires the plaintiff to prove: (1) the existence of a duty owed; (2) breach of that duty; (3) resulting injury; and (4) that the claimed breach caused the injury. Micro Enhancement Int'l, Inc. v. Coopers & Lybrand, LLP, 40 P.3d 1206, 1217 (Wash. Ct. App. 2002). An attorney breaches his fiduciary duty to a client when the attorney benefits improperly from the attorney-client relationship. See Bronzich, 2011 WL 2119372, at *10.
Although Washington courts have "not clearly identified why a plaintiff may pursue both a legal malpractice and a breach-of-fiduciary-duty claim against the attorney when these claims' elements mirror one another," courts have nonetheless allowed plaintiffs to pursue both claims simultaneously. Bronzich v. Persels & Assocs. LLC, No. C10-0364EFS, 2011 WL 2119372, at *10 (E.D. Wash. May 27, 2011) ("A legal malpractice claim focuses on the attorney's alleged negligent performance[, . . .] [w]hereas, a breach-of-fiduciary-duty claim focuses on the loyalty owed by the attorney to the client.").
Kische asserts that Mr. Costanza owed Kische and its owner, Mr. Uysal, several duties, all of which appear to be variations on a duty to investigate: (1) "to determine who has decision making authority for [an] organization" any time an attorney represents an organization (id. ¶ 14.6.); (2) "to have communication with the owner of the company to make sure things were on the up and up" (id. ¶ 14.7); and (3) to investigate further when it seemed "that something was amiss" (id. ¶ 14.8). Kische further states that RPC 1.1, which addresses competent representation, required Mr. Costanza to "check with the Plaintiff President to ensure he was doing what was in his client's best interest" because it is "not unheard of [that] a manager partner or chief executive manager of a small company with international ties" will "go rogue and try to maximize personal profit." (Id. ¶ 14.10.) Kische also alleges that Mr. Costanza "violated RPCs and committed negligence by not . . . performing a basic conflicts check when first asked about transferring a trademark from" Kische. (Id. ¶ 14.16.)
The court previously determined that Kische had failed to state claims for legal malpractice and breach of fiduciary duty against Mr. Costanza because Kische's allegations supported the "obvious alternative explanation" that Mr. Simsek had apparent authority to employ and direct Mr. Costanza's legal services. (6/29/16 Order at 29-31.) Mr. Costanza argues that "the amended complaint remains completely devoid of factual content that supports a plausible conclusion that [Mr.] Simsek did not have apparent authority" to direct Mr. Costanza to assign the Marseille mark. (Costanza MTD at 2.) Mr. Costanza also contends that Kische's claims are premised on "the notion that [Mr.] Costanza had a duty to Kische's member, [Mr.] Uysal" and that Mr. Costanza "knew or should have known that [Mr.] Simsek's conduct was wrongful." (Id. at 5.) //
In response, Kische argues that there was an attorney-client relationship between Mr. Uysal and Mr. Costanza—not just between Kische and Mr. Costanza—and that Mr. Costanza owed duties to Mr. Uysal. (Id. at 9-10.) Kische further argues that Mr. Costanza cannot rely on the apparent authority doctrine because he "provides no evidence of an objective manifestation of Mr. Uysal's intent to authorize Mr. Simsek to transfer trademarks away from Kische." (Id. at 13.)
Although Kische is correct that "legal malpractice actions [may] be brought by persons other than the clients of attorneys in some factual situations," Stangland v. Brock, 747 P.2d 464, 467 (Wash. 1987), this rule does not help Kische. To the extent that Kische alleges legal malpractice and breach of fiduciary duty based on duties arising from an attorney-client relationship between Mr. Uysal and Mr. Costanza, Kische fails to state a claim because Mr. Uysal is not a party to this action and Kische provides no authority to establish that it has standing to pursue a legal malpractice claim on Mr. Uysal's behalf. (See Resp. to Costanza at 11 (stating only that Mr. Uysal owns Kische).)
In addition, Kische's allegations regarding Mr. Costanza's representation of Kische are again "merely consistent with" legal malpractice and breach of fiduciary duty. Iqbal, 556 U.S. at 678. "Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of entitlement to relief.'" Id. (quoting Twombly, 550 U.S. at 557). A plaintiff fails to state a plausible claim if the facts alleged better support an 'obvious alternative explanation' according to which the defendant's conduct was lawful. Id. at 680-82. Kische's allegations better support the "obvious alternative explanation" that Mr. Simsek had at least apparent authority to instruct Mr. Costanza to transfer the Marseille mark and that Mr. Costanza therefore did not breach a duty to Kische. Id.
As in its original complaint, Kische alleges that Mr. Costanza failed to notify or consult with Mr. Uysal or Kische before transferring the Marseille mark. (Compare Compl. ¶¶ 17.2, 18.2 with Am. Compl. ¶¶ 14.7, 14.10-14.11.) But "[u]nder apparent authority, an agent . . . binds a principal . . . if objective manifestations of the principal 'cause the one claiming apparent authority to actually, or subjectively, believe that the agent has authority to act for the principal' and such belief is objectively reasonable." Mohr v. Grantham, 262 P.2d 490, 498 (Wash. 2011) (quoting King v. Riveland, 886 P.2d 160, 165 (Wash. 1994)). In Washington, "a party dealing in good faith with an agent who appears to be acting within the scope of the agent's authority is not bound by undisclosed limitations on the agent's power." Hoglund v. Meeks, 170 P.3d 37, 44 (Wash. Ct. App. 2007); see also Udall v. T.D. Escrow Servs., Inc., 154 P.3d 882, 914 (Wash. 2007) (quoting Restatement (Third) of Agency § 3.03 cmt. b at 175 (2006) ("[W]hen a principal has vested an agent with 'general authority to engage in a class of transactions, subject to limits known only to the agent and the principal, third parties may reasonably believe the agent to be authorized to conduct such transactions and need not inquire into the existence of undisclosed limits on the agent's authority.'")). A principal may cloak an agent with apparent authority "'by appointing [him] to a position, such as that of manager or treasurer, which carries with it generally recognized duties; to those who know of the appointment there is apparent authority to do the things ordinarily entrusted to one occupying such a position.'" Smith v. Hansen, Hansen & Johnson, Inc., 818 P.2d 1127, 1133 (Wash. Ct. App. 1991) (quoting Restatement (Second) of Agency § 27 cmt. a at 104 (1958)).
As before, Kische's complaint indicates that Mr. Costanza provided legal services at Mr. Simsek's direction in connection with the assignment of the Marseille mark to JD Stellar. (Am. Compl. ¶¶ 4.36, 4.43.) Kische also alleges that it is a Washington limited liability company ("LLC") (id. ¶ 1.8) and that its Operating Agreement appointed Mr. Simsek to be Kische's Chief Executive Manager (id. ¶ 4.20). In Washington, the manager of a manager-managed LLC "is the agent of the [LLC] and has the authority to bind the [LLC] with regard to matters in the ordinary course of its activities." RCW 25.15.154(2)(a); see also RCW 25.15.154(1). Although Kische asserts that the assignment of the mark was not a "'day to day[,]' normal business occurrence" (Am. Compl. ¶ 14.5), Kische concedes that Mr. Simsek "may have had 'apparent authority' to instruct [Mr.] Costanza as to certain things" (id. ¶ 14.7) and does not allege that Mr. Costanza knew about any limit on Mr. Simsek's authority (see generally id.). The few facts Kische has alleged therefore support the obvious alternative explanation that Mr. Costanza had an objectively reasonable basis to conclude that Mr. Simsek had authority to enlist Mr. Costanza's legal services to assign the Marseille mark.
