State 48 Recycling Incorporated v. Janes ( 2022 )

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 State 48 Recycling Incorporated, No. CV-22-00767-PHX-GMS 10 Plaintiff, ORDER 11 v. 12 Michael Ray Janes, et al., 13 Defendants. 14 15 16 Before the Court is State 48 Recycling, Inc.’s (“Plaintiff”) Application for and 17 Memorandum in Support of Temporary Restraining Order and Preliminary Injunction 18 (Doc. 17-1 at 86.) For the following reasons, the application is granted in part, and a 19 temporary restraining order (“TRO”) is issued. 20 BACKGROUND 21 Plaintiff is an Arizona corporation that “specializ[es] in the re-manufacture of used 22 engine antifreeze/coolant and recycling of safety solvents.” (Doc. 17-1 at 9.) It offers a 23 “wide range of products and services” to its customers, who are mainly in the automotive 24 industry. (Doc. 17-1 at 9.) In April 2021, Plaintiff purchased the assets of Industrial 25 Recycling Solutions Inc. (“IRSI”), an Arizona corporation in the same industry. As part 26 of the purchase, Plaintiff acquired ownership of IRSI’s trade names, trademarks, and logos, 27 and acquired the right to use the name “IRSI” as a “doing business as” designation. 28 After Plaintiff acquired IRSI’s assets, Plaintiff gradually transitioned its business 1 from “IRSI” to “State 48 Recycling.” The transition was deliberately slow. Plaintiff hired 2 former IRSI employees and continued to use the IRSI logo, uniforms, and company trucks 3 until September 2021. That month, Plaintiff began using new gray uniforms with the “State 4 48 Recycling” logo but continued to use the IRSI mark on its company trucks and on its 5 website. Moreover, even though Plaintiff used the new uniforms, employees could wear 6 the old IRSI uniforms if, for some reason, the new ones were unavailable: for instance, if 7 the new uniforms were taken to be cleaned. 8 Michael Janes and Angel Alva (“the Individual Defendants”) were employed by 9 IRSI for years before beginning employment with Plaintiff.1 The Individual Defendants 10 continued to work for Plaintiff through March 2022. While they were still employed by 11 Plaintiff, the Individual Defendants formed Defendant Antifreeze Architects, LLC. 12 Defendant Antifreeze Architects is a direct competitor of Plaintiff. 13 Since the Individual Defendants left Plaintiff’s employment, they are alleged to 14 have continued to service Plaintiff’s customers. According to Plaintiff, the Individual 15 Defendants arrive a week before Plaintiff is scheduled to provide service and charge 16 customers less than Plaintiff’s rates. The Individual Defendants wear the old IRSI 17 uniforms, which Plaintiff’s customers associate with Plaintiff, even though the Individual 18 Defendants are no longer employed by Plaintiff. Although the Individual Defendants do 19 not contest that they directly solicit Plaintiff’s customers, they do contest that they do so 20 while wearing the IRSI mark and by holding themselves out as Plaintiff’s employees. 21 Plaintiff filed suit in Maricopa County Superior Court on April 21, 2022, alleging 22 fourteen causes of action. While the case was pending in state court, Plaintiff filed an 23 application for a TRO. Defendants then removed the case to this Court pursuant to its 24 federal-question jurisdiction over Plaintiff’s Lanham Act claim. The Court held an 25 evidentiary hearing on May 12, 2022 and now decides the pending application.2 26 1 IRSI had employed Defendant Janes for five years and Defendant Alva for two. (Doc. 27 17-1 at 11.) 28 2 All facts have been taken from the testimony at the evidentiary hearing, unless otherwise specified. 1 DISCUSSION 2 I. Legal Standard 3 Rule 65 authorizes courts to issue temporary restraining orders and preliminary 4 injunctions, and the legal standards for issuing both kinds of orders are the same. See Fed. 5 R. Civ. P. 65; Stuhlbarg Int’l Sales Co. v. John D. Brush & Co., 240 F.3d 832, 839 n.7 (9th 6 Cir. 2001); Ariz. Recovery Hous. Ass’n v. Ariz. Dep’t of Health Scis., 462 F. Supp. 3d 990, 7 996 (D. Ariz. 2020). However, the two forms of relief serve different purposes: “The 8 purpose of a preliminary injunction is to preserve the status quo and the rights of the parties 9 until a final judgment on the merits can be rendered, while the purpose of a [TRO] is to 10 preserve the status quo before a preliminary injunction hearing may be held.” Ariz. 11 Recovery Hous., 462 F. Supp. 3d at 996 (quoting Johnson v. Macy, No. CV 15-7165 FMO 12 (ASx), 2015 WL 9692930, at *3 (C.D. Cal. Oct. 23, 2015)). 13 Preliminary relief “is an extraordinary remedy never awarded as of right.” Winter 14 v. Nat’l Res. Def. Council, Inc., 555 U.S. 7, 24 (2008). To prevail, the moving party bears 15 the burden of showing that they are (1) “likely to succeed on the merits,” (2) “likely to 16 suffer irreparable harm in the absence of preliminary relief,” (3) “that the balance of 17 equities tips in [their] favor,” and (4) “that an injunction is in the public interest.” Id. at 18 20. If the moving party fails to demonstrate a likelihood of success on the merits but 19 nevertheless shows “serious questions going to the merits were raised and the balance of 20 hardships tips sharply in [their] favor,” courts in the Ninth Circuit may issue preliminary 21 relief provided “the other two elements of the Winter test are also met.” All. for the Wild 22 Rockies v. Cottrell, 632 F.3d 1127, 1131 (9th Cir. 2011). 