Chemeon Surface Tech. v. Metalast Int'l, Inc.
| Decision Date | 23 February 2021 |
| Docket Number | 3:15-cv-00294-CLB |
| Parties | CHEMEON SURFACE TECHNOLOGY, Plaintiff, v. METALAST INTERNATIONAL, INC., et al., Defendants. |
| Court | U.S. District Court — District of Nevada |
This dispute has a long and difficult history spanning over many years, several lawsuits, and various courts. It arises from the breakup of a business and a disagreement over the terms of a subsequent settlement agreement entered into between Plaintiff Chemeon Surface Technology, LLC ("Chemeon"), Counter-Defendants Dean Meiling ("Dean") and Madylon Meiling ("Madylon") (collectively referred to as "Plaintiffs" or "the Meilings"),2 and Defendants and Counterclaimants David M. Semas ("Semas"), Metalast International, Inc. ("MI-INC"), and Metalast International, LLC ("MI-LLC") (collectively referred to as "Defendants"). The court conducted a bench trial on November 9, 10, 12, 13, and 17, 2020. (ECF Nos. 600, 603, 605, 606, 608.) After reviewing the parties' trial briefs, proposed findings of fact and conclusions of law, the trial transcripts, trial exhibits, and the court's notes from trial, the court hereby makes the following Findings of Fact and Conclusions of Law pursuant to Federal Rule of Civil Procedure 52(a).
Chemeon commenced this action on June 3, 2015 alleging various claims. (See ECF No. 1.) Chemeon amended its Complaint multiple times, ending with the operative complaint, the Third Amended Complaint (ECF No. 535) filed on October 31, 2019. Defendants' asserted various counterclaims related to an alleged breach of a settlement agreement reached by the parties prior to the lawsuit being filed as well as other claims. (See ECF No. 51.)
Following extensive pretrial motion practice, which will be further discussed below, the following tables identify the claims and counterclaims that proceeded to trial:
Chemeon's Third Amended Complaint (ECF No. 535) Claim # Name Issue Presented at Trial Declaratory judgment remedies Limited to issue of whether Attorneys' Fees should be assessed based on exceptional circumstances pursuant to 15 U.S.C. § 117(a)
Common law trademark infringement Nothing dismissed at SJ; no limit Copyright infringement Limited to Renewal of Registration on June 21, 2015 and two specimens - IC 001, IC 009 and the '206 mark Defendants' Counterclaims (ECF No. 51) Claim # Name Issue Presented at Trial Breach of contract Related to breach of settlement agreement by use of "formerly Metalast," etc.
| Breach of the covenant of |
| good faith and fair dealing |
| Relitigating this issue |
| Specific performance of |
| settlement agreement |
| Prohibit future use of the "formerly |
| Metalast" name, etc. |
1. In January 1993, Semas commenced negotiations to license a patented metal coating process from a Japanese inventor. Trial Tr. Vol. 1, 70:20-21-71:7; 74:12-16. Eventually, Semas obtained the rights to this technology through a license with the inventor. Trial Tr. Vol. 1, 74:12-20.
2. These rights were initially acquired by Semas through his fictitious business entity, "Metalast USA." Trial Tr. Vol. 1, 66:18-22. Through this licensed technology, the product "Metalast AA-100" was initially marketed and sold by Metalast. Trial Tr. Vol. 1, 66:18-22; 70:19-20-71:7; 74:20-75:7.
3. On May 16, 1994, Semas formed "Metalast International, Inc" ("MI-INC"), which was incorporated as a Nevada corporation. Stipulated Facts ¶ 1.
4. From its inception until April 25, 2013, Semas controlled MI-INC and served as its President and Chief Operating Officer. Stipulated Facts ¶ 6; Trial Tr. Vol. 1, 66:21-22.
5. On December 20, 1994, "Metalast International LLC" ("MI-LLC") was organized as a Nevada limited liability company pursuant to an operating agreement, which was later amended on June 6, 1996. Stipulated Facts ¶ 2; Ex. 1
6. MI-LLC was as a separate business entity from MI-INC and its purpose was to raise equity investments to expand the Metalast business. Trial Tr. Vol. 1, 68:13-15. The shares—in the form of membership interests—were primarily sold through registered NASD brokers and broker-dealers. Trial Tr. Vol. 1, 136:24-25—137:1-5.
7. Per the MI-LLC operating agreement, for this entity to become operational, MI-LLC had to reach certain minimum levels of equity investments. MI-LLC achievedthose milestones and became operational in July 1995. Trial Tr. Vol. 1, 66:18-25—67:1-2; 69:9-12.
8. From its inception until April 25, 2013, MI-INC was the manager of MI-LLC. Stipulated Facts ¶ 5.
9. In 1996, MI-INC entered into a license agreement with MI-LLC permitting MI-LLC the right to use the Metalast trademarks. Ex. 15; 16.
10. The Metalast word mark and logo marks were always registered in the name of MI-INC, and never in the name of MI-LLC. Ex. 323.