Finally, the court notes that although Kische expressly disavows any attempt to assert a breach of contract theory of legal malpractice against Mr. Costanza (Am. Compl. ¶ 14.4), Kische states in the very next paragraph of its complaint that "[Mr.] Costanza breached contractual duties" owed to Kische (id. ¶ 14.5). It is thus unclear whether Kische attempts to state a legal malpractice claim on this theory, but regardless, Kische alleges no facts related to a breach of contract between Kische and Mr. Costanza. (See generally id.) Accordingly, to the extent Kische alleges malpractice on a breach of contract theory, the court dismisses Kische's claim.
For the foregoing reasons, the court dismisses Kische's legal malpractice and breach of fiduciary duty claims against Mr. Costanza.
2. Civil Conspiracy
"An action for civil conspiracy lies when there is an agreement by two or more persons to accomplish some purpose, not in itself unlawful, by unlawful means." Sterling Bus. Forms, Inc. v. Thorpe, 918 P.2d 531, 533 (Wash. Ct. App. 1996). "To establish a claim for civil conspiracy, [a plaintiff] 'must prove by clear, cogent, and convincing evidence that (1) two or more people combined to accomplish an unlawful purpose, or combined to accomplish a lawful purpose by unlawful means; and (2) the conspirators entered into an agreement to accomplish the conspiracy.'" Woody v. Stapp, 189 P.3d 807, 810 (Wash. Ct. App. 2008) (quoting All Star Gas, Inc. v. Bechard, 998 P.2d 367, 372 (Wash. Ct. App. 2000)).
In its amended complaint, Kische alleges that "Defendants entered into a civil conspiracy to unlawfully and unfairly compete with" Kische and to "deprive" Kische of benefits it derives from the Kische and Marseille marks. (Am. Compl. ¶ 15.2.) Mr. Costanza argues that it is not clear whether Kische asserts this claim against him. (Costanza MTD at 10-11.) He further argues that if Kische does allege the claim against Mr. Costanza, Kische does not include in its complaint even a "formulaic recitation" that Mr. Costanza and Stellar Defendants entered into an agreement. (Id.) In response, Kische argues that Mr. Costanza had "communications" with Mr. Simsek regarding assigning Kische's mark to JD Stellar and therefore had "knowledge of Mr. Simsek's plan." (Resp. to Costanza MTD at 23.) Kische also contends that "[e]ven if [Mr.] Costanza could claim he did not know of Mr. Simsek's plan to divert sales from Kische to JD Stellar, he was informed on [March 24, 2014,] by Mr. Simsek that [Mr. Simsek] had stopped working for Kische in 2013." (Id.) Kische also argues that it "has even provided evidence of the agreement between Mr. Simsek and Mr. Costanza." (Resp. to Stellar at 24 (citing Uysal Decl. at 7-8, Ex. 24).)
The court concludes that Kische has inadequately pleaded a civil conspiracy claim against Mr. Costanza. The amended complaint contains no allegations that Mr. Costanza and Stellar Defendants entered into an agreement. (See Am. Compl. ¶¶ 15.1-15.4.) Indeed, Kische does not argue in response to Mr. Costanza's motion that the facts alleged in the complaint amount to an agreement, stating only that Mr. Costanza had "knowledge" of an alleged scheme; this purported knowledge is not clear from the face of the complaint. (Resp. to Costanza MTD at 23; Am. Compl. ¶¶ 15.1-15.4.) In addition, the emails that Kische asserts demonstrate an agreement between Mr. Costanza and Mr. Simsek show only that Mr. Costanza told Mr. Simsek that he could "prepare and file a new application to register [the] KISCHE [mark] without any logo graphics for about $1100." (Pl. Decl. Ex. 24 at 2.) Therefore, Kische has made no allegations that Mr. Costanza agreed to achieve "an unlawful purpose, or combined to accomplish a lawful purpose by unlawful means." Thorpe, 918 P.2d at 533. //
The court further notes that Kische has not "allege[d] the basis of this claim" against Mr. Costanza specifically, see Flores, 997 F. Supp. 2d at 1103, which presents fair notice concerns, see Fed. R. Civ. P. 8; (Costanza MTD at 4 ("Although not clear, [the civil conspiracy claim] also appears to be alleged against Costanza.")). For these reasons, Kische fails to state a claim for civil conspiracy against Mr. Costanza.
C. Stellar Defendants' Motion
1. Trademark Infringement
"To establish a claim for trademark infringement, [a plaintiff] must allege facts to show '(1) that it has a protect[a]ble ownership interest in the mark; and (2) that the defendant's use of the mark is likely to cause consumer confusion, thereby infringing upon [the plaintiff's] rights to the mark.'" Airs Aromatics, LLC v. Opinion Victoria's Secret Stores Brand Mgmt., Inc., 744 F.3d 595, 599 (9th Cir. 2014) (quoting Dep't of Parks & Recreation for State of Cal. v. Bazaar Del Mundo Inc., 448 F.3d 1118, 1124 (9th Cir. 2006)); see also Ahmed v. Hosting.com, 28 F. Supp. 3d 82, 87 (D. Mass. 2014) (stating that these requirements establish standing to bring suit under the Lanham Act); Joseph Paul Corp. v. Trademark Custom Homes, Inc., No. 3:16-CV-1651-L, 2016 WL 4944370, at *4-5 (N.D. Tex. Sept. 16, 2016) (noting that whether a plaintiff has standing to bring a Lanham Act claim is a question of statutory standing and "is . . . properly addressed under Rule 12(b)(6)"). Registration of a trademark with the United States Patent and Trademark Office ("USPTO") is prima facie evidence of the validity of the mark, and the owner's ownership of and exclusive right to use the mark. See 15 U.S.C. § 1115(a). In addition, a plaintiff demonstrates a protectable ownership interest when "the owner [establishes] 'not only that he or she used the mark before the mark was registered, but also that such use has continued to the present.'" Airs Aromatics, 744 F.3d at 599 (quoting Watec Co. v. Liu, 403 F.3d 645, 654 (9th Cir. 2005)).
