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Samsung Electronics America, Inc. v. Chung

United States District Court, N.D. Texas, Dallas Division

March 29, 2018

SAMSUNG ELECTRONICS AMERICA, INC., Plaintiff,
v.
YANG KUN “MICHAEL” CHUNG, THOMAS PORCARELLO, YOON-CHUL “ALEX” JANG, JIN-YOUNG SONG, Defendants, and ALL PRO DISTRIBUTING, INC., Defendant-Third-Party Plaintiff,
v.
CVE TECHNOLOGY GROUP, INC., Third-Party Defendant.

          MEMORANDUM OPINION AND ORDER

          SIDNEY A. FITZWATER, UNITED STATES DISTRICT JUDGE.

         In a prior opinion in this case-Samsung Electronics America, Inc. v. Chung, 2017 WL 635031, at *15 (N.D. Tex. Feb. 16, 2017) (Fitzwater, J.) (“Samsung I”)-the court granted in part and denied in part defendant-third-party plaintiff All Pro Distributing, Inc.'s (“All Pro's”) motion to dismiss under Fed.R.Civ.P. 9(b) and 12(b)(6), but it also granted plaintiff Samsung Electronics America, Inc. (“Samsung”)[1] leave to replead. Samsung filed a second amended complaint.[2] All Pro, with leave of court, filed a first amended counterclaim against Samsung and a third-party action against third-party defendant CVE Technology Group, Inc. (“CVE”), a repair facility that provided services in connection with certain Samsung products. Samsung now moves under Rule 12(b)(6) to dismiss several of All Pro's counterclaims for failure to state a claim on which relief can be granted. CVE moves under Rule 12(b)(6) and Rule 14 to dismiss All Pro's action against it. All Pro opposes both motions, and it moves in the alternative to amend its counterclaim and third-party complaint. For the reasons that follow, the court grants Samsung's motion, grants in part and denies in part CVE's motion, and grants All Pro leave to file a second amended counterclaim and first amended third-party complaint.

         I

         Because this case is the subject of the court's memorandum opinion and order in Samsung I, the court will recount only the facts and procedural history that are pertinent to this decision.

         This is an action by Samsung against All Pro and four Samsung employees-Yang Kun “Michael” Chung (“Chung”), Thomas Porcarello (“Porcarello”), Yoon-Chul “Alex” Jang, and Jin-Young Song (collectively, the “Employee Defendants”)-whose employment involved the management and sale of Samsung parts. Samsung alleges that the Employee Defendants exerted control over Samsung's Services Operations Department and were involved in an unlawful scheme centering on service parts.[3] As it relates to All Pro, Samsung asserts that Chung, Porcarello, and other Samsung employees directed build kits to All Pro through a third party.[4] The build kits included, among other things, PBAs (the “brains” of Samsung cell phones) and OCTAs (the touch screens used on the devices.). Although the OCTAs bore Samsung's registered trademark, Samsung intended the parts to be used for servicing, and it did not authorize either part to be resold. Samsung alleges that the third party constructed phones from the build kits and then routed them to All Pro for distribution.

         In Samsung's second amended complaint, [5] it asserts claims against All Pro for violating the Lanham Act and the Texas Trademark Act (“TTA”), violating the Racketeer Influenced and Corrupt Organizations Act (“RICO”), aiding and abetting breach of fiduciary duties, tortious interference with contract, civil conspiracy, and misappropriation of trade secrets.[6] In All Pro's first amended counterclaim, it asserts counterclaims for fraudulent misrepresentation, fraud by non-disclosure, and negligent misrepresentation, in addition to its original counterclaims for frivolous lawsuit and business disparagement. All Pro's counterclaims all rely on the premise that it purchased allegedly counterfeit mobile devices based on Samsung's representations that such devices were authentic.

         After obtaining leave of court, All Pro filed a third-party action against CVE. In its third-party complaint, All Pro asserts claims against CVE for contribution, under Tex. Civ. Prac. & Rem. Code Ann. § 33.015 (West 2018) (“Chapter 33”), and statutory indemnity, under Tex. Civ. Prac. & Rem. Code Ann. § 82 (West 2018) (“Chapter 82”). All Pro alleges that it acquired the purportedly counterfeit phones from CVE, and that CVE is the “third-party” to which Samsung refers in its second amended complaint. All Pro alleges that CVE illegally assembled the phones, represented that they were authentic, and sold them to All Pro.[7]

         Samsung now moves under Rules12(b)(6) and 9(b) to dismiss All Pro's counterclaims for fraudulent misrepresentation, fraud by non-disclosure, and negligent misrepresentation. CVE moves under Rules 12(b)(6) and 14 to dismiss All Pro's claims against it. All Pro opposes both motions, and, in the alternative, requests leave to file a second amended counterclaim and first amended third-party complaint.

         II

         Under Rule 12(b)(6), the court evaluates the pleadings by “accept[ing] ‘all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.'” In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (quoting Martin K. Eby Constr. Co. v. Dall. Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004)). To survive Samsung's motion to dismiss, All Pro must allege enough facts “to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant[s] [are] liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “The plausibility standard is not akin to a ‘probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.; see also Twombly, 550 U.S. at 555 (“Factual allegations must be enough to raise a right to relief above the speculative level [.]”). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘show[n]'-‘that the pleader is entitled to relief.'” Iqbal, 556 U.S. at 679 (quoting Rule 8(a)(2)). Furthermore, under Rule 8(a)(2), a pleading must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Although “the pleading standard Rule 8 announces does not require ‘detailed factual allegations, '” it demands more than “‘labels and conclusions.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555). And “‘a formulaic recitation of the elements of a cause of action will not do.'” Id. (quoting Twombly, 550 U.S. at 555).

