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General Steel Domestic Sales, LLC v. Chumley

United States District Court, D. Colorado

April 21, 2014

GENERAL STEEL DOMESTIC SALES, LLC, d/b/a GENERAL STEEL CORPORATION, a Colorado limited liability company, Plaintiff,
v.
ETHAN DANIEL CHUMLEY, individually, ATLANTIC BUILDING SYSTEMS, LLC, a Delaware corporation, doing business as ARMSTRONG STEEL CORPORATION, PRQ INTERNET KOMMANDITBOLAG (LIMITED PARTNERSHIP) doing business as PRQ INET KB, and GOTTFRID SWARTHOLM, individually, Defendants.
v.
JEFFERY KNIGHT, Third-Party Defendant.

RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

KATHLEEN M. TAFOYA, Magistrate Judge.

This case comes before the court on "General Steel's Motion to Dismiss" [Doc. No. 147, filed January 6, 2014] ("Mot.") and "General Steel's Memorandum of Law in Support of its Motion to Dismiss" ("GSBr.") filed contemporaneously. [Doc. No. 148.] Atlantic Building Systems, LLC a/d/a/Armstrong Steel Corporation ("Armstrong") filed its "Third Party Plaintiff's Response to Third Party Defendants' Motion to Dismiss" [Doc. No. 164] ("Resp."), along with its Brief in Opposition [Doc. No. 165] ("Resp.Br.") on January 30, 2014. On February 13, 2014, "General Steel's Memorandum of Law in Reply to Armstrong's Brief in Opposition and in Further Support of General Steel's Motion to Dismiss" was filed [Doc. No. 176] ("Reply").

General Steel attacks Count II of the Amended Counterclaims filed by Armstrong ( see Amended Counterclaims ("Am.CC") [Doc. No. 117]) pursuant to Fed.R.Civ.P. 12(b)(6) alleging insufficient facts to state a claim. Count II alleges a cause of action for false advertising pursuant to 15 U.S.C. § 1125(a)(1)(B), the Lanham Act. ( Id. ¶¶ 195-204.) Armstrong alleges General Steel made false and misleading statements about itself, its history, and its products on certain third-party websites by virtue of misleading advertisements, stories, testimonials and/or internet press releases which connect to General Steel owned or operated websites through links in the text. ( Id. ¶¶ 196, 199.) Examples of third-party websites General Steel purportedly created or authorized to propagate the alleged false advertising are attached as Exhibits A, C, and D to Armstrong's Counterclaim. Such statements purportedly damage Armstrong as it is alleged to also be in the business of selling pre-engineered steel buildings and presumably suffers by comparison. ( Id. ¶¶ 113, 202).

Additionally, Armstrong alleges that General Steel made similar false and misleading statements to the consuming public on its openly owned websites ( id. ¶¶ 167-170), and also violated 15 U.S.C. § 1125(a)(1)(B) by running paid advertisements on Yahoo.com, as well as creating directory listings on third-party websites, which mislead the public into believing General Steel is a steel building manufacturer, among other false claims. ( Id. ¶¶ 173, 177 and Exs. E and F.)

Armstrong's Third-Party Claim against Jeffrey Knight, General Steel's owner and CEO, is predicated upon the assertion that Knight "formulates, controls, directs, supervises, perpetuates, manages and has knowledge of and acquiesces in the practices and policies of General Steel to such a degree as to make him personally liable" for Armstrong's Counterclaims. ( Id. ¶ 109). Armstrong also alleges that Knight "knew or should have known of marketing and advertising practices used by employees or agents working on his and General Steel's behalf." (Counterclaim, ¶ 109).

LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(6) provides that a defendant may move to dismiss a claim for "failure to state a claim upon which relief can be granted;...." Fed.R.Civ.P. 12(b)(6). "The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted." Dubbs v. Head Start, Inc., 336 F.3d 1194, 1201 (10th Cir. 2003) (emphasis added; citations and quotation marks omitted).

"A court reviewing the sufficiency of a complaint presumes all of plaintiff's factual allegations are true and construes them in the light most favorable to the plaintiff." Hall v. Bellmon, 935 F.2d 1106, 1198 (10th Cir. 1991). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Plausibility, in the context of a motion to dismiss, means that the plaintiff pleaded facts which allow "the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. The Iqbal evaluation requires two prongs of analysis. First, the court identifies "the allegations in the complaint that are not entitled to the assumption of truth, " that is, those allegations which are legal conclusion, bare assertions, or merely conclusory. Id. at 1949-51. Second, the Court considers the remaining factual allegations "to determine if they plausibly suggest an entitlement to relief." Id. at 1951. If the allegations state a plausible claim for relief, such claim survives the motion to dismiss. Id. at 1950.

Notwithstanding, the court need not accept conclusory allegations without supporting factual averments. Southern Disposal, Inc., v. Texas Waste, 161 F.3d 1259, 1262 (10th Cir. 1998). "[T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 129 S.Ct. at 1940. Moreover, "[a] pleading that offers labels and conclusions' or a formulaic recitation of the elements of a cause of action will not do.' Nor does the complaint suffice if it tenders naked assertion[s]' devoid of further factual enhancement.'" Id. at 1949 (citation omitted). "Where a complaint pleads facts that are merely consistent with' a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief." Iqbal, 129 S.Ct. at 1949 (citation omitted).

In making the required determination, "courts must consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice." Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007); see also Utah Gospel Mission v. Salt Lake City Corp., 425 F.3d 1249, 1253-54 (10th Cir. 2005) ("[A] document central to the plaintiff's claim and referred to in the complaint may be considered in resolving a motion to dismiss, at least where the document's authenticity is not in dispute."); Kennedy v. Peele, ___ F.App'x ___, Case No. 11-cv-00967-REB-KMT, 2014 WL 92251, at *4 (10th Cir. January 10, 2014). "[F]actual allegations that contradict... a properly considered document are not well-pleaded facts that the court must accept as true." GFF Corp. v. Associated Wholesale Grocers, 130 F.3d 1381, 1385 (10th Cir. 1997).

ANALYSIS

A. Failure to State a Claim for False Advertising Against General Steel

In order to succeed on a false advertising claim under the Lanham Act, Armstrong must plead facts which, if true, demonstrate: (1) that General Steel made material false or misleading representations of fact in connection with the commercial advertising or promotion of its product; (2) in commerce; (3) that are either likely to cause confusion or mistake as to (a) origin, association or approval of the product with or by another; or (b) the characteristics of the goods or services; and (4) that injure Armstrong. Sally Beauty Co. v. Beautyco, Inc., 304 F.3d ...


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