"[T]he sine qua non of trademark infringement," however, "is consumer confusion." Network Automation, Inc. v. Advanced Sys. Concepts, Inc., 638 F.3d 1137, 1142 (9th Cir. 2011). In the Ninth Circuit, the consumer confusion analysis focuses on "whether a reasonably prudent consumer in the marketplace is likely to be confused as to the origin of the good or service bearing one of the marks." Rearden LLC v. Rearden Commerce, Inc., 683 F.3d 1190, 1214 (9th Cir. 2012) (internal quotation marks omitted). In assessing customer confusion, the court applies eight factors from AMF, Inc. v. Sleekcraft Boats, 599 F.3d 341, 348 (9th Cir. 1979): " strength of the mark;  proximity of the goods;  similarity of the marks;  evidence of actual confusion;  marketing channels used;  type of goods and the degree of care likely to be exercised by the purchaser;  defendant's intent in selecting the mark; and  likelihood of expansion of the product lines.'" Id. (alterations in original); see also id. ("The Sleekcraft factors are intended as an adaptable proxy for consumer confusion, not a rote checklist"). "Whether the use of a mark will result in a likelihood of confusion within the meaning of the Lanham Act is a 'mixed question of law and fact that is predominantly factual in nature.'" Coast Law Grp. v. Panagiotou, No. 12cv1446, 2013 WL 12114633, at *2 (S.D. Cal. Mar. 28, 2013) (quoting E. & J. Gallo Winery v. Gallo Cattle Co., 967 F.2d 1280, 1288 (9th Cir. 1992)). //
Stellar Defendants argue that Kische has not stated a claim under either 15 U.S.C. § 1114(1)(a) or 15 U.S.C. § 1114(1)(b), both of which address trademark infringement. (See Stellar MTD at 13-14.) Stellar Defendants contend that Kische has not pleaded an ownership interest in the Dantelle mark or consumer confusion as to the Kische, Marseille, or Dantelle marks. (See id. at 14 (Kische "does not allege any specific facts as to how consumers were confused.").) Kische responds that it pleaded ownership of the marks (Resp. to Stellar at 9-11) and "specifically pleaded and applied the likelihood of confusion factors set out in [Sleekcraft]" (id. at 12). Kische further contends that it "pleaded evidence of actual customer confusion" through declarations from Lorraine Hooshyar, a clothing buyer, and Kische's counsel. (Id. at 13.)
The court first analyzes the ownership element and concludes that Kische has pleaded this element as to the Kische mark, but not the Marseille or Dantelle marks. Kische alleges that from 2007 to the present, Kische owned, registered, and has used in commerce the Kische mark. (Am. Compl. ¶¶ 4.4-4.9, 4.18.) These allegations are sufficient to plead ownership of the mark. See 15 U.S.C. § 1115(a); Air Aromatics, 744 F.3d at 599. However, Kische fails to adequately allege ownership of the other two marks. Kische alleges that it began using the Marseille mark in commerce and registered the mark in 2010 until Stellar Defendants allegedly fraudulently transferred the mark to JD Stellar in 2014. (Id. ¶¶ 4.21-4.22.) In response to Stellar Defendants' motion, Kische states that because "[t]he validity of a mark may be challenged on the grounds that it has been obtained fraudulently," Kische has alleged "that it still owns" the Marseille mark. (Resp. to Stellar at 11.) However, Kische's complaint is devoid of any allegations that Kische claims an ownership interest in the mark after the transfer to JD Stellar. Accordingly, the court finds that Kische has not adequately pleaded ownership of the Marseille mark. Finally, although Kische alleges that it owns the Dantelle mark because "the mark was first registered and used in commerce when Defendant Simsek was under an exclusive contract" with Kische (id. ¶ 4.26), Kische does not assert a claim of trademark infringement in connection with the Dantelle mark (id. ¶¶ 5.1-5.3 (stating its trademark infringement claim without reference to Dantelle mark)). Accordingly, although Kische has pleaded a protectable ownership interest in the Dantelle mark, its alleged ownership is irrelevant to the trademark infringement claim Kische asserts.
In the complaint, Kische discusses both a Marseille design mark and a Marseille wordmark. (See Am. Compl. ¶¶ 4.21, 4.37.) It is unclear from the complaint whether Kische asserts any infringement of the wordmark, but the court's analysis would be the same as to the wordmark because Kische alleges that JD Stellar filed an application for the Marseille wordmark and makes no allegations that Kische has a protectable ownership interest in the wordmark. (See id. ¶ 4.37.)
Kische does not allege in its complaint that it still owns the Marseille mark despite the alleged fraudulent transfer nor does it provide any relevant authority in its response for an ownership interest after a mark has been transferred. (See Am. Compl. ¶ 4.21; Resp. to Stellar at 11 (citing case law addressing cancellation of a trademark).) Thus, the court concludes that Kische has failed to adequately plead this element because the court cannot reasonably infer from the facts before it that Kische has a protectable ownership interest in the mark. Kische may amend its complaint to allege such an ownership interest, however, pursuant to the court's leave to amend. See infra § III.D.
The court now turns to the consumer confusion element as applied to the Kische mark. When evaluating the likelihood of consumer confusion element, "[i]f the court determines as a matter of law from the pleadings that the goods are unrelated and confusion is unlikely, the complaint should be dismissed." Murray v. Cable Nat'l Broad. Co., 86 F.3d 858, 860 (9th Cir. 1996). "But, while likelihood of confusion can be decided as a matter of law, '[w]hether confusion is likely is a factual determination woven into the law' that courts 'routinely treat . . . as [an issue] of fact.'" Parts.com, 996 F. Supp. 2d at 936 (quoting Levi Strauss & Co. v. Blue Bell, Inc., 778 F.2d 1352, 1356 (9th Cir. 1985)). Kische alleges a number of facts that support a likelihood of customer confusion as to the Kische mark. (See Am. Compl. ¶ 4.42.) Specifically, Kische alleges that Stellar Defendants sell identical products, use an identical mark, use the same marketing channels, and continue to expand their business, all of which support a finding of consumer confusion when taken as true. (Id.); see also Network Automation, 638 F.3d at 1142 (applying the Sleekcraft factors). At this stage of the proceedings, the court evaluates the sufficiency of Kische's complaint, not the merits of its claims. Because Kische has adequately pleaded ownership of and likely consumer confusion related to the Kische mark, the court denies Stellar Defendants' motion to dismiss Kische's trademark infringement claim as to the Kische mark.
2. False Advertising
"Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), prohibits the use of false designations of origin, false descriptions, and false representations in advertising and // // // // sales in interstate commerce." Dyson, Inc. v. Oreck Corp., No. 07-9633, 2009 WL 537074, at *5 (E.D. La. Mar. 4, 2009). A false advertising claim under the Lanham Act has five elements:
In contrast to its first complaint, Kische asserts only a false advertising claim against Stellar Defendants. (See Am. Compl. ¶¶ 6.1-6.14; Resp. to Stellar at 14-16.) To the extent that Kische has attempted to state a claim for false association under Section 43(a)(1)(A), however, Kische fails to sufficiently allege the claim. (See, e.g., Am. Compl. ¶ 6.4 ("In response to [the court's June 29, 2016, order,] Plaintiff further refines its claims for trademark and unfair competition for 'false advertising' under § 43(a)(1)(B) for misrepresentations that the 'KISCHE' mark and the 'KISCHE' signature cardigan design were used to sell Defendant JD STELLAR products . . . .").)
