Global Apogee v. Sugarfina, inc.

Opinion

'O' CV 18-5162-RSWL-E x ORDER re: Individual Plaintiff, Defendants’ Motion to v. Dismiss, or in the Alternative, Motion to SUGARFINA, INC., et. al., Strike Plaintiff’s Second Amended Complaint [60] Defendants. Plaintiff Global Apogee (“Plaintiff”) filed this Action [1] on June 11, 2018 against Defendants Sugarfina, Inc. (“Sugarfina”), Joshua Resnick, and Rosie O’Neill alleging trademark infringement among other related claims. The Action arises out of Defendants’ purported unauthorized use of Plaintiff’s federally registered CANDY-GRAM service mark. Before this Court is a Motion to Strike, or in the alternative, Motion to Dismiss Plaintiff’s Second Amended Complaint [60] filed by Defendants Joshua

Resnick and Rosie O’Neill (“Individual Defendants”).

For the following reasons, this Court DENIES as moot Individual Defendants’ Motion to Strike and DENIES the Motion to Dismiss. Plaintiff alleges that Sugarfina infringed on its federally registered CANDY-GRAM trademark. Plaintiff’s Second Amended Compl. (“SAC”) ¶ 32, ECF No. 57. Plaintiff further alleges that Individual Defendants, who serve as co-founders and co-CEOs of Sugarfina, were personally and directly involved in each of the decisions regarding the infringing uses of the CANDY- GRAM name by controlling and directing Sugarfina’s activities through its executives, representatives, and agents.1 SAC ¶ 32. Plaintiff filed its Complaint [1] against Sugarfina and Individual Defendants on June 11, 2018, asserting claims related to Defendants’ allegedly unauthorized use and infringement of Plaintiff’s federally registered 1 As support, Plaintiff points to a December 22, 2017 interview where Defendant O’Neill described her typical workday, which included tasks such as: leading team meetings, reviewing new store designs, creating marketing campaigns for product launches, and coming up with product concepts for brand collaborations. Id. ¶ 33. Defendant O’Neill also described the division of labor between the Individual Defendants in her interview: Defendant Resnick handles the “back-of-house” operations, finance, human resources, and business development; and Defendant O’Neill manages the “front-of-house,” which includes “everything that is visible to [their] customers.” Id. Defendant O’Neill admitted in her interview that she “still does a lot of the design work [her]self” even after hiring personnel. Id. CANDY-GRAM trademark and its common law rights to the

CANDY-GRAM service mark.

On October 10, 2018, the Court granted in part [15] Sugarfina’s Motion to Dismiss [9] with twenty-one days’ leave to amend. On October 18, 2018, the Court entered Plaintiff and Sugarfina’s Joint Stipulation [16], which, among other things, extended Plaintiff’s deadline to file an amended complaint to November 1, 2018. On November 1, 2018, Plaintiff filed its First Amended Complaint (“FAC”) [18], alleging five causes of action: (1) federal trademark infringement in violation of Section 32 of the Lanham Act, 15 U.S.C. § 1114; (2) California common law unfair competition; (3) unfair competition in violation of California Business and Professions Code § 17200; (4) common law infringement of trademark; and (5) common law infringement of service mark. On November 21, 2018, Sugarfina filed its Answer and Counterclaims against Plaintiff [20]. Sugarfina filed a Notice of Filing Bankruptcy on September 16, 2019 [37]. On April 14, 2020, the Court stayed this Action [42] pending the Confirmation Hearing in Sugarfina’s bankruptcy proceedings. On May 13, 2020, the U.S. Bankruptcy Court for the District of Delaware entered an order confirming Sugarfina’s Plan of Reorganization, which became effective May 28, 2020. See Update re: Status and Result of Bankruptcy Ct. Hr’g, ECF No. 43; Supp. Notice re: Status and Result of Bankruptcy Ct. Hr’g, ECF No. 44. On September 8, 2020, the Court granted [48]

