Sacramento Public Library Authority v. Sacramento Public Library Foundation ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 SACRAMENTO PUBLIC LIBRARY No. 2:20-cv-00678-WBS-KJN AUTHORITY, 13 Plaintiff, 14 MEMORANDUM AND ORDER RE: v. DEFENDANTS’ MOTION TO DISMISS 15 SACRAMENTO PUBLIC LIBRARY 16 FOUNDATION; APRIL L. JAVIST, its Executive Director; and JAMES 17 DEERINGER, its President, 18 Defendants. 19 20 ----oo0oo---- 21 Plaintiff Sacramento Public Library Authority (the 22 “Library” or “Authority”) filed this action against defendants 23 Sacramento Public Library Foundation (the “Foundation”), April L. 24 Javist, and James Deeringer, alleging various trademark 25 infringement and misrepresentation claims arising out of the 26 Foundation’s unauthorized use of the Library’s name and mark. 27 Before the court is defendant’s motion to dismiss. (Docket No. 28 8.) 1 I. Relevant Allegations and Factual Background 2 Plaintiff Sacramento Public Library Authority is a 3 joint powers authority formed by the County of Sacramento and the 4 Cities of Citrus Heights, Elk Grove, Galt, Isleton, Rancho 5 Cordova, and Sacramento. (Compl. ¶ 1 (Docket No. 1).) The 6 Authority operates and controls the Sacramento Public Library. 7 (Id.) 8 According to the allegations of the Complaint, the 9 Library has used the mark “Sacramento Public Free Library” for 10 its library services since at least as early as 1900. (Id. ¶ 8.) 11 Soon after, the Library became known as The Sacramento Public 12 Library and that mark became associated with the Library by the 13 public. (Id. ¶ 9.) Since at least as early as 1977, the Library 14 shortened its name and mark to Sacramento Public Library and has 15 continuously used it since. (Id.) 16 The Foundation is a nonprofit corporation. (Id. ¶ 12.) 17 Defendants Javist and Deeringer are the Executive Director and 18 President of the Foundation, respectively. (Compl. ¶¶ 3-4.) The 19 Foundation was formed in June 1984 for the sole purpose of 20 funding the Library. (Id. ¶ 12.) At the time of its formation, 21 the Library gave the Foundation permission to make limited use of 22 the Library’s mark for the purpose of fundraising for the 23 library. (Id.) The Foundation therefore had permission to call 24 itself the Sacramento Public Library Foundation. (Id.) 25 In or about 2004, the Foundation and the Library 26 executed a Memorandum of Understanding (“MOU”) that expressly 27 stated the purpose of the foundation –- to support and fund the 28 Library -– and set forth the terms of the relationship between 1 the two parties. (Id. ¶ 19.) Around 2013, however, the 2 Foundation began to fund activities and programs outside of the 3 Library without the Library’s knowledge or permission. (Id. ¶¶ 4 13, 20) The Library objected to this change. (Id.) The parties 5 were unable to resolve their differences, and, in April 2015, the 6 Foundation sent a letter to the Library unilaterally terminating 7 the MOU. (Id. ¶ 21.) On April 17, 2017, the Foundation amended 8 its Articles of Incorporation to expand upon the Foundation’s 9 specific purpose. (Id. ¶ 23.) That purpose is now “to raise 10 funds to support and promote the activities and programs of the 11 Sacramento Public Library and community literacy programs.” 12 (Id.) 13 Once the Foundation began to support other programs, 14 the Foundation’s support for the Library became secondary. (Id. 15 ¶¶ 29-31). The Foundation was therefore supporting programs and 16 activities other than the Library while still using the Library’s 17 mark. (Id. ¶ 31.) In 2014, for example, the Foundation 18 established the Children’s Literacy Endowment. (Id. ¶ 32.) The 19 Foundation has since effectively ceased raising funds for the 20 endowments it holds for the benefit of the Library, and instead 21 raises funds solely for the Children’s Literacy Endowment. (Id. 22 ¶ 33.) As a result, the Library’s endowments have become 23 stagnant. (Id. ¶ 34.) Indeed, unless a donor expressly directs 24 their donation to the Library, the Library does not receive any 25 benefit from the donation at all. (Id. ¶ 37, 38-40.) 