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Crocs, Inc. v. Effervescent, Inc

United States District Court, D. Colorado

October 9, 2017

CROCS, INC., Plaintiff,
v.
EFFERVESCENT, INC., HOLEY SOLES HOLDINGS, LTD., DOUBLE DIAMOND DISTRIBUTION, LTD., and U.S.A. DAWGS, INC., Defendants. U.S.A. DAWGS, INC. and DOUBLE DIAMOND DISTRIBUTION, LTD., Plaintiffs,
v.
RONALD SNYDER, DANIEL HART, THOMAS J. SMACH, ANDREW REES, GREGG RIBATT, ANDREW REDDYHOFF, GEORGE B. BOEDECKER, JR., LYNDON HANSON, DONALD LOCOCO, RAYMOND CROGHAN, RONALD FRASCH, MICHAEL MARGOLIS, JEFFREY LASHER, MICHAEL E. MARKS, PRAKASH MELWANI, JOHN P. MCCARVEL, ERIK REBICH, and SARA HOVERSTOCK, Defendants.

          ORDER

          PHILIP A. BRIMMER UNITED STATES DISTRICT JUDGE.

         This matter is before the Court on Crocs, Inc.'s Motion for Sanctions Under Rule 11 and the Court's Inherent Powers [Docket No. 409] and Defendants' Motion for Sanctions Under Rule 11, 28 U.S.C. § 1927 and the Court's Inherent Powers [Docket No. 429].[1] The Court has jurisdiction pursuant to 28 U.S.C. § 1331.

         I. BACKGROUND[2]

         Plaintiff Crocs, Inc. (“Crocs”) filed Case No. 06-cv-00605-PAB-KMT on April 3, 2006, alleging, inter alia, infringement of United States Patent Nos. 6, 993, 858 (the “'858 patent”) and D 517, 789 (the “'789 patent”). Docket No. 1.

         On May 12, 2006, defendants Effervescent, Inc., Holey Soles Holdings, Ltd., and former defendant Collective Licensing International, LLC moved to stay this case pending proceedings under Section 337 of the Tariff Act of 1930 before the International Trade Commission (“ITC”). Docket No. 26. The Court granted the motion on May 16, 2006 and administratively closed the case. Docket No. 31. In 2012, during a brief reopening of the case, Crocs added one of the Dawgs[3] entities as a named defendant and Dawgs asserted counterclaims, Docket No. 119, before the action was stayed pending a reexamination of the patents-in-suit. Docket No. 137. In February 2016, Dawgs filed motions to reopen the case and lift the stay, Docket Nos. 167, 168, which the Court granted. Docket No. 184. On May 31, 2016, Dawgs filed its first amended answer to the amended complaint and counterclaims against Crocs, Scott Seamans, and John and Jane Does 1 through 100. Docket No. 209.[4] On June 28, 2016, Crocs and Seamans moved to dismiss Dawgs' counterclaims. Docket Nos. 227, 231.

         On August 5, 2016, Dawgs filed its complaint in Case No. 16-cv-2004 (“the 2016 lawsuit”). Case No. 16-cv-02004, Docket No. 1. The 2016 lawsuit named eighteen individual defendants (“Individual Defendants”), all of whom are current or former employees of Crocs. Id. at 10-19, ¶¶ 9-14.

         Dawgs' counterclaims in this case and the complaint in the 2016 lawsuit allege that Crocs is aware that the '858 and '789 Patents are unenforceable because “the patents identif[y] incorrect inventorship and [were] obtained by withholding material information from the patent examiner.” Docket No. 209 at 36, ¶ 51; Case. No. 16-cv-02004, Docket No. 1 at 21-22, ¶ 20. Dawgs claims that Crocs has improperly pursued claims related to its patents in this court and before the ITC. See Docket No. 209 at 32, ¶¶ 57-58. Dawgs further claims that the Individual Defendants “directed, participated in, sanctioned, ratified, or acquiesced” in the decision to sue Dawgs and to continue the 2006 lawsuit through the present. Case No. 16-cv-02004, Docket No. 1 at 10-18, ¶¶ 9-13. On January 27, 2017, the Court consolidated Case No. 06-cv-00605 with Case No. 16-cv-02004. Docket No. 426.

         On January 13, 2017, Crocs filed a motion for sanctions alleging that Dawgs' counterclaims are premised on false statements and barred legal theories. Docket No. 409. On January 30, 2017, the Individual Defendants filed a motion for sanctions based on similar grounds. Docket No. 429.

         On March, 31, 2017, the Court granted Crocs' motion to dismiss Dawgs' amended counterclaims in part. Docket No. 504. On September 25, 2017, the Court granted defendants' motion to dismiss the complaint in the 2016 lawsuit in part. Docket No. 673.

         II. ANALYSIS

         A. Federal Rule of Civil Procedure 11

         Crocs and the Individual Defendants claim that sanctions under Fed.R.Civ.P. 11 are appropriate because Dawgs has made false statements to the Court and has maintained its sham litigation claim despite a Supreme Court case barring such a claim. Docket No. 409 at 3-15; Docket No. 429 at 10-15. The Individual Defendants additionally argue that Dawgs' complaint in that case warrants sanctions because Dawgs has alleged personal liability against those defendants without any reasonable basis for doing so. Docket No. 429 at 6-10.

         Rule 11(b) of the Federal Rules of Civil Procedure provides that:

By presenting to the court a pleading, written motion, or other paper . . . an attorney or unrepresented party certifies that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances:
(1) it is not being presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation; [and]
(2) the claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law . . . .

         Fed. R. Civ. P. 11(b). “If, after notice and a reasonable opportunity to respond, the court determines that Rule 11(b) has been violated, the court may impose an appropriate sanction on any attorney, law firm, or party that violated the rule or is responsible for the violation.” Id. at 11(c)(1).

         Rule 11 imposes an “affirmative duty to conduct a reasonable inquiry into the facts and the law before filing” and the “applicable standard is one of reasonableness under the circumstances.” Business Guides, Inc. v. Chromatic Communications Enters., Inc., 498 U.S. 533, 551 (1991). “Because our adversary system expects lawyers to zealously represent their clients, this standard is a tough one to satisfy; an attorney can be rather aggressive and still be reasonable.” Predator Int'l, Inc. v. Gamo Outdoor USA, Inc., 793 F.3d 1177, 1182 (10th Cir. 2015). An attorney may present a legal position that is contrary to law so long as the position “is warranted ‘by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law.'” Id. (quoting Fed.R.Civ.P. 11(b)(2)). “Rule 11 neither penalizes overstatement nor authorizes an overly literal reading of each factual statement.” F.D.I.C. v. Refco Grp., Ltd., 989 F.Supp. 1052, 1090 (D. Colo. 1997) (citing Navarro-Ayala v. Hernandez-Colon, 3 F.3d 464, 467 (1st Cir. 1993)).

         1. Dawgs' ...


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