Harrell v. Colonial Holdings, Inc.

• Citation: 923 F.Supp.2d 813
• Decision Date: 12 February 2013
• Docket Number: Civil Action No. 3:12CV831–HEH.
• Parties: Christie D. HARRELL, et al., Plaintiffs, v. COLONIAL HOLDINGS, INC., et al., Defendants.
• Court: U.S. District Court — Eastern District of Virginia

923 F.Supp.2d 813

Christie D. HARRELL, et al., Plaintiffs,

v.COLONIAL HOLDINGS, INC., et al., Defendants.

Civil Action No. 3:12CV831–HEH.

United States District Court,

E.D. Virginia,

Richmond Division.

Feb. 12, 2013.

Michael Aristo Leonard, II, Leonard Patel PC, Alexandria, VA, Carla A. Federis, Natu J. Patel, The Patel Law Firm PC, Irvine, CA, for Plaintiffs.

Chandra Dore Lantz, Hirschler Fleischer PC, Richmond, VA, for Defendants.

MEMORANDUM OPINION

(Motions to Dismiss)

HENRY E. HUDSON, District Judge.

This case involves a dispute over the rights to the service mark for “Strawberry Hill Races,” a century-old steeplechase horse racing tradition in Richmond, Virginia. In early 2012, Defendants were spearheading arrangements to hold the event at Colonial Downs racetrack later that summer. Shortly before the race was held, Plaintiffs purchased the federally-registered mark at bankruptcy auction and immediately dispatched a cease and desist letter to Defendants—even before title to the trademark was officially transferred. Defendants held the race as scheduled anyway, despite Plaintiffs' warning. This lawsuit ensued, with Plaintiffs filing claims for trademark infringement and false advertising. Defendants have counterclaimed, asserting claims for defamation, breach of contract, and a variety of business torts. The parties now move to dismiss each other's claims.

I. BACKGROUND¹

Strawberry Hill Races are an annual tradition dating back to 1895. Between 1973 and 2012, the State Fair of Virginia, Inc. (“SFVA”) operated the event under the federally-registered service mark ² “Strawberry Hill Races” (the “Mark”). (Compl. at ¶ 23.) Since 2000, SFVA has hosted the event at Colonial Downs racetrack in New Kent, Virginia, which is operated by Colonial Downs, L.P. (“Colonial Downs”). ( Id.; Countercl. at ¶ 11.) Colonial Downs operates the racetrack in conjunction with its affiliated entities: Colonial Holdings, Inc. (“Colonial Holdings”), Colonial Downs, LLC, and Stansley Racing Corp. (“Stansley”).³ (Compl. at ¶ 8; Countercl. at ¶ 17.) Ian Stewart (“Stewart”) serves as president of Stansley, Colonial Holdings, and Colonial Downs, LLC, giving him essentially complete control over Colonial Downs. (Compl. at ¶ 9.)

After SFVA filed for Chapter 11 bankruptcy protection in December 2011, the future of Strawberry Hill races appeared uncertain. ( Id. at ¶ 25.) During the bankruptcy, SFVA negotiated an agreement with Colonial Holdings, in which they would partner to hold the races at Colonial Downs on June 2, 2012. ( Id. at ¶ 26.) Unfortunately, in March 2012, SFVA's failure to produce a viable financing plan led to the conversion of its bankruptcy to Chapter 7 liquidation. ( Id. at ¶ 27.)

Immediately thereafter, the bankruptcy trustee informed Colonial Holdings that its agreement to hold the 2012 Strawberry Hill Races in partnership with SFVA was rejected—Defendants characterize this as a breach of contract by SFVA. ⁴ ( Id. at ¶ 28; Countercl. at ¶ 20.) The trustee also informed Colonial Holdings that, to proceed with the event under the name “Strawberry Hill Races,” it needed to obtain a temporary license to use the Mark. (Compl. at ¶ 28.) In contrast, Defendants take the position that any transfer of the Mark was subject to the license that they had acquired from SFVA. (Countercl. at ¶ 25–27.) Negotiations between the bankruptcy trustee and Colonial Holdings failed to resolve the disagreement. (Compl. at ¶ 29, Ex. C.)

At a bankruptcy auction held on May 24, 2012, Plaintiffs Christie Harrell and Mildred Dotson (“Plaintiffs”) purchased the “Strawberry Hill Races” Mark and internet domain name. ( Id. at ¶ 31.) Nearly one week later, on May 30, 2012, Plaintiffs sent a “cease and desist” letter to Stewart, addressed to him in his capacity as President of Stansley and Colonial Downs. In the letter, Plaintiffs take the position that “Colonial Downs' sponsorship of the Strawberry Hill Races” would be “illegal and without the authority of the owner of the trade name.” ( Id. at ¶ 35, Ex. F.) The bill of sale transferring the Mark is dated June 1, 2012, but the letter transmitting the bill of sale is dated June 4, 2012. ( Id. Ex. D.) Offering different conclusions from these dates, Plaintiffs assert that ownershipof the Mark transferred before the race, while Defendants claim that ownership did not transfer until after the race. (Compl. Ex. D; Countercl. at ¶ 24.)

