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Ogden v. Cozumel, Inc.

United States District Court, W.D. Texas, Austin Division

August 30, 2019

SUSAN OGDEN and ROBERT L. AND MARY D. OGDEN LIMITED PARTNERSHIP, Plaintiffs,
v.
COZUMEL, INC. D/B/A EL ARROYO, Defendant.

          REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

          SUSAN HIGHTOWER UNITED STATES MAGISTRATE JUDGE.

         TO: THE HONORABLE LEE YEAKEL UNITED STATES DISTRICT JUDGE

         Before the Court are three motions filed by Defendant Cozumel, Inc.: Motion to Dismiss against Plaintiffs Susan Ogden and Robert L. and Mary D. Ogden Limited Partnership, filed April 29, 2019 (Dkt. No. 42) (“Motion to Dismiss”);[1] Motion for Partial Summary Judgment on Plaintiffs' claims of breach of contract under Texas law and fraudulent registration of the EL ARROYO service mark under Section 38 of the Lanham Act, 15 U.S.C. § 1120, also filed April 29, 2019 (Dkt. No. 43); and Motion for Partial Summary Judgment alleging that Plaintiffs abandoned the EL ARROYO mark, filed May 31, 2019 (Dkt. No. 48).

         On July 18, 2019, the District Court referred the above Motions to the undersigned for Report and Recommendation pursuant to 28 U.S.C. § 636(b)(1)(B), Federal Rule of Civil Procedure 72, and Rule 1(d) of Appendix C of the Local Rules of the U.S. District Court for the Western District of Texas. A hearing on the pending motions was held before the undersigned on August 29, 2019.

         I. BACKGROUND

         This suit concerns ownership of the mark EL ARROYO (“the Mark”), which has been used in association with a restaurant on West Fifth Street in Austin for more than 40 years. Robert and Mary Ogden, the parents of Plaintiff Susan Ogden, opened the restaurant in 1975. In 1987, Mr. Ogden entered into a lease agreement with Defendant, which has operated the restaurant ever since.

         In 1989, a Texas registration for the stylized mark EL ARROYO for restaurant services issued to Mr. Ogden.[2] In 1997, a federal registration of the EL ARROYO mark in standard characters for restaurant services issued to Defendant.[3] Both registrations have been renewed.

         After Mr. Ogden died in 2008, the restaurant property passed by will to Mary Ogden and the Texas state trademark registration was transferred to her. In 2010, Mrs. Ogden created the Robert L. and Mary D. Ogden Limited Partnership and contributed the property on West Fifth Street to it. On April 1, 2016, the parties entered into a release and lease agreement. Mrs. Ogden died in 2017.

         Plaintiffs filed this lawsuit on October 2, 2018, seeking a declaratory judgment “that they are the rightful and sole owner of the EL ARROYO mark in Texas and under Federal common law 15 U.S.C. § 1125” and transfer or cancellation of Defendant's federal registration. Dkt. No. 17, Second Amended Complaint (the “Complaint”) at ¶ 68. Plaintiffs also assert claims for breach of contract under Texas law and false or fraudulent registration of the Mark under Section 38 of the Lanham Act.

         Defendant contends in its counterclaims that Plaintiffs are attempting to gain additional rent and other lease concessions by falsely claiming ownership in the Mark. Defendant asserts counterclaims of breach of contract; fraud; fraud in a real estate transaction; and fraud in the procurement, renewal, and assignment of the Texas registration. Among other relief, Defendant seeks cancellation of the Texas trademark registration and a judgment “[d]eclaring that Cozumel has superior rights to the Mark than Plaintiffs' rights in the Mark.” Dkt. No. 19, Answer to Second Amended Complaint (“Answer”) at 28.

         II. Motion to Dismiss under Rule 12(b)(1)

         Defendant brings its Motion to Dismiss under Fed.R.Civ.P. 12(b)(1). The motion applies only to Plaintiffs' first two claims: (1) declaratory judgment of ownership of the EL ARROYO mark “in Texas and under Federal common law 15 U.S.C. § 1125, ” and (2) false or fraudulent registration of the EL ARROYO mark by Defendant under Section 38 of the Lanham Act. Defendant argues that “Plaintiffs fail to clearly allege, much less establish through evidence, either actually owns any rights to the Mark today to bring these claims against Cozumel.” Dkt. No. 42, Motion to Dismiss at 2.

