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Phoenix Trading, Inc., et al v. Steven L. Kayser

July 25, 2011


The opinion of the court was delivered by: James L. Robart United States District Judge



Before the court are Plaintiffs Phoenix Trading, Inc., dba Amercare Products, Inc. ("Amercare"), and Wendy Hemming's (collectively "Amercare Plaintiffs") motion for partial summary judgment (Dkt. # 29); Defendants Steven L. Kayser, Loops LLC ("Loops"), and Loops Flexbrush LLC's (collectively "Loops Defendants") special motion to strike under Washington's Anti-SLAPP ("strategic lawsuits against public participation") statute, RCW ch. 4.24 (Dkt. # 32); and Loops Defendants cross-motion for partial summary judgment (Dkt. # 48). Having considered the submissions of the parties, the record, and the governing law, and having heard the oral argument of counsel on July 21, 2011, the court GRANTS Loops Defendants' special motion to strike the Amercare Plaintiffs' defamation claims (Dkt. # 32), and DENIES the Amercare Plaintiffs' motion for partial summary judgment (Dkt. # 29) and Loops Defendants' cross-motion for partial summary judgment (Dkt. # 48) as MOOT.


A. Background Related to the Patent Litigation

The parties have more than one lawsuit presently pending in the Western District of Washington. On July 11, 2008, Loops Defendants sued the Amercare Plaintiffs and others for patent infringement, violations of the Lanham Act, unfair competition under Washington common law, violations of the Washington Consumer Protection Act, and fraud. See Loops LLC, et al. v. Phoenix Trading, Inc., et al., No. C08-1064RSM (W.D. Wash.) ("the Patent Litigation").*fn1 In short, Loops Defendants alleged in the Patent Litigation that the Amercare Plaintiffs fraudulently obtained a sample of the Loops Flexbrush, sent the sample to China to be copied, and sold the infringing copies at a low price, outbidding Loops on a supply contract. The facts of the Patent Litigation overlap with the present suit, and so the court provides the factual background arising from the Patent Litigation.

Defendant Loops LLC and its president, Defendant Steven L. Kayser, design and market oral hygiene products principally used by jail inmates. See Loops LLC v. Phoenix Trading, Inc., No. C08-1064RSM, 2010 WL 3041866, at *1 (W.D. Wash. July 30, 2010). In August 2004, Loops Defendants submitted a patent application to the United States Patent and Trademark Office ("PTO") for a flexible handle toothbrush, known as the "Loops Flexbrush." Id. at *3. In early 2006, Loops Defendants won a New York City Department of Corrections ("DOC") competitive bid for the Flexbrush. DOC purchased Flexbrushes from Loops between August 2006 and June 2007. See id. at *1. Loops's patent for the Flexbrush, number 7,334,286 B2 ("'286 patent"), did not issue until February 26, 2008. Id. at *3.

In January 2006, Amercare President Wendy Hemming contacted Mr. Kayser asking for Loops's dental floss price quotes and samples of all of Loops's products. Id. Mr. Kayser sent samples of Loops's products to Ms. Hemming, including the Loops Flexbrush. Id. The Flexbrush samples were wrapped in packaging stating "patent pending." Id. at *3. Mr. Kayser agreed to let Ms. Hemming distribute his dental floss, see id. at *1, but repeatedly refused to allow Ms. Hemming to distribute his Flexbrush. Id. at *1-2. Eventually, Ms. Hemming sent Flexbrush samples to China for copying. Id. at *2. Ms. Hemming called the soft handle toothbrush that she manufactured in China "the Amercare Soft Handle." Id. The Amercare Soft Handle is an identical copy of the Flexbrush in every respect, except one: where the words "LoopSTM FlexbrushTM" are embossed in raised lettering on the back side of the head of the Loops Flexbrush (opposite the bristles), the name "Amercare" is embossed on the Amercare toothbrush in the same place and in the same font. Id. Using the Amercare Soft Handle, as well as her knowledge of Loops's pricing, Ms. Hemming and Amercare successfully replaced Mr. Kayser and Loops as the DOC toothbrush supplier. Id.

