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Yoe v. Crescent Sock Co.

United States District Court, E.D. Tennessee, Chattanooga

May 11, 2018

ROBERT H. YOE, III, et al., Plaintiffs,
v.
CRESCENT SOCK COMPANY, et al., Defendants.

          MEMORANDUM AND ORDER ON RECONSIDERATION AND SCHEDULING ORDER

          SUSAN K. LEE, UNITED STATES MAGISTRATE JUDGE

         Before the Court is a motion for revision with an accompanying memorandum filed by Plaintiff Yoe Enterprises Incorporated (“YEI”)[1] pursuant to Federal Rule of Civil Procedure 54(b) [Docs. 458 & 459]. In the motion, YEI seeks a revision of the Court's November 14, 2017, memorandum and order granting in part Defendants' motion for summary judgment and denying Plaintiffs' motion for summary judgment [Doc. 453]. Crescent filed a response in opposition to the motion for revision [Doc. 463], and YEI filed a reply [Doc. 464]. This matter is now ripe.

         For the reasons stated below, YEI's motion will be GRANTED IN PART and DENIED IN PART. The Court's previous summary judgment order will be VACATED IN PART to the extent it dismissed Plaintiffs' claims arising after April 22, 2015, and to the extent it dismissed Plaintiffs' trade secret claims and Defendants' trade secret counterclaims. The post-April 22, 2015 claims and the trade secret claims will be REINSTATED. Further, the Court will set a new schedule, including a status conference.

         I. BACKGROUND

         As detailed in many prior filings, this case arises out of a soured business relationship between Defendants and Plaintiffs. Crescent is a sock manufacturing company. Plaintiff Yoe was hired in 2000 to serve as Chief Executive Officer and Chief Financial Officer of Crescent. Defendants Allen and Boyd are part owners of Crescent, and have worked there throughout their adult lives.[2] They are members of the Burn family, which has owned and controlled Crescent since it began operations in the early 1900s. Yoe owns YEI, which holds intellectual property rights to sock brands developed by Yoe and manufactured by Crescent during Yoe's employment at Crescent, including the FITS and Game Knits brands at issue in this case.

         In September 2012, Crescent and YEI entered into an agreement (the “Business Agreement”) which memorialized prior agreements and the parties' business relationship in relevant part as follows:

1. Ownership of Intellectual Property. Any and all new brands, and other intellectual property relating to such new brands, that are developed, registered, trademarked, invented, started, conceived or designed by Crescent, Yoe and/or YEI from January 1, 2009 through the termination of Yoe's employment with Crescent (‘the Intellectual Property') shall be 100% owned by YEI. . . .
2. Royalties as to “Fits” and “Jack's” Brands. Crescent shall pay royalty payments to YEI relative to the “Fits” brand . . . [at a rate of $1.00 in 2013 and 2014, and beginning in 2015 and each year thereafter at a rate of] “5% of Net Sales”; and
3. Licensing. On or before 1 year after the execution of [the Business Agreement], YEI and Crescent will enter into an agreement for licensing/manufacturing/sourcing relative to the Intellectual Property which includes terms and conditions similar to the LIG contract [and which incorporates the royalty payment schedule].

         [Business Agreement, Doc. 24-3, at Page ID # 110-11]. The Business Agreement is also at least part of the parties' licensing agreement, although the parties dispute whether there are additional terms to the licensing agreement not expressly written in the Business Agreement.

         Yoe and five other Crescent employees who worked with the FITS brand were fired by Crescent on September 4, 2013. The day before, Crescent had filed a lawsuit in the McMinn County, Tennessee, Chancery Court (the “Chancery Court Case”), seeking a declaration that certain employment contracts between Yoe and Crescent (which provided for, among other things, a $2 million severance payment to Yoe upon termination without cause) and the Business Agreement were void and unenforceable. Yoe and YEI filed counterclaims and amended counterclaims in the Chancery Court Case, alleging, inter alia, that Crescent breached the Business Agreement with YEI, and that:

22. Upon information and belief, since terminating Mr. Yoe, Crescent has eliminated certain SKUs of FITS® product[s], changed the names of certain FITS® products, changed the packaging of products, ceased research and development of the FITS® products, is failing to use pre-existing marketing practices including but not limited to preseason terms and conditions, sales collateral, and other sales support, is failing to maintain the proper levels of FITS® product[s] in the retail stores and proper inventory levels at Crescent, and is representing that Crescent is the owner of the FITS® brand. Each of these actions is causing irreparable damages to the FITS® bran[d] to Yoe Enterprises as owner of the FITS® brand and to Mr. Yoe as the CEO of Yoe Enterprises.