23 II. Consideration of Evidence 24 Defendants object to several pieces of evidence. The Federal Rules of Evidence, 25 however, “do not apply strictly to preliminary injunction proceedings.” Trees v. Serv. 26 Employees Int’l Union Local 503, --- F.Supp.3d ----, 2021 WL 5206137, at *2 (D. Or. Nov. 27 9, 2021) (quoting Herb Reed Enters., LLC v. Fla. Ent. Mgmt., Inc., 736 F.3d 1239, 1250 28 n.5 (9th Cir. 2013)); Disney Enter., Inc. v. VidAngel, Inc., 224 F. Supp. 3d 957, 996 (C.D. 1 Cal. 2016). The Court will thus fully consider Defendants’ objections as it assesses the 2 credibility of evidence. But the Court will not decline to consider a piece of evidence 3 merely because it violates the technical requirements of the Federal Rules of Evidence, if 4 the evidence is otherwise credible. 5 III. Analysis 6 A. Likelihood of Success on the Merits 7 Plaintiff argues they are likely to succeed on the merits of four of their claims: 8 breach of the duty of loyalty, misappropriation of trade secrets, trademark infringement 9 and counterfeiting, and defamation per se. (Doc. 17-1 at 96–102.) The Court considers 10 each in turn. 11 1. Duty of Loyalty 12 An employee owes their employer a fiduciary duty of good faith and loyalty. 13 McCallister Co. v. Kastella, 170 Ariz. 455, 457, 825 P.2d 980, 983 (Ct. App. 1992); Sec. 14 Title Agency, Inc. v. Pope, 219 Ariz. 480, 492, 200 P.3d 977, 989 (Ct. App. 2008); E*Trade 15 Fin. Corp. v. Eaton, 305 F. Supp. 3d 1029, 1032 (D. Ariz. 2018). Prior to termination of 16 the employment relationship, the employee may not directly compete with the employer, 17 but is permitted to make “not otherwise wrongful” arrangements to compete. Taser Int’l, 18 Inc. v. Ward, 224 Ariz. 389, 394, 231 P.3d 921, 926 (Ct. App. 2010) (quoting Restatement 19 (Third) of Agency § 8.04 (Am. L. Inst. 2006)). 20 Plaintiff alleges that the Individual Defendants violated their duty of loyalty by 21 (1) forming Defendant Antifreeze Architects while still employed by Plaintiff, (2) taking 22 Plaintiff’s supplies and uniforms, (3) taking Plaintiff’s confidential and proprietary 23 “pricing lists, customer lists, and customer routes” for the benefit of Defendant Antifreeze 24 Architects, and (4) using the misappropriated inventory and information to directly 25 compete with Plaintiff. (Doc. 17-1 at 97.) 26 Plaintiff has failed to show that the Individual Defendants breached their duty of 27 loyalty. First, incorporation alone is insufficient to show direct competition. McCallister 28 Co., 170 Ariz. at 457–58, 825 P.2d at 982–83 (Ct. App. 1992) (noting that it is generally 1 permissible for an employee to prepare to compete by “purchas[ing] a rival business” 2 (quoting Restatement (Second) of Agency § 393 cmt. e (Am. L. Inst. 1958))); Powers Steel 3 & Wire Prods., Inc. v. Vinton Steel, LLC, No. 1 CA-CV 20-0652, 2021 WL 5495289, at *6 4 (Ariz. Ct. App. Nov. 23, 2021) (“An agent who plans to compete is free to make extramural 5 arrangements for setting up a new business, such as incorporating a new firm . . . .” 6 (emphasis added) (quoting Restatement (Third) of Agency § 8.04 cmt c)). Second, Plaintiff 7 has produced no evidence, save for the bare allegations in Mr. Brian Rich’s declaration,3 8 to show that the Individual Defendants took Plaintiff’s property or customer information 9 during their employment. (Doc. 12 at 6.) Mr. Rich admitted that there was no written 10 record of either Individual Defendant ever having printed or otherwise communicated 11 customer information to themselves or others. Even so, the mere access to client files does 12 not sufficiently show that the Individual Defendants actively solicited customers before 13 their employment ended. E*Trade, 305 F. Supp. 3d at 1032 (“At the time [the defendant] 14 accessed the [plaintiff’s] client files, he had authorization to do so, he was tasked with 15 serving those clients as an employee of [plaintiff], and even if he did so to access the 16 clients’ contact information, without more at that point the Court cannot conclude he likely 17 breached his duty of loyalty.”) And, as conceded by Plaintiff, the Individual Defendants 18 occasionally used their IRSI uniforms during their employment with Plaintiff. Plaintiff has 19 presented no evidence it was improper for the Individual Defendants to do so, nor has it 20 established that the Individual Defendants used those uniforms to solicit customers during 21 their employment or that the Individual Defendants were required to return those uniforms 22 when they resigned. At this juncture, Plaintiff has not established it is likely to succeed on 23 the duty of loyalty claim. 24 2. Misappropriation of Trade Secrets 25 “To establish a claim for misappropriation of a trade secret, the claimant must first 26 prove a legally protectable trade secret exists.” Calisi v. Unified Fin. Servs., LLC, 232 27 Ariz. 103, 106, 302 P.3d 628, 631 (Ct. App. 2013). “Arizona has adopted the Uniform 28 3 Mr. Rich is Plaintiff’s co-owner. 1 Trade Secrets Act (‘UTSA’), which codifies the basic principles of common law trade 2 secret protection.” Id. The UTSA defines a trade secret as: 3 [I]nformation, including a formula, pattern, compilation, program, device, method, technique or process, that both: 4 (a) Derives independent economic value, actual or potential, 5 from not being generally known to, and not being readily ascertainable by proper means by, other persons who can 6 obtain economic value from its disclosure or use. 7 (b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy 8 9 Ariz. Rev. Stat. § 44-401(4). “Because the hallmark of a trade secret is secrecy,” Calisi, 10 232 Ariz. at 106, 302 P.3d at 631, “matters that are public knowledge are not safeguarded 11 as trade secrets.” Enter. Leasing Co. of Phx. v. Ehmke, 197 Ariz. 144, 149, 3 P.3d 1064, 12 1069 (Ct. App. 1999). The subject matter of trade secrets “must be sufficiently novel, 13 unique, or original that it is not readily ascertainable to competitors.” Calisi, 232 Ariz. at 14 106, 302 P.3d at 631. “[A] trade secret may include a grouping in which the components 15 are in the public domain but there has been accomplished an effective, successful and 16 valuable integration of those public elements such that the owner derives a competitive 17 advantage from it.” Ehmke, 197 Ariz. at 149, 3 P.3d at 1069. 