As noted above, on July 11, 2008, Loops Defendants filed suit against Amercare Plaintiffs. In his July 30, 2010 ruling on Amercare's motion for partial summary judgment, United States District Court Judge Ricardo S. Martinez ruled that Loops Defendants were not entitled to infringement damages or a reasonable royalty with regard to their patent infringement claim. Id. at *5-6. Judge Martinez also dismissed Loops's Lanham Act claim, id. at *6, its unfair competition under common law claim, id. at *7, its fraud claim, id. at *7-9, and its Consumer Protection Act claim, id. at *9-11.

On March 15, 2011, however, Judge Martinez reversed course based on newly discovered evidence presented by Loops Defendants indicating that Amercare Plaintiffs had suppressed material evidence in the Patent Litigation, had filed false declarations, and had been granted summary judgment based on those false declarations and improperly suppressed evidence. See Loops LLC v. Phoenix Trading, Inc., No. C08-1064RSM, 2011 WL 915785 (W.D. Wash. Mar. 15, 2011). Specifically, Judge Martinez found that Ms. Hemming "lied while under oath," and that Amercare Plaintiffs violated the court's discovery order and "may have submitted many numerous false declarations in the lawsuit." Id. at *9. Further, Judge Martinez had already found that Amercare Plaintiffs had "lost, destroyed, or withheld material documents, including invoices, purchase orders and emails between Amercare and its Chinese or Taiwanese contracts that were relevant to liability and damages." Id. Judge Martinez stated that he was "tremendously concerned with what appears to be a prolonged pattern of misrepresentation and deceit before this Court." Id. Judge Martinez concluded:

[T]he new evidence, combined with the pattern of deception and misrepresentation on the part of [Amercare Plaintiffs] throughout this litigation, indicates that the Court cannot be certain that any order it enters in this case will be supported by the benefit of a full, unadulterated record. Neither [Loops Defendants], nor the Court, will ever "have any comfort that it knows the truth, and that it can properly prepare this case for trial . . . . The integrity of this Court and our judicial system . . . has been undermined . . . [by Amercare Plaintiffs'] conduct in this case." Monsanto Co. v. Ralph, 382 F.3d 1374, 1379 (Fed. Cir. 2004).

Id. at *10. Accordingly, Judge Martinez granted Loops Defendants' Federal Rule of Civil Procedure 37 motion, struck Amercare Plaintiffs' pleadings in the Patent Litigation, including their answer, and entered default judgment against Amercare Plaintiffs in the Patent Litigation. Id.

B. Background Related to the Present Lawsuit

On February 18, 2010, in the midst of the Patent Litigation, Amercare Plaintiffs filed the present defamation suit in Whatcom County Superior Court for the State of Washington against Loops Defendants alleging claims for defamation per se and defamation. (See Notice (Dkt. # 1).) In May 2010, Amercare Plaintiffs amended the complaint to add a claim for false or fraudulent registration of trademarks under 15 U.S.C. § 1120. Loops Defendants removed the lawsuit to the Western District of Washington on June 4, 2010. (Id.)

The statements at issue were all made in the context of the dispute between the parties in the Patent Litigation described above. First, Amercare Plaintiffs complain about various statements that Mr. Kayser or his counsel made in three letters: (1) an August 20, 2007, letter to Mayor Michael Bloomberg of New York City, and other senior officials within various departments of New York City (Klingbeil Decl. (Dkt. # 31) Ex. E at 1-5); (2) an August 22, 2007 letter from Loops Defendants' counsel to Mario J. Crescenzo, Jr., Agency Chief Contracting Officer and Assistant Commissioner of New York City, and copied to Laurie Kaye, Deputy General Counsel New York City Comptroller, Office of Contract Administration; and (3) a September 12, 2007 letter from Loops Defendants' counsel to Ms. Kaye. (See SJ Mot. at 3-4; Resp. to Special Mot. (Dkt. # 42) at 7-8.) In these letters, Mr. Kayser or his counsel assert that Amercare Plaintiffs removed the registered trademark from Flexbrush toothbrushes, repackaged the toothbrushes as Amercare toothbrushes, and submitted the altered toothbrushes to the DOC as a part of the competitive bid process. (Klingbeil Decl. Ex. E at 1-5.) Subsequently, in a July 10, 2008 declaration that he filed in the Patent Litigation, Mr. Kayser admitted that he had erred when he previously stated that Amercare had removed trademarks from Loops Flexbrush toothbrushes. (Id., Ex. F ¶ 119.) Rather, he stated that the sample toothbrushes that Amercare Plaintiffs had submitted to the DOC were "counterfeit Amercare toothbrushes which infringed upon [Loops's] patents and trademarks." (Id.)

