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Trarms, Inc. v. Leapers, Inc.

United States District Court, E.D. Michigan, Southern Division

May 10, 2017

TRARMS, INC., et al., Plaintiffs,
v.
LEAPERS, INC., et al., Defendants.

          OPINION AND ORDER DENYING MOTION TO TRANSFER AND GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS

          ROBERT H. CLELAND UNITED STATES DISTRICT JUDGE

         Before the court are two motions-a motion to transfer (Dkt. # 5) and a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) (Dkt. # 4)-both filed by Defendants Leapers, Inc. (“Leapers”) and Continental Incorporated, Inc. (“Continental”). The motions are fully briefed, and a hearing was held on May 3, 2017. For the reasons that follow, the court will deny the motion to transfer and grant in part and deny in part the motion to dismiss.

         I. BACKGROUND

         Plaintiffs' amended complaint (Dkt. # 2) alleges the following, taken as true for the purposes of this order. Plaintiff Charlie Shi is the founder and president of Plaintiff Trarms, Inc. (“Trarms”). Shi is a Chinese national who resides in California, and Trarms is a California corporation. Defendant Leapers is a Michigan corporation, with its corporate office in Livonia, Michigan. Both Trarms and Leapers are in the business of selling rifle scopes and related shooting products. Trarms sells its scopes in the United States under the “SNIPER” registered trademark. Trarms' “SNIPER” scopes bear no markings suggesting that they are Leapers products. (Dkt. # 2.)

         Leapers hired Continental, an Indiana corporation and private investigation firm located in Indianapolis, Indiana, sometime in 2013. Continental markets itself as employing “asymmetrical warfare” to protect its clients' intellectual property rights. (Dkt. # 2, Pg. ID 8.) Leapers and Continental targeted Plaintiffs and Plaintiffs' customers through a variety of means.

         Most relevantly, Continental ordered scopes from Trarms and had them shipped to Indiana. Continental then approached the police department in Evansville, Indiana, approximately 180 miles from Continental's Indianapolis officers, to pursue criminal charges against Shi, his customers, and distributors, based on a unique Indiana Criminal Statute, the Indiana Crime Victim's Act, Ind. Code § 34-24-3-1. (Dkt. ## 5, 9.) Continental enjoys a “special relationship” with the Evansville authorities and prosecutor Malcolm Gwinn. (Dkt. # 2, Pg. ID 33.) Leapers and Continental provided false evidence, including false affidavits to be used to secure an arrest warrant, knowing no additional investigation would be done. (DKt. # 2, Pg. ID 13-14.)

         In January of 2014, Continental engineered Shi's public arrest in front of competitors and customers at a trade show in Las Vegas, Nevada, and his subsequent extradition to Evansville, Indiana. Continental employee Brad Harper, posing as a prospective customer, arranged to meet Shi at the trade show. At the show, in front of a crowd, Harper approached Shi with “seven or eight” police officers. The officers physically detained Shi and escorted him from the show. (Dkt. # 2, Pg. ID 16-17.) Shi was extradited to Indiana and charged with counterfeiting. The criminal charges were subsequently dismissed upon motion by Shi's defense counsel. (Dkt. # 2, Pg. ID 14-15.) Several customers of Shi were similarly arrested and prosecuted, including “Adrish Banerjee and Catherine Yan He in Nevada, Yongming (Steven) Sui in California, and Lujan Shi in Michigan.” (Dkt. # 2, Pg. ID 21.)

         Throughout the investigation and prosecution of Shi, prosecutor Gwinn remained in near constant contact with Continental. (Dkt. # 2, Pg. ID 31.) Gwinn received extensive factual memoranda as well as legal advice from Continental during this time. (Dkt. # 2, Pg. ID 2.)

         Leapers filed a civil suit in the Southern District of Indiana against Shi and Trarms under the civil recovery provision of the Indiana Crime Victim's Act. See Leapers, Inc. v. Trarms, Inc., Case No. 15-01539, (the “Indiana Litigation”) Dkt. # 1 (filed September 11, 2015). The Indiana Litigation is ongoing. See Leapers, 203 F.Supp.3d 969 (S.D. Ind. 2016) (denying motion to dismiss).

         Continental also sent letters to Trarms' customers claiming that the recipients were selling counterfeit Leapers products. The letters demanded that the recipients stop selling Trarms products, threatened civil and criminal prosecution, and demanded payment. (Dkt. # 2, Pg. ID 19.)

