Opinion
A-21-CV-1125-DII
06-05-2023
MY BUCKET JOURNALS, LLC, Plaintiff, v. KEITH NAGY AND SONJA NAGY D/B/A TEXAS BINDERY SERVICES AND MY NATURE BOOK ADVENTURES, LLC, Defendants.
REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
MARK LANE UNITED STATES MAGISTRATE JUDGE
TO THE HONORABLE UNITED STATES DISTRICT JUDGE:
Before the court is Plaintiff My Bucket Journals, LLC's Motion for Judgment on the Pleadings as to Count III of Defendants' Remaining Counterclaim (Dkt. #59) and all related briefing. After reviewing the pleadings and the relevant case law, and determining that a hearing is unneeded, the undersigned issues the following Report and Recommendation.
The motion was referred by then-presiding United States District Judge Lee Yeakel to the undersigned for a Report and Recommendation as to the merits pursuant to 28 U.S.C. § 636(b), Rule 72 of the Federal Rules of Civil Procedure, and Rule 1(d) of Appendix C of the Local Rules of the United States District Court for the Western District of Texas. Dkt. #68.
I. Background
Plaintiff My Bucket Journals used Texas Bindery Services to print copies of journals she created for commercial sales. Dkt. #4 (First Amd. Compl. or FAC) ¶¶ 16-19. Generally, Plaintiff alleges Defendants copied her journal ideas and templates to create and sell their own competing products through their My Nature Book Adventures business. Id. ¶¶ 20-21, 28. Plaintiff asserts claims for Lanham Act violations, fraud, Texas Deceptive Trade Practices Act violations, Texas Uniform Trade Secrets Act violations, Theft Liability Act violations, and unjust enrichment. Id. ¶¶ 31-57. The undersigned previously recommended dismissing Defendants' counterclaims for tortious interference, unfair competition, and malicious prosecution. Dkt. #52. The District Judge adopted that Report and Recommendation. Dkt. #55. Plaintiff now moves to dismiss Defendants' sole remaining counterclaim for declaratory judgment under Rule 12(c). Dkt. #59.
The Nagys own or control both Texas Bindery Services and My Nature Book Adventures, LLC. FAC at ¶¶ 2-4, 20, 22.
II. Standard of Review
“A motion for judgment on the pleadings under Rule 12(c) is subject to the same standard as a motion to dismiss under Rule 12(b)(6).” Ackerson v. Bean Dredging LLC, 589 F.3d 196, 209 (5th Cir. 2009). When evaluating a motion to dismiss for failure to state a claim under Rule 12(b)(6) the complaint must be liberally construed in favor of the plaintiff and all facts pleaded must be taken as true. Leatherman v. Tarrant Cnty. Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 164 (1993); Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996). Although Federal Rule of Civil Procedure 8 mandates only that a pleading contain a “short and plain statement of the claim showing that the pleader is entitled to relief,” this standard demands more than unadorned accusations, “labels and conclusions,” “a formulaic recitation of the elements of a cause of action,” or “naked assertion[s]” devoid of “further factual enhancement.” Bell Atl. v. Twombly, 550 U.S. 544, 555-57 (2007). Rather, a complaint must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” Id. at 570. The Supreme Court has made clear this plausibility standard is not simply a “probability requirement,” but imposes a standard higher than “a sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The standard is properly guided by “[t]wo working principles.” Id. First, although “a court must ‘accept as true all of the allegations contained in a complaint,' that tenet is inapplicable to legal conclusions” and “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. at 678. Second, “[d]etermining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 679. Thus, in considering a motion to dismiss, the court must first identify pleadings that are no more than legal conclusions not entitled to the assumption of truth, then assume the veracity of well-pleaded factual allegations and determine whether those allegations plausibly give rise to an entitlement to relief. If not, “the complaint has alleged-but it has not ‘show[n]'-‘that the pleader is entitled to relief.'” Id. at 679 (quoting FED. R. CIV. P. 8(A)(2)).
