Yoe v. Crescent Sock Co., Case No. 1:15–cv–3–SKL

• Decision Date: 11 May 2018
• Docket Number: Case No. 1:15–cv–3–SKL
• Citation: 314 F.Supp.3d 892
• Parties: Robert H. YOE, III, et al., Plaintiffs, v. CRESCENT SOCK COMPANY, et al., Defendants.
• Court: U.S. District Court — Eastern District of Tennessee

314 F.Supp.3d 892

Robert H. YOE, III, et al., Plaintiffs,

v.CRESCENT SOCK COMPANY, et al., Defendants.

Case No. 1:15–cv–3–SKL

United States District Court, E.D. Tennessee, Southern Division, At Chattanooga.

Filed May 11, 2018

Cara J. Alday, Gary R. Patrick, Patrick, Beard, Schulman & Jacoway, PC, Chattanooga, TN, Jay S. Bowen, Rebekah Shulman, Will Parsons, Shackelford, Bowen, McKinley, Norton, LLP, Nashville, TN, for Plaintiffs.

John T. Winemiller, Ian Garrett McFarland, R. Bradford Brittian, Merchant & Gould, P.C. (Knox), Knoxville, TN, for Defendants.

MEMORANDUM AND ORDER ON RECONSIDERATION AND SCHEDULING ORDER

SUSAN K. LEE, UNITED STATES MAGISTRATE JUDGE

Before the Court is a motion for revision with an accompanying memorandum filed by Plaintiff Yoe Enterprises Incorporated ("YEI")¹ pursuant to Federal Rule of Civil Procedure 54(b) [Docs. 458 & 459]. In the motion, YEI seeks a revision of the Court's November 14, 2017, memorandum and order granting in part Defendants' motion for summary judgment and denying Plaintiffs' motion for summary judgment [Doc. 453]. Crescent filed a response in opposition to the motion for revision [Doc. 463], and YEI filed a reply [Doc. 464]. This matter is now ripe.

For the reasons stated below, YEI's motion will be GRANTED IN PART and DENIED IN PART . The Court's previous summary judgment order will be VACATED IN PART to the extent it dismissed Plaintiffs' claims arising after April 22, 2015, and to the extent it dismissed Plaintiffs' trade secret claims and Defendants' trade secret counterclaims. The post-April 22, 2015 claims and the trade secret claims will be REINSTATED . Further, the Court will set a new schedule, including a status conference.

I. BACKGROUND

As detailed in many prior filings, this case arises out of a soured business relationship between Defendants and Plaintiffs. Crescent is a sock manufacturing company. Plaintiff Yoe was hired in 2000 to serve as Chief Executive Officer and Chief Financial Officer of Crescent. Defendants Allen and Boyd are part owners of Crescent, and have worked there throughout their adult lives.² They are members of the Burn family, which has owned and controlled Crescent since it began operations in the early 1900s. Yoe owns YEI, which holds intellectual property rights to sock brands developed by Yoe and manufactured by Crescent during Yoe's employment at Crescent, including the FITS and Game Knits brands at issue in this case.

In September 2012, Crescent and YEI entered into an agreement (the "Business Agreement") which memorialized prior agreements and the parties' business relationship in relevant part as follows:

1. Ownership of Intellectual Property. Any and all new brands, and other intellectual property relating to such new brands, that are developed, registered, trademarked, invented, started, conceived or designed by Crescent, Yoe and/or YEI from January 1, 2009 through the termination of Yoe's employment with Crescent (‘the Intellectual Property’) shall be 100% owned by YEI....

2. Royalties as to "Fits" and "Jack's" Brands. Crescent shall pay royalty payments to YEI relative to the "Fits" brand ... [at a rate of $1.00 in 2013 and 2014, and beginning in 2015 and each year thereafter at a rate of] "5% of Net Sales"; and

3. Licensing. On or before 1 year after the execution of [the Business Agreement], YEI and Crescent will enter into an agreement for licensing/manufacturing/sourcing relative to the Intellectual Property which includes terms and conditions similar to the LIG contract [and which incorporates the royalty payment schedule].

[Business Agreement, Doc. 24–3, at Page ID # 110–11]. The Business Agreement is also at least part of the parties' licensing agreement, although the parties dispute whether there are additional terms to the licensing agreement not expressly written in the Business Agreement.

