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Garth O. Green Enterprises, Inc. v. Harward

United States District Court, D. Utah, Central Division

December 27, 2016

GARTH O. GREEN ENTERPRISES, INC., a Utah corporation; GARTH GREEN, an individual; and MICHAEL GREEN, an individual, Plaintiffs,
v.
RANDALL HARWARD, an individual; RICHARD HARWARD, an individual; HARWARD IRRIGATION SYSTEMS, INC., a Utah corporation; GRASS VALLEY HOLDINGS, L.P.; RICHARD N. REESE, an individual; STANDARD PLUMBING SUPPLY COMPANY, INC., a Utah corporation; DOES 1-10; and ROE CORPORATIONS 1-X; Defendants.

          MEMORANDUM DECISION AND ORDER GRANTING [55] MOTION FOR PARTIAL SUMMARY JUDGMENT; FINDING MOOT [58] MOTION UNDER RULE 56(D); AND FINDING MOOT [60] AND [136] MOTIONS FOR PARTIAL SUMMARY JUDGMENT

          David Nuffer, United States District Judge

         District Judge David Nuffer Plaintiffs Garth O. Green Enterprises d/b/a Southwest Plumbing Supply Company; Garth Green; and Michael Green (collectively “Southwest”) assert three causes of action against Defendants Richard Reese and Standard Plumbing Supply Company, Inc. (collectively “Standard Plumbing”):

• “Intentional Interference with Performance of Contract against Richard Reese and Standard” (Sixth Cause of Action)
• “Intentional Interference with Prospective Economic Relations against Richard Reese and Standard” (Seventh Cause of Action)
• “Unfair Competition against Richard Reese, Standard, Harward Irrigation, Grass Valley, Randall Harward, and Richard Harward” (Eighth Cause of Action).[1]

         Standard Plumbing moved for summary judgment on each of these causes of action (“55 Motion”).[2] This motion is based on arguments that Southwest lacks evidence to support Southwest's claims for intentional interference and unfair competition. Southwest opposed the 55 Motion (“55 Opposition”).[3] Standard Plumbing filed a reply in support of the 55 Motion (“55 Reply”).[4]

         Standard Plumbing also filed a separate motion renewing its motion for summary judgment with respect to Southwest's Sixth and Seventh Causes of Action for Intentional Interference (“60 Motion”).[5] This motion is based on a Utah Supreme Court case, Eldridge v. Johndrow, [6] which held that improper means must be established to support a claim of intentional interference. Southwest opposed the 60 Motion (“60 Opposition”).[7] Standard Plumbing filed a reply in support of the 60 Motion (“60 Reply”).[8]

         After this case was removed to federal court, Standard Plumbing also filed a motion for summary judgment on Southwest's Eighth Cause of Action for Unfair Competition (“136 Motion”).[9] This motion was based on waiver. Southwest opposed the 136 Motion (“136 Opposition”).[10] Standard Plumbing filed a reply in support of the 136 Motion (“136 Reply”).[11] A sur-reply was filed by Southwest (“136 Sur-Reply”).[12]

         For the reasons below, the 55 Motion is construed as a motion to dismiss and is GRANTED. The 60 Motion and 136 Motion are MOOT. And the 58 Motion, in which Standard sought to defer the 55 Motion for necessary discovery, is also MOOT since the 55 Motion is construed as a motion to dismiss.

         55 MOTION IS CONSTRUED AS MOTION TO DISMISS UNDER RULE 12

         One of the issues raised in the 55 Opposition is whether the 55 Motion was filed under Rule 12 or Rule 56 of the Utah Rules of Civil Procedure.[13] The 55 Motion is titled “Motion for Summary Judgment” and cites Rules 12(b)(6) and 56.[14] It also attaches affidavits and deposition transcripts. Rule 12(d) provides that if matters outside the pleadings are presented “and not excluded by the court, ” the motion “must be treated as one for summary judgment under Rule 56.”[15]