Sugarfina’s unopposed Motion to Enforce Plan Injunction

and Release Provisions [45], ordering Plaintiff to dismiss its claims against Sugarfina and staying the Action against Individual Defendants through May 28, 2021. On June 15, 2021, the Court dismissed Sugarfina and Sugarfina’s Counterclaims against Plaintiff without prejudice [55]. Individual Defendants filed a Motion to Dismiss Plaintiff’s First Amended Complaint [56] on June 18, 2021.2 Plaintiff filed a Second Amended Complaint (“SAC”) [57] and Opposition [58] on June 29, 2021, and Individual Defendants filed their Reply [59] on July 6, 2021. On July 23, 2021, this Court denied [63] Individual Defendants’ Motion as moot and deemed the Plaintiff’s SAC the operative complaint in this Action. Individual Defendants filed the instant Motion to Dismiss, or in the Alternative, Motion to Strike Plaintiff’s SAC [60] on July 13, 2021. Plaintiff opposed [62] the Motion on July 20, 2021, and Individual Defendants replied [64] on July 27, 2021. ///

2 Pursuant to the Court’s April 14, 2020 Order, Individual Defendants accepted service of the summons and complaint effective as of the date the Court lifted the stay, with their response deadlines set for twenty-one days thereafter. See Order Granting Joint Stipulation to Continue Trial Date and Pretrial Dates ¶ 4, ECF No. 42. The Action was stayed against Individual Defendants through May 28, 2021, and accordingly their deadline to respond was June 18, 2021.

A. Motion to Strike Plaintiff’s SAC

Individual Defendants’ Motion to Strike the SAC for being improperly filed is denied as moot because the issue has already been addressed. On July 23, 2021, this Court denied Individual Defendants’ Motion to Dismiss the FAC [56] and deemed the SAC the operative Complaint in this Action. See generally Order re: Individual Defs.’ Mot. to Dismiss FAC (“Order”), ECF No. 63.3 Consequently, the Court need not consider either party’s arguments as to whether the SAC was properly filed under Rules 15 and 16. B. Motion to Dismiss Plaintiff’s SAC Federal Rule of Civil Procedure (“Rule”) 12(b)(6) allows a party to move for dismissal on one or more claims if a pleading fails to state a claim upon which relief can be granted. Under Rule 8(a), a complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief” to give the defendant “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); see also Fed. R. Civ. P. 8(a). Dismissal is proper “where the complaint lacks a cognizable legal theory or sufficient facts to 3 Individual Defendants’ instant Motion offers the same “procedurally defective” argument that was already analyzed and rejected in the Order [63]. As the Court noted there, requiring Plaintiff to file a formal motion and refile the SAC would make “little practical sense and waste resources.” Order 11:19-21. support a cognizable legal theory.” Mendiondo v.

Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir.

2008) (citing Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1988)). “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 Twombly, 550 U.S. at 570). While a complaint need not contain detailed factual allegations, it must provide more than “labels and conclusions” or “a formulaic recitation of the elements of a cause of action.” Twombly, 550 U.S. at 555. The plaintiff must allege enough facts “to raise a right to relief above the speculative level.” Id. In evaluating a Rule 12(b)(6) motion, a court must take all well-pleaded allegations of material fact as true and construe them in the light most favorable to the nonmovant. Great Minds v. Off. Depot, Inc., 945 F.3d 1106, 1109 (9th Cir. 2019). A court may generally consider only “the complaint itself and its attached exhibits, documents incorporated by reference, and matters properly subject to judicial notice.” In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046, 1051 (9th Cir. 2014). As a threshold matter, Plaintiff contends that Individual Defendants waived the right to move to dismiss, pursuant to Rule 12(g)(2), by failing to timely bring a Rule 12(b)(6) motion against the Original Complaint. Mot. 11:8-9. The Court disagrees.

