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Ferris Manufacturing v. Thai Care Co. Ltd.

United States District Court, N.D. Texas, Fort Worth Division

July 16, 2019

FERRIS MANUFACTURING, and SESSIONS PHARMACEUTICALS, INC., Plaintiffs,
v.
THAI CARE, CO. LTD., et al., Defendants.

          ORDER

          REED O'CONNER UNITED STATES DISTRICT JUDGE

         The United States Magistrate Judge made Findings, Conclusions, and a Recommendation (the “FCR”) in this case. May 23, 2019 FCR, ECF No. 222. The FCR recommended that this Court deny Reliable's Partial Motion for Partial Summary Judgment and grant in part and deny in part the KCI Defendants' Motion for Summary Judgment. Reliable filed objections to the FCR (ECF No. 240) on June 6, 2019, and Plaintiffs filed objections to the FCR (ECF No. 242) on June 7, 2019.

         The Court conducts a de novo review of the portions of the FCR to which a party objects. Anything that Plaintiffs or Defendants did not specifically object to is reviewed for plain error. To be specific, an objection must identify the specific finding or recommendation to which objection is made, state the basis for the objection, and specify the place in the Magistrate Judge's report and recommendation where the disputed determination is found. An objection that merely incorporates by reference, or refers to, the briefing before the Magistrate Judge is not specific. Failure to file specific written objections will bar the aggrieved party from appealing the factual findings and legal conclusions of the Magistrate Judge that are accepted or adopted by the district court, except upon grounds of plain error. See Douglass v. United Services Automobile Ass'n, 79 F.3d 1415, 1417 (5th Cir.1996).

         For the following reasons, the Court modifies the FCR (ECF No. 222), and Reliable's Partial Motion for Summary Judgment (ECF No. 154) is hereby GRANTED in part and DENIED in part.

         I. BACKGROUND

         A. Procedural Background

         Plaintiffs Ferris Mfg. Corp and Sessions Pharmaceuticals Inc. (“Plaintiffs”) bring this suit against Defendants Thai Care Co. Ltd. (“Thai Care”), Reliable Healthcare Solutions Inc. a/ka RHS Healthcare Inc. (“Reliable”), Santo Giglia (“Giglia” together with Reliable, “RHS Defendants”), K. Carlton International Inc. d/b/a KCI Shipping Line (“KCI”), and Jose Martinez (“Martinez, together with KCI, “KCI Defendants”), (collectively, “Defendants”) claiming violations of §§ 32 and 43 of the Lanham Act, 15 U.S.C. §§ 1051 et seq., tortious interference with a contract, breach of contract, fraud, conversion, unfair competition and misappropriation, and common law conspiracy. See Am. Compl., ECF No. 46. This Court dismissed Plaintiffs' Lanham Act claims against Giglia individually. See Jan. 23, 2019 Order, ECF No. 101. Reliable moved for partial summary judgment (ECF No. 154) and the KCI Defendants moved for summary judgment (ECF No. 151). The Magistrate Judge recommended that this Court deny Reliable's Motion for Partial Summary Judgment and grant in part and deny in part the KCI Defendants' Motion for Summary Judgment. May 23, 2019 FCR, ECF No. 222. Subsequently, the KCI Defendants filed a notice of settlement and are expected to file the appropriate dismissal papers soon. See Not. Settlement, ECF No. 236. Accordingly, the Court need only analyze Reliable's partial motion for summary judgment.

         B. Factual Background

         Unless otherwise noted, the following facts are undisputed. When disputed, the facts are viewed in the light most favorable to Plaintiffs, the nonmoving party. In 1988, Sessions Pharmaceuticals Inc. (“Sessions”) formulated and patented a wound care dressing named PolyMem which is used for covering numerous types of wounds. Sessions subsequently obtained the federally registered trademark “POLYMEM” on September 1, 1992 under registration no. 1, 711, 093. Sessions also owns other PolyMem-formative marks, all of which are licensed to Ferris Mfg. Corp (“Ferris”).

         Ferris is based in Fort Worth, Texas and has created and manufactured wound care products since approximately 1977. In addition to the PolyMem family of products, Ferris manufactures and sells other wound care products. All PolyMem products, which come in a variety of lines and sizes, are manufactured in Fort Worth. To distribute PolyMem throughout the United States and abroad, Ferris engages various medical supply distributors. In 2010, Ferris entered into an exclusive international distribution agreement (the “IDA”), with a company in South East Asia called Thai Care. Pursuant to the IDA, Thai Care became Ferris' exclusive distributor of PolyMem in Thailand, Laos, Cambodia, and Myanmar (the “Territory”).

