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Topline Solutions, Inc. v. Sandler Systems, Inc.

United States District Court, D. Maryland

May 8, 2017

TOPLINE SOLUTIONS, INC., Plaintiff/Counter-Defendant,
SANDLER SYSTEMS, INC., Defendant/Counter-Plaintiff.


          Ellen Lipton Hollander, United States District Judge

         Almost seven and a half years ago, on November 19, 2009, Topline Solutions, Inc. (“Topline, Inc.”) filed suit against Sandler Systems, Inc. (“SSI”) alleging, inter alia, that SSI breached two agreements between the parties. ECF 1. In particular, Topline, Inc. asserted that SSI breached a “Co-Development Agreement” (see ECF 1-1, “CDA”) and an “Agreement and Mutual Release” (“AMR”), also known as the “High Tech Boot Camp Agreement” (“HTBCA”).[1] See ECF 1-2.

         On August 20, 2016, nearly seven years after suit was filed, SSI moved for leave to file a counterclaim against Topline, Inc.; a third-party complaint against Steven Kramer, the founder and president of Topline, Inc.; and a second amended answer. ECF 253. At a hearing held on November 30, 2016 (ECF 292), Judge Motz orally granted that motion, as well as SSI's second motion for partial summary judgment (ECF 248). Judge Motz's rulings are embodied in an Order of December 1, 2016. ECF 297. Consistent with Judge Motz's ruling, SSI's submissions were docketed collectively on December 1, 2016. ECF 298. A few days later, on December 12, 2016, SSI filed an “Amended Counterclaim and Third-Party Complaint.” ECF 312 (the “Counterclaim”).

         In its Counterclaim, SSI asserts, inter alia, claims against Topline, Inc. for breach of contract (counts I and II); copyright infringement (Count III); and fraud/intentional misrepresentation (Count IV). Counts I, III, and IV are also lodged against Kraner as third-party defendant. See Id. I shall refer to Topline, Inc. and Kraner collectively as “Topline.” The claims are rooted in Topline's registration of a copyright in January 2011 of a work that SSI claims contains its intellectual property. ECF 312. I shall discuss the specifics of SSI's claims, infra, in the context of the analysis. In its Second Amended Answer (ECF 298), SSI asserts several additional affirmative defenses, consistent with its Counterclaim. See ECF 298.

         Topline has moved to dismiss the Counterclaim (ECF 320), supported by a memorandum (ECF 320-1) (collectively, “Motion to Dismiss”) and an exhibit. ECF 320-2. Also pending is Topline, Inc.'s motion to strike SSI's newly asserted affirmative defenses in the Second Amended Answer. ECF 321 (“Motion to Strike”). SSI filed a consolidated opposition to both motions (ECF 324, “Opposition”)[2] and Topline submitted a consolidated reply. ECF 331 (“Reply”).

         The motions are fully briefed and no hearing is necessary to resolve them. See Local Rule 105.6. For the reasons that follow, I shall grant the Motion to Dismiss in part and deny it in part, and I shall deny the Motion to Strike.

         I. Factual Background[3]

         SSI is a Maryland corporation with its principal place of business in Maryland. ECF 312, ¶ 2. Topline, Inc. is a Virginia corporation with its principal place of business in Virginia. Id. ¶ 3. Kraner is the founder, president, and sole stockholder of Topline, Inc. and is a citizen of Virginia. Id. ¶¶ 4, 17.

         Beginning in the 1970s, David Sandler “developed and modified the Sandler Selling System, and the concepts contained therein.” Id. ¶ 12. The Sandler Selling System is a “distinctive style of training persons in the fields of sales and sales management, which includes . . . management consulting, goal setting and achievement, self-awareness, motivation, personal development, relationship management and leadership development . . . .” ECF 312, ¶ 12. The Sandler Selling System also includes the methods of teaching these subjects through “seminars and workshops.” Id.

