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Banerjee v. Continental Incorporated, Inc.

United States District Court, D. Nevada

February 1, 2018

ADRISH BANERJEE, et al., Plaintiffs,
v.
CONTINENTAL INCORPORATED, INC., et al., Defendants.

          ORDER (1) GRANTING ANTI-SLAPP MOTION; (2) GRANTING IN PART MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM; (3) GRANTING MOTIONS TO SUPPLEMENT; AND (4) UNSEALING ECF NO. 23 (ECF NOS. 7, 8, 41, 50)

          ANDREW P. GORDON, UNITED STATES DISTRICT JUDGE.

         Plaintiffs Adrish Banerjee and Yan He sue defendants Leapers, Inc. and Continental Incorporated, Inc. for various actions Leapers and Continental took that resulted in Banerjee and He being arrested during a Las Vegas trade show. Leapers claims it owns certain distinctive and source-identifying design markings on gun scopes. Leapers hired Continental, a private investigation firm, to assist in protecting Leapers' claimed markings because Leapers believed others, including the plaintiffs, were selling scopes that copied its designs. Continental conducted a “sting” operation by ordering scopes from the plaintiffs for the sole purpose of having those scopes shipped into Indiana. Continental did so because Indiana has novel law that would allow for counterfeit and forgery criminal charges against the plaintiffs for copying “markings and symbols of identification.” Continental and Leapers worked with prosecutors in Indiana, who pursued criminal charges against the plaintiffs. The plaintiffs were arrested on the floor of a Las Vegas gun trade show and extradited to Indiana, where the criminal charges were later dismissed.

         The plaintiffs and others dispute that Leapers has any protectable intellectual property because the markings it claims are distinctive are simply functional aspects of a gun scope. A federal district court in Michigan ruled that Leapers has no trade dress rights in the designs under federal law because the designs were functional, and found Leapers and Continental's conduct to be sufficiently exceptional as to award attorney's fees against them. See ECF No. 41-1. However, the Sixth Circuit recently overturned that ruling, holding the district court erred by ruling the design was non-functional as a matter of law, particularly where discovery remained outstanding. Leapers, Inc. v. SMTS, LLC, No. 17-1007, 2018 WL 341880, at *7 (6th Cir. Jan. 10, 2018). Likewise, a federal district court in Indiana has declined to dismiss Leapers' claims in a civil lawsuit in which Leapers sued other parties under Indiana law for forgery, counterfeiting, and theft based on these same “markings and symbols of identification.” See ECF No. 7-6. In short, this intellectual property dispute has spawned multiple legal actions in multiple jurisdictions.

         The case before me was brought by Banerjee and He against Leapers and Continental, asserting a host of state and federal claims arising out of the plaintiffs' arrest.[1] Leapers and Continental move to dismiss, arguing that the plaintiffs' state law claims should be dismissed under Nevada and Indiana's anti-SLAPP statutes. Leapers and Continental also argue the plaintiffs fail to state a claim for any of their causes of action.

         The parties are familiar with the facts, so I will not set them forth in detail except where necessary to resolve the motions. I grant the anti-SLAPP motion. I grant in part the motion to dismiss for failure to state a claim.

         I. MOTION TO DISMISS UNDER ANTI-SLAPP (ECF No. 8)

         Leapers and Continental move to dismiss the plaintiffs' state law claims under Nevada and Indiana's anti-SLAPP statutes. They argue that the plaintiffs' claims are based on Leapers and Continental's protected activity of speaking to police and prosecutors in Indiana about the plaintiffs' alleged crimes, and thus must be dismissed. The plaintiffs respond that because Leapers and Continental did not act in good faith in speaking to the Indiana officials, the motion should be denied.