(1) a false statement of fact by the defendant in a commercial advertisement about its own or another's product; (2) the statement actually deceived or has the tendency to deceive a substantial segment of its audience; (3) the deception is material, in that it is likely to influence the purchasing decision; (4) the defendant caused its false statement to enter interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the false statement, either by direct diversion of sales from itself to defendant or by a lessening of the goodwill associated with its products.Skydive Ariz., Inc. v. Quattrocchi, 673 F.3d 1105, 1110 (9th Cir. 2012). "To invoke the Lanham Act's cause of action for false advertising, a plaintiff must plead . . . an injury to a commercial interest in sales or business reputation proximately caused by the defendant's misrepresentations." Lexmark Int'l, Inc. v. Static Control Components, Inc., --- U.S. ---, 134 S. Ct. 1377, 1395 (2014). False advertising claims are subject to heightened pleading standards. See A.H. Lundberg Assocs. v. TSI, Inc., No. C14-1160JLR, 2014 WL 5365514, at *7 (W.D. Wash. Oct. 21, 2014); Instant Checkmate, Inc. v. Background Alert, Inc., No. 3:14-cv-01182-MMA-DHB, 2014 WL 12526275, at *5 (S.D. Cal. Dec. 5, 2014) ("Claims sounding in fraud are subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b)."). For claims that rest on fraudulent conduct, as is the case here, the court "strips away" the fraud allegations if a plaintiff does not plead them with the particularity Rule 9(b) requires and "looks exclusively to the remaining (non-fraud) allegations to determine whether they . . . save th[e] claim from dismissal." LT Int'l Ltd. v. Shuffle Master, Inc., 8 F. Supp. 3d 1238, 1246 (D. Nev. 2014).
Stellar Defendants first argue that Kische fails to sufficiently allege a false statement of fact in a commercial advertisement about Kische's products. (Stellar MTD at 15-16.) In its complaint, Kische alleges that JD Stellar's use of the Kische mark as a key word, the Kische address as its address, and Kische's clothing designs are "false statements of fact in commercial advertisements." (Am. Compl. ¶ 6.7.) These allegations do not describe statements of fact, however, because the alleged statements do not "include 'specific' assertions that . . . describe 'absolute characteristics' of [Kische's products] that could be tested." See L.A. Taxi Coop., Inc. v. Uber Techs., Inc., 114 F. Supp. 3d 852, 861 (N.D. Cal. 2015) (quoting Newcal Indus., Inc. v. Ikon Office Sol., 513 F.3d 1038, 1053 (9th Cir. 2008) ("[A] statement that is quantifiable, that makes a claim as to the 'specific or absolute characteristics of a product,' may be an actionable statement of fact . . . .")); see also Newcal Indus., 513 F.3d at 1053 (holding that whether an alleged misrepresentation is a statement of fact is a question of law). At most, Kische appears to recycle these allegations from its previous complaint when it attempted to state "a reverse passing off claim by alleging that Stellar Defendants stole Kische's designs and sold clothing embodying those designs under a different mark." (6/29/16 Order at 9.) The court dismissed that claim because "Kische allege[d] only appropriation of a product, which is inadequate to state a reverse passing off claim under Section 43(a)(1)(A)." (Id. at 10 (citing Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 37 (2003); Seoul Laser Dieboard Sys. Co. v. Serviform, S.r.l., 957 F. Supp. 2d 1189, 1199-1200 (S.D. Cal. 2013)).) The court concludes that the operative allegations do not constitute false statements of fact for purposes of stating a false advertising claim.
The court does not address whether Kische has adequately alleged the other elements of its false advertising claim because the court concludes that Kische has failed to allege any false statements of fact that were made in a commercial advertisement.
Kische also alleges that Stellar Defendants made false statements to Kische's clients and incorporates the declaration of Lorraine Hooshyar, "[s]ales representative for specialty stores," into its complaint to provide additional factual allegations. (Am. Compl. ¶ 6.10 (citing Hooshyar Decl. (Dkt. # 47)); Hooshyar Decl. ¶ 2; Resp. to Stellar MTD at 15 ("[Kische] pleaded that JD Stellar made false statements . . . to retailers that KISCHE products were poor quality . . . and that [Kische] was going out of business." (internal citations omitted)).) However, the declaration does not contain any allegations that Stellar Defendants made the asserted misrepresentations. (See Hooshyar Decl. ¶¶ 3-5.) Rather, Ms. Hooshyar states only what buyers—not Stellar Defendants—told her: that Mr. Uysal "had shipped substandard product" (id. ¶ 3), that Mr. Uysal and Kische "were closing their business" (id.), and that a buyer had to "cancel [an order] because [Mr. Uysal and Kische] couldn't meet the delivery or produce the garments" (id. ¶ 4). The only conduct attributable to Stellar Defendants that Ms. Hooshyar identifies is that "[e]ach and every buyer that I have reached out to has had a bad taste due to the ending and the untruths that have been spoken by [Ms. Walker and Mr. Simsek]." (Id. ¶ 3.) This conclusory statement, however, is insufficient for Kische to have adequately pleaded false statements of fact by Stellar Defendants, particularly given the heightened pleading requirement. See Homeland Housewares, LLC v. Euro-Pro Operating LLC, No. CV 14-03954 DDP (MANx), 2014 WL 6892141, at *2 (C.D. Cal. Nov. 5, 2014) (finding that plaintiffs had not alleged facts to support a false advertising claim because plaintiffs had "not alleged clearly that Defendant made a false statement of fact").
In addition, Kische has not pleaded facts from which the court may infer that the alleged false statements constitute commercial advertising or promotion. To constitute commercial advertising, a statement of fact must be:
(1) commercial speech; (2) by the defendant who is in commercial competition with the plaintiff; (3) for the purpose of influencing consumers to buy defendant's goods or services. While the representations need not be made in a 'classic advertising campaign,' but may consist instead of more informal types of 'promotion,' the representations (4) must be disseminated sufficiently to the relevant purchasing public to constitute 'advertising' or 'promotion' within that industry.Coastal Abstract Serv., Inc. v. First Am. Title Ins. Co., 173 F.3d 725, 735 (9th Cir. 1999). The Ninth Circuit Court of Appeals has held that a party sufficiently alleged commercial advertising where it alleged that statements were made to all of the company's customers "by the broad dissemination of pieces of promotional literature to thousands of accounts by . . . over 2,000 sales representatives and employees." Newcal Indus., 513 F.3d at 1054.
Here, Kische asserts only that Stellar Defendants' alleged use of the Kische mark, the Kische address, and Kische's clothing designs were "false statements of fact in commercial advertisements." (Am. Compl. ¶ 6.7.) Kische follows this conclusory allegation with the statement that "[a] simple search of the term 'DANTELLE' shows information about [Kische]." (Id.) Kische has failed to meet its obligation to plead the elements of its false advertising claim with particularity, see A.H. Lundberg Assocs., 2014 WL 5365514, at *7; Fed. R. Civ. P. 9(b), and the court finds these statements insufficient to allege that Stellar Defendants made a false statement in a commercial advertisement. The court cannot reasonably infer that the statements were made to influence consumers to buy JD Stellar's goods or were "disseminated sufficiently to the relevant purchasing public." See Coastal Abstract Serv., 173 F.3d at 735.
The court declines to address whether Kische has adequately pleaded the other elements of this claim.
3. Trademark Dilution
"In order to prove a [trademark dilution] violation, a plaintiff must show that (1) the mark is famous and distinctive; (2) the defendant is making use of the mark in commerce; (3) the defendant's use began after the mark became famous; and (4) the defendant's use of the mark is likely to cause dilution by blurring or dilution by tarnishment." Jada Toys, Inc. v. Mattel, Inc., 518 F.3d 628, 634 (9th Cir. 2007). "A mark is famous if it is widely recognized by the general consuming public of the United States as a designation of source of the goods or services of the mark's owner." 15 U.S.C. § 1125(c)(2)(A). To determine whether a mark possesses the requisite degree of recognition to be considered famous,
the court may consider all relevant factors, including the following:Id.