         SSI asserts: “Prior to 2007, SSI and its franchisees used the trading name and mark ‘Sandler Sales Institute.'” Id. ¶ 14. But, SSI claims that SSI and its franchisees “began using the trading name and mark ‘SALES TRAINING' in place of the name and mark ‘Sandler Sales Institute.'” Id.; see Id. ¶ 13.[4]

         A. The Franchise Agreements

         On or about December 3, 1993, Kraner and SSI entered into a franchise agreement by which “Kraner was granted the right to own and operate a Sandler Sales Institute franchise in Northern Virginia.” Id. ¶ 16; see ECF 312-3 (“1993 Franchise Agreement”). In July 2004, Kraner assigned his rights and duties under the 1993 Franchise Agreement to Topline, Inc. ECF 312, ¶ 18.

         Topline, Inc. renewed the 1993 Franchise Agreement on November 8, 2005. Id. ¶ 19; see ECF 312-4 (“2005 Franchise Agreement”). Kraner was a guarantor as to certain provisions. ECF 312, ¶ 20; see ECF 312-4 at 29. As discussed, infra, on November 8, 2005, Topline, Inc., Kraner, SSI, and others also entered into the HTBCA. ECF 312, ¶ 35.

         During the pendency of this litigation, Topline, Inc. and SSI twice renewed the franchise agreement. In particular, the franchise agreement was renewed in 2010 and again in 2015. ECF 312, ¶¶ 22, 23; see ECF 312-5 (“2010 Franchise Agreement”); ECF 312-6 (“2015 Franchise Agreement”). Although there are some variations in the text of the 2005, 2010, and 2015 franchise agreements, the differences are not material to the motions. I shall refer to the 2005, 2010, and 2015 franchise agreements collectively as the “Franchise Agreements.” Unlike in 2005, Kraner was not a guarantor of either the 2010 or the 2015 franchise agreement. See ECF 312-5 at 36; ECF 312-6 at 37. In connection with the 2010 Franchise Agreement, the parties executed a Confidential Disclosure Agreement (ECF 312-5), which recognized that Topline, Inc. possessed certain “Confidential Information” available for SSI to review. Id. The 2015 Franchise Agreement includes a five-year term that expires on June 30, 2020. ECF 312-6 at 57.

         The term “Proprietary Assets” is defined in the Franchise Agreements. For example, the 2010 Franchise Agreement provides, ECF 312-5 at 3:

[T]he distinguishing characteristics of the Sandler System include, but are not limited to, the name and mark SANDLER TRAINING® together with such other trade names, service marks, trademarks, copyrights, titles, symbols, logotypes, trade dresses, emblems, slogans, insignias, terms, designations, designs, diagrams, anecdotes, artworks, worksheets, techniques, rules, ideas, philosophies, illustrations, course materials, advertising and promotional materials, and other audio, video and written materials as SSI has developed and designated for use in connection with the Sandler System, and as SSI may hereafter acquire, develop or designate for use in connection with the Sandler System (“Proprietary Assets”) . . . .

See also ECF 312-4 (2005 Franchise Agreement), at 4; ECF 312-6 (2015 Franchise Agreement), at 4.

         Paragraph 5.1 of the Franchise Agreements is titled “LIMITATIONS OF FRANCHISE.” ECF 312-4 at 10; ECF 312-5 at 11; ECF 312-6 at 12. The provisions in the Franchise Agreements are largely identical, with variations that are not material to the disposition of the motions. Paragraph 5.1 of the 2010 Franchise Agreement states, ECF 312-5 at 11-12:

