Opinion
Case No. 2:04-CV-00911PGC.
August 5, 2005
ORDER STAYING MOTION FOR SUMMARY JUDGMENT PENDING LIMITED DISCOVERY
This matter is before the court on Premier Nutrition's motion for summary judgment. Because the dispute in this case is solely for breach of contract, this court lacks subject matter jurisdiction and therefore dismisses the case.
BACKGROUND
On April 27, 2001, plaintiff Premier One filed a complaint in this court against Premier Nutrition alleging, among other things, violations of the Lanham Act for trademark infringement. The lawsuit resulted in a settlement by which Premier Nutrition agreed that it would "stop selling, marketing and/or advertising products with a trademark or logo with both the word `premier' and the word `one' and/or the numeral `1' by July 2, 2004." If Premier Nutrition breached the agreement, Premier One was required to send a 30-day written notice after which Premier Nutrition was required to immediately cease any activity breaching the agreement. The agreement further provided:
If after the 30-day notice in the previous paragraph, Premier Nutrition does not immediately cease and desist, Premier Nutrition agrees that Premier One may immediately apply for an injunction, prohibiting Premier Nutrition from selling, marketing and/or advertising products with a trademark or logo with both the word "premier" and the word "one" and/or the numeral "1."
The agreement further provided:
Premier One hereby releases, acquits, and forever absolutely discharges Premier Nutrition . . . from any and all actions, causes of action, claims, debts, liabilities, accounts, demands, damages, causes, claims for indemnification or contribution, or any other thing whatsoever whether known or unknown, suspected or unsuspected, certain or speculative, relating to the subject matter or or relating to the claims, counterclaims, and/or defenses asserted in the Civil Action, provided, however, that this paragraph shall not apply to relieve Premier Nutrition of its obligations under this Settlement Agreement.
In July, 2002, Premier Nutrition apparently mistakenly ordered large quantities of product packaging with the prohibited logo. Premier Nutrition requested that the settlement agreement be modified so that it could use the wrappers, but Premier One refused. Counsel for Premier One sent a letter to Premier Nutrition demanding that it not use the wrappers and requesting a written certification from the President of Premier Nutrition that it had stopped using the logo. Christopher Geist, the COO of Premier Nutrition signed a certification stating, "Premier Nutrition hereby certifies and confirms that as of July 2, 2004, it has stopped selling, marketing and/or advertising products with a trademark or logo with the word `premier' and the word `one' and/or the numeral `1.'"
On August 12, 2004, Greg Cooper of Arizona Health Foods ordered a case of Premier Odyssey caramel nut triple layer protein bars from Premier Nutrition. The product arrived on August 25, 2004. The logos on the case and the packaging for each of the bars contained both the word "premier" and the numeral "1." Premier One sent Premier Nutrition a letter dated August 25, 2004, giving notice that Premier Nutrition was in violation of the settlement agreement and demanding that Premier Nutrition immediately cease and desist any and all use of the prohibited logo.
Pursuant to the settlement agreement, Premier One filed a motion for preliminary injunction with this court. The court denied the motion, finding that any petition for injunctive relief was already moot. Premier Nutrition did not raise any jurisdictional objections at that time, and the court did not inquire into whether jurisdiction was proper. Premier Nutrition has now filed a motion for summary judgment arguing that this court does not have subject matter jurisdiction because no federal question has been presented and the matter in controversy does not exceed $75.000.
DISCUSSION
The jurisdictional issue in this case is rather straightforward. Premier One alleges that the Complaint raises federal question jurisdiction because it asserts a cause of action under the Lanham Act. Premier Nutrition alleges that any Lanham Act cause of action was resolved by the Settlement Agreement ending the prior action, so that the only claim really at issue in this case is whether the Settlement Agreement has been breached.
The language of the Settlement Agreement is unambiguous. Premier One released Premier Nutrition "from any and all actions, causes of action, claims, debts, liabilities, accounts, demands, damages, causes, claims for indemnification or contribution, or any other thing whatsoever whether known or unknown . . . relating to the subject matter of or relating to the claims . . . asserted in the Civil Action, provided however, that this paragraph shall not apply to relieve Premier Nutrition of its obligations under the Settlement Agreement." In other words, Premier Nutrition was released from all claims "relating to the subject matter" of the civil action that led to the Settlement Agreement (including the Lanham Act claims), and became liable only for future breaches of the Settlement Agreement itself.
