Otter Products, LLC v. Phone Rehab, LLC

          RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

          MICHAEL E. HEGARTY, UNITED STATES MAGISTRATE JUDGE.

         Before the Court is Defendants’ Motion to Dismiss [ECF 37]. Pursuant to 28 U.S.C. § 636(b)(1)(A) and D.C. COLO. L.Civ.R. 72.1(c), the motion has been referred to this Court for a report and recommendation.

         For their Complaint, Plaintiffs allege Defendants’ sale of Otterbox and LifeProof products through the website, www.Amazon.com, (1) violates the Lanham Act, 15 U.S.C. § 1114 and 15 U.S.C. § 1125, regarding trademark infringement; (2) violates 15 U.S.C. § 1125(a)(1)(A) regarding unfair competition; (3) violates 15 U.S.C. § 1125(a)(1)(B) regarding false advertising; (4) violates 15 U.S.C. § 1125(c) regarding trademark dilution; (5) constitutes common law trademark infringement; (6) is a deceptive trade practice in violation of Colo. Rev. Stat. § 6-1-105; and (7) tortiously interferes with Plaintiffs’ contract and business relations. See Am. Compl., ECF 34. On April 11, 2019, Defendants filed the present motion to dismiss for the Court’s lack of personal jurisdiction and for the Plaintiffs’ failure to state a claim. The Court heard argument on September 19, 2019 and, for the reasons that follow, respectfully recommends that the Honorable Raymond P. Moore deny Defendants’ motion.

         I. Statement of Facts

         The following are relevant factual allegations (as opposed to legal conclusions, bare assertions, or merely conclusory allegations) made by Plaintiffs in their Amended Complaint, which are taken as true for analysis under Fed.R.Civ.P. 12(b)(6) pursuant to Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

         Plaintiffs manufacture and sell cases and accessories for electronic devices. Am. Compl. ¶ 21, ECF 34. Plaintiffs’ brand names and logos are recognized by consumers, and their names are associated with high quality, reliable, and durable products. Id. ¶¶ 29-30. Plaintiffs sell their products exclusively through their own website and through a network of authorized distributors and resellers. Id. ¶ 22. For the purpose of protecting their respective brands, Plaintiffs have registered trademarks with the United States Patent and Trademark Office (“PTO”). Id. ¶¶ 23-24. Through their extensive quality control processes, Plaintiffs ensure the safety and satisfaction of customers and maintain the integrity of their positive business reputation. Id. ¶ 22. However, the explosion of internet retail sales has made it difficult for Plaintiffs to monitor the unauthorized sale of their products through online markets, such as www.Amazon.com. Id. ¶¶ 33-35. Accordingly, Plaintiffs audit their authorized online sellers to ensure they conform to Plaintiffs’ strict quality control requirements. Id. ¶ 108. For example, to be considered an authorized seller, the genuine products sold are required to have a limited warranty. Id. ¶ 112. Plaintiffs assert that their quality controls and the existence of a warranty are material for consumer satisfaction. Id. ¶¶ 107 and 117.

         Defendants sell Plaintiffs’ products through their online marketplace on www.Amazon.com. Id. ¶ 125. Defendants are not authorized sellers, and the products they sell are not subject to Plaintiffs’ quality control system and do not come with a warranty. Id. ¶ 128. However, through Amazon.com, Defendants advertise the products they are selling as “new.” Id. ¶ 189. “New” products on Amazon.com are required to come with the “original manufacturer’s warranty.” Id. ¶¶ 50-69 and 132-152.

         Consumers of Plaintiffs’ products have submitted numerous negative reviews on www.Amazon.com, and Plaintiffs attribute at least some of the negative reviews to Defendants’ sales.^[1] Id. ¶¶ 131-152. These negative reviews have caused damage to Plaintiffs’ reputation and sales. Id. Plaintiffs sent multiple cease and desist letters informing Defendants that their conduct was harming the Plaintiffs in Colorado. Id. ¶¶ 192-198. Plaintiffs’ attempts to resolve this matter prior to filing this suit were unsuccessful. Id.