         It appears that Standard Plumbing's counsel intended the motion to be considered as a Rule 12 motion, and has been using that argument to avoid additional discovery. In an email exchange between counsel, Standard Plumbing's attorney said that the motion was “filed under Rule 12” and would therefore “oppose any attempts at discovery of the Standard defendants until the Rule 12 motion is decided.[16] Accordingly, the 55 Motion is construed as a Rule 12 motion to dismiss and the material outside the pleadings is excluded from consideration.[17] As Southwest's 55 Opposition points out, “the submission of documents outside the pleadings by itself is not a basis for conversion to summary judgment; to effect a rule 12(b) conversion, the court must have relied on those documents for its decision.”[18] Therefore, because of the problems associated with considering the 55 Motion as a summary judgment motion, and the lack of developed undisputed facts, the 55 Motion will be construed as a motion to dismiss, assuming all facts in the Amended Complaint as true.[19]

         58 MOTION IS MOOT

         Southwest has also filed a motion under Rule 56(d)[20] (“58 Motion”) asking that the 55 Motion be denied or deferred until necessary discovery can be completed.[21] Southwest argues it has not had an adequate opportunity to engage in discovery in order to properly respond to the 55 Motion. Standard Plumbing has allegedly rebuffed efforts for additional discovery by taking the position that the 55 Motion was filed under Rule 12 and is not required to engage in discovery until resolution of the motion.[22]

         The 58 Motion is MOOT because the 55 Motion is construed as a motion to dismiss. Because matters outside the pleadings are not considered, discovery is unnecessary.

         MOTION TO DISMISS STANDARD

         Defendants are entitled to dismissal under Rule 12(b)(6) when the complaint, standing alone, is legally insufficient to state a claim for which relief may be granted.[23] When considering a motion to dismiss for failure to state a claim, the thrust of all well-pleaded facts in the complaint is presumed, but a court need not consider conclusory allegations.[24] Nor are the complaint's legal conclusions and opinions accepted, even if couched as facts.[25]

         Satisfying the basic pleading requirements of the federal rules “demands more than an unadorned, the defendant-unlawfully-harmed-me accusation. A pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.'”[26] “[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.”[27] “[N]aked assertions devoid of further factual enhancement, ”[28] do not state a claim sufficiently to survive a motion to dismiss.

         FACTUAL ALLEGATIONS

         The Amended Complaint makes the following allegations, which are accepted as true: As Sprinkler World, Harward Irrigation operated five irrigation supply stores in Utah.[29]They were located in (1) Springville, (2) Orem, (3) Lehi, (4) Sandy, and (5) Roosevelt.[30]Southwest also operates irrigation supply stores and has its principal place of business in Cedar City, Utah.[31]

         In or about October 2012, Harward Irrigation and Southwest (through their principals) began negotiating a possible purchase by Southwest of certain assets of Harward Irrigation.[32]They discussed the possibility that Southwest would purchase all of the inventory of Harward Irrigation, certain personal property of Harward Irrigation, and certain intellectual property of Harward Irrigation.[33] Southwest would lease the five branch locations of Harward Irrigations[34]and continue to operate the five retail branches of Harward Irrigation in Springville, Orem, Lehi, Sandy, and Roosevelt.[35]

         The parties continued to negotiate the purchase of the assets of Harward Irrigation and on December 24, 2012, Randall Harward communicated an offer to Southwest for the purchase of the Harward Irrigation assets.[36] Southwest declined the December 24, 2012 offer.[37]

         The parties continued to negotiate the purchase of the assets of Harward Irrigation and on December 26, 2012, Randall Harward communicated another offer to Southwest for the purchase of the Harward Assets.[38] Southwest declined the December 26, 2012 offer.[39]

         On or about December 31, 2012, Southwest made a written final offer to purchase the assets of Harward Irrigation and sent the offer to Randall Harward via email.[40] The December 31, 2012 written offer indicated it was a “Final Offer” and stated that to accept, Harward would need to respond by January 2, 2013 with a “yes.”[41] The December 31, 2012 “Final Offer” expressly included Harward Irrigation's trademarks.[42]

