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Chemeon Surface Technology, LLC v. Metalast International, Inc.

United States District Court, D. Nevada

March 30, 2018

CHEMEON SURFACE TECHNOLOGY, LLC, Plaintiff,
v.
METALAST INTERNATIONAL, INC. et al., Defendants. And Related Claims

          ORDER

          MIRANDA M. DU, UNITED STATES DISTRICT JUDGE

         I. SUMMARY

         The dispute stems from the breakup of a business and disagreement over the terms of a subsequent settlement agreement. Before the Court are three motions: (1) Defendants and Counterclaimants David M. Semas (“Semas”), Metalast International, Inc. (“the Inc.”), Metalast Inc. (“MI”), and Sierra Dorado, Inc.'s (“Sierra Dorado”) (collectively, “Metalast Defendants”) Motion for Partial Summary Judgment (“Metalast Defendants' Motion”) (ECF No. 313); (2) Plaintiff Chemeon Surface Technology, LLC's (“Chemeon”) Motion for Summary Judgment (“Plaintiff's Motion”) (ECF No. 315); and (3) Defendant Marc Harris' Motion for Summary Judgment (“Harris' Motion”) (ECF No. 331). The Court has reviewed the parties' respective responses and replies. (ECF Nos. 324, 326, 330, 337, 338, 339, 342.) The Court has also reviewed the supplemental briefs filed by the parties in relation to the Second Amended Complaint (“SAC”).[1] (ECF Nos. 354, 356.) The Court held a hearing (“the Hearing”) on the relevant motions on March 16, 2018.[2] (ECF No. 368.)

         For the reasons discussed herein, Metalast Defendants' Motion is granted in part and denied in part, Plaintiff's Motion is granted in part and denied in part, and Harris' Motion is granted in part and denied in part.

         II. RELEVANT BACKGROUND

         The Inc. managed Metalast International, LLC (“the LLC”) when the LLC was placed into receivership in April 2013. (ECF No. 313 at ¶¶ 1, 5; ECF No. 315 at ¶¶ 6, 50.) Chemeon's predecessor, Metalast Surface Technology, LLC (“MST”), acquired the assets of the LLC in November 2013. (ECF No. 315 at ¶ 51.)

         The next month, David Semas and his wife initiated a personal Chapter 11 bankruptcy proceeding. (ECF No. 313 at 3.) On July 14, 2014, MST initiated an adversary proceeding against Semas asserting ownership of the Metalast trademark. (Id. at 4.) Bankruptcy Judge Gregg W. Zive mediated a settlement (“the Settlement”) of the dispute on January 27, 2015, in which he stated that “the Meilings have the right to use [the Metalast] mark without compensation and in the ordinary course of their business for a period not to exceed 90 days from the date of the entry of the order approving the settlement by Judge Beesley[.]” (ECF No. 314-14 at 14.) Similarly, Judge Zive stated that “[t]he Meilings agree to dismiss [the adversary proceeding] with prejudice and to waive any and all claims they have from the beginning of time and through the date of entering of the settlement agreement that they may have, known or unknown, anticipated or unanticipated, against [David Semas], ” that the Semas's would “release the Meilings and [MST] from any claims they may have . . . from the beginning of time until the settlement agreement is approved, ” and that the release was one “between these parties or related entities.” (Id. at 13 (emphasis added).) On March 11, 2015, the Bankruptcy Court (Judge Beesley) entered the order approving the Settlement. (Id. at 2.)

         On February 24, 2015, after the settlement conference but before Judge Beesley's approval of the Settlement, Semas and Harris contacted a potential investor, sending various investment and marketing materials to him. (ECF No. 343 at 9; ECF no. 326-1 at ¶ 102.) On March 25, 2015, Semas also contacted a distributor of Chemeon. (ECF No. 314-16.) Then, on June 21, 2015, Semas applied for renewal of the trademark registration of the Metalast wordmark. (ECF No. 315-3 at 103.)

         Metalast Defendants seek partial summary judgment as to two issues: (1) whether certain claims are barred based on the prior settlement and release (specifically, trademark infringement, [3] breach of Semas' fiduciary duty to the LLC, breach by Semas of the LLC's operating agreement, contractual and tortious breach of the implied covenant of good faith and fair dealing based on breach of the LLC's operating agreement, conversion, conspiracy, and breach of Semas' employment contract with the LLC); and (2) whether Chemeon has any evidence that supports other claims (specifically misappropriation of trade secrets, copyright infringement, intentional interference with prospective economic advantage, unfair competition, consumer fraud, and unjust enrichment). (ECF No. 313 at 1-2.)