         [See Doc. 453 at Page ID # 15551-52; Doc. 24-4 at Page ID # 221]. Plaintiffs also obtained an injunction that provided, in relevant part:

It appearing to the Court that the parties to this cause have agreed on the terms of the Temporary Injunction, that because of the uniqueness of the brand of sock known as FITS®, and because the value of this brand of sock may be compromised and/or lost if this injunction is not granted, it is hereby:
ORDERED, ADJUDGED AND DECREED that:
1. Crescent Sock Company, its agents, employees, successors, officers and directors, and all other persons in concert or participation with such entities, are enjoined from marketing the FITS® brand products . . . unless each and every product has been manufactured using the proper materials, proper packaging, proper technology for manufacturing FITS®, proper manufacturing processes, and using all of the same specifications required to manufacture FITS® that were in place as of August 15, 2013 and using all of the same specifications as required by the patents held by Yoe Enterprises.
2. Crescent Sock Company, its agents, employees, successors, attorneys, officers and directors and all other entities in active concert or participation with such entities, are hereby enjoined and required to fulfill any and all orders for FITS® and Jacks® products in a timely and appropriate manner, all as required by orders for such products, to the extent that said orders do not exceed the operating capacity of the Company as it existed on September 4, 2013, using the correct and proper materials, packaging, technology, manufacturing specifications and specifications as set forth above. Further, the Company shall use its best faith efforts to maintain adequate levels of inventory and yarn on order and on hand to fulfill such orders. . . .

         [Doc. 24-7 at Page ID # 272-73].

         The Court detailed the history of the Chancery Court Case in its summary judgment order [Doc. 453 at Page ID 15547-56] and will not repeat it herein. In that summary judgment order, the Court denied Defendants' motion for summary judgment on a number of issues, but granted summary judgment to Defendants on all Plaintiffs' claims that related specifically and exclusively to Defendants' production of the FITS brand socks (the “FITS Claims”[3]) [Doc. 453 at Page ID # 15571]. The Court concluded that in light of the nature of the amended counterclaims and the injunction in the Chancery Court Case, the FITS Claims were barred in this case by application of res judicata. As Plaintiffs' motion for partial summary judgment related only to their FITS trademark claims, the Court also denied Plaintiffs' motion on the grounds that such claims were barred by res judicata. The Court additionally granted summary judgment to Defendants Boyd and Allen on Plaintiffs' Count XIII (Boyd and Allen's inducement of breach of the Business Agreement) on res judicata grounds. This Count is also part of the FITS Claims, but the Court addressed it separately in the summary judgment order. The Court will refer to it as being part of the FITS Claims in this Order, except where necessary to address it separately.

         Finally, there are FITS-only trade secret claims. The Court held that Count VII (injunctive relief - trade secrets), which concerned only FITS, was barred by res judicata. The Court found that the declaratory relief Plaintiffs seek in Counts VI (declaratory judgment - trade secrets) and XVI (trade secret misappropriation and unfair competition - Omni Wool Tactical and Hiwassee Trading Company Socks), was moot to the extent it concerned trade secrets that relate only to FITS socks [Doc. 453 at Page ID # 15571]. To the extent Plaintiffs seek monetary damages, costs or fees concerning Defendants' alleged use or misuse of the FITS-only trade secrets in Counts VI and XVI, the Court found that res judicata applied. The Court will address the FITS-only trade secret claims separately in this order.

         II. STANDARDS

         A. Federal Rule of Civil Procedure 54(b)

         In the instant motion, Plaintiffs ask the Court to reconsider and revise its decision regarding res judicata pursuant to Federal Rule of Civil Procedure 54(b), which provides:

[A]ny order or other decision, however designated, that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties does not end the action as to any of the claims or parties and may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties' rights and liabilities.

         “District courts have authority under both common law and Rule 54(b) to reconsider interlocutory orders and to reopen any part of a case before entry of final judgment.” Rodriguez v. Tenn. Laborers Health & Welfare Fund, 89 Fed. App'x 949, 959 (6th Cir. 2004) (citation omitted). “Traditionally, courts will find justification for reconsidering interlocutory orders when there is (1) an intervening change of controlling law; (2) new evidence available; or (3) a need to correct a clear error or prevent manifest injustice.” Id. (citation omitted). The standard “obviously vests significant discretion in district courts, ” id. at 959 n.7, and “allows district courts to afford such relief from interlocutory orders as justice requires.” Id. (internal brackets, quotation marks and citations omitted). Nevertheless, motions to reconsider should be “used sparingly and in rare circumstances.” Grogg v. Clark, No. 2:15-CV-298-JRG-MCLC, 2016 WL 1394534, at *1 (E.D. Tenn. Apr. 7, 2016).

         B. Summary Judgment

         Summary judgment is mandatory where “there is no genuine dispute as to any material fact” and the moving party “is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A “material” fact is one that matters-i.e., a fact that, if found to be true, might “affect the outcome” of the litigation. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The applicable substantive law provides the frame of reference to determine which facts are material. Id. A “genuine” dispute exists with respect to a material fact when the evidence would enable a reasonable jury to find for the non-moving party. Id.; Jones v. Sandusky Cnty., Ohio, 541 Fed.Appx. 653, 659 (6th Cir. 2013); Nat'l Satellite Sports, Inc. v. Eliadis Inc., 253 F.3d 900, 907 (6th Cir. 2001). In determining whether a dispute is “genuine, ” the court cannot weigh the evidence or determine the truth of any matter in dispute. Anderson, 477 U.S. at 249. Instead, the court must view the facts and all inferences that can be drawn from those facts in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Nat'l Satellite Sports, 253 F.3d at 907.

