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Rosehoff Ltd. v. Cataclean Americas LLC

United States District Court, Second Circuit

May 13, 2013

ROSEHOFF LTD. and SYSTEM PRODUCTS UK LTD., Plaintiffs,
v.
CATACLEAN AMERICAS LLC, GORDON GANNON, and GREGORY GANNON, Defendants.

REPORT AND RECOMMENDATION

HUGH B. SCOTT, Magistrate Judge.

I. INTRODUCTION

The Hon. Richard J. Arcara referred this case to this Court under 28 U.S.C. ยง 636(b). ( See Dkt. No. 13.) Pending before the Court are motions to dismiss[1] plaintiffs' amended complaint under several subsections of Rule 12(b) of the Federal Rules of Civil Procedure ("FRCP"). (Dkt. Nos. 25, 27.) Primarily, defendants seek dismissal because a Licensing Agreement that System Products UK Ltd. ("System Products") and Cataclean Americas LLC ("Cataclean LLC") entered in 2008 contains arbitration, venue, and choice of law provisions that require any dispute resolution to occur in the United Kingdom under British law. Defendants also make other arguments for dismissal based on a requirement for arbitration under the Federal Arbitration Act ("FAA"); a failure to state a claim arising from the irrevocable nature of the license in question; and a lack of standing from plaintiffs, who did not sign the Licensing Agreement.

Plaintiffs oppose the motions and urge the Court to let this case continue. Plaintiffs argue that their trademark infringement, patent infringement, and related claims exist independently of the Licensing Agreement and thus can proceed in a United States District Court. According to plaintiffs, defendants have undermined their arguments about venue by filing separate litigation over corporate ownership and fiduciary duties in New York State Supreme Court. Among other responses to defendants' arguments, plaintiffs assert that they have standing because they own the patent and trademark in question and because the alleged infringement of that patent and trademark is ongoing and independent of the Licensing Agreement.

Following a request from the Court (Dkt. No. 31), the parties filed supplemental briefing on May 10, 2013. (Dkt. Nos. 34, 35, 36.) The Court now deems oral argument unnecessary under FRCP 78(b). For the reasons below, the Court respectfully recommends granting the motions and dismissing the amended complaint for a lack of subject matter jurisdiction stemming from an enforceable forum selection clause.

II. BACKGROUND

A. The Cataclean Patent and Trademark

This case concerns allegations that defendants are promoting and selling plaintiffs' fuel additive without permission, infringing on plaintiffs' patent and trademark in the process.[2] The fuel additive in question is an organic solution that attempts to remove carbon deposits from catalytic converters in cars, thereby improving the efficiency and prolonging the life of the converters. Hugh Collins ("Collins") invented the fuel additive and called it "Cataclean." Collins applied for a patent for Cataclean with the United States Patent and Trademark Office ("USPTO") on June 7, 2000. The USPTO issued Patent No. 6, 843, 813 (the "Patent") on January 18, 2005. In the Patent, Collins claims, inter alia, "[a] rejuvenating or cleaning composition for a catalyst of a vehicle catalytic converter comprising 10-40 wt % isopropyl alcohol, 10-40 wt % acetone, 35-65 wt % xylene and 5-15 wt % paraffin, and one or more of the elements Sr, Bi, Cd, Ba, Ni, Mn, Fe, Na, Zn, AI, Ca, Cu, Pb, Co, K, Cr, Mg, As, Sn, Sb, Y, Ti, Be, Si, P, W, and Mo." (Dkt. No. 21-1 at 6.) Collins invented Cataclean because "[a] major problem with catalytic converters is that the catalyst is easily poisoned and/or rendered less effective, for example by a build up of carbonaceous deposits, or by the accumulation of certain elements such as lead or phosphorus on the surface of the catalyst." ( Id. at 3.) By inventing Cataclean, Collins hoped "to address at least some of the problems of catalyst deactivation by providing an improved composition for cleaning and/or rejuvenating a catalyst of the type found in a catalytic converter without having to remove the catalyst from the vehicle." ( Id. ) On July 20, 2010, the USPTO issued Trademark No. 3, 819, 984 (the "Trademark") for the word "Cataclean" in connection with fuel additives for fuel injectors and catalytic converters. (Dkt. No. 21-2 at 2.) The Trademark corresponds to Trademark No. 2281660 issued in the United Kingdom on March 1, 2002.

