CEI Grp. v. CEI Composite Materials, LLC

• Decision Date: 02 February 2021
• Docket Number: Case No. 19- 11611
• Parties: CEI GROUP, LLC, a Michigan Limited Liability Company Plaintiff, and Counter-Defendant v. CEI COMPOSITE MATERIALS, LLC, a Michigan Limited Liability Company Defendant, and Counter-Plaintiff.
• Court: U.S. District Court — Eastern District of Michigan

CEI GROUP, LLC,a Michigan Limited Liability Company Plaintiff, and Counter-Defendant v. CEI COMPOSITE MATERIALS, LLC,a Michigan Limited Liability Company Defendant, and Counter-Plaintiff.

Case No. 19- 11611

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

February 2, 2021

Stephanie Dawkins Davis United States District Judge

OPINION AND ORDER GRANTING PLAINTIFF'S MOTION TO DISMISS COUNTERCLAIMS II AND III AND DENYING PLAINTIFF'S MOTION TO STRIKE (ECF No. 19)

I. INTRODUCTION

This is a trademark infringement dispute arising under sections 37 and 38 of the Lanham Act, 15 U.S.C. §§ 1119 and 1120. Defendant CEI Composite Materials, LLC (CEI Materials) alleges that plaintiff CEI Group, LLC (CEI Group) fraudulently acquired its national trademark for the "CEI" mark regarding wall panel installation services.

CEI Group moves to dismiss CEI Material's counterclaims II and III for failure to state a claim. (ECF No. 19). Additionally, CEI Group moves to strike the identification of its outside trademark counsel and signatory from CEI Material's counterclaims. (ECF No 19). The court held a hearing on the motion on August 4, 2020 and took the matter under advisement. For the reasons set below, the court GRANTS CEI Group's motion to dismiss counterclaims II and III and DENIES CEI Group's motion to strike its trademark counsel and signatory's name from the record.

II. FACTUAL BACKGROUND

CEI Group is a Michigan-based, national commercial construction firm. (ECF No. 16, PageID.243). CEI Group has specialized in commercial roofing installation projects since 1969 and started providing exterior wall panel fabrication and installation services in 1999. (ECF No. 16, PageID.243, 245). CEI Group owns three federal trademarks for the "CEI" mark. (ECF No. 16, PageID.246). The United States Patent and Trademark Office (USPTO) issued CEI, Reg. No. 1,513,926 and CEI, Reg. No. 1,516,681 in 1988 for "installation of roofing systems" and CEI, Reg. No. 5,805,215 ('215 Registration) in 2019 for "installation of siding and wall panels" to CEI Group. (ECF No. 16, PageID.246; ECF No. 16-2, PageID.270; ECF No. 16-3, PageID.272; ECF No. 16-4, PageID.273).

CEI Materials is a national company that started in 2008 and provides wall panel fabrication and installation goods and services under a "CEI" mark. (ECF No. 23, PageID.746). Before the USPTO issued the '215 Registration, CEIMaterials received a letter demanding that it "cease and desist all use of any CEI names or marks" from CEI Group's trademark counsel on September 26, 2018. (ECF No. 23, PageID.748). CEI Materials responded on October 4, 2018 that it would not stop using the mark, stating that it is a "'well-established' company that . . . 'special[izes] in architectural panel system fabrication and installation nationwide.'" (ECF No. 23, PageID.748).

CEI Group applied to the USPTO for the '215 Registration on December 18, 2018. (ECF No. 23, PageID.748; ECF No. 17-2, PageID.369-71). In its USPTO application, CEI Group's trademark counsel signed an oath stating "[t]o the best of [her] knowledge and belief, no other persons . . . have the right to use the mark in commerce." (ECF No. 23, PageID.748-49; ECF No. 17-2, PageID.372-73). The USPTO published CEI Group's trademark application on April 30, 2019, which opened an objection period that closed on May 29, 2019. (ECF No. 17, PageID.336; ECF No. 17-2, PageID.357-59). The USPTO issued CEI Group's '215 Registration on July 16, 2019. (ECF No. 17, PageID.336; ECF No. 16-4, PageID.273).

III. DISCUSSION

A. 12(b)(6) Motion to Dismiss

In determining a motion to dismiss under Rule 12(b)(6), the court "must construe the complaint in the light most favorable to the [nonmoving party] . . .[and] accept all well-pled factual allegations as true." League of United Latin Am. Citizens v. Bredesen, 500 F.3d 523, 527 (6th Cir. 2007); see also Yuhasz v. Brush Wellman, Inc., 341 F.3d 559, 562 (6th Cir. 2003). The complaint must provide "'a short and plain 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 upon which it rests.'" Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 545 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). Moreover, the complaint must "contain[] sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 677 (2009).