         The moving party bears the initial burden of demonstrating no genuine issue of material fact exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Jones, 541 Fed.Appx. at 659. To refute such a showing, the non-moving party must present some significant, probative evidence indicating the necessity of a trial for resolving a material, factual dispute. Celotex, 477 U.S. at 323. A mere scintilla of evidence is not enough. Anderson, 477 U.S. at 252; McLean v. 988011 Ontario, Ltd., 224 F.3d 797, 800 (6th Cir. 2000). The court's role is limited to determining whether the case contains sufficient evidence from which a jury could reasonably find for the non-moving party. Anderson, 477 U.S. at 248, 249; Nat'l Satellite Sports, 253 F.3d at 907.

         To defeat a plaintiff's claim using an affirmative defense such as res judicata on summary judgment, a defendant must meet a “substantially higher hurdle” than both the preponderance-of-the-evidence standard a defendant would have to meet at trial and the typical summary-judgment standard. Cockrel v. Shelby Ct. School Dist., 270 F.3d 1036, 1056 (6th Cir. 2001). Only after a moving defendant has discharged the initial burden of proof “does the burden shift to the plaintiff to show that summary judgment on an affirmative defense should be denied.” Byrne v. CSX Transp., Inc., 541 Fed.Appx. 672, 675 (6th Cir. 2013). A moving defendant “must show that the record contains evidence satisfying the burden of persuasion and that the evidence is so powerful that no reasonable jury would be free to disbelieve it.” Id. (quoting 11 James William Moore et al., Moore's Federal Practice § 56.13[1], at 56-138 (3d ed. 2000)). The court “must view the evidence and draw all inferences in the light most favorable to the nonmoving party, and ‘[s]ummary judgment in favor of the party with the burden of persuasion . . . is inappropriate when the evidence is susceptible of different interpretations or inferences by the trier of fact.'” Arnett v. Myers, 281 F.3d 552, 561 (6th Cir. 2002) (quoting Hunt v. Cromartie, 526 U.S. 541, 553 (1999)) (alterations in original).

         III. ANALYSIS

         YEI contends that the Court erred in finding the FITS Claims were part of the same series of transactions, in terms of their subject matter, that were adjudicated in the Chancery Court Case [Doc. 459 at Page ID # 15617-19; Doc. 464 at Page ID # 15720-21]. YEI also contends that the Court erred in dismissing on res judicata grounds any claims that arose after entry of judgment in the Chancery Court Case in December 2014[4] [Doc. 459 at Page ID # 15606-17; Doc. 464 at Page ID # 15713-29].

         After careful consideration, the Court finds it necessary to revise the summary judgment order. Plaintiffs' FITS Claims, including any inducement of breach of contract claims against Boyd and Allen, arising after entry of the “Order Regarding Post Trial Motions” in the Chancery Court Case on April 22, 2015, are not barred by application of the doctrine of res judicata. Based on YEI's representations concerning the FITS-only trade secret claims (addressed below), the Court finds that the FITS-only trade secret claims should be reinstated in their entirety. The Court further finds, however, that YEI has failed to show clear error in the Court's conclusion that any FITS Claim, including inducement of breach of contract claims against Boyd and Allen, arising on or before April 22, 2015, are barred. It is undisputed that Crescent stopped manufacturing FITS socks on February 28, 2016 [Doc. 377-6 at Page ID # 10872]. As a result, the Court's holding reinstates Plaintiffs' FITS Claims, including the inducement of breach of contract claims, arising between April 22, 2015, and February 28, 2016. In correcting this error, the Court notes that the issue of when the continuing claims arose vis-à-vis entry of the Chancery Court Case “final judgment” was only raised in passing, at best, in the Plaintiffs' response to Defendants' motion for summary judgment [Doc. 382 at Page ID # 10991-92]. Regardless, Rule 54 provides a vehicle for correction.

         A. Res Judicata

         As the Court explained in the summary judgment order, “[s]tate-court judgments are given the same preclusive effect under the doctrine of res judicata . . . as they would receive in courts of the rendering state.” Ohio ex rel. Boggs v. City of Cleveland, 655 F.3d 516, 519 (6th Cir. 2011). “If an individual is precluded from litigating the suit in state court by the traditional principles of res judicata, he is similarly precluded from litigating the suit in federal court.” Id. (internal quotation marks and citations omitted). The Court must “look to the state's law to assess the preclusive effect it would attach to that judgment.” Id. (internal quotation marks and citations omitted). While YEI suggests that federal law on res judicata should apply in this case [Doc. 464 at Page ID # 15715-17], the Court is required to apply Tennessee's law on res judicata. Id. There is some overlap, but also some significant distinctions, between the two.

