Q Industries, Inc. v. O'Reilly Automotive, Inc.

• Court: District Court, C.D. California
• Decided: February 22, 2023
• Docket: 2:22-cv-03791
• Status: Unknown

Opinion

Case 2:22-cv-03791-RSWL-PLA Document 87 Filed 02/22/23 Page 1of12 Page ID #:3600

1 10! 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 12 | OQ INDUSTRIES, INC., CV 22-03791-RSWL-PLAx 1 plaintitt, | ORPER ze: MOTION FOR LEAVE 14 v. COMPLAINT [39] be O’ REILLY AUTOMOTIVE, INC., re Defendant. 17 8. $a 19 Plaintiff Q Industries, Inc. (“Plaintiff”) brings 20 | this Action against Defendant O’Reilly Automotive, Inc. 21 (“Defendant”) for trademark infringement, false 22 | designation of origin and false descriptions, unfair 23 | competition, unlawful importation of goods bearing 24 | infringing marks, and unlawful importation of goods 25 | bearing registered trademarks. Currently before the 26 | Court is Plaintiff’s Motion for Leave to File a Second 27 | Amended Complaint [39]. 28

Case 2:22-cv-03791-RSWL-PLA Document 87 Filed 02/22/23 Page 2 of 12 Page ID #:3601

1 Having reviewed all papers submitted pertaining to

2 this Motion, the Court NOW FINDS AND RULES AS FOLLOWS:

3 the Court GRANTS Plaintiff’s Motion for Leave to File a 4 Second Amended Complaint. 5 I. BACKGROUND 6 A. Factual Background 7 Plaintiff is a manufacturer of portable 12-volt air 8 compressors. First Am. Compl. (“FAC”) ¶ 10, ECF No. 28. 9 Defendant is a corporation engaging in the promotion, 10 marketing, and sale of automotive products. Id. ¶ 20. 11 Plaintiff has designed and manufactured air 12 compressors under the Air Armor Special Ops brand since 13 2015 and has used a federally registered trademark 14 (“Special Ops mark”) on its Special Ops products since 15 their inception. Id. ¶¶ 10, 12. Plaintiff has sold its 16 Special Ops M1A1 air compressor and Special Ops M240 air 17 compressor through websites and Defendant’s retail 18 locations. Id. ¶¶ 15-16. The M1A1 air compressor was 19 available for purchase from Defendant from 2018 to 2019, 20 while the M240 air compressor was available for purchase 21 from Defendant from 2015 to 2020. Id. ¶ 16. 22 Plaintiff contends that Defendant manufactured, 23 produced, marketed, distributed, advertised, imported, 24 offered for sale, and/or sold air compressor products 25 that bear counterfeit marks infringing upon Plaintiff’s 26 Special Ops mark, including the Power Torque Tools 27 Portable Ammo Can Air Compressor (the “Accused 28 Product”). Id. ¶ 19. Plaintiff has not granted 2 Case 2:22-cv-03791-RSWL-PLA Document 87 Filed 02/22/23 Page 3 of 12 Page ID #:3602

1 Defendant a license or given Defendant any form of

2 permission to use its intellectual property, including

3 the Special Ops mark. Id. ¶ 25. 4 E-mails reveal that on September 7, 2022, 5 Defendant’s counsel told Plaintiff’s counsel that 6 Defendant was not the proper party to this Action and 7 offered to name the entities it believed to be the 8 proper defendants on the condition that Plaintiff agreed 9 to substitute in those defendants and dismiss Defendant 10 without prejudice. Def.’s Opp’n to Plf.’s Mot. for 11 Leave to File Second Am. Compl. (“Opp’n”), Ex. A, ECF 12 No. 42-1. Plaintiff’s counsel responded to this offer 13 that they “certainly wanted to make sure that we have 14 the proper defendant(s) named in this case” and stated 15 that if Defendant’s counsel “could please identify who 16 you are referring to; and explain the relationship with 17 the named defendant and why the named defendant is not a 18 proper target in this litigation, we can quickly sort 19 this out with a stipulation.” Id. Defendant’s counsel 20 proceeded to send a draft stipulation and draft proposed 21 motion to substitute to Plaintiff’s counsel on 22 September 8, 2022, therefore providing Plaintiff’s 23 counsel with the identities of alternative defendants. 24 Id.; Opp’n, Ex. B, ECF No. 42-3. 25 Plaintiff’s counsel did not respond, and on 26 September 13, 2022, Defendant’s counsel reached out 27 regarding the Joint Rule 26 Report and Initial 28 Disclosures due September 14, 2022. Opp’n, Ex. C, ECF 3 Case 2:22-cv-03791-RSWL-PLA Document 87 Filed 02/22/23 Page 4 of 12 Page ID #:3603

