Zest Ip Holdings, LLC v. Implant Direct Mfg. LLC
| Decision Date | 04 November 2014 |
| Docket Number | CASE NO. 10cv541-GPC(WVG) |
| Court | U.S. District Court — Southern District of California |
| Parties | ZEST IP HOLDINGS, LLC, a Delaware limited liability company; ZEST ANCHORS, LLC, a Delaware limited liability company, Plaintiffs, v. IMPLANT DIRECT MFG. LLC, a Nevada limited liability company; IMPLANT DIRECT LLC, a Nevada limited liability company; IMPLANT DIRECT INT'L, a Nevada corporation, Defendants. |
1) DENYING IMPLANT DIRECT SYBRON INTERNATIONAL AND IMPLANT DIRECT SYBRON MANUFACTURING, LLC'S MOTION FOR SUMMARY JUDGMENT ON ZEST'S CLAIMS BASED ON POST-ACQUISITION LIABILITY
[Dkt. No. 456.]
2) GRANTING IN PART AND DENYING IN PART ZEST ANCHORS, LLC AND ZEST IP HOLDINGS LLC'S MOTION FOR SUMMARY JUDGMENT THAT IDSI IS LIABLE FOR PRE- AND POST-TRANSACTION CONDUCT AND BOUND TO THE COURT'S PRIOR ORDERS AND IMPLANT DIRECT'S LITIGATION DECISIONS
[Dkt. No. 467.]
3) GRANTING IN PART AND DENYING IN PART IMPLANT DIRECT INTERNATIONAL, IMPLANT DIRECT LLC, AND IMPLANT DIRECT MFG, LLC'S MOTION FOR PARTIAL SUMMARY JUDGMENT
[Dkt. No. 468.]
Presently before the Court are cross-motions for summary judgment on the issue of whether successor-in-interest Defendants Implant Direct Sybron International and Implant Direct Sybron Manufacturing, LLC (collectively, "IDSI") can be held liable in the present action for Zest's claims against them arising out of conduct following the transaction that created the IDSI entities. (Dkt. Nos. 456, 467, 468.) Respective motions have been filed by: (1) the IDSI Defendants, (Dkt. No. 456); (2) Plaintiffs Zest Anchors, LLC and Zest Holdings, LLC (collectively, "Plaintiffs"), (Dkt. No. 467); and (3) named Defendants Implant Direct Mfg. LLC, Implant Direct LLC, and Implant Direct International (collectively, "Implant Direct"), (Dkt. No. 468). The Parties have fully briefed all three motions. (See Dkt. Nos. 489, 490, 491, 498, 499, 500.) A hearing was held on October 3, 2014. (Dkt. No. 532.) Lisa Ferri, Esq., Manuel J. Velez, Esq., and Andrew Edelstein, Esq. appeared on behalf of Plaintiffs; A James Isbester, Esq., Megan Chung, Esq., and Christopher Mead (telephonic) appeared on behalf of the IDSI Defendants; and Michael Hurey, Esq. and Christopher Dugger, Esq. appeared on behalf of the Implant Direct Defendants.
In essence, the Parties' cross-motions seek to determine the scope of the Implant Direct and IDSI Defendants' potential liability for the present litigation due to the transfer of interest between them at the end of December, 2010 ("2010 Transaction"). After the Implant Direct Defendants transferred their assets and liabilities into the newly-created IDSI subsidiaries, no party in this litigation - not the Implant Direct Defendants, the newly formed IDSI Defendants, or the Zest Plaintiffs - timely brought the issue of joinder to the Court's attention until Zest filed a motion to join the IDSI Defendants more than a year and a half later on August 21, 2012. (Dkt. No. 116.)
The Parties now dispute whether the present litigation includes allegations for conduct occurring after the transfer of interest between Implant Direct and IDSI.The Implant Direct Defendants, as originally named in Zest's initial Complaint filed March 12, 2010, argue they are not liable for any post-2010 Transaction conduct because they transferred all assets and liabilities to IDSI and ceased conducting business. The IDSI entities, joined to this action as successors-in-interest pursuant to Federal Rules of Civil Procedure 25(c), do not dispute that they assumed the liabilities of the Implant Direct entities for Implant Direct's conduct prior to the 2010 Transaction. However, IDSI maintains that they were joined to this action solely as successors to the actions of Implant Direct, and cannot be held liable for their own post-2010 Transaction conduct unless Zest files a Second Amended Complaint naming the IDSI entities for their own conduct or files a separate action for that separate conduct. Zest argues IDSI takes the case as they found it and are bound to the litigation decisions of Implant Direct and this Court's prior orders in this case. The Court agrees with Zest and Implant Direct.
Based on a review of the Parties' briefing, the lengthy record, submitted evidence, oral arguments by the parties, and the applicable law, the Court: (1) DENIES the IDSI Defendants' Motion for Summary Judgment on Zest's Claims Based on Post-Acquisition Liability, (Dkt. No. 456); (2) GRANTS in part and DENIES in part Zest's Motion for Summary Judgment that IDSI is Liable for Pre-and Post-Transaction Conduct and Bound to the Court's Prior Orders and Implant Direct's Litigation Decisions, (Dkt. No. 467); and (3) GRANTS in part and DENIES in part the Implant Direct Defendants' Motion for Partial Summary Judgment, (Dkt. No. 468).