         In Tennessee, “[t]he doctrine of res judicata or claim preclusion bars a second suit between the same parties or their privies on the same claim with respect to all issues which were, or could have been, litigated in the former suit.” Jackson v. Smith, 387 S.W.3d 486, 491 (Tenn. 2012) (citations omitted). “Res judicata acts as a ‘rule of rest' meant to promote finality, prevent inconsistent or contradictory judgments, conserve resources, and prevent vexatious lawsuits.” Rainbow Ridge Resort, LLC v. BB&T Co., 525 S.W.3d 252, 259 (Tenn. Ct. App. 2016) (internal quotation marks and citations omitted). There are four elements to res judicata: (1) a previous action before a court of competent jurisdiction, (2) involving the same parties or their privies, (3) involving the same cause of action, and (4) resulting in a final judgment on the merits. Id. (internal quotation marks and citations omitted). “The doctrine of res judicata only requires that there be a full and fair opportunity to litigate all issues arising out of the claim, however, every applicable issue need not be actually litigated in order for res judicata to apply.” Gerber v. Holcomb, 219 S.W.3d 914, 918 (Tenn. Ct. App. 2006) (internal quotation marks, citations, and italics omitted).

         Two suits are deemed the “same ‘cause of action' for purposes of res judicata where they arise out of the same transaction or a series of connected transactions.” Creech v. Addington, 281 S.W.3d 363, 381 (Tenn. 2009) (citations omitted). “The doctrine of res judicata ‘extends only to the facts in issue as they existed at the time the judgment was rendered, and does not prevent a re-examination of the same question between the same parties where in the interval the facts have changed or new facts have occurred which may alter the legal rights or relations of the litigants.'” Id. (quoting Banks v. Banks, 77 S.W.2d 74, 76 (Tenn. Ct. App. 1934)).

         Plaintiffs argue that none of the FITS Claims are barred because the FITS Claims arose out of a different series of transactions than the claims at issue in the Chancery Court Case, in the sense that the subject matter of the claims is different. They also argue that, even if earlier FITS Claims and inducement of breach of contract claims are part of the same series of transactions, no claims based on Defendants' alleged continuing infringement and other wrongful actions after the chancery court “rendered” judgment on December 23, 2014, can be barred. The Court will deal with the subject matter arguments first, and then address the point at which the chancery court's judgment became “final, ” therefore creating a preclusive effect.

         B. Same Transaction or Occurrence - Subject Matter of Chancery Court Case

         “‘[T]ransaction' for res judicata purposes is intended to be analogous to the phrase ‘transaction or occurrence' as used in the Federal Rules of Civil Procedure.” Creech, 281 S.W.3d at 380 (citing, inter alia, Fed.R.Civ.P. 13(a)(1) (determining whether counterclaims are compulsory)). Courts use a “logical relationship test to determine whether claims arise out of the same transaction or series of transactions. Roberts v. Vaughn, No. W2008-01126-COA-R3-CV, 2009 WL 1608981, at *7 (Tenn. Ct. App. June 10, 2009) (quoting Sanders v. First Nat'l Bank & Trust Co. in Great Bend, 936 F.2d 273, 277 (6th Cir. 1991)). Under this approach, courts are to “look to the issues of law and facts raised by the claims to see if they are largely the same.” Suddarth v. Household Comm. Fin. Servs., Inc., No. M2004-01664-COA-R3-CV, 2006 WL 334031, at *3-4 (Tenn. Ct. App. Feb. 13, 2006) (holding that claims are barred where “the former action arose out of the same business relationship between the [parties] at issue in the present action, and specifically out of the guaranty agreement sued on in the former action”) (citing Sanders, 936 F.2d at 277).

         The Court found that Plaintiffs' FITS Claims were part of the same series of transactions that were the subject of Plaintiffs' Chancery Court Case counterclaims and the injunction, that is, claims arising from the disintegration of the parties' business relationship, and the division and protection of the FITS brand in the wake of Yoe's termination from Crescent. The FITS Claims in the third amended complaint in this case are largely if not entirely predicated on the idea that after Yoe was fired, Crescent exercised control over the FITS brand. This included making changes to the design of FITS socks and their branding or marketing, and representing that Crescent was the owner of FITS, when the true owner of the brand was actually YEI. Plaintiffs claim this caused damage to Plaintiffs and to the brand more generally. In previously dismissing the FITS Claims on Defendants' motion for summary judgment, the Court reasoned:

It is clear from Yoe and YEI's pleadings in the Chancery Court Case, in particular the January 2014 amended counterclaim and third-party complaint detailed above, that the allegedly infringing/unfair conduct with respect to FITS was occurring or had already occurred prior to the expiration of the injunction. The Court therefore rejects Yoe and YEI's characterization of the Chancery Court Case as having a “singular” purpose of “invalidat[ing] the contracts that gave YEI ownership of FITS and Bob Yoe a severance package, ” and as “deal[ing] with matters that existed before September 3, 2013, when Crescent sued Yoe.” [Doc. 382 at Page ID # 10990-91]. The existence of the injunction, which is by nature forward looking, belies Yoe and YEI's characterization, as do the allegations in Yoe and YEI's January 2014 amended countercomplaint and third-party complaint in the Chancery Court Case:
22. Upon information and belief, since terminating Mr. Yoe, Crescent has eliminated certain SKUs of FITS® product[s], changed the names of certain FITS® products, changed the packaging of products, ceased research and development of the FITS® products, is failing to use pre-existing marketing practices including but not limited to preseason terms and conditions, sales collateral, and other sales support, is failing to maintain the proper levels of FITS® product[s] in the retail stores and proper inventory levels at Crescent, and is representing that Crescent is the owner of the FITS® brand. Each of these actions is causing irreparable damages to the FITS® bran[d] to Yoe Enterprises as owner of the FITS® brand and to Mr. Yoe as the CEO of Yoe Enterprises.
[Doc. 24-4 at Page ID # 221]. These assertions, along with the injunction, effectively expanded the scope of the lawsuit to include events and interactions between the parties that occurred after the filing of the initial chancery court complaint. The alleged acts of infringement, unfair competition, etc. [asserted in the federal court case], arise out of the same series of transactions that necessitated the injunction in the first place-once again, the disintegration of the parties' business relationship, and the division and protection of the FITS brand in the wake of Yoe's termination from Crescent.

