Cottonwood Financial Ltd. v. the Cash Store Financial Serv. Inc.

Citation778 F.Supp.2d 726
Decision Date31 March 2011
Docket NumberCivil Action No. 3:10–CV–1650–N.
CourtU.S. District Court — Northern District of Texas

778 F.Supp.2d 726


Civil Action No. 3:10–CV–1650–N.

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

March 31, 2011.

[778 F.Supp.2d 729]

Craig W. Weinlein, Alexis Carolyn Young, Prescott Ward Smith, Carrington, Coleman, Sloman & Blumenthal, Dallas, TX, for Plaintiff.

[778 F.Supp.2d 730]

John Morant Cone, Hitchcock Evert LLP, Dallas, TX, Bruce R. Ewing, Dorsey & Whitney LLP, New York, NY, for Defendant.

DAVID C. GODBEY, District Judge.

This Order addresses Plaintiff Cottonwood Financial Ltd.'s, (“Cottonwood”) motion for a preliminary injunction [10] and Defendant The Cash Store Financial Services, Inc.'s, (“CSFS”) motion to dismiss [14]. Because Cottonwood shows a substantial likelihood of prevailing on the merits of its claim for dilution under Texas law, the Court grants Cottonwood's motion and enjoins CSFS to a limited extent as set forth in this Order. And, although the Court determines that it does have subject matter jurisdiction to hear this dispute, Cottonwood fails to state claims for relief under the Lanham Act. The Court therefore grants in part and denies in part CSFS's motion to dismiss.

I. Origins of the Cottonwood—CSFS Trademark Dispute

This case concerns a cross-border trademark dispute between two businesses engaged in the short-term, “payday” consumer lending industry. Cottonwood has operated its “CASH STORE” lending centers for almost fifteen years. In that time, Cottonwood has expanded its presence to seven states: Idaho, Illinois, Michigan, New Mexico, Texas, Utah, and Wisconsin. CSFS operates or has interests in stores offering similar services in Canada, Australia, and the United Kingdom. Although CSFS has changed its name twice since its founding, first as “B & B Capital” and then “Rentcash, Inc.,” its lending centers have operated under the trade name “The Cash Store” for approximately ten years. Until this dispute, Cottonwood and CSFS operated without interference from either side. Indeed, the companies' founders did not know of the other's existence for some time.

CSFS fueled its expansion in part through capital raised through the Toronto Stock Exchange, selling under the ticker symbol “CSF.” In addition to its capital raising activities in Canada and elsewhere, CSFS gives presentations at investment conferences in the United States and engages in other forms of “investment solicitation activities.” 1 American investors have held stock in CSFS for at least the last four years. In June 2010, CSFS obtained listing on the New York Stock Exchange (“NYSE”) as “The Cash Store Financial Services, Inc.,” under the ticker symbol “CSFS.”

Cottonwood then filed this action for trademark infringement and unfair competition under the Lanham Act and for trademark dilution under Texas law. Cottonwood broadly argues that the combination of CSFS's prominent use of the term “cash store,” continuing investment solicitation activities in the United States, and listing on the NYSE are likely to cause confusion between the two entities' marks and to dilute Cottonwood's “CASH STORE” marks. CSFS now moves to dismiss for lack of subject matter jurisdiction and failure to state a claim under Rules 12(b)(1) and 12(b)(6), and Cottonwood

[778 F.Supp.2d 731]

moves to preliminarily enjoin CSFS on its trademark infringement and Texas law dilution claims. The Court addresses each of these motions in turn.

II. The Court Has Subject Matter Jurisdiction Over Cottonwood's Claims

CSFS moves to dismiss under Rule 12, arguing that the Court lacks subject matter jurisdiction over Cottonwood's claims and that Cottonwood fails to state claims. As mandated by Fifth Circuit caselaw, the Court first addresses CSFS's contention that it lacks subject matter jurisdiction under Rule 12(b)(1). See Ramming v. United States, 281 F.3d 158, 161 (5th Cir.2001) (citing Hitt v. City of Pasadena, 561 F.2d 606, 608 (5th Cir.1977) (per curiam)).

A. Rule 12(b)(1) Standard

“A case is properly dismissed for lack of subject matter jurisdiction when the court lacks the statutory or constitutional power to adjudicate the case.” Home Builders Ass'n of Miss., Inc. v. City of Madison, 143 F.3d 1006, 1010 (5th Cir.1998) (citing Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1187 (2d Cir.1996)) “In examining a Rule 12(b)(1) motion, the district court is empowered to consider matters of fact which may be in dispute,” Ramming, 281 F.3d at 161 (citing Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir.1981)), and should “grant[ ] [the motion] only if it appears certain that the plaintiff cannot prove any set of facts in support of his claim that would entitle plaintiff to relief.” Id. (citing Home Builders, 143 F.3d at 1010).2 In reality, “the federal courts have followed a general practice of granting jurisdiction in most cases and dismissing for lack of subject matter jurisdiction only under narrow circumstances.” Nowak, 81 F.3d at 1188. The plaintiff bears the burden of proof in the Rule 12(b)(1) context. See Ramming, 281 F.3d at 161.

