IOW, LLC v. Breus

• Decision Date: 02 December 2019
• Docket Number: No. CV18-1649-PHX-DGC,CV18-1649-PHX-DGC
• Citation: 425 F.Supp.3d 1175
• Parties: IOW, LLC, an Arizona limited liability company; and When Enterprises Corp., a Delaware corporation, Plaintiffs/Counterdefendants, v. Michael BREUS and Lauren Breus, husband and wife, Defendants/Counterclaimants.
• Court: U.S. District Court — District of Arizona

425 F.Supp.3d 1175

IOW, LLC, an Arizona limited liability company; and When Enterprises Corp., a Delaware corporation, Plaintiffs/Counterdefendants,

v.Michael BREUS and Lauren Breus, husband and wife, Defendants/Counterclaimants.

No. CV18-1649-PHX-DGC

United States District Court, D. Arizona.

Signed December 2, 2019

David Lee Allen, Laura Allison Rogal, Michael Benjamin Dvoren, Aaron K. Haar, Maria Crimi Speth, Jaburg & Wilk PC, Phoenix, AZ, for Plaintiffs/Counterdefendants.

Counter Claimant, Marissa Taylor Kovary-Riccardo, Sean David Garrison, Bacal & Garrison Law Group, Scottsdale, AZ, for Defendants/Counterclaimants.

AMENDED ORDER

Plaintiffs IOW, LLC ("IOW") and When Enterprises Corp. ("WEC") brought this action against Dr. Michael Breus and Lauren Breus, asserting claims for breach of contract and the implied covenant of good faith and fair dealing, misappropriation of trade secrets, unjust enrichment, trademark infringement, and unfair competition. Doc. 1-1 at 1-19. Defendants counterclaimed, seeking to cancel several of Plaintiffs' registered trademarks.¹

Defendants move for summary judgment on all claims (Docs. 76, 79) and Plaintiffs cross-move on Defendants' counterclaim (Doc. 81). The motions are fully briefed. Docs. 83; 90-93. For the following reasons, the Court will grant Defendants' motion as to Plaintiffs' claims and deny the parties' cross-motions on Defendants' counterclaim.²

I. Background.

Dr. Breus is a clinical psychologist, board certified in clinical psychology and sleep disorders, who studies how his patients' chronobiologies effect their treatment. Docs. 77 at 1-2; 84 at 2.³ Chronobiology is the science of the human body's natural circadian rhythms, and a chronotype is an individual's internal circadian rhythm that influences her sleep cycle and activity. Doc. 77 at 2. Dr. Breus has authored three books and numerous blogs discussing chronobiology and circadian rhythms. Id. at 2-3; Doc. 84 at 2.

In December 2013, Dr. Breus met Randy Miller, the sole member of IOW and the majority shareholder of WEC. Docs. 77 at 7; 83 at 3. Miller told Dr. Breus about his business, WHEN, and shared his ideas for an online counseling platform branded around the name, "If or When" or "If not Now When," where coaches would help customers achieve their goals based on the concept of: "If I don't do it now, when will I do it?" Doc. 77 at 7. Dr. Breus and IOW entered into a Confidentiality Agreement regarding their discussions in January 2014, but had no other agreements. Id. Dr. Breus provided no services to Plaintiffs and was never identified as an associate by their promotional materials. Id. In February 2015, IOW assigned the Agreement to WEC, which now owns all intellectual property related to the WHEN business. Id. at 10.⁴

The present dispute concerns Dr. Breus's third book, The Power of When . Dr. Breus and his ghostwriter, Valerie Frankel, began collaborating on the book in November 2014. Id. at 3. Originally titled The Overnight Solution, the book posits that an individual can be healthier and more productive by adjusting when she accomplishes certain tasks. Id. at 3-4. Based on extensive research, the book identifies four general chronotypes that inform when a person should do certain activities, and includes a "Bio-Time Quiz" that helps readers identify their chronotype. Id. In August 2015, Dr. Breus acquired the domain name thepowerofwhen.com to use as a promotional website for the book, which went live in August 2016. Id. at 5. He also registered thepowerofwhenquiz.com to publish his Bio-Time Quiz, which went live in July 2016. Id.

The parties agree that Dr. Breus never disclosed information about Plaintiffs or Miller to his ghostwriter or publisher, Little, Brown, and Company ("LB"). Id. at 7. But Plaintiffs assert that Dr. Breus, in developing the concept for his third book, used and incorporated information that he discussed with Miller and that was subject to the Confidentiality Agreement and trade secret protections. Id. ; Doc. 84 at 3.