         On June 10, 2014, Leapers filed an infringement action against several defendants, including Trarms, in the Eastern District of Michigan, alleging the unauthorized use of Leapers' trade dress. See Leapers, Inc. v. SMTS, LLC, Case No. 14-12290 (the “Original Civil Action”), Dkt. # 1 (filed June 10, 2014). Specifically, Leapers claimed that it had unregistered, but protected, trade dress rights in the “scalloping” pattern of grips on the various adjustable parts of its scope. Id.

         Leapers theory in the civil case, that Trarms “SNIPER”-branded scopes were counterfeit because they copied the “scalloping” pattern on the various adjustable portions, was also its theory in the criminal prosecution of Shi. Before engineering Shi's arrest, Leapers had not attempted to register its alleged trade dress either in Indiana or with the federal Patent and Trademark Office. (Dkt. # 2, Pg. ID 14.) In fact, Shi was the original designer of the scalloping feature. (Dkt. # 2, Pg. ID 11.)

         Trarms and SMTS, Inc. (d/b/a “Tuff Zone”), a Trarms customer named as a defendant, filed counterclaims against Leapers, adding Shi as a Counterclaimant and Continental as a Counter-Defendant. The counterclaimants asserted seven counterclaims: (1) fraudulent procurement of Leapers' Michigan trademark registration; (2) declaratory judgment on the issue of Leapers' trade dress registration; (3) 42 U.S.C. § 1983 claims for the arrest; (4) abuse of process and false imprisonment; (5) tortious interference with business relationship or expectancy; (6) unjust enrichment; and (7) punitive damages. See Original Civil Action, Dkt. # 43.

         Upon stipulation of the parties, the court stayed the counterclaims, as well as the related discovery and motions, on February 26, 2015. Original Civil Action Dkt. # 57. All the defendants in the Original Civil Action jointly moved for summary judgment in April of 2015, which the court granted in March of 2016. Original Civil Action Dkt. # 109. In its summary judgment order, the court found that the “scalloping” grip design's “obvious functionality” rendered it ineligible for trade dress protection. Id. at Pg. ID 4787. Leapers then moved for reconsideration, Original Civil Action Dkt. # 112, which the court denied, Original Civil Action Dkt. # 119. Trarms moved for an award of attorney fees on the basis that the case was “exceptional, ” which is still pending before the court. Original Civil Action Dkt. # 126.

         After the court granted summary judgment, the parties submitted an agreed motion to dismiss counterclaim counts I, II, VII, and VIII without prejudice and sever the remaining, stayed, counterclaims. Original Civil Action Dkt. # 115. The stipulated motion indicated that severance would allow Leapers to immediately appeal the court's summary judgment order and the severed claims would continue as a separate proceeding “in which Judge Cleland shall likewise preside.” Original Civil Action Dkt. # 115, Pg. ID 4978. The court granted the motion in a December 2, 2016 stipulated order. Original Civil Action Dkt. # 123; (see Dkt. # 1).

         Pursuant to the severance order, Plaintiffs filed an amended complaint on December 23, 2016. (Dkt. # 2.) The amended complaint does not list Tuff Zone as a plaintiff, and the briefs treat Tuff Zone as a nonparty witness. Counsel informed the court that Tuff Zone had dropped its claims against Defendants, and the court dismissed Tuff Zone as a party in a text-only order entered April 24, 2017.

         Two motions are pending: the instant motion to dismiss (Dkt. # 4) and a motion to transfer the case to the Southern District of Indiana. (Dkt. # 5). For the reasons that follow, the court will deny the motion to transfer and grant in part and deny in part the motion to dismiss.

         II. MOTION TO TRANSFER

         There is no dispute that the court has personal jurisdiction over Defendants- Defendants seek a transfer of convenience. The statute provides that “[f]or the convenience of the parties and witnesses, in the interest of justice, a district court may transfer any civil action to any district or division where it might have been brought.” 28 U.S.C. § 1404(a). “As the permissive language of the transfer statute suggests, district courts have ‘broad discretion' to determine when party ‘convenience' or ‘the interest of justice' make a transfer appropriate.” Reese v. CNH Am. LLC, 574 F.3d 315, 320 (6th Cir. 2009) (quoting Phelps v. McClellan, 30 F.3d 658, 663 (6th Cir. 1994)). The moving party bears the burden of demonstrating by a preponderance of the evidence that, “in light of these factors, ‘fairness and practicality strongly favor the forum to which transfer is sought.'” Amphion, Inc. v. Buckeye Elec. Co., 285 F.Supp.2d 943, 946 (E.D. Mich. 2003) (Gadola, J.) (quoting Thomas v. Home Depot U.S.A., Inc., 131 F.Supp.2d 934, 936 (E.D. Mich. 2001)).

