Snow Ingredients, Inc. v. SnoWizard, Inc.

• Decision Date: 15 August 2016
• Docket Number: No. 15–30393,15–30393
• Parties: Snow Ingredients, Incorporated; Simeon, Incorporated; Theodore Eisenmann; Van's Snowballs; Southern Snow Manufacturing Company, Inc orporated; Plum Street Snoballs; Parasol Flavors, L.L.C., Plaintiffs–Appellants Cross–Appellees, v. SnoWizard, Incorporated; Ronald R. Sciortino; Jack E. Morris; Kenneth L. Tolar, Defendants–Appellees Cross–Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

833 F.3d 512

Snow Ingredients, Incorporated; Simeon, Incorporated; Theodore Eisenmann; Van's Snowballs; Southern Snow Manufacturing Company, Inc orporated; Plum Street Snoballs; Parasol Flavors, L.L.C., Plaintiffs–Appellants Cross–Appellees,

v.SnoWizard, Incorporated; Ronald R. Sciortino; Jack E. Morris; Kenneth L. Tolar, Defendants–Appellees Cross–Appellants.

No. 15–30393

United States Court of Appeals, Fifth Circuit.

Filed August 15, 2016

Mark Edw Andrews, Andrews Arts & Sciences Law, L.L.C., New Orleans, LA, for Plaintiffs–Appellants Cross–Appellees.

Jack Edward Morris, Kenneth L. Tolar, Metairie, LA, for Defendants–Appellees Cross–Appellants.

Before ELROD, GRAVES, and COSTA, Circuit Judges.

JENNIFER WALKER ELROD, Circuit Judge:

As the seasons turn from spring to summer in New Orleans, locals know to expect familiar changes. The days get longer. The temperature rises. And in the humid warmth of summer, long lines grow outside the most popular sno-ball shops. The parties in this case have come to expect another predictable event with the changing seasons—a visit from a process server setting off a new round of litigation. What began as a flurry of cease-and-desist letters between the companies has turned into a blizzard of patent, trademark, and antitrust litigation. Each party has attempted to use the courts to freeze the other out of the sno-ball market.

In the past ten years, SnoWizard and Southern Snow have faced off in Louisiana state court, federal district court, before the Patent and Trademark Office ("PTO"), in the Federal Circuit, and in this court. In the present appeal, Southern Snow challenges the district court's dismissal of its claims under Rule 12(b)(6) and SnoWizard cross-appeals the district court's denial of its motions for sanctions against Southern Snow. Because most of Southern Snow's claims are precluded by prior litigation and because the remaining claims fail to state a valid ground for relief, we AFFIRM the district court's dismissal. Because the district court did not abuse its discretion when it denied SnoWizard's motion for sanctions, we AFFIRM its denial of sanctions.

I.

Southern Snow Manufacturing Company, Van's Snoballs, Parasol Flavors, Snow Ingredients, and the related individuals (collectively, "Southern Snow") and SnoWizard are sellers of flavored shaved ice confections.¹

Between 2003 and 2008, SnoWizard acquired a number of patent and trademark rights. SnoWizard used these to conjure up an avalanche of lawsuits against their competitors in the sno-ball industry. Litigation between the present parties began when Southern Snow sued SnoWizard in 2006. That first lawsuit was brought in Louisiana state court and, after removal, was given docket No. 06–9170 in the Eastern District of Louisiana. Over the next few years, Southern Snow brought additional actions (E.D. La. No. 09–3394, E.D. La. No. 10–0791, and E.D. La. No. 11–1499) that were all consolidated into the original 06–9170 suit. In addition to the Consolidated Cases, the parties sued each other in federal court in the same district court in case Nos. 11–0880, 10–4275,² 11–0515, and 12–2796. Relations between the parties are frosty, to say the least. Only the Consolidated Cases and No. 10–4275 are relevant here.

Because the district court below concluded several claims were precluded by the Consolidated Cases, we restate the outcome of that case. In the Consolidated Cases, the claims and counterclaims addressed the scope, validity, and ownership of patents and trademarks and the fairness of the companies' business practices. The district court dismissed more than 175 of Southern Snow's claims at summary judgment. S. Snow Mfg. Co. v. Snow Wizard Holdings, Inc. , 829 F.Supp.2d 437 (E.D. La. 2011). Southern Snow amended its complaint. SnoWizard obtained 12(b)(6) dismissal of some claims and won summary judgment on others, whittling the suit down from eighty-five claims to fifteen. S. Snow Mfg. Co. v. SnoWizard Holdings, Inc. , 912 F.Supp.2d 404 (E.D. La. 2012), aff'd , 567 Fed.Appx. 945 (Fed. Cir. 2014); S. Snow Mfg . Co. v. SnoWizard Holdings, Inc. , 921 F.Supp.2d 527 (E.D. La. 2013), aff'd in part, rev'd in part , 567 Fed.Appx. 945 (Fed. Cir. 2014).