         [Doc. 453 at Page ID # 15567-68]. These same allegations form the basis for Plaintiffs' FITS Claims in the third amended complaint [Doc. 201]. The following are relevant excerpts from the third amended complaint:

• Count I - Federal Trademark Infringement - Crescent: “Without authorization or approval by YEI, [Crescent] has utilized the marks in connection with goods and products which have not been approved by YEI. Such unauthorized conduct includes, among other things, advertising, selling and marketing socks not manufactured pursuant to YEI's specifications or quality standards with the YEI Trademarks. In addition, Crescent has used advertising and other materials which display the YEI Trademarks which have not been approved or authorized by YEI.” [Doc. 201 at Page ID # 2881].
• Count II - Federal Trademark Infringement - Individual Defendants: “The individual Defendants have personally authorized and/or taken part in the infringing activities of Crescent and/or have specifically directed its employees to do so. The individual Defendants are central figures in the infringements who have authorized and approved the activities of Crescent described herein for their personal gain.” [id. at Page ID # 2882].
• Count V - Violation of the Lanham Act, 15 U.S.C. § 1125(a): Crescent's “actions are designed to and are likely to confuse buyers and others in the chain of marketing and distribution into believing that those goods are authorized by YEI, are of the quality with which socks manufactured according to YEI's specifications are associated, and to confuse potential buyers and others as to the sources and quality of the goods.” [id. at Page ID # 2884].
• Count VI - Declaratory Judgment - Trade Secrets[5]: “[T]he proprietary processes, patterns, methods, and techniques developed by Yoe are trade secrets belonging to YEI. . . . Crescent has represented that it owns, controls, and has the right to use without limitation YEI's trade secrets.” [id at Page ID # 2884-85].
• Count VII - Injunctive Relief - Trade Secrets: “Crescent has misused YEI's trade secrets, has used them without authorization from YEI, and has impermissibly used them to manufacture socks not approved by YEI. The products Crescent has impermissibly manufactured with the Trade Secrets are inferior to authorized YEI products and cause damage to YEI's brands. Crescent will continue to impermissibly use the Trade Secrets unless enjoined by the Court.” [id at Page ID # 2886-87].
• Count VIII - Unfair or Deceptive Trade Practices Under Tennessee Code Annotated § 47-18-101 et seq.: “Defendants have . . . engaged in unfair and deceptive acts and practices, including . . . falsely passing off their goods as those of YEI . . . .” [id at Page ID # 2888].
• Count X - Unfair Competition: “Because Crescent has used, without YEI's authorization, its marks and represented to the public that FITS® . . . brand socks are products consistent with the reputation which the public associates with YEI's marks; and has sold inferior products using, without authorization, YEI's marks; and has used the YEI Trademarks without YEI's authorization, it is competing and has competed unfairly with YEI in violation of Tennessee law.” [id at Page ID # 2889].
• Count XI - Breach of License Agreement: “Crescent's actions in terminating Mr. Yoe, in failing to properly and prudently manufacture, market and promote the FITS® brand under Mr. Yoe's direction, in eliminating SKUs, changing the name and packaging of FITS® products, ceasing R & D of the FITS® products, failing to use pre-existing marketing practices approved by YEI, and in marketing, manufacturing and promoting the FITS® products in a manner unacceptable to and unapproved by YEI, the owner of the FITS® brand, and the conduct listed in Paragraphs 32 and 35[6] of this Complaint, constitute a violation and breach of [the Business Agreement and Yoe's employment contracts].” [id at Page ID # 2890].
• Count XIII - Defendants Allen and Boyd's Inducement of Breach of Contract (YEI): “Defendants directed and caused Crescent to file suit seeking to declare the Business Agreement void as to Mr. Yoe and YEI and to exercise complete and deliberate control over the YEI brands and the Intellectual Property. . . . Defendant Allen and Boyd's actions . . . constituted an intentional and unjustified inducement of a breach of the contractual relationship between Crescent and YEI.” [Doc. 201 at Page ID # 2892].

