Grice Engineering, Inc. v. JG Innovations, Inc.

• Citation: 691 F. Supp.2d 915
• Decision Date: 04 March 2010
• Docket Number: No. 09-cv-632-vis.,09-cv-632-vis.
• Parties: GRICE ENGINEERING, INC., Plaintiff, v. JG INNOVATIONS, INC. and Gordon "Jack" Grice, Defendants.
• Court: United States District Courts. 7th Circuit. Western District of Wisconsin

691 F. Supp.2d 915

GRICE ENGINEERING, INC., Plaintiff,
v.
JG INNOVATIONS, INC. and Gordon "Jack" Grice, Defendants.

No. 09-cv-632-vis.1

United States District Court, W.D. Wisconsin.

March 4, 2010.

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Adam Louis Marchuk, Michael Osterhoff, Joseph C. Wylie, II, K & L Gates LLP, Chicago, IL, for Plaintiff.

John Scheller, Christopher C. Davis, Michael Best & Friedrich LLP, Madison, WI, for Defendants.

OPINION AND ORDER

BARBARA B. CRABB, District Judge.

Plaintiff Grice Engineering, Inc. contends that defendants JG Innovations, Inc. and Gordon "Jack" Grice are infringing plaintiff's trademark rights and United States Patent No. 5,526,617 (the '617 patent), engaging in false advertising and falsely designating the origin of their goods and services in violation of 15 U.S.C. § 1125 and engaging in deceptive trade practices in violation of Wis. Stat. § 101.18. Jurisdiction is present. 28 U.S.C. § 1331.

Now before the court is defendants' motion to stay the case pending a state court decision or, in the alternative, to dismiss Jack Grice as a defendant and dismiss plaintiff's deceptive trade practices claim. Defendants' motion to stay the case will be denied because it is not certain whether

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the state court action will resolve THE issues in this case and a stay would prejudice plaintiff. With respect to defendants' motion to dismiss, I conclude that plaintiff has failed to state a claim under the Wisconsin Deceptive Trade Practices Act, Wis. Stat. § 100.18(1) and I will dismiss that claim. However, I conclude that plaintiff has stated claims against defendant Grice personally for infringement of plaintiff's patent and trademark rights and violations of the Lanham Act, 15 U.S.C. § 1125

In deciding the motion to dismiss, I have considered only the facts contained in plaintiff's complaint. General Electric Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080 (7th Cir.1997). However, in deciding defendant's motion to stay, I have considered the additional materials related to the ongoing state action that the parties provided in connection with the motion.

FACTS

A. Allegations of Fact in Plaintiff's Complaint

Plaintiff Grice Engineering is a Delaware corporation with its principal place of business in Janesville, Wisconsin. Plaintiff manufactures and installs pipe and mechanical concealment systems and is the world's largest manufacturer and supplier of the "soffi-steel system," a custom fabricated and fitted concealment system used to enclose fire sprinklers, heating, ventilating and air-conditioning systems and utility lines. Defendant JG Innovations is a Wisconsin corporation with its principal place of business in Janesville, Wisconsin. Defendant Jack Grice is a citizen of Wisconsin. He is the registered agent for JG Innovations and its sole shareholder.

Since as least 1994, the "Grice Engineering" trademark has been used in connection with the manufacture, sale and installation of pipe and mechanical concealment systems. Before 2007, Innovations Engineering, Inc., a company owned wholly by defendant Grice, manufactured and sold the soffi-steel system. On approximately July 20, 2007, defendant Grice sold most of Innovations Engineering's assets to plaintiff for $3.15 million. As part of the purchase agreement, plaintiff acquired the patent rights in the soffi-steel system and all rights, title and interest in the "Grice Engineering" trademark. Also as part of the purchase agreement, plaintiff became the sole owner of the '617 patent, which covers an invention entitled "Tamperproof Conduit Concealing System."

The asset purchase agreement prohibited defendant Grice and Innovations Engineering from operating a business under any name including the term "Grice" or "Engineering" or any similar term. Plaintiff has expended time and resources promoting the Grice Engineering mark throughout the United States. It promotes and advertises its mark through the internet and print advertisements and trade shows.

From July 2007 to May 2009, plaintiff employed defendant Grice. Defendant Grice had access to confidential information regarding plaintiff's operations, finances and actual and potential customers. On May 17, 2009, defendant Grice told plaintiff he was quitting. On approximately June 2, 2009, he founded a competing pipe concealment business under the name "Grice Innovations." As part of its business operations, Grice Innovations established a website at http://griceinnovations inc.com. Through that website, defendants advertised Grice Innovations as providing "interior soffit solutions and custom engineered fabrications." Shortly after Grice Innovations was founded, defendants began to solicit plaintiff's customers. Among other things, they sent plaintiff's customers postcards that stated:

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Please be advised that our identity has changed. Once known as the Grice Engineering team: Jack Grice, Allen Stowers & Jasmin Stiether have formed the new business entity: "Grice Innovations, Inc."