5.1 (a) Franchisee acknowledges that SSI is the exclusive owner of the Proprietary Assets and of the standards, specifications, operating procedures and other elements of the Sandler System. Franchisee further acknowledges that any modifications to the Sandler System or any substitutions or additions to the Proprietary Assets suggested or developed by Franchisee and approved by SSI shall be owned exclusively by SSI and may be incorporated by SSI into the Proprietary Assets.
(b) Franchisee shall use the Sandler System and the Proprietary Assets strictly in accordance with the terms of this Agreement and all policies set forth from time to time in the Operations Manual. Any unauthorized use of the Sandler System and/or the Proprietary Assets is and shall be deemed to be an infringement of SSI's rights. Franchisee agrees that producing, or permitting to be produced, its own written materials or audio or audiovisual recordings, webinars, podcasts, recorded conference calls, tapes or CDs or other creation in any medium (collectively, “Recordings”) for sale, publication or distribution, with or without charging a fee, containing any of the Proprietary Assets or Sandler System is not authorized and shall be deemed an infringement of SSI's rights unless the Franchisee obtains SSI's prior written approval . . . .
* * *
(d) Franchisee shall at no time take any action whatsoever to contest the validity, ownership, distinctiveness or enforceability of the Proprietary Assets and the good will associated therewith. Franchisee agrees that any use by Franchisee of all or any part of the Sandler System or the Proprietary Assets contrary to any provision of this Agreement, or any use by Franchisee of any confusingly similar method, format, procedure, technique, system, name, trade dress, mark, symbol, emblem, slogan, insignia, term, designation, design, diagram, promotional material or course material, during or after the term of this Agreement, shall cause irreparable injury to SSI, shall constitute a material breach of this Agreement, and shall entitle SSI to seek temporary, preliminary or permanent injunctive relief from a court or agency of competent jurisdiction, and to recover court costs, reasonable expenses of litigation, reasonable attorneys' fees, and any other appropriate remedies.

See also ECF 312-4 at 10-11; ECF 312-6 at 12-13.

         Section 12 of the Franchise Agreements pertains to covenants concerning noncompetition, protection of Proprietary Assets, and confidentiality. Paragraph 12.2 in the 2010 Franchise Agreement states, ECF 312-5 at 29:

12. 2 Franchisee, and persons controlling, controlled by or under common control with Franchisee, shall not, directly or indirectly, without SSI's prior written consent, during the term of the Franchise and at any time thereafter, use any of the Proprietary Assets . . . for any purpose not authorized in writing by SSI; use any confusingly similar method, format, procedure, technique, system, name, trade dress, mark, symbol, emblem, slogan, insignia, term, designation, design, diagram, promotional material or course material; or cause or permit any facility or program to look like, copy or imitate any facility or program operated or licensed by SSI.[5]

         B. The High Tech Boot Camp Agreement

         Prior to the renewal of the franchise agreement in 2005, SSI learned that Topline, Inc. and another franchisee, Ram Das, Inc. (“Ram Das” or “RDI”), “were printing material, commonly referred to as the High Tech Bootcamp Material (“HTBC Material”), derived from and containing SSI's Proprietary Assets without purchasing the materials from SSI.” ECF 312, ¶ 33. According to SSI, this constituted a breach of the 1993 Franchise Agreement. Id. ¶ 34.

         In a Declaration executed by Kraner in November 2011 (ECF 89-38), submitted in support of a motion for partial summary judgment filed by Topline, Inc. (ECF 89), Kraner asserted that, during a SSI training session in 1991, Kraner notified Sandler of flaws in SSI's training guidance. ECF 89-38, ¶¶ 6-7.[6] In particular, Kraner informed Sandler that he was uncomfortable with a component of the Sandler Sales System called the “Pretense Call” because that component was, in his view, deceptive, and “that aspect of the program [was] lacking integrity.” Id. ¶ 7. According to Kraner, Sandler invited Kraner to “come up with a better way.” Id. Kraner states that in 1992, after he began working full time as a SSI franchisee, Kraner and Guru Ganesha Singh Khalsa, the owner of Ram Das, developed a new method, which Kraner refers to as “The Honest Cold Call.” Id. ¶ 9.

         In the Declaration, Kraner averred that in 1993 he and Khalsa decided to focus their sales and marketing efforts on “High-Tech” customers - i.e., customers in the software and technology industries. Id. ¶¶ 11-12. According to Kraner, he and Khalsa agreed that SSI's “base material was developed for what Sandler called ‘living room sales, '” but that the materials were not suited for larger, more complex corporate settings. Id. ¶ 13. Therefore, Kraner and Khalsa made changes to the base SSI materials, including introducing customization; adding the “Honest Cold Call”; expanding buying motives; modifying “the pain/gain funnel”; and writing and sending recaps of sales calls via e-mail with clients. Id.

