Chemeon Surface Technology, LLC v. Metalast International, Inc

• Court: District Court, D. Nevada
• Decided: June 8, 2021
• Docket: 3:15-cv-00294
• Status: Unknown

Opinion

1 UNITED STATES DISTRICT COURT 2 DISTRICT OF NEVADA 3 4 CHEMEON SURFACE TECHNOLOGY, Case No. 3:15-cv-00294-CLB 5 Plaintiff, ORDER 6 v.

METALAST INTERNATIONAL, INC., et 8 al., Defendants. 9

10 11 Before the court are three motions for attorney’s fees filed by Defendant Wendi 12 Semas-Fauria (“Wendi”) (ECF No. 466), Defendant Greg D. Semas (“Greg”) (ECF No. 13 469), and Defendant David M. Semas (“David”) (collectively referred to as “Defendants”). 14 (ECF Nos. 633, 634.) Plaintiff Chemeon Surface Technology, LLC responded to the 15 motions (ECF Nos. 638, 639, 642, respectively), and Defendants replied. (ECF Nos. 16 643, 644, 650, respectively.) For the reasons discussed below, the motions are denied. 17 I. BACKGROUND 18 This dispute stems from the breakup of a business and disagreement over the 19 terms of a subsequent settlement agreement between Plaintiff Chemeon Surface 20 Technology, LLC (“Chemeon”), Counter-defendants Dean Meiling (“Dean”) and Madylon 21 Meiling (“Madylon”) (collectively referred to as “Counter-defendants” or “the Meilings”), 22 and Defendants and Counterclaimants David, Metalast International, Inc. (“MI-INC”), and 23 Metalast International, LLC (“MI-LLC”). The court conducted a bench trial on November 24 9, 10, 12, 13, and 17, 2020. (ECF Nos. 600, 603, 605, 606, 608.) The court issued its 25 Findings of Fact and Conclusions of Law on February 23, 2021. (ECF No. 627.) The 26 court found in favor of Defendants as to all claims that proceeded to trial, except the 27 court found that Chemeon did not breach the implied covenant of good faith and fair 28 dealing when they breached the 2015 Settlement Agreement. (See id.) Thus, having 1 found Defendants to be the prevailing party as to the bulk of the claims in this case, the 2 court ordered Chemeon to respond to Greg and Wendi’s previously filed motion for 3 attorney’s fees and granted leave for any party to file a motion for attorney’s fees. (Id. at 4 42-43.) The court now addresses the motions. 5 II. LEGAL STANDARD 6 Under the “American rule,” litigants generally must pay their own attorney’s fees in 7 absence of a rule, statute, or contract authorizing such an award. See Alyeska Pipeline 8 Co. v. Wilderness Soc'y, 421 U.S. 240, 247 (1975); MRO Commc'ns, Inc. v. Am. Tel. & 9 Tel. Co., 197 F.3d 1276, 1280–81 (9th Cir. 1999). Nonetheless, the decision to award 10 attorney’s fees is left to the sound discretion of the district court. Flamingo Realty, Inc. v. 11 Midwest Dev., Inc., 879 P.2d 69, 73 (Nev. 1994). 12 “‘In an action involving state law claims, [federal courts] apply the law of the forum 13 state to determine whether a party is entitled to attorneys’ fees, unless it conflicts with a 14 valid federal statute or procedural rule.’” Cataphora Inc. v. Parker, 848 F. Supp. 2d 1064, 15 1067 (N.D. Cal. 2012) (quoting MRO Commc’ns v. Am. Te. & Tel. Co., 197 F.3d 1276, 16 1282 (9th Cir. 1999) (alternation in original)). 17 III. MOTIONS FOR ATTORNEY’S FEES 18 A. Prevailing Party 19 Before the court can decide if an attorney’s fee award is appropriate, it must first 20 determine who is the prevailing party. A party prevails for purposes of an attorney’s fee 21 award if the party has “achieved a material alteration in the legal relationship of the 22 parties that is judicially sanctioned.” Klamath Siskiyou Wildlands Ctr. v. U.S. Bureau of 23 Land Mgmt., 589 F.3d 1027, 1030 (9th Cir. 2009) (quotation omitted). “The material 24 alteration in the legal relationship of the parties must be relief that the would-be 25 prevailing party sought….” Id. 26 “The threshold for sufficient relief to confer prevailing party status is not high.” 27 Saint John’s Organic Farm v. Gem Cnty. Mosquito Abatement Dist., 574 F.3d 1054, 28 1059 (9th Cir. 2009). Even an award of nominal damages will suffice to confer prevailing 1 party status, although the “nature and quality of relief may affect the amount of the fees 2 awarded.” Id. A party need not prevail on all its claims to be the prevailing party. San 3 Diego Police Officers’ Ass’n v. San Diego City Emps.’ Ret. Sys., 568 F.3d 725, 741 (9th 4 Cir. 2009). 