18 According to the complaint and Mr. Rich’s declaration, Plaintiff acquired IRSI’s 19 customer lists and routes and pricing lists as part of the asset purchase in 2021. (Doc. 17-1 20 at 43–44.) The Court certainly recognizes that knowledge of customer preferences—such 21 as how they prefer to pay or when they require service—could derive independent 22 economic value from its secrecy. Plaintiff has failed to establish, however, that it made 23 reasonable efforts to maintain such secrecy. Plaintiff makes the bare allegations that its 24 customer and pricing information is “proprietary,” “not public knowledge,” that it limited 25 access to this information, and that it prohibited the removal of the information from 26 “Company premises.” (Doc. 17-1 at 44.) But Plaintiff has failed to show what specific 27 steps it took to keep this information confidential: for example, how it enforced its policies 28 about limiting employee access and keeping the information confidential. Although 1 Plaintiff asserts that the information was restricted to “management and the owners,” it is 2 uncontested that Plaintiff gave its drivers, including the Individual Defendants, invoices 3 with the customers’ names, contact information, how often they received service, and how 4 they preferred to pay. Plaintiff does not provide the Court with any evidence that it 5 instructed the drivers that this information was proprietary or that it took any steps to 6 protect it. Nor did Plaintiff require its employees to sign any confidentiality or non- 7 competition agreement. Given that Plaintiff currently employs only five employees, and 8 only employed as many as eight before the Individual Defendants resigned, the Court is 9 not persuaded that disclosing allegedly proprietary information to a significant portion of 10 its workforce—without instruction to keep it confidential—constitutes “efforts that are 11 reasonable under the circumstances to maintain its secrecy.”4 Ariz. Rev. Stat. 12 § 44-401(4)(b). Plaintiff’s request for a temporary restraining order is denied as to this 13 claim. 14 3. Trademark Infringement and Counterfeiting 15 Plaintiff pleads claims for trademark infringement under both the Lanham Act and 16 Arizona law. See 15 U.S.C. § 1114; Ariz. Rev. Stat. §§ 44-1441 to -1456. State statutory 17 trademark claims are substantially congruent to claims made under the Lanham Act. See 18 Health Indus. Bus. Commc’ns Council Inc. v. Animal Health Inst., 481 F. Supp. 3d 941, 19 956 (D. Ariz. 2020) (collecting cases); Walker & Zanger, Inc. v. Paragon Indus., Inc., 549 20 F. Supp. 2d 1168, 1182 (N.D. Cal. 2007) (“[I]n the Ninth Circuit, claims of unfair 21 competition and false advertising under state statutory and common law are ‘substantially 22 congruent’ to claims made under the Lanham Act.” (quoting Cleary v. News Corp., 30 F.3d 23 1255 (9th Cir. 1994)). Therefore, the Court considers both claims together. See 3 Ratones 24 Ciegos v. Mucha Lucha Libre Taco Shop 1 LLC, No CV-16-04538-PHX-DGC, 2017 WL 25 4284570, at *2 (D. Ariz. Sept. 27, 2017) (considering trademark claims arising under 26 Arizona statutes in the same analysis as Lanham Act claims). 27 4 The Court recognizes that this is a very early stage in the litigation. The information required to meet Plaintiff’s burden, however, is not something that can only be revealed 28 after extensive discovery; Plaintiff is in the best position to attest to its own practices and policies, but it has not done so outside of the bare allegation of their existence. 1 To prevail on a trademark infringement claim, a plaintiff “must prove: (1) that it has 2 a protectible ownership interest in the mark; and (2) that the defendant’s use of the mark is 3 likely to cause consumer confusion, thereby infringing upon [plaintiff’s] rights to the 4 mark.” Dep’t of Parks & Recreation for State of Cal. v. Bazaar Del Mundo Inc., 448 F.3d 5 1118, 1124 (9th Cir. 2006). The touchstone for trademark infringement is likelihood of 6 confusion, which asks whether a reasonably prudent consumer is “likely to be confused as 7 to the origin of the good or service bearing one of the marks.” Rearden LLC v. Rearden 8 Com., Inc., 683 F.3d 1190, 1214 (9th Cir. 2012). This determination is made by applying 9 the well-established Sleekcraft factors: (1) strength of the mark, (2) proximity of the goods, 10 (3) similarity of the marks, (4) evidence of actual confusion, (5) marketing channels used, 11 (6) types of goods and degree of care exercised by consumers, (7) defendant’s intent in 12 selecting the mark, and (8) likelihood of expansion of the product lines. AMF Inc. v. 13 Sleekcraft Boats, 599 F.2d 341, 348–49 (9th Cir. 1979). This eight-factor test is “pliant”; 14 “the relative importance of each individual factor will be case-specific.” Brookfield 15 Commc’ns, Inc. v. W. Coast Entm’t Corp., 174 F.3d 1036, 1054 (9th Cir. 1999). 16 “Counterfeiting is a more specialized case of trademark infringement because a counterfeit 17 ‘is a spurious mark which is identical with, or substantially indistinguishable from, a 18 registered mark.’” UL LLC v. Space Chariot, Inc., 250 F. Supp. 3d 596, 607 (C.D. Cal. 19 2017). 