Second, Amercare Plaintiffs claim that on February 18, 2008, Mr. Kayser again wrote to Mayor Bloomberg, Stu Loesser, the Mayor's press secretary, Daniel Castleman, Chief of the Investigative Division at the Manhattan District Attorney's office, and other City officials, along with Alan Feuer, Dianne Cardwell and Walt Bogdanich, reporters for the New York Times. (Id. Ex. E at 18-23.) In this letter, Mr. Kayser states that Amercare toothbrushes are laden with excessive amounts of lead and heavy metals. (Id.) In addition, Mr. Kayser states in his July 10, 2008 Patent Litigation declaration that he believes that Amercare's infringing products contain excessive amounts of lead and other heavy metals harmful to consumers, that Amercare's toothbrushes had not been approved by the Food and Drug Administration ("FDA"), and that without such approval the toothbrushes posed a danger to the public. (Id. Ex. F ¶¶ 211, 227, 229, 238, 313.) Loops Defendants distributed Mr. Kayser's July 10, 2008 Patent Litigation declaration to third parties not involved in the Patent Litigation, including an Assistant U.S. Attorney, the U.S. Customs Agency in Seattle, and the New York Times. (Id. Ex. E at 44 & Ex. J at 158-62.) In addition, Loops Defendants made similar statements in the August 20, 2007, August 22, 2007, and February 18, 2008 letters referenced above. (Id. Ex. E at 4, 7, 22.)

Third, Amercare Plaintiffs assert that Loops Defendants repeatedly stated that the Amercare toothbrush infringed the Loops Defendants' patent prior to February 26, 2008 even though the Flexbrush patent did not issue until that date. (SJ Mot. at 8-9; Resp. to Special Mot. at 11-12.) Amercare Plaintiffs point to statements in Mr. Kayser's February 18, 2008 letter asserting that Amercare was engaged in "[c]ounterfeiting of our patented products." (Klingbeil Decl. Ex. E at 22.) In addition, in an April 21, 2008 letter to various New York City officials, Mr. Kayser implied that "Amercare would be providing counterfeit toothbrushes that infringed on [Loops'] trademark and patents" to the DOC on September 27, 2007. (Id. at 26.) Similarly, in his July 10, 2008, Patent Litigation declaration (which was distributed to third parties as noted above), Mr. Kayser claimed that Amercare "intentionally and willfully infringed on . . . Loops Flexbrush patents" on April 24, 2007, July 10, 2007, and September 27, 2007, which are all dates prior to the February 26, 2008 issuance of the '286 patent. (Id. Ex. F ¶¶ 91-92.)

Finally, Amercare Plaintiffs allege that Loops Defendants falsely stated that Amercare Plaintiffs were "counterfeiting" Loops' trademarks. (SJ Mot. at 9-12; Resp. to Special Mot. at 12-14.) Loops Defendants made these statements in various letters to New York City officials, the International Anti-Counterfeiting Coalition ("IAC") in Washington, D.C., and reporters at the New York Times, Harper's Bazaar Magazine, and the New York Sun. (Id. Ex. E at 3, 6, 8-9, 13, 16, 18-22, 25-28, 31-38, 40-41, 43-49.) In addition, Mr. Kayser made similar statements in his July 10, 2008 Patent Litigation declaration, which was distributed beyond the Patent Litigation as described above.