         II. Findings of Fact

         The Court held an evidentiary hearing on Defendants’ request for dismissal based on the Court’s purported lack of personal jurisdiction. See Cudd Pressure Control, Inc. v. Cornelius, 79 F.3d 1156 (10th Cir. 1996) (“We … review findings of fact made after an evidentiary hearing for clear error.”) (citing Fed. Deposit Ins. Corp. v. Oaklawn Apartments, 959 F.2d 170, 173 (10th Cir. 1992)). The Court finds the following facts based on the hearing and evidence presented.

         1. Defendants made 267 sales of 341 of the Plaintiffs’ products in the State of Colorado between May 2018 and May 2019. Pl. Ex. 1, ECF 57-1.

         2. Defendants made 1011 sales of 1226 products in the State of Colorado between May 2018 and May 2019. Pl. Ex. 2, ECF 57-2.

         3. Defendants represented that the number of sales of their products in Colorado totaled less than 2% of their sales nationwide during the same period. See Pl. Ex. 3, ECF 57-3.

         4. Defendants purchased Plaintiffs’ products primarily from a wholesaler, Reagan Wireless. See Def. Exs. B-J, ECF 57-4 through 57-12.

         III. Legal Standards

         A. Dismissal Pursuant to Fed.R.Civ.P. 12(b)(2)

         “Jurisdiction to resolve cases on the merits requires ... authority over the parties (personal jurisdiction), so that the court’s decision will bind them.” Gadlin v. Sybron Int’l Corp., 222 F.3d 797, 799 (10th Cir. 2000) (quoting Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 577 (1999)). “[W]hen the court’s jurisdiction is contested, the plaintiff has the burden of proving jurisdiction exists.” Wenz v. Memery Crystal, 55 F.3d 1503, 1505 (10th Cir. 1995). When “personal jurisdiction is assessed in an evidentiary hearing . ., the plaintiff generally must establish, by a preponderance of the evidence, that personal jurisdiction exists.” Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d 1063, 1070 n.4 (10th Cir. 2008) (citation omitted).

         B. Dismissal Pursuant to Fed.R.Civ.P. 12(b)(6)

         The purpose of a motion to dismiss under Fed.R.Civ.P. 12(b)(6) is to test the sufficiency of the plaintiff’s complaint. Sutton v. Utah State Sch. For the Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir. 2008). “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, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Plausibility, in the context of a motion to dismiss, means that the plaintiff pled facts which allow “the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. Twombly requires a two-prong analysis. First, a court must identify “the allegations in the complaint that are not entitled to the assumption of truth, ” that is, those allegations which are legal conclusions, bare assertions, or merely conclusory. Id. at 679. Second, the Court must consider the factual allegations “to determine if they plausibly suggest an entitlement to relief.” Id. at 681. If the allegations state a plausible claim for relief, such claim survives the motion to dismiss. Id. at 680.

         Plausibility refers “to the scope of the allegations in a complaint: if they are so general that they encompass a wide swath of conduct, much of it innocent, then the plaintiffs have not nudged their claims across the line from conceivable to plausible.” S.E.C. v. Shields, 744 F.3d 633, 640 (10th Cir. 2014) (quoting Khalik v. United Air Lines, 671 F.3d 1188, 1191 (10th Cir. 2012)). “The nature and specificity of the allegations required to state a plausible claim will vary based on context.” Safe Streets All. v. Hickenlooper, 859 F.3d 865, 878 (10th Cir. 2017) (quoting Kan. Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1215 (10th Cir. 2011)). Thus, while the Rule 12(b)(6) standard does not require that a plaintiff establish a prima facie case in a complaint, the elements of each alleged cause of action may help to determine whether the plaintiff has set forth a plausible claim. Khalik, 671 F.3d at 1191.

