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

8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA | GRANDESIGN ADVERTISING Case No. 3:20-cv-00719-LAB-DEB || FIRM, INC., ORDER DENYING MOTION TO 12 inti DISMISS UNDER FED. R. CIV. P. Plaintiff, 13 V. 12(b)(6) [Dkt. 17] || TALON US (GRANDESIGN) LLC || and TALON OUTDOOR, LTD., 16 Defendants. '7 | TALON US (GRANDESIGN) LLC, 49 Counterclaimant and Third-Party 20 Plaintiff, V. || GRANDESIGN ADVERTISING 53 FIRM, INC., and AARON GAEIR, || Counterclaim Defendant and || 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 |Ibusiness to Defendant Talon US (Grandesign)LLC (“Talon”). The -1- 3:20-CV-00719-LAB-DEB |“Grandesign” tradename wasn't part of the transaction—the parties’ contract |prohibited Talon from using it in connection with the marketing or sale of |Talon’s products. Nevertheless, five consumers allegedly alerted Grandesign after the sale that Talon was using the tradename. Grandesign, relying |/primarily on this allegation, filed claims for breach of the parties’ contract and |\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 jin which communications Talon allegedly used the tradename, so its claims |laren't plausible. But plausibility isn’t such an inflexible standard. It leaves room |lfor reasonable inferences—if something allegedly looks like a duck and |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 |allegation of consumer complaints and confusion fits the bill. Accepting those |allegations as true for the purposes of the Motion to Dismiss, the Court ||reasonably can infer facts that would establish breach of the APA and violation |lof the Lanham Act. The Motion is DENIED.

18 FACTUAL BACKGROUND 19 Grandesign is incorporated in Florida and principally conducts business ||from its office in San Diego, California.2 By an Asset Purchase Agreement ||\dated March 5, 2019, it sold part of its advertising business to Talon. The APA ||prohibited Talon from “us[ing] the ‘Grandesign’ tradename in the marketing or |isale of [Talon]’s products or services without [Grandesign’s] prior written |iconsent,” while Grandesign retained and continued to operate an experiential ||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 ||told Grandesign that Talon was using the “Grandesign” tradename, and that ||Talon’s use was confusing them. To avoid further confusion, Grandesign |\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 |lplain statement of the claim showing that the pleader is entitled to relief, in order to give the defendant fair notice of what the claim is and the grounds |jupon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) |\(internal marks and citation omitted). The required short and plain statement |\“does not need detailed factual allegations,” only “factual allegations . . .

13 |/enough to raise a right to relief above the speculative level . . . on the |lassumption that all the allegations in the complaint are true.” /d. (internal |Iimarks and citations omitted). The Court must make all reasonable inferences |that can be made in the plaintiff's favor. Dahlia v. Rodriguez, 735 F.3d 1060, 11066 (9th Cir. 2013). Reasonable inferences are those with “plausible |igrounds’—the complaint’s factual allegations must “raise a reasonable |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 |\alleged, rather than plausible, the complaint fails to state a claim. Ashcroft v. ||!qbal, 556 U.S. 662, 679 (2009) (plausibility standard “asks for more than a sheer possibility that a defendant has acted unlawfully”). Competing |linferences consistent with the alleged facts can undermine a claim's |\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 ||"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 |likely explanations” of facts alleged); cf. In re Century Aluminum Co. Securities |Litig., 729 F.3d 1104, 1108 (9th Cir. 2013) (upholding dismissal where 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 |iconclusively. /d. Ultimately, a court must “draw on its judicial experience and |icommon sense” to evaluate whether the inference supporting a claim is |iplausible despite the availability of other inferences. /qgbal, 556 U.S. at 679; ||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’ |\contract is a plausible inference from Grandesign’s factual allegations. The |lparties agreed to apply Delaware law to the APA, and so a claim for breach of ||that agreement requires: “1) a contractual obligation; 2) a breach of that |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 ||Talon’s alleged breach of its obligation to refrain from “us[ing] the ‘Grandesign’ ||tradename in the marketing or sale of [Talon’s] products or services without |\the prior written consent of [Grandesign].” (Dkt. 1-2 p. 37, § 7.12.)

23 Talon challenges only the breach element, arguing that allegations that □□□ Although application of a contractual choice of law provision isn’t automatic, 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 jit “used,” “continues to use,” and “has consistently used” the tradename “in the |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 |allegation isn’t required to stand alone, and these aren’t the only relevant ones jin the Complaint.

6 Grandesign alleges, too, that five businesses that it describes as |“consumer{[s]” “have communicated confusion to Grandesign over [Talon’s] |luse of [the] tradename, including even suggesting to Grandesign it should |‘change its name.” (Dkt. 1 {| 51.) These factual allegations, Talon contends, |imust be discounted because they don't indicate “[w]hat use of the tradename ||[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 |\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’ |lunder Rule 9(b) standard applicable to claims involving fraud or mistake). The |/plaintiff must “state[] the circumstances, occurrences, and events in support jlof the claim presented,” Twombly, 550 U.S. at 555 n.3 (citing 5 C. Wright & ||A. Miller, Federal Practice and Procedure § 1202, pp. 94-95), but indirect, |\inferential factual support will do. See id. at 556 n.4. In Twombly, an antitrust |\case, the plaintiffs didn’t need to support their claim of an anticompetitive |jagreement with allegations of when the defendants met, where they met, or |ithe words they used to reach agreement. As the Supreme Court explained, |factual allegations of the defendants’ parallel conduct would suffice, so long |las those facts were more likely to result from an agreement than from 2/ |icompeting explanations, such as “chance, coincidence, independent ||responses to common stimuli, or mere interdependence.” /d. (quoting -5- 3:20-CV-00719-LAB-DEB 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, consumers relative to Grandesign, complained that Talon was using the |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, ||the complaining businesses were consumers relative to Talon; (2) Talon was |jusing the tradename; (3) it did so in communications with those businesses; land (4) Talon’s communications with consumers were made in the marketing jor sale of its products and services. None of these inferences can be deduced |lwith certainty from Grandesign’s allegation of complaints. But each flows from lit plausibly, as a likely explanation for the complaints. That’s enough to permit ||the Court to draw those inferences in support of Grandesign’s claims on a |Imotion to dismiss.