         Plaintiff seeks summary judgment on its claims, consisting of: (1) copyright infringement against Metalast Defendants and Harris; (2) misappropriation of trade secrets against Metalast Defendants and Harris; (3) cancellation of the Metalast wordmark; (4) cancellation of the Logo Marks; (5) breach of fiduciary duty to the LLC against Semas; (6) breach of the LLC's operating agreement against Semas; (7) breach by Semas of his employment agreement with the LLC; (8) Counterclaimants' breach of contract counterclaim; and (9) Counterclaimants' specific performance counterclaim.

         Harris seeks summary judgment on Chemeon's claims of: (1) misappropriation of trade secrets; (2) copyright infringement; (3) intentional interference with prospective economic advantage; and (4) unfair competition.

         III. LEGAL STANDARD

         “The purpose of summary judgment is to avoid unnecessary trials when there is no dispute as to the facts before the court.” Nw. Motorcycle Ass'n v. U.S. Dep't of Agric., 18 F.3d 1468, 1471 (9th Cir. 1994) (internal citation omitted). Summary judgment is appropriate when the pleadings, the discovery and disclosure materials on file, and any affidavits show “there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 330 (1986). An issue is “genuine” if there is a sufficient evidentiary basis on which a reasonable fact-finder could find for the nonmoving party and a dispute is “material” if it could affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). Where reasonable minds could differ on the material facts at issue, however, summary judgment is not appropriate. See id. at 250-51. “The amount of evidence necessary to raise a genuine issue of material fact is enough ‘to require a jury or judge to resolve the parties' differing versions of the truth at trial.'” Aydin Corp. v. Loral Corp., 718 F.2d 897, 902 (9th Cir. 1983) (quoting First Nat'l Bank v. Cities Serv. Co., 391 U.S. 253, 288-89 (1968)). In evaluating a summary judgment motion, a court views all facts and draws all inferences in the light most favorable to the nonmoving party. Kaiser Cement Corp. v. Fishbach & Moore, Inc., 793 F.2d 1100, 1103 (9th Cir. 1986).

         The moving party bears the burden of showing that there are no genuine issues of material fact. Zoslaw v. MCA Distrib. Corp., 693 F.2d 870, 883 (9th Cir. 1982). “In order to carry its burden of production, the moving party must either produce evidence negating an essential element of the nonmoving party's claim or defense or show that the nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of persuasion at trial.” Nissan Fire & Marine Ins. Co., Ltd v. Fritz Cos., Inc., 210 F.3d 1099, 1102 (9th Cir. 2000) (internal citation omitted). Once the moving party satisfies Rule 56's requirements, the burden shifts to the party resisting the motion to “set forth specific facts showing that there is a genuine issue for trial.” Anderson, 477 U.S. at 256. The nonmoving party “may not rely on denials in the pleadings but must produce specific evidence, through affidavits or admissible discovery material, to show that the dispute exists, ” Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir. 1991), and “must do more than simply show that there is some metaphysical doubt as to the material facts.” Orr v. Bank of Am., NT & SA, 285 F.3d 764, 783 (9th Cir. 2002) (internal citations omitted). “The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient.” Anderson, 477 U.S. at 252.

         A party is permitted to seek partial summary judgment as to any claim or defense in a case. Fed.R.Civ.P. 56(a); see also First Nat'l Ins. Co. v. Fed. Deposit Ins. Corp., 977 F.Supp. 1051, 1055 (S.D. Cal. 1997) (a court may grant summary adjudication as to specific issues if it will narrow the issues for trial). Further, “when parties submit cross-motions for summary judgment, ‘[e]ach motion must be considered on its own merits.'” Fair Hous. Council of Riverside Cty., Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001) (quoting William W. Schwarzer, et al., The Analysis and Decision of Summary Judgment Motions, 139 F.R.D. 441, 499 (Feb. 1992) (citations omitted)). “In fulfilling its duty to review each cross-motion separately, the court must review the evidence submitted in support of each cross-motion.” Id.

         IV. METALAST DEFENDANTS' MOTION (ECF No. 313)

         Metalast Defendants move for partial summary judgment on the basis that the release provision in the Settlement bars many of Chemeon's claims and that Chemeon has no evidence to establish the elements of certain of its other claims. The Court agrees with Metalast Defendants except as for one of Chemeon's claims (copyright infringement).