(i) The duration, extent, and geographic reach of advertising and publicity of the mark, whether advertised or publicized by the owner or third parties.
(ii) The amount, volume, and geographic extent of sales of goods or services offered under the mark.
(iii) The extent of actual recognition of the mark.
(iv) Whether the mark was registered . . . .
Stellar Defendants first argue that Kische has inadequately alleged that its Marseille and Kische marks are famous and that Stellar Defendants began using the marks after they had become famous. (Stellar MTD at 18.) Stellar Defendants also argue that Kische has not adequately alleged that Defendants used an identical mark in commerce after Kische's marks had become famous (id.) and that Kische's marks have been diluted through blurring or tarnishment (id. at 19).
Kische alleges that its Kische and Marseille marks are "distinctive and famous within the meaning of [15 U.S.C. § 1125(c)]" and Stellar Defendants began using the marks in commerce "after [Kische's] mark[s] became distinctive and famous." (Am. Compl. ¶ 7.2.) In response to Stellar Defendants' motion, Kische elaborates on these allegations, arguing that its marks are famous "due to [Kische's] reputation for high quality women's fashion." (Resp. to Stellar at 17.) In support of this contention, Kische cites to materials incorporated in the complaint, including a video in which a commentator calls Kische a "luxurious line," customer ratings, purchase orders to "major women's fashion retailers," and an email in which "Taste of Eden show[ed that] it thought that [the] Kische cardigan was famous." (Id. (citing Pl. Decl.; Herschlip Decl. (Dkt. # 45) ¶ 15, Ex. 14).)
As the court addressed above, Kische does not adequately allege that it own the Marseille mark. See supra § III.C.1. However, the court addresses both the Kische and Marseille marks here because Stellar Defendants do not raise the issue of ownership in moving to dismiss this claim, and the court concludes that Kische has not adequately alleged that its marks are famous within the meaning of the relevant statute.
The exhibit that Kische contends shows that "Taste of Eden" expressed that the "Kische cardigan was famous" shows pictures of clothing items that are ostensibly the result of an internet search. (See Herschlip Decl., Ex. 14.) This exhibit does nothing to support Kische's conclusory allegation that its marks are famous. As the court noted in its previous order on Defendants' motions to dismiss Kische's complaint, Kische must follow any statements about what the record shows with "a citation to a specific portion of a specific document in the record." (6/29/16 Order at 6 n.2.) Those citations must be correct because the court will not dig through the record to find support for Kische's claims and arguments. See United States v. Dunkel, 927 F.2d 955, 956 (7th Cir. 1991) ("Judges are not like pigs, hunting for truffles buried in briefs.").
The court concludes that Kische's allegations do not reasonably support the inference that Kische's marks enjoy the "requisite recognition," 15 U.S.C. § 1125(c)(2)(A), and are "widely recognized by the general consuming public of the United States," id.; see also Parts.com, LLC v. Yahoo! Inc., 996 F. Supp. 2d 933, 940 (S.D. Cal. 2013) (dismissing claim for trademark dilution where there were "no factual allegations" regarding the fame of the mark "beyond the bare bones assertion that Plaintiffs ha[d] expended a significant amount of resources to promote the [the] mark through the United States" (internal quotation marks omitted) (second alteration in original)). The evidence on which Kische bases its factual allegations shows at most that fashion purchasers recognized Kische's marks—not that the general consuming public widely recognized the marks. (See Herschlip Decl. Ex. 14).) Similarly, the fact that a commentator called the Kische brand a "luxurious line" or that a few customers gave high ratings to Kische's clothing do not lead to the reasonable inference that the marks are widely recognized by the consuming public. (See id.) For these reasons, Kische has failed to state a trademark dilution claim.
Because Kische fails to adequately allege that the marks are famous and distinctive, the court does not address the other elements of a trademark dilution claim.
4. Violation of CPA
"To prevail on a claim under the [CPA], a private plaintiff must prove (1) an unfair or deceptive act or practice (2) occurring in trade or commerce (3) affecting the public interest, (4) injury to a person's business or property, and (5) causation." Rhodes v. Rains, 381 P.3d 58, 62 (Wash. Ct. App. 2016) (citing Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 719 P.2d 531 (Wash. 1986)). "[A]n act or practice is deceptive [under the CPA] if it has the capacity to deceive a substantial portion of the public," id. at 63, which requires "a real and substantial potential for repetition, as opposed to a hypothetical possibility of an isolated unfair or deceptive act's being repeated," Behnke v. Ahrens, 294 P.3d 729, 737 (Wash. Ct. App. 2012). Such an act or practice occurs in trade or commerce when the act or practice implicates "the sale of assets or services [or] any commerce directly or indirectly affecting the people of the State of Washington." RCW 19.86.010(2). "To meet the 'public interest' element, a private plaintiff must show not only that a defendant's practices affect the private plaintiff but that they also have the potential to affect the public interest." Behnke, 294 P.3d at 734 (internal quotation marks omitted); see also RCW 19.86.093. "It is the likelihood that additional plaintiffs have been or will be injured in exactly the same fashion that changes a factual pattern from a private dispute to one that affects the public interest." Behnke, 294 P.3d at 736. "A plaintiff satisfies the [CPA's] causation requirement by demonstrating that there is a causal link between the misrepresentation and the plaintiff's injury." Rhodes, 381 P.3d at 65. Stellar Defendants argue that Kische has not adequately alleged any of these elements. (See Stellar MTD at 20.)
The court finds that Kische has insufficiently alleged an unfair or deceptive practice and an impact on the public interest. Kische alleges that Stellar Defendants deceived customers by stealing Kische's clothing designs and "wrongfully using Kische's trademark," which suggested to customers that Kische and JD Stellar were the same brand. (Am. Compl. ¶¶ 8.3-8.4.) But Kische alleges no facts to support that this conduct had the capacity to deceive a "substantial portion of the public," Behnke, 294 P.3d at 737, and the exhibits Kische incorporates into its amended complaint do not remedy this deficiency (see Am. Compl. ¶¶ 8.3 (citing Herschlip Decl. ¶ 11, Ex. 8), 8.4 (citing Herschlip Decl. ¶ 21, Ex. 20)). For example, one of the exhibits that Kische contends shows customers were deceived by JD Stellar's similar products includes pictures of clothing. (Id. ¶ 8.3.) Even assuming that the clothing items pictured in the exhibit are similar, this fact does not alone suggest a plausible inference that Stellar Defendants deceived "a substantial portion of the public." Behnke, 294 P.3d at 737.
In addition, the five customer reviews that Kische references do not support a plausible inference that the public was deceived into thinking that Kische and JD Stellar were the same brand. (See Am. Compl. ¶ 8.4 (citing Herschlip Decl. Ex. 20).) A representative customer review states that the customer bought the JD Stellar cardigan "to replace a lost Nordstrom sweater made by Mod Lustive," which the court cannot conclude is even part of the Kische brand. (Id. at 2.) Although Kische argues that it pleaded that "every one of plaintiff's customers [who] . . . received JD Stellar's false statement[s] is likely to believe them, and has believed them on such a wide-spread-scale that plaintiff's revenue" fell dramatically (Resp. to Stellar at 18), the allegations in Kische's complaint do not support this sweeping, conclusory contention. Accordingly, Kische's allegations do not lead to a reasonable inference that Stellar Defendants engaged in deceptive acts that had the potential to deceive a substantial portion of the public.
