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Bond Manufacturing Co. v. Ashley Furniture Industries, Inc.

United States District Court, D. Nevada

March 27, 2018

BOND MANUFACTURING CO., INC., Plaintiffs,
v.
ASHLEY FURNITURE INDUSTRIES, INC., Defendants.

          AMENDED ORDER

         Presently before the court is defendant Ashley Furniture Industries, Inc.'s motion to dismiss. (ECF No. 7). Plaintiff Bond Manufacturing Co. filed a response (ECF No. 12), to which defendant replied (ECF No. 17).

         I. Facts

         Plaintiff is an industry leader in the designing and manufacturing of lawn, garden, and outdoor living products. (ECF No. 1). Plaintiff's products are sold in the major retail outlets for such products. Id. Plaintiff has invested significant resources in the development and improvement of the materials it uses for its outdoor heating products. Id. Plaintiff regularly enters into private label design and manufacturing agreements with third party companies. Id. These agreements include terms providing that plaintiff will be the exclusive manufacturer and supplier of products that plaintiff designs. Id. Plaintiff typically does not execute written private label design and manufacturing agreements before commencing design and manufacturing work with third party companies. Id.

         Defendant is one of the largest manufacturers, distributors, and sellers of furniture in the United States, with over 450 retail locations doing business under the name Ashley Furniture HomeStore. Id. Defendant also sells its furniture products wholesale to third party furniture retailers. Id.

         In May of 2016, at the National Hardware Show in Las Vegas, Andy Sokol, vice president of merchandising for defendant and the director of defendant's outdoor patio program, and Cameron Jenkins, president of plaintiff, discussed an agreement between plaintiff and defendant to develop an exclusive patio and outdoor heating furniture program (the “program”) for defendant. Id. Jenkins was familiar with Sokol. Id. Sokol described the program as a private label design and manufacturing program, “knowing that Jenkins would understand the offer as one that was consistent with the private label programs Sokol had worked on [when he was an] executive [for plaintiff].” Id.

         Sokol had been employed by plaintiff as plaintiff's director of product development for plaintiff's patio program in 2009. Id. Because of this employment, Sokol gained a full understanding of plaintiff's policies and practices. Id. Plaintiff alleges that Sokol thus knew at the time he offered the program to plaintiff that plaintiff would provide product design and manufacturing services only on the condition that it be the exclusive manufacturer of any its products for the program. Id.

         On May 9, 2016, Sokol sent Jenkins ideas for the program and requested a meeting on May 29 in China at plaintiff's Shenzhen showroom. Id. On May 29, 2016, plaintiff presented designs and samples. Id. Sokol identified the designs defendant wanted to include in the program and requested additional renderings of those products and price quotations. Id. Following the meeting, Sokol sent an email to plaintiff expressing excitement about plaintiff's participation in the program:

[B]y the conclusion of this May 29, 2016, meeting, Bond and Ashley had agreed through Jenkins and Sokol: (i) that Bond would proceed with designing and manufacturing product to be displayed by Ashley at Ashley's booth/showroom at the then upcoming Las Vegas Furniture Show under Ashley's brand as part of Ashley's roll-out to the world of its new Signature Line of outdoor furniture, (ii) that the parties would negotiate in good faith over the price to Ashley for such products, and (iii) that should the parties fail to reach agreement on pricing or on Bond's participation in the Ashley Program, Ashley would not be permitted to use, copy, manufacture or sell any Bond designed product.

Id.

         In response to Sokol's requests on behalf of defendant, plaintiff devoted a large team from plaintiff's China and U.S. offices to work with its manufacturing factories to prepare quotes and samples on an expedited basis. Id. Plaintiff began sending price quotations to Sokol on or about June 6, 2016. Id.

         Communication occurred throughout June regarding the furniture designs. Id. Price lists were continually exchanged and updated per defendant's requests. Id. Sokol provided plaintiff with defendant's logo in order to incorporate the logo into the products. Id.

         On July 2, 2016, another meeting was held and Jenkins flew to China to attend. Id. At the meeting, Sokol selected the samples defendant wanted for its rollout of its outdoor furniture line at Las Vegas Market. Id. Plaintiff made the selected samples and shipped them on-time for defendant's unveiling at Las Vegas Market, as requested by Sokol. Id.

