Ciccorp, Inc. v. Aimtech Corp., CIV. A. H-97-4013.

• Citation: 32 F.Supp.2d 425
• Decision Date: 08 September 1998
• Docket Number: No. CIV. A. H-97-4013.,CIV. A. H-97-4013.
• Parties: CICCORP., INC., Plaintiff, v. AIMTECH CORPORATION and Glenn S. Collins, III, Defendants.
• Court: U.S. District Court — Southern District of Texas

32 F.Supp.2d 425

CICCORP., INC., Plaintiff, v. AIMTECH CORPORATION and Glenn S. Collins, III, Defendants.

No. CIV. A. H-97-4013.

United States District Court, S.D. Texas, Houston Division.

September 8, 1998.

COPYRIGHT MATERIAL OMITTED

Michael S. Wilk, Hirsch & Westheimer PC, Douglas H. Elliott, Tobor & Goldstein, Eric Scott Lipper, Hirsch & Westheimer, Houston, TX, Gregory P. Parsons, Stites & Harbison, Lexington, KY, for Plaintiff.

William Edward Matthews, James G. Munisteri, Jackson W. Moore, Craig Ledet, Gardere Wynne Sewell & Riggs, L.L.P., Houston, TX, Billy Payne, Payne Watson Kling Miller & Malechek, P.C., Bryan, TX, for Defendants.

MEMORANDUM AND ORDER

LAKE, District Judge.

Pending before the court are Collins's Motion for Summary Judgment (Docket Entry No. 38), Collins's Motion to Dismiss for Lack of Jurisdiction (Docket Entry No. 40), and NeoDyme's Motion for Summary Judgment (Docket Entry No. 42).

I. BACKGROUND

CICCorp., Inc. (CIC) develops and markets software used for the maintenance of hospital equipment. Glenn S. Collins, III (Collins) and David Hickson (Hickson) each owned fifty percent of the company. In June of 1997, Collins and Hickson had a serious falling out, prompting Hickson to obtain a temporary restraining order effectively barring both men from managing CIC. The two men eventually settled the lawsuit through mediation.

In the settlement agreement Collins and Hickson agreed to bid for the other's fifty percent interest in CIC. The high bidder would buy complete control of the company; the losing bidder, though forced to sell his entire interest in the company, retained the right to compete freely against CIC, to use certain CIC confidential information, and to use, under a licensing agreement, certain software developed by CIC. Hickson submitted the high bid, $25 million, at the October 20, 1997, auction and the sale closed on October 29, 1997.

After Collins learned that Hickson had submitted the high bid Collins began forming a new company, AIMTech Corporation (AIMTech), to compete against CIC. AIMTech did business under the name AIM Technologies and called its services "AIM²" and "MMS²." Collins recruited employees at CIC to work for him at AIMTech and began aggressively pursuing CIC customers.

On November 10, 1997, CIC sued Collins and others in Brazos County state court, alleging conversion of CIC property. On December 9, 1997, CIC filed a separate complaint in this court against Collins and AIMTech. CIC's complaint alleges four claims against AIMTech:

(1) service mark infringement under 15 U.S.C. § 1125(a),

(2) trade dress infringement under 15 U.S.C. § 1125(a),

(3) false advertising under 15 U.S.C. § 1125(a), and

(4) common-law service market infringement and unfair competition.

The complaint further alleges three claims under Texas common law against Collins:

(1) breach of contract,

(2) breach of fiduciary duty, and

(3) diversion of corporate opportunity.

The complaint also includes a cause of action for common-law conversion against both Collins and AIMTech. CIC seeks injunctive relief against both AIMTech and Collins, restitution and treble damages for service mark and trade dress infringement, actual and punitive damages on the remaining claims, and attorney's fees.

On December 19, 1997, ten days after CIC filed this action, AIMTech changed its name to NeoDyme Technologies Corporation (NeoDyme)¹ and changed its service names from AIM² and MMS² to "MediDyme" and "MediDyme Select." NeoDyme announced these changes in open court on December 22, 1997, and in a press release on January 5, 1998.² CIC contends that NeoDyme did not discontinue using its former business and product names until January 6, 1998.³

On April 17, 1998, Collins filed motions for summary judgment and to dismiss. NeoDyme filed a motion for summary judgment three days later on April 20, 1998. CIC has responded to all three motions, and Collins and NeoDyme have filed replies to each response. In response to the court's invitation at a hearing on July 9, 1998, Collins and NeoDyme both filed amended answers and counterclaims and CIC filed a supplemental response to Collins's motion to dismiss, which prompted a supplemental reply by Collins. Because Collins's motion to dismiss raises questions as to the court's subject matter jurisdiction, the court will address it first.

