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Snow Ingredients, Inc. v. Snowizard, Inc.

United States District Court, E.D. Louisiana

March 31, 2015

SNOW INGREDIENTS, INC., et. al.
v.
SNOWIZARD, INC., SECTION

ORDER AND REASONS

NANNETTE JOLIVETTE BROWN, District Judge.

In this litigation, Snow Ingredients, Inc., Simeon, Inc., Southern Snow Manufacturing, Co., Inc., Parasol Flavors, LLC, Theodore Eisenmann, Raggs Supply LP, and Special "T" Ice Co., Inc. (collectively, "Plaintiffs") asserted an array of claims against SnoWizard, Inc., Ronald R. Sciortino, Jack E. Morris, and Kenneth L. Tolar (collectively, "Defendants") under state and federal law. The Court dismissed all of these claims with prejudice on March 27, 2014.[1] Presently pending before the Court is Plaintiffs' "Motion for Reconsideration Under Rule 59."[2] Having reviewed the motion, the memoranda in support, the memoranda in opposition, the record, and the applicable law, the Court will grant-in-part and deny-in-part the pending motion.

I. Background

A. Procedural Background [3]

Plaintiffs filed this action against Defendants in the Eastern District of Louisiana on June 1, 2012, and it was transferred to this section, Section G, because it is related to cases that were already pending in this Court in consolidated Civil Action No. 06-9170.[4] Defendants answered the complaint on July 19, 2012.[5] The next day, Plaintiffs filed an Amended Complaint.[6] With leave of Court, Plaintiffs filed a Second Amended and Supplemented Complaint on February 4, 2013.[7] On March 12, 2013, Defendants filed the instant Motion to Dismiss Second Amended Complaint under Rule 12(b)(6).[8] Plaintiffs opposed the motion on April 2, 2013.[9] The Court granted the motion on March 27, 2014, dismissing all of Plaintiffs' claims with prejudice.[10]

B. Factual Background

Although the above-captioned case was not consolidated with Civil Actions Nos. 06-9170, 09-3394, 10-791, and 11-1499 (hereinafter, the "Consolidated Cases"), the factual background of this case is deeply intertwined with the Consolidated Cases. All parties, except for the attorneydefendants, Jack Morris and Kenneth Tolar, are involved in the sale, distribution, or manufacturer of snowballs, snowball flavor concentrates, and ice-shaving machines.

1. The Consolidated Cases

a. Litigation in this Court

Between 2003 and 2008, SnoWizard began to acquire and enforce various patent and trademark rights, and this litigation ensued when Southern Snow first filed suit in 2006. In the consolidated cases, the claims and counterclaims predominantly covered the scope, existence, and ownership of certain patents and trademarks and the fairness of the parties' business practices. Throughout the litigation, Plaintiffs in those cases ("Consolidated Plaintiffs") claimed that Defendants had fraudulently and unfairly procured and enforced their claimed intellectual property rights. After significant motion practice over the course of multiple years, the remaining claims were submitted to a jury in an eight-day trial. On February 28, 2013, the jury returned a verdict, and the Court entered a judgment on the basis of the jury verdict on March 5, 2013.[11]

The jury found for Consolidated Plaintiffs on a single cause of action: that Plum Street Snoballs owns a valid and enforceable trademark for the unregistered term ORCHID CREAM VANILLA and that SnoWizard used a reproduction, counterfeit, copy or colorable imitation of that trademark in a manner that was likely to cause confusion, or to cause mistake, or to deceive as to the source, origin, sponsorship, or approval of such product under Lanham Act §§ 43(a) and 35, 15 U.S.C. §§ 1125(a) and 1117.[12] With regards to this cause of action, the jury further found that SnoWizard's conduct was "unethical, oppressive, unscrupulous, or deceptive, " and that Plum Street Snoballs was entitled to the costs of the action.[13] The jury rendered judgment against Consolidated Plaintiffs on all of their other causes of action[14] including additional claims involving infringement of Consolidated Plaintiffs' claimed trademarks to ORCHID CREAM VANILLA and claims involving infringement of Consolidated Plaintiffs' claimed trademarks to SNOW SWEET as well as SnoWizard's alleged fraudulent assertions of rights in the trademarks ORCHID CREAM VANILLA, SNOSWEET, SNOBALL, SNOBALL MACHINE, HURRICANE, MOUNTAIN MAPLE, BUTTER-CREAM, BUTTERED POPCORN, CAKE BATTER, CAJUN RED HOT, COOKIE DOUGH, DILL PICKLE, GEORGIA PEACH, KING CAKE, MUDSLIDE, PRALINE, and WHITE CHOCOLATE & CHIPS.[15] The jury found for Defendants on six of their eight counter-claims.[16]