In this case, Premier One has asserted a breach of the Settlement Agreement, but has also again asserted breaches of the Lanham Act. But Premier One released its claims under the Lanham Act pursuant to the Settlement Agreement. As a result, while Premier One may have a cause of action for breach of the Agreement, it does not have a cause of action under the Lanham Act. Breach of a contract about trademarks is still nothing more than a simple contract dispute which does not present a federal question.
The case law is in accord with this reasoning. The Seventh Circuit has held, for example, that where a federal trademark claim was resolved by an agreement in prior litigation, a later dispute over that agreement was not a suit which presented a federal question.
The short of the matter is this: The suit involves a claim for breach of a contract, part of the consideration for which was dismissal of an earlier federal suit. No federal statute makes that connection (if it constitutionally could) the basis for federal-court jurisdiction over the contract dispute. The facts to be determined with regard to such alleged breaches of contract are quite separate from the facts to be determined in the principal suit, and automatic jurisdiction over such contracts is in no way essential to the conduct of federal-court business. If the parties wish to provide for the court's enforcement of a dismissal-producing settlement agreement, they can seek to do so. . . . Absent such action, however, enforcement of the settlement agreement is for state courts, unless there is some independent basis for federal jurisdiction.
Int'l Armor Limousine Co. v. Moloney Coachbuilders, Inc., 272 F. 3d 912, 914-17 (7th Cir. 2001).
Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 381 (1994).
Likewise here; in 2001 Premier One brought an action in federal court for violations of the Lanham Act. That dispute was settled through an agreement which released Premier Nutrition from further liability except for violation of the Agreement. The Lanham Act claims were, in essence, merged into the Settlement Agreement, which became Premier One's remedy against Premier Nutrition. This court does not have jurisdiction to enforce the Agreement since no federal question is presented and the parties did not reserve the right to return to federal court for enforcement.
Premier One tries to avoid this result by alleging that its federal question claims under the Lanham Act should be allowed to go forward because Premier Nutrition failed to raise the affirmative defense of "release" in its answer. That is, Premier One argues that while the Lanham Act claims may indeed have been released by the Settlement Agreement, Premier Nutrition failed to raise the affirmative defense of "release" in its answer and should therefore be estopped from relying on the defense to prevent the federal claims from going forward. To be sure, Rule 8(c) of the Federal Rules of Civil Procedure specifically lists "release" as an affirmative defense which must be pled. But although the counterclaim does not specifically raise the issue of "release," it does sufficiently allege that the Settlement Agreement became Premier One's sole remedy following resolution of the 2001 lawsuit. Thus, Premier Nutrition has effectively raised the issue of release in its counterclaim. Rule 8(c) provides: "When a party has mistakenly designated a defense as a counterclaim or a counterclaim as a defense, the court on terms, if justice so requires, shall treat the pleading as if there had been a proper designation." The counterclaim, therefore, can be viewed as raising the affirmative defense.
Moreover, this court will not ignore the plain language of the Settlement Agreement to allow federal claims to go forward which were clearly resolved as a part of earlier litigation. To this end, Premier Nutrition did specifically raise the defense of "estoppel" in its answer to the complaint. "Estoppel" is a broad term which can include "estoppel by contract," meaning "[a] bar against a person denying a term, fact, or performance arising from a contract that the person has entered into." "Estoppel" can clearly encompass the doctrine of release; i.e., Premier One should be estopped from raising a federal Lanham Act claim because such claims were released by the Agreement reached to resolve the 2001 litigation. Thus, no matter how it is parsed, the federal claims now before this court are really not before this court at all and we are left solely with a simple contract dispute.
BLACK'S LAW DICTIONARY at 571 (7th ed. 1999).
