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Hydro-Blok USA LLC v. Wedi Corp.

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

June 18, 2019

HYDRO-BLOK USA LLC, et al., Plaintiffs,
v.
WEDI CORP., Defendant,
v.
HYDROBLOK INTERNATIONAL LTD., Counter-defendant. WEDI CORP., Plaintiff,
v.
BRIAN WRIGHT, et al., Defendants.

          ORDER

          THOMAS S. ZILLY, UNITED STATES DISTRICT JUDGE

         THIS MATTER comes before the Court on a motion for summary judgment, docket no. 176, brought by Brian Wright (“Wright”), Sound Product Sales L.L.C. (“Sound Product”), Hydro-Blok USA LLC (“Hydro-Blok”), and Hydroblok International, Ltd. (“H-International”). Having reviewed all papers filed in support of, and in opposition to, the motion, including supplemental briefing permitted by a Minute Order issued on February 6, 2019, docket no. 240, the Court enters the following Order.

         Background

         wedi Corp. (“wedi”) is an Illinois corporation that distributes construction materials and sealants for use in bathroom systems, including showers. See Am. Compl. at ¶ 1 (docket no. 17). From June 2008 until September 2014, Wright and/or Sound Product, in which Wright is the sole member, served as a sales agent for wedi within certain states, including Washington. See Order at 2-3 (No. C18-636 TSZ, docket no. 72). H-International is a Canadian company of which Ken Koch is the sole proprietor. Id. at 3. In 2014, H-International and Hydro-Blok, in which Wright is the sole member, Id. at 2-3, began distributing products that compete with the materials sold by wedi.

         In December 2014, wedi accused Hydro-Blok of infringing United States Patent No. 5, 961, 900 (the “'900 Patent”), which discloses a method of manufacturing composite board. See Ex. B to Compl. (No. C15-615 TSZ, docket no. 1-6). After an exchange of further correspondence on the subject, Hydro-Blok and H-International commenced action against wedi and its parent company, wedi GmbH, a German corporation, seeking a declaratory judgment of non-infringement as to the '900 Patent. See Compl. & Am. Compl. (No. C15-615 TSZ, docket nos. 1 & 7). After wedi GmbH filed a declaration indicating that it has no ownership interest in and is not a licensee under the '900 Patent, Hydro-Blok and H-International dismissed their claims against wedi GmbH. See Lohmann Decl. (No. C15-615 TSZ, docket no. 31-1); Notice of Voluntary Dismissal (No. C15-615 TSZ, docket no. 32). Similarly, after wedi represented in a declaration that it likewise does not own and is not a licensee under the '900 Patent, Hydro-Blok and H-International indicated that they did not oppose wedi's motion to dismiss the declaratory judgment action, see Plas.' Resp. (No. C15-615 TSZ, docket no. 50), and the Court dismissed Hydro-Blok's and H-International's complaint without prejudice. Order (No. C15-615 TSZ, docket no. 54).

         Meanwhile, in April 2015, wedi had initiated this suit against Wright, Sound Product, and Hydro-Blok, asserting breach of contract and a variety of other claims. See Compl. (docket no. 1). wedi made related allegations against H-International in counterclaims filed in the declaratory judgment action. See Answer & Counterclaims (No. C15-615 TSZ, docket no. 19). In December 2015, the Court consolidated the declaratory judgment action into this matter. See Order (docket no. 37). Wright, Sound Product, and Hydro-Blok eventually brought counterclaims against wedi for tortious interference with prospective economic advantage and abuse of process. Answer & Counterclaims (docket no. 50). wedi's motion for summary judgment, seeking to dismiss those counterclaims, was previously denied. Minute Order at ¶ 1 (docket no. 240).

         Pursuant to agreements between wedi, Wright, and Sound Product, the parties were directed to arbitrate wedi's breach of contract, breach of fiduciary duty, civil conspiracy, and unjust enrichment claims against Wright and/or Sound Product. See Order (docket no. 26). The parties also arbitrated wedi's allegation that Wright violated Washington's Uniform Trade Secrets Act (“WUTSA”), which had been pleaded as a counterclaim, but only against H-International. See Am. Counterclaims at Count VII (docket no. 64). The arbitrator found against wedi and in favor of Wright and Sound Product on all claims other than breach of contract; on the contract claim, the arbitrator awarded to wedi $1.00 in nominal damages. See Order at 2 (docket no. 128); Order at 2 (docket no. 111); Award (docket no. 101-3). The Court confirmed the arbitral award, as modified by the Court, entered partial judgment in favor of wedi and against Wright on the breach of contract claim in the amount of $1.00, and dismissed with prejudice wedi's claims against Wright and/or Sound Product for breach of fiduciary duty, civil conspiracy, unjust enrichment, and violation of WUTSA. Orders (docket nos. 111 & 128); Judgment (docket no. 129). No. party timely filed a notice of appeal.