11. Specifically, in 1995, Semas filed the first applications for registration of the word mark and logo marks. On those applications, the registered owner was listed as MI-INC. Ex. 323. In 1996, the United States Patent and Trademark Office ("USPTO") granted these applications and issued the registrations explicitly listing MI-INC as the registered owner of the marks. Ex. 323.
12. Between 1996 and 2011, Semas filed several subsequent applications for registration of these trademarks and each application listed the registered owner as MI-INC. Ex. 323. In each of the subsequently issued registrations from the USPTO, MI-INC was again explicitly listed as the registered owner. Ex. 323.
13. The identity of the registered trademark owner was also disclosed to MI-LLC members, including Dean, from the time of the initial registration through regular company communications to members. Exs. 626-629.
14. Chemeon questioned whether the License Agreement (Exs. 15 and 16) was created on or about August 12, 1996 but offered no evidence at trial that the License Agreement was created at some later date.
15. The Metalast word mark and logo marks were initially registered in the name of MI-INC, not MI-LLC. Stipulated Facts, ¶¶ 8, 11. The registered ownership of the marks was never transferred from MI-INC to MI-LLC. There are no documents transferring ownership of the marks from MI-INC to MI-LLC. There is no evidence of any unwritten agreement to transfer ownership of the marks from MI-INC to MI-LLC.
16. The tax treatment of the fees and expenses paid by MI-LLC to maintain the mark registrations does not demonstrate that MI-INC ever agreed to transfer ownership of the marks to MI-LLC.
17. Prior to investing in MI-LLC, Dean retired from a long and successful career in finance in the 1990s. See Trial Tr. Vol. 2, 210:6-211:20.
18. In 1999, Dean was asked by a friend to analyze an investment in MI-LLC. Trial Tr. Vol. 2, 213:19-24. After conducting his analysis, Dean advised his friend not to make an investment in MI-LLC due to it being high risk. However, Dean decided to make his own investment into the company. Trial Tr. Vol. 2, 214:6-23.
19. Ultimately, Dean invested $1.2 million and received a member interest in MI-LLC. Trial Tr. Vol. 1, 85:21-25; Trial Tr. Vol, 2, 214:24-25—215:1-2.
20. Between 1999 and 2013, Dean, through his business entities, including DSM Partners, Ltd., ("DSM") a Colorado limited partnership, lent money to MI-LLC on various occasions. Trial Tr. Vol. 2, 215; 222-225; see also Ex. 204. Through these various loans, DSM became of secured creditor of MI-LLC.
21. By 2013, Dean had invested over $9 million ($6 million, plus accrued interest), in MI-LLC. Trial Tr. Vol. 2, 225:14; Trial Tr. Vol. 3, 133:18-24.
22. In February 2013, Semas informed Dean that the company could not make payroll or rent. Trial Tr. Vol. 2, 225:17-25—226:1-5. In March 2013, Dean agreed to loan additional funds to keep the company operating, with the provision that if Semas could not find someone else to provide future funds, Semas would have to step down from his management role and turn control over to someone else. Id.
23. In early April 2013, Semas again informed Dean that the company could not make payroll or rent. Trial Tr. Vol. 2, 226:11-24.
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24. On April 16, 2013, DSM Partners, Ltd., commenced litigation in the Ninth Judicial District Court of the State of Nevada entitled DSM Partners, Ltd. v. Metalast International, LLC and Metalast International, Inc., Case No. 13-cv-0114 (hereinafter "Receivership Action").4 This action sought a receivership to take MI-LLC out of the control of Semas. Ex. 150.
25. On April 25, 2013, the court in the Receivership Action appointed James Proctor as Receiver to manage the business of MI-LLC. From that point, MI-INC was no longer the manager of MI-LLC, and Mr. Proctor excluded Semas from all MI-LLC operations. Stipulated Facts, ¶ 14.
26. On November 4, 2013, the court in the Receivership Action approved a sale of certain MI-LLC assets, which were described as collateral for the various loans from DSM to MI-LLC. Stipulated Facts, ¶ 17; Ex. 204.
27. On the same date when Dean's entity commenced the Receivership Action, Dean was aware that the security agreement and related loan documents did not list the Metalast word mark or logo marks as part of the collateral for the loans. Ex. 285.
28. On December 11, 2013, Semas filed a Voluntary Petition in In re: David M. Semas and Susan O. Semas, Case No. 13-52337 (hereinafter "Semas Bankruptcy"), in the United States District Court for the District of Nevada ("Bankruptcy Court").5 Trial Tr. Vol. 4, 197:12-18.
29. In the Semas Bankruptcy, Chemeon (then known as "Metalast Surface Technology, LLC") filed an Adversary Complaint entitled Metalast Surface Technology, LLC v. David M. Semas and Metalast International, Inc., Adv. No. 14-05036 (the "Adversary Proceeding"). Ex. 502.
30. The Adversary Complaint included claims for breach of contractual guarantee, violation of the Nevada Uniform Securities Act, violation of the Federal Securities law,...
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