         A. The Settlement

         The parties dispute the effective date of the release provision in the Settlement. Chemeon contends that the effective date of the Settlement was the January 27, 2015, hearing before Judge Zive because Judge Zive stated the parties were “bound immediately upon the completion of [that] hearing” to the terms of the Settlement and that at that time there was a fully enforceable agreement. (ECF No. 324 a 17.) However, as to the term of the release, Judge Zive used the phrase “entering of” and “approv[al]” of the Settlement. In particular, he stated on the record that Chemeon's predecessors “waive any and all claims they have from the beginning of time and through the date of entering of the settlement agreement that they may have, known or unknown, anticipated or unanticipated, against [David Semas].” (ECF No. 314-14 at 13 (emphasis added).) The plain meanings of these terms favor reading the release term as becoming effective upon Judge Beesley's approval of the Settlement because Chemeon waived claims through the date the Settlement was entered. Moreover, if Judge Zive had intended the release to take effect at the time of the hearing, he would have said so, particularly since he clearly stated that he believed the agreement became binding at that time. (Id. at 20 (“I consider [the agreement] to be binding as of this time”).) Further, Judge Zive stated that the Settlement had to be approved by the Bankruptcy Court. (Id. at 11.)

         Chemeon also argues that Judge Zive's use of the phrase “related entities” does not extend to MI or Sierra Dorado because they did not participate in the settlement conference or have pending claims against them and further asserts that the phrase, “[a]t best, . . . may have encompassed [the Inc.] since that entity . . . was a named defendant in the bankruptcy adversary action initiated by Chemeon's owners.” (ECF No. 324 at 9.) The Court disagrees. As Semas points out, the only parties to the adversary action were Chemeon's predecessor MST, Semas, and the Inc. (ECF No. 342 at 7), yet the Meilings were indisputably a part of the release (ECF No. 314-14 at 13). While the Meilings participated in the settlement conference representing MST, Semas maintained controlling interests in MI and Sierra Dorado at the time of the conference, which was readily available information disclosed in the bankruptcy schedules. (See ECF No. 314-5 at 6.) Moreover, at the hearing, Chemeon admitted that these two entities were vehicles through which Semas advanced the Inc.'s business interests. Chemeon does not contend that “related entities” is ambiguous; rather it advocates for a particular reading that is far narrower than the plain language of the phrase permits. The Court therefore finds that “related entities” encompasses MI and Sierra Dorado.

         In sum, the Court considers March 11, 2015, to be the effective date of the release provision in the Settlement. Thus, Chemeon's claims cannot be based on conduct that occurred on or before March 11, 2015 (“the Release Date”). The Court also finds that the release provision covers Semas and the Inc., as well as MI and Sierra Dorado.

         B. Claims Affected by the Settlement

         Metalast Defendants argue that claims for breach of Semas' employment agreement, breach of the LLC's operating agreement, contractual and tortious breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, conversion, and conspiracy are barred under the Settlement's release provision. (ECF No. 313 at 10-12.) The Court agrees that all claims identified by Metalast Defendants except for the breach of employment agreement claim[4] are covered under the Settlement's release provision.

         Chemeon generally relies on alleged conduct that occurred before the dissolution of the LLC through the 2013 asset sale to support these claims. For instance, in the SAC, Plaintiff bases the breach of operating agreement, breach of implied covenant of good faith and fair dealing, and breach of fiduciary duty claims on Semas causing the LLC to pay for trademark registrations of Semas/the Inc., improperly paying excessive perquisite benefits, travel and entertainment expenses, and reimbursements using the LLC's funds. (See ECF No. 348 at 53-57). Chemeon's Motion similarly points to Semas spending LLC funds on trademark registrations that he owned as the basis for the claims related to breach of the operating agreement and breach of fiduciary duty. (ECF No. 315 at 31-34.) This alleged conduct occurred while the LLC still existed. Thus, the release provision of the Settlement bars these claims, and the Court grants summary judgment in favor of Metalast Defendants as to these claims.

         Similarly, while Chemeon does not actually address Semas' contention that the conversion claim is based on acts arising before the Release Date, in the SAC Plaintiff states that the conversion claim is based on Defendants “spending [the LLC's] funds on property, such as trademark registrations, that were owned or to be owned by the Inc. or D. Semas, and improperly paying excessive perquisite benefits, large travel and entertainment expenses, and reimbursements to themselves and others with [the LLC's] funds.” (ECF No. 348 at ¶ 336.) Because these events clearly arose while the LLC still existed, and thus prior to the Release Date, and because Chemeon has not met its burden in opposing summary judgment on this claim, the Court grants summary judgment in favor of Semas on Plaintiff's conversion claim.