         In exchange for preferential pricing and the exclusive right to distribute PolyMem throughout the Territory, Thai Care was prohibited from, among others, (1) marketing any other wound care products that compete with Ferris' PolyMem; (2) selling, directly or indirectly, PolyMem outside of the Territory; and (3) changing or modifying the PolyMem product or packaging. Thai Care was, among other requirements, obligated to maintain a specific annual dollar sales volume; to use best efforts to promote and sell PolyMem, including providing sufficient sales personnel; and to pay for overhead in performance of the IDA. The IDA was amended at least once in 2015 to update Thai Care's performance objectives, and the exclusivity provision remained.

         Plaintiffs allege that Thai Care acted in concert with Reliable, a medical product retailer and distributor, and KCI Shipping, a shipping company, to sell PolyMem in the United States through Reliable's distribution channels in violation of the IDA. Sometime in June or July 2014, Ferris began labeling select PolyMem with labels that stated, “Distributed for use in Thailand by Thai Care Co., LTD Thailand” (referred to herein as the “labels”). Reliable does not dispute that it subsequently removed these labels and resold the packages in the United States. Eventually, Ferris learned that PolyMem sold to Thai Care for distribution in Southeast Asia was then being sold in the United States market, and it terminated the IDA.

         II. LEGAL STANDARD

         Summary judgment is proper when the pleadings and evidence on file show “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “[T]he substantive law will identify which facts are material.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine dispute as to any material fact exists “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. The movant makes a showing that there is no genuine dispute as to any material fact by informing the court of the basis of its motion and by identifying the portions of the record which reveal there are no genuine material fact issues. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Fed.R.Civ.P. 56(c).

         When reviewing the evidence on a motion for summary judgment, the court must decide all reasonable doubts and inferences in the light most favorable to the non-movant. See Walker v. Sears, Roebuck & Co., 853 F.2d 355, 358 (5th Cir. 1988). The court cannot make a credibility determination in light of conflicting evidence or competing inferences. Anderson, 477 U.S. at 255. As long as there appears to be some support for the disputed allegations such that “reasonable minds could differ as to the import of the evidence, ” the motion for summary judgment must be denied. Id. at 250.

         “[T]he plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex, 477 U.S. at 322. “In such a situation, there can be ‘no genuine issue as to any material fact,' since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial.” Id. at 322-23. Therefore, the moving party is ‘entitled to judgment as a matter of law' because the nonmoving party has failed to make a sufficient showing on an essential element of his case where he has the burden of proof. Id. at 323 (comparing the standard for granting summary judgment to the standard for a Rule 50(a) directed verdict). A mere scintilla of evidence to support a non-moving party's position is insufficient to defeat a summary judgment motion; there must be evidence on which the jury could reasonably find for the non-moving party. Anderson, 477 U.S. at 252.

         III. ANALYSIS OF OBJECTIONS

         The Court will conduct a de novo review of the objections to the FCR raised by Plaintiffs and Reliable. Reliable moves for partial summary judgment on Ferris' Lanham Act claims, arguing that Reliable's sale of Thai-bound PolyMem is protected by the first sale doctrine because there are no material differences between PolyMem products manufactured for distribution in Southeast Asia and those destined for sale in the United States. Reliable's Mot. Summ. J. 15-24, ECF No. 155. Alternatively, Reliable argues if the Court were to find that Ferris' labeling of PolyMem was the only triable issue related to its material difference argument, the Court should otherwise grant summary judgment on Ferris' claims regarding all PolyMem products sold without the labels. Plaintiffs assert that a fraudulently induced first sale, such as the one alleged in this case, does not qualify for the first sale doctrine. Pls.' Resp. 53-57, ECF No. 16. Additionally, Plaintiffs contend that PolyMem intended for sale in Southeast Asia was not covered by Ferris' warranty and could not be tracked sufficiently in case of a recall; the products differed in price; and their labeling was different. Id. at 45-51.

         In his analysis, the Magistrate Judge reasoned that “[i]n the absence of binding authority to the contrary . . . the circumstances of the sales from Ferris to Thai Care does not prevent the first sale doctrine from otherwise applying to the facts of this case.” FCR 10, ECF No. 222 citing Am. Int'l Pictures, Inc. v. Foreman, 576 F.2d 661, 664 (5th Cir. 1978). Additionally, the Magistrate Judge found that Plaintiffs' claims that Thai-bound PolyMem is not covered by a warranty or is covered by a warranty different from domestically distributed PolyMem are not supported by summary judgment evidence. Id. at 15. Similarly, the Magistrate Judge explained that Plaintiffs failed to present sufficient evidence to establish that the warranties and recall procedures were materially different for PolyMem sold domestically and that sold to Thai Care. Finally, the Magistrate Judge found no evidence of a material difference between the products related to price disparity. Id. at 17. However, the Magistrate ...


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