         The parties agree that courts making this determination look to a number of factors, including: (1) the convenience of witnesses; (2) the location of relevant documents and relative ease of access to sources of proof; (3) the convenience of the parties; (4) the locus of the operative facts; (5) the availability of process to compel the attendance of unwilling witnesses; (6) the relative means of the parties; (7) the forum's familiarity with the governing law; (8) the weight accorded the plaintiff's choice of forum; and (9) trial efficiency and the interests of justice, based on the totality of the circumstances. (Dkt. # 5, Pg. ID 128; Dkt. # 9, Pg. ID 180.)

         The convenience of the parties and non-party witnesses does not favor transfer. Both Plaintiffs are California residents. Leapers is a Michigan corporation based in Livonia, Michigan. Continental is an Indiana corporation based in Indianapolis. Transfer would serve only to shift the inconvenience from one Defendant to the other. With respect to non-party witnesses, the convenience gains of transfer are similarly mixed. The individuals involved in the prosecution-Malcolm Gwinn, Justin Brandt, and Detective Robert Weis-all apparently reside in or around Evansville, Indiana. Plaintiff points to a few Michigan resident witnesses, namely “Lujan Shi, officers of SMTS and an investigator from Conifer Insurance.” (Dkt. # 9, Pg. ID 189.)

         Defendants do not specify whether they request a transfer to the Indianapolis Division or the Evansville Division of the Southern District of Indiana. In their reply brief, Defendants indicate that they believe either division would be a more convenient forum than the Eastern District of Michigan. (Dkt. # 18, Pg. ID 497 n. 2.) The distinction is significant-Indianapolis and Evansville are approximately 180 miles apart. (Dkt. # 9-7.) The Indiana Litigation is pending in the Indianapolis division, but the operative facts took place-and the nonparty witnesses reside-in the Evansville division. Even after transfer, either division involves substantial travel for either the Continental witnesses or the Evansville witnesses-though less than if transfer were not granted. This substantially undercuts any convenience gains for witnesses from transfer.

         Neither does familiarity with the governing law favor transfer. As discussed below, the claims involve application of Michigan, Nevada, and Indiana law. (See Dkt. # 5, Pg. ID 136-37.) Any court hearing this case will be asked to apply the law of foreign states. Further, this court is more familiar with Michigan's choice of law rules, which would apply even after transfer. See Van Dusen v. Barrack, 376 U.S. 612, 639 (1964). At this stage, it appears Defendants overstate the degree to which the case turns on interpreting the Indiana Crime Victim's Act, given that the allegedly defamatory letters repeatedly assert trademark and trade dress rights. (See Dkt. # 4-3.)

         The weight afforded to the Plaintiffs' choice of forum, judicial efficiency, and the interests of justice disfavor transfer. If this action can be consolidated with the ongoing Indiana Litigation, some trial efficiency is gained. However, this court has invested substantial time into this proceeding already-years, in fact. Further, it appears that the Indiana Litigation is well into discovery. See Leapers 203 F.Supp.3d 969 (denying motion to dismiss). Transfer at this point would require the Indiana court to familiarize itself with extensive facts not at issue in that litigation. And given that Defendants allegedly manufactured jurisdiction in Indiana in order to proceed under an Indiana criminal statute when Plaintiffs do not ordinarily do business in Indiana, allowing transfer may encourage an unusually insidious kind of forum shopping.

         The court declines to address the remaining factors at length. There does not appear to be a single “nexus” of facts here-the conduct complained of took place in Nevada, Indiana, Michigan, and California to greater or lesser degree depending on the count. Courts have found the location of documentary evidence to be only a “minor consideration” in this analysis. See Audi AG and Volkswagen of America, Inc. v. D'Amato, 341 F.Supp.2d 734, 751 (E.D. Mich. 2004) (Borman, J.). To the extent this court will have limited means to compel the appearance of Continental's employees and Evansville law enforcement and prosecutors, the Southern District of Indiana is similarly limited with respect to employees and officers of Leapers and, apparently, with respect to the Evansville witnesses.[1] Continental is a small company relative to the other parties, but it has substantial ties to Michigan. Its size has not prevented it from doing significant business in Michigan, and it is already roughly 180 miles away from Evansville.