III. Analysis
Plaintiff argues Defendants' declaratory judgment counterclaim should be dismissed because it duplicates the merits of Plaintiff's Lanham Act unfair competition claim and Defendants' affirmative defenses. Defendants argue the counterclaim is broader than the affirmative defenses and different from Plaintiff's claims. The counterclaim at issue asserts:
88. Upon information and belief, there is a genuine and bona fide dispute and an actual controversy and disagreement between Defendants and Plaintiff with respect to the validity, enforceability, and infringement of the Plaintiff's alleged rights, which sound in, or are related to, copyright, trademark, and/or trade dress.
89. Pursuant to the Declaratory Judgment Act, 28 U.S.C. §§ 2201 and 2201, Defendants in good faith request that the Court declare the following:
(a) The alleged rights asserted by Plaintiff are invalid;
(b) The alleged rights asserted by Plaintiff are unenforceable;
(c) The alleged rights asserted by Plaintiff have not been infringed, directly or indirectly, by Defendants;
(d) Defendants are entitled to recovery of their costs and attorneys' fees in light of the facts and evidence set forth herein.Dkt. # 24 ¶¶ 88-89.
Under the Declaratory Judgment Act, a federal court “may declare the rights and other legal relations of any interested party seeking such declaration.” 28 U.S.C. § 2201. The Act does not create new substantive rights. Medtronic, Inc. v. Mirowski Family Ventures, LLC, 571 U.S. 191, 199 (2014) (citing Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 509 (1959)). It is “only ‘procedural.'” Id. (quoting Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240 (1937)). “By the Declaratory Judgment Act, Congress . . . created an opportunity, rather than a duty, to grant a new form of relief to qualifying litigants.” Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995). “Consistent with the nonobligatory nature of the remedy,” a district court may dismiss a claim for declaratory judgment at its discretion if the court determines “that a declaratory judgment will serve no useful purpose.” Id.
“[A]lthough a district court may not dismiss a request for declaratory judgment relief ‘on the basis of whim or personal disinclination,' the court may consider a variety of factors in determining whether to decide a declaratory judgment suit.” Rowan Cos. v. Griffin, 876 F.2d 26, 28-29 (5th Cir. 1989) (quoting Hollis v. Itawamba County Loans, 657 F.2d 746, 750 (5th Cir. 1981)). Courts in the Fifth Circuit typically consider a three-step inquiry: whether the action is justiciable; whether the district court has “authority to grant the relief”; and “how to exercise [the court's] broad discretion to decide or dismiss a declaratory judgment action.” Orix Credit Alliance, Inc. v. Wolfe, 212 F.3d 891, 895 (5th Cir. 2000); Bowman, 2018 WL 1115202, at *3. Because neither party disputes that the action is justiciable and that the court otherwise has authority to grant the requested relief, the undersigned considers dismissal based only on the third factor, the district court's discretion.
“District courts in the Fifth Circuit regularly reject declaratory judgment claims that seek resolution of matters that will already be resolved as part of the claims in the lawsuit.” Bowman v. Bella Estancias, LLC, No. 3:17-CV-0091-KC, 2018 WL 1115202, at *3 (W.D. Tex. Feb. 15, 2018) (citing City of Waco v. Kleinfelder Cent., Inc., No. 6:15-CV-310 RP, 2016 WL 5854290, at *9 (W.D. Tex. Oct. 6, 2016); Edwards v. U.S. Bank Nat'l Ass'n, No. 6:15-CV-02535, 2016 WL 4574585, at *6 (W.D. La. June 28, 2016), report and recommendation adopted, No. 6:15-CV-02535, 2016 WL 4626252 (W.D. La. Sept. 1, 2016); Flanagan v. Chesapeake Expl., LLC, No. 3:15-CV-0222-B, 2015 WL 6736648, at *4 (N.D. Tex. Nov. 4, 2015)). The Fifth Circuit has found an abuse of discretion and reversed a grant of declaratory relief where “[t]he declaratory judgment does not declare any significant rights not already at issue in the contract dispute.” Madry v. Fina Oil & Chem. Co., 44 F.3d 1004, 1994 WL 733494, at *2 (5th Cir. 1994) (unpublished). “If a request for a declaratory judgment adds nothing to an existing lawsuit, it need not be permitted.” Bowman, 2018 WL 1115202, at *3 (citations omitted).