14 Talon points to one particular possibility that, it contends, is consistent |with the factual allegations but not with the conclusion that Talon breached the |APA. The Complaint alleges that Grandesign and Talon simultaneously |lemployed Aaron Gaeir as an officer for a period of at least seven weeks. (See |Dkt. 1 Jf] 29-33; Dkt. 1-2 at 45; Dkt. 1-3.) Gaeir may have caused the |iconfusion by using the name during this period, and if so, Talon argues, ||“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 \lits premise. Gaeir was a Talon officer; if he used the tradename in that ||capacity, that conduct could be imputed to Talon. See In re Dole Food Co., |\Inc. Stockholder Litig., 110 A.3d 1257, 1261 (Del. Ch. 2015) (“[A] corporation ||can only act through human agents”). Adding the missing premise—namely, ||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 |junlikely on Grandesign’s allegations. It fits those allegations only if each of the -6- 3:20-CV-00719-LAB-DEB |lfive consumers was mistaken in believing that the communications came from Talon. In that case, none of the consumers confirmed the source of the ||communications before complaining and, in the case of one business, before |isuggesting that Grandesign change its name entirely. It's a possible explanation for the Complaint’s allegations, but common sense and judicial |lexperience counsel that it’s not a particularly likely one. Because it isn’t “so ||convincing that [Grandesign’s] explanation is implausible,” it won't support |idismissal. Sfarr, 652 F.3d at 1216 (emphasis in original); see also In re ||Century Aluminum Co. Securities Litig., 729 F.3d 1004, 1108 (9th Cir. 2013) ||(factual allegations that “tend[] to exclude” a competing explanation prevent ||that explanation from making a claim implausible).

12 “[F]air notice of what the [plaintiff's] claim is and the ground upon which jit rests .. . does not [require] detailed factual allegations.” Twombly, 550 U.S. 14 |jat 555. Allegations establishing plausible grounds to infer the necessary |jelements of the claim are enough. /d. at 556. Grandesign’s allegations, |jaccepted as true for purposes of a motion to dismiss, establish a plausible |linference that Talon used the “Grandesign” tradename in breach of the parties’ |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 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 Ila Grandesign acknowledges in its briefing that the Complaint’s citation to 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 |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 supported by plausible inferences from Grandesign’s factual allegations, as |/the Court concluded in connection with the contract claim, so the first and third |jelements of the Lanham Act claim are satisfied. The Complaint alleges |}enough facts to support the interstate commerce, likelihood of confusion, and |lharm elements, too.

14 The interstate commerce element requires allegations that the |i\defendant either placed the mark in interstate commerce or used it in a way ||that affects interstate commerce. See Maier Brewing Co. v. Fleishmann ||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 |commerce through its communications with Louisiana-based Lamar ||Advertising. (Dkt. 1 Jf] 2, 51.)° That use also affected interstate commerce— |las a result of it, Grandesign allegedly abandoned the tradename, which at ||least one out-of-state customer, Lamar, was sufficiently familiar with to be ||confused when someone other than Grandesign used it. (See id. J 52.)

24 Talon’s objection to causation fails, too. It contends that Grandesign |ican’'t allege the causation necessary for the marketplace confusion and I; The Court takes judicial notice, at Grandesign’s request and without |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 damages elements because the Complaint doesn't sufficiently allege Talon’s |juse. But as the Court determined above, the Complaint does sufficiently allege |juse. And the relevant allegations support a reasonable inference of causation: ||\Confused customers told Grandesign that their confusion resulted from || Talon’s use of a tradename belonging to Grandesign, so Grandesign incurred ||the costs of rebranding to avoid further confusion. (Dkt. 1 {J 51-52.)

7 Talon offers one additional challenge to the marketplace confusion element, arguing that the allegation that its use “has caused confusion in the |imarketplace” is a “threadbare recital” of a legal conclusion. (Dkt. 17 at 13, |iquoting Dkt. 1 {| 51.) But even the densest fabric looks threadbare under a |Imicroscope. Employing a wider lens to consider the whole Complaint—or leven the entirety of the quoted paragraph—reveals the factual fibers |linterwoven with this conclusory thread. Grandesign fills in its recitation of ||\“confusion in the marketplace” by identifying specific consumers and alleging |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 ||Complaint’s factual allegations and the reasonable inferences from them. The ||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 |ishowing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). This |\standard doesn’t ask for much: the pleaded facts don’t need to be numerous |lor detailed, only enough to allow the Court, when accepting them as true, “to |\draw the reasonable inference that the defendant is liable for the misconduct |lalleged.” Iqbal, 556 U.S. at 678.

2/ The Complaint alleges only a small handful of facts in support of its ||tradename claims, but they are enough because they establish the plausibility -9- 3:20-CV-00719-LAB-DEB lof the inference that Talon used Grandesign’s tradename in a manner that |\violated the APA and the Lanham Act. Talon’s Motion to Dismiss Counts Ill 3 IV of the Complaint is DENIED.

5 IT IS SO ORDERED.

7 ||Dated: March 1, 2021 l 4 ZB WwW Hon. Larry A. Burns 9 United States District Judge 2? - 10 - 3:20-CV-00719-LAB-DEB