Premier One also alleges that even if Premier Nutrition has not waived the defense of release, it is still nothing more than an affirmative defense and cannot deprive the court of jurisdiction. As a general matter, this may be true. The Tenth Circuit has held, for example, that "res judicata is not a jurisdictional bar; it is an affirmative defense, and, thus, would not defeat subject matter jurisdiction. . . ." Thus, when a plaintiff brings a federal cause of action, the existence of an affirmative defense which must be proved to overcome the federal claim typically does not defeat federal question jurisdiction. But jurisdiction is not automatic because the plaintiff has stated a federal claim in the complaint; otherwise, complainants could easily bring any suit in federal court by simply pleading a federal cause of action, no matter how tenuous or frivolous. For example, the Tenth Circuit has noted that it is common in LMRA claims for plaintiffs to invoke federal question jurisdiction through "artfully pleading" a federal question when it is clear that the real action is for breach of a collective bargaining agreement. In such circumstances the court must "look beyond the allegations of the complaint" to see whether a true federal question has been raised.
In re Franklin Savings Corp., 385 F.3d 1279, 1286 (10th Cir. 2004).
Karnes v. Boeing Co., 335 F.3d 1189, 1193 (10th Cir. 2003).
In a case similar to this one, the Seventh Circuit found that a plaintiff could not invoke federal question jurisdiction by artfully pleading a federal trademark claim where the trademark dispute had been resolved by a contract between the parties. In International Armor Limousine Co. v. Moloney Coachbuilders, Inc. the plaintiff filed a declaratory judgment action asking the court to declare that he was not violating the defendant's trademark rights. The defendant had sold his business "Moloney Coach Builders" to the plaintiff in 1986 pursuant to a contract which gave the plaintiff all of the assets of the limousine business as well as the name "Moloney Coach Builders." The plaintiff thereafter incorporated "Moloney Coachbuilders, Inc." and continued carrying on the business. Disputes arose and the defendant contended that he had sold the plaintiff the right to use the name "Moloney Coach Builders" but had not granted the plaintiff the right to use the name as a trademark for his products. The declaratory judgment action invoked federal question jurisdiction and sought a declaration that the plaintiff was not in violation of the defendant's trademark rights.
Int'l Armor Limousine Co. v. Moloney Coachbuilders, Inc., 272 F. 3d 912, 914-17 (7th Cir. 2001).
The district court ruled in favor of the defendant, but the Seventh Circuit sua sponte raised the issue of jurisdiction and reversed, finding that there was no federal question jurisdiction. The court noted that while both parties had pursued the case as one of trademark infringement, the real dispute was simply one of ownership over the trademark. While federal law created the ownership right, the underlying cause of action was still a simple contract dispute.
Many federal statutes create property rights that may become the subject of ownership disputes: copyright law, patent law, trademark law, and a score of licensing systems. Any fight about ownership could be recharacterized as a claim for redress under federal law. For example, if A sells a patent to B, and A then practices the invention without B's consent, a suit alleging patent infringement may conceal a dispositive contract issue (A may defend the infringement by saying that the contract is invalid).
Id. at 914.
The court then phrased the issue this way: "If the outcome of a suit nominally under federal law depends entirely on the state law of contracts, does the dispute come within the federal-question jurisdiction of 28 U.S.C. § 1331, which applies to `all civil actions arising under' the Constitution, laws, or treaties of the United States"? The court then noted that it was a well-recognized rule that although copyright, patent, and trademark rights exist only under federal law, disputes over the ownership of such rights did not present a federal question.
Id.
Id. at 915-16 (citing cases).
The plaintiff then tried to distinguish this rule as applying only to "pure" ownership disputes, since the cases cited in support did not charge the defendant with infringement of federal law, whereas he had explicitly charged a violation of the Lanham Act. Indeed, the plaintiff attempted the same distinction Premier One attempts here, arguing that the contract may present an affirmative defense, but the court must still resolve the pleaded Lanham Act violation. The Seventh Circuit rejected the attempted distinction. In reaching its decision, the Seventh Circuit relied on a similar case from the Ninth Circuit. In Postal Instant Press v. Clark, the Ninth Circuit found that no federal question jurisdiction was present even though the plaintiff had explicitly pled his cause of action under the Lanham Act. In that case, the plaintiff filed a complaint under the Lanham Act alleging that the defendant had violated a covenant not to compete in a franchise termination agreement by infringing upon the plaintiff's trademark. Despite the explicit invocation of the Lanham Act the Circuit stated that it was
741 F.2d 256 (9th Cir. 1984).
clear that this action fundamentally asserts contract claims and only incidentally involves the Lanham Trade-Mark Act. As stated by the Second Circuit in the patent and copyright area:
[T]he federal grant of a patent or copyright has not been thought to infuse with any national interest a dispute as to ownership or contractual enforcement turning on the facts or on ordinary principles of contract law. Indeed, the case for an unexpansive reading of the provision conferring exclusive jurisdiction with respect to patents and copyrights has been especially strong since expansion could entail depriving the state courts of any jurisdiction over matters having so little federal significance.