Kische also does not adequately allege that the deceptive acts affected the public interest. Kische asserts that Stellar Defendants' wrongful use of Kische's trademark injured Kische's brand and goodwill and that Stellar Defendants told suppliers that Kische had gone out of business. (Am. Compl. ¶¶ 8.4-8.5.) Thus, Kische has not alleged facts to support that "additional plaintiffs have been or will be injured in exactly the same fashion" as Kische alleges it has been. Behnke, 294 P.3d at 736. Accordingly, the only plausible inference that the court can draw from these factual allegations is that this dispute is private.
Because Kische fails to plead these elements of its CPA claim, the court declines to address the additional factors. For the foregoing reasons, Kische has failed to state a CPA claim.
5. Breach of Fiduciary Duty
To prevail on a claim of breach of fiduciary duty, the plaintiff must prove the "(1) existence of a duty owed, (2) breach of that duty, (3) resulting injury, and (4) that the claimed breach proximately caused the injury." Micro Enhancement Int'l, Inc. v. Coopers & Lybrand, LLP, 40 P.3d 1206, 1217 (Wash. Ct. App. 2002). "The only duties an LLC manager owes are statutory duties and duties that the LLC operating agreement imposes." 3BA Int'l LLC v Lubahn, No. C10-0829RAJ, 2012 WL 2317563, at *4 (W.D. Wash. June 18, 2012) (citing Dragt v. Dragt/DeTray, LLC, 161 P.3d 473, 481-82 (Wash. Ct. App. 2007)); RCW 25.15.038(2)-(3) (defining duties of loyalty and care).
Kische asserts this breach of fiduciary duty claim only against Mr. Simsek. (See Am. Compl. ¶¶ 10.2, 10.4-10.6.) Stellar Defendants first argue that Kische's allegations relate to misappropriation of trade secrets, and that the UTSA therefore supersedes the tort duty. (Stellar MTD at 24-25.) Stellar Defendants then argue that Kische has not alleged sufficient facts on any of the elements necessary to state a claim for breach of fiduciary duty. (Id. at 25-27.)
To the extent that Kische also attempts to state this claim against Ms. Walker and JD Stellar, the court dismisses Kische's claim. Kische does not allege that Ms. Walker or JD Stellar owed a fiduciary duty to Kische or, if they owed a fiduciary duty to Kische, what the duty was. (See Am. Compl. ¶¶ 10.1-10.9.)
The court finds that Kische sufficiently alleges the elements of a breach of fiduciary duty claim. First, Kische alleges that Mr. Simsek violated his duties of loyalty, good faith, and care to Kische. (Id. ¶¶ 10.3-10.8.) Kische contends that those duties arose from the Operating Agreement. (Id. ¶ 10.2-10.8; see also Stellar MTD Resp. at 19.) Thus, even if Kische's claim for breach of fiduciary duty rests on Mr. Simsek's // // // handling of trade secrets, the UTSA does not displace Mr. Simsek's duties to Kische. See Thola, 164 P.3d at 532 n.8 (Wash. Ct. App. 2007) (noting that a trial court's jury instruction was incorrect because "[t]he UTSA prohibits litigation for trade secret misappropriation under the common law duty of loyalty" and the incorrect part of the jury instruction "describe[d] trade secret misappropriation . . . not based in contract or criminal law"); (Operating Agreement ¶¶ 4.2.1, 4.2.2.) Kische also alleges facts that, if true, could constitute a breach of Mr. Simsek's fiduciary duties. For example, Kische alleges that Mr. Simsek registered a competing mark in "a line of business in direct competition" with Kische's brands (Am. Compl. ¶ 10.3), used Kische's assets to "conduct business and generate profit for JD Stellar" (id. ¶ 10.4), and sold the "profitable brand 'Marseille' for $1.00" (id. ¶ 10.8). Accordingly, Kische has adequately alleged the existence of a fiduciary duty and breach of that duty.
The Washington Court of Appeals has endorsed the majority approach to evaluating UTSA preemption: "(1) assess the facts that support the plaintiff's civil claim; (2) ask whether those facts are the same as those that support the plaintiff's UTSA claim; and (3) hold that the UTSA preempts liability on the civil claim unless the common law claim is factually independent from the UTSA claim." Thola v. Henschell, 164 P.3d 524, 530 (Wash. Ct. App. 2007). Here, Kische does not assert a UTSA claim, so this specific preemption issue is not before the court.
Stellar Defendants also assert that Kische has failed to adequately plead the elements of proximate causation and damages. (Stellar MTD at 27.) Specifically, Stellar Defendants argue that Kische pleads only that "[a]s a result of [Mr. Simsek's] actions and/or failure to act, [Kische] has suffered damages in an amount to be proven at trial." (Id. (quoting Am. Compl. ¶ 10.9); see also Stellar MTD Resp. at 20 (stating that Kische "provided evidence [in its complaint] that [it] was harmed by" Stellar Defendants who "proximately caused the harm.").)" Stellar Defendants argue that Kische "has not plead[ed] sufficient facts as to what the resulting injury may be for Defendants' alleged wrongful acts" and that "Kische provides only these legal conclusions and no sufficient facts supporting the element of proximate cause." (Stellar MTD at 27.)
Stellar Defendants also argue that an action against Mr. Simsek will not lie where Kische alleges that JD Stellar proximately caused its injuries. (Stellar Reply at 10.) Although Kische states in its response that JD Stellar proximately caused its injuries (Resp. to Stellar at 20), Kische's amended complaint alleges that Mr. Simsek proximately caused the injuries (see Am. Compl. ¶¶ 10.2-10.9). The court therefore rejects Stellar Defendants' argument.
Stellar Defendants overstate Kische's pleading burden. As with Stellar Defendants' previous motion to dismiss (6/29/16 Order at 22), Stellar Defendants provide the court with no authority stating that Kische must plead specifically how Mr. Simsek proximately caused its injuries (see Stellar MTD at 27 (stating that "resulting injury" is an element of a breach of fiduciary claim and citing a case that defined proximate cause on a motion for summary judgment)). In addition, Kische alleges earlier in its complaint that Mr. Simsek's actions harmed Kische's reputation and caused a loss of revenue. (Am. Compl. ¶¶ 4.38 (alleging that misrepresentations "resulted in lost contracts and business for [Kische]"), 4.42 ("[Kische's] sales have fallen from millions of dollars annually to zero.").) The court can reasonably infer that Kische has suffered injury proximately caused by Mr. Simsek's actions, which is sufficient at this stage. The court therefore denies Stellar Defendants' motion with respect to this claim. //
Conversion "occurs when a person intentionally interferes with chattel belonging to another, either by taking or unlawfully retaining it, thereby depriving the rightful owner of possession." Alhadeff v. Meridian on Bainbridge Island, LLC, 220 P.3d 1214, 1223 (Wash. 2009). "Wrongful intent is not an element of conversion, and good faith is not a defense." Brown ex rel. Richards v. Brown, 239 P.3d 602, 610 (Wash. Ct. App. 2010). "'Chattel' includes both tangible and intangible goods, such as corporate property." Lang v. Hougan, 150 P.3d 622, 637 (Wash. Ct. App. 2007). "Money may become the subject of conversion, but only if the party charged with conversion wrongfully received the money, or if that party had an obligation to return the money to the party claiming it." Consulting Overseas Mgmt., Ltd. v. Shtikel, 18 P.3d 1144, 1147 (Wash. Ct. App. 2001).