As the Court previously addressed in the Order, the

parties had stipulated that Individual Defendants only accepted service as of May 28, 2021. See Order 6:8-27 (referencing the parties’ Joint Stipulation [40] entered on April 9, 2020). The Court gave Individual Defendants twenty-one days to respond from that date, and Individual Defendants timely filed a Motion to Dismiss FAC [56] on June 18, 2021. Moreover, Individual Defendants have not waived their right to bring this Motion because defendants do not have to respond to a pleading until they have been properly served. Fed. R. Civ. P. 12(a)(1)(A). Therefore, Individual Defendants’ Motion to Dismiss (“Motion”) is procedurally proper. Individual Defendants move to dismiss the SAC with prejudice for two reasons: (1) the SAC fails to state a claim against Defendants as required by Rule 12(b)(6); and (2) amendment would be futile because the only facts that can be offered are in the SAC, and they are plainly insufficient. See generally Mot. Individual Defendants move to dismiss all of Plaintiff’s claims: (1) federal trademark infringement in violation of Section 32 of the Lanham Act, 15 U.S.C. § 1114; (2) California common law unfair competition; (3) unfair competition in violation of California Business and Professional Code § 17200; (4) common law infringement of trademark; and (5) common law infringement of service mark. Mot. 7:3-8; see generally SAC. 1. Individual Liability for Federal

Trademark Infringement

Individual Defendants move to dismiss Plaintiff’s first cause of action for failure to state a claim upon which relief may be granted. First, Individual Defendants argue that it is not sufficient to plead trademark infringement against the officers and directors of an allegedly infringing corporation based solely upon [their] status as officers and directors. Mot. 1:19-24. Corporate officers and directors that personally authorize, direct, or are otherwise directly involved in a company’s infringing conduct may be individually liable for the company’s trademark infringement. Comm. for Idaho’s High Desert, Inc. v. Yost, 92 F.3d 814, 823 (9th Cir. 1996); see also Transgo, Inc. v. Ajac Transmission Parts Corp., 768 F.2d 1001, 1021 (9th Cir. 1985) (“The officer must personally take part in infringing activities or specifically direct employees to do so.”). Corporate officers are “personally liable for a corporation’s trademark infringements when they are a ‘moving, active conscious force’ behind the corporation’s infringement.” Talent Mobile Dev., Inc. v. Headios Grp., 382 F. Supp. 3d 953 (C.D. Cal. 2019) (quoting Daimler AG v. A-Z Wheels LLC, 334 F. Supp. 3d 1087, 1006 (S.D. Cal. 2018)). Showing that the individual generally controls the company’s business affairs is insufficient to allege personal liability.

See, e.g., 19 Tao Vega LLC v. Holo Ltd., No. C 19-5640

SBA, 2019 WL 8263434, at *4 (N.D. Cal. 2019) (requiring that the officer personally participate in the infringement); Facebook, Inc. v. Power Ventures, Inc., 844 F.3d 1058, 1069 (9th Cir. 2016) (“Cases finding ‘personal liability on the part of corporate officers have typically involved instances where the defendant was the “guiding spirit” behind the wrongful conduct, or the “central figure” in the challenged corporate activity.’”). As a threshold matter, Individual Defendants incorrectly relied on authority from Lauter and Deckers in their Motion and Reply. The courts in Lauter and Deckers analyzed individual liability under an alter ego theory, which requires a higher pleading standard.4 See generally Lauter v. Rosenblatt, No. CV 15–08481, 2017 WL 6205784 (C.D. Cal. 2017) (dismissing plaintiffs’ claims because they could not allege enough facts to satisfy the elements of an alter ego theory); Deckers Outdoor Corp. v. Bright Trading Corp., No. CV14-00198, 2014 WL 12564124 (C.D. Cal. 2014)(same). By contrast, while

4 “The alter ego doctrine arises when a plaintiff [claims] that an opposing party is using the corporate form unjustly and in derogation of the plaintiff’s interests. In certain circumstances the court will disregard the corporate entity and will hold the individual shareholders liable for the actions of the corporation.” Lauter v. Rosenblatt, No. CV 15-08481, 2017 WL 6205784, at *7 (citing Nielson v. Union Bank of Cal., 290 F. Supp. 2d 1101, 1115 (C.D. Cal. 2003)). personal liability for trademark infringement is also at