         The parties agree that Nevada law applies to all of the plaintiffs' state law claims except the malicious prosecution claim, which is governed by Indiana law because that is where the plaintiffs were criminally prosecuted.[2] Under Nevada's anti-SLAPP statute, a “person who engages in a good faith communication in furtherance of the right to petition or the right to free speech in direct connection with an issue of public concern is immune from any civil action for claims based upon the communication.” Nev. Rev. Stat. § 41.650. A defendant may file a special motion to dismiss if the defendant can show “by a preponderance of the evidence, that the claim is based upon a good faith communication in furtherance of the right to petition or the right to free speech in direct connection with an issue of public concern.” Id. § 41.660(3)(a). If the defendant makes this initial showing, the burden shifts to the plaintiff to show “with prima facie evidence a probability of prevailing on the claim.” Id. § 41.660(3)(b).

         A. The Defendants' Initial Burden

         Each of the plaintiffs' state law claims is based on the defendants' communications with law enforcement related to a criminal investigation and the resulting charges and arrests. Reports to police regarding possible criminal activity fall within the anti-SLAPP statute's coverage. Nev. Rev. Stat. § 41.637(3) (defining a “good faith communication in furtherance of the right to petition or the right to free speech in direct connection with an issue of public concern” to mean, among other things, any “[w]ritten or oral statement made in direct connection with an issue under consideration by a legislative, executive or judicial body, or any other official proceeding authorized by law . . . which is truthful or is made without knowledge of its falsehood”); Lawrence v. Krahne, No. 66595, 2015 WL 5545555, at *1 (Nev. Ct. App. Sept. 16, 2015) (good faith statements to law enforcement about alleged threats were protected activity); see also Hansen v. Cal. Dep't of Corr. & Rehab., 90 Cal.Rptr.3d 381, 386 (Cal.Ct.App. 2008); Dickens v. Provident Life & Acc. Ins. Co., 11 Cal.Rptr.3d 877, 882-83 (Cal.Ct.App. 2004).[3]

         Additionally, the defendants have met their initial burden of showing by a preponderance of the evidence that their reports to the police were truthful or without knowledge of falsehood. Leapers' president, Tina Ding, avers that Leapers created unique designs for its scopes and “used those unique designs to serve as identifiers of Leapers' products.” ECF No. 8-3 at 3. Ding further avers that “Leapers at all times believed, and continues to believe, it is the owner of the unique rifle scope designs, including their unique markings, at issue in this matter.” Id. at 5. Continental's president, Karl Manders, avers that Continental “had no reason to believe Leapers did not own the designs Leapers claimed to own or that the designs were not unique in the marketplace.” ECF No. 8-2 at 2-3. A federal district court in Indiana has allowed Leapers' claims based on similar theories to proceed past the dismissal stage. The Sixth Circuit has ruled that further proceedings are needed on whether the designs are non-functional and have secondary meaning. Leapers, Inc., 2018 WL 341880, at *7. Thus, Leapers has shown it has a non-frivolous, good faith belief that it owns the markings. The plaintiffs' contention that Leapers and Continental made false representations to the police and prosecutors lacks evidentiary support, as discussed below.

         B. The Plaintiffs' Burden

         Because the defendants have met their initial burden, the burden shifts to the plaintiffs to show with prima facie evidence a probability of prevailing on their claims. This step entails a “summary-judgment-like procedure.” Baral v. Schnitt, 376 P.3d 604, 608 (Cal. 2016) (quotation omitted).[4] At this stage, I do not “weigh evidence or resolve conflicting factual claims.” Id. Instead, I ask “whether the plaintiff has stated a legally sufficient claim and made a prima facie factual showing sufficient to sustain a favorable judgment.” Id. I accept the plaintiffs' evidence as true, and I evaluate the defendants' showing “only to determine if it defeats the plaintiff's claim as a matter of law.” Id.