         Plaintiffs are alleging legal theories in this case which they did not assert or did not pursue to final judgment in the Chancery Court Case, but whether Defendants breached the Business Agreement (which is at least part of the licensing agreement) was clearly at issue in the Chancery Court Case. Indeed, the chancery court held that “YEI is the owner of the respected brands in question, and by Crescent now claiming ownership of the brands, Crescent has in fact breached the [Business Agreement] . . . .” [Doc. 382-3 at Page ID #11115]. The chancery court also held that the filing of the Chancery Court Case did not, in and of itself, constitute a breach of the Business Agreement [Doc. 56-1 at Page ID # 617-18]. Moreover, whether Defendants were properly producing FITS during the time period following Yoe's termination was clearly at issue in the Chancery Court Case, as evidenced by Plaintiffs' allegations concerning Defendants' changing SKUs, changing marketing practices, etc., and also as evidenced by the chancery court agreement. Defendants contend the Business Agreement defines the entire scope of the licensing agreement; Plaintiffs contend there are additional “terms” or rights that YEI held.

         What the Court is confronted with in this case, versus the Chancery Court Case, are essentially claims for different types of breaches of the same contract (the Business Agreement, an integral component of the parties' licensing agreement), by the same parties, arising from conduct that was specifically prohibited by an injunction that was repeatedly affirmed in the Chancery Court Case. In both cases, Plaintiffs have asserted Defendants breached the Business Agreement, and therefore the licensing agreement. The specifications of FITS socks were at issue via the injunction and other allegations made by Plaintiffs in the Chancery Court Case, and they are at issue in this case through a host of claims as quoted above. In spite of the non-suit of certain claims, the injunction itself is a form of relief concerning Defendants' production of FITS in the wake of Yoe's termination.

         In addition, the Court found that Plaintiffs' claim in this case for inducement of breach of contract against Boyd and Allen (Count XIII) was barred because: 1) it is based on Boyd and Allen's alleged inducement of Crescent's breach of the Business Agreement, with the breach being the filing the Chancery Court Case and the subsequent exercise of control over FITS without Yoe's input; 2) Crescent's breach of the Business Agreement was clearly part of the Chancery Court Case; 3) the injunction in the Chancery Court Case was directed to Boyd and Allen as employees and officers of Crescent; 4) Boyd and Allen were parties to the Chancery Court Case; and 5) it is beyond serious dispute that Boyd and Allen were at least partially, if not mostly, in control of Crescent at all relevant times [Doc. 453 at Page ID # 15565-66]. Clearly, the parties were litigating facts in the Chancery Court Case that would have strongly overlapped with any claim that Boyd and Allen induced Crescent's breach of the Business Agreement.

         In support of their position that the Court's decision that the FITS Claims are not part of the same transaction or occurrence, Plaintiffs rely most heavily on Acumed, LLC v. Stryker Corp., 525 F.3d 1319 (Fed. Cir. 2008) [Doc. 459 at Page ID # 15618[7]. In that case, Acumed first sued Stryker for patent infringement relating to a type of medical nail used to repair bone fractures. Stryker called its nail the T2 PHN. During the course of the T2 PHN litigation, Acumed discovered that Stryker had allegedly used the same patent to make a second, longer type of nail, the T2 Long. Acumed, 525 F.3d at 1322. The trial court offered to allow Acumed to amend its T2 PHN complaint to include allegations that the T2 Long infringed on the patent, but warned that the amendment would delay the trial by up to one year. Acumed opted to proceed to trial on the T2 PHN nail infringement claims, and then later filed a completely separate action on the T2 Long. The trial court in the second suit dismissed Acumed's claim on the T2 Long on claim preclusion (res judicata) grounds. Id. On appeal of the dismissal of the second suit, the only issue was whether the cases involved “the same claim or cause of action.” Id. at 1323 (internal quotation marks and citation omitted).

         The United States Court of Appeals for the Federal Circuit found that “[w]hether two claims for patent infringement are identical is a claim preclusion issue that is ‘particular to patent law, '” and therefore must be analyzed “under Federal Circuit law.” Id. (quoting Hallco Mfg. Co. v. Foster, 256 F.3d 1290, 1294 (Fed. Cir. 2001)) (other citation omission). The court cited earlier Federal Circuit precedent which specifically held that “[w]ith respect to patent litigation, we are unpersuaded that an ‘infringement claim, ' for purposes of claim preclusion, embraces more than the specific devices before the court in the first suit.” Id. at 1324 (quoting Young Eng'rs, Inc. v. United States Int'l Trade Comm'n, 721 F.2d 1305, 1316 (Fed. Cir. 1984) (other citation omitted). The court thus found that “claim preclusion does not apply unless the accused device in the action before the court is ‘essentially the same' as the accused device in a prior action between the parties that was resolved on the merits.” Id. (citation omitted). Ultimately, the court concluded that the structure of the T2 PHN and T2 Long was not “essentially the same, ” and therefore res judicata did not apply.

         Here, the issues of claim preclusion, or res judicata, are not so narrow nor are they governed by federal law. The claims, allegations, and relief Plaintiffs have pursued and continue to pursue in these two cases are broader than the issues in Acumed, and therefore the application of claim preclusion (res judicata) is also broader. For example, Plaintiffs' Count I alleges that Crescent “has utilized the [trade]marks in connection with goods and products which have not been approved by YEI.” [Doc. 201 at Page ID # 2881]. Plaintiffs' theory is that all FITS socks had to be approved by Yoe before they could be sold, which Defendants dispute. That fundamental issue, and any claims for relief that flow from its resolution (and which arose prior to April 22, 2015), could have and should have been raised in the Chancery Court Case. As discussed below, however, the Court now finds that any unapproved changes that occurred after April 22, 2015, gave rise to a new cause of action, and therefore a new opportunity for Plaintiffs to make this argument, and to seek damages for any post-April 22, 2015, conduct.