In addition to the trademark claims, both Consolidated Plaintiffs and SnoWizard raised multiple claims regarding SnoWizard's patent in U.S. Patent No. 7, 536, 871 ("Icemaker with Improved Cam Assembly").[17] The jury found against Consolidated Plaintiffs on all of their false and invalid patent claims against SnoWizard and found for SnoWizard on most of its counterclaims, including all but one of its patent infringement claims.[18]

b. Appeals

On August 8, 2013, Consolidated Plaintiffs and two Counter-Defendants[19] in the Consolidated litigation filed a "Notice of Appeal to the Federal Circuit."[20] SnoWizard and Sciortino filed a notice of cross-appeal on September 4, 2013.[21] On that same day, Hanover Insurance Company filed a notice of appeal from the Court's orders concluding that it had a duty to defend SnoWizard after May 2011.[22]

On July 3, 2014, the Federal Circuit issued an Order addressing all issues raised on appeal, [23] save for those issues related to Hanover's duty to defend SnoWizard, which was docketed separately and is still pending.[24] In its Order, the Federal Circuit affirmed this Court on many points.[25] The court declined to review SnoWizard's cross-appeal of this Court's denial of its motion for Rule 11 sanctions, noting that SnoWizard had reurged that motion in this Court at the time of oral argument on appeal.[26] It also reversed this Court on two points: (1) the applicability of the on-sale bar to the 871 patent;[27] and (2) whether Raggs and Special T were "in privity" with Southern Snow, Parasol, and Simeon.[28]

Addressing the on-sale bar, the court reasoned that: (1) the 871 patent was "the subject of a commercial offer for sale" based on the quotations SnoWizard's parts manufacturer sent to SnoWizard; (2) the invention was "ready for patenting" because SnoWizard produced detailed drawings of it, and its parts manufacturer "clearly understood [based on the drawings and SnoWizard's written instructions] how to make the parts and how the pieces were to be put together."[29] Therefore, the court concluded, the on-sale bar applied and rendered the 871 patent unenforceable.[30]

Addressing privity, the court reasoned that:

The question of privity as to Speical T and Raggs, which are distributors of products made by Old Plaintiffs, [31] is of a different nature. The District Court found that Special T and Raggs are "in an express legal relationship with [Southern Snow, Parasol, and Simeon] by virtue of [their] distributorship."
As we have held in Transclean, with regard to questions of intellectual property infringement and invalidity, the person who buys an allegedly infringing product is not considered to be in privity with the person who sells him the product. As distributors, Raggs and Special T are persons who bought the allegedly infringing goods from the Old Plaintiffs, and, without more, cannot be considered "in privity" with the Old Plaintiffs."[32]

Based upon its finding of no privity, the court reinstated the following claims asserted by Raggs and Special T against SnoWizard:

1. Seeking a declaratory judgment that SnoWizard holds no valid or enforceable trademark rights in:
a. SNOSWEET (Count 27)
b. SNOFREE (Count 33)
c. MOUNTAIN MAPLE (Count 37)
d. CAJUN RED HOT (Count 41)
e. CHAI LATTEA (Count 42)
f. WHITE CHOCOLATE & CHIPS (Count 50)
2. Seeking cancellation of SnoWizard's asserted Louisiana trademarks in:
a. CAJUN RED HOT (Count 54)
b. MOUNTAIN MAPLE (Count 68)
c. SNOFREE (Count 72)
d. SNOSWEET (Count 74)
3. Seeking a Texas declaratory judgment that SnoWizard's purported trademark rights are invalid and unenforceable (Count 84).[33]

The parties subsequently filed petitions for writs of certiorari with the United States Supreme Court.[34] These petitions were denied on February 23, 2015.[35]

c. Actions Taken on Remand

On remand, the Court: (1) dismissed without prejudice all pending post-trial motions;[36] (2) set briefing deadlines regarding the claims rendered valid by the Federal Circuit's order, and any motions the parties intended to re-urge;[37] and (3) reconsidered and lifted its permanent injunction, consistent with the Federal Circuit's order.[38] Consolidated Plaintiffs, in turn, moved to dismiss without prejudice the claims rendered valid on remand, representing, among other things, that "[n]one of the litigants, including the 3d-party insurer, want to re-litigate these remanded claims, " and that dismissal without prejudice "will relieve the Court and all of the litigants of the burdens of a new trial."[39] The Court granted this motion, dismissing without prejudice the remanded claims.[40]

2. This Litigation

a. Complaint

According to the Second Amended Complaint in this case, "Defendant SnoWizard is attempting to manipulate the snowball market through a scheme to assert exclusive monopoly rights to sell products in that market, threatening and bringing litigation to force withdrawal of legitimate products and producers from the market based on fraudulently asserted and obtained patent and trademark rights."[41] Plaintiffs in this matter claim that SnoWizard's attorneys Kenneth Tolar and Jack Morris have conspired with SnoWizard and Sciortino to acquire, maintain, and enforce bogus patents and trademark registrations as a means of asserting unwarranted monopoly rights, through abusive litigation and obstruction of justice.[42]

In particular, Plaintiffs allege the following:

In what Plaintiffs identify in their Second Amended Complaint as "Count 1, " they allege that SnoWizard, Sciortino, Tolar, and Morris engaged in a litigation scheme that constitutes obstruction of justice and a violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961, et seq. [43]