B. CSFS Places Undue Reliance on Sterling Drug v. Bayer AG

CSFS contends that the Court must dismiss Cottonwood's action under Rule 12(b)(1) “[t]o the extent [it] seeks an injunction that would affect the use of CSFS's trademark and trade name in Canada.” Mot. to Dismiss at n. 1. Although CSFS's subject matter jurisdiction arguments overlap somewhat with its arguments under Rule 12(b)(6), the crux of CSFS's 12(b)(1) contention appears to consist of CSFS's belief that it “has the limited right, irrespective of the rights of a domestic trademark holder, to access U.S. capital markets, sell shares to U.S. consumers and communicate with U.S. investors and potential investors, even if it is barred from using a trademark that infringes the rights of another in connection with goods or services offered in this country to consumers.” Id. at 14. According to CSFS, then, foreign entities may engage in investment solicitation activities in the United States under a trade name and marks valid in another country, even if another entity has superior rights to the marks under U.S. law, so long as the foreign company does not provide the same goods and services within the United States as the senior user. Id.

For support, CSFS primarily relies on Sterling Drug, Inc. v. Bayer AG, 14 F.3d 733 (2d Cir.1994), a case involving a dispute between companies—one American (Sterling Drug) and one German (Bayer AG)—owning various interests in the marks and trade names used by the venerable Bayer company prior to the First World War. Sterling Drug had long and

[778 F.Supp.2d 732]

prominently used the Bayer marks on its aspirin products in the United States. Sterling brought claims under the Lanham Act and the New York anti-dilution statute against Bayer AG, which used the Bayer marks primarily on its chemical, healthcare, and imaging products. Notably, resolution of the Sterling Drug dispute also involved interpreting a series of agreements that had governed the parties' co-existence for several decades. See Sterling Drug, Inc. v. Bayer AG, 792 F.Supp. 1357 (S.D.N.Y.1992). The Sterling Drug district court entered a broad injunction against Bayer AG that prohibited it from using the Bayer marks in a wide variety of contexts, even going so far as to enjoin it from using any name with the word “Bayer” even though the German company's U.S. subsidiary was named “Bayer USA.” See 14 F.3d at 744–45, 748–50.

Ultimately, CSFS asks the Court to give Sterling Drug a persuasive load that it cannot bear. Although Sterling Drug “vacated the district court's injunction to the extent it restricted the defendant's ability to raise capital in the U.S. or to communicate with its U.S. shareholders,” 3 it “also held that it would not be appropriate to allow the defendant to promote its U.S. business under the guise of soliciting investments.” Def.'s Mot. to Dismiss at 13–14. And, it nowhere suggests that even pure “investment solicitation activities” may proceed unfettered. Rather, the court noted that any injunctive relief must “accommodate Bayer AG's global business interest's [sic] in raising capital and communicating with its subsidiaries.” Sterling Drug, 14 F.3d at 750. Indeed, the opinion explicitly provides, in a portion omitted in the block-quoted text supplied by CSFS, that on remand “the District Court [could] require an appropriate disclaimer” as an appropriate injunctive remedy. Sterling Drug, 14 F.3d at 750.

This simply reflects the Second Circuit's adherence to the universally accepted proposition that “the Lanham Act demands that injunctive relief be ‘no broader than necessary to cure the effects of the harm caused.’ ” Id. (quoting George Basch Co., Inc. v. Blue Coral, Inc., 968 F.2d 1532, 1542 (2d Cir.1992)) (further citations omitted). Under the circumstances, “[a] near total ban on Bayer AG's use of the mark [was] not necessary to protect Sterling's trademark.” Id. The court reasoned that “[a]s long as Bayer AG confine[d] its use within appropriate bounds, any incidental adverse impact on Sterling's trademark would be too insignificant to justify preventing Bayer AG from raising capital in the United States and communicating with its shareholders under its own name.” Id.

Instead of demonstrating that the Court may not regulate CSFS's use of the term “Cash Store” in investment solicitation activities, then, Sterling Drug supports the Court's exercise of subject matter jurisdiction in this case. Although Cottonwood's complaint seeks expansive relief that may directly or indirectly impact CSFS's Canadian operations, that possibility does not divest the Court of jurisdiction. As CSFS recognizes, Cottonwood does not seek an extraterritorial injunction reaching CSFS's activities in Canada. Def.'s Mot. to Dismiss at 5, 6 & n. 2. Accordingly, to the extent an injunction would impact CSFS's activities in Canada or elsewhere, that effect would...

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