         Finally, the Court was careful to exclude from its res judicata holding any claims involving allegations that Defendants misappropriated Plaintiffs' intellectual property in FITS by incorporating it into the Hiwassee Trade Company or Omni Wool socks. For these reasons, Acumed is distinguishable.

         Plaintiffs also rely on Grendene USA, Inc. v. Brady, No. 3:14-cv-2955-GPC-KSC, 2015 WL 1499229 (S.D. Cal. Apr. 1, 2015). In that case, the Bradys had filed a trademark infringement action against Grendene on March 9, 2012. Grendene then sued the Bradys on December 15, 2014, arguing the filing of the trademark suit constituted a breach of a 1995 settlement agreement that contained a covenant not to sue. Id. at *1. The Bradys argued in the later suit that Grendene's breach of contract claim should be dismissed because it was a compulsory counterclaim in the earlier trademark infringement case. The court denied the motion to dismiss, finding in relevant part that:

In determining whether a counterclaim is compulsory, the Ninth Circuit applies the “logical relationship test” which analyzes whether the essential facts of the various claims are so logically connected that considerations of judicial economy and fairness dictate that all issues be resolved in one lawsuit. Applying the logical relationship test, the “essential facts” of the Bradys' causes of action in the Trademark Action differ from those of Grendene's breach of contract cause of action. The Trademark Action involves facts dealing with alleged infringement. This action involves facts dealing with the Bradys['] decision to file a lawsuit based on that alleged infringement. These are separate facts as the decision to bring a legal cause of action is separate from the elements of that cause of action. Accordingly, the Court finds that Grendene's breach of contract cause of action was not a compulsory counterclaim.

         2015 WL 1499229, at *3 (internal quotation marks, citations and alterations omitted). As Crescent points out, however, the court in Grendene offers little analysis and the decision is not binding on this Court. Moreover, as described above, facts underlying Plaintiffs' FITS Claims were involved in the Chancery Court Case. The breaches alleged by Plaintiffs in the Chancery Court Case involved actions allegedly taken by Defendants regarding FITS after Defendants filed the Chancery Court Case and terminated Yoe, not just Defendants' decision to take the action of firing Yoe.

         The Court finds Plaintiffs have failed to show any clear error with the Court's prior decision that the FITS Claims are part of the same transaction or occurrence (in the subject matter sense) as the claims involved in the Chancery Court Case.

         C. Final Judgment

         YEI also argues that, even if the FITS Claims arose out of the same transaction or occurrence, any claims which arose after the date the chancery court rendered its judgment on December 23 (or the date the chancery court clerk entered the judgment on December 29, 2014), cannot be barred by res judicata. The Court did not discuss this issue as such in its prior summary judgment order except to note that the various amendments to and allegations in Plaintiffs' pleadings in the Chancery Court Case and the injunction expanded the scope of the lawsuit to include claims that arose after the filing of the complaint [Doc. 453 at Page ID # 15567-68].

         In the pending motion, YEI originally argued that res judicata does not apply to any events occurring after the commencement of the Chancery Court Case on September 3, 2013 under a bright-line rule [Doc. 459 at Page ID # 15614]. In its reply, however, YEI seems to acknowledge that Tennessee has not adopted the bright-line rule and mainly argues that FITS Claims arising from actions “occurring after the state court rendered its judgment on December 23, 2014, or after its entry on December 29, 2014, are not subject to res judicata.” [Doc. 464 at Page ID # 15713; see also, e.g., Id. at Page ID # 15724 (“The language adopted by Creech-that claim preclusion can extend only to the facts in issue as they existed at the time the judgment was rendered-and its application, leads to the most practical result.”)]. As pertinent here, the issue is when the judgment became “final” such that it began to have preclusive effect.

         In Tennessee, a judgment is final “when it decides and disposes of the whole merits of the case leaving nothing for the further judgment of the court.” Creech, 281 S.W.3d at 377 (quoting Richardson v. Tenn. Bd. of Dentistry, 913 S.W.2d 446, 460 (Tenn. 1995)). “In the absence of an express direction of the court to the contrary, a judgment that disposes of only some of the claims, issues, or parties is not a final judgment adjudicating all claims and the rights and liabilities of all parties.” Id. (citations omitted).[8] In Creech, the Tennessee Supreme Court explained that “a judgment is not final and res judicata where an appeal is pending.” Creech, 281 S.W.3d at 377-78 (quoting McBurney v. Aldrich, 816 S.W.2d 30, 34 (Tenn. Ct. App. 1991)) (citing Freeman v. Marco Transp. Co., 27 S.W.3d 909, 913 (Tenn. 2000)); see also Brown v. Burch, Porter, & Johnson PLLC Law Firm, No. 15-2167, 2015 WL 5737802, at *5 (W.D. Tenn. Sept. 30, 2015) (“Unlike federal law, under Tennessee law a judgment is not final for purposes of res judicata where an appeal is pending.” (internal quotation marks, alteration, and citations omitted)). “[T]his general rule places Tennessee in the minority of jurisdictions. The federal courts and the majority of states have found ‘[t]he better view, ' to be that taking of an appeal does not affect the finality of a judgment for res judicata purposes.” Creech, 281 S.W.3d at 377 n.17 (quoting Restatement (Second) of Judgments § 13 cmt. f) (other citations omitted).

