Grandesign Advertising Firm, Inc. v. Talon US (Grrandesign) LLC

• Court: District Court, S.D. California
• Decided: March 1, 2021
• Docket: 3:20-cv-00719
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 | GRANDESIGN ADVERTISING Case No. 3:20-cv-00719-LAB-DEB 11 || FIRM, INC., ORDER DENYING MOTION TO 12 inti DISMISS UNDER FED. R. CIV. P. Plaintiff, 13 V. 12(b)(6) [Dkt. 17] 14 || TALON US (GRANDESIGN) LLC 45 || and TALON OUTDOOR, LTD., 16 Defendants. '7 | TALON US (GRANDESIGN) LLC, 18 49 Counterclaimant and Third-Party 20 Plaintiff, V. 22 || GRANDESIGN ADVERTISING 53 FIRM, INC., and AARON GAEIR, 24 || Counterclaim Defendant and 95 || Third-Party Defendant. 26 This case arises from an asset purchase under which Plaintiff 2/ \|Grandesign Advertising Firm, Inc. (“Grandesign’) sold part of its advertising 28 |Ibusiness to Defendant Talon US (Grandesign)LLC (“Talon”). The -1- 3:20-CV-00719-LAB-DEB

1 |“Grandesign” tradename wasn't part of the transaction—the parties’ contract 2 |prohibited Talon from using it in connection with the marketing or sale of 3 |Talon’s products. Nevertheless, five consumers allegedly alerted Grandesign 4 after the sale that Talon was using the tradename. Grandesign, relying 5 |/primarily on this allegation, filed claims for breach of the parties’ contract and 6 |\for violation of the Lanham Act.’ 7 Talon moves to dismiss those two claims under Fed. R. Civ. P. 12(b)(6). 8 |(Dkt. 17.) It contends generally that the Complaint don’t state how, when, and 9 jin which communications Talon allegedly used the tradename, so its claims 10 |laren't plausible. But plausibility isn’t such an inflexible standard. It leaves room 11 |lfor reasonable inferences—if something allegedly looks like a duck and 12 |lquacks like a duck, it’s plausibly alleged to be a duck. 13 Grandesign can allege Talon’s conduct by its color and call, too, and the 14 |allegation of consumer complaints and confusion fits the bill. Accepting those 15 |allegations as true for the purposes of the Motion to Dismiss, the Court 16 ||reasonably can infer facts that would establish breach of the APA and violation 17 |lof the Lanham Act. The Motion is DENIED. 18 FACTUAL BACKGROUND 19 Grandesign is incorporated in Florida and principally conducts business 20 ||from its office in San Diego, California.2 By an Asset Purchase Agreement 21 ||\dated March 5, 2019, it sold part of its advertising business to Talon. The APA 22 ||prohibited Talon from “us[ing] the ‘Grandesign’ tradename in the marketing or 23 |isale of [Talon]’s products or services without [Grandesign’s] prior written 24 |iconsent,” while Grandesign retained and continued to operate an experiential 20 ||advertising business. 26 I Grandesign’s other claims against Talon aren't subject to the present motion. 27 |! This summary of the relevant facts is drawn from Grandesign’s Complaint 9g ||and attached exhibits, which the Court assumes to be true on a motion to dismiss. -2- 3:20-CV-00719-LAB-DEB

1 After the transaction closed, five consumers in the advertising industry 2 ||told Grandesign that Talon was using the “Grandesign” tradename, and that 3 ||Talon’s use was confusing them. To avoid further confusion, Grandesign 4 |\rebranded itself as “GDX,” incurring costs in the process. 5 DISCUSSION 6 A Rule 12(b)(6) motion to dismiss is a preliminary evaluation of a party's |pleading, intended to test only whether the pleading provides “a short and 8 |lplain statement of the claim showing that the pleader is entitled to relief, in 9 order to give the defendant fair notice of what the claim is and the grounds 10 |jupon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) 11 |\(internal marks and citation omitted). The required short and plain statement 12 |\“does not need detailed factual allegations,” only “factual allegations . . . 13 |/enough to raise a right to relief above the speculative level . . . on the 14 |lassumption that all the allegations in the complaint are true.” /d. (internal 15 |Iimarks and citations omitted). The Court must make all reasonable inferences 16 |that can be made in the plaintiff's favor. Dahlia v. Rodriguez, 735 F.3d 1060, 17 11066 (9th Cir. 2013). Reasonable inferences are those with “plausible 18 |igrounds’—the complaint’s factual allegations must “raise a reasonable 19 |lexpectation that discovery will reveal evidence” supporting that inference. 20 || Twombly, 550 U.S. at 556. 21 On the other hand, if the necessary facts are simply possible on the facts 22 |\alleged, rather than plausible, the complaint fails to state a claim. Ashcroft v. 23 ||!qbal, 556 U.S. 662, 679 (2009) (plausibility standard “asks for more than a 24 sheer possibility that a defendant has acted unlawfully”). Competing 20 |linferences consistent with the alleged facts can undermine a claim's 26 |\plausibility. But a movant has to offer more than just another version of events 2/ |\to carry its burden on a motion to dismiss. The proposed alternative must be 28 ||"so convincing that plaintiff's explanation is implausible.” Starr v. Baca, 652 -3- 3:20-CV-00719-LAB-DEB