20 i. Plaintiff’s Ownership Interest in the Marks 21 Plaintiff alleges that it owns several unregistered marks, including (1) the words 22 “State 48 Recycling,” (2) the words “‘State 48 Recycling’ within the State of Arizona 23 outline,” (3) the words “Industrial Recycling Solutions, Inc.,” and (4) the acronym “IRSI.” 24 (Doc. 17-1 at 31.) “[O]wnership of an unregistered trademark, like ownership of a 25 registered mark, is sufficient to establish standing under the Lanham Act.” Halicki Films, 26 LLC v. Sanderson Sales & Mktg., 547 F.3d 1213, 1226 (9th Cir. 2008); Iancu v. Brunetti, 27 139 S. Ct. 2294, 2297 (2019) (“Registration of a mark is not mandatory. The owner of an 28 unregistered mark may still use it in commerce and enforce it against infringers.”). 1 “It is axiomatic in trademark law that the standard test of ownership is priority of 2 use.” Sengoku Works v. RMC Int’l, 96 F.3d 1217, 1219 (9th Cir. 1996). Here, Plaintiff 3 alleges that it used its unregistered marks for at least a year before Defendant Antifreeze 4 Architects did so. Mr. Rich testified that Plaintiff continued to use IRSI’s name and logo 5 from approximately April 2021 to September 2021. During those months, the IRSI logo 6 appeared on both employee uniforms and company trucks, and the logo remained on the 7 company trucks until just last month. Plaintiff also alleges that it used the name and logo 8 in sales and marketing of its antifreeze recycling services, including on its website.5 (Doc. 9 17-1 at 10.) Plaintiff’s use of the mark is therefore sufficiently public as to identify the 10 mark in an appropriate segment of the public mind. See Chance v. Pac-Tel Teletrac Inc., 11 242 F.3d 1151, 1158 (9th Cir. 2001) (explaining that the plaintiff’s totality of prior acts, 12 taken together, can identify or distinguish the marked goods in an appropriate segment of 13 the public mind as those of the adopter of the mark). Defendants do not seem to contest 14 that Plaintiff used the logo before Defendant Antfreeze Architects became associated with 15 it, as alleged by Plaintiff. Defendants do contest, however, that Plaintiff is the actual owner 16 of the “IRSI” mark. But despite any contrary assertion by Defendants or IRSI itself, the 17 Purchase and Sale Agreement clearly states that “[Plaintiff] is purchasing all assets of the 18 Business, including but not limited to . . . trade names and trademarks, [and] logos.” (Doc. 19 12 at 14.) Plaintiff was also granted “use of name ‘Industrial Recycling Solutions’ as a 20 ‘doing business as’ (DBA)” for twenty-four months “from the date of closing.” (Doc. 12 21 at 14.) At this preliminary juncture, Plaintiff has met its burden of establishing a likelihood 22 of success as to this element. The Court therefore concludes that Plaintiff is likely to show 23 it has a protectible ownership in the IRSI mark.. 24 ii. Likelihood of Confusion 25 The Court next considers the Sleekcraft factors to determine whether Plaintiff has 26 sufficiently shown a likelihood of success on the merits as to the likelihood of confusion. 27 5 At the time of writing, Plaintiff’s website prominently displays the “IRSI” logo, and the 28 web address contains the “Industrial Recycling Solutions” name. What We Do, IRSI, http://industrialrecyclingsolutions.com/about/what-we-do/ (last visited May 23, 2022). 1 a. Strength of the Mark 2 The first Sleekcraft factor is the strength of the mark. Normally, the “‘strength’ of 3 the trademark is evaluated in terms of its conceptual strength and commercial strength.” 4 GoTo.com, Inc. v. Walt Disney Co., 202 F.3d 1199, 1207 (9th Cir. 2000). A mark’s 5 commercial strength, however, need not be considered at the preliminary injunction stage. 6 Network Automation, Inc. v. Advanced Sys. Concepts, Inc., 638 F.3d 1137, 1150 (9th Cir. 7 2011). A mark’s conceptual strength “depends largely on the obviousness of its connection 8 to the good or service to which it refers.” Fortune Dynamic, Inc. v. Victoria’s Secret Stores 9 Brand Mgmt., Inc., 618 F.3d 1025, 1032–33 (9th Cir. 2010). There are several categories 10 of trademarks: arbitrary (common words with no connection to the product), fanciful 11 (coined phrases with no known connection to the product), suggestive (does not describe 12 the features of a product but suggests them), descriptive (defines a particular characteristic 13 of a product in a way that does not require any exercise of the imagination), and generic 14 (describes the product in its entirety). Surfvivor Media, Inc. v. Survivor Prods., 406 F.3d 15 625, 631–32 (9th Cir. 2005). Arbitrary marks, or marks whose design does not have an 16 intrinsic connection to the products sold under the mark, should “be afforded the widest 17 ambit of protection from infringing uses.” Ocean Garden, Inc. v. Marktrade Co., 953 F.2d 18 500, 506 (9th Cir. 1991) (quoting Sleekcraft, 599 F.2d at 349). 19 The IRSI logo is likely a suggestive or descriptive mark because it offers some 20 description of the products or services described, namely recycling services in Arizona, 21 and is not so distinctive to rise to the level of arbitrariness. Regardless, “a suggestive or 22 descriptive mark . . . is inherently a weak mark.” Am. Int’l Grp., Inc. v. Am. Int’l Bank, 23 926 F.2d 829, 832 (9th Cir. 1991). Moreover, Plaintiff has provided no legal argument or 24 caselaw to establish that this factor could weigh in any way but for in Defendants’ favor. 25 As such, this factor weighs in Defendants’ favor. 