         Creech is a procedurally and factually complicated case involving a failed casino/real estate development project. The trial court in Creech entered a judgment as to some of the defendants, including real estate agents Betty and Lloyd Link (the “Links”), in 1998. The judgment as to the last defendant was not entered until January 2, 2003. Id. at 370. The plaintiffs appealed the dismissal of certain defendants (landowners Parker and Flowers), and the Tennessee Court of Appeals remanded for further proceedings. Id. at 370-71. As it turned out, the liability of Parker and Flowers depended on whether the Links could be held liable as the agents of Parker and Flowers. Id. Because the plaintiffs had not appealed the original dismissal of the Links, the judgment against the Links became final on February 1, 2003 (thirty days after the order resolving the claims as to the last defendant). Id. at 377. The plaintiffs discovered additional allegations involving the Links, which arose from the same failed development project, in September 2000, but did not assert any claims against Parker and Flowers related to these allegations until 2005, after the court of appeals remanded the case against Parker and Flowers. Id. at 375. On remand, Parker and Flowers argued that the plaintiffs' new claims involving the allegations against the Links were barred, but the trial court disagreed and conducted a trial against Parker and Flowers. Ultimately, the Tennessee Supreme Court found the trial court decided the res judicata issue wrongly. Even though the plaintiffs did not discover the additional claims against the Links until after the Links had been dismissed from the case (in 1998), the supreme court held that the plaintiffs “had the opportunity to fully and fairly litigate the fraudulent misrepresentation claims against the Links before the finality of the judgment” on February 1, 2003. Id. at 382. The court reasoned that the plaintiffs could have amended their complaint to allege the fraudulent misrepresentation claims against the Links (even after the Links had been dismissed from the case), or appealed the original dismissal of the Links. Id. at 382-83.

         Creech clearly states that a judgment pending on appeal is not final and does not have preclusive effect; however, the claims that were barred in that case unquestionably arose prior to the commencement of the case, although the plaintiffs did not discover them until much later. Id. at 382-83. Moreover, the plaintiffs in that case discovered the relevant claims against the Links before the actual judgment against the Links became final, even though the Links had been dismissed years prior. The Creech court also noted that “[t]here are a number of circumstances in which a second action by a plaintiff against the same defendant might be necessary and appropriate even though the second suit arises out of the same transaction or series of connected transactions as the first suit, ” for example “when a plaintiff is initially unaware of the existence of a cause of action due to the defendants' own concealment or misrepresentation.” Id. at 381-82 (citing Restatement (Second) of Judgments § 26(1)[9]).

         Regions Financial Corp. v. Marsh USA, Inc., 310 S.W.3d 382 (Tenn. Ct. App. 2009), was decided shortly before Creech. In that case, Regions argued that its claims were not barred by res judicata where they were based upon facts that allegedly had been concealed by a group of defendants referred to as the “Excess Insurers.” Id. at 386. Regions had filed a federal court case against the Excess Insurers for breach of contract, and appealed that case to the Sixth Circuit. While that case was on appeal, Regions discovered facts that “occurred before it filed suit in District Court but which [Regions] claims it had not discovered until it appealed to the Sixth Circuit.” Id. at 394. Regions then filed the state court case asserting similar claims as in the federal court case, but which were based on the new facts. Id. at 389-90. The state trial court dismissed Regions's claims on res judicata grounds. Id. at 389. The trial court rejected Regions's argument that Regions could not have relied on these facts in the earlier federal court case because the facts had allegedly been concealed until “several months after the District Court disposed of the parties' post-trial motions and after Regions had filed its appeal to the Sixth Circuit.” Id. at 394. The trial court held that the relevant facts were “known before the [Sixth Circuit] ruled and there was plenty of time to raise or present those facts to either the District Court or the [Sixth Circuit].” Id. (quoting trial court's holding). The trial court found that Regions could have raised the new claims in the federal court through a Federal Rule of Civil Procedure 60(b) motion, and the Tennessee Court of Appeals affirmed. Id. at 394-95.

         Like Creech, the difference between Regions and this case is that Plaintiffs allege a number of claims which are based on actions that allegedly occurred not only after the filing of the chancery court complaint, but also after the amended counterclaims, the chancery court trial, and even after the chancery court ruled on the post-trial motions in April 2015. The court in Regions emphasized that:

[w]e must be careful to distinguish between a “change in facts” or “new facts [which] have occurred after the original judgment” and “newly discovered evidence.” Newly discovered evidence is simply evidence of facts as they existed at the time of the original trial and cannot be said to be a “change in facts” or “new facts.”

Regions, 310 S.W.3d at 394 (quoting Short v. Short, No. 03A01-9402-CH-00065, 1994 WL 315902, at *4 (Tenn. Ct. App. 1994)). The Regions court found it was important to ...


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