Just as the mere existence of a patent or copyright does not confer federal jurisdiction over what is essentially a contract dispute, the mere existence of the protected trade name and attendant symbol herein does not provide a basis for federal jurisdiction.
Id. at 257 (quoting T.B. Harms Co. v. Eliscu, 339 F.2d 823, 826 (2d Cir. 1964)).
The plaintiff's argument in Postal Instant Press is in essence identical to Premier One's argument here — "The defendant violated my trademark rights because we agreed in a contract that he would no longer use the trademark." Indeed, in its Complaint, Premier One states: "Despite having agreed in a written, binding settlement agreement . . . to cease printing additional labels and marketing materials . . . and to cease using Premier One's trademark . . . Premier Nutrition has willfully continued to market and sell goods, using the mark PREMIER 1." From the quoted language it is clear that Premier One is arguing that Premier Nutrition violated the Settlement Agreement, not the Lanham Act.
[But [i]nstead of relying on the contract claims directly, [Premier One has] tried to frame trademark issues that immediately vanish, a coat of water-soluble paint that washes away to reveal the contract dispute underneath. That disappearing-ink trick does not create federal jurisdiction; it simply defines artful pleading. And as stated by the Seventh Circuit, "Turning the telescope around in this way should not be a means to create federal jurisdiction. . . ."
Id.
Int'l Armor, 272 F.3d at 916.
In this case, any federal question concerning the use of Premier One's trademarks was resolved in the prior litigation by the Settlement Agreement. Further use of the trademark, therefore, is not in violation of the Lanham Act (that issue having already been resolved) but of the Settlement Agreement, and is therefore a pure contract dispute. This court does not have jurisdiction over pure contract disputes where no other federal question is presented.
Finally, in its complaint, Premier One also invokes diversity jurisdiction (as does Premier Nutrition in its counterclaim). As part of its motion for summary judgment, Premier Nutrition argues that there is not $75,000 in dispute. Premier One has not disputed Premier Nutrition's contention concerning the amount in controversy, and a party may not simply rely on its pleadings to defeat a motion for summary judgment. Moreover, "[o]nce the propriety of the amount in controversy is challenged, the party seeking to invoke the subject matter jurisdiction of the federal courts has the burden of proving its existence. . . ." Premier One has made no effort to establish that the amount in controversy exceeds $75,000.
Wright Miller, Federal Practice and Procedure, § 3702 (3d ed. 1998).
Neither side has dealt with the issue of Premier Nutrition's counterclaim, which also asserts diversity jurisdiction and an amount in controversy which exceeds $75,000. The Tenth Circuit has held that a counterclaim which standing alone satisfies the amount in controversy requirement can confer diversity jurisdiction. The court, therefore, takes Premier Nutrition's motion and memorandum as a concession that its counterclaim, standing alone, would not satisfy the amount in controversy requirement. Moreover, the Tenth Circuit appears unwilling to go as far as allowing the claim and counterclaim to be aggregated. Therefore, with no opposition from Premier One, Premier Nutrition's argument that this case does not meet the amount in controversy requirement appears well-founded.
Geoffrey E. Macpherson, Ltd. v. Brinecell, Inc., 98 F.3d. 1241, 1245 n. 2 (10th Cir. 1996).
State Farm Mut. Auto Ins. Co. v. Narvaez, 149 F.3d 1269, 1271 (10th Cir. 1998).
But while Premier One has made no effort to establish the amount in controversy in opposition to Premier Nutrition's motion for summary judgment, Premier One has filed a separate motion pursuant to Rule 56(f) requesting time to conduct discovery to determine the extent of Premier Nutrition's breach of the Settlement Agreement and the amount of damages caused by it.