5 Chemeon brought the following claims against Defendants: (1) misappropriation 6 of trade secrets (Nevada law), (2) declaratory relief of no trademark infringement, (3) 7 cancellation of “Metalast” registration, (4) cancellation of logo trademarks, (5) common 8 law trademark infringement, (6) copyright infringement, (7) intentional interference with 9 prospective economic advantage, (8) unfair competition, (9) statutory deceptive trade 10 practices/consumer fraud, (10) unjust enrichment, (11) breach of fiduciary duty, (12) 11 breach of operating agreement, (13) contractual breach of implied covenant of good faith 12 and fair dealing, (14) tortious breach of implied covenant of good faith and fair dealing, 13 (15) conversion, (16) civil conspiracy, and (17) breach of contract—employment 14 agreement. (ECF No. 535.) Claims 1, 3, and 7–17 were dismissed in favor of 15 Defendants on summary judgment. (See ECF Nos. 411, 481.) The court granted 16 Chemeon’s motion for summary judgment on its claims related to the cancellation of the 17 logo marks (Claim 4) after Defendants conceded that they abandoned their interest in 18 the logo marks. (See ECF No. 411.) The court also granted, upon reconsideration, 19 Chemeon’s Claim 2 as to wordmarks only. (See ECF No. 425.) Thus, Part of Claim 2 20 related to attorney’s fees and Claims 5 and 6 were presented at trial, where the court 21 ultimately found in favor of Defendants on all remaining claims. (See ECF No. 627 at 22 42.) 23 Defendants brought the following counterclaims against Chemeon: (1) breach of 24 contract, (2) bad faith, (3) trademark dilution, (4) trademark infringement, (5) trademark 25 infringement and unfair competition under Nevada law, (6) trademark dilution under 26 Nevada law, and (7) specific performance of settlement. (ECF No. 51.) Pursuant to 27 stipulation of the parties, Defendants voluntarily dismissed Counterclaims 3–6. (See ECF 28 Nos. 181, 199.) Thus, Counterclaims 1, 2, and 7 were presented at trial where the court 1 ultimately found in favor of Defendants on Counterclaims 1 and 7, and in favor of 2 Chemeon on Counterclaim 2. (See ECF No. 627 at 42.) 3 Defendants prevailed on the vast majority of claims in this litigation filed against 4 each individual defendant.1 (See ECF Nos. 411, 481, 627.) By contrast, the only claims 5 that were found in Chemeon’s favor were: (1) counterclaims that were dismissed pretrial 6 by stipulation of the parties; and (2) two claims related to the cancellation of the logo 7 marks based on Defendants’ pretrial concession that they were abandoning their rights 8 in those marks. (See ECF Nos. 181, 199, 627.) In addition, at trial, Chemeon only 9 successfully defended one counterclaim that it did not breach the settlement agreement 10 in bad faith. A party is not deemed a prevailing party if those dismissals did not materially 11 alter the legal relationship of the parties. See Klamath, 589 F.3d at 1030. Ultimately, it 12 was Defendants—not Chemeon—that achieved a material alteration in the legal 13 relationship of the parties that they sought, which included dismissal of virtually all claims 14 asserted against them pretrial, and at trial, a finding that Chemeon breached the 15 settlement agreement. (Id.) 16 Accordingly, the court finds that Defendants are the prevailing party for purposes 17 of awarding both fees and costs.2 Having made this determination, the court will now 18 turn to the question of attorney’s fees. 19 B. David’s Motion for Attorney’s Fees 20 David argues he is entitled to attorney’s fees under: (1) the MI-LLC Operating 21 Agreement; (2) the Employment Contract; (3) the Copyright Act (17 U.S.C. § 505); (4) 22 the Lanham Act (15 U.S.C. § 1117(a)); (5) the Uniform Trade Secrets Act (NRS § 23 600A.060(1)); and (6) NRS § 18.010(2)(b). (ECF No. 633.) Each is discussed in turn. 24 25 26 1 For a more detailed recitation of the procedural history in this case, the court refers to the procedural history section of the Findings of Fact and Conclusions of Law. 27 (See ECF No. 627 at 17-20.) 