26 b. Relatedness of the Goods and Similarity of the 27 Marks 28 “The standard for deciding whether the parties’ goods or services are ‘related’ is 1 whether customers are ‘likely to associate’ the two product lines.” Surfvivor, 406 F.3d at 2 633 (quoting Dreamwerks Prod. Grp., Inc. v. SKG Studio, 142 F.3d 1127, 1131 (9th Cir. 3 1998)). When considering the similarity of marks, courts consider the marks within the 4 context of other identifying features and ask whether the marks are similar in sight, sound, 5 and meaning. Id. Plaintiff alleges that Defendants used Plaintiff’s uniforms that bore the 6 IRSI mark to visit Plaintiff’s customers to offer the same services that Plaintiff offers. 7 (Doc. 17-1 at 101.) At least three of Plaintiff’s customers confirm Plaintiff’s allegations, 8 and allege that they saw the Individual Defendants wearing the IRSI uniforms with the 9 IRSI logo when the Individual Defendants visited them, just before Plaintiff’s scheduled 10 service. (Doc. 12 at 30–41.) These two factors weigh in Plaintiff’s favor. 11 c. Evidence of Confusion 12 “[A]ctual confusion is not necessary to a finding of likelihood of confusion under 13 the Lanham Act. Indeed, [p]roving actual confusion is difficult . . . and the courts have 14 often discounted such evidence because it was unclear or insubstantial.” Network 15 Automation, 638 F.3d at 1151. Plaintiff has presented evidence that its customers were 16 confused by Defendants’ use of the marks, as several customers believed they were 17 purchasing services from Plaintiff when they were actually purchasing services from 18 Defendants. (Doc. 17-1 at 17); (Doc. 12 at 8–9.) One of Plaintiff’s customers, Ms. Joanna 19 Cook, initially believed that the Individual Defendants were still Plaintiff’s employees 20 when they arrived at her facility because “they were wearing the State 48 Recycling / IRSI 21 uniforms and drove into [the] premises the way that [Plaintiff’s] employees did for 22 servicing us.” (Doc. 12 at 35.) Another customer, Mr. James Strang, believed the 23 Individual Defendants “were employees of [Plaintiff]” when they arrived at his facility 24 because “[t]hey were wearing the State 48 Recycling / IRSI uniforms, and they held 25 themselves out to . . . as [Plaintiff’s] employees during the conversation.” (Doc. 12 at 26 39-40.) And another customer, Ms. Heather Hanson, stated that she believed the Individual 27 Defendants were Plaintiff’s employees when they arrived at her facility because “[t]hey 28 were wearing State 48 Recycling/ IRSI uniforms.” (Doc. 12 at 31.) Although Defendants 1 dispute that they held themselves out as Plaintiff’s employees, it is clear from these 2 witnesses that they believed the Individual Defendants were Plaintiff’s employees because 3 the uniforms were the same and bore the IRSI logo. This factor weighs in Plaintiff’s favor. 4 d. Marketing Channels Used 5 In analyzing this factor, courts look to whether the parties “distribute their goods in 6 the same marketing channels.” Surfvivor, 406 F.3d at 633. Plaintiff’s advertising mainly 7 consists of its website, uniforms, invoices, and company trucks. Defendants, on the other 8 hand, used business cards, invoices, and hats. Although these channels have some overlap, 9 it is not substantial. What is more instructive, however, is that the Individual Defendants 10 directly advertised to Plaintiff’s customers, sometimes even specifically referencing 11 Plaintiff. Ms. Hanson stated that the Individual Defendants represented to her that they 12 were “going around to their old company contacts” to “earn [their] business.” (Doc. 12 at 13 31.) Ms. Cook likewise stated that the Individual Defendants told her that they had started 14 their own business and “offered the ‘same quality products as others, but cheaper.’” (Doc. 15 12 at 35.) And Mr. Strang recalled that the Individual Defendants asked him if they could 16 fill up the coolant tanks. (Doc. 12 at 40.) It is hard to imagine marketing channels that are 17 more “convergent,” and thus more likely to increase the likelihood of confusion, than 18 directly soliciting Plaintiff’s customers while wearing uniforms bearing Plaintiff’s logo. 19 Sleekcraft, 599 F.2d at 353. This factor weighs in favor of Plaintiff. 20 e. Degree of Purchaser Care 21 “In analyzing the degree of care that a consumer might exercise in purchasing the 22 parties’ goods, the question is whether a ‘reasonably prudent consumer’ would take the 23 time to distinguish between the two product lines.” Surfvivor, 406 F.3d at 634 (citing 24 Brookfield Commc’ns., Inc., 174 F.3d at 1060). The “reasonably prudent consumer” is 25 expected “to be more discerning—and less easily confused—when he is purchasing 26 expensive items.” Sazerac Co., Inc. v. Fetzer Vineyards, Inc., 265 F. Supp. 3d 1013, 1037 27 (N.D. Cal. 2017), aff’d, 786 F. App’x 662 (9th Cir. 2019) (quoting Brookfield Commc’ns, 28 Inc., 174 F.3d at 1060). “Generally, consumers are expected to proceed with more care if 1 the goods or services are specialized or of uncommon importance”; however, consumers 2 will exercise less care when making “impulsive purchasing decisions.” Great Am. Duck 3 Races Inc. v. Kangaroo Mfg. Inc., 398 F. Supp. 3d 494, 506 (D. Ariz. 2019). 