         A. Legal Standard

         A motion to dismiss under Rule 12(b)(1) brings into question the federal court's subject matter jurisdiction. A case is properly dismissed for lack of subject matter jurisdiction when the court lacks the statutory or constitutional power to adjudicate the case. Smith v. Regional Transit Auth., 756 F.3d 340, 347 (5th Cir. 2014). When the court's subject matter jurisdiction is challenged, the party asserting jurisdiction bears the burden of establishing it. See Alabama-Coushatta Tribe of Tex. v. United States, 757 F.3d 484, 487 (5th Cir. 2014); Gilbert v. Donahoe, 751 F.3d 303, 307 (5th Cir. 2014). “In considering a challenge to subject matter jurisdiction, the district court is ‘free to weigh the evidence and resolve factual disputes in order to satisfy itself that it has the power to hear the case.'” Smith, 756 F.3d at 347 (quoting Krim v. pcOrder.com, Inc., 402 F.3d 489, 494 (5th Cir. 2005)).

         A motion to dismiss for lack of subject matter jurisdiction should be granted if it appears certain that the plaintiff cannot prove a plausible set of facts that establish subject matter jurisdiction. Venable v. La. Workers' Comp. Corp., 740 F.3d 937, 941 (5th Cir. 2013). “However, where issues of fact are central both to subject matter jurisdiction and the claim on the merits, we have held that the trial court must assume jurisdiction and proceed to the merits.” Montez v. Dep 't of the Navy, 392 F.3d 147, 150 (5th Cir. 2004). There are three avenues for a movant to demonstrate a lack of jurisdiction: (1) on the face of the complaint alone; (2) the complaint supplemented by undisputed facts in the record; and (3) the complaint supplemented by undisputed facts and the court's resolution of disputed facts. Deutsch v. Annis Enters., Inc., 882 F.3d 169, 173 n.1 (5th Cir. 2018); Montez, 392 F.3d at 149.

         B. Analysis

         Defendant contends that because Plaintiffs failed to establish that either Plaintiff actually owns rights to the EL ARROYO Mark, they cannot establish standing to bring their claims to adjudicate rights to the Mark directly against Defendant. Therefore, Defendant argues, the Court lacks subject matter jurisdiction to hear Plaintiffs' trademark claims. Plaintiffs respond that they have not actually brought a claim under Lanham Act Section 43, 15 U.S.C. § 1125, but instead seek declaratory judgment of ownership under the federal common law only. As for their second count, Plaintiffs argue that claims under Lanham Act Section 38 are not limited to mark owners and can be brought by any person who would be damaged by a registration.

         1. Plaintiffs' Standing to Bring a Claim under Lanham Act Section 38

         The Court addresses Plaintiffs' second claim first. Lanham Act Section 38 provides:

Any person who shall procure registration in the Patent and Trademark Office of a mark by a false or fraudulent declaration or representation, oral or in writing, or by any false means, shall be liable in a civil action by any person injured thereby for any damages sustained in consequence thereof.

         By its plain terms, Section 38 provides a cause of action to “any person injured” by false or fraudulent registration of a mark. Plaintiffs thus are correct that this cause of action is not limited to the owner of a mark.

         Plaintiffs have asserted rights in the EL ARROYO mark through operation of a restaurant under that name as purported licensors. Whether or not Plaintiffs will succeed on the merits of this claim at trial, the complaint alleges that Plaintiffs may be injured by Defendant's allegedly false or fraudulent registration of the Mark and therefore supports a finding of subject matter jurisdiction under Rule 12(b)(1).

         As alleged, the parties' dispute is a substantial controversy of sufficient immediacy and reality for purposes of the present suit. The undersigned therefore recommends that the District Court DENY the Motion to Dismiss as to Plaintiffs' Claim II.

         2. Plaintiffs' Standing to Bring a Claim under Lanham Act Section 43

         We turn now to Plaintiffs' first claim. Count I of the Complaint, titled “Declaratory Judgment of ‘El Arroyo' Trademark Ownership, ” alleges in part:

68. Plaintiffs are entitled to a declaration that they are the rightful and sole owner of the EL ARROYO mark in Texas and under Federal common law 15 U.S.C § 1125.
69. Plaintiffs are entitled to a declaration that Cozumel may not use the “El Arroyo” mark if its lease to Plaintiffs at 1624 W. 5th Street, Austin, ...

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