28 1 1. Fees under the Operating Agreement and Employment Contract 2 As to the Operating Agreement and Employment Contract, the court (Judge Du) 3 has already found that Plaintiff is not a party to the Operating Agreement (See ECF No. 4 481 at 7), or the Employment Contract (See ECF No. 411 at 24-25), and therefore the 5 fee-shifting provisions do not apply. “The law of the case doctrine … posits that ‘when a 6 court decides upon a rule of law, that decision should continue to govern the same 7 issues in subsequent stages in the same case.’” United States v. Park Place Associates, 8 Ltd., 563 F.3d 907, 925 (9th Cir. 2009) (quoting Arizona v. California, 460 U.S. 605, 618 9 (1983)). The Ninth Circuit has held that the law of the case doctrine applies not only to 10 legal conclusions, but to decisions regarding factual issues as well. See Pit River Home 11 and Agricultural Coop. Ass’n v. United States, 30 F.3d 1088, 1096-97 (9th Cir. 1994). “A 12 court [has] discretion to depart from the law of the case where: (1) the first decision was 13 clearly erroneous; (2) an intervening change in the law has occurred; (3) the evidence on 14 remand is substantially different; (4) other changed circumstances exist; or (5) a 15 manifest injustice would otherwise result.” United States v. Alexander, 106 F.3d 874, 876 16 (9th Cir. 1997). Here, nothing has been presented to the court that would warrant a 17 departure from the law of the case. Thus, David is not entitled to fees under either the 18 Operating Agreement or the Employment Contract, as Plaintiff was not a party to either 19 agreement/contract. 20 2. Fees under the Copyright Act 21 Under the Copyright Act, the court has discretion to award attorney fees to a 22 prevailing copyright infringement party. 17 U.S.C. § 505; see also Fogerty v. Fantasy, 23 Inc., 510 U.S. 517, 534 (1994) (“[A]ttorney’s fees are to be awarded to prevailing parties 24 only as a matter of the court’s discretion.”). “In applying [§ 505], district courts are 25 charged with two tasks: first, deciding whether an award of attorneys' fees is appropriate, 26 and second, calculating the amount of fees to be awarded.” Traditional Cat Ass’n v. 27 Gilbreath, 340 F.3d 829, 832-33 (9th Cir. 2003). The United States Supreme Court 28 provided a set of non-exclusive factors to guide this determination in Fogerty v. Fantasy 1 Inc., which are as follows: “‘frivolousness, motivation, objective unreasonableness (both 2 in the factual and in the legal components of the case) and the need in particular 3 circumstances to advance considerations of compensation and deterrence.’” Fogerty, 4 510 U.S. at 534 n.19. 5 The Ninth Circuit has added the following discretionary factors to the analysis: 6 “the degree of success obtained in the litigation, the purposes of the Copyright Act, and 7 ‘whether the chilling effect of attorney's fees may be too great or impose an inequitable 8 burden on an impecunious [litigant].’” Glacier Films (USA), Inc. v. Turchin, 896 F.3d 9 1033, 1037 (9th Cir. 2018) (quoting Perfect 10, Inc. v. Giganews, Inc., 847 F.3d 657, 675 10 (9th Cir. 2017)). “[The Ninth Circuit] recently re-affirmed [its] commitment to these 11 factors, but emphasized that district courts should ‘accord substantial weight to’ the 12 ‘reasonableness of [the] losing party's legal and factual arguments.’” Glacier Films, 896 13 F.3d at 1037 (citing Shame On You Prods., Inc. v. Banks, 893 F.3d 661, 666 (9th Cir. 14 2018); see also Kirtsaeng v. John Wiley & Sons, Inc., 136 S.Ct. 1979, 1986 (2016) 15 (giving the factor “significant weight”). 16 David’s motion focuses only on Plaintiff’s motivation for bringing the copyright 17 claim. (See ECF No. 633 at 6-7.) David argues Chemeon’s motive was to use the 18 copyright claim to obtain a result that it would not achieve under trademark law because 19 Chemeon lacked standing to seek cancellation. (Id. at 7.) David presents no argument 20 as to the other Fogerty factors and his conclusory statement that Chemeon brought the 21 copyright claim in bad faith does not warrant an award of fees. Even taking David’s 22 assertion as true that Chemeon brought the copyright claim in bad faith, the court finds 23 that Chemeon’s motivation alone is not a sufficient basis to award attorney’s fees. This is 24 true especially in light of the Ninth Circuit’s guidance that objective unreasonableness 25 should be accorded substantial weight. See Glacier Films, 896 F.3d at 1037. Thus, 26 David is not entitled to fees under the Copyright Act. 27 3. Fees under the Lanham Act 28 Under the Lanham Act, "[t]he court in exceptional cases may award reasonable 1 attorney fees to the prevailing party." Lanham Act § 47(a), 15 U.S.C. § 1117(a). This 2 court must exercise discretion and consider the totality of circumstances in determining 3 whether this is an “exceptional case”. Octane Fitness, LLC v. ICON Health & Fitness, 4 Inc., 572 U.S. 545, 554 (2014). To support his claim under the "exceptional case" 5 provision, David has asserted that Chemeon “made this an ‘exceptional case’ by the 6 manner in which it insisted, illogically, the connection between pre-settlement conduct 7 and current prosecution of trademark actions.” (ECF No. 633 at 8-9.) 