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Comerica Bank v. Enagic Co. Ltd.

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

November 21, 2017

COMERICA BANK, Plaintiff,
v.
ENAGIC CO. LTD., ENAGIC USA, INC., JON SWARDSTROM, JOHN SCHEPCOFF, and CLAUDIA RICHARDSON, Defendants.

          MEMORANDUM AND ORDER DENYING ENAGIC USA'S INC.'S MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM (DOC. 21) AND GRANTING ENAGIC CO. LTD'S MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION (DOC. 16) [1]

          AVERN COHN UNITED STATES DISTRICT JUDGE.

         I. Introduction

         This is essentially a trademark case. Comerica Bank (Comerica) has sued two companies: Enagic Co. Ltd, a Japanese company, (Enagic Japan) and Enagic USA, Inc. (Enagic USA) and three individuals: Jon Swardstrom, John Schepcoff, and Claudia Richardson.[2] Comerica claims that defendants have violated its trademarks and otherwise disparaged Comerica. As will be explained Enagic manufacturers, distributes, and sells-via individual distributors-a water filtration system. Comerica says that in attempting to sell the system, individual distributors improperly claimed that Comerica endorsed the system and would provide financing for the system. Enagic maintains that it has no control and no prior knowledge of the actions of the individual distributors. Comerica says that Enagic is responsible the actions of its distributors.

         Before the Court is Enagic USA's motion to dismiss for failure to state a claim and Enagic Japan's motion to dismiss for lack of personal jurisdiction. For the reasons that follow, Each motion is separately considered below.

         II. Motion to Dismiss for Failure to State a Claim

         A. Background

         The relevant facts as gleaned from the complaint follow:

         Enagic USA is the United States distribution and marketing arm of Enagic Japan, a global company that manufactures water filters and related products that supposedly provide countless health benefits.[3] (Doc. 1, complaint, ¶¶4, 29-31. The main product line Enagic Japan sells, and Enagic USA markets and distributes throughout the United States, is a series of water filters Enagic claims produces “electrolytic water” it refers to as KANGEN WATER. Id. at ¶11. Enagic USA owns a United States trademark registration for KANGEN, as well as a registered trademark for the Enagic slogan CHANGE YOUR WATER …CHANGE YOUR LIFE. Id. at ¶44. Enagic Japan owns several other U.S. trademark registrations that Enagic and its distributors widely use throughout the United States. Id. at ¶42.

         Enagic USA's business model includes a web of distributors who sell Enagic products directly to consumers across the country and who also recruit new Enagic distributors. Id. at ¶¶52-59. Enagic distributors receive a commissions on sales of Enagic products to consumers, and also receive a commission for sales made by any “Down-line” distributors who they recruited or who were recruited to Enagic by one of their existing “Down-line” distributors. Id. Enagic USA controls how its distributors market and sell Enagic products in several ways, including by licensing Enagic's trademarks to the distributors, providing marketing materials, providing training, and reserving to Enagic USA the authority to discipline distributors who do not comply with Enagic's policies. Id. at ¶59.

         In the spring of 2015, Comerica began receiving reports that its customer service representatives were receiving phone calls asking about Comerica's special financing program for consumers who wished to purchase Enagic products. Id. at ¶82. After investigating the matter, Comerica identified widespread use of its trademarks in online videos and websites promoting Enagic products. This included several videos published on YouTube making false statements about Comerica such as Enagic “work[s] with Comerica, ” that Comerica is “willing to stick their necks out and enable [Enagic's] product, ” and that Comerica offers special financing, including at a special 1-800 number, for consumers interested in purchasing Enagic products. Complaint, ¶¶63, 68, 72, 81. The videos are cited in the complaint. Id. at ¶¶63, 68, 81.

         After identifying these statements, Comerica contacted Enagic USA. Id. at ¶83-84. Enagic USA replied, through counsel, and stated that “the only thing that can be determined” was that the responsible distributors “are not authorized or approved by Enagic” and that Enagic had “no further information to provide.” Ex. AA to complaint. In follow up email correspondence, Enagic reiterated that there was nothing it could do, stating “it would be futile to look to us for relief as we have no control or relationship with these sites.” Exhibit CC to complaint. Comerica says that despite its ability to do so and its actual knowledge of these false statements, Enagic did nothing to stop or prevent its distributors from using Comerica's trademarks or making false statements about Comerica. Id. at ¶99.