The parties have exchanged no discovery in the present lawsuit. (Reply to Special Mot. (Dkt. # 52) at 2.) Amercare Plaintiffs seek partial summary judgment that the foregoing statements were "provably false," that Loops Defendants were not privileged to make any of the referenced statements, that the statements were made by Loops Defendants with malice, and that each of the statements constitutes defamation per se. (SJ Mot. at 1-2.) On the same day, Loops Defendants brought a special motion to strike Amercare Plaintiffs' defamation claims under Washington's Anti-SLAPP statute, RCW ch. 4.24. (Special Mot. (Dkt. # 32).) Loops Defendants have also cross-moved for partial summary judgment dismissing Amercare Plaintiffs' defamation claims. (See SJ Resp. (Dkt. # 48).)


Prior to recent amendments, the Washington Anti-SLAPP law simply provided, in pertinent part, that "[a] person who communicates a complaint or information to any branch or agency of federal, state, or local government . . . is immune from civil liability for claims based upon the communication to the agency . . . regarding any matter reasonably of concern to that agency. . . ." RCW 4.24.510. The purpose of the statute was to encourage the reporting of potential wrongdoing to government entities by protecting parties from the threat of retaliatory lawsuits. See Aronson v. Dog Eat Dog Films, Inc., 738 F. Supp. 2d 1104, 1109 (W.D. Wash. 2010). If a defendant's statements are found to fall within this portion of Washington's Anti-SLAPP statute, then the defendant is immune from civil liability. See Akmal v. Cingular Wireless, No. C06-748JLR, 2007 WL 1725557, at *5 (W.D. Wash. June 8, 2007), aff'd, 300 F. App'x 463 (9th Cir. 2008).

The 2010 amendments to Washington's Anti-SLAPP statute expanded the type of conduct protected by the Act, and created a procedural device to quickly halt any litigation found to be targeted at persons lawfully communicating on matters of public or governmental concern. See Castello v. City of Seattle, No. C10-1456MJP, 2010 WL 4857022, at *3 (W.D. Wash. Nov. 22, 2010). The newly enacted provisions provide that a party may bring a special motion to strike any claim that is based on an action involving public participation and petition. RCW 4.24.525(4)(a). An action involving public participation and petition is defined as "[a]ny oral statement made, or written statement or other document submitted" (1) "in a legislative, executive, or judicial proceeding or other governmental proceeding authorized by law," (2) "in connection with an issue under consideration or review by a legislative, executive, or judicial proceeding or other governmental proceeding authorized by law," (3) "that is reasonably likely to encourage or to enlist public participation in an effort to effect consideration or review of an issue in a legislative, executive, or judicial proceeding or other governmental proceeding authorized by law," or (4) "in a place open to the public or a public forum in connection with an issue of public concern." RCW 4.24.525(2)(a)-(d). In addition, the statute contains a catch-all provision that includes "any other lawful conduct in furtherance of the exercise of the constitutional right of free speech in connection with an issue of public concern, or in furtherance of the exercise of the constitutional right of petition." RCW 4.24.525(2)(e). There is nothing in the language of RCW 4.24.525 to indicate that it supersedes RCW 4.24.510. The two provisions are complimentary. Castello, 2010 WL 4857022, at *4 n.2.

A party bringing a special motion to strike a claim has the initial burden of showing by a preponderance of the evidence that the claim is based on an action involving public participation and petition. RCW 4.24.525(4)(b). If the moving party meets this burden, the burden shifts to the responding party to establish by clear and convincing evidence a probability of prevailing on the claim. Id. If the responding party meets this burden, then the court shall deny the special motion. Id. In making this determination, the court considers pleadings and supporting and opposing affidavits stating the facts upon which liability is based. RCW 4.24.525(4)(c).

In addition, a moving party who prevails on a special motion to strike under the Anti-SLAPP statute is entitled to an award of attorney's fees and costs incurred in connection with the motion ...

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