         Wright, Sound Product, Hydro-Blok, and H-International subsequently sought partial summary judgment, and the Court further narrowed the claims remaining for trial. In May 2018, wedi's counterclaims against H-International for aiding and abetting Wright in breaching a fiduciary duty, civil conspiracy, and violation of WUTSA were dismissed with prejudice. See Order (docket no. 152). The claims and counterclaims asserted by wedi that are currently pending in this matter and that are the subject of the current motion for summary judgment, docket no. 176, are as follows:

Claim or Counterclaim

Against

Tortious Interference with Contract

H-International

Lanham Act

Wright, Hydro-Blok, and H-International

Consumer Protection Act

Wright, Hydro-Blok, and H-International

Tortious Interference with Prospective Advantage

Wright, Hydro-Blok, and H-International

Abuse of Process

Wright, Hydro-Blok, and Sound Product

         Wright, Sound Product, Hydro-Blok, and H-International now seek summary judgment with regard to the balance of wedi's claims and counterclaims. Their earlier motion for partial summary judgment also challenged wedi's tortious interference and abuse of process claims, but on different grounds than are raised in the motion now before the Court. See Order at 6-7 (docket no. 152). The Court denied those portions of the previous motion because Wright, Hydro-Blok, and H-International had not shown how the arbitrator's decision preempted wedi's tortious interference claims, and because Wright, Sound Product, and Hydro-Blok had not established that the fact wedi's abuse of process claim was asserted in a “counter-counterclaim, ” which is not among the types of pleadings enumerated in Federal Rule of Civil Procedure 7(a), formed an appropriate basis for summary judgment. Id. In the instant motion, the movants contend they are entitled to summary judgment on the ground that wedi cannot, with respect to each of its remaining claims, prove one or more elements on which it will bear the burden of proof at trial. The Court agrees as to the abuse of process and false advertising claims, but not with regard to the tortious inference claims.

         Discussion

         A. Summary Judgment Standard

         The Court may grant summary judgment if no genuine dispute of material fact exists and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A fact is material if it might affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). To survive a motion for summary judgment, the adverse party must present affirmative evidence, which “is to be believed” and from which all “justifiable inferences” are to be favorably drawn, Id. at 255, 257, showing that a rational trier of fact could find for such party on matters as to which such party will bear the burden of proof at trial, see Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S 574, 587 (1986); see also Celotex, 477 U.S. at 322.

         B. Abuse of Process

         In Washington, the elements of the tort known as “abuse of process” are as follows: (i) the existence of an ulterior purpose to accomplish an object not within the proper scope of the process, (ii) an act in the use of legal process not proper in the regular prosecution of the proceedings, and (iii) harm proximately caused by the abuse of process. Bellevue Farm Owners Ass'n v. Stevens, 198 Wn.App. 464, 477, 394 P.3d 1018 (2017). The crucial inquiry is whether the judicial system's process, after having been made available to secure the presence of the opposing party, has been misused to achieve another, inappropriate end. See Mark v. Williams, 45 Wn.App. 182, 192, 724 P.2d 428 (1986). The mere institution of a legal proceeding, even with a malicious motive, does not constitute an abuse of process. Vargas Ramirez v. United States, 93 F.Supp.3d 1207, 1232 (W.D. Wash. 2015). Even the filing of a baseless or vexatious lawsuit is not misusing the process, and no liability attaches if nothing is done with the litigation “other than carrying it to its regular conclusion.” Batten v. Abrams, 28 Wn.App. 737, 749, 626 P.2d 984 (1981).