         However, “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678. The complaint must provide “more than labels and conclusions” or merely “a formulaic recitation of the elements of a cause of action, ” so that “courts ‘are not bound to accept as true a legal conclusion couched as a factual allegation.’” Twombly, 550 U.S. at 555 (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)). “Determining 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.” Iqbal, 556 U.S. at 679. “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, ” the complaint has made an allegation, “but it has not shown that the pleader is entitled to relief.” Id. (quotation marks and citation omitted).

         IV. Analysis

         When a defendant seeks dismissal for both lack of jurisdiction and failure to state a claim, courts typically must decide first the jurisdiction question, since the Rule 12(b)(6) challenge would be moot if the court lacked personal jurisdiction. See Manchus v. Conklin, 922 F.Supp. 1501, 1506 (D. Kan. 1996) (citing Moir v. Greater Cleveland Reg'l Transit Auth., 895 F.2d 266, 269 (6th Cir. 1990)).

         A. Personal Jurisdiction Over the Defendants

         “The Due Process Clause of the Fourteenth Amendment constrains a State’s authority to bind a nonresident defendant to a judgment of its courts.” Walden v. Fiore, 571 U.S. 277, 134 (2014). The law of the forum state and constitutional due process limitations govern personal jurisdiction in federal court. Intercon, Inc. v. Bell Atl. Internet Solutions, Inc., 205 F.3d 1244, 1247 (10th Cir. 2000); see Fed. R. Civ. P. 4(k)(1)(A). Colorado’s long-arm statute, Colo. Rev. Stat. § 13–1–124, extends jurisdiction to the Constitution’s full extent. Benton v. Cameco Corp., 375 F.3d 1070, 1075 (10th Cir. 2004); Mr. Steak, Inc. v. District Court, 194 Colo. 519, 574 P.2d 95, 96 (1978) (en banc). Thus, the personal jurisdiction analysis here is a single due process inquiry. See Benton, 375 F.3d at 1075.

         When evaluating personal jurisdiction under the due process clause, the Tenth Circuit conducts a two-step analysis. At the first step, the court examines “whether the non-resident defendant has ‘minimum contacts’ with the forum state such ‘that he should reasonably anticipate being haled into court there.’” TH Agric. & Nutrition, LLC v. Ace European Grp., Ltd., 488 F.3d 1282, 1287 (10th Cir. 2007) (citations omitted). If the defendant has sufficient contacts, the court then asks whether “exercise of jurisdiction over the defendant offends ‘traditional notions of fair play and substantial justice, ’” that is, whether the exercise of jurisdiction is “reasonable” under the circumstances of a given case. Id. (citations omitted). “This analysis is fact specific.” ClearOne Commc’ns., Inc. v. Bowers, 643 F.3d 735, 763 (10th Cir. 2011) (quoting Emp’rs Mut. Cas. Co. v. Bartile Roofs, Inc., 618 F.3d 1153, 1159 (10th Cir. 2010)).

         1. Minimum Contacts

         The “minimum contacts” test may be met pursuant to either of two ways – general jurisdiction or specific jurisdiction. Plaintiffs in this case have asserted the Court’s specific personal jurisdiction over the Defendants. The Supreme Court has articulated the criteria for establishing specific jurisdiction as follows: “The inquiry whether a forum State may assert specific jurisdiction over a nonresident defendant ‘focuses on the relationship among the defendant, the forum, and the litigation.’” Walden, 571 U.S. at 283-84 (quoting Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 775 (1984)). The “defendant’s suit-related conduct must create a substantial connection with the forum state, ” and “the relationship must arise out of contacts that the defendant himself creates with the forum State”... with the “minimum contacts analysis look[ing] to the defendant’s contacts with the forum State itself, not the defendant’s contacts with persons who reside there.” Id. at 284 (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985) and Int’l Shoe Co. v. State of Wa., 326 ...