Stellar Defendants argue that Kische alleges only a legal conclusion couched as a factual allegation to support its conversion claim: "Stellar Defendants willfully interfered with [Kische's] chattel, including trademarks, money, and personal property without lawful justification, depriving [Kische] of possession." (Stellar MTD at 28 (quoting Am. Compl. ¶ 12.3).) Stellar Defendants also argue that Kische cites to five exhibits but provides no page numbers for the court to discern what specifically Kische seeks to incorporate into its complaint. (See id.) Kische counters that it pleads that Stellar Defendants "willfully interfered with [Kische's] trademarks, money, and personal property" (Resp. to Stellar at 20), "took and used [Kische's] assets, equipment, employees, inventory contracts with service providers and warehouse, in violation of [Kische's] operating agreement and without authorization" (id.), and "deprived [Kische] of possession of [its] profits, [its] company records, trademarks, contracts, client lists, [and] computer passwords" (id. at 20-21).
The court concludes that Kische has stated a claim for conversion. Although Stellar Defendants are correct that the section of Kische's complaint that specifically addresses conversion contains only a legal conclusion couched as a factual allegation, this part of the complaint also expressly incorporates Kische's other factual allegations. (Am. Compl. ¶¶ 12.1, 12.3.) Specifically, Kische's complaint alleges that Stellar Defendants intentionally interfered with a number of its assets, including trademarks, money, and equipment, in violation of the Operating Agreement and without authorization. (Id. ¶¶ 4.22, 4.27, 4.30, 4.32, 4.34.) The court can reasonably infer from Kische's allegations that Stellar Defendants intentionally interfered with Kische's property, did not have lawful justification to do so, and deprived Kische of possession of its property through this interference. See Alhadeff, 220 P.3d at 1223. Accordingly, Kische states a claim for conversion, and the court declines to dismiss the claim.
"The elements of . . . fraud include: (1) representation of an existing fact; (2) materiality; (3) falsity; (4) the speaker's knowledge of its falsity; (5) intent of the speaker that it should be acted upon by the plaintiff; (6) plaintiff's ignorance of its falsity; (7) plaintiff's reliance on the truth of the representation; (8) plaintiff's right to rely upon it; and (9) damages suffered by the plaintiff." Adams v. King Cty., 192 P.3d 891, 902 (Wash. 2008). Federal Rule of Civil Procedure 9(b) "demands that the circumstances constituting the alleged fraud be specific enough to give defendants notice of the particular misconduct . . . so that they can defend against the charge and not just deny that they have done anything wrong." Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009) (internal quotation marks omitted). "Averments of fraud must be accompanied by 'the who, what, when, where, and how' of the misconduct charged." Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997)). "The absence of even one of these identifiers justifies dismissal." LT Int'l, 8 F. Supp. 3d at 1246 (citing Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007)). Therefore, "[t]he plaintiff must set forth what is false or misleading about a statement, and why it is false." Decker v. GlenFed, Inc., 42 F.3d 1541, 1548 (9th Cir. 1994).
Stellar Defendants argue that Kische has failed to state a fraud claim because Kische asserts only "legal conclusions with a citation to an entire separate pleading and one of its exhibits." (Stellar MTD at 29.) In response, Kische asserts that the declarations and exhibits incorporated into its complaint constitute factual allegations against Stellar Defendants. (Resp. to Stellar at 21.) Specifically, Kische contends that an email between Mr. Simsek and Mr. Costanza, in which they discuss the alleged "fraudulent trademark assignment," contains facts that "clearly fulfill the first five elements of fraud." (Id. at 22.) Kische further states that Stellar Defendants made misrepresentations of fact to the USPTO and to Kische's "service suppliers," retailers, and customers. (Id.) //
The court concludes that because Stellar Defendants directed these alleged misrepresentations of fact to entities and people other than Kische, Kische has alleged no facts from which the court can reasonably infer that Stellar Defendants intended to induce Kische to act on the statements, that Kische did not know the statements were false, that Kische relied on these representations, or that Kische had a right to rely upon them. See Adams, 192 P.3d at 902; (see also Am. Compl. ¶¶ 13.5-13.9 (asserting the fourth through ninth elements of a fraud claim as conclusory factual allegations).) Further, Kische has not pleaded the content of the alleged misrepresentations with particularity, Vess, 317 F.3d at 1106, including what is false about the statement and why it is false, Decker, 42 F.3d at 1548.
To the extent Kische alleges that Stellar Defendants made false representations to Kische about Kische's financial status, Kische also fails to state a claim. (See Am. Compl. ¶ 13.3.) Again, these alleged misrepresentations alone, even if true, do not support the reasonable inference that Stellar Defendants intended for Kische to act on these misrepresentations, that Kische did not know the misrepresentations were false, or that Kische relied on or had a right to rely on the statements. See Adams, 192 P.3d at 902; (see also Am. Compl. ¶¶ 13.5-13.9.) The leaps of logic the court would have to make to infer liability from the documents incorporated into Kische's complaint do not // satisfy Federal Rule of Civil Procedure 8, let alone the Rule 9(b) particularity standard. For these reasons, Kische has failed to state a fraud claim.
Kische cites its Operating Agreement as support for its contention that it had a right to rely on Stellar Defendants' statements, but Kische does not point the court to the express provision establishing this right and therefore does not meet the Rule 9(b) pleading requirement. (Am. Compl. ¶ 13.6.) --------
8. Civil Conspiracy
The court discussed above the elements of civil conspiracy in determining whether Kische had stated such a claim against Mr. Costanza. See supra § III.B.2. The court now considers Kische's civil conspiracy allegations against Stellar Defendants. Stellar Defendants argue that "[t]his cause of action is another example of [Kische's] formulaic recitation of the elements of a cause of action along with a legal conclusion that the violation occurred." (Stellar MTD at 30.) Stellar Defendants further contend that it is unclear against which Defendants Kische alleges the claim. (Id.) In response, Kische argues that "it is unfair to require [Kische] to provide more specificity as to which of the defendants took particular actions in furtherance of the conspiracy" (Resp. to Stellar at 23-24) and that it "has even provided evidence of the agreement between Mr. Simsek and Mr. Costanza" (id. at 24). In its complaint, Kische cites to Mr. Uysal's entire declaration as support for its allegation that "Defendants entered into a civil conspiracy." (Am. Compl. ¶ 15.2.)
The court agrees that Kische has failed to state a civil conspiracy claim against Stellar Defendants. Kische does not make any factual allegations anywhere in its complaint that leads the court to reasonably infer that Stellar Defendants entered into an agreement. Rather, Kische merely states the conclusion. (See Am. Compl. ¶ 15.2 ("Defendants entered into a civil conspiracy.") Legal conclusions are not factual allegations, and alone cannot state a claim for which relief may be granted. See Iqbal, 556 U.S. at 678. Accordingly, the court dismisses Kische's civil conspiracy claim against Stellar Defendants.