         Semas argues that the basis for Plaintiff's conspiracy claim arises from activities that necessarily arose before the sale of the LLC's assets to Chemeon. (ECF No. 313 at 12.) The SAC states that the conspiracy occurred between David Semas, the Inc., MI, Sierra Dorado, and Greg Semas[5] and that the unlawful objective included “acquiring, by registration, the Logo Marks; assigning rights in the Logo Marks first to [the Inc.] instead of the [LLC], and second from [the Inc.] to [David Semas] in his personal capacity; trademark infringement . . .; copyright infringement . . .; misappropriation of trade secrets; breach of various duties and agreements; and conversion of Chemeon property, including utilizing Chemeon property to file for a renewal of the Word Marks.” (ECF No. 348 at ¶ 343.) Plaintiff admits that many of these activities occurred before the Release Date, but states that David Semas' “acts in threatening to and misappropriating trade secrets, infringing copyrights, converting Chemeon property to fraudulently renew his trademark . . . furthered the objective of the conspiracy.” (ECF No. 324 at 17.)

         This argument, however, falls short of Plaintiff's burden in opposing summary judgment, as no evidence is specifically cited to in its opposition to support that these acts occurred after the Release Date. Plaintiff also fails to address what acts the other purported parties to the conspiracy-the Inc., MI, Sierra Dorado, Greg Semas and/or Wendi Semas-took in concert with David Semas and in furtherance of any unlawful objectives.[6] Summary judgment is therefore granted in favor of Metalast Defendants on the civil conspiracy claim.

         C. Remaining Claims

         Metalast Defendants next move for summary judgment on Plaintiff's claims of misappropriation of trade secrets, copyright infringement, interference with prospective economic advantage, unfair competition, consumer fraud, and unjust enrichment against them, contending that Plaintiff fails to support these claims with any evidence. (ECF No. 313 at 13-15.) The Court finds that summary judgment should be granted in favor of Metalast Defendants as to Plaintiff's claims for intentional interference with prospective economic advantage, unfair competition, consumer fraud, and unjust enrichment.[7]

         1. Intentional Interference with Prospective Economic Advantage

         To prevail on a claim of intentional interference with prospective economic advantage, Chemeon must prove: (1) a prospective contractual relationship between Chemeon and a third party; (2) Semas knew about the relationship; (3) Semas intended to harm Chemeon by preventing the relationship; (4) the absence of privilege or /// justification by Semas and his related entities; and (5) Chemeon suffered actual harm as a result of Semas' actions. See Wichinsky v. Mosa, 847 P.2d 727, 729-30 (Nev. 1993).

         Semas contends that Plaintiff has failed to specify what relationships or potential contracts he interfered with as between Chemeon and its suppliers or distributors. (ECF No. 313 at 14.) While Chemeon's opposition does not actually address the elements of this tort or provide specific evidence to demonstrate a genuine issue of material fact as to the elements of this claim (see ECF No. 324 at 15-16), Chemeon's Motion, which it incorporates by reference into its opposition (see ECF No. 324 at 15 n.15), identifies a March 25, 2015, email from Semas to one of Chemeon's distributors about “re-establishing a business relationship.” (ECF No. 315 at ¶ 90.) Semas does not object to the admission of the email as an exhibit[8] but identifies the email as an attempt to sell the Metalast brand and related trademarks to the distributor, not to interfere with any contract between Chemeon and the distributor. (ECF No. 326-1 at ¶ 90.) Similarly, in Chemeon's Motion it states that in a May 2015 press release, Semas asserted that he was “presently conducting discussions with several prominent chemical companies and other industry leaders to continue offering the trusted Metalast brand of ‘green' specialty chemicals to the world market.” (ECF No. 315 at ¶ 95.) Semas also does not object to admission of this press release as an exhibit[9] but states that the exhibit fails to establish any element of any of Plaintiff's claims. (ECF No. 326-1 at ¶ 95.)

         The Court agrees with Semas and finds that Chemeon has failed to meet its burden in opposing summary judgment on this claim. Even viewing the email and the statement in the press release in the light most favorable to Chemeon, Chemeon has failed to provide even a scintilla of evidence that Chemeon suffered any actual harm as a result of Semas' or his related entities' actions-it does not claim any prospective contract with a distributor or supplier was affected or that its prospective contracts with specific “prominent chemical companies and other industry leaders” were harmed.