A counterclaim for declaratory judgment is duplicative where the declaration would address the merit of the plaintiff's claim. For example, in Bowman, the plaintiff filed suit alleging violations of the Fair Housing Act under Title VII of the Civil Rights Act (“FHA”). Bowman, 2018 WL 1115202, at *1. The defendant filed counterclaims seeking declaratory judgment regarding (1) whether the property at issue was subject to the FHA; (2) fact issues regarding the construction of the property; (3) whether the plaintiff complied with the FHA's “reporting and complaint requirements”; and (4) whether the defendant was entitled to “safe harbor provisions.” Id. at *3. The district court dismissed the declaratory judgment counterclaims under Rule 12(b)(6), ruling that the counterclaims sought “resolution of matters already before the court” through the plaintiff's FHA claim. Id. at *3-4 (citations omitted). Similarly, in City of Waco, the City filed an action for breach of contract and the defendant filed a counterclaim for declaratory judgment stating that (1) the defendant was not party to the disputed agreement and (2) the agreement barred the damages sought. City of Waco, 2016 WL 5854290, at *2. The district court dismissed the counterclaim for declaratory judgment as “unnecessary because Plaintiff has already placed the issues relevant to Defendants counterclaim before the Court.” Id. at *9 (citations omitted).
Defendants' counterclaim only seeks a declaration that Plaintiff's “asserted rights” are invalid, unenforceable, or not infringed. These are already at issue in the litigation through Plaintiff's claims. Nonetheless, Defendants argue the counterclaim does not duplicate their affirmative defenses and “[b]ecause of Plaintiff's allegations, the affirmative defenses and counterclaim III are necessary defenses as to why Plaintiff is not entitled to the relief requested.” Dkt. #67 at 7. This actually concedes that nothing new is put at issue through the counterclaim. Defendants contend that if Plaintiff succeeds on its claims, the affirmative defenses and counterclaim “might help ameliorate damages or prevent an award of attorneys' fees based thereon.” Dkt. #67 at 8. But the affirmative defenses are not the subject of this motion. And Defendants do not explain how the counterclaim would limit Plaintiff's recovery if it succeeds on its claims. Defendants have failed to show the counterclaim places new issues before the court.
IV. Recommendations
For the reasons stated above, the undersigned RECOMMENDS that the District Court GRANT Plaintiff, My Bucket Journals, LLC's Motion for Judgment on the Pleadings as to Count III of Defendants' Remaining Counterclaim (Dkt. #59) and DISMISS Count 3 of Defendants' counterclaims without prejudice.
V. Objections
The parties may file objections to this Report and Recommendation. A party filing objections must specifically identify those findings or recommendations to which objections are being made. The District Court need not consider frivolous, conclusive, or general objections. See Battles v. United States Parole Comm'n, 834 F.2d 419, 421 (5th Cir. 1987).
A party's failure to file written objections to the proposed findings and recommendations contained in this Report within fourteen (14) days after the party is served with a copy of the Report shall bar that party from de novo review by the District Court of the proposed findings and recommendations in the Report and, except upon grounds of plain error, shall bar the party from appellate review of unobjected-to proposed factual findings and legal conclusions accepted by the District Court. See 28 U.S.C. § 636(b)(1)(C); Thomas v. Arn, 474 U.S. 140, 150-53 (1985); Douglass v. United Services Auto. Ass'n, 79 F.3d 1415 (5th Cir. 1996)(en banc).