         Considering the weight of Plaintiffs' choice of forum, this court's familiarity with the case and governing law, efficiency, and the need to protect against forum-shopping, combined with the at-best mixed gains to convenience, the court finds that Defendants have not met their burden of showing that fairness and practicality strongly favor transfer. Amphion, 285 F.Supp.2d at 946 (emphasis added).

         Plaintiffs also argue that the parties agreed to litigate these claims in Michigan. The parties' joint motion for severance provided that “Judge Cleland shall likewise preside” over the spun-off litigation. Original Civil Action, Dkt. # 115, Pg. ID 4978. The court believed that to be the parties' intent at the time, and, in its order granting the joint motion, directed the Clerk of the Court to assign the new civil action-this action-to this court's docket. (Dkt. # 1, Pg. ID 3.) Defendants simply assert that the parties' agreement did not amount to a forum selection agreement and, even if it did, it is outweighed by the other factors. (Dkt. # 18, Pg. ID 499.)

         The court need not, and will not, conclusively determine whether the severance motion effectively contained a forum selection clause. Either way, Defendants have not met their burden of showing that fairness and practicality strongly favor transfer. See Amphion, 285 F.Supp.2d at 946. The court will deny the motion accordingly.

         R. Civ. P. 45(c)(1).

         III. MOTION TO DISMISS

         Rule 12(b)(6) provides for dismissal for failure to state a claim upon which relief may be granted. Under the rule, the court construes the complaint in the light most favorable to the plaintiff and accepts all well-pleaded factual allegations as true. League of United Latin Am. Citizens v. Bredesen, 500 F.3d 523, 527 (6th Cir. 2007). This standard requires more than bare assertions of legal conclusions. Bovee v. Coopers & Lybrand C.P.A., 272 F.3d 356, 361 (6th Cir. 2001). “[A] formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Any claim for relief must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Erickson v. Pardus, 551 U.S. 89, 93 (2007). “Specific facts are not necessary; the statement need only ‘give the defendant fair notice of what the . . . claim is and the grounds upon which it rests'” Id. (quoting Twombly, 550 U.S. at 555).

         However, to survive a motion to dismiss, a complaint must provide sufficient facts to “state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570. “The plausibility standard is not akin to a “probability requirement, ' but it asks for more than a sheer possibility that defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550 U.S. at 555.) Additionally, on a motion to dismiss, a court is usually limited to the complaint and attached exhibits, but it may also consider “public records, items appearing in the record of the case, and exhibits attached to the defendant's motion to dismiss so long as they are referred to in the complaint and are central to the claims contained therein.” Erie County v. Morton Salt, Inc., 702 F.3d 860, 863 (6th Cir.2012) (quoting Bassett v. Nat'l Coll. Athletic Ass'n., 528 F.3d 426, 430 (6th Cir. 2008)).

The amended complaint asserts eight counts:
Count I: Tortious Interference with Business Relationship or Expectancy;
Count II: Violations of the Sherman Act, 15 U.S.C. § 1, 2;
Count III: Defamation;
Count IV: False Light;
Count V: Abuse of Process;
Count VI: False Arrest and Imprisonment;
Count VII: Malicious Prosecution; and
Count VIII: 42 U.S.C. § 1983.

(Dkt. # 2.) Defendants' motion argues that each fails to state a claim or is otherwise deficiently pled. (Dkt. # 4.) The court addresses each in turn.

         A. Count I: Tortious Interference with Business Relationship or Expectancy

         The parties agree, at least for the purposes of this motion, that Michigan law governs the tortious interference claim. (Dkt. # 4, Pg. ID 48; Dkt. # 13, Pg. ID 386.) Under Michigan law, the elements of tortious interference are “(i) the existence of a valid business relationship or expectancy; (ii) knowledge of the relationship or expectancy on the part of the defendant; (iii) intentional interference causing or inducing a termination of the relationship or expectancy; and (iv) resultant actual damage.” Lucas v. Monroe County, 203 F.2d 964, 978-79 (6th Cir. 2000). The “intentional interference” element requires more than just purposeful or knowing behavior; the plaintiff must also allege that the interference was either (1) a per se wrongful act or (2) a lawful act “done with malice and unjustified in law for purpose of invading the contractual rights or business relationship of another.” Wausau Underwriters Ins. Co. v. Vulcan Development, Inc., 323 F.3d 396, 404 (6th Cir. 2003) (quoting Clark v. West Shore Hospital, 16 Fed.Appx. 421, 430 (6th Cir. 2001) (internal quotation marks omitted)). The expectancy must be ...


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