4 Although the Court has been presented with little evidence as to what either party 5 charges for its products, Plaintiff has asserted—and Defendants do not seem to contest— 6 that Plaintiff produces “a proprietary blend of coolant with a unique chemical make-up.” 7 (Doc. 12 at 11.) Plaintiff’s product comes with a warranty that can be voided by misuse, 8 such as by “[Defendant] Antifreeze Architects, LLC servicing the customers’ coolant tanks 9 containing [Plaintiff’s] coolant, or servicing [Plaintiff’s] coolant tanks located on its 10 customers’ premises.” (Doc. 12 at 11.) It can be reasonably inferred, therefore, that 11 Plaintiff’s customer would “proceed with more care” because of the specialized nature of 12 the product. Great Am. Duck, 398 F. Supp. 3d at 506. Ms. Cook’s declaration corroborates 13 this inference because she states that “[c]oolant color is highly significant and allows for 14 businesses to identify the type of coolant and the chemical make-up of that coolant” and 15 that “vehicles have specific coolant specifications,” and “[i]nstalling altered coolant or 16 some other liquid into . . . vehicles could cause significant damage.”6 (Doc. 12 at 36.) She 17 further states that based on her years in the industry, she “can identify by visual inspection 18 automotive coolant that has gone bad or that has been altered” by reviewing factors like 19 the “[l]iquid consistency, color, smell, [or the presence of] visible debris.” (Doc. 12 at 35.) 20 Plaintiff’s customers, therefore, can be expected to exercise a high degree of care when 21 purchasing coolant because it is a specialized product; however, that determination does 22 not end the analysis. 23 Even given the high degree of a care Plaintiff’s customers would be expected to 24 exercise, all three of Plaintiff’s customers who submitted declarations stated that they 25 initially believed that the Individual Defendants continued to work for Plaintiff because 26 they wore the IRSI uniforms, “drove into [the] premises the way that [Plaintiff] did,” and 27 6 Ms. Cook also alleged that she bought $400 worth of product from Defendants, but 28 without evidence of how much product she received for this payment, the Court cannot discern how the price would weigh in this analysis. (Doc. 12 at 35.) 1 “held themselves out . . . as [Plaintiff’s] employees during the conversation.” (Doc. 12 at 2 31, 35, 39–40.) Given that the IRSI logo is alleged to have been present on the uniforms, 3 the Court finds it completely reasonable that even a highly prudent customer would have 4 no reason to assume that the Individual Defendants were not Plaintiff’s employees. 5 Daimler AG v. A-Z Wheels LLC, 334 F. Supp. 3d 1087, 1097 (S.D. Cal. 2018) (noting that 6 even where consumers would exercise a high degree of care, the degree of care factor 7 would not weigh against the plaintiff because nothing would have alerted consumers that 8 they were purchasing a replica version of the product); UL LLC, 250 F. Supp. 3d at 611 9 (same); Adobe Sys., Inc. v. Dafang USA, LLC, No. 218CV08504VAPAGRX, 2019 WL 10 7841862, at *4 (C.D. Cal. Aug. 22, 2019) (“[E]ven if customers are ‘reasonably prudent’ 11 in purchasing such expensive products[,] . . . there is likelihood of confusion because 12 Defendants’ unauthorized copies are identical counterfeits.”). The Court does note that 13 although all three customers were eventually alerted to the truth, only one did so based on 14 the circumstances—the Individual Defendants’ early arrival and different truck. (Doc. 12 15 at 40.) The others became aware only after the Individual Defendants stated they were 16 “going around to their old company contacts” or “going [out on] their own.” (Doc. 12 at 17 31, 34.) Though this factor does not weigh as strongly as the others in Plaintiff’s favor, it 18 does weigh in Plaintiff’s favor. 19 f. Defendants’ Intent 20 “While ‘an intent to confuse consumers is not required for a finding of trademark 21 infringement,’ Brookfield [Commc’ns, Inc.], 174 F.3d at 1059, ‘intent to deceive is strong 22 evidence of a likelihood of confusion.’” Entrepreneur Media, Inc. v. Smith, 279 F.3d 1135, 23 1148 (9th Cir. 2002) (quoting Interstellar Starship Servs., Ltd. v. Epix, Inc., 184 F.3d 1107, 24 1111 (9th Cir.1999)). “When the alleged infringer knowingly adopts a mark similar to 25 another’s, reviewing courts presume that the defendant can accomplish his purpose: that 26 is, that the public will be deceived.” Id. (quoting Sleekcraft, 599 F.2d at 354 (citations 27 omitted)). 28 Defendants deny that they have made any misrepresentations or have held 1 themselves out as Plaintiff’s employees when they were not. (Doc. 13 at 10.) They also 2 deny that they ever serviced Plaintiff’s customers wearing uniforms that bore the IRSI logo. 3 But Plaintiff’s three customers contradict this assertion, with one customer stating that the 4 Individual Defendants “held themselves out” as Plaintiff’s employees during his 5 conversation with them. (Doc. 12 at 40.) The Court will credit the disinterested customers’ 6 testimony that the Individual Defendants were wearing the IRSI uniform and logo; 7 however, given the very preliminary stage of this case, the Court will not weigh this factor 8 as strongly against Defendants as it likely would at a later stage. eAcceleration Corp. v. 9 Trend Micro, Inc., 408 F. Supp. 2d 1110, 1117 (W.D. Wash. 2006) (“The intent factor, if 10 present, will weigh heavily in favor of finding a likelihood of confusion but, if absent, will 11 generally have no effect.”). This factor weighs in Plaintiff’s favor. 12 g. Likelihood of Expansion 13 This final factor is granted minimal legal significance when a plaintiff has already 14 established that the parties offer overlapping goods or services. Stone Creek, Inc. v. Omnia 15 Italian Design, Inc., 875 F.3d 426, 436 (9th Cir. 2017). As Plaintiff has shown both parties 16 offer the same goods and services, this factor is not instructive. 