1 F.3d 1202, 1216 (9th Cir. 2011) (emphasis in original); see also Iqbal, 556 U.S. 2 |jat 681 (allegations don’t support inference of unlawful behavior “given more 3 |likely explanations” of facts alleged); cf. In re Century Aluminum Co. Securities 4 |Litig., 729 F.3d 1104, 1108 (9th Cir. 2013) (upholding dismissal where 5 inferential steps to claim were “merely possible rather than plausible”). 6 ||Allegations that “tend to exclude the possibility” of a explanation are enough ||to avoid dismissal, even if those allegations can’t foreclose such explanations 8 |iconclusively. /d. Ultimately, a court must “draw on its judicial experience and 9 |icommon sense” to evaluate whether the inference supporting a claim is 10 |iplausible despite the availability of other inferences. /qgbal, 556 U.S. at 679; 11 ||see also Starr, 652 F.3d at 1216. 12 I. Count Ill: Breach of Contract — Improper Use of Tradename 13 Talon’s use of the tradename in a manner that breached the parties’ 14 |\contract is a plausible inference from Grandesign’s factual allegations. The 15 |lparties agreed to apply Delaware law to the APA, and so a claim for breach of 16 ||that agreement requires: “1) a contractual obligation; 2) a breach of that 17 |lobligation by the defendant; and 3) a resulting damage to the plaintiff.” 18 |(Dkt. 1-2 § 9.10); Connelly v. State Farm Mut. Automobile Ins. Co., 153 A.3d 19 1271, 1279 n.28 (Del. 2016). Count Ill of the Complaint is premised upon 20 ||Talon’s alleged breach of its obligation to refrain from “us[ing] the ‘Grandesign’ 21 ||tradename in the marketing or sale of [Talon’s] products or services without 22 |\the prior written consent of [Grandesign].” (Dkt. 1-2 p. 37, § 7.12.) 23 Talon challenges only the breach element, arguing that allegations that 24 25 □□□ Although application of a contractual choice of law provision isn’t automatic, 26 Talon’s burden of demonstrating that Delaware bears a_ substantial relationship to the parties is satisfied by the fact of Talon’s incorporation there. 2/7 |\Grandesign doesn’t contend that application of Delaware law would conflict 9g |\with a fundamental policy of California. See Nedlloyd Lines B.V. v. Superior Court, 3 Cal. 4th 459 (1992) (in bank). -4- 3:20-CV-00719-LAB-DEB

1 jit “used,” “continues to use,” and “has consistently used” the tradename “in the 2 |jadvertising community as part of its business” are “entirely conclusory.” 3 ||(Dkt. 17 at 11; Dkt. 1 99 18, 50-51.) On their own, they might be. But each 4 |allegation isn’t required to stand alone, and these aren’t the only relevant ones 5 jin the Complaint. 6 Grandesign alleges, too, that five businesses that it describes as 7 |“consumer{[s]” “have communicated confusion to Grandesign over [Talon’s] 8 |luse of [the] tradename, including even suggesting to Grandesign it should 9 |‘change its name.” (Dkt. 1 {| 51.) These factual allegations, Talon contends, 10 |imust be discounted because they don't indicate “[w]hat use of the tradename 11 ||[the Complaint] is referring to,” “[w]hen [it] was ... used,” and “[hJow [it] was... 12 |fused.” (Dkt. 35 at 6.) 13 But the pleading standard applicable here “do[es] not require heightened 14 |\fact pleading of specifics,” nor does it even call for “detailed factual allegations. 15 || Twombly, 550 U.S. at 555, 570; cf. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 16 1097, 1106 (9th Cir. 2003) (requiring “who, what, when, where, and how’ 17 |lunder Rule 9(b) standard applicable to claims involving fraud or mistake). The 18 |/plaintiff must “state[] the circumstances, occurrences, and events in support 19 jlof the claim presented,” Twombly, 550 U.S. at 555 n.3 (citing 5 C. Wright & 20 ||A. Miller, Federal Practice and Procedure § 1202, pp. 94-95), but indirect, 21 |\inferential factual support will do. See id. at 556 n.4. In Twombly, an antitrust 22 |\case, the plaintiffs didn’t need to support their claim of an anticompetitive 23 |jagreement with allegations of when the defendants met, where they met, or 24 |ithe words they used to reach agreement. As the Supreme Court explained, 25 |factual allegations of the defendants’ parallel conduct would suffice, so long 26 |las those facts were more likely to result from an agreement than from 2/ |icompeting explanations, such as “chance, coincidence, independent 28 ||responses to common stimuli, or mere interdependence.” /d. (quoting -5- 3:20-CV-00719-LAB-DEB

