Trarms, Inc. v. Leapers, Inc.
| Decision Date | 10 May 2017 |
| Docket Number | Case No. 16-14229 |
| Parties | TRARMS, INC., et al., Plaintiffs, v. LEAPERS, INC., et al., Defendants. |
| Court | U.S. District Court — Eastern District of Michigan |
Before the court are two motions—a motion to transfer (Dkt. # 5) and a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) (Dkt. # 4)—both filed by Defendants Leapers, Inc. ("Leapers") and Continental Incorporated, Inc. ("Continental"). The motions are fully briefed, and a hearing was held on May 3, 2017. For the reasons that follow, the court will deny the motion to transfer and grant in part and deny in part the motion to dismiss.
Plaintiffs' amended complaint (Dkt. # 2) alleges the following, taken as true for the purposes of this order. Plaintiff Charlie Shi is the founder and president of Plaintiff Trarms, Inc. ("Trarms"). Shi is a Chinese national who resides in California, and Trarms is a California corporation. Defendant Leapers is a Michigan corporation, with its corporate office in Livonia, Michigan. Both Trarms and Leapers are in the business of selling rifle scopes and related shooting products. Trarms sells its scopes in the United States under the "SNIPER" registered trademark. Trarms' "SNIPER" scopes bear no markings suggesting that they are Leapers products. (Dkt. # 2.)
Leapers hired Continental, an Indiana corporation and private investigation firm located in Indianapolis, Indiana, sometime in 2013. Continental markets itself as employing "asymmetrical warfare" to protect its clients' intellectual property rights. (Dkt. # 2, Pg. ID 8.) Leapers and Continental targeted Plaintiffs and Plaintiffs' customers through a variety of means.
Most relevantly, Continental ordered scopes from Trarms and had them shipped to Indiana. Continental then approached the police department in Evansville, Indiana, approximately 180 miles from Continental's Indianapolis officers, to pursue criminal charges against Shi, his customers, and distributors, based on a unique Indiana Criminal Statute, the Indiana Crime Victim's Act, Ind. Code § 34-24-3-1. (Dkt. ## 5, 9.) Continental enjoys a "special relationship" with the Evansville authorities and prosecutor Malcolm Gwinn. (Dkt. # 2, Pg. ID 33.) Leapers and Continental provided false evidence, including false affidavits to be used to secure an arrest warrant, knowing no additional investigation would be done. (DKt. # 2, Pg. ID 13-14.)
In January of 2014, Continental engineered Shi's public arrest in front of competitors and customers at a trade show in Las Vegas, Nevada, and his subsequent extradition to Evansville, Indiana. Continental employee Brad Harper, posing as a prospective customer, arranged to meet Shi at the trade show. At the show, in front of a crowd, Harper approached Shi with "seven or eight" police officers. The officers physically detained Shi and escorted him from the show. (Dkt. # 2, Pg. ID 16-17.) Shi was extradited to Indiana and charged with counterfeiting. The criminal charges weresubsequently dismissed upon motion by Shi's defense counsel. (Dkt. # 2, Pg. ID 14-15.) Several customers of Shi were similarly arrested and prosecuted, including "Adrish Banerjee and Catherine Yan He in Nevada, Yongming (Steven) Sui in California, and Lujan Shi in Michigan." (Dkt. # 2, Pg. ID 21.)
Throughout the investigation and prosecution of Shi, prosecutor Gwinn remained in near constant contact with Continental. (Dkt. # 2, Pg. ID 31.) Gwinn received extensive factual memoranda as well as legal advice from Continental during this time. (Dkt. # 2, Pg. ID 2.)
Leapers filed a civil suit in the Southern District of Indiana against Shi and Trarms under the civil recovery provision of the Indiana Crime Victim's Act. See Leapers, Inc. v. Trarms, Inc., Case No. 15-01539, (the "Indiana Litigation") Dkt. # 1 (filed September 11, 2015). The Indiana Litigation is ongoing. See Leapers, 203 F. Supp.3d 969 (S.D. Ind. 2016) ().
Continental also sent letters to Trarms' customers claiming that the recipients were selling counterfeit Leapers products. The letters demanded that the recipients stop selling Trarms products, threatened civil and criminal prosecution, and demanded payment. (Dkt. # 2, Pg. ID 19.)
On June 10, 2014, Leapers filed an infringement action against several defendants, including Trarms, in the Eastern District of Michigan, alleging the unauthorized use of Leapers' trade dress. See Leapers, Inc. v. SMTS, LLC, Case No. 14-12290 (the "Original Civil Action"), Dkt. # 1 (filed June 10, 2014). Specifically, Leapers claimed that it had unregistered, but protected, trade dress rights in the "scalloping" pattern of grips on the various adjustable parts of its scope. Id.