1 No. 42-4. During these discussions, Plaintiff’s counsel

2 commented that “[Plaintiff] does not agree to the

3 substitution of parties.” Id. 4 Later, on November 23, 2022, Plaintiff’s counsel e- 5 mailed Defendant’s counsel requesting that Defendant 6 agree to stipulate to allow Plaintiff to file a Second 7 Amended Complaint adding in the alternative defendants 8 that Defendant’s counsel revealed earlier. Opp’n, 9 Ex. J, ECF No. 42-7. In this e-mail, Plaintiff’s 10 counsel advised that “[s]ince there is an ongoing 11 discovery dispute related to the current defendant[,] we 12 cannot agree to dismiss them without prejudice at this 13 time.” Id. Defendant’s counsel responded that 14 Defendant would not agree to such a stipulation unless 15 Plaintiff agreed to dismiss Defendant without prejudice 16 and substitute in the alternative defendants. Id. 17 Plaintiff instead filed the instant Motion. See 18 generally Pl.’s Mot. for Leave to File Second Am. Compl. 19 (“Mot.”), ECF No. 39. 20 B. Procedural Background 21 Plaintiff filed its initial complaint [1] on 22 June 2, 2022. On August 12, 2022, Plaintiff stipulated 23 [21] to amend its complaint. The Court granted [27] the 24 stipulation, and Plaintiff filed a First Amended 25 Complaint [28]. 26 On December 2, 2022, Plaintiff moved [39] for leave 27 to file a second amended complaint to add additional 28 defendants. Defendant opposed [41, 42] the Motion on 4 Case 2:22-cv-03791-RSWL-PLA Document 87 Filed 02/22/23 Page 5 of 12 Page ID #:3604

1 December 13, 2022, and Plaintiff replied [46, 47, 48] on

2 December 20, 2022.

3 II. DISCUSSION 4 A. Legal Standard 5 Federal Rule of Civil Procedure (“Rule”) 15(a) 6 provides that once the time frame to amend a pleading as 7 a matter of course has lapsed, a party may amend its 8 pleading only by obtaining leave of the court. Fed. R. 9 Civ. P. 15(a); Lone Star Ladies Invest. Club v. 10 Schlotzskys Inc., 238 F.3d 363, 367 (5th Cir. 2001). 11 Leave shall be freely given when justice so requires. 12 Fed. R. Civ. P. 15(a). Courts consider the following 13 factors that alone, or in combination, may justify 14 denying a motion for leave to amend: (1) undue prejudice 15 to the opposing party; (2) undue delay; (3) bad faith or 16 dilatory motive; (4) futility of amendment; and 17 (5) whether the movant has previously amended a 18 pleading. See Eminence Capital, LLC v. Aspeon, Inc., 19 316 F.3d 1048, 1051 (9th Cir. 2003). “Absent prejudice, 20 or a strong showing of any of the remaining Foman 21 factors, there exists a presumption under Rule 15(a) in 22 favor of granting leave to amend.” Id. at 1052; see 23 Foman v. Davis, 371 U.S. 178, 182 (1962). 24 B. Analysis 25 In sum, Defendant argues the Court should not grant 26 leave to amend because: (1) Defendant cannot be held 27 liable for the acts of its subsidiaries; (2) amendment 28 would be futile since adding defendants would not cure 5 Case 2:22-cv-03791-RSWL-PLA Document 87 Filed 02/22/23 Page 6 of 12 Page ID #:3605

1 the alleged deficiencies in Plaintiff’s claims against

2 Defendant; and (3) Plaintiff’s explanation as to why it

3 is unable to remove Defendant is baseless because 4 Defendant has already told Plaintiff that “it has no 5 relation or involvement in the matters that are the 6 subject of the allegations in this lawsuit.” See 7 generally Def.’s Opp’n to Plf.’s Mot. for Leave to File 8 Second Am. Compl. (“Opp’n”), ECF No. 42. 9 Of the Foman factors, only futility of amendment 10 and bad faith are at issue. Defendant clearly contends 11 that amendment would be futile. Opp’n 12:9-13:9. 12 Beyond that, Defendant does not specifically address any 13 other Foman factor. See generally Opp’n. Defendant 14 implies that Plaintiff acted in bad faith when, from 15 Defendant’s perspective, Plaintiff agreed to dismiss 16 Defendant from this Action but then backed out of the 17 alleged agreement. Defendant does not contend that 18 there is undue delay, that amendment will unduly 19 prejudice it, or that the Court should not grant the 20 Motion because Plaintiff has already amended its 21 Complaint once. Accordingly, the Court centers its 22 analysis on futility of amendment and bad faith. 23 1. Futility of Amendment 24 Defendant contends that amendment is futile because 25 adding new defendants, rather than substituting 26 Defendant out for new defendants, will not cure the 27 deficiencies in Plaintiff’s claim against Defendant. 28 Opp’n 12:9-13:9. Indeed, Defendant argues that it is 6 Case 2:22-cv-03791-RSWL-PLA Document 87 Filed 02/22/23 Page 7 of 12 Page ID #:3606