As set forth in prior orders in this case, this is a patent and trademark infringement action involving dental attachment products. (See Dkt. No. 1.) The procedural history in this four-and-a-half year old litigation is long and complex.
On March 12, 2010, Zest filed the initial Complaint in the present action,naming Defendants Implant Direct International, Implant Direct LLC, and Implant Direct MFG, LLC. (Dkt. No. 1.) On August 27, 2010, Zest filed a First Amended Complaint ("FAC"), the current operative Complaint. (Dkt. No. 13.) The gravamen of the FAC is that Implant Direct manufactures, offers for sale, and sells the "GoDirect" dental attachment product and the GoDirect Prosthetic System ("GPS") (collectively, "Accused Products") in violation of Zest's patents, and falsely and unfairly uses the ZEST® and LOCATOR® trademarks when marketing the Accused Products. (See Dkt. No. 13 ¶¶ 6, 7, 20, 21, 24-28, 30-32.) The FAC alleges eight causes of action against the Implant Direct Defendants: (1) Infringement of U.S. Patent No. 6,030,219; (2) Infringement of Patent No. 6,299,447; (3) Trademark Infringement; (4) False Designation of Origin; (5) False Advertising; (6) California UCL; (7) California statutory False Advertising; and (8) Common Law Unfair Competition. (Id.) On September 17, 2010, Implant Direct filed an Answer to Plaintiffs' First Amended Complaint. (Dkt. No. 17.)
Under the terms of a transaction agreement dated November 17, 2010 ("Transaction Agreement"), Implant Direct entered into a corporate transaction with Sybron Canada Holdings, Inc. for an "arms-length" sale whereby the Implant Direct entities formed and transferred 100% of their interests into wholly-owned subsidiaries, which were then purchased by Sybron Canada Holdings, Inc. ("Sybron"). (See Dkt. No. 521, Velez Decl. Ex. 1.) In particular, Implant Direct Mfg. LLC became Implant Direct Sybron Manufacturing, LLC and Implant Direct International became Implant Direct Sybron International LLC. (See Dkt. No. 146 at 4; Dkt. No. 521-2, Velez Decl. Ex. 3, Chang Depo. at 69:20-70:4.)
Pursuant to the Transaction Agreement, the IDSI entities assumed "the following liabilities of Sellers solely to the extent relating to the ID Business: . . . (iii) . . . all Liabilities arising out of the ownership, use or operation by the Joint Venture Companies of the ID Contributed Assets following the Closing, and (iv)numbers 1, 2, 3, 5, and 6 on the litigation summary attached to Section 2.16 of the Sellers' Disclosure Schedule . . ." (Dkt. No. 521, Velez Decl. Ex. 1 at § 9.1(qq).) The referenced "litigation summary" lists nine items under the heading "A summary of all pending or threatened litigation or action against the Company." (Dkt. No. 521-1, Velez Decl. Ex. 2, Litigation Summary.) The litigation summary discloses the present litigation as item two, stating that:
Zest Anchors filed a Complaint alleging that Implant Direct's GoDirect one-piece implant infringes its patent. GoDirect implants account for about 0.2% of Implant Direct's implant sales, and Implant Direct has filed for a Patent on this product. . . Implant Direct anticipates litigation with Zest when Implant Direct launches its new GPS abutment system, for which Implant Direct has also filed a patent application.. Implant Direct believes that it does not infringe the Zest patent, and also that it is protected from claims of inducing infringement because the Zest cap attachment works with the Implant Direct GPS Abutment. Zest served the Complaint on July 7, 2010 and filed an Amended Complaint on August 27, 2010.
(Id. at 3) (emphases in original).
Zest has introduced significant evidence, largely unrefuted by Implant Direct or IDSI, that IDSI continued the sales of the Accused Products and has participated in the present litigation since the 2010 Transaction. As for sales of the Accused Products, the evidence reflects that business continued with little change after the 2010 Transaction. IDSI continues to make the same products Implant Direct did, including the Accused Products. (Dkt. No. 467-4, Velez Decl. Ex. 5, Markman Hearing Transcr. at 94:17-19; Dkt. No. 521-2, Velez Decl. Ex. 3 at 81:5-20, 118:9-119:9.) Dr. Gerald Niznick ("Dr. Niznick"), the designer of the Accused Products, served as Implant Direct's President and CEO and was hired to remain as President and CEO of the IDSI entities. (Dkt. No. 521-4, Velez Decl. Ex. 6, Niznick Depo. at 243:24-245:6.) Zest has also introduced evidence that the IDSI "maintains the same address as its predecessor, utilizes the same web address (www.implantdirect.com), and even employs the same marketing and sales materials as its predecessor." (Dkt. No. 467-1 at 5) (internal citations omitted).
Likewise, the Court's docket and Zest's uncontroverted evidence reflect thatthis litigation continued with substantial IDSI participation after the 2010 Transaction. In particular, Zest's counsel declares that Stephen Tomassi, an executive from Sybron and a future board member of IDSI, attended the Early Neutral Evaluation held on December 9, 2010 and indicated that IDSI would "be involved in the case." (Dkt. No....
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