8 One of the main issues presented at trial was whether Chemeon was entitled to 9 “exceptional case” fees under the Lanham Act based on Chemeon’s argument that 10 David fraudulently obtained ownership of the Metalast word mark and logo marks. (See 11 ECF No. 627 at 36-37.) The court specifically found that this case was not “exceptional”, 12 and attorney’s fees would not be awarded pursuant to 15 U.S.C. § 1117(a). (Id. at 37.) 13 The same remains true. David has presented no evidence or analysis to show that this is 14 an “exceptional case” such that attorney’s fees should be awarded—especially in light of 15 the evidence he did present at trial to demonstrate that this is not an “exceptional case”. 16 4. Fees under Nevada’s Uniform Trade Secrets Act 17 Under Nevada’s Uniform Trade Secrets Act (“UTSA”), a “court may award 18 reasonable attorney's fees to the prevailing party” when: (1) “[a] claim of 19 misappropriation is made in bad faith,” (2) “[a] motion to terminate an injunction is made 20 or resisted in bad faith,” or (3) “[w]illful and malicious misappropriation exists.” NRS § 21 600A.060. David argues he is entitled to fees under the UTSA because Chemeon 22 provided no evidence of any appropriation of a trade secret and “Chemeon did not 23 merely bring a specious claim[,] [t]he trade secrets claim was a part of Chemeon’s 24 scattergun approach to this entire case.” (ECF No. 633 at 9.) 25 While Nevada has not addressed what “bad faith” means under the UTSA, 26 California courts have found that bad faith under the UTSA exists when there is “(1) 27 objective speciousness of the claim, and (2) subjective bad faith in bringing or 28 maintaining the action, i.e., for an improper purpose.” FLIR Systems, Inc. v. Parrish, 174 1 Cal.App.4th 1270, 1275 (2009) (citing Gemini Aluminum Corp., v. California Custom 2 Shapes, Inc., 95 Cal.App.4th 1249, 1262-65 (2002)). Although David argues the trade 3 secret claim is specious, he provides no argument as to subjective bad faith element. 4 Further, his conclusory statements about objective speciousness are insufficient to 5 establish Chemeon brought their misappropriation claim in bad faith. Thus, the court 6 does not find it appropriate to award fees under Nevada’s UTSA. 7 5. Fees under NRS § 18.010(2)(b) 8 Finally, David argues he is entitled to an award of attorney’s fees under NRS § 9 18.010(2)(b) for his state law claims. Under Nevada law, “[t]he compensation of an 10 attorney and counselor for his or her services is governed by agreement, express or 11 implied, which is not restrained by law.” NRS § 18.010(1). A party prevails under NRS § 12 18.010 “‘if it succeeds on any significant issue in litigation which achieves some of the 13 benefit it sought in bringing suit.’” Valley Electric Ass’n v. Overfield, 106 P.3d 1198, 1200 14 (Nev. 2005) (quoting Women's Fed. Sav. & Loan Ass'n of Cleveland v. Nevada Nat. 15 Bank, 623 F. Supp. 469, 470 (D. Nev. 1985)). 16 Alternatively, “the court may make allowance for attorney's fees to a prevailing 17 party” when it finds that the opposing party's claim was “brought or maintained without 18 reasonable ground or to harass the prevailing party.” NRS § 18.010(2)(b). Such a 19 finding, however, must be supported by evidence in the record. Chowdry v. NVLH, Inc., 20 851 P.2d 459, 464 (Nev. 1993). The claim will only be found frivolous if it is not well 21 grounded in fact or is not warranted by existing law or by a good faith argument for the 22 extension, modification, or reversal of existing law. Simonian v. Univ. & Cmty. Coll. Sys. 23 of Nevada, 128 P.3d 1057, 1063 (Nev. 2006). The fact that the claim did not prevail, or 24 even the fact that a claim was determined to be without merit “alone is insufficient for a 25 determination that the motion was frivolous, warranting sanctions.” Rivero v. Rivero, 216 26 P.3d 213, 234 (Nev. 2009). Rather, the reasonableness of the plaintiff's claims “depends 27 on the actual circumstances of the case.” Bergmann v. Boyce, 856 P.2d 560 (Nev. 28 1993), superseded by statute on other grounds as stated in In re DISH Network 1 Derivative Litig., 401 P.3d 1081, 1093 n.6 (Nev. 2017). 