D. Leave to Amend
As a general rule, when a court grants a motion to dismiss, the court should dismiss the complaint with leave to amend. See Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1051-52 (9th Cir. 2003) (citing Fed. R. Civ. P. 15(a)). The policy favoring amendment is to be applied with "extreme liberality." Id. at 1051. In determining whether dismissal without leave to amend is appropriate, courts consider such factors as undue delay, bad faith or dilatory motive, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowing the amendment, and futility of amendment. Foman v. Davis, 371 U.S. 178, 182 (1962). Of these factors, "prejudice to the opposing party . . . carries the greatest weight." Eminence Capital, 316 F.3d at 1052. Prejudice means "undue difficulty in prosecuting a lawsuit as a result of a change in tactics or theories on the part of the other party," Wizards of the Coast LLC v. Cryptozoic Entm't LLC, 309 F.R.D. 645, 652 (W.D. Wash. 2015), and the burden is on the party opposing amendment to demonstrate that it will be prejudiced by an amendment, DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9th Cir. 1987). A proposed amendment is futile "if no set of facts can be proved under the amendment to the pleadings that would constitute a valid and sufficient claim or defense." Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988). //
Defendants argue that the court should dismiss Kische's claims with prejudice. (See Stellar MTD at 31; Costanza MTD at 11.) Stellar Defendants argue that leave to amend would prejudice them because they "must . . . continue to move to dismiss these insufficiently pled allegations" and that Kische's "inability to survive this motion to dismiss would be a strong indication of the futility of the amendments." (Id.) Costanza makes a similar argument: "Kische has previously amended its complaint and its inability to cure the deficient claims against [Mr.] Costanza demonstrate those claims' futility." (Costanza MTD at 11.)
The court agrees that further amendment of Kische's claims of legal malpractice and breach of fiduciary duty against Mr. Costanza are futile. Kische has now had two opportunities to plead these claims and has failed to sufficiently do so both times. Kische's continued failure to adequately plead these claims against Mr. Costanza indicates that no set of facts exists under which Kische could prevail. (See 6/29/16 Order at 32.)
However, the court cannot conclude that amending Kische's other claims would be futile. Defendants fail to acknowledge that with the exception of Kische's false advertising and legal malpractice claims, Kische has not previously amended any of its other claims. (Compare Am. Compl. with Compl.) And as to the false advertising claim, the court concluded in ruling on the first set of motions to dismiss that it could not "determine the theory of liability under which Kische intend[ed] to proceed" in its first complaint. (6/29/16 Order at 8.) Accordingly, the court cannot conclude that there is no set of facts under which Kische may properly state these claims.
In addition, Stellar Defendants fail to meet their burden of establishing that allowing Kische to amend its complaint would prejudice them. See DCD Programs, 833 F.2d at 187. Although courts have denied leave to amend where additional amendment would require repeated motions to dismiss, they have typically done so after the plaintiff has had an opportunity to cure the deficiencies in the complaint. See, e.g., Ryan v. Microsoft Corp., 147 F. Supp. 3d 868, 896-97 (N.D. Cal. Nov. 23, 2015) (denying leave to amend and dismissing with prejudice where the plaintiff failed to cure previous deficiencies in the complaint and additional amendment would require the defendant to "file repeated motions to dismiss"); Punian v. Gillette Co., No. 14-CV-05028-LHK, 2016 WL 1029607, at *17 (N.D. Cal. Mar. 15, 2016) (same); Fox v. HCA Holdings, Inc., No. 15-CV-02073-LHK, 2015 WL 6744565, at *5 (N.D. Cal. Nov. 4, 2015) (dismissing claim with prejudice where granting leave to amend would "require[e] Defendant to file repeated motions to dismiss on claims that Plaintiff agrees are baseless"). As the court stated above, Kische has not previously had the opportunity to amend most of its claims, and Stellar Defendants do not substantively address how amendment of the claims Kische asserted for the first time in its amended complaint will prejudice them. For these reasons, the court grants Kische leave to amend its claims for trademark infringement of the Marseille and Dantelle marks, false advertising, trademark dilution, violation of the CPA, fraud, and civil conspiracy.
The court also addresses Kische's request to delay any amendment of its complaint. (See Resp. to Costanza at 4.) Kische states that "[c]omplete adjudication of the action cannot be had without discovery," (Resp. to Stellar at 2; see also Resp. to Costanza at 4), and moves for "an order permitting [Kische] to amend [its] amended complaint pursuant to [Federal Rule of Civil Procedure] 15 once [Kische] is able to review [Mr.] Costanza's client file, allegedly being withheld to protect Mr. Simsek's attorney-client privilege" (Resp. to Costanza at 2). Whether Kische can plausibly state a claim for relief is distinct from whether this case can be fully adjudicated without first completing discovery. "The flaw in this argument is that a motion to dismiss tests the sufficiency of a plaintiff's allegations, not [its] evidence." Canzoni v. Countrywide Bank, No. C16-5239RBL, 2016 WL 3251403, at *1 (W.D. Wash. June 13, 2016). A plaintiff must be able to sufficiently state a claim for relief without the benefit of full discovery. See id. (denying motion to continue pending motions to dismiss because discovery is unnecessary when a plaintiff "need only state a plausible claim, not prove it, in order to survive the motion"); Harrell, 2015 WL 5329779, at *14 (denying leave to conduct early discovery where the plaintiff had not "explain[ed] how early discovery would assist him in stating a claim"). In addition, it appears to the court that the parties are currently engaged in ongoing discovery efforts pursuant to the court's scheduling order. (See Resp. to Stellar at 2, 4; Sched. Order (Dkt. # 34) at 1 (setting discovery cutoff for May 1, 2017).) For these reasons, the court sees no need to order additional discovery or extend the time for Kische to file a second amended complaint.
If Kische chooses to amend its complaint, the court instructs Kische to carefully consider the deficiencies discussed above. See supra §§ III.A, B.2, C.1-.4, .7-.8. Failure to cure those deficiencies in any amended complaint may be interpreted as an indication that further amendment would be futile. The court also notes that the scope of Kische's leave to amend includes only its claims for trademark infringement of the Marseille and Dantelle marks, false advertising, trademark dilution, violation of the CPA, fraud, and civil conspiracy; Kische may not add claims. Further, the court is unlikely to look favorably on any motions for leave to amend the complaint to state entirely new causes of action. The court will not allow Kische to repeatedly plead new claims after failing to adequately plead others. Kische must file its amended complaint, if any, no later than January 3, 2017. If Kische fails to file an amended complaint by that deadline, the court will dismiss without leave to amend all of Kische's claims except the trademark infringement of the Kische mark, breach of contract, breach of fiduciary duty, tortious interference, and conversion claims against Stellar Defendants.
For the foregoing reasons, the court GRANTS Mr. Costanza's motion to dismiss (Dkt. # 54) and GRANTS in part and DENIES in part Stellar Defendants' motion to dismiss (Dkt. # 56). Kische's claims for trademark infringement of the Kische mark, breach of contract, breach of fiduciary duty, tortious interference, and conversion claims against Stellar Defendants remain, and the court GRANTS Kische leave to amend its complaint with respect to Kische's claims for trademark infringement of the Marseille and Dantelle marks, false advertising, trademark dilution, violation of the CPA, fraud, and civil conspiracy. Kische's amended complaint, if any, must be filed and served no // // // later than January 3, 2017. The court DISMISSES WITH PREJUDICE Kische's claims of legal malpractice and breach of fiduciary duty against Mr. Costanza.
Dated this 13th day of December, 2016.
JAMES L. ROBART
United States District Judge