         On January 2, at 12:38 p.m., Randall Harward, on behalf of Harward Irrigation and Grass Valley responded to the “Final Offer” of Southwest by email stating: “The answer is yes. We are looking forward to working with you.”[43] Later on January 2, 2013, Richard Harward contacted Mike Green, the President of Southwest, to ensure that Mr. Green received the written acceptance email and to verbally communicate that the offer was accepted.[44]

         The parties anticipated that the offer made by Southwest and accepted by Harward Irrigation would be formalized in a written agreement that each party would sign including closing documents such as assignments, the licensing agreement, and the leases.[45]

         Southwest retained an attorney to reduce the terms of the “Final Offer” to an Asset Purchase Agreement[46] and delivered the written Asset Purchase Agreement, together with closing documents to Harward Irrigation on January 7, 2013.[47] Harward Irrigation confirmed that they received the Asset Purchase Agreement and closing documents that same day.[48]

         After reviewing the Asset Purchase Agreement together with leases, the licensing agreement, and other closing documents, Richard Harward called Mike Green late on January 7, 2013 and said that Harward Irrigation and its principals had been reviewing the documents and that there might be a few “little” changes, “nothing big, and nothing to be worried about.”[49] On January 7 and 8, Harward Irrigation, Southwest, and their principals continued to work on details of the transaction.[50]

         On or about January 8, 2013, Harward Irrigation made modifications to the Asset Purchase Agreement and requested additional time to collect and retain 100% of the collected amount from certain accounts receivable.[51] On January 8, 2013, Grass Valley asked for an increase to the lease amounts by 2%.[52] Southwest agreed to the increase, but stated that the transaction would have to close on January 9, 2013 for the agreement on increased rent to remain in force.[53] The parties agreed to meet in Springville, Utah on the morning of January 9 to close the transaction.[54]

         On the morning of January 9, Richard Harward told Southwest that another company had made an offer to purchase Harward Irrigation.[55] Richard Harward and Calvin Harward would not disclose who the other company was or how much the offer was for.[56] Richard Harward and Calvin Harward insisted that they would not continue with the transaction with Southwest until they had explored the other offer.[57] Based on Richard Harward's and Calvin Harward's explicit representations that Harward Irrigation and Grass Valley would not complete the transaction with Southwest, Southwest left the meeting and returned home.[58]

         Prior to January 9, 2013, Richard Reese, as principal of Standard Plumbing, came to know that the Harwards, Harward Irrigation, and Grass Valley had accepted Southwest's offer and agreed to sell to Southwest, and with that knowledge, took actions to interfere with their agreement with Southwest and to induce the Harwards to breach that agreement and to enter into an agreement with Standard Plumbing.[59] The offer was made “for the purpose of inducing” Harward Irrigation and Grass Valley to breach their agreement with Southwest, to deprive Southwest of the benefits of their agreement with Harward Irrigation and Grass Valley, to keep Southwest from extending its reach further into Standard's market share, and to harm the Greens and Southwest, who Richard Reese had long considered rivals in the industry.[60]

         Based on their understanding of what the Harwards had expressed that they needed to pursue further negotiations with Richard Reese and Standard, and their knowledge concerning the contents of writings between the Harwards and Southwest, Richard Reese and Standard revised their offer and presented it on the morning of January 9, based further on their knowledge that Southwest expected to close their agreement with Harward Irrigation and Grass Valley before noon that day.[61]

         Richard Reese and Standard revised and re-presented their offer and entered into further discussions with Harward Irrigation and Grass Valley on the morning of January 9, for the purpose of getting Harward Irrigation and Grass Valley to breach their agreement with Southwest before the meeting scheduled between Harward Irrigation, Grass Valley, and Southwest that morning.[62]

         Richard Harward, Randall Harward, and Harward Irrigation and Grass Valley further encouraged the actions of Richard Reese and Standard by communicating excuses to draw out their interaction with Southwest, including but not limited to communicating pretextual excuses concerning the time needed to review the papers prepared by Southwest with their attorney and the unavailability of their attorney in that time period, which were false.[63]