issue here, there is no allegation that Individual

Defendants, in their capacities as officers, acted as “alter egos” to Sugarfina. Therefore, the standard under Lauter and Deckers does not apply to support Individual Defendants’ arguments. Although the two theories are similar, there is a significant difference: proving liability under the alter ego doctrine requires a showing that the individual pierced the corporate veil, which is not necessary when proving liability to hold corporate officers personally liable for a corporation’s trademark infringements. Compare Babbit Elecs., Inc. v. Dynascan Corp., 38 F.3d 1161, 1184 (11th Cir. 1994)(“[A] corporate officer who directs, controls, ratifies, participates in, or is the moving force behind the infringing activity, is personally liable for such infringement without regard to piercing of the corporate veil.”)(emphasis added), with Nielson v. Union Bank of Cal., 290 F. Supp. 2d 1101, 1115 (C.D. Cal. 2003)(“The alter ego doctrine arises when a plaintiff [alleges] that an opposing party is using the corporate form unjustly . . . [sometimes] the court will disregard the corporate entity and will hold the individual shareholders liable for the actions of the corporation.”). Consequently, Defendants’ comparisons to cases using the alter ego standard are unpersuasive. Individual Defendants rely on Apple Hill Growers, where a court dismissed a plaintiff’s complaint because

it merely included a “conclusory statement that

Defendants . . . undert[ook] to control and direct the infringing activities of [their company] by virtue of their roles as corporate officers and owners.” Apple Hill Growers v. El Dorado Orchards, No. 2:17-cv-02085- TLN-CKD, 2019 WL 5827365, at *3 (E.D. Cal. 2019)(holding that defendants’ personal involvement in the purported trademark infringement was insufficiently alleged). There, the plaintiff contended that it was “reasonable to infer” that defendants, simply by virtue of their roles, controlled and directed their company’s allegedly infringing activities with no additional facts about any specific actions taken. Id. Although Apple Hill Growers discusses the relevant standard for officer liability, it is nevertheless distinguishable on the facts. Here, Plaintiff does not merely rely on Individual Defendants’ roles as corporate officers of Sugarfina in alleging their liability for trademark infringement. In its SAC, Plaintiff alleges that Individual Defendants took specific actions related to trademark infringement: Defendants personally assisted in the development of every aspect of Sugarfina . . . Defendant O’Neill stated [in an interview] that ‘her typical workday [is filled] with [team meetings].’ [Defendant O’Neill] also stated that . . . she ‘still does a lot of the design work herself . . . [she] handle[s] . . . product, packaging, branding, marketing, sales, retail stores and the website. [fIinndainvcied,u ahlu maDne freensdoaunrtc]e sR,e sbnuiscikn ehsasn ddleevse looppemreantti oannsd,

legal.’ Defendants also had control of . . . and appointed p ersonnel to run Sugarfina.5 SAC at 13:16-14:10. Unlike the plaintiff in Apple Hill Growers, here, Plaintiff offers sufficient facts to support Individual Defendants’ personal involvement in the alleged infringement without relying solely on their roles as co-CEOs of Sugarfina. Plaintiff points to Defendant O’Neill’s detailed statements regarding her and Defendant Resnick’s involvement in the daily activities and decision-making of Sugarfina; for example, it may be reasonably inferred from Defendant O’Neill’s purported control over Sugarfina’s website, product design, and retail stores that she was personally involved in the alleged infringing conduct of Sugarfina. See SAC ¶¶ 24- 26 (describing Sugarfina’s advertisement of the “CANDY- GRAM” trade name as a product on its website and on retail store kiosks). Because Individual Defendants allegedly hired personnel, participated in team meetings with personnel, and continue to handle design work or manage daily operations, it is plausible that the Individual 5 Plaintiff cited direct quotes from Individual Defendant O’Neill’s interview with Forbes magazine. Elena Lyn Gross, How Sugarfina’s Founders Built A Million-Dollar (And Very Instagrammable) Candy Company, FORBES (Dec. 22, 2017), https://www.forbes.com/sites/elanagross/2017/12/22/how- sugarfinas-founders-built-a-million-dollar-and-very- instagrammable-candy-boutique/?sh=314f244d457a. Defendants could have been the “guiding spirits” behind

