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Seattle Pacific Industries, Inc. v. S3 Holding LLC

United States District Court, W.D. Washington, Seattle

April 10, 2019

S3 HOLDING LLC, et al., Defendants.



         This matter comes before the Court on “Plaintiff's Motion for Summary Judgment” (Dkt. # 28) and “Defendants' Cross-Motion for Partial Summary Judgment (Dkt. # 37). Summary disposition of a claim is appropriate when, viewing the facts in the light most favorable to the nonmoving party, there is no genuine issue of material fact that would preclude the entry of judgment as a matter of law. The party seeking summary dismissal of the case “bears the initial responsibility of informing the district court of the basis for its motion” (Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)) and “citing to particular parts of materials in the record” that show the absence of a genuine issue of material fact (Fed. R. Civ. P. 56(c)). Once the moving party has satisfied its burden, it is entitled to summary judgment if the non-moving party fails to designate “specific facts showing that there is a genuine issue for trial.” Celotex Corp., 477 U.S. at 324. The Court will “view the evidence in the light most favorable to the nonmoving party . . . and draw all reasonable inferences in that party's favor.” Krechman v. County of Riverside, 723 F.3d 1104, 1109 (9th Cir. 2013). Although the Court must reserve for the jury genuine issues regarding credibility, the weight of the evidence, and legitimate inferences, the “mere existence of a scintilla of evidence in support of the non-moving party's position will be insufficient” to avoid judgment. City of Pomona v. SQM N. Am. Corp., 750 F.3d 1036, 1049 (9th Cir. 2014); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). Factual disputes whose resolution would not affect the outcome of the suit are irrelevant to the consideration of a motion for summary judgment. S. Cal. Darts Ass'n v. Zaffina, 762 F.3d 921, 925 (9th Cir. 2014). In other words, summary judgment should be granted where the nonmoving party fails to offer evidence from which a reasonable jury could return a verdict in its favor. FreecycleSunnyvale v. Freecycle Network, 626 F.3d 509, 514 (9th Cir. 2010).

         Having reviewed the memoranda, declarations, and exhibits submitted by the parties and taking the evidence in the light most favorable to the non-moving party, the Court finds as follows:

         A. License Agreement and its Termination

         Plaintiff Seattle Pacific Industries, Inc. (“SPI”) is the owner of the UNIONBAY and UB trademarks for apparel and footwear. In 2014, SPI licensed its marks to defendant S3 Holding LLC (“S3”) in connection with the manufacture and sale of footwear pursuant to a Trademark License Agreement. Under the Agreement, S3 was obligated to make periodic guaranteed minimum royalty payments (“GMRP”) and to pay the greater of 2% of net sales or 2% of the guaranteed minimum net sales for advertising and public relations expenses. Defendant Olivia Miller, Inc., guaranteed prompt payment of every obligation and liability S3 incurred under the License Agreement. S3 was required to submit labels, designs, products, advertising materials, and anything bearing plaintiff's trademarks to SPI for approval. SPI had ten working days from submission to approve or disprove the item: if no decision was made within the time allowed, the submission was deemed approved.

         It is undisputed that neither S3 nor Olivia Miller, Inc., made the $30, 000 GMRP and $10, 000 advertising payments that were due on January 1, 2017. SPI provided written notice of default to S3 in May 2017. To the extent the notice was based on the failure to make the required installment payments, the License Agreement terminated as of May 26, 2017, when S3 failed to cure the default.[1] SPI filed this lawsuit seeking recovery of amounts due under the contract and damages arising from post-termination sales of trademarked goods in violation of the Lanham Act.

         B. Equitable Estoppel

         S3 asserts that it was unable to reach the minimum net sales numbers anticipated under the Agreement because, at the end of 2016, SPI reversed its approvals of many of S3's designs for shoes that were to be sold in 2017. According to S3's President, “[a]t the time of SPI's reversals of its approvals, S3 Holding had already manufactured a substantial volume of shoes based upon the designs which SPI had approved and had sold many of these shoes to retailers for distribution. S3 Holding took these actions in direct reliance upon SPI's approvals of their shoe designs.” Dkt. # 38 at ¶ 18. S3 asserts that SPI is equitably estopped from seeking relief under either the License Agreement or trademark law because it previously stated that the 2017 designs were approved.[2] The first element of an equitable estoppel claim is “an admission, statement, or act inconsistent with a claim afterwards asserted.” Robinson v. City of Seattle, 119 Wn.2d 34, 81 (1992). S3 does not explain how the 2016 approval of the designs for 2017 is in any way inconsistent with SPI's current claims of breach of contract based on nonpayment and trademark infringement based on unlicensed use.[3] “Equitable estoppel is not favored, and the party asserting estoppel must prove each of its elements by clear, cogent, and convincing evidence.” Id. S3 has not raised a genuine issue of fact regarding the estoppel defense or proven its elements by clear, cogent, and convincing evidence.

         C. Independent Duty Doctrine

         S3 also argues that SPI's trademark claims are barred by the economic loss doctrine.

Historically, Washington applied the economic loss rule to bar a plaintiff from recovering tort damages when the defendant's duty to the plaintiff was governed by contract and the plaintiff suffered only economic damages. Alejandre v. Bull, 159 Wn.2d 674, 683 (2007). The economic loss rule “attempted to describe the dividing line between the law of torts and the law of contracts.” Eastwood v. Horse Harbor Found., Inc., 170 Wn.2d 380, 385 (2010).
In Eastwood, a majority of [the Washington Supreme Court] concluded that the term “economic loss rule” was a misnomer and renamed the rule the “independent duty doctrine” to more accurately describe how th[e] court determines whether one contracting party can seek tort remedies against another party to the contract. The independent duty doctrine continues to “‘maintain the boundary between torts and contract'” in the place of the economic loss rule. Elcon Constr., Inc. v. E. Wash. Univ., 174 Wn.2d 157, 165 (2012) (quoting Eastwood, 170 Wn.2d at 416 (Chambers, J., concurring)). The court has limited the application of the independent duty doctrine to a “narrow class of cases ... claims arising out of construction on real property and real property sales.” Elcon, 174 Wn.2d at 165.
Under the independent duty doctrine, “[a]n injury is remediable in tort if it traces back to the breach of a tort duty arising independently of the terms of the contract.” Eastwood, 170 Wn.2d at 389.

Donatelli v. D.R. Strong Consulting Engineers, Inc., 179 Wn.2d 84, 91-92 (2013). In Eastwood and Elcon, the state Supreme Court “directed lower courts not to apply the doctrine to tort remedies ‘unless and until this court has, based upon considerations of common sense, justice, policy and precedent, decided ...

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