         Thereafter, Richard Reese reached out to taunt Garth Green and Mike Green by telling them they were “too late” and by taunting them after the deposition of Richard Reese by asking “did I say anything wrong?” which Southwest interpreted as a statement showing unlawful and/or fraudulent intent to deprive Southwest of the benefit of its transaction with Harward Irrigation and Grass Valley.[64]

         DISCUSSION

         The Amended Complaint asserts three causes of action against Standard Plumbing.[65] The first is Intentional Interference with Performance of Contract, the second is Intentional Interference with Prospective Economic Relations, and the third is Unfair Competition.[66] The intentional interference claims will be discussed first, followed by discussion of the unfair competition claim.

         Intentional Interference

         In St. Benedict's Development Company v. St. Benedict's Hospital, [67] the Utah Supreme Court combined the two intentional interference claims noted above into a single tort of “intentional interference with economic relations.”[68] This cause of action “protects both existing contractual relationships and prospective relationships of economic advantage not yet reduced to a formal contract.”[69] Thus, the intentional interference claims that Southwest asserts against Standard Plumbing will be analyzed as a single claim for intentional interference with economic relations.

         To prevail on a claim for intentional interference with economic relations, “[a] plaintiff must prove (1) that the defendant intentionally interfered with the plaintiff's existing or potential economic relations; (2) . . . by improper means; (3) causing injury to the plaintiff.”[70] A recent Utah Supreme Court case eliminated an “improper purpose” alternative in the second element.[71]Thus, to establish its claim for intentional interference with economic relations, Southwest must show that: (1) Standard Plumbing intentionally interfered with Southwest's existing or potential economic relations; (2) by improper means; (3) causing injury to Southwest.

         The tort of intentional interference with economic relations does not bar ordinary market competition. “In the rough and tumble of the marketplace, competitors inevitably damage one another in the struggle for personal advantage. The law offers no remedy for these damages- even if intentional-because they are an inevitable by-product of competition.”[72] Thus, to be actionable, the interference must be “wrongful by some measure beyond the fact of the interference itself.”[73] “Improper means include ‘violence, threats or other intimidation, deceit or misrepresentation, bribery, unfounded litigation, defamation, or disparaging falsehood.'”[74] Thus, a party asserting intentional interference must show more than merely a breach of contract; the party must show tortious, independently actionable conduct.[75]

         Southwest has failed to allege any improper means. Instead, Southwest has stated that Richard Reese and Standard Plumbing made their offer to Harward Irrigation “for the purpose of inducing” Harward Irrigation and Grass Valley to breach their agreement with Southwest, to deprive Southwest of the benefits of their agreement with Harward Irrigation and Grass Valley, to keep Southwest from extending its reach further into Standard's market share, and to harm the Greens and Southwest, who Richard Reese had long considered rivals in the industry.[76] These are not improper means. “The law offers no remedy for these damages-even if intentional- because they are an inevitable by-product of competition.”[77]

         Southwest also asserts that, with notice of the Harward-Southwest agreement, Richard Reese and Standard revised their offer and presented it on the morning of January 9, based further on their knowledge that Southwest expected to close their agreement with Harward Irrigation and Grass Valley before noon that day.[78] Again, this is not improper means because competition is acceptable in the marketplace.

         Southwest further alleges that Richard Harward, Randall Harward, and Harward Irrigation and Grass Valley further encouraged the actions of Richard Reese and Standard by communicating excuses to draw out their interaction with Southwest, including but not limited to communicating pretextual excuses concerning the time needed to review the papers prepared by Southwest with their attorney and the unavailability of their attorney in that time period, which were false.[79] But this describes the conduct of the Harwards, not of Richard Reese or Standard Plumbing. There is no allegation that Richard Reese or Standard Plumbing caused the Harwards to engage in misrepresentation or engaged in misrepresentation themselves. Thus, these allegations do not state improper means as to Standard Plumbing.