26 Further, despite the deteriorating relationship between 27 the Library and the Foundation, the Foundation did not advise 28 donors that it had terminated its MOU with the Library and that 1 it was therefore no longer associated with the Library. (Id. ¶ 2 22, 26.) The Foundation’s audited financial statements for 3 fiscal years 2016-17 and 2017-28 continue to state that the 4 “Foundation raises funds for the Sacramento Public Library.” 5 (Id. ¶ 27.) 6 Eventually, the Library informed the Foundation that it 7 no longer had permission to use the Library’s mark because it did 8 not qualify as a recognized fundraising partner of the Library. 9 (Id. ¶ 14, 43.) The Foundation nonetheless continued to use the 10 mark and to promote itself as a fundraising partner of the 11 Library, without informing donors about the end of the parties’ 12 relationship. (Id. ¶ 15, 43, 44.) In March 2020, the 13 Foundation’s Board voted to eliminate the Chair of the Sacramento 14 Public Library Authority as an ex-officio member of the 15 Foundation’s Board, to eliminate the Library’s representative 16 from the Foundation Finance Committee, and to remove the 17 Library’s Director as the Library’s Liaison to the Foundation. 18 (Id. ¶ 47.) 19 Plaintiff filed suit alleging the following eight 20 causes of action: (1) violation of Section 43(a) of the Lanham 21 Act, 15 U.S.C. §§ 1051 et seq.; (2) violation of California 22 common law for trademark infringement and unfair competition; (3) 23 violation of Section 17200 of California’s Unfair Competition Law 24 (“UCL”); (4) violation of Section 17500 of the UCL; (5) 25 fraudulent and intentional misrepresentation; (6) negligent 26 representation; (7) accounting; and (8) appointment of a 27 receiver. (See generally Compl.) 28 II. Legal Standard 1 On a Rule 12(b)(6) motion, the inquiry before the court 2 is whether, accepting the well-pleaded allegations in the 3 complaint as true and drawing all reasonable inferences in the 4 plaintiff’s favor, the plaintiff has stated a claim for relief 5 that is plausible on its face. See Ashcroft v. Iqbal, 556 U.S. 6 662, 678 (2009). The court, however, is “not required to accept 7 as true allegations . . . that are merely conclusory, unwarranted 8 deductions of fact, or unreasonable inferences.” Seven Arts 9 Filmed Entm’t, Ltd. v. Content Media Corp. PLC, 733 F.3d 1251, 10 1254 (9th Cir. 2013). “The plausibility standard is not akin to 11 a ‘probability requirement,’ but it asks for more than a sheer 12 possibility that a defendant has acted unlawfully.” Id. 13 III. Discussion 14 A. Claims One and Two for Trademark Infringement 15 1. Seniority of Use 16 “The first to use a mark is deemed the ‘senior’ user 17 and has the right to enjoin ‘junior’ users from using confusingly 18 similar marks in the same industry and market or within the 19 senior user’s natural zone of expansion.” Brookfield Commc’ns, 20 Inc. v. W. Coast Entm’t Corp., 174 F.3d 1036, 1047 (9th Cir. 21 1999) (citing Union Nat’l Bank of Tex., Laredo, Tex. v. Union 22 Nat'l Bank of Tex., Austin, Tex., 909 F.2d 839, 842–43 (5th Cir. 23 1990); Tally–Ho, Inc. v. Coast Community College Dist., 889 F.2d 24 1018, 1023 (11th Cir. 1989); New West Corp. v. NYM Co. of Cal., 25 595 F.2d 1194, 1200–01 (9th Cir. 1979)). 26 Defendants argue that the Foundation began using the 27 mark at issue before the Library did and that it is therefore the 28 senior user of the mark. In support, defendants cite the Joint 1 Exercise of Powers Agreement Sacramento Public Library Authority 2 (“JPA Agreement”). (Docket No. 8-2.) The agreement created the 3 Sacramento Public Library Authority, a public agency, in 1993 4 (See id. at 4-5, 21; Cal. Gov’t Code §§ 6500, et seq.) Because 5 the Foundation has used the mark since 1984 (Compl. ¶ 12), and 6 because the Agreement “does not include any provision setting 7 forth any contribution of assets from any predecessor public 8 library” (Mot. at 15 n.7), defendants argue that the Foundation 9 is the senior user of the mark and is entitled to its use. 10 The existence of the JPA Agreement alone, however, is 11 insufficient for the court to dismiss plaintiff’s claims on the 12 basis of seniority. First, the allegations of the Complaint 13 sufficiently state that the mark has been in use since before the 14 founding of the Foundation. Plaintiff alleges that an entity 15 known as the Sacramento Public Library has been known as such 16 since 1977. (Compl. ¶ 9.) The complaint also states that the 17 “Library gave the Foundation permission” to use the “Library’s 18 Mark,” from which the court can infer that this entity, in one 19 form or another, used the mark before the Foundation. 20 Defendants correctly point out that the Complaint fails 21 to plead exactly what kind of legal entity the Sacramento Public 22 Library was prior to the creation of the Authority and the 23 Foundation. However, the Complaint does allege that the rights 24 to use the mark at issue belong to an entity now under the 25 control of the Authority. (Compl. ¶ 1.) The Complaint further 26 alleges that such an entity is the senior user of the mark. (Id. 27 at 2 (“Library owns the name and mark . . . going back to at 28 least as early as 1977.”); see also id. ¶ 10.) 1 2. Use in Interstate Commerce 2 To plead a violation of Section 43(a) of the Lanham Act 3 for trademark infringement, plaintiff must allege that the 4 defendant’s use of the mark was in interstate commerce. Summit 5 Tech., Inc. v. High-Line Med. Instruments, Co., 933 F. Supp. 918, 6 928 (C.D. Cal. 1996). Defendants argue that the complaint lacks 7 allegations establishing that the Library uses its alleged mark 8 in interstate commerce. (Mot. at 16.) 9 However, plaintiff need not allege that plaintiff used 10 the mark in interstate commerce. Instead, “[a]ll one need show 11 for a district court to have jurisdiction of such a claim is that 12 the infringing mark has been used in commerce which Congress can 13 regulate.” Drop Dead Co. v. S. C. Johnson & Son, Inc., 326 F.2d 14 87, 94 (9th Cir. 1963). Allegations that it was defendants who 15 used the mark in interstate commerce therefore suffice to confer 16 jurisdiction over the claim. See id.; see also Summit Tech., 933 17 F. Supp. at 928 (“Plaintiff must prove [that] defendant uses a 18 designation [and that] the use was in interstate commerce.”) 19 (emphasis added). 20 The complaint sufficiently alleges use of the mark in 21 interstate commerce. The Complaint pleads a use of the mark or 22 “false designation” under the Lanham Act, by defendants, on the 23 Internet. (Compl. ¶¶ 27, 28, 46, 55, 57.) Drawing all 24 reasonable inferences in favor of the Library, such use 25 constitutes use in interstate commerce. See United States v. 26 Sutcliffe, 505 F.3d 944, 953 (9th Cir. 2007) (“As both the means 27 to engage in commerce and the method by which transactions occur, 28 the Internet is an instrumentality and channel of interstate 1 commerce.”). Further, the complaint alleges that the Foundation 2 filed an application for U.S. federal registration of the mark 3 (Compl. ¶ 16), which necessarily means the Foundation claims 4 interstate use of the mark, see 15 U.S.C.A. §§ 1051(a)(3), 1127. 5 The allegations therefore suffice to survive a 12(b)(6) motion. 6 3. Protectable Interest or Secondary Meaning 7 The Foundation next argues that the Library has failed 8 to allege a protectable interest in its “descriptive mark” or 9 secondary meaning. (Mot. at 17-20.) Specifically, defendants 10 argue that plaintiff has failed to use the phrase “Sacramento 11 Public Library” as a mark and instead merely uses the phrase to 12 describe what the Library does and where it is located. 13 Defendants also argue that even if plaintiff has used the phrase 14 as a mark, plaintiff has failed to allege that the descriptive 15 mark has secondary meaning. Absent a secondary meaning, 16 plaintiff is not entitled to trademark protection. See Dep’t of 17 Parks & Recreation for State of California v. Bazaar Del Mundo 18 Inc., 448 F.3d 1118, 1127 (9th Cir. 2006). 19 As to defendant’s first argument, the court finds that 20 plaintiff has sufficiently alleged that it uses the phrase 21 “Sacramento Public Library” as a mark. The complaint states that 22 the “Library owns the name and mark SACRAMENTO PUBLIC LIBRARY 23 (‘Library’s Mark’ or ‘its Mark’) with rights in its Mark going 24 back to at least as early as 1977.” (Compl. at 2:5-7; see also 25 id. ¶ 10 (“[T]he Library shortened its name and mark to 26 SACRAMENTO PUBLIC LIBRARY.”); id. (“[T]hat Mark became associated 27 with the Library by the public.”); id. ¶ 11 (“[T]he Library has 28 developed substantial goodwill in its Mark.”).) These 1 allegations are sufficient at this stage. 2 As to defendant’s secondary-meaning argument, the law 3 does not require plaintiff to specifically allege a secondary 4 meaning to survive a motion to dismiss. Solid Host, NL v. 5 Namecheap, Inc., 652 F. Supp. 2d 1092, 1107 (C.D. Cal. 2009) 6 (“[A] plaintiff asserting ownership of a common law trademark 7 need not specifically allege the existence of secondary meaning 8 to survive a motion to dismiss.”); see also Ashlar, Inc. v. 9 Structural Dynamics Research Corp., No. C–94–4344 WHO, 1995 WL 10 639599, *5 (N.D. Cal. June 23, 1995) (“Although Graphsoft may 11 ultimately be unable to prove a secondary meaning, the Court 12 finds that Graphsoft is not required to plead secondary meaning 13 in its countercomplaint.”). 14 Notably, defendants cite no authority to the contrary 15 relevant on a motion to dismiss. (See Mot. at 17-20.) Instead, 16 at this stage, the court may infer secondary meaning –- or that 17 the mark is associated with the plaintiff and its services –- 18 from allegations of consistent public use of the mark. Solid 19 Host, 652 F. Supp. at 1107-08. Here, plaintiff alleges that the 20 Library has “continuously used [the mark] in commerce since” at 21 least 1977. (Compl. ¶ 10.) Plaintiff also alleges that through 22 this use the “[m]ark became associated with the Library by the 23 public.” (Id.) Accordingly, secondary meaning of the mark at 24 issue is adequately pled. 25 4. Laches 26 Laches bars a claim for trademark infringement if the 27 holder of the mark has unreasonably delayed in filing suit and 28 defendant has been prejudiced by the delay. Jarrow Formulas, 1 Inc. v. Nutrition Now, Inc., 304 F.3d 829, 835 (9th Cir. 2002). 2 “A laches determination is made with reference to the limitations 3 period for the analogous action at law.” Id. Courts presume 4 that laches is applicable if suit is filed outside of the 5 analogous period of limitations. Id. “[T]he statute of 6 limitations for a Lanham Act claim brought in conjunction with a 7 claim of trademark dilution under state law is four years.” 8 AirWair Int’l Ltd. v. Schultz, 84 F. Supp. 3d 943, 959 (N.D. Cal. 9 2015). 10 Defendants argue that plaintiff’s delay results in 11 laches as a bar to both of plaintiff’s infringement claims. 12 Specifically, defendants argue that the laches period began in 13 1984 (Mot. at 21-22), 2004 (Mot. at 22-23), or 2015 (Mot. at 23.) 14 Because the complaint was filed in March of 2020, defendants 15 argue that the claims are barred. 16 “[A] claim of laches depends on a close evaluation of 17 all the particular facts in a case,” and it therefore “is seldom 18 susceptible of resolution by summary judgment.” Kourtis v. 19 Cameron, 419 F.3d 989, 1000 (9th Cir. 2005). “At the motion-to- 20 dismiss phase, the obstacle to asserting a successful laches 21 defense is even greater.” Id. Defendants must show that 22 plaintiff “can prove no set of facts to avoid the [defense].” 23 Planet Drum Found. v. Hart, No. 17-CV-02676-JCS, 2017 WL 4236932, 24 at *7 (N.D. Cal. Sept. 24, 2017) (citing George Nelson Found. v. 25 Modernica, Inc., 12 F. Supp. 3d 635, 655 (S.D.N.Y. 2014)). 26 Defendants have not made such a showing. The complaint 27 repeatedly alleges that defendants undertook several actions 28 without the Library’s knowledge and identifies several points in 1 time at which defendants’ actions caused progressively more 2 serious effects. See, e.g., Compl. ¶ 13 (“But in or around 2013, 3 the Foundation began to fund activities and programs outside of 4 the Library without the Library’s knowledge or permission.”); id. 5 ¶ 23 (“[O]n April 17, 2017, without notice or consultation with 6 the Library, the Foundation filed ‘restated’ Articles of 7 Incorporation with the Secretary of State, purporting to expand 8 upon the Foundation’s specific purpose.”)). 9 Accordingly, “defendants’ laches defense will turn on 10 factual questions about when [plaintiff] knew or should have 11 known about the alleged infringement” that cannot be 12 appropriately resolved on a motion to dismiss.1 Cf. Planet Drum, 13 2017 WL 4236932, at *7. Defendants’ assertions of different 14 potential lengths of plaintiff’s delay only underscore this 15 point. Accordingly, the court will not dismiss Claims One and 16 Two. 17 B. Claims Three and Four for UCL Violations 18 For an injured party to have the right to bring an 19 action under the Unfair Competition Law (“UCL”) or the False 20 Advertising Law (“FAL”), that party must be a “person”. Cal. 21 Bus. & Prof. Code, §§ 17204, 17535. “The standing requirements 22 under California’s UCL and FAL are identical.” Kwikset Corp. v. 23 Superior Court, 51 Cal. 4th 310, 320-21 (2011). 24 The UCL defines “person” as “natural persons, 25 1 Further, a laches defense requires that defendant 26 establish that the delay was unreasonable and prejudiced 27 defendant. See Jarrow Formulas, 304 F.3d at 835. Defendants offer no arguments to support either element. (See Mot. at 20- 28 1 corporations, firms, partnerships, joint stock companies, 2 associations, and other organizations of persons.” Cal. Bus. & 3 Prof. Code § 17201. The FAL defines “person” as “any individual, 4 partnership, firm, association, or corporation.” Id. § 17506. 5 Defendants argue that plaintiff does not have standing 6 to sue under the UCL because plaintiff is not a “person” within 7 the meaning of the statute. (Mot. at 24.) Plaintiff “does not 8 dispute” that the Library is not a “person” under the UCL. 9 (Opp’n at 17.) Accordingly, plaintiff does not have standing to 10 bring its UCL claims. However, plaintiff has represented to the 11 court that it will be able to prosecute these claims through a 12 government entity that does have standing. (Id.) The court will 13 therefore dismiss Claims Three and Four with leave to amend. 14 C. Claims Five and Six for Misrepresentation 15 “The elements of a claim for intentional 16 misrepresentation are (1) a misrepresentation; (2) knowledge of 17 falsity; (3) intent to induce reliance; (4) actual and 18 justifiable reliance; and (5) resulting damage.” Cisco Sys., 19 Inc. v. STMicroelectronics, Inc., 77 F. Supp. 3d 887, 897 (N.D. 20 Cal. 2014) (citing Lazar v. Superior Court, 12 Cal. 4th 631, 638 21 (1996)). “The essential elements of a claim for negligent 22 misrepresentation are the same as for intentional 23 misrepresentations, except that it does not require knowledge of 24 falsity, but instead requires a misrepresentation of fact by a 25 person who has no reasonable grounds for believing it to be 26 true.” Id. (citing West v. JPMorgan Chase Bank, N.A., 214 Cal. 27 App. 4th 780, 792 (2013)). 28 Defendants argue that plaintiff fails to allege that 1 plaintiff relied on defendants’ alleged misrepresentation. The 2 Library alleged only that “donors” relied on the Foundation’s 3 misrepresentations, rather than the Library itself. (Compl. ¶¶ 4 82, 87.) 5 The court agrees with defendants and finds that 6 plaintiff has not sufficiently pleaded justifiable reliance. 7 “[A] plaintiff must plead that he or she actually relied on the 8 misrepresentation.” City & Cty. of San Francisco v. Philip 9 Morris, Inc., 957 F. Supp. 1130, 1142 (N.D. Cal. 1997) (citing 10 Mirkin v. Wasserman, 5 Cal. 4th 1082, 1088 (1993). Plaintiff’s 11 fraud and misrepresentation claims “cannot be maintained based on 12 a third party’s reliance.” Id. Allegations that “as a result of 13 the public’s reliance on defendants’ alleged misrepresentations, 14 plaintiffs have suffered economic damages” is insufficient to 15 sustain a misrepresentation claim. Cf. Philip Morris, 957 F. 16 Supp. at 1142. 17 Plaintiff points to the rule that a defendant cannot 18 “escape liability if he makes a representation to one person 19 intending that it be repeated and acted upon by plaintiff.” 20 (Opp’n at 20 (quoting Geernaert v. Mitchell, 31 Cal. App. 4th 21 601, 605 (1995).) However, that rule has no application to the 22 facts here because that theory of liability still requires 23 plaintiff to have acted or failed to act in reliance on 24 defendants’ misrepresentations. The complaint does not allege 25 that the Library took any detrimental action in reliance on the 26 Foundation’s misrepresentations. Accordingly, the court will 27 dismiss Claims Five and Six. 28 D. Whether the Attorney General is a Necessary Party 1 The Foundation contends that Claims Three, Five, Six, 2 Seven, and Eight must be dismissed because they “implicate” the 3 charitable trust doctrine and that with “respect to enforcement 4 involving a charitable trust under California Law, the Attorney 5 General” is a necessary party. (Mot. at 28:14-15.) 6 The cases cited by the Foundation do not support the 7 Foundation’s arguments that the Attorney General must be added as 8 a party to this action. In Holt v. College of Osteopathic 9 Physicians & Surgeons, 61 Cal. 2d 750 (1964), the Attorney 10 General declined to pursue a claim by plaintiffs against a 11 charitable trust. Notwithstanding the fact that the Attorney 12 General declined to pursue such a claim, the court allowed the 13 claim to proceed, finding that “although the Attorney General has 14 primary responsibility for the enforcement of charitable trusts, 15 the need for adequate enforcement is not wholly fulfilled by the 16 Authority given him.” Id. at 753. 17 Indeed, the Holt court notes that “the prevailing view 18 is that the attorney general does not have exclusive power to 19 enforce a charitable trust and that a trustee or other person 20 having a sufficient special interest may also bring an action for 21 this purpose.” Id. Although the party bringing suit must 22 notify the Attorney General, the Attorney General’s intervention 23 in such a case is permissive, not mandatory. Cal. Civ. Code § 24 5142. 25 Here, the Library has sufficient interest in the 26 Foundation and has notified the Attorney General of this action. 27 (See Docket No. 11-5.) The Library has “significant and 28 substantial beneficial interest in the Foundation” because the □□□ 2 CUNY DOING IN AI OP er PAY tw VI 1 | Foundation, “holds millions of dollars in endowment funds for the 2 benefit of the Library.” (Compl. 4 1.) =Further, the Library has 3 | a significant interest in the Foundation due to the Foundation’s 4 | alleged obligations to distribute the proceeds of the endowments 5 | to the Library. (Id. 4 33.) These interests suffice to allow 6 the Library to bring its claims independent of the Attorney 7 General. 8 IT IS THEREFORE ORDERED that defendants’ motion to 9 | dismiss (Docket No. 8) be, and the same hereby is, GRANTED as to 10 | Claims Three, Four, Five, and Six. 11 IT IS FURTHER ORDERED that defendants’ motion to 12 | dismiss be, and the same hereby is, DENIED as to Claims One, Two, 13 Seven, and Eight. 14 Plaintiff has twenty days from the date this order is 15 Signed to file a First Amended Complaint, if it can do so 16 | consistent with this Order. 17 | Dated: August 3, 2020 hi tleom th. A. be—~ 18 WILLIAM B. SHUBB UNITED STATES DISTRICT JUDGE 19 20 21 22 23 24 25 26 27 28 15