17 h. Conclusion 18 On balance, the Court concludes that the majority of the Sleekcraft factors favor 19 Plaintiff. Specifically, the relatedness of the goods, the similarity of the marks, the 20 evidence of actual confusion, and the marketing channels used weigh strongest in 21 Plaintiff’s favor at this preliminary stage. The degree of consumer care and Defendants’ 22 intent also weigh in Plaintiff’s favor, but less than the other factors. The strength of the 23 mark weighs squarely in Defendants’ favor. Given that a clear majority of factors favor 24 Plaintiff, Plaintiff has established that it is likely to succeed on its trademark infringement 25 claim. 26 4. Defamation 27 “One who publishes a false and defamatory communication concerning a private 28 person . . . is subject to liability, if, but only if, he (a) knows that the statement is false and 1 it defames the other, (b) acts in reckless disregard of these matters, or (c) acts negligently 2 in failing to ascertain them.” Reynolds v. Reynolds, 231 Ariz. 313, 317, 294 P.3d 151, 155 3 (Ct. App. 2013) (quoting Dube v. Likins, 216 Ariz. 406, 417, 167 P.3d 93, 104 (Ct. App. 4 2007)). “To establish defamation under Arizona common law, ‘a publication must be false 5 and must bring the defamed person into disrepute, contempt, or ridicule, or must impeach 6 plaintiff’s honesty, integrity, virtue, or reputation.’” Rogers v. Mroz, 502 P.3d 986, 988 7 (2022) (quoting Godbehere v. Phx. Newspapers, Inc., 162 Ariz. 335, 341, 783 P.2d 781, 8 787 (1989)). 9 Plaintiff has not addressed how Defendants’ alleged single statement that Plaintiff 10 was no longer in business makes a “clear showing” of likelihood of success on the merits.7 11 Winter v. Nat’l Res., 555 U.S. at 376. Even assuming that this lone comment actually 12 “impeach[es] plaintiff’s . . . reputation” and amounts to defamation, neither party has 13 addressed the presumptive unconstitutionality of prior restraints on speech, and the “heavy 14 burden of justification” required to issue preliminary relief without an adjudication on the 15 merits. Oakley, Inc. v. McWilliams, 879 F. Supp. 2d 1087, 1089 (C.D. Cal. 2012); List 16 Indus., Inc. v. List, No. 217CV2159JCMCWH, 2017 WL 3749593, at *3 (D. Nev. Aug. 17 30, 2017) (“The problem of prior restraints is multiplied when a court issues one before a 18 proper trial on the merits.”); Bobolas v. Does 1-100, No. CV–10–2056–PHX–DGC, 2010 19 WL 3923880, at *6 (D. Ariz. Oct. 1, 2010) (denying the plaintiff’s TRO application and 20 noting that “[p]rior restraints may be issued only in rare and extraordinary circumstances”). 21 Regardless of these concerns, however, the Court did explore with defense counsel whether 22 Defendants would be amenable, at least for the time being, to refrain from making 23 misstatements about Plaintiff. Defense counsel indicated that because Defendants have 24 not made and are not making misstatements, he would “welcome” this solution, which 25 would alleviate some of Plaintiff’s concerns and potentially deter costly litigation. See also 26 7 Plaintiff’s only support that this comment was actually made is a handwritten note on an invoice for Cottonwood Express Lube. (Doc. 12 at 46.) Aside from any hearsay concerns, 27 this lone note is insufficient to create a “clear showing” of likelihood of success on the merits. To the extent that Plaintiff argues that the Individual Defendants actually made 28 verbal statements representing that they were Plaintiff’s employees, the Court has been presented with no evidence of these specific statements. 1 (Doc. 13 at 11.) The Court will thus order appropriate relief. See Desert Palm Surgical 2 Grp., P.L.C. v. Petta, 236 Ariz. 568, 575, 343 P.3d 438, 445 (Ct. App. 2015) (noting that 3 superior court entered TRO enjoining defendant from making false statements after defense 4 counsel stipulated to the relief requested). 5 B. Irreparable Harm 6 “An irreparable harm is one that cannot be redressed by a legal or equitable remedy 7 following trial.” Optinrealbig.com. LLC v. Ironport Sys., 323 F. Supp. 2d 1037, 1051 (N.D. 8 Cal. 2004). Mere financial injury does not constitute irreparable harm if adequate 9 compensatory relief will be available in the course of litigation. Sampson v. Murray, 415 10 U.S. 61, 90 (1974). The Ninth Circuit, however, has “recognized that intangible injuries, 11 such as damage to ongoing recruitment efforts and goodwill, qualify as irreparable harm.” 12 Rent-A-Ctr., Inc. v. Canyon Television & Appliance Rental, Inc., 944 F.2d 597, 603 (9th 13 Cir. 1991). Irreparable injury is likely in the absence of an injunction where damage to a 14 plaintiff’s goodwill is likely. See Am. Trucking Assoc., Inc. v. City of Los Angeles, 559 15 F.3d 1046, 1057 (9th Cir. 2009) (“[L]oss of goodwill and reputation” supports injunctive 16 relief); Herb Reed Enters., 736 F.3d at 1250 (“Evidence of loss of control over business 17 reputation and damage to goodwill could constitute irreparable harm.”). 18 The Court has found that Plaintiff is likely to succeed on its trademark infringement 19 claim. Defendants’ use of the IRSI mark could continue to confuse consumers and 20 diminish the distinctiveness of Plaintiff’s brand, thereby preventing Plaintiff from 21 controlling its reputation. Plaintiff presented testimony that although IRSI is an older 22 company, Plaintiff has been thorough in both distinguishing itself while also maintaining 23 the goodwill of the IRSI name. Plaintiff carefully phased out the IRSI logo and gradually 24 replaced it with its own. As a result, although Plaintiff’s customers know they do business 25 with Plaintiff, they also associate the IRSI name with Plaintiff. (Doc. 12 at 30, 34, 39.) 