Yoe and five other Crescent employees who worked with the FITS brand were fired by Crescent on September 4, 2013. The day before, Crescent had filed a lawsuit in the McMinn County, Tennessee, Chancery Court (the "Chancery Court Case"), seeking a declaration that certain employment contracts between Yoe and Crescent (which provided for, among other things, a $2 million severance payment to Yoe upon termination without cause) and the Business Agreement were void and unenforceable. Yoe and YEI filed counterclaims and amended counterclaims in the Chancery Court Case, alleging, inter alia , that Crescent breached the Business Agreement with YEI, and that:

22. Upon information and belief, since terminating Mr. Yoe, Crescent has eliminated certain SKUs of FITS® product[s], changed the names of certain FITS® products, changed the packaging of products, ceased research and development of the FITS® products, is failing to use pre-existing marketing practices including but not limited to preseason terms and conditions, sales collateral, and other sales support, is failing to maintain the proper levels of FITS® product[s] in the retail stores and proper inventory levels at Crescent, and is representing that Crescent is the owner of the FITS® brand. Each of these actions is causing irreparable damages to the FITS® bran[d] to Yoe Enterprises as owner of the FITS® brand and to Mr. Yoe as the CEO of Yoe Enterprises.

[See Doc. 453 at Page ID # 15551–52; Doc. 24–4 at Page ID # 221]. Plaintiffs also obtained an injunction that provided, in relevant part:

It appearing to the Court that the parties to this cause have agreed on the terms of the Temporary Injunction, that because of the uniqueness of the brand of sock known as FITS®, and because the value of this brand of sock may be compromised and/or lost if this injunction is not granted, it is hereby:

ORDERED, ADJUDGED AND DECREED that:

1. Crescent Sock Company, its agents, employees, successors, officers and directors, and all other persons in concert or participation with such entities, are enjoined from marketing the FITS® brand products ... unless each and every product has been manufactured using the proper materials, proper packaging, proper technology for manufacturing FITS®, proper manufacturing processes, and using all of the same specifications required to manufacture FITS® that were in place as of August 15, 2013 and using all of the same specifications as required by the patents held by Yoe Enterprises.

2. Crescent Sock Company, its agents, employees, successors, attorneys, officers and directors and all other entities in active concert or participation with such entities, are hereby enjoined and required to fulfill any and all orders for FITS® and Jacks® products in a timely and appropriate manner, all as required by orders for such products, to the extent that said orders do not exceed the operating capacity of the Company as it existed on September 4, 2013, using the correct and proper materials, packaging, technology, manufacturing specifications and specifications as set forth above. Further, the Company shall use its best faith efforts to maintain adequate levels of inventory and yarn on order and on hand to fulfill such orders....

[Doc. 24–7 at Page ID # 272–73].

The Court detailed the history of the Chancery Court Case in its summary judgment order [Doc. 453 at Page ID 15547–56] and will not repeat it herein. In that summary judgment order, the Court denied Defendants' motion for summary judgment on a number of issues, but granted summary judgment to Defendants on all Plaintiffs' claims that related specifically and exclusively to Defendants' production of the FITS brand socks (the "FITS Claims"³ ) [Doc. 453 at Page ID # 15571]. The Court concluded that in light of the nature of the amended counterclaims and the injunction in the Chancery Court Case, the FITS Claims were barred in this case by application of res judicata. As Plaintiffs' motion for partial summary judgment related only to their FITS trademark claims, the Court also denied Plaintiffs' motion on the grounds that such claims were barred by res judicata. The Court additionally granted summary judgment to Defendants Boyd and Allen on Plaintiffs' Count XIII (Boyd and Allen's inducement of breach of the Business Agreement) on res judicata grounds. This Count is also part of the FITS Claims, but the Court addressed it separately in the summary judgment order. The Court will refer to it as being part of the FITS Claims in this Order, except where necessary to address it separately.

Finally, there are FITS-only trade secret claims. The Court held that Count VII (injunctive relief—trade secrets), which concerned only FITS, was barred by res judicata. The Court found that the declaratory relief Plaintiffs seek in Counts VI (declaratory judgment—trade secrets) and XVI (trade secret misappropriation and unfair competition—Omni Wool Tactical and Hiwassee Trading Company Socks), was moot to the extent it concerned trade secrets that relate only to FITS socks [Doc. 453 at Page ID # 15571]. To the extent Plaintiffs seek monetary damages, costs or fees concerning Defendants' alleged use or misuse of the FITS-only trade secrets in Counts VI and XVI, the Court found that res judicata applied. The Court will address the FITS-only trade secret claims separately in this order.

II. STANDARDS

A. Federal Rule of Civil Procedure 54(b)

In the instant motion, Plaintiffs ask the Court to reconsider and revise its decision regarding res judicata pursuant to Federal Rule of Civil Procedure 54(b), which provides:

[A]ny order or other decision, however designated, that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties does not end the action as to any of the claims or parties and may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties' rights and liabilities.

"District courts have authority under both common law and Rule 54(b) to reconsider interlocutory orders and to reopen any part of a case before entry of final judgment." Rodriguez v. Tenn. Laborers Health &...