Despite Plaintiffs' warnings, Defendants proceeded with the event as scheduled. ( Id. at ¶ 39.) Each of the Defendant entities “worked collaboratively” in promoting, organizing, and conducting the event. ( Id.) However, the parties disagree over the extent to which the Mark was associated with the event. According to Plaintiffs, Defendants promoted the event as the first Strawberry Hill Races to be operated exclusively by them. ( Id. at ¶¶ 37–38.) But according to Defendants, they worked in good faith to strip the event of any reference to Strawberry Hill Races once the dispute arose. (Countercl. at ¶ 34.) Notably, on the same day as the event, a Richmond newspaper reported that Colonial Downs had acquired sole ownership of the Strawberry Hill Races. (Compl. at ¶ 37, Ex. G.)

Tensions between Plaintiffs and Defendants have only deepened since the June 2, 2012 steeplechase races. Plaintiffs accuse Defendants of falsely representing to the horseracing industry that they are now the legitimate owners of Strawberry Hill Races. ( Id. at ¶ 45.) In that vein, Defendants have held a contest inviting the public to re-name the event formerly known as Strawberry Hill Races. ( Id. at ¶¶ 47–48, Ex. K.) In response, on October 16, 2012, Plaintiffs sent a demand letter to Colonial Downs and Stansley accusing them of trademark infringement and other wrongs—including failure to pay vendors for services rendered at the June 2nd race. (Countercl. at ¶ 35.) By carbon-copy, Plaintiffs publicized the letter to the National Steeplechase Association and the Virginia Racing Commission. ( Id.)

Due to these events, Plaintiffs brought this action against Defendants asserting Lanham Act claims for trademark infringement, false designation, and false advertising, as well as a common law claim of trademark infringement and unfair competition. Defendants take umbrage with Plaintiffs' indiscriminate pleading against all Colonial Downs entities as “Defendants,” moving to dismiss on the basis that such pleading is improper. Defendants also assert Counterclaims for declaratory judgment of noninfringement, tortious interference with a contract, defamation, statutory business conspiracy in violation of Va.Code § 18.2–499, common law conspiracy, unjust enrichment, and breach of contract. With the exception of the declaratory judgment count, Plaintiffs move to dismiss all counterclaims. Both Motions have been thoroughly briefed and the Court dispenses with oral argument, finding that it would not materially aid in the decisional process. For the reasons that follow, both Motions will be denied.⁵

II. STANDARD OF REVIEW

“A motion to dismiss under Rule 12(b)(6) tests the sufficiency of a complaint; importantly, it does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.” Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir.1992) (citation omitted). The Federal Rules of Civil Procedure “require[ ] only ‘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 Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). A complaintneed not assert “detailed factual allegations,” but must contain “more than labels and conclusions” or a “formulaic recitation of the elements of a cause of action.” Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (citations omitted). Thus, the “[f]actual allegations must be enough to raise a right to relief above the speculative level,” id. (citation omitted), to one that is “plausible on its face,” id. at 570, 127 S.Ct. 1955, rather than merely “conceivable.” Id. In considering such a motion, a plaintiff's well-pleaded allegations are taken as true and the complaint is viewed in the light most favorable to the plaintiff. T.G. Slater, 385 F.3d at 841 (citation omitted). Legal conclusions enjoy no such deference. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

III. DISCUSSION

The parties challenge each other's claims according to different lines of reasoning. Defendants make a singular argument that all claims against them must fail because Plaintiffs indiscriminately plead claims against all “Defendants” without compartmentalizing the conduct of each. Plaintiffs, on the other hand, articulate a particularized challenge addressing all but one of Defendants' counterclaims. Neither approach yields dispositive relief at this juncture of the litigation.

A. Defendants' Motion to Dismiss

Defendants distill their entire motion to dismiss to a single issue: Plaintiffs' indiscriminate allegations against the “Defendants” generally. This Court addressed the exact same argument recently, concluding that there exists no “bright-line prohibition” on such pleading. Alliance Tech. Group, LLC v. Achieve I, LLC, No. 3:12cv701, 2013 WL 143500, at *3, 2013 U.S. Dist. LEXIS 4708, at *11 (E.D.Va. Jan. 11, 2013). At the same time, this Court acknowledged that “courts have at times struggled with allegations drafted in this manner,” requiring a reviewing court to “parse each claim to determine whether the undifferentiated allegations, if true, plausibly state a claim.” Id. (citations omitted).

To state a claim for trademark infringement under 15 U.S.C. § 1114(1)(a), a plaintiff must allege that: (1) it possesses the mark; (2) the defendant used the mark in commerce and without the...