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MNM Investments, LLC v. HDM, Inc.

United States District Court, D. Kansas

July 30, 2019

MNM INVESTMENTS, LLC, Plaintiff,
v.
HDM, INC. and DEREK MCCLOUD, Defendants. HDM, INC., Counterclaim-Plaintiff,
v.
MNM INVESTMENTS, LLC, KANSAS MOTORCYCLE WORKS, LLC, and MATTHEW MOORE, Counterclaim-Defendants.

          MEMORANDUM AND ORDER

          ERIC F. MELGREN UNITED STATES DISTRICT JUDGE

         Plaintiff MNM Investments, LLC (“MNM”) contends that it is the owner of intellectual property associated with the manufacture of high-end motorcycles under the “Big Dog Motorcycles” brand. MNM brought this action against Defendants HDM, Inc. (“HDM”) and Derek McCloud asserting claims of trademark infringement, trademark counterfeiting, and breach of contract. In response, HDM asserted 10 counterclaims against MNM, Matthew Moore (one of MNM's principals) and Kansas Motorcycle Works, LLC (a related entity) (collectively “Counterclaim Defendants”). This matter comes before the Court on Counterclaim Defendants' Motion for Partial Judgment on the Pleadings (Doc. 44). Counterclaim Defendants ask the Court to dismiss HDM's breach of contract, unjust enrichment, and defamation counterclaims. For the following reasons, the Court grants Counterclaim Defendants' motion.

         I. Factual and Procedural Background [1]

         In 2003, HDM entered a business relationship with Big Dog Motorcycles, LLC (“Old Big Dog”) and began selling Big Dog branded motorcycle parts and accessories. From 2003 to 2011, HDM was Old Big Dog's sole liquidator of excess parts and accessories. This relationship continued until early 2011 when Old Big Dog announced that it was insolvent and that it was going to stop all motorcycle production and support of its dealer network.

         During that time, HDM dealt with Matthew Moore, who was then an Old Big Dog employee. In 2012 Moore left Old Big Dog to start Kansas Motorcycle Works, LLC (“KMW”) with the intention of building his own custom motorcycles. HDM cooperated with Moore by selling him parts and accessories from its inventory and allowing KMW to sell parts through HDM's website to improve its cash flow. During this time, Moore told HDM that he did not intend on supporting Old Big Dog's existing owner base by providing parts or honoring a warranty service. Instead, he planned on building his own custom motorcycles.

         In October 2013, Intrust Bank, N.A. (“Intrust”) foreclosed on its loans to Old Big Dog and took over its assets the bank held as collateral. Approximately three months later, on January 9, 2014, Intrust executed a bill of sale to HDM, transferring all equipment and personal property at Old Big Dog's address to HDM. This included Old Big Dog's existing parts, accessories, office furniture, tooling, and computers needed to manufacture Old Big Dog parts.

         Around the same time, Moore began trying to acquire the “BDM” and “Big Dog Motorcycle” trademarks associated with Old Big Dog's business. In 2014, two other entities related to Old Big Dog-Wichita Motorcycles, LLC, and Motorcycle Enterprises, LLC-owned the trademarks. In October 2014, these entities purportedly transferred ownership of these marks to Intrust, who purportedly transferred ownership of these marks to MNM. HDM contends that none of these assignments were valid, and thus, MNM never obtained ownership of the trademarks.

         After its purchase of Old Big Dog in January 2014, HDM continued to sell Old Big Dog branded replacement parts and accessories. It also took over the task of protecting the “Big Dog” brand. HDM and its employees spent hundreds of hours identifying fake or unauthorized Old Big Dog merchandise offered for sale on various outlet sites, ensuring that they were taken down. HDM also agreed to pay legal fees associated with pursuing infringers of the “Big Dog” brand.

         At the same time, Moore continued to operate KMW, which was struggling financially. In 2015, HDM helped Moore build a new prototype motorcycle by supplying him with Old Big Dog parts. After the initial motorcycle was built, HDM and KMW agreed to partner in the building of seven more motorcycles, which KMW sold during the remainder of 2015. KMW and HDM then agreed via handshake that HDM would provide Old Big Dog parts for 60 motorcycles. HDM manufactured these parts using the designs and tooling it acquired as part of Old Big Dog's liquidation.

         In mid-2015, without HDM's knowledge, Counterclaim Defendants launched a website titled BigDogIsBack.com. The website claimed to have the inventory of all Big Dog parts even though they only had access to such parts from HDM. HDM alleges that Counterclaim Defendants made these statements with the intent to create a false impression that they were building and selling Old Big Dog motorcycles, parts, and accessories. In June 2017, numerous Old Big Dog owners assembled in Wichita for a reunion. Matt Moore gave a speech to the assembled owners and claimed that KMW (and not HDM) was the one that protected the “Big Dog” brand by supplying parts and protecting the image of the brand. During another event at the reunion, Nick Moore-brother of Matt Moore and one of the owners of MNM and KMW-urged Old Big Dog customers not to buy parts from HDM and claimed HDM only has “used, dent [sic] and ding crap that they screwed out of the original Big Dog.” Additionally, Counterclaim Defendants have advertised to potential eBay purchasers that their products are authentic while HDM's are “bootleg copies” and “Chinese imported copies.” HDM stopped supplying KMW in January 2018 after KMW fell behind on its payments to HDM and after HDM learned that KMW was allegedly representing itself as the supplier of Old Big Dog parts. In the following months, Counterclaim Defendants contacted one or more of HDM's suppliers claiming that they owned the rights to manufacture Old Big Dog parts.