         The Court therefore grants summary judgment in favor of Metalast Defendants on Chemeon's intentional interference with prospective economic advantage claim.

         2. Unfair Competition under 15 U.S.C. § 1125(a)

         Semas contends that no evidence exists to prove that he or his related entities engaged in conduct in violation of 15 U.S.C. § 1125(a), [10] as Semas never offered any goods under the Chemeon brand. (ECF No. 313 at 14.) He admits that “[h]e has conducted some commerce under the Metalast brand, but only after the Settlement confirmed his right to do so.” (Id.)

         Chemeon's opposition does not actually address the unfair competition claim with any particularity. Instead, Chemeon states that Semas “made contacts with Chemeon distributors and suppliers to find interest by those companies to acquire rights to the Metalast brand (including logo and product marks and goodwill he did not own), ”[11] that “Semas re-asserted his intention to use Chemeon's logo and product marks” during litigation, and then incorporates by reference the sixteen pages of “undisputed facts” in its Motion. (ECF No. 324 at 15.) Chemeon does not cite to any specific evidence to support these assertions in its opposition. In fact, the only evidence cited to regarding this claim is Defendants' answer to the FAC, Defendants' statements in response to Chemeon's motion for preliminary injunction, and Semas' renewal of the Metalast wordmark registration. (ECF Nos. 32, 36, 115; ECF No. 315-3 at 100-108.) None of these things implicate Semas' or his related entities' false use or misrepresentation of items owned by Chemeon in commerce; Semas was not attempting to market or sell a good when making statements during the course of litigation or when renewing a registration with the United States Patent and Trademark Office (“USPTO”). Moreover, because Chemeon is not moving for summary judgment on this claim the Court will not sift through the facts section of its Motion in an attempt to discern what other evidence its unfair competition claim may be based on to support its opposition to summary judgment. See Independent Towers of Washington v. Washington, 350 F.3d 925, 929 (9th Cir. 2003) (“judges are not like pigs, hunting for truffles buried in briefs”) (internal alteration omitted).

         The Court therefore grants summary judgment in favor of Metalast Defendants[12]on this claim.

         3. Consumer Fraud under Nevada Deceptive Trade Practices Act

Metalast Defendants contend that because the Settlement conferred ownership of the Metalast trademarks on Semas, he is not passing off for sale any of Chemeon's products and thus cannot be liable under the Nevada Deceptive Trade Practices Act (“NDTPA”), NRS §.598.0903 et seq. (ECF No. 313 at 14.) Chemeon fails to identify in its opposition any specific instances after the Release Date where Metalast Defendants solicited consumers for a transaction of goods. See NRS § 598.0915(1) (stating that a person is engaged in a deceptive trade practice if during the course of his business he “knowingly passes off goods or services for sale or lease as those of another person”). Instead Chemeon merely states that “[b]efore and after [the Release Date], David Semas made several attempts to contact companies that might be interest in controlling the Metalast trademark” and that he “made contacts with Chemeon distributors and suppliers to find interest by those companies to acquire rights to the Metalast brand (including logo and product marks and goodwill he did not own).” (ECF No. 324 at 15.) Regardless of Chemeon's failure to meet its burden in opposing summary judgment on this claim, the Settlement made clear that David Semas owned the Metalast wordmark; as such, it is unclear how Semas perpetuated fraud by trying to sell something he owned (or at least believed that he legally owned), and Chemeon presents no indication of what logo or product marks it, in fact, owned that Semas tried to sell to a consumer. Similarly, because Chemeon is not moving for summary judgment on this claim the Court will not sift through the facts section of Chemeon's Motion in an attempt to discern what other evidence its consumer fraud claim may be based on to support its opposition to summary judgment.

         The Court therefore grants summary judgment in favor of Metalast Defendants on this claim.

         4. Unjust Enrichment

         “Unjust enrichment is the unjust retention of a benefit to the loss of another, or the retention of money or property of another against the fundamental principles of justice or equity and good conscience.” Topaz Mut. Co., Inc. v. Marsh, 839 P.2d 606, 613 (Nev. 1992) (citing Nev. Indus. Dev. v. Benedetti, 741 P.2d 802, 804 n.2 (Nev. 1987)). The essential elements of an unjust enrichment claim are: (1) a benefit conferred on the defendant by the plaintiff; (2) appreciation by the defendant of such a benefit; and ...


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