A claim has "facial plausibility" when the nonmoving party pleads facts that "allow[] the court to draw the reasonable inference that the [moving party] is liable for the misconduct alleged." Id. at 678. However, a claim does not have "facial plausibility" when the "well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct." Id. at 679. The factual allegations "must do more than create speculation or suspicion of a legally cognizable cause of action; they must show entitlement to relief." League of United Latin Am. Citizens, 500 F.3d at 527. Showing entitlement to relief "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Ass'n of Cleveland Fire Fighters v. City of Cleveland, 502 F.3d 545, 548 (6th Cir. 2007) (quoting Twombly, 550 U.S. at 555).

B. Rule 9(b) Heightened Pleading Standard

For complaints alleging fraud, the heightened pleading standard in Rule 9(b) applies. See Yuhasz v. Brush Wellman, Inc., 341 F.3d 559, 563 (6th Cir. 2003). Rule 9(b) "does not mute the general principles . . . in Rule 8; rather the two rules must be read in harmony." Sanderson v. HCA-The Healthcare Co., 447 F.3d 873, 876 (6th Cir. 2006) (quoting Michaels Bldg. Co. v. Ameritrust Co., N.A., 848 F.2d 674, 679 (6th Cir. 1988)). Supreme Court case Leatherman v. Tarrant Cty. Narcotics Intelligence Unit states that Rule 9(b) requires that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." 507 U.S. 163, 168 (1993); see also Fed.R.Civ.P. 9(b). The particularity requirement in Rule 9(b) requires "facts giving rise to a strong inference that the [deceiving party] acted with the required state of mind." Indiana State Dist. Council of Laborers & Hod Carriers Pension & Welfare Fund v. Omnicare, Inc., 583 F.3d 935, 943 (6th Cir. 2009).

In essence, the heightened pleading standard requires that the complaint 1) "specify the statements that the [pleader] contends were fraudulent," 2) "identify the speaker," 3) "state where and when the statements were made," and 4) "explain why the statements were fraudulent." Doughterty v. Esperion Therapeutics, Inc., 905 F.3d 971, 978 (6th Cir. 2018); see also Ind. State Dist. Council of Laborers & Hod Carriers Pension & Welfare Fund v. Omnicare, Inc. 583 F.3d 935, 942-43(6th Cir. 2009). The Sixth Circuit interprets 9(b) to require "at a minimum" . . . the time, place, and content of the alleged misrepresentation on which [the deceived party] relied; the fraudulent scheme; the fraudulent intent of the [deceiving party]; and the injury resulting from the fraud." U.S. ex rel. Poteet v. Medtronic, Inc., 552 F.3d 503, 518 (6th Cir. 2009); see also United States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d 493, 504, 509 (6th Cir.2007). "Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed.R.Civ.P. 9(b); see also U.S. ex rel. Poteet 552 F.3d at 518.

C. Analysis

1. Fraud claim under 15 U.S.C. § 1120

In its answer to the amended complaint and counter-complaint, CEI brings four counterclaims, only two of which are at issue in the motion to dismiss: (1) fraud under § 1120 of the Lanham Act; and (2) cancellation of CEI Group's trademark under § 1119 of the Lanham Act. (ECF No. 17, Counts II and III). CEI Materials alleges that CEI Group committed fraud on the USPTO by failing to disclose CEI Materials' common law trademark rights concerning the CEI mark in connection with the installation of wall panels. (ECF No. 17). More specifically, CEI Materials says that before this lawsuit was initiated, it exchanged correspondence with CEI Group, who demanded that CEI Materials immediately cease and desist all use of any CEI names or marks for commercial roofing, wallpanel installation services, and any related goods or services. CEI Materials refused and informed CEI Group that it was a well-established company specializing in architectural panel system fabrication and installation nationwide. (ECF No. 17, PageID.342). According to CEI Materials, CEI Group knowingly failed to disclose the existence of CEI Materials or its common law rights to use the CEI mark in connection with wall panel installations when it filed its nationwide trademark application. (ECF No. 17, PageID.341-342). CEI Materials alleges these are material facts and that if CEI Materials' prior extensive use of the CEI mark in connection with wall panel fabrication and installation had been revealed to the USPTO, it would have jeopardized the application. Id.

Under Section 38 of the Lanham Act, "any person who . . . procure[s] registration in the Patent and Trademark Office of a mark by a false or fraudulent declaration or representation . . . shall be liable in a civil action by any person injured thereby for any damages sustained in consequence thereof." 15 U.S.C. § 1120. The claimant must provide (1) "the false representation regarding a material fact," (2) "the registrant's knowledge or belief that the representation is false," (3) "the intention to induce action or refraining from action in reliance on the misrepresentation," (4) "reasonable reliance on the misrepresentation," and (5) "damages proximately resulting from such reliance." San Juan Prod., Inc. v. San Juan Pools of Kansas, Inc., 849 F.2d 468, 473 (10th Cir. 1988); see also UnitedPhosphorus, Ltd. v. Midland Fumigant, Inc., 205 F.3d 1219, 1226 (10th Cir. 2000). The...