Topline Solutions, Inc. v. Sandler Sys., Inc., Civil Action No. ELH-09-3102

CourtUnited States District Courts. 4th Circuit. United States District Court (Maryland)
Writing for the CourtEllen Lipton Hollander United States District Judge
PartiesTOPLINE SOLUTIONS, INC., Plaintiff/Counter-Defendant, v. SANDLER SYSTEMS, INC., Defendant/Counter-Plaintiff.
Decision Date08 May 2017
Docket NumberCivil Action No. ELH-09-3102

TOPLINE SOLUTIONS, INC., Plaintiff/Counter-Defendant,
SANDLER SYSTEMS, INC., Defendant/Counter-Plaintiff.

Civil Action No. ELH-09-3102


May 8, 2017


Almost seven and a half years ago, on November 19, 2009, Topline Solutions, Inc. ("Topline, Inc.") filed suit against Sandler Systems, Inc. ("SSI") alleging, inter alia, that SSI breached two agreements between the parties. ECF 1. In particular, Topline, Inc. asserted that SSI breached a "Co-Development Agreement" (see ECF 1-1, "CDA") and an "Agreement and Mutual Release" ("AMR"), also known as the "High Tech Boot Camp Agreement" ("HTBCA").1 See ECF 1-2.

On August 20, 2016, nearly seven years after suit was filed, SSI moved for leave to file a counterclaim against Topline, Inc.; a third-party complaint against Steven Kramer, the founder and president of Topline, Inc.; and a second amended answer. ECF 253. At a hearing held on November 30, 2016 (ECF 292), Judge Motz orally granted that motion, as well as SSI's second motion for partial summary judgment (ECF 248). Judge Motz's rulings are embodied in an Order of December 1, 2016. ECF 297. Consistent with Judge Motz's ruling, SSI's submissions were docketed collectively on December 1, 2016. ECF 298. A few days later, on December 12,

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2016, SSI filed an "Amended Counterclaim and Third-Party Complaint." ECF 312 (the "Counterclaim").

In its Counterclaim, SSI asserts, inter alia, claims against Topline, Inc. for breach of contract (counts I and II); copyright infringement (Count III); and fraud/intentional misrepresentation (Count IV). Counts I, III, and IV are also lodged against Kraner as third-party defendant. See id. I shall refer to Topline, Inc. and Kraner collectively as "Topline." The claims are rooted in Topline's registration of a copyright in January 2011 of a work that SSI claims contains its intellectual property. ECF 312. I shall discuss the specifics of SSI's claims, infra, in the context of the analysis. In its Second Amended Answer (ECF 298), SSI asserts several additional affirmative defenses, consistent with its Counterclaim. See ECF 298.

Topline has moved to dismiss the Counterclaim (ECF 320), supported by a memorandum (ECF 320-1) (collectively, "Motion to Dismiss") and an exhibit. ECF 320-2. Also pending is Topline, Inc.'s motion to strike SSI's newly asserted affirmative defenses in the Second Amended Answer. ECF 321 ("Motion to Strike"). SSI filed a consolidated opposition to both motions (ECF 324, "Opposition")2 and Topline submitted a consolidated reply. ECF 331 ("Reply").

The motions are fully briefed and no hearing is necessary to resolve them. See Local Rule 105.6. For the reasons that follow, I shall grant the Motion to Dismiss in part and deny it in part, and I shall deny the Motion to Strike.

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I. Factual Background3

SSI is a Maryland corporation with its principal place of business in Maryland. ECF 312, ¶ 2. Topline, Inc. is a Virginia corporation with its principal place of business in Virginia. Id. ¶ 3. Kraner is the founder, president, and sole stockholder of Topline, Inc. and is a citizen of Virginia. Id. ¶¶ 4, 17.

Beginning in the 1970s, David Sandler "developed and modified the Sandler Selling System, and the concepts contained therein." Id. ¶ 12. The Sandler Selling System is a "distinctive style of training persons in the fields of sales and sales management, which includes . . . management consulting, goal setting and achievement, self-awareness, motivation, personal development, relationship management and leadership development . . . ." ECF 312, ¶ 12. The Sandler Selling System also includes the methods of teaching these subjects through "seminars and workshops." Id.

SSI asserts: "Prior to 2007, SSI and its franchisees used the trading name and mark 'Sandler Sales Institute.'" Id. ¶ 14. But, SSI claims that SSI and its franchisees "began using the trading name and mark 'SALES TRAINING' in place of the name and mark 'Sandler Sales Institute.'" Id.; see id. ¶ 13.4

A. The Franchise Agreements

On or about December 3, 1993, Kraner and SSI entered into a franchise agreement by which "Kraner was granted the right to own and operate a Sandler Sales Institute franchise in

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Northern Virginia." Id. ¶ 16; see ECF 312-3 ("1993 Franchise Agreement"). In July 2004, Kraner assigned his rights and duties under the 1993 Franchise Agreement to Topline, Inc. ECF 312, ¶ 18.