         To prove its abuse of process claim, wedi must establish that each entity against which it asserts such claim engaged in an act, after using legal process, “to accomplish an end not within the purview of the suit.” Vargas Ramirez, 93 F.Supp.3d at 1232; see also Batten, 28 Wn.App. at 748 (the tort “goes to use of the process once it has been issued for an end for which it was not designed”). The acts about which wedi complains fall into two categories: (i) conduct related to the declaratory judgment action; and (ii) the assertion of an abuse of process counterclaim against wedi. With regard to the first basis, wedi attempts to lump “defendants” together, but the only entity against which wedi asserts its abuse of process claim that participated in the declaratory judgment action was Hydro-Blok. As to Hydro-Blok, wedi offers four reasons for alleging abuse of process: (i) Hydro-Blok brought the declaratory judgment action without knowing whether wedi or wedi GmbH owned the '900 Patent; (ii) Hydro-Blok failed to ask in discovery whether wedi or wedi GmbH owned the '900 Patent, instead requesting that they identify who has rights in the '900 Patent; (iii) Hydro-Blok declined to dismiss the suit in advance of motion practice in the absence of a covenant from wedi not to sue; and (iv) as a result, wedi had to engage in motion practice, including the filing of a reply brief. See Pla.'s Resp. at 20 (docket no. 187).

         Hydro-Blok undisputedly received a letter dated December 16, 2014, from wedi's counsel that read:

wedi has been given reason to believe that . . . Hydro-Blok USA has begun offering for sale in the United States a composite board product made by a process that infringes wedi's United States Patent no. 5, 961, 900 . . . in violation of 35 U.S.C. § 271(g).

         Ex. B to Compl. (No. C15-615 TSZ, docket no. 1-6) (emphasis added). About a month later, on January 14, 2015, wedi's attorney told Hydro-Blok's lawyer:

If your clients contend that they are not liable for infringing wedi's '900 patent, please respond by Friday of this week identifying (and explaining) the claim limitations of the '900 patent they contend are not satisfied. Please beware that wedi is prepared to take all steps necessary to protect its patent rights (e.g., file suit in federal court) if Hydro-Blok USA and Mr. Wright cannot show that the product at issue was made by a non-infringing process.

         Ex. D to Compl. (No. C15-615 TSZ, docket no. 1-8) (emphasis added). On April 3, 2015, wedi's counsel indicated:

This firm has been retained by wedi Corporation . . . to institute litigation, if necessary, against Bright Wright, Hydro-Blok USA LLC . . ., Hydroblok International, Ltd. . . ., and possibly others, relating to the importation of, use, and offer to sell a composite wall board product . . . that is believed to infringe on wedi's United States Patent No. 5, 961, 900 . . . in violation of 35 U.S.C. § 271(g).

         Ex. E to Compl. (No. C15-615 TSZ, docket no. 1-9) (emphasis added). Given wedi's attorneys' repeated representations that wedi owned the '900 Patent and intended to take legal action to protect “its patent rights, ” Hydro-Blok was not, as a matter of law, required to independently investigate whether wedi owned or was a licensee under the '900 Patent before initiating the declaratory judgment action. Moreover, in asking wedi and wedi GmbH to identify the owners or licensees of the '900 Patent, refusing to dismiss the declaratory judgment action in the absence of a covenant not to sue, and waiting until after wedi and wedi GmbH declared under oath that they did not own and were not licensees under the '900 Patent to forego the litigation, Hydro-Blok did not, as a matter of law, engage in acts “to accomplish an end not within the purview of the suit.” Rather, Hydro-Blok merely carried the litigation to “its regular conclusion, ” securing for itself some protection against wedi suing it in the future for infringement of the '900 Patent.

         With regard to its second basis for asserting abuse of process, namely that Wright, Sound Product, and Hydro-Blok have themselves alleged abuse of process, wedi has not described any act beyond the filing of a counterclaim that these parties have taken. Even if their abuse of process counterclaim is groundless, and even if they had a malicious motive for pursuing such counterclaim, wedi cannot, without proof of some form of extortive conduct on the part of Wright, Sound Product, and/or Hydro-Blok, respectively, establish an abuse of process claim. See Batten, 28 Wn.App. at 746 (indicating that the requisite “improper purpose” for an abuse of process claim “usually takes the form of coercion to obtain a collateral advantage, not properly involved in the proceeding itself”). wedi has not presented the type of affirmative evidence necessary to withstand summary judgment, and wedi's abuse of process counter-counterclaim is DISMISSED with prejudice.

         C. False Advertising (Lanham Act and CPA)

         The law of false advertising falls within the broader concept of unfair competition. See 44 Am. Jur. Proof of Facts 3d 1 at ยง I.A.1. (1997). wedi asserts its false advertising claim against Wright, Hydro-Blok, and H-International under both federal and state law, i.e., the Lanham Act and ...


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