the allegedly infringing conduct, either by personally

taking part in it or directing their employees to do so. The SAC alleges specified roles that go beyond asserting that Individual Defendants only had general control over Sugarfina, and it is therefore sufficient to survive a motion to dismiss. Cf. Bravado Int’l Grp. Merch. Servs., Inc. v. Gearlaunch, Inc., No. CV-16-8657-MWF (CWx), 2018 WL 6074553, at *1-2 (C.D. Cal May 1, 2018) (denying motion to dismiss trademark infringement claims where plaintiff alleged that defendants were in charge of inspecting products and printing operations, publicly commented on lawsuits on behalf of the company, and oversaw infringement procedures yet failed to take action against alleged infringement). Furthermore, Individual Defendants’ argument (relying on the outcome of Transgo) that Plaintiff is not sufficiently specific about Individual Defendants’ particular roles in the infringement is refuted by the Bravado court: [T]he Court notes that both Townsley and Transgo were decided on full evidentiary records, not motions to dismiss. Therefore, the courts in those cases were able to point to specific pieces of evidence that supported personal liability. At this stage of the proceedings, although it may be a “close” call . . . Plaintiffs have alleged enough to withstand a motion to dismiss. As discussed at the hearing, discovery will reveal the true extent of [Defendant]’s role in the allegedly infringing conduct.

Id. at *4. Here, Plaintiff has alleged enough to

withstand a motion to dismiss, and the details behind Individual Defendants’ specified roles may be revealed through discovery. In sum, given that the facts have risen above a speculative level, the SAC’s first cause of action survives dismissal. 2. California Common Law Unfair Competition, Common Law Trademark Infringement, and Common Law Service Mark Infringement Plaintiff has sufficiently alleged trademark infringement under the Lanham Act; consequently, Plaintiff has also sufficiently alleged its second claim for California common law unfair competition, fourth claim for common law trademark infringement, and fifth claim for common law service mark infringement. “[F]ederal and state laws regarding trademarks and related claims of unfair competition are substantially congruent.” Int’l Order of Job’s Daughters v. Lindeburg & Co., 633 F.2d 912, 916 (9th Cir. 1980); see also Grey v. Campbell Soup Co., 650 F. Supp. 1166, 1173 (C.D. Cal. 1986)(“[T]he tests for infringement of a federally registered mark under § 32(1), 15 U.S.C. § 1114(1), infringement of a common law trademark, unfair competition under § 43(a), 15 U.S.C. § 1125(a), and common law unfair competition involving trademarks are

the same.”). Because these claims are congruent with

trademark infringement, they are not dismissed. 3. Unfair Competition in Violation of California Business and Professional Code § 17200 Individual Defendants assert that Plaintiff’s third cause of action for violation of California’s UCL Unfair Competition Law (“UCL”) should also be dismissed under Rule 12(b)(6). Mot. 10:20-23. Individual Defendants offer two reasons: (1) Plaintiff fails to plead any sufficient facts with reasonable particularity for alleged unlawful, unfair, or fraudulent conduct in violation of the UCL; and (2) because Plaintiff’s substantive causes of action fail, Plaintiff’s UCL claim based upon those causes of action must fail as well. See Mot. 11:19-23, 12:1-11. Both are unavailing. The UCL imposes liability for an “unlawful, unfair or fraudulent business act or practice . . . .” Cal. Bus. & Prof. Code § 17200. An action for unfair competition under the UCL is “substantially congruent” to a trademark infringement claim under the Lanham Act. Acad. of Motion Picture Arts & Scis. v. Creative House Promotions, Inc., 944 F.2d 1446, 1457 (9th Cir. 1991). “Under both [the UCL and the Lanham Act], the ‘ultimate test’ is ‘whether the public is likely to be deceived or confused by the similarity of the marks.’” Id. (citations omitted). Plaintiff has alleged a UCL violation based on the

same elements required for its trademark infringement

claim. See SAC ¶¶ 65, 67 (“Defendants’ unfair competition includes . . . representing in advertising and marketing materials . . . that CANDY-GRAM is owned or controlled by Defendants, causing confusion among dealers and consumers . . . [this conduct] constitutes unlawful, unfair, and fraudulent business practices in violation of Cal. Bus. & Prof. Code § 17200.”). (emphasis added). Because Plaintiff’s other substantive claims survive dismissal, Plaintiff’s UCL claim based upon those causes of action similarly survives dismissal. Based on the foregoing, the Court DENIES as moot Individual Defendants’ Motion to Strike and DENIES the Motion to Dismiss. DATED: October 15, 2021 ___/_s/_ R_on_a_ld_ S_.W__. L_e_w____________ HONORABLE RONALD S.W. LEW Senior U.S. District Judge