26 Moreover, in at least one instance, Defendants’ product had to be evacuated because a 27 customer was dissatisfied with its quality. (Doc. 12 at 34–37.) Because Plaintiff has 28 already established a likelihood of success as to confusion, it is reasonable that any 1 customer dissatisfied with Defendants’ services may erroneously associate that experience 2 with Plaintiff because of the IRSI mark. This concern is further complicated by the fact 3 that by using Defendants’ products, customers may unknowingly void Plaintiff’s warranty 4 for its own product. Such confusion would harm both the customer, who directly benefits 5 from the warranty, and Plaintiff itself, who will no longer be able to market its product to 6 its existing customers in the same way, or even for the same price, without the warranty. 7 Plaintiff has adequately shown irreparable harm. 8 C. Balance of Equities 9 “The balance of equities factor ‘requires the court to “balance the competing claims 10 of injury” and “consider the effect on each party of the granting or withholding of the 11 requested relief.”’” Traeger Pellet Grills, LLC v. Dansons US, LLC, 421 F. Supp. 3d 876, 12 889 (D. Ariz. 2019) (quoting Mendoza v. Garrett, 358 F. Supp. 3d 1145, 1181 (D. Or. 13 2018)). As explained above, Plaintiff has established irreparable harm if Defendants’ 14 activities continue. Defendants, on the other hand, point to no specific hardship other than 15 their invested savings. (Doc. 13 at 11.) The Court’s relief on this issue is narrow; it does 16 not bar Defendants from soliciting customers, or even soliciting Plaintiff’s customers. 17 Instead, Defendants must simply refrain from using the IRSI mark and from holding 18 themselves out as Plaintiff’s employees. Given the irreparable harm to Plaintiff if 19 Defendants are not enjoined, in comparison to the relatively little effect on Defendants, the 20 Court finds this factor to weigh in Plaintiff’s favor. 21 D. Public Interest 22 “The public interest in preventing trademark infringement is avoiding confusion in 23 the marketplace.” Seed Servs., Inc. v. Winsor Grain, Inc., 868 F. Supp. 2d 998, 1005 (E.D. 24 Cal. 2012). “When a trademark is said to have been infringed, what is actually infringed 25 is the right of the public to be free of confusion and the synonymous right of the trademark 26 owner to control his products’ reputation.” CytoSport Inc. v. Vital Pharms., Inc., 617 F. 27 Supp. 2d 1051, 1081 (E.D. Cal. 2009). Although the Court recognizes that there may be a 28 public interest against restraints of trade, the Court does not believe the remedy here will 1 result in any such restraint. Plaintiff has successfully shown that there is a likelihood of 2 consumer confusion if the Individual Defendants continue to service Plaintiff’s customers 3 wearing a logo associated with Plaintiff. To remedy that confusion, Defendants are not 4 restricted from soliciting customers or otherwise competing in the marketplace; they just 5 cannot do so while wearing the IRSI logo and holding themselves out as Plaintiff’s 6 employees. The TRO is narrowly designed only to prevent consumer confusion, which is 7 clearly in the public interest. This factor weighs in Plaintiff’s favor. 8 E. Security 9 A court may issue a preliminary injunction “only if the movant gives security in an 10 amount that the court considers proper to pay the costs and damages sustained by any party 11 found to have been wrongfully enjoined or restrained.” Fed. R. Civ. P. 65(c). Although 12 the plain language of the rule suggests that a bond is mandatory, the Ninth Circuit has held 13 that it “invests the district court ‘with discretion as to the amount of security required, if 14 any.’” Johnson v. Couturier, 572 F.3d 1067, 1086 (9th Cir. 2009) (quoting Jorgensen v. 15 Cassiday, 320 F.3d 906, 919 (9th Cir. 2003)). 16 In the present case, Plaintiff suggests a bond of $2,000. (Doc. 17-1 at 105.) Because 17 Defendants deny that they are doing anything the Court will enjoin them from doing, 18 however, the Court does not find any bond necessary. 19 CONCLUSION 20 Plaintiff has met its burden for obtaining a temporary restraining order. It has shown 21 that it is likely to succeed on its claim for trademark infringement. It has also shown that 22 it will suffer immediate and irreparable harm if a TRO is not issued, that the balance of 23 equities tips in its favor, and that a TRO is in the public interest. Defendants have also 24 agreed to be enjoined from making false statements about Plaintiff. 25 IT IS THEREFORE ORDERED that Plaintiff’s Application for and 26 Memorandum in Support of Temporary Restraining Order and Preliminary Injunction 27 (Doc. 17-1 at 86.) is GRANTED IN PART AND DENIED IN PART. The TRO is issued 28 as to Plaintiff’s trademark infringement and defamation claims but denied on all other grounds. 2 IT IS FURTHER ORDERED that for twenty-eight days from the date of this 3 || Order, Defendants are temporarily enjoined as follows: 4 1. Defendants Janes and Alva are enjoined from holding themselves out as employees 5 of Plaintiff. 6 2. Defendants are enjoined from intentionally or knowingly publishing false 7 statements about Plaintiff to any third party. 8 3. Defendants Janes and Alva are enjoined from using Plaintiff's uniforms bearing the 9 IRSI mark to solicit business from Plaintiff's customers. 10 IT IS FURTHER ORDERED that within 5 days of this Order, the parties shall |} submit to the Court a Joint Report containing the positions of the parties regarding || expedited discovery, the consideration of a Preliminary Injunction or length of this 13 || Temporary Restraining Order, and any other procedural matters the parties request the Court to address. 15 Dated this 26th day of May, 2022. 16 7 Mersey Bette! 18 Chief United States District Judge 19 20 21 22 23 24 25 26 27 28 -20 -