1 merely a holding company for the subsidiary entities

2 that Plaintiff seeks to add in its Second Amended

3 Complaint, and that Plaintiff will still fail to state a 4 plausible claim against Defendant because Plaintiff does 5 not allege alter ego liability in its proposed amended 6 complaint. Id. Moreover, Defendant argues that 7 Plaintiff’s claim against Defendant cannot survive 8 summary judgment. Id. 13:1-4. 9 Leave to amend may be denied when “the court 10 determines that the allegation of other facts consistent 11 with the challenged pleading could not possibly cure the 12 deficiency.” Schreiber Distrib. Co. v. Serv-Well 13 Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986). A 14 proposed amendment is futile only if no set of facts can 15 be proved that would constitute a valid claim for 16 relief. Lemar v. CVS Pharmacy, Inc., No. CV 14-01698 17 PSG (CWx), 2014 WL 12725107, at *3 (C.D. Cal. July 7, 18 2014). Under this broad standard, there is a “general 19 preference against denying a motion for leave to amend 20 based on futility.” Green Valley Corp v. Caldo Oil Co., 21 No. 09-CV-4028-LHK, 2011 WL 1465883, at *6 (N.D. Cal. 22 Apr. 18, 2011); see also Lemar, 2014 WL 12725107, at *3 23 (“Courts rarely deny a motion for leave to amend because 24 of futility.”). 25 The proper test to apply when determining the legal 26 sufficiency of a proposed amendment is identical to the 27 one used to consider the sufficiency of a pleading under 28 Rule 12(b)(6). Miller v. Rykoff-Sexton, Inc., 845 F.2d 7 Case 2:22-cv-03791-RSWL-PLA Document 87 Filed 02/22/23 Page 8 of 12 Page ID #:3607

1 209, 214 (9th Cir. 1988). A complaint may be dismissed

2 under Rule 12(b)(6) if the plaintiff fails to state a

3 cognizable legal theory or has not alleged sufficient 4 facts to support a cognizable legal theory. Somers v. 5 Apple, Inc., 729 F.3d 953, 959 (9th Cir. 2013). “To 6 survive a motion to dismiss, a complaint must contain 7 sufficient factual matter, accepted as true, to ‘state a 8 claim to relief that is plausible on its face.’” 9 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting 10 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). 11 A claim has facial plausibility when a plaintiff “pleads 12 factual content that allows the court to draw the 13 reasonable inference that the defendant is liable for 14 the misconduct alleged.” Iqbal, 556 U.S. at 678. 15 Here, Defendant has not met its burden, on the 16 limited record presented, of establishing that amendment 17 would be futile as a matter of law. Plaintiff brings 18 claims of trademark infringement, false designation of 19 origin and false descriptions, unfair competition, and 20 common law trademark infringement and unfair 21 competition. The Court centers its analysis on 22 Plaintiff’s unfair competition claim. 23 California’s unfair competition law (“UCL”) 24 prohibits “any unlawful, unfair or fraudulent business 25 act or practice and unfair, deceptive, untrue or 26 misleading advertising.” Cal. Bus. & Prof. Code 27 § 17200. Each UCL prong—unlawful, unfair, and 28 fraudulent—provides a separate and distinct theory of 8 Case 2:22-cv-03791-RSWL-PLA Document 87 Filed 02/22/23 Page 9 of 12 Page ID #:3608