1 6 P. Areeda & H. Hovenkamp, Antitrust Law J 1426, pp. 167-85 (2d ed. 2003)) 2 Grandesign meets this standard. It alleges that five businesses, 3 consumers relative to Grandesign, complained that Talon was using the 4 |tradename after Talon acquired part of Grandesign’s business under the APA. 5 |It then asks the Court to infer from that allegation that: (1) after the acquisition, 6 ||the complaining businesses were consumers relative to Talon; (2) Talon was 7 |jusing the tradename; (3) it did so in communications with those businesses; 8 land (4) Talon’s communications with consumers were made in the marketing 9 jor sale of its products and services. None of these inferences can be deduced 10 |lwith certainty from Grandesign’s allegation of complaints. But each flows from 11 lit plausibly, as a likely explanation for the complaints. That’s enough to permit 12 ||the Court to draw those inferences in support of Grandesign’s claims on a 13 |Imotion to dismiss. 14 Talon points to one particular possibility that, it contends, is consistent 15 |with the factual allegations but not with the conclusion that Talon breached the 16 |APA. The Complaint alleges that Grandesign and Talon simultaneously 17 |lemployed Aaron Gaeir as an officer for a period of at least seven weeks. (See 18 |Dkt. 1 Jf] 29-33; Dkt. 1-2 at 45; Dkt. 1-3.) Gaeir may have caused the 19 |iconfusion by using the name during this period, and if so, Talon argues, 20 ||“someone other than [Talon]” was at fault. (Dkt. 17 at 17 (emphasis removed). ) 21 But without a further assumption, Talon’s conclusion doesn’t follow from 22 \lits premise. Gaeir was a Talon officer; if he used the tradename in that 23 ||capacity, that conduct could be imputed to Talon. See In re Dole Food Co., 24 |\Inc. Stockholder Litig., 110 A.3d 1257, 1261 (Del. Ch. 2015) (“[A] corporation 29 ||can only act through human agents”). Adding the missing premise—namely, 26 ||that each time Gaeir used the tradename during that period, he did so on 2/ |\Grandesign’s behalfi—makes Talon’s scenario complete, but it also makes it 28 |junlikely on Grandesign’s allegations. It fits those allegations only if each of the -6- 3:20-CV-00719-LAB-DEB

1 |lfive consumers was mistaken in believing that the communications came from 2 Talon. In that case, none of the consumers confirmed the source of the 3 ||communications before complaining and, in the case of one business, before 4 |isuggesting that Grandesign change its name entirely. It's a possible 5 explanation for the Complaint’s allegations, but common sense and judicial 6 |lexperience counsel that it’s not a particularly likely one. Because it isn’t “so 7 ||convincing that [Grandesign’s] explanation is implausible,” it won't support 8 |idismissal. Sfarr, 652 F.3d at 1216 (emphasis in original); see also In re 9 ||Century Aluminum Co. Securities Litig., 729 F.3d 1004, 1108 (9th Cir. 2013) 10 ||(factual allegations that “tend[] to exclude” a competing explanation prevent 11 ||that explanation from making a claim implausible). 12 “[F]air notice of what the [plaintiff's] claim is and the ground upon which 13 jit rests .. . does not [require] detailed factual allegations.” Twombly, 550 U.S. 14 |jat 555. Allegations establishing plausible grounds to infer the necessary 15 |jelements of the claim are enough. /d. at 556. Grandesign’s allegations, 16 |jaccepted as true for purposes of a motion to dismiss, establish a plausible 17 |linference that Talon used the “Grandesign” tradename in breach of the parties’ 18 |icontract. The Motion is denied as to Count Ill of the Complaint. 19 ll. Count IV: Violation of the Lanham Act 20 Grandesign also asserts a claim for false designation under the Lanham 21 Act, 15 U.S.C. § 1125. (Dkt. 1 54.)* To avoid dismissal, it must plead that: 22 (1) Talon used Grandesign’s tradename; 23 (2) The use was in interstate commerce; 24 (3) The use was in connection with goods or services; 20 (4) The use was likely to cause confusion, mistake, or deception 26 Ila Grandesign acknowledges in its briefing that the Complaint’s citation to 27 Section 1125(a)(1) notwithstanding, it intends to state a claim under 9g ||subsection (a)(1)(A) only, so the Court does not consider whether the Complaint states a claim under subsection (a)(1)(B). (Dkt. 30 at 5-6.) -f- 3:20-CV-00719-LAB-DEB