II. COLLINS'S MOTION TO DISMISS FOR LACK OF JURISDICTION

CIC brings four claims against Collins, all arising out of Texas common law:

(1) breach of contract,

(2) breach of fiduciary duty,

(3) diversion of corporate opportunity, and

(4) conversion.

Collins argues that the court lacks subject matter jurisdiction over CIC's common law claims and moves for dismissal pursuant to Fed.R.Civ.P. 12(b)(1). Alternatively, Collins contends that if the court can hear these claims, it should exercise its discretion to decline to do so.

CIC argues that the court has supplemental jurisdiction under 28 U.S.C. § 1367(a), which states:

Except as provided in subsection (b) and (c)⁴ or as expressly provided otherwise by Federal statute, in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties.

The court has original jurisdiction over CIC's Lanham Act and common-law unfair competition claims against NeoDyme pursuant to 15 U.S.C. § 1121(a) (granting original jurisdiction in all actions arising under the Lanham Act), 28 U.S.C. § 1331 (providing for general federal question jurisdiction), and 28 U.S.C. § 1338(b) (granting original jurisdiction over common-law unfair competition claims joined to substantial, related claims brought under the federal trademark laws). The issue is whether CIC's state-law claims against Collins form part of the same case or controversy as CIC's Lanham Act claims against NeoDyme.⁵

Section 1367 grants district courts supplemental jurisdiction to the limits allowed by Article III of the Constitution. See, e.g., In re Walker, 51 F.3d 562, 571 (5th Cir.1995); 13B Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 3567.3, at 59-60 (2d ed. Supp.1998). In United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966), the Court defined this boundary by holding that federal courts have pendent jurisdiction (now known as supplemental jurisdiction) whenever the relationship between a cognizable federal claim and a state-law claim "permits the conclusion that the entire action before the court comprises but one constitutional `case.'" 86 S.Ct. at 1138. The Court explained how to determine whether a district court has pendent jurisdiction:

The federal claim must have substance to confer subject matter jurisdiction on the court.... The state and federal claims must derive from a common nucleus of operative fact. But if, considered without regard to their federal or state character, a plaintiff's claims are such that he would ordinarily be expected to try them all in one judicial proceeding, then, assuming substantiality of the federal issues, there is power in federal courts to hear the whole.

Id. (citations omitted; emphasis in original).

State and federal claims thus form part of the same case or controversy, and trigger supplemental jurisdiction, when they derive from a common nucleus of operative fact. See City of Chicago v. International College of Surgeons, 522 U.S. 156, 118 S.Ct. 523, 530, 139 L.Ed.2d 525 (1997). In order for this court to have subject matter jurisdiction over CIC's claims against Collins those claims must therefore derive the same nucleus of operative fact as CIC's Lanham Act claims against NeoDyme.

CIC's claims against Collins do not share such a relationship with its federal claims against NeoDyme. As explained in greater detail below,⁶ any liability for infringement under the Lanham Act depends on the protectability of CIC's service marks and trade dress and the likelihood of confusion caused by NeoDyme's service marks and trade dress. Protectability turns on the relative distinctiveness of CIC's service marks and trade dress, while the likelihood of confusion depends on a balance of factors focusing on the services, service marks, trade dress, customers, and modes of advertising used by the parties. A defendant's intent to derive benefit from the plaintiff's service marks and trade dress is relevant, but not dispositive or essential, to a determination of a likelihood of confusion. See Sunbeam Prods., Inc. v. West Bend Co., 123 F.3d 246, 258 (5th Cir.1997), cert. denied, ___ U.S. ___, 118 S.Ct. 1795, 140 L.Ed.2d 936 (1998); Blue Bell Bio-Med. v. Cin-Bad, Inc., 864 F.2d 1253, 1259 (5th Cir.1989). Any liability for false advertising depends on a showing that:

(1) NeoDyme made a false or misleading statement as to its own or CIC's services,

(2) there was actual deception or a tendency to deceive,

(3) the misrepresentation was material, and

(4) CIC was likely to suffer economic injury.⁷

The operative facts supporting CIC's federal claims thus focus on the conduct of NeoDyme in marketing its services, conduct that occurred after Collins sold his stake in CIC, left the company, and established AIMTech (now NeoDyme).

CIC's claims against Collins, however, focus on his conduct during the split and in forming AIMTech. CIC alleges that Collins breached the purchase agreement "by not maintaining [the] regular and ordinary business of CIC [and] by taking documents, property, and employees."⁸ Collins's allegedly covert machinations in appropriating CIC property and employees for NeoDyme, his alleged breach of fiduciary duty to CIC while still a...