         Email correspondence continued in July and August of 2016. Id. On July 10, 2016, Sokol asked Jenkins if any duties are owed “on the items we are buying from you?” Id. On July 21, 2016, Sokol provided Jenkins with a file with target prices for the cost of plaintiff's products. Id. On July 22, 2016, Jenkins emailed Sokol an updated file with the “final and best pricing that [plaintiff] can offer.” Id. Price-related discussions continued for another week. Id.

         On August 2, 2016, during a meeting at the Las Vegas Market, Sokol informed Jenkins that defendant may manufacture plaintiff's furniture products itself or through other manufacturers in order to get the same product at a lower price. Id. Jenkins informed Sokol that while defendant may use another manufacturer for outdoor furniture, it could not use any of plaintiff's designs to do so, and that plaintiff's products were proprietary to plaintiff and the subject of patent and copyright protection. Id. Negotiations continued despite the threat to use other manufacturers. Id.

         On August 17, 2016, Sokol informed Jenkins that the program would be finalized the coming week and orders sent shortly after. Id. The email also stated that defendant was planning to order 75 products per month to start, with a forecast of 900 products for the first season. Id.

         On August 19, 2016, defendant invited plaintiff's China team to meet with defendant's representatives at defendant's Dongguan office for training on defendant's purchase order process. Id. The factory owner from one of plaintiff's OEM factories who would be responsible for manufacturing some of the plaintiff's furniture products was also in attendance. Id. A representative of plaintiff contacted this factory owner to question why he had attended the training meeting. Id. The factory owner acknowledged that defendant's representatives had contacted him directly to ask that his factory make certain of the plaintiff's products for direct delivery to defendant, thereby cutting plaintiff out of any transaction. Id.

         On or about January 25, 2017, defendant began marketing and promoting various furniture products which plaintiff alleges are direct knock-offs of plaintiff's furniture products. Id. Plaintiff alleges that defendant used photographs and video Sokol took of plaintiff's products in plaintiff's showroom. Id. Defendant is also selling knock-off products wholesale to numerous third party retail companies. Id.

         Plaintiff alleges that defendant has a consistent pattern of breaking its contractual promises and infringing the intellectual property of furniture companies.[1] Id.

         On May 30, 2017, plaintiff filed suit against defendant, alleging thirteen claims for relief. Id.

         II. Legal Standard

         A court may dismiss a complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). A properly pled complaint must provide “[a] short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). While Rule 8 does not require detailed factual allegations, it demands “more than labels and conclusions” or a “formulaic recitation of the elements of a cause of action.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted).

         “Factual allegations must be enough to rise above the speculative level.” Twombly, 550 U.S. at 555. Thus, to survive a motion to dismiss, a complaint must contain sufficient factual matter to “state a claim to relief that is plausible on its face.” Iqbal, 556 U.S. at 678 (citation omitted).

         In Iqbal, the Supreme Court clarified the two-step approach district courts are to apply when considering motions to dismiss. First, the court must accept as true all well-pled factual allegations in the complaint; however, legal conclusions are not entitled to the assumption of truth. Id. at 678-79. Mere recitals of the elements of a cause of action, supported only by conclusory statements, do not suffice. Id. at 678.

         Second, the court must consider whether the factual allegations in the complaint allege a plausible claim for relief. Id. at 679. A claim is facially plausible when the plaintiff's complaint alleges facts that allow the court to draw a reasonable inference that the defendant is liable for the alleged misconduct. Id. at 678.

         Where the complaint does not permit the court to infer more than the mere possibility of misconduct, the complaint has “alleged-but not shown-that the pleader is entitled to relief.” Id. (internal quotation marks omitted). When the allegations in a complaint have not crossed the line from conceivable to plausible, plaintiff's claim must be dismissed. Twombly, 550 U.S. at 570.

         The Ninth Circuit addressed post-Iqbal pleading standards in Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). The Starr court stated, in relevant part:

First, to be entitled to the presumption of truth, allegations in a complaint or counterclaim may not simply recite the elements of a cause of action, but must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively. Second, the factual allegations that are taken as true must plausibly suggest an entitlement to relief, such that it is not ...

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