When a party files an affidavit under Rule 56(f) for additional discovery time, the party invokes the trial court's discretion. The trial court may deny the affiant's request for additional time, deny the motion for summary judgment, order a continuance for additional discovery or make such other order as is just. Unless dilatory or lacking in merit, the motion should be liberally treated.
To invoke the protection of Rule 56(f), the party filing the affidavit must state with specificity how the desired time would enable [the nonmoving party] to meet its burden in opposing summary judgment. Rule 56(f) may not be invoked by the mere assertion that discovery is incomplete or that specific facts necessary to oppose summary judgment are unavailable[.] Moreover, merely asserting that the evidence supporting a party's allegation is in the hands of the opposing party is insufficient to justify a denial of a motion for summary judgment under Rule 56(f). Rather, the party filing the affidavit must show how additional time will enable him to rebut the movant's allegations of no genuine issue of fact. Furthermore, if the party filing the Rule 56(f) affidavit has been dilatory, or the information sought is either irrelevant to the summary judgment motion or merely cumulative, no extension will be granted.
Jensen v. Redevelopment Agency of Sandy City, 998 F.2d 1550, 1553-54 (10th Cir. 1993).
"When federal subject matter jurisdiction is challenged based on the amount in controversy requirement, the plaintiff must show that it does not appear to a legal certainty that he cannot recover at least $75,000." In other words, disregarding the double negative, Premier One must show that there is some possibility that it can recover $75,000. Good faith allegations in a complaint are often enough to establish the amount in controversy. But in this case, we are beyond that stage. Premier Nutrition has challenged the amount in controversy in its motion for summary judgment and Premier One has responded with a Rule 56(f) motion. This means that Premier One must particularly establish through affidavit in support of its Rule 56(f) motion that further discovery will allow it to show that there is some possibility that it will be able to recover at least $75,000.
Watson v. Blankinship, 20 F.3d. 383, 386 (10th Cir. 1994).
Id.
Premier One has filed an affidavit from its attorney, Peggy Tomsic, in support of its Rule 56(f) motion. The affidavit makes general allegations about how Premier One has been unable to determine the extent of Premier Nutrition's breach of the settlement agreement and whether the breach was limited to a single instance. The affidavit also states that Premier Nutrition has not cooperated in providing Premier One with discovery which would allow Premier One to answer these questions. The court therefore will stay its ruling on the motion for summary judgment for 30 days to allow Premier One to conduct limited discovery into these issues. Specifically, Premier One shall have 30 days to discover the extent of the breach of the Settlement Agreement and the damages caused by it. Such discovery shall be limited, however, to two depositions, ten interrogatories, and ten requests for admission related specifically to this issue. Limiting discovery seems particularly appropriate because of the fairly low threshold of establishing the amount in controversy. Premier Nutrition is ordered to fully cooperate in this limited discovery. If Premier Nutrition does not fully cooperate, the court will exercise its discretion under Rule 37 and deem the amount in controversy as admitted. All other discovery shall be stayed until the court resolves this jurisdictional issue. Premier One shall file a supplemental brief in opposition to the motion for summary judgment 15 days after the close of this limited discovery period dealing solely with the amount in controversy. The court will then either finally grant or deny Premier Nutrition's motion for summary judgment.
In conducting its discovery, Premier One should not ignore the fact that the true cause of action here is for breach of the Settlement Agreement, and not violation of the Lanham Act. Moreover, under Utah law, punitive damages are generally not available for breach of contract, unless the breach also amounts to an independent tort, such as breach of a fiduciary duty.
Norman v. Arnold, 57 P.3d 997, 1006 (Utah 2002); see also Burrell v. Burrell, 229 F.3d 1162 (Table) 2000 WL 1113702 ("The only way Burrell can meet the jurisdictional requirement is if punitive damages are included in the amount in controversy.").
CONCLUSION
It is this court's tentative conclusion that federal subject matter jurisdiction does not exist in this case. Nevertheless, that ruling is stayed pursuant to Rule 56(f) to give Premier One thirty days to conduct limited discovery into the issue of the amount in controversy.SO ORDERED.