         B. Legal Standard

         Fed. R. Civ. P. 8(a)(2) sets forth “modest notice-pleading requirements” that are to be liberally construed. CNH America v. UAW, 645 F.3d 785, 794 (6th Cir. 2011); see also Smith v. City of Salem, 378 F.3d 566, 576 n.1 (6th Cir. 2004) (applying the “liberal pleading standards of Federal Rule of Civil Procedure 8”). Rule 8 requires “a short and plain statement of the claim showing that the pleader is entitled to relief, ' in order to ‘give the [opposing party] fair notice of what the * * * claim is and the grounds upon which it rests.'” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)).

         A Fed.R.Civ.P. 12(b)(6) motion tests the sufficiency of a plaintiff's pleading. Courts evaluate Rule 12(b)(6) motions by construing the complaint in the light most favorable to the plaintiff, accepting all factual allegations as true, drawing all reasonable inferences in favor of the plaintiff, and ultimately determining whether the complaint contains “enough facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 470. A claim is facially plausible where “the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 566 U.S. 662, 678 (2009). Detailed factual allegations are not required, but a party's“obligation to provide the ‘grounds' of his ‘entitle[ment] to relief' requires more than labels and conclusions.” Twombly, 550 U.S. at 555. A "plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id.

         "In deciding a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), th[e] Court may only consider 'the facts alleged in the pleadings, documents attached as exhibits or incorporated by reference in the pleadings, and matters of which the [Court] may take judicial notice.'" Murray v. Geithner, 624 F.Supp.2d 667, 671 (E.D. Mich. 2009) (citing 2 James Wm. Moore et al., Moore's Federal Practice 12.342 (3d ed. 2000)); see also Weiner v. Klais & Co., 108 F.3d 86, 89 (6th Cir. 1997) (holding that a document incorporated by reference in a complaint can be introduced by a defendant if it is not attached by plaintiff).

         C. Analysis

         1.

         Enagic USA says the complaint must be dismissed because “it does not allege sufficient facts to show that: (1) Enagic USA encouraged or was involved at all with the activities of the Individual Defendants about which Comerica complains, (2) there were any sales of water ionizers associated with the Individual Defendants' use of Comerica's trademark, and (3) Comerica sustained any damages.” (Doc. 21 at p. 5). Comerica says that the complaint is sufficiently plead. The Court agrees with Comerica.

         Putting aside that Enagic USA has not differentiated between the eight claims Comerica has asserted or any of the elements and has relied upon matters outside of the pleadings in support of its motion, Enagic's primary argument is that Comerica has asserted no facts to support its allegations that Enagic USA played any role in the false statements about Comerica. This essentially boils down to the argument that (1) Enagic is not responsible for the misconduct alleged and (2) Enagic USA has not sufficiently plead its damages.

         As to the counts of the complaint, Comerica has alleged a contributory liability claim, i.e. that Enagic USA violated the Lanham Act and state as a contributory infringer and as a conspirator. Under the Lanham Act, liability extends to “those who facilitate infringement.” Coach v. Goodfellow, 717 F.3d 498, 503 (6th Cir. 2013); see also Habeeba's Dance of the Arts v. Knoblauch, 430 F.Supp.2d 709, 714 (S.D. Ohio 2006) (imposing liability for contributory infringement on one who “had enough control over [the direct infringer] to have prevented the infringing event from taking place”). This includes an entity that “continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement.” Coach, 717 F.3d at 503.

         Here, Comerica alleges that Enagic USA is the distribution and marketing arm of Enagic Japan in the United States. Complaint at ¶¶3-5, 43. Comerica also says that Enagic controls how its distributors market and sell Enagic products, including by licensing the Enagic trademarks to its distributors, subjecting them to its distributor policies, offering training to distributors, and retaining the authority to discipline distributors who do not comply with Enagic's policies. Id. at ¶¶58-59. Finally, Comerica alleges that despite having had actual knowledge of the false statements about Comerica since April 2015 at the latest, Enagic USA has not taken action against the responsible distributors, and allowed the false statements about Comerica to continue. Id. at ¶99 and at Ex. AA (letter from Enagic USA's General Counsel declining to take any action and stating “we have no further information to provide”) and at Ex. CC (statement from Enagic USA's General Counsel that “we have no control or relationship with these sites”).