Leapers theory in the civil case, that Trarms "SNIPER"-branded scopes were counterfeit because they copied the "scalloping" pattern on the various adjustable portions, was also its theory in the criminal prosecution of Shi. Before engineering Shi's arrest, Leapers had not attempted to register its alleged trade dress either in Indiana or with the federal Patent and Trademark Office. (Dkt. # 2, Pg. ID 14.) In fact, Shi was the original designer of the scalloping feature. (Dkt. # 2, Pg. ID 11.)
Trarms and SMTS, Inc. (d/b/a "Tuff Zone"), a Trarms customer named as a defendant, filed counterclaims against Leapers, adding Shi as a Counterclaimant and Continental as a Counter-Defendant. The counterclaimants asserted seven counterclaims: (1) fraudulent procurement of Leapers' Michigan trademark registration; (2) declaratory judgment on the issue of Leapers' trade dress registration; (3) 42 U.S.C. § 1983 claims for the arrest; (4) abuse of process and false imprisonment; (5) tortious interference with business relationship or expectancy; (6) unjust enrichment; and (7) punitive damages. See Original Civil Action, Dkt. # 43.
Upon stipulation of the parties, the court stayed the counterclaims, as well as the related discovery and motions, on February 26, 2015. Original Civil Action Dkt. # 57. All the defendants in the Original Civil Action jointly moved for summary judgment in April of 2015, which the court granted in March of 2016. Original Civil Action Dkt. # 109. In its summary judgment order, the court found that the "scalloping" grip design's "obvious functionality" rendered it ineligible for trade dress protection. Id. at Pg. ID 4787. Leapers then moved for reconsideration, Original Civil Action Dkt. # 112, which the court denied, Original Civil Action Dkt. # 119. Trarms moved for an award of attorney fees on thebasis that the case was "exceptional," which is still pending before the court. Original Civil Action Dkt. # 126.
After the court granted summary judgment, the parties submitted an agreed motion to dismiss counterclaim counts I, II, VII, and VIII without prejudice and sever the remaining, stayed, counterclaims. Original Civil Action Dkt. # 115. The stipulated motion indicated that severance would allow Leapers to immediately appeal the court's summary judgment order and the severed claims would continue as a separate proceeding "in which Judge Cleland shall likewise preside." Original Civil Action Dkt. # 115, Pg. ID 4978. The court granted the motion in a December 2, 2016 stipulated order. Original Civil Action Dkt. # 123; (see Dkt. # 1).
Pursuant to the severance order, Plaintiffs filed an amended complaint on December 23, 2016. (Dkt. # 2.) The amended complaint does not list Tuff Zone as a plaintiff, and the briefs treat Tuff Zone as a nonparty witness. Counsel informed the court that Tuff Zone had dropped its claims against Defendants, and the court dismissed Tuff Zone as a party in a text-only order entered April 24, 2017.
Two motions are pending: the instant motion to dismiss (Dkt. # 4) and a motion to transfer the case to the Southern District of Indiana. (Dkt. # 5). For the reasons that follow, the court will deny the motion to transfer and grant in part and deny in part the motion to dismiss.
There is no dispute that the court has personal jurisdiction over Defendants—Defendants seek a transfer of convenience. The statute provides that "[f]or the convenience of the parties and witnesses, in the interest of justice, a district court maytransfer any civil action to any district or division where it might have been brought." 28 U.S.C. § 1404(a). "As the permissive language of the transfer statute suggests, district courts have 'broad discretion' to determine when party 'convenience' or 'the interest of justice' make a transfer appropriate." Reese v. CNH Am. LLC, 574 F.3d 315, 320 (6th Cir. 2009) (quoting Phelps v. McClellan, 30 F.3d 658, 663 (6th Cir. 1994)). The moving party bears the burden of demonstrating by a preponderance of the evidence that, "in light of these factors, 'fairness and practicality strongly favor the forum to which transfer is sought.'" Amphion, Inc. v. Buckeye Elec. Co., 285 F. Supp.2d 943, 946 (E.D. Mich. 2003) (Gadola, J.) (quoting Thomas v. Home Depot U.S.A., Inc., 131 F. Supp.2d 934, 936 (E.D. Mich. 2001)).
The parties agree that courts making this determination look to a number of factors, including: (1) the convenience of witnesses; (2) the location of relevant documents and relative ease of access to sources of proof; (3) the convenience of the parties; (4) the locus of the operative facts; (5) the availability of process to compel the attendance of unwilling witnesses; (6) the relative means of the parties; (7) the forum's familiarity with the governing law; (8) the weight accorded the plaintiff's choice of forum; and (9) trial efficiency and the interests of justice, based on the totality of the circumstances. (Dkt. # 5, Pg. ID 128; Dkt. # 9, Pg. ID 180.)
The convenience of the parties and non-party witnesses does not favor transfer. Both Plaintiffs are California residents. Leapers is a Michigan corporation...
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