Topline, Inc. renewed the 1993 Franchise Agreement on November 8, 2005. Id. ¶ 19; see ECF 312-4 ("2005 Franchise Agreement"). Kraner was a guarantor as to certain provisions. ECF 312, ¶ 20; see ECF 312-4 at 29. As discussed, infra, on November 8, 2005, Topline, Inc., Kraner, SSI, and others also entered into the HTBCA. ECF 312, ¶ 35.

During the pendency of this litigation, Topline, Inc. and SSI twice renewed the franchise agreement. In particular, the franchise agreement was renewed in 2010 and again in 2015. ECF 312, ¶¶ 22, 23; see ECF 312-5 ("2010 Franchise Agreement"); ECF 312-6 ("2015 Franchise Agreement"). Although there are some variations in the text of the 2005, 2010, and 2015 franchise agreements, the differences are not material to the motions. I shall refer to the 2005, 2010, and 2015 franchise agreements collectively as the "Franchise Agreements."

Unlike in 2005, Kraner was not a guarantor of either the 2010 or the 2015 franchise agreement. See ECF 312-5 at 36; ECF 312-6 at 37. In connection with the 2010 Franchise Agreement, the parties executed a Confidential Disclosure Agreement (ECF 312-5), which recognized that Topline, Inc. possessed certain "Confidential Information" available for SSI to review. Id. The 2015 Franchise Agreement includes a five-year term that expires on June 30, 2020. ECF 312-6 at 57.

The term "Proprietary Assets" is defined in the Franchise Agreements. For example, the 2010 Franchise Agreement provides, ECF 312-5 at 3:

[T]he distinguishing characteristics of the Sandler System include, but are not limited to, the name and mark SANDLER TRAINING® together with such other trade names, service marks, trademarks, copyrights, titles, symbols, logotypes, trade dresses, emblems, slogans, insignias, terms, designations, designs, diagrams,

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anecdotes, artworks, worksheets, techniques, rules, ideas, philosophies, illustrations, course materials, advertising and promotional materials, and other audio, video and written materials as SSI has developed and designated for use in connection with the Sandler System, and as SSI may hereafter acquire, develop or designate for use in connection with the Sandler System ("Proprietary Assets") . . . .

See also ECF 312-4 (2005 Franchise Agreement), at 4; ECF 312-6 (2015 Franchise Agreement), at 4.

Paragraph 5.1 of the Franchise Agreements is titled "LIMITATIONS OF FRANCHISE." ECF 312-4 at 10; ECF 312-5 at 11; ECF 312-6 at 12. The provisions in the Franchise Agreements are largely identical, with variations that are not material to the disposition of the motions. Paragraph 5.1 of the 2010 Franchise Agreement states, ECF 312-5 at 11-12:

5.1 (a) Franchisee acknowledges that SSI is the exclusive owner of the Proprietary Assets and of the standards, specifications, operating procedures and other elements of the Sandler System. Franchisee further acknowledges that any modifications to the Sandler System or any substitutions or additions to the Proprietary Assets suggested or developed by Franchisee and approved by SSI shall be owned exclusively by SSI and may be incorporated by SSI into the Proprietary Assets.

(b) Franchisee shall use the Sandler System and the Proprietary Assets strictly in accordance with the terms of this Agreement and all policies set forth from time to time in the Operations Manual. Any unauthorized use of the Sandler System and/or the Proprietary Assets is and shall be deemed to be an infringement of SSI's rights. Franchisee agrees that producing, or permitting to be produced, its own written materials or audio or audiovisual recordings, webinars, podcasts, recorded conference calls, tapes or CDs or other creation in any medium (collectively, "Recordings") for sale, publication or distribution, with or without charging a fee, containing any of the Proprietary Assets or Sandler System is not authorized and shall be deemed an infringement of SSI's rights unless the Franchisee obtains SSI's prior written approval . . . .

* * *

(d) Franchisee shall at no time take any action whatsoever to contest the validity, ownership, distinctiveness or enforceability of the Proprietary Assets and the good will associated therewith. Franchisee agrees that any use by Franchisee of all or any part of the Sandler System or the Proprietary Assets contrary to any provision of this Agreement, or any use by Franchisee of any

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confusingly similar method, format, procedure, technique, system, name, trade dress, mark, symbol, emblem, slogan, insignia, term, designation, design, diagram, promotional material or course material, during or after the term of this Agreement, shall cause irreparable injury to SSI, shall constitute a material breach of this Agreement, and shall entitle SSI to seek temporary, preliminary or permanent injunctive relief from a court or agency of competent jurisdiction, and to recover court costs, reasonable expenses of litigation, reasonable attorneys' fees, and any other appropriate remedies.

See also ECF 312-4 at 10-11; ECF 312-6 at 12-13.

Section 12 of the Franchise Agreements pertains to covenants concerning non-competition, protection of Proprietary Assets, and confidentiality. Paragraph 12.2 in the 2010 Franchise Agreement states, ECF 312-5 at 29:

12. 2 Franchisee, and persons controlling, controlled by or under common control with Franchisee, shall not, directly or indirectly, without SSI's prior written consent, during the term of the Franchise and at any time thereafter, use any of the Proprietary Assets . . . for any purpose not authorized in

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