Over the last 10-15 years, Collins made several corporate decisions to help set up promotion of his Cataclean product. In 1999, Collins and an investor named Ross Baigent ("Baigent") created System Products and became its sole owners. In 2002, Collins and Baigent created Rosehoff Ltd. ("Rosehoff") as a holding company and are the sole owners of Rosehoff. Collins and Baigent assigned all of their equity in Systems Products to Rosehoff when they created Rosehoff. Collins assigned the Patent to Rosehoff on March 28, 2011 and recorded that assignment with the USPTO on July 27, 2011. Collins assigned the Trademark to Rosehoff on May 17, 2011 and recorded that assignment with the USPTO on June 8, 2011.

B. The Licensing Agreement

To help promote Cataclean in the Western Hemisphere, Collins and Baigent collaborated with Gordon Gannon ("Gordon"), Gregory Gannon ("Gregory"), and Rory O'Connor ("O'Connor") to create Cataclean LLC, a New York limited liability company, on March 24, 2008. On July 17, 2008, System Products and Cataclean LLC entered the Licensing Agreement. The Licensing Agreement contains several provisions relevant to this case generally. Under Section 2.2, System Products set forth its intent to grant Cataclean LLC a license to use the Patent and Trademark in the Western Hemisphere "only in order to distribute and market [products covered by the Patent and Trademark] supplied by the Licensor on the terms set out in this Agreement." (Dkt. No. 21-3 at 3.) Under Section 3.1, System Products specifically granted Cataclean LLC "an exclusive irrevocable licence to use the [Patent and Trademark] in the [Western Hemisphere] to distribute market and sell and to solicit orders...." ( Id. ) System Products and Cataclean LLC agreed that neither party "may enter into any binding agreement on behalf of the other without express written consent of the other party." ( Id. ) Under Section 9.2, Cataclean LLC agreed that it "may not assign the benefit of this Agreement nor grant any sublicence or otherwise deal with its rights under this Agreement." ( Id. at 10.) Under Section 9.23, Cataclean LLC agreed "not to derive any rights pertaining to" the Trademark and agreed not to use the Trademark "should this License agreement be withdrawn unless with [System Product's] express written permission." ( Id. at 12.) Section 13 of the Licensing Agreement contained a severance provision, while Section 14 specified that Cataclean LLC could not act as an agent for System Products. Under Section 18, either party could terminate the Licensing Agreement without notice of termination if either of two events occurred: "if the other party materially breaches any term or provision of this agreement"; or if "compelling grounds are present." ( Id. at 17.) Section 18.1 defined "compelling grounds" in several ways, including "[d]eliberate or grossly negligent contravention of one or more of the stipulations of the agreement by one of the parties." ( Id. )

In addition to the provisions generally relevant to plaintiffs' claims, the Licensing Agreement contained two provisions relevant to the pending motions. Section 17 contained an arbitration provision and reads in full as follows:

Any dispute, controversy, claim or difference arising out of, or in connection with, or resulting from this Agreement, its application or interpretation, or the breach thereof, which cannot be settled amicably by the parties, shall be shall be [sic] referred to a single arbitrator to be agreed upon by the parties or (failing agreement) to be appointed by the then President of the Chartered Institute of Arbitrators of England & Wales, such arbitrator to have all powers conferred on arbitrators by the Arbitration Act 1996 or any statutory modification or re-enactment of it for the time being. The decision ...

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