1 as to (a) the affiliation, connection, or association of defendant 2 with another person, or (b) as to the origin, sponsorship, or 3 approval of defendant's goods, services, or commercial 4 activities by another person; and 5 (5) Grandesign has been or is likely to be damaged by these acts. 6 ||See 15 U.S.C. § 1125(a)(1); Obesity Research Institute, LLC v. Fiber 7 |Research Inter., LLC, 165 F. Supp. 3d 937, 949 (S.D. Cal. 2016). 8 Talon’s use of the tradename in connection with its goods or services is 9 supported by plausible inferences from Grandesign’s factual allegations, as 10 |/the Court concluded in connection with the contract claim, so the first and third 11 |jelements of the Lanham Act claim are satisfied. The Complaint alleges 12 |}enough facts to support the interstate commerce, likelihood of confusion, and 13 |lharm elements, too. 14 The interstate commerce element requires allegations that the 15 |i\defendant either placed the mark in interstate commerce or used it in a way 16 ||that affects interstate commerce. See Maier Brewing Co. v. Fleishmann 17 ||Distilling Corp., 390 F.2d 117, 120 (9th Cir. 1968). The Complaint has both. 18 ||Talon, based in New York, allegedly placed the tradename in interstate 19 |commerce through its communications with Louisiana-based Lamar 20 ||Advertising. (Dkt. 1 Jf] 2, 51.)° That use also affected interstate commerce— 21 |las a result of it, Grandesign allegedly abandoned the tradename, which at 22 ||least one out-of-state customer, Lamar, was sufficiently familiar with to be 23 ||confused when someone other than Grandesign used it. (See id. J 52.) 24 Talon’s objection to causation fails, too. It contends that Grandesign 25 |ican’'t allege the causation necessary for the marketplace confusion and 26 I; The Court takes judicial notice, at Grandesign’s request and without 27 |apparent opposition, that the Louisiana Secretary of State’s records show that 9g ||Lamar Advertising is a tradename of The Lamar Company, L.L.C., a Louisiana limited liability company with a Baton Rouge, Louisiana address. -8- 3:20-CV-00719-LAB-DEB

1 damages elements because the Complaint doesn't sufficiently allege Talon’s 2 |juse. But as the Court determined above, the Complaint does sufficiently allege 3 |juse. And the relevant allegations support a reasonable inference of causation: 4 ||\Confused customers told Grandesign that their confusion resulted from 5 || Talon’s use of a tradename belonging to Grandesign, so Grandesign incurred 6 ||the costs of rebranding to avoid further confusion. (Dkt. 1 {J 51-52.) 7 Talon offers one additional challenge to the marketplace confusion 8 element, arguing that the allegation that its use “has caused confusion in the 9 |imarketplace” is a “threadbare recital” of a legal conclusion. (Dkt. 17 at 13, 10 |iquoting Dkt. 1 {| 51.) But even the densest fabric looks threadbare under a 11 |Imicroscope. Employing a wider lens to consider the whole Complaint—or 12 leven the entirety of the quoted paragraph—reveals the factual fibers 13 |linterwoven with this conclusory thread. Grandesign fills in its recitation of 14 ||\“confusion in the marketplace” by identifying specific consumers and alleging 15 |Ithat they expressed confusion arising from Talon’s use of the tradename. 16 |(Dkt. 1 J 51.) 17 Each element of Grandesign’s Lanham Act claim finds support in the 18 ||Complaint’s factual allegations and the reasonable inferences from them. The 19 ||Motion is denied as to Count IV of the Complaint. 20 CONCLUSION 21 A pleading must allege only “a short and plain statement of the claim 22 |ishowing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). This 23 |\standard doesn’t ask for much: the pleaded facts don’t need to be numerous 24 |lor detailed, only enough to allow the Court, when accepting them as true, “to 20 |\draw the reasonable inference that the defendant is liable for the misconduct 26 |lalleged.” Iqbal, 556 U.S. at 678. 2/ The Complaint alleges only a small handful of facts in support of its 28 ||tradename claims, but they are enough because they establish the plausibility -9- 3:20-CV-00719-LAB-DEB

1 lof the inference that Talon used Grandesign’s tradename in a manner that 2 |\violated the APA and the Lanham Act. Talon’s Motion to Dismiss Counts Ill 3 IV of the Complaint is DENIED. 4 5 IT IS SO ORDERED. 6 7 ||Dated: March 1, 2021 l 4 ZB WwW Hon. Larry A. Burns 9 United States District Judge 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 2? 28 - 10 - 3:20-CV-00719-LAB-DEB