2 David argues he is entitled to fees under NRS § 18.010(2)(b) because Chemeon 3 lacked reasonable grounds to bring and maintain the suit. (See ECF No. 633 at 11-12.) 4 Chemeon counters that the court should not award David fees because Chemeon’s 5 claims were not frivolous or brought and/or maintained for purposes of harassment. 6 (ECF No. 642 at 11-14.) The court generally agrees with Chemeon. 7 Here, the court lacks the evidence necessary for it to make a specific finding of 8 bad faith in order to impose sanctions under NRS § 18.010(2)(b). See Semenza v. 9 Caughlin Crafted Homes, 901 P.2d 684, 687 (Nev. 1995) (stating that a court's decision 10 to award fees is discretionary, but “there must be evidence in the record supporting the 11 proposition that the complaint was brought without reasonable grounds or to harass the 12 other party.”) (citation omitted). First, although summary judgment was granted against 13 Chemeon on the majority of its claims, this alone does not indicate that the claims 14 brought were frivolous. See Rivero, 216 P.3d at 234; See also Berkla v. Corel Corp., 302 15 F.3d 909, 912 (9th Cir. 2002). Second, there is no evidence that this lawsuit was filed 16 entirely for the purpose of harassment. Although other paths may have been available to 17 Chemeon to pursue relief in relation to the settlement agreement, this does not mean 18 that filing this lawsuit—as opposed to following those other paths—was purely for the 19 purpose of harassment. Nor can the court conclude that the lawsuit was wholly frivolous 20 given that at least some of Chemeon’s claims survived summary judgment and 21 proceeded to trial. Finally, while the court ultimately found that Chemeon breached the 22 settlement agreement, the court explicitly found Chemeon did not do so in bad faith. 23 (See ECF No. 627 at 27-30.) David does not present evidence to counter this finding. 24 In sum, David’s argument that he is entitled to an award of fees is conclusory, 25 fails to show that the case was unreasonably brought, and that all the claims were 26 without a legal or factual basis. Thus, the court does not find it appropriate to award fees 27 under NRS § 18.010(2)(b). 28 For all these reasons, David’s motion for attorney’s fees (ECF No. 633) is denied. 1 C. Wendi and Greg’s Motions for Attorney’s Fees 2 Like David, Wendi and Greg contend they are entitled to attorney’s fees against 3 Chemeon under: (1) the MI-LLC Operating Agreement; (2) the Copyright Act (17 U.S.C. 4 § 505); and (3) NRS § 18.010(2)(b). 5 The court rejects these arguments for the same reasons discussed above. Here 6 again, the Court (Judge Du) already found that Chemeon is not a party to the MI-LLC 7 Operating Agreement, such that the fee-shifting provisions do not apply. (See ECF No. 8 481 at 7.) Second, as to the Copyright Act, the arguments are conclusory, do not fully 9 address the Fogerty factors, and simply state Chemeon could not show evidence of 10 infringement. (See ECF Nos. 466 at 4-5; 469 at 3-4.) Finally, as to NRS § 18.010(2)(b), 11 Wendi and Greg’s arguments are conclusory, fail to show that the case was 12 unreasonably brought, and that all the claims were without a legal or factual basis. (ECF 13 Nos. 466 at 6; 469 at 4-5.) Further, the fact that the claims did not prevail, or even the 14 fact that claims are determined to be without merit “alone is insufficient for a 15 determination that the motion was frivolous, warranting sanctions.” Rivero, 216 P.3d at 16 234. For all of these reasons, Wendi and Greg’s motions for attorney’s fees (ECF Nos. 17 466, 469) are denied. 18 IV. CONCLUSION 19 The court notes that the parties made several arguments and cited to several 20 cases not discussed above. The court has reviewed these arguments and cases and 21 determines they do not warrant discussion as they do not affect the outcome of the 22 motions before the court. 23 IT IS THEREFORE ORDERED that Wendi’s motion for attorney’s fees (ECF No. 24 466) is DENIED; 25 IT IS FURTHER ORDERED that Greg’s motion for attorney’s fees (ECF No. 469) 26 is DENIED; and, 27 28 1 IT IS FURTHER ORDERED that David's motion for attorney’s fees (ECF No. 633) 2 || is DENIED. 3 DATED: June 2021 . 4 5 UNITED STATES\MAGISTRATE JUDGE 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28