The parties tried the remaining claims. On the seventh day of an eight-day trial, the parties entered into a Consent Judgment³ that disposed of many of the claims between the parties including some that had already been addressed at summary judgment. The jury decided the remaining claims and the district court entered judgment for Southern Snow's co-plaintiff on a single claim.⁴

Southern Snow and SnoWizard both appealed the Consolidated Cases to the Federal Circuit. The Federal Circuit reversed the district court's determination that one of SnoWizard's asserted patents (the '879 patent) was valid and therefore vacated the judgments against Southern Snow relating to that patent. S. Snow , 567 Fed.Appx. at 964. The Federal Circuit sustained the validity of another of SnoWizard's patents (the '459 patent) against Southern Snow's attempt to obtain a declaratory injunction holding the patent unenforceable because of SnoWizard's inequitable conduct. Id. at 954. The Federal Circuit affirmed the district court's conclusion that Southern Snow's claims related to the SNOBALL trademark were groundless and brought for the purpose of harassment. Id. The Federal Circuit also affirmed the verdict that Southern Snow and co-plaintiff Parasol Flavors infringed SnoWizard's SNOSWEET, CAJUN RED HOT, WHITE CHOCOLATE & CHIPS, and MOUNTAIN MAPLE trademarks. Id. at 955–56. The Federal Circuit also upheld the verdict Plum Street Snoballs obtained against SnoWizard that SnoWizard infringed its ORCHID CREAM VANILLA sno-ball trademark. Id. at 957. The court affirmed the district court's ruling against Southern Snow on Southern Snow's claim that SnoWizard's attempt to obtain trademarks during litigation violated 15 U.S.C. § 1120. Id. at 959. Finally, the court affirmed the district court's dismissal of Southern Snow's antitrust and RICO claims. Id . at 962, 963.

In June 2012, some nine months before the trial and jury verdict in the Consolidated Cases, Southern Snow filed a complaint in the Eastern District of Louisiana reiterating many of the claims then under dispute in the Consolidated Cases and alleging that SnoWizard's actions in docket Nos. 10–4275 and 11–0515 constituted additional illegal practices. After SnoWizard answered, Southern Snow filed a Second Amended and Supplemented Complaint (the "Second Amended Complaint"). This was still one month before the trial in the Consolidated Cases.⁵ Shortly after the jury verdict in the Consolidated Cases, SnoWizard moved to dismiss the Second Amended Complaint for failure to state a claim. The judge granted the motion to dismiss. Southern Snow appeals that dismissal.

Southern Snow alleged a full menu of claims in the Second Amended Complaint. These included claims that SnoWizard, its owner, and its attorneys engaged in a criminal racket based on obstruction of justice; that SnoWizard violated state and federal antitrust laws by engaging in sham litigation; that SnoWizard fraudulently registered for trademarks in WHITE CHOCOLATE & CHIPS and CAJUN RED HOT; that SnoWizard violated state and federal laws prohibiting unfair trade practices; that SnoWizard committed fraud and malicious prosecution⁶ ; and that SnoWizard's attorneys are liable as co-conspirators in all of these violations.

After Southern Snow filed the First Amended Complaint in this case, SnoWizard moved for Rule 11 sanctions, arguing that counsel for Southern Snow filed RICO claims "which manifestly are not warranted by existing law" solely to harass the defendants. The district court denied the motion. SnoWizard again moved for sanctions after Southern Snow filed the Second Amended complaint, arguing that Southern Snow's RICO claims were meritless and served only to harass the defendants.⁷ The district court denied the motion. SnoWizard appeals both denials.

II.

We review a motion to dismiss pursuant to Rule 12(b)(6) de novo . United States ex rel. Spicer v. Westbrook , 751 F.3d 354, 365 (5th Cir. 2014). The Federal Rules require that a plaintiff allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); Fed. R. Civ. Pro. 8(a). We accept all well-pleaded factual allegations as true and interpret the complaint in the light most favorable to the plaintiff, Spicer , 751 F.3d at 365, but "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements" cannot establish facial plausibility. Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

The district court dismissed different claims on different grounds. We examine the dismissed claims grouped by the grounds for the dismissal.

A. Res Judicata

"The res judicata effect of a prior judgment is a question of law that a reviewing court analyzes de novo ." Test Masters Educ. Servs. v. Singh , 428 F.3d 559, 571 (5th Cir. 2005). The rule is comprised of two distinct but related doctrines: (1) true res judicata (or claim preclusion)⁸ and (2) collateral estoppel (or issue preclusion). Id .The relevant doctrine here is true res judicata or claim preclusion. Claim preclusion bars the litigation of claims that have been or should have been raised in an earlier suit. Petro–Hunt L.L.C. v. United States , 365 F.3d 385, 395 (5th Cir. 2004).⁹ Under federal common law:

[t]he test for res judicata has four elements: (1) the parties are identical or in privity; (2) the judgment in the prior action was rendered by a court of competent jurisdiction; (3) the prior action was concluded by a final judgment on the merits; and (4) the same claim or cause of action was involved in both actions.

Test Masters , 428 F.3d at 571. This court uses a transactional test to determine whether two suits involve the same cause of...