         KMW originally filed suit on September 25, 2018, against HDM and its principal Derek McCloud. Two days later KMW's affiliate-MNM-filed an Amended Complaint. MNM alleges that it entered into a license agreement with HDM in December 2014 granting HDM permission to use its “Big Dog” trademarks and other intellectual property in connection the manufacture of motorcycle parts.[2] MNM further alleges that since the expiration of that license agreement in November 2017, HDM has continued to manufacture and sell “Big Dog” branded products in violation of the agreement. MNM asserts claims for breach of contract, trademark infringement, and trademark counterfeiting. In their Answer, HDM and McCloud deny these allegations and assert that MNM is not the owner of the Big Dog trademarks and that it never entered into a license agreement with MNM. In addition, HDM asserted ten counterclaims against MNM, KMW and Matthew Moore.

         The three counterclaims at issue here are Count I (breach of contract), Count II (unjust enrichment), and Count IV (defamation). The breach of contract and unjust enrichment claims both allege that HDM supplied Moore and KMW with parts and equipment to manufacture new motorcycles, including nine Mastiff frames, four Mastiff swingarms, one K-9 frame, one Pitbull frame, eight K-9 paint sets, and nine Mastiff paint sets. HDM further alleges that Moore and KMW did not pay for this equipment or return it to HDM per the parties' agreement. The equipment is also subject to a replevin action in the District Court of Rice County, Kansas. The defamation claim alleges that Counterclaim Defendants have knowingly communicated to third parties false and defamatory statements about HDM, including the statements within the eBay listings and those made by Nick Moore in June 2017. Counterclaim Defendants now ask the Court to dismiss these claims.

         II. Legal Standard

         A. Rule 12(b)(1) Standard of Review

         “Federal courts are courts of limited jurisdiction; they are empowered to hear only those cases authorized and defined in the Constitution which have been entrusted to them under a jurisdictional grant by Congress.”[3] A court lacking jurisdiction must dismiss the case regardless of the stage of the proceeding when it becomes apparent that jurisdiction is lacking.[4] The burden of proof is on the party asserting the court has jurisdiction.[5]

         Rule 12(b)(1) motions take two forms: (1) a facial attack on the sufficiency of complaint's allegations as to the court's jurisdiction or (2) a factual attack on the facts upon which subject matter is based.[6] In reviewing a facial attack, a district court must accept the allegations in the complaint as true.[7] When reviewing a factual attack, a district court may not presume the truthfulness of the complaint's factual allegations. The court may allow affidavits and other document to resolve disputed jurisdictional facts under Rule 12(b)(1).[8]

         B. Rule 12(c) Standard of Review

         Counterclaim Defendants bring their motion pursuant to Fed.R.Civ.P. 12(c) because they have already filed an Answer in the case. Under Federal Rule of Civil Procedure 12(c), a party may move for judgment on the pleadings after the pleadings are closed as long as the motion is made early enough not to delay trial.[9] The standard for dismissal under Rule 12(c) is the same as a dismissal under Rule 12(b)(6).[10] To survive a motion for judgment on the pleadings, a complaint must present factual allegations, assumed to be true, that “raise a right to relief above the speculative level, ” and must contain “enough facts to state a claim to relief that is plausible on its face.”[11] All reasonable inferences from the pleadings are granted in favor of the non-moving party.[12] Judgment on the pleadings is appropriate when “the moving party has clearly established that no material issue of fact remains to be resolved and the party is entitled to judgment as a matter of law.”[13] Documents attached to the pleadings are exhibits and may be considered in deciding a Rule 12(c) motion.[14]

         III. Analysis

         Counterclaim Defendants seek to dispose of HDM's breach of contract, unjust enrichment, and defamation counterclaims. They contend that the Court lacks subject matter jurisdiction over all three claims because it cannot exercise supplemental jurisdiction under 28 U.S.C. § 1367(a). They also contend that the Court should dismiss the defamation claim because HDM has not stated a claim for relief that is plausible on its face.[15]

         A. Supplemental Jurisdiction

         The parties acknowledge that the counterclaims at issue are brought under state law and that the parties are all residents of Kansas. Therefore, the Court does not have original jurisdiction over the counterclaims under 28 U.S.C. § 1331 and § 1332. The parties dispute whether the Court may exercise supplemental jurisdiction over the counterclaims. A district court has discretion to exercise supplemental jurisdiction over state law claims that are sufficiently related to a pending federal claim.[16] 28 U.S.C. § 1367(a) provides the overarching test for when a district court may exercise supplemental jurisdiction. It states, in part: “[I]n any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy.” Section 1367 is satisfied when the federal and state law claims “derive from a common nucleus of operative fact.”[17] In determining whether to exercise supplemental jurisdiction, the district court “should consider retaining state claims when given the nature and extent of pretrial proceedings, judicial economy, convenience, and fairness would be served by retaining jurisdiction.”[18]

         Counterclaim Defendants argue that the Court cannot exercise supplemental jurisdiction over HDM's breach of contract, unjust enrichment, and defamation claims because these counterclaims do not arise out of the same nucleus of operative fact as their trademark infringement claims. Counterclaim Defendants argue that the primary issues to be decided by the Court with respect to the trademark infringement claims are ownership of the “Big Dog” trademarks, the existence of a license agreement between MNM and HDM, and HDM's use of the “Big Dog” intellectual property in commerce. It further argues that these issues are irrelevant or completely unrelated to the issues to be resolved with respect to the breach of contract, unjust enrichment, and defamation claims. In response, HDM asserts that ...


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