1 liability. Lozano v. AT&T Wireless Servs., Inc.,

2 504 F.3d 718, 731 (9th Cir. 2007) (citing S. Bay

3 Chevrolet v. Gen. Motors Acceptance Corp., 85 Cal. Rptr. 4 2d 301, 316–17 (Ct. App. 1999)). 5 “To state a claim under the ‘fraud’ prong of 6 [section] 17200, a plaintiff must allege facts showing 7 that members of the public are likely to be deceived by 8 the alleged fraudulent business practice.” Antman v. 9 Uber Techs., Inc., No. 3:15-CV-01175-LB, 2015 WL 10 6123054, at *6 (N.D. Cal. Oct. 19, 2015) (citing Morgan 11 v. AT&T Wireless Servs., Inc., 99 Cal. Rptr. 3d 768, 785 12 (Ct. App. 2009)). “Claims under the fraud prong of the 13 UCL are subject to the particularity requirements of 14 Federal Rule of Civil Procedure 9(b).” In re Anthem, 15 Inc. Data Breach Litig., No. 15-MD-02617-LHK, 2016 WL 16 3029783, at *34 (N.D. Cal. May 27, 2016) (citing Kearns 17 v. Ford Motor Co., 567 F.3d 1120, 1122, 1125 (9th Cir. 18 2009)). A plaintiff, therefore, must plead the time, 19 place, and contents of the false representations, as 20 well as the identity of the person making the 21 misrepresentation and what that person obtained thereby. 22 See Fed. R. Civ. P. 9(b). 23 In its proposed complaint, Plaintiff adequately 24 states an unfair competition claim under the fraud prong 25 of the UCL. Plaintiff states that in February 2022, it 26 accessed the defendants’ website and discovered the 27 Accused Product was for sale online and in multiple 28 retail locations. Proposed Compl. ¶ 23. Plaintiff 9 Case 2:22-cv-03791-RSWL-PLA Document 87 Filed 02/22/23 Page 10 of 12 Page ID #:3609

1 provides an exemplar image of the Accused Product, as

2 well as images of its two relevant products to

3 illustrate defendants’ allegedly false representation 4 that “the Accused Product is a genuine good originating 5 from, associated with, and/or approved by” Plaintiff. 6 Id. ¶¶ 18, 22. Plaintiff goes on to state that 7 defendants knew of Plaintiff’s rights to the mark and 8 intentionally used those marks on the Accused Product in 9 “an effort to confuse or mislead consumers into 10 believing it [] originated, is associated with, is 11 affiliated with, is sponsored by, is authorized by, 12 and/or is approved” by Plaintiff. Id. ¶ 31. Finally, 13 Plaintiff contends that defendants have made gains, 14 profits, and advantages due to their misconduct. Id. 15 ¶ 48. Overall, Plaintiff has alleged a plausible UCL 16 claim in its proposed complaint. 17 Since the proposed complaint contains facts 18 sufficient to state at least one cause of action, leave 19 to amend is not futile. Given that leave to amend is 20 favored where there are any facts indicating a claim 21 could be stated, the Court declines to assess the 22 plausibility of Plaintiff’s other proposed claims at 23 this stage of litigation. 24 2. Bad Faith 25 For a court to deny leave to amend based on bad 26 faith, the Court must find that “the plaintiff merely is 27 seeking to prolong the litigation by adding new but 28 baseless legal theories,” Griggs v. Pace Am. Grp., Inc., 10 Case 2:22-cv-03791-RSWL-PLA Document 87 Filed 02/22/23 Page 11 of 12 Page ID #:3610

1 170 F.3d 877, 881 (9th Cir. 1999), or that the plaintiff

2 has otherwise acted with a “wrongful motive,” DCD

3 Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9th Cir. 4 1987). 5 Here, Defendant has not shown that Plaintiff is 6 seeking leave to amend in bad faith. Indeed, Defendant 7 argues that Plaintiff broke a perceived agreement to 8 dismiss Defendant from this case in exchange for the 9 identities of the proposed defendants. Regardless of 10 whether there was an agreement to dismiss Defendant, 11 failure to comply with such an agreement does not 12 constitute bad faith in the context of leave to amend. 13 Plaintiff filed this motion shortly after learning the 14 identities of the proposed defendants. Moreover, 15 Plaintiff is not requesting to amend its complaint by 16 adding baseless legal theories. Instead, it timely 17 asserts that more than one party may be liable for the 18 alleged misconduct. Therefore, Defendant has not shown 19 that Plaintiff moves for leave to amend in bad faith. 20 Accordingly, since leave to amend should be granted 21 with “extreme liberality,” and since Defendant has not 22 made “a strong showing” that that any of the Rule 15 23 factors overcome the “presumption . . . in favor of 24 granting leave to amend,” the Court GRANTS Plaintiff's 25 motion for leave to file an amended complaint. Eminence 26 Cap., LLC v. Aspeon, Inc., 316 F.3d 1048, 1051-52 (9th 27 Cir. 2003) 28 /// 11 Case 2:22-cv-03791-RSWL-PLA Document 87 Filed 02/22/23 Page 12 of 12 Page ID #:3611 1 III. CONCLUSION 2 Based on the foregoing, the Court should GRANT

3 Plaintiff’s Motion for Leave to File a Second Amended 4 Complaint. 5 6 IT IS SO ORDERED. 7 8 DATED: February 22, 2023 _ _ _ _ _ _ _ /S_/_ R_O_N_A_L_D_ _S._W_._ L_E_W________ HONORABLE RONALD S.W. LEW 9 Senior U.S. District Judge 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 12