         Finally, Southwest alleges that Richard Reese reached out to “taunt” Garth Green and Mike Green by telling them they were “too late” to close on the deal.[80] Richard Reese also allegedly “taunted” the Greens by asking “did I say anything wrong?” after a deposition “with an intonation that further indicated his unlawful and/or fraudulent intent to deprive Southwest of the benefit of its transaction with Harward Irrigation and Grass Valley.”[81] The “indication of an intonation” is a conclusion or inference that can be disregarded.[82] But even if the statement is considered to have been made, mproper means are not shown. “Improper means include ‘violence, threats or other intimidation, deceit or misrepresentation, bribery, unfounded litigation, defamation, or disparaging falsehood.'”[83] Telling a competitor that they were “too late” and making a better offer or asking “did I say anything wrong?” does not rise to the level of violence, threats, intimidation, deceit, misrepresentation, or other behavior that could be considered improper.

         Therefore, even accepting all of Southwest's allegations as true, Southwest has failed to state a claim for intentional interference with economic relations because it has not alleged any improper means. Southwest therefore cannot establish the second element of a claim for intentional interference and the intentional interference claims will be dismissed.

         Unfair Competition

         Southwest also alleges that Standard Plumbing “engaged in unlawful, unfair, and/or fraudulent business acts and practices.”[84] Specifically, Southwest alleges that Standard Plumbing is “infringing on those trademarks of Harward Irrigation that belong to Southwest.”[85] It is unclear whether Southwest advances a common law claim for unfair competition or a statutory claim for unfair competition. Regardless, Southwest's unfair competition claim fails.

         A common law claim for unfair competition includes such actions as deceptively naming a new business to deceive customers and take advantage of a competitor's established good will, [86] copying unique appearances of an established business, [87] or deceptively packaging a product to confuse the consumer about its source.[88]

         A statutory claim for unfair competition in Utah is guided by Utah Code § 13-51-102(4), which provides:

(4)(a) Except as provided in Subsection (4)(b), “unfair competition” means an intentional business act or practice that:
(i) (A) is unlawful, unfair, or fraudulent; and
(B) leads to a material diminution in value of intellectual property; and
(ii) is one of the following:
(A) cyber-terrorism;
(B) infringement of a patent, trademark, or trade name;
(C) a software license violation; or
(D) predatory hiring practices.[89]

         Southwest alleges that “[p]ursuant to the terms of Southwest's agreement with Harward Irrigation and Grass Valley, Southwest obtained exclusive rights, among other things, to Harward Irrigation's trademarks.[90] However, Southwest openly acknowledges that the agreement was never completed.[91] Southwest also acknowledges that Harward Irrigation and Grass Valley entered into an agreement with Standard Plumbing instead.[92] Thus, Southwest's allegations are not logically consistent. It is not possible for Southwest to have obtained Harward Irrigation's trademarks without completing the proposed transaction.

         The Tenth Circuit held that a party does not obtain a protectable interest in a trademark by simply having a contract that provides the possibility of obtaining trademark rights. In Derma Pen, LLC v. 4EverYoung Ltd., [93] two companies-Derma Pen and 4EverYoung-entered into an agreement “so that Derma Pen, LLC and 4EverYoung could sell a micro-needling device.” “The agreement provided that Derma Pen, LLC would sell the device in the United States; 4EverYoung would sell the device throughout the rest of the world.” Derma Pen held the trademark rights in the United States and sold the device there. The agreement stated that if the agreement were terminated, Derma Pen would offer to sell its trademark rights to 4EverYoung.

         Derma Pen eventually terminated the agreement and 4EverYoung attempted to buy Derma Pen's trademark rights. However, “no money ever exchanged hands” and 4EverYoung's attempt to buy was never completed. Nevertheless, “4EverYoung started using the trademark to sell the micro-needling device in the United States.” Derma Pen sued 4EverYoung for trademark infringement and unfair competition, and moved for a preliminary injunction. The district court denied the preliminary injunction, finding that Derma Pen's trademark rights were receding in light of the parties' agreement and other developments in the case. But on appeal, the Tenth Circuit disagreed with the district court and reversed the district court's ruling on the preliminary injunction motion. The Tenth Circuit focused on the fact that Derma Pen currently owned the ...


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