         Kraner claimed that he and Khalsa presented the new “High-Tech Selling System” to Sandler, who “encouraged [their] efforts to focus on . . . the high technology market and to develop and use the High-Tech Selling System.” Id. ¶ 14. And, Kraner asserted that Sandler agreed to allow him and Khalsa to create High-Tech Selling System materials for use during training programs. Id. Thereafter, Kraner and Khalsa created “customizable workbooks, a set of PowerPoint slides and audio recordings.” Id. After its initial development in 1993, Kraner and Khalsa continued to “develop and refine” the High-Tech Selling System. Id. ¶ 15.

         On November 8, 2005, SSI, Topline, Inc., Kraner, Ram Das, and Khalsa entered into the HTBCA to “confirm in writing [the parties'] agreement with respect to the production and ownership” of SSI's intellectual property and “to provide for the payment of the production fee by Ram Das and Topline to SSI . . . .” ECF 312, ¶¶ 35, 38; ECF 312-7 (HTBCA) at 3, ¶ I. In the HTCBA, Topline, Inc. is defined as “Topline” and Steven Kraner is defined as “Kraner.” ECF 312-7 at 2. Among other things, the HTBCA grants Topline and Ram Das exclusive rights to use, distribute, and sell certain manuals, audio recordings, and presentation materials that teach what is known as the “high-tech” method of sales training. ECF 312-7; §§ 2, 2.3, and ¶ J.

         Two terms defined in the HTBCA are at the core of the disputes between Topline and Sandler.

         The first term, “Sandler Proprietary Assets, ” is defined in the following “Explanatory Statement” of the HTBCA, ECF 312-7, ¶ B:

B. The distinguishing characteristics of the Sandler System include, but are not limited to, the name and mark SANDLER SALES INSTITUTE®, together with such other trade names, service marks, trademarks, copyrights, titles, symbols, trade dresses, emblems, slogans terms, designations, designs, diagrams, anecdotes, artworks, worksheets, techniques, and other audio, video and written material as SSI has developed, produced and designated for use in connection with the Sandler System, and as SSI may hereafter acquire, develop, produce or designate for use in connection with the Sandler System (“Sandler Proprietary Assets”).

         The second term, “Subject Proprietary Assets” (also referred to as the “HTBC Materials”), is defined in ¶ G of the HTBCA. It provides:

G. Ram Das, Khalsa, Topline and Kraner have jointly developed a manual (the “Manual”), which is based on and incorporates material derived from the Sandler Proprietary Assets and which is designed for use in delivering training in the Sandler Selling System to their clients. Ram Das, Khalsa, Topline and Kraner will also develop (a) audio recordings of Khalsa delivering training on the Sandler Selling System, which support the Manual (the “Audio”), and (b) presentation materials in Microsoft PowerPoint® format derived from the Manual and designed for use with the Manual in delivering training in the Sandler Selling System (the “PowerPoint Materials”). The parties acknowledge and agree that the current version of the Manual is attached hereto as Exhibit A [see ECF 261-11] . . . . For convenience of reference, the Manual, the Audio and the PowerPoint Materials, together with such modifications or updates as shall be made in accordance with Section 3.1. below, are collectively referred to as the “Subject Proprietary Assets.”

         Section Four of the HTBCA is titled “Ownership of Subject Proprietary Assets.” See ECF 312-7 at 6. It provides, id.:

4. . . . Ram Das, Khalsa, Topline and Kraner each acknowledge and agree that they developed the Subject Proprietary Assets as a derivative work of certain Sandler Proprietary Assets. Ram Das, Khalsa, Topline and Kraner acknowledge and agree that SSI is the sole and exclusive owner of the Sandler Proprietary Assets and any derivative works of such Sandler Proprietary Assets, including the Subject Proprietary Assets.
4.1 Ram Das, Khalsa, Topline and Kraner further acknowledge and agree that:
4.1.1 The Sandler Proprietary Assets contained in the