II. Summary Judgment Standard.

A party seeking summary judgment "bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, see Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986), shows "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law[,]" Fed. R. Civ. P. 56(a). Summary judgment is also appropriate against a party who "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex , 477 U.S. at 322, 106 S.Ct. 2548. Only disputes over facts that might affect the outcome of the suit will preclude summary judgment, and the disputed evidence must be "such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

III. Plaintiffs' Claims.

A. Breach of Contract.

1. IOW's Standing.

A plaintiff must establish that it has standing to bring suit. Lujan v. Defs. of Wildlife , 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). Three elements are required for Article III standing: (1) an injury-in-fact, (2) causation between the injury and the allegedly wrongful conduct, and (3) a favorable decision from the court is likely to redress the injury. Id. at 560, 112 S.Ct. 2130.

Plaintiffs allege that Defendants breached the January 2014 Agreement by using confidential business strategies and concepts in developing and marketing The Power of When . Doc. 1-1 at 8. Defendants argue that IOW lacks standing because it assigned the Agreement to WEC in February 2015, before Dr. Breus titled or published his book, and that IOW has no injury because WEC now owns all alleged intellectual property of the business. Doc. 76 at 17. IOW responds that it was under common control with WEC during the relevant time and therefore constitutes an "affiliate" under the Agreement and can enforce the confidentiality obligations. Docs. 83 at 5; see 84-9 at 2-3.

The Agreement deems confidential certain information disclosed by the "Owner" to the "Recipient. See Doc. 84-9 at 2-3. The terms Owner and Recipient are defined to include "affiliates of the parties," meaning "any person or entity controlling, controlled by[,] or under common control with a party." Id. Defendants do not dispute that IOW is an "affiliate" under the Agreement and was under common control with WEC at the time of the alleged breach. They assert instead that IOW must be a primary party in interest to enforce the Agreement's terms, citing Stratton v. Inspiration Consolidated Copper Co. , 140 Ariz. 528, 683 P.2d 327 (App. 1984), which states that to "recover under the third party beneficiary doctrine, the contract relied upon by the third party must reflect that the parties thereto intended to recognize [it] as a primary party in interest." Doc. 91 at 2.

IOW does not argue that it is a third-party beneficiary or that it qualifies to sue for breach of the Agreement as a third-party beneficiary. Nor does it address specifically how it otherwise satisfies the elements required for Article III standing. IOW states that "the rights and obligations under the [Agreement] extend to affiliates of the parties under common control," that it "continued to be covered under the terms of the [Agreement]," and that it owned the proprietary information when Defendants first began breaching. Doc. 83 at 5-6. The broad definitions of Owner and Recipient, which include "affiliates," appear to expand the scope of information deemed confidential. But saying that an affiliate's information is to be treated as confidential under the Agreement is not the same as saying that the affiliate is a party to the Agreement with rights to sue for breach. And other than the Agreement language, IOW cites no evidence in the record showing when it was injured, what cognizable injury it suffered as a non-party "affiliate," or any legal authority supporting its standing argument. IOW has failed to establish standing to assert the breach of contract claim, and the Court will grant Defendants' request for summary judgment on this claim. See Celotex , 477 U.S. at 322, 106 S.Ct. 2548 ; Lujan , 504 U.S. at 560-61, 112 S.Ct. 2130.

2. WEC's Claim.

To prevail on a breach of contract claim, a plaintiff must show the existence of a contract, its breach, and resulting damages. See Thomas v. Montelucia Villas, LLC , 232 Ariz. 92, 302 P.3d 617, 621 (2013) ; Snow v. W. Sav. & Loan Ass'n , 152 Ariz. 27, 730 P.2d 204, 210 (1986). "[I]nterpretation of a contract is generally a matter of law," Powell v. Washburn , 211 Ariz. 553, 125 P.3d 373, 375 (2006), but whether a party has breached the contract is a question for the trier of fact, see Walter v. F.J. Simmons , 169 Ariz. 229, 818 P.2d 214, 218-19 (App. 1991) ; Shiloh Custom Homes, Inc. v. Drywall , No. 1 CA-CV 07-0677, 2009 WL 690600, at *7 (Ariz. Ct. App. Mar. 17, 2009). A party breaches a contract when it "fail[s], without legal excuse, to perform any promise which forms the whole or part of a contract." Snow , 730 P.2d at 210.

WEC alleges that Defendants breached the Agreement by using confidential business strategies and concepts to their advantage (Doc. 1-1 at 8), including WEC's trademarks, branding, and business models (Doc. 83 at 6-8). Defendants argue that WEC has no evidence that Dr. Breus shared WEC's confidential information with others. Doc. 76 at 8-10.

WEC asserts that Dr. Breus "utilize[d] the confidential materials received from [WEC],...