In "Count 2" and "Count 6, " Plaintiffs allege that SnoWizard has engaged in sham litigation against Plaintiffs and made material misstatements in court and to the United States Patent and Trademark Office ("USPTO") in a manner that violates both federal and state antitrust laws.[44]

In "Counts 3-4, " Plaintiffs accuse SnoWizard of violating the Lanham Act for their allegedly fraudulent trademark registration of WHITE CHOCOLATE & CHIPS and CAJUN RED HOT.[45]

In "Count 5, " Plaintiffs raise another Lanham Act claim wherein they allege unfair competition in violation of section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a).[46]

In "Count 7, " Plaintiffs allege that SnoWizard has engaged in conduct that violates the Louisiana Unfair Trade Practices Act (LUTPA"), Louisiana Revised Statute § 51:1401, et seq. [47]

In "Count 8" and "Count 11", Plaintiffs claim that, pursuant to Louisiana Civil Code Article 2315, SnoWizard must pay damages for fraud, obstruction of justice, and abusive litigation, and that Morris and Tolar conspired to commit those acts and are thus liable under Louisiana Civil Code Article 2324.[48]

In "Count 9, " Plaintiffs accuse SnoWizard of malicious prosecution for pursuit of its claims in Southern Snow Manufacturing Company, Inc. v. SnoWizard, Inc., Case No. 10-4275.[49]

In "Count 10", Plaintiffs raise a similar claim for SnoWizard's role in SnoWizard, Inc. v. Doty, et al., Case No. 11-0515.[50]

Finally, in "Counts 11-13, " Plaintiffs allege that Defendants Morris and Tolar are liable as conspirators for SnoWizard's alleged wrongdoing as set forth in "Counts 1-9."[51]

b. Dismissal

In its order on Defendants' "Motion to Dismiss Second Amended Complaint Under Rule 12(b)(6), " the Court dismissed all of Plaintiffs' claims. Specifically, the Court dismissed (1) "Counts 1-8" against SnoWizard and Sciortino due to res judicata, (2) "Counts 9-10" and all claims against Morris and Tolar ("Counts 11-13") because "Plaintiffs cannot show a bona fide termination on the merits in the underlying lawsuits;" (3) "Count 1, "against Morris and Tolar, for "fail[ure] to allege an underlying predicate RICO act to support the cause of action; (4) "Count 11" against Morris and Tolar, because "Plaintiffs fail to allege any facts indicating that Morris and Tolar conspired to help SnoWizard and Sciortino commit fraud or obstruction of justice;" and (5) "Counts 11 and 12", against Morris and Tolar, since "neither of the lawsuits in question can be said to have terminated in Plaintiffs' favor."[52]

II. Parties' Arguments

A. Plaintiffs' "Motion for Reconsideration" [53]

1. Impact of Lexmark Decision

In support of the instant motion, Plaintiffs assert that the United States Supreme Court's March 25, 2014 decision in Lexmark Int'l, Inc. v. Static Control Components, Inc. [54] (1) "explicitly controls the questions of interlocutory dismissal of Plaintiffs' § 1125(a) causes of action, in the 06-9170 consolidated litigation... and in this litigation's Counts 5 & 7, "[55] (2) "implicitly controls the questions of interlocutory dismissal of Plaintiffs' other Lanham-Act causes of action under § 38 (15 U.S.C. § 1120) in the... [C]onsolidated litigation... and in this litigation's Counts 3 & 4" because "the Supreme Court's analysis of the statement of purpose in § 1127 applies to the entire Lanham Act;"[56] (3) "informs the question of interlocutory dismissal of the Civil-RICO causes of action in the... [C]onsolidated litigation... and in this litigation's count 1;" and (4) "informs the question of whether allegedly fraudulent applications for patents and trademarks constitute antitrust violations and may serve as evidence of anti-competitive conduct in the... [C]onsolidated litigation... and in this litigation's Counts 2 & 7."

a. Impact of Lexmark on Lanham Act Claims

Plaintiffs argue that Lexmark instructs that "the causes of action in the... [C]onsolidated [C]ases should not have been dismissed on interlocutory order, and the causes of action here should not have been dismissed on interlocutory order."[57] According to Plaintiffs, Lexmark involved "essentially the same set-up as the instant litigation, " in that the defendant in that case asserted an unfair-competition counterclaim pursuant to §43(a) of the Lanham Act, [58] alleging that the plaintiff told its customers that it "owned a patent and copyright, " he defendant "infringed the patent and copyright, " and "therefore that [the plaintiff] was the official supplier, [the defendant] was an infringer, and that customers ought to buy only from [the plaintiff] and not [the defendant]."[59] Plaintiffs claim that the Court in Lexmark found that "persons whose injury was proximately caused by the unlawful conduct" had standing to sue pursuant to the Lanham Act.[60] Quoting from the opinion in Lexmark, plaintiffs claim that "the intervening step of consumer ...


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