The postcards stated that customers should "update their record to reflect our revised contact information." Plaintiff received several inquiries from its customers regarding defendants' postcards.

In a letter dated August 7, 2009, plaintiff requested that, among other things, defendants cease all uses of the Grice Innovations name and relinquish the domain name www.griceinnovations.com. On approximately October 8, 2009, Grice Innovations filed an "amendment" with the Wisconsin Department of Financial Institutions and changed its name to "JG Innovations, Inc." Despite the name change, defendants continue to use the Grice Innovations name in connection with the sale of interior soffit systems and custom engineered fabrications. For example, defendants continue to use the Grice Innovation name with national and regional trade organizations, such as the "APPA" and the National Fire Sprinkler Association.

Defendants created a second website at http://www.jgius.com. Through that website, defendants advertise and sell interior soffit systems and custom engineered fabrications. The website has photographs purportedly depicting defendants' products. The photographs displayed on defendants' website actually depict plaintiff's products and installations, including work performed by plaintiff for the Denver Correctional Institution. The interior soffit systems that defendants manufacture and sell are covered by plaintiff's '617 patent.

B. Additional Facts Relevant to Defendants' Motion to Stay

In 2007, when defendant Grice sold plaintiff Grice Engineering, Inc., the purchasers were Michael Liddel and Paul Johnson. They paid $500,000 to defendant Grice at closing, with the remaining $2.65 million financed by Grice by a promissory note. As collateral for the financing, Liddel and Johnson signed a $500,000 personal guarantee of the promissory note and pledged all of their shares in plaintiff Grice Engineering in the event of default on the promissory note.

Plaintiff failed to make certain payments on the promissory note and defendants moved to enforce the stock pledges. In response, plaintiff argued that defendants could not take any action to enforce Liddell's and Johnson's stock pledges because of a subordination agreement between defendants and Fifth Third Bank, subordinating plaintiff's debt to defendants to plaintiff's debt to Fifth Third. Judge Welker of the Circuit Court for Rock County disagreed with plaintiff's argument, holding in an order dated October 26, 2009 that plaintiff had failed to make the payments required on the promissory note and was therefore in default. Also, he held that subrogation of debt did not cover the stock pledges, and that even if it did, the use of such a subordination agreement to block all recovery by defendants and turn plaintiff's $2.65 million promissory note into an optional debt was unconscionable as a matter of law. Plaintiff and Fifth Third Bank have filed an interlocutory appeal of Judge Welker's decision that is pending before the Wisconsin Court of Appeals.

OPINION

Plaintiff asserts five legal theories against defendants: (1) patent infringement under 35 U.S.C. § 271; (2) common law trademark infringement; (3) false designation of origin under 15 U.S.C. § 1125; (4) false advertising under 15 U.S.C. § 1125; and (5) deceptive trade practices under Wis. Stat. § 101.18. Defendants

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have moved to stay the entire case pending the outcome of the Rock County state court action and related appeal. In the alternative, defendants have moved to dismiss all of plaintiff's claims against defendant Jack Grice and plaintiff's deceptive trade practices claim against both defendants

A. Motion to Stay

Defendants have moved for a stay pursuant to the court's inherent power to stay cases before it. (Defendants make it clear that they are not asking the court to abstain under Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976).) It is within the discretion of the court to stay proceedings pending the resolution of other suits. Cherokee Nation of Oklahoma v. United States, 124 F.3d 1413, 1416 (Fed.Cir.1997) (citing Landis v. North American Co., 299 U.S. 248, 254-55, 57 S.Ct. 163, 81 L.Ed. 153 (1936)). "The power to stay proceedings is incidental to the power inherent in every court to control the disposition of the cases on its docket with economy of time and effort for itself, for counsel, and for litigants." Landis, 299 U.S. at 254, 57 S.Ct. 163.

The court's power to stay cases before it is not boundless. SanDisk Corp. v. Phison Electronics Corp., 538 F.Supp.2d 1060, 1065 (W.D.Wis.2008). A stay that is so extensive as to be "immoderate" is an abuse of discretion. Cherokee Nation, 124 F.3d at 1416 (citing Landis, 299 U.S. at 257, 57 S.Ct. 163). Moreover, when considering a request for a stay, courts should be mindful of the Supreme Court's admonition, stated...