ADT, LLC v. Capital Connect, Inc.

• Decision Date: 28 October 2015
• Docket Number: CIVIL ACTION NO. 3:15–CV–2252–G
• Citation: 145 F.Supp.3d 671
• Parties: ADT, LLC, et al., Plaintiffs, v. Capital Connect, Inc., et al., Defendants.
• Court: U.S. District Court — Northern District of Texas

145 F.Supp.3d 671

ADT, LLC, et al., Plaintiffs,

v.Capital Connect, Inc., et al., Defendants.

CIVIL ACTION NO. 3:15–CV–2252–G

United States District Court, N.D. Texas, Dallas Division.

Signed October 28, 2015

Robert N. LeMay, Kane, Russell, Coleman & Logan, PC, Dallas, TX, Aaron K. Kirkland, Shook Hardy & Bacon, Kansas City, MO, Charles Sanders McNew, McNew P.A., Boca Raton, FL, Kali R. Backer, Richard G. Sander, Shook Hardy & Bacon LLP, Denver, CO, for Plaintiffs.

Andres Correa, Christopher J. Schwegmann, Jared Eisenberg, Lynn, Tillotson, Pinker & Cox, LLP, Lorin M. Subar, Foster Reese, III, The Willis Law Group, Greg K. Winslett, Brent Lee, Quilling, Selander, Lownds, Winslett & Moser, Jeffrey Daniel Shelton, Jacqueline Ellise Montejano, Holden & Carr, Dallas, TX, for Defendants.

MEMORANDUM OPINION AND ORDER

A. JOE FISH

, Senior United States District Judge

Before the court is the motion of the plaintiffs, ADT LLC and ADT U.S. Holdings, Inc. (together “ADT”), for a preliminary injunction. For the reasons stated below, the plaintiffs' motion is granted.

I. BACKGROUND

A. Factual Background

ADT provides electronic security services and equipment to homes and businesses throughout the United States. ADT's Motion for Preliminary Injunction (“Motion”) at 3 (docket entry 4). ADT has been providing alarm services for over a century and today provides monitoring services for nearly one quarter of American homes equipped with alarm systems. Id. In this case, ADT has sued Capital Connect, four other alarm-service sale companies, and five individual alarm-service sales persons. Complaint (“Complaint”) (docket entry 1). ADT alleges that Capital Connect and the other defendants sell alarm systems in unannounced door-to-door sales visits, during which the defendants “confuse the homeowners into believing that the defendants are somehow affiliated with ADT.” Motion at 1–2. ADT contends that the defendants' sales tactics violate Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a)

, and ADT's rights against unfair competition at common law. Id. ADT seeks to enjoin Capital Connect “from continuing to use false sales pitches that are likely to confuse customers as to Capital Connect's affiliation with ADT.” Motion at 1.

Capital Connect was established in 2008 in Tucson, Arizona. It sells the “latest technology in security, automation and interactive services.” Capital Connect's Response to ADT's Motion for Preliminary Injunction (“Response”) at 3 (docket entry 46) (citing docket entry 47, Appendix 002, Declaration of Todd Johnson ¶ 3 (“Johnson Decl.”)). Capital Connect signs customers to long-term contracts through “a substantial expansion of its independent contractor sales force,” which operates in 10 states, including Texas.¹ Id. Capital Connect is a dealer for one of ADT's rival security monitoring service companies, Monitronics International. Johnson Decl. ¶ 3. Capital Connect's sales force sells its services door-to-door with the aim of getting customers to sign up for its service to have Monitronics, not ADT, monitor the alarm equipment.² Id. ¶¶ 3–5. This case centers on the practices and behavior of Capital Connect's sales force during these door-to-door sales pitches.

ADT alleges that during Capital Connect's sales pitches, Capital Connect solicits ADT's current customers by “making false and deceptive statements that are intended to mislead (and are misleading) ADT's customers into believing that [Capital Connect] represent[s] ADT, or that ADT has exited the market, or that ADT's installed equipment is outdated and in need of an ‘upgrade.’ ” Motion at 3. ADT offers 68 customer declarations to support its claim that Capital Connect's sales tactics confuse ADT's customers. ADT's Sur-reply to Capital Connect's Sur-reply (“ADT's Sur-reply”) at 5 (docket entry 77). ADT's declarations, attached in support of its motion for preliminary injunction, cite interactions with Capital Connect's sales associates from 2013 to the present. See ADT's Appendix in Support of Motion for Preliminary Injunction (“ADT's Appendix”), Exhibit 9, Declaration of Joan Homann ¶ 4 (July 11, 2013) (docket entry 7); ADT's Supplemental Appendix in Support of Motion for Preliminary Injunction (“ADT's Supp. Appendix”), Exhibit 3, Declaration of Cathy Brion ¶ 4 (June 16, 2015) (docket entry 17). ADT's litigation manager, who is in charge of its customer complaint department, cites an acceleration during 2015 in the number of customer complaints regarding interactions with Capital Connect. ADT's Appendix, Exhibit 2, Declaration of Marcia Gold (“Gold Decl.”) ¶ 5 (docket entry 7). (“The overall numbers in 2015 have nearly tripled over the same five-month period from last year—from 42 to 112 complaints. More troubling is the recent surge in reported misconduct by Capital Connect sales agents: 50 reports of false sales pitches occurring in May 2015 alone ... plus another 41 for the first three weeks of June 2015.”).³ ADT cites the “rapid escalation” of customer complaints, and a fear that Capital Connect would increase its false sales tactics through hiring college students for the summer as strong evidence of the need for a preliminary injunction.⁴ Motion at 10–11; Gold Decl. ¶ 7.