         III

         Samsung moves to dismiss All Pro's counterclaims for fraudulent misrepresentation, fraud by non-disclosure, and negligent misrepresentation, contending that All Pro has not pleaded facts sufficient to meet the heightened pleading standard of Rule 9(b).

         A

         “[S]tate-law fraud claims are subject to the pleading requirements of Rule 9(b).” Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 338-39 (5th Cir. 2008) (citations omitted). “Rule 9(b) imposes a heightened pleading standard for fraud claims and requires that a party state with particularity facts supporting each element of fraud.” Turner v. AmericaHomeKey Inc., 2011 WL 3606688, at *2 (N.D. Tex. Aug. 16, 2011) (Fitzwater, C.J.) (citing Benchmark Elecs., Inc. v. J.M. Huber Corp., 343 F.3d 719, 724 (5th Cir. 2003)), aff'd, 514 Fed.Appx. 513 (5th Cir. 2013). “At a minimum, Rule 9(b) requires allegations of the particulars of time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby.” Id. (quoting Benchmark Elecs., 343 F.3d at 724) (internal quotation marks omitted). More colloquially, All Pro must plead the “who, what, when, where, and how” of the fraud. Williams v. Bell Helicopter Textron, Inc., 417 F.3d 450, 453 (5th Cir. 2005) (quoting United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir. 1997)).

         Because Rule 9(b) must be “read in conjunction with [Rule] 8 which requires only a short and plain statement of the claim showing that the pleader is entitled to relief, ” “punctilious pleading detail” is not required. Steiner v. Southmark Corp., 734 F.Supp. 269, 273 (N.D. Tex. 1990) (Fitzwater, J.) (quoting Landry v. Air Lines Pilots Ass'n Int'l AFL-CIO, 892 F.2d 1238, 1264 (5th Cir. 1990)) (internal quotation marks omitted). “The court's key concern in assessing a complaint under Rule 9(b) is to determine whether the plaintiff seeks to redress specific wrongs or whether the plaintiff instead seeks the opportunity to search out actionable wrongs.” Garcia v. Boyar & Miller, P.C., 2007 WL 2428572, at *4 (N.D. Tex. Aug. 28, 2007) (Fitzwater, J.) (quoting FDIC v. Gaubert, No. 3-90-1196-D, slip op. at 7 (N.D. Tex. Sept. 4, 1990) (Fitzwater, J.)).

         B

         The court first examines All Pro's fraudulent misrepresentation counterclaim. All Pro's first amended counterclaim alleges:

Samsung represented to All Pro that the mobile devices sold to All Pro were assembled by CVE and/or TDI using original parts provided by Samsung. Thus, All Pro justifiably believed it acquired authentic Samsung products, and sold the same authentic products on the open market. All Pro did not have any reason to know or to suspect that the mobile devices assembled by CVE, that it purchased from Samsung and CVE, were allegedly counterfeit, nor did Samsung ever inform All Pro that those Samsung mobile devices or products were counterfeit.

1st Am. Countercl. ¶ 26. All Pro also avers:

[a]t all relevant times, Samsung represented to All Pro that mobile devices offered for sale by Samsung and an unnamed third party were authentic Samsung mobile devices. Samsung knowingly made these material representations, as a positive assertion, in connection with offering to sell (and selling) the mobile devices to All Pro.

Id. ¶ 28.

         These paragraphs in the first amended counterclaim allege the content of the false representations, but they do not connect the content to the date and location of the representations, the identity of the person making the representations, and what the person obtained thereby. All Pro merely alleges that these representations were made “[a]t all relevant times, ” and it does not point to a single specific misrepresentation made at a particular time by a particular person.

         All Pro cites portions of the first amended counterclaim that identify various employees or divisions of Samsung. For example, All Pro alleges:

[i]n or about February 2009, All Pro met with Lynn Bond, Vice President/GM of Samsung's Service and Operations Divisions, at the Reverse Logistics Association tradeshow. Mr. Bond informed All Pro that Samsung was looking for a company to purchase its excess and obsolete inventory instead of paying third party companies to scrap and dispose of the inventory.

Id. ¶ 6. And All Pro avers that, “[i]n or about March 2009, Samsung's Accessory Division contacted All Pro regarding All Pro purchasing products that Samsung considered excess and/or obsolete. All Pro responded affirmatively that it was willing to purchase Samsung's unwanted inventory.” Id. ¶ 7. But these paragraphs do not specify what representations were made about Samsung products and inventory at those times. All Pro also fails to allege what the person making the misrepresentation obtained thereby. The court therefore holds that All Pro's counterclaim for fraudulent misrepresentation does not comply with the requirements of Rule 9(b).

         C

         All Pro's counterclaim for fraud by non-disclosure is similarly defective. For example, All Pro alleges the general content of misrepresentations by omission: “all of All Pro's business transactions with Samsung were with the reasonable understanding that the Samsung products offered for sale to and sold to All Pro, and the Samsung products purchased by All Pro from Samsung and CVE were authentic and not counterfeit.” Id. ¶ 38.

         But All Pro fails once again to specify the date and location of the non-disclosure, the identity of the person who failed to make the disclosure, and what the person obtained thereby. Instead, All Pro generally asserts:

[b]ased on Samsung's false representations, All Pro believed that all Samsung mobile devices offered for sale by Samsung and CVE were authentic. The authenticity of the Samsung mobile devices sold by Samsung and CVE to All Pro was and is a material fact. (Samsung's representations regarding the authenticity of the mobile devices sold to All Pro are referred to as the “Phone Representations”.)

Id. ¶ 29. All Pro's designation of relevant interactions as “Phone Representations” does not allege any particular instance of a misrepresentation by omission with the degree of ...


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