         Taken as true, these allegations sufficiently state a claim that Enagic USA engaged in the same “ostrich-like practices” that resulted in a finding of Lanham Act violations based on contributory infringement in Coach. See 717 F.3d at 55 (“[w]e therefore hold that [defendant] is properly held liable for contributory trademark infringement because he knew or had reason to know of the infringing activities and yet continued to facilitate those activities by providing space and storage units to vendors without undertaking a reasonable investigation or taking other appropriate remedial measures”).

         As to direct liability, the complaint allegations are sufficient to state a claim of direct liability against Enagic USA under the Lanham Act and the state law violations alleged in the complaint. The complaint alleges that dozens of distributors are misusing the Comerica Mark and that Enagic maintains extensive control over those distributors. According to Enagic's policies, which are attached to the Complaint, Enagic controls who it accepts as a distributor, use of its registered trademarks by its distributors, the approved methods of marketing, advertising, and selling Enagic products, distributor compensation, how consumers purchase and receive Enagic products, and maintains the authority to discipline distributors who do not comply with Enagic's policies. Complaint, ¶¶58-59, 95-99 and at Ex. P, p. 9-10, 25-26. This level of control, if proven, is enough to hold Enagic USA directly liable for the actions of its distributors, who are its agents and trademark licensees. See Am. Tel. & Tel. Co. v. Winback & Conserve Program, 42 F.3d 1421, 1438 (3d Cir. 1994) (a “principal will be liable in an action brought pursuant to section 43(a) of the Lanham Act based on the agents' foreseeable infringing actions upon which it would be reasonable for [a] third party to rely, provided the third party has no notice that the representations are unauthorized”); see also GEICO v. Google, 330 F.Supp.2d 700, 704 (E.D. Va. 2004) (denying motion to dismiss Lanham Act claims because, “[a]ccepting as true the facts alleged by plaintiff regarding the inclusion of [its] marks in advertisements and defendants' overall control of their advertising program, we find that plaintiffs have alleged facts sufficient to support their claims that advertisers make a ‘trademark use' of GEICO's marks, and that defendants [internet search engines] may be liable for such ‘trademark use'”).

         In the end, Enagic USA's argument that it bears no responsibility for the actions of its distributors presents a factual issue that cannot be decided at the pleading stage. The allegations of the complaint are sufficient to state a claim against Enagic USA.

         2.

         Enagic USA next contends that Comerica has failed to state a claim because it has not alleged that the false statements about Comerica resulted in the sale of an Enagic product. Enagic USA essentially argues that the complaint should be dismissed because of a failure to plead “use in commerce.” See Enagic USA's Brief at 13-14. This argument misses the mark.

         Comerica has pled, with supporting facts, use of its mark “to attract customers and garner sales of Enagic filters by falsely affiliating Defendant Enagic with Comerica.” See Complaint, ¶¶10, 12, 14, 63-64, 67-69, 72-74, 80-81. The complaint specifically alleges that the defendants are making false statements about Comerica, and using its trademark in the process, for the purpose of selling more Enagic products. Complaint, ¶¶10, 12, 14, 63-64, 67-69, 72-74, 80-81. This constitutes “use in commerce.” See Kelly Svcs. v. Creative Harbor, 124 F.Supp.3d 768, 776 n.2 (E.D. Mich. 2014) (plaintiff “correctly argues that an actual sale is not necessary to establish use”) (internal punctuation omitted); Planetary Motion v. Techsplosion, 261 F.3d 1188 (11th Cir. 2001) (“a party may establish ‘use in commerce' even in the absences of sales”); Hoenig Developments v. Dial Inds., 213 F.Supp.3d 895, 903 (E.D. Mich. 2016) (solicitations sent to retailers satisfied “use in commerce” requirement because they showed defendant was “trying to sell” products with the infringing mark); PETA v. Dougherty, 263 F.3d 359, 365 (4th Cir. 2001) (“[t]o use PETA's Mark ‘in connection with' goods or services, [defendant] need not have actually sold or advertised goods or services on the www.peta.org website”); Florists' Transworld Delivery, Inv. v. Fleurop-Interflora, 261 ...


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