The declarations recount a variety of Capital Connect's sales tactics, including but not limited to, claims that ADT has gone out of business (ADT's Third Supp. Appendix,⁵ Exhibit 1EE, Appendix _000124–126, Declaration of Dolores Ruiz ¶ 5, “Mr. Gatehouse stated that ... ADT was ‘going out of business.’ ”); claims that Capital Connect has acquired ADT (Exhibit 1G, Appendix _000032–48, Declaration of William Pearson ¶ 6, “Mr. Beasley stated that Capital Connect was taking over ADT.”); claims that Capital Connect is a contractor for ADT (Exhibit 1HH, Appendix_000131–33, Declaration of Karen Juten ¶ 9, “When I asked the Capital Connect representatives for their identification badges, they then stated they were contractors for ADT.”); claims that Capital Connect is affiliated with ADT in some manner (Exhibit 1F, Appendix _000028–31, Declaration of Sidney Sims ¶ 6, “Capital Connect is the manufacturer that made the equipment that ADT installed into my home.”); claims that ADT has left the local market (Exhibit 1G, Appendix _000032–48, Declaration of William Pearson ¶ 6, “He said that ADT was moving out of Florida and relocating to Colorado. He said ADT was no longer servicing alarms in Florida.”); claims that ADT's equipment is susceptible to malfunction, or tampering (Exhibit 1L, Appendix_000064–66, Declaration of Betty Schwieman ¶ 5, “ADT was having problems with intruders cutting the phone lines and robbing homes.”); claims that the Capital Connect sales associate is at the home to “upgrade” or “update” its alarm system (Exhibit 10, Appendix_000071–73, Declaration of Jose Aviles ¶ 6, “The representative told me that Capital was an ADT affiliate there to upgrade my alarm panel for free.”); claims that customers would not be able to reach 911 in case of an emergency (Exhibit 1S, Appendix_000083–85, Declaration of Chandrell Larkin ¶ 10, “The representative told me the young kids in the area are going around cutting phone wires connected to the alarm system which would cut off any signals to ADT alerting ADT to contact emergency services on my behalf.”); and claims that the sales associates were sent by ADT to check or replace ADT equipment (Exhibit 1HH, Appendix_000131–33, Declaration of Karen Juten ¶ 6, “Mr. Crosby stated that he was there to replace my ADT alarm system for free.”). See also ADT's Appendix; ADT's Supp. Appendix; ADT's Second Supplemental Appendix in Support of Motion for Preliminary Injunction (“ADT's Second Supp. Appendix”) (docket entry 18); ADT's Third Supp. Appendix.

Capital Connect insists that it has adopted several measures “to ensure each interaction is professional and its reputation is well-regarded.” Johnson Decl. ¶¶ 7–14. Capital Connect's sales training manual warns sales associates of the harm a single damaging story on the local news covering its sales tactics could do to the company.⁶

Response at 4 (citing App. 097). Capital Connect requires its sales force to agree to its “Code of Conduct, Sales Rules, and Sales Ethics Agreement,” and dresses its sales force in Capital Connect labeled polo shirts, with photo identification cards labeling the sales associate as a representative from Capital Connect. Id. ¶ 8. Capital Connect's sales force must agree to Capital Connect's “Sales Rules,” which prohibit the sales associates from engaging in inappropriate sales tactics, including a prohibition against “tell[ing] a potential customer that has an existing system with monitoring services that their existing alarm company (1) has been bought out/merged with Capital Connect, (2) is no longer monitoring their system, (3) has sent you to their home to upgrade their alarm ....” App. 032 (“Exhibit D—Sales Rules,” attached to Johnson Decl.). Furthermore, Capital Connect requires new customers who had a pre-existing alarm service agreement with ADT, or a different monitoring service, to sign an “Alarm Upgrade Agreement,” which expressly disclaims any connection between Capital Connect and the current alarm monitoring company. Johnson Decl. ¶ 11. Lastly, Capital Connect engages in quality assurance calls, during which a Capital Connect representative asks the customer if he/she understands that Capital Connect is not affiliated with ADT and that the customer has the responsibility to cancel his/her current contract with ADT. Id. ¶ 10.

Despite these measures, ADT's customers have reported, and continue to report, to ADT that Capital Connect's sales force engages in the very behavior Capital Connect and the Lanham Act prohibit. ADT alleges that it has received additional customer complaints of false sales tactics by Capital Connect's sales force: 70 complaints in June and 57 complaints in July, equaling 269 complaints in 2015.⁷ Second Gold Decl. ¶ 3. To prevent Capital Connect's...