         1. Intentional Interference with Prospective Economic Advantage

         Count one of the complaint alleges the defendants knew of the plaintiffs' business relations with customers, knew that the plaintiffs' customers and potential customers would be at the trade show where they were arrested, and the defendants' actions caused the plaintiffs to be charged and arrested in the middle of a trade show. ECF No. 2 at 14. As to this latter allegation, the plaintiffs assert that Continental knew the plaintiffs' residential and business addresses in Las Vegas yet Continental contacted the Las Vegas Metropolitan Police and influenced them to arrest the plaintiffs during the trade show instead. Id. at 12. The plaintiffs allege Continental sent an employee to Las Vegas to facilitate the arrests. Id. The plaintiffs contend the defendants acted with the intent to interfere with the plaintiffs' prospective economic opportunities by having them arrested at the trade show in front of their customers, and they have lost sales as a result. Id. at 14.

         To state a claim for interference with prospective economic advantage under Nevada law, a plaintiff must allege: (1) a prospective contractual relationship between itself and a third party; (2) the defendant knew of the prospective relationship; (3) the defendant intended to harm the plaintiff by preventing the relationship; (4) the defendant's conduct was not privileged or justified; and (5) the plaintiff suffered actual harm as a result. In re Amerco Deriv. Litig., 252 P.3d 681, 702 (Nev. 2011) (en banc). “Privilege can exist when the defendant acts to protect his own interests.” Leavitt v. Leisure Sports Inc., 734 P.2d 1221, 1226 (Nev. 1987). However, activity is not privileged or justified if there is “resort . . . to unlawful or improper means.” Crockett v. Sahara Realty Corp., 591 P.2d 1135, 1137 (Nev. 1979).

         The defendants assert their conduct was privileged because Leapers owns intellectual property rights in the scopes and acted to protect those rights. The plaintiffs respond that the defendants were not justified in their actions because: (1) Charlie Shi (who is not a Leapers employee) designed the scalloped feature on the scopes that Leapers is relying on and owned a significant part of the company that manufactured the scopes, Wu Yang Sporting Goods; (2) at the time the defendants acted, no court had determined the scalloped design was protectable; and (3) Leapers did not have a federal trademark but told the police and prosecutors it did.

         None of these contentions withstands scrutiny. First, the plaintiffs present no admissible evidence that Shi designed the scalloped feature. Shi's declaration says nothing about designing or owning it. ECF No. 19-1. The plaintiffs attach design documents, most of which are in Chinese, with no authentication of what the documents are. ECF Nos. 19-2; 20-1. Additionally, the plaintiffs' evidence does not show Shi owned any share of Wu Yang. See ECF No. 23 at 27. Ding specifically denied under oath that there was an agreement for Shi to own shares in Wu Yang. Id. The defendants present evidence that Shi filed suit in China over his alleged ownership interest in Wu Yang but withdrew it when he could not produce evidence in support. ECF No. 37-3. Moreover, designing a feature or owning a share in a manufacturing company does not necessarily equate to ownership in intellectual property. The plaintiffs have not presented any evidence that Shi owned intellectual property rights in the scalloped feature.

         Second, the fact that no court had ruled the scalloped feature was protectable when the defendants engaged in the challenged conduct does not nullify the defendants' privilege to act in their own self interests in seeking to protect whatever rights Leapers believes in good faith that it has. There is no evidence that a court had ruled Leapers did not have, and could not have, protectable rights in the scalloped feature at the time the defendants communicated with law enforcement. Although the United States Patent and Trademark Office issued an office action initially denying Leapers' trademark application, that was not a final ruling and Leapers was attempting to overcome the office action. See ECF No. 20-5. The USPTO subsequently issued a notice of publication, which gives notice to those who want to oppose registration of the mark. ECF No. 37-4. Moreover, the USPTO's action does not mean Leapers could not have protectable rights under Indiana law.

         Finally, the plaintiffs argue the defendants lied to the police and prosecutors by telling them Leapers had a trademark when it did not. But the evidence on which the plaintiffs rely does not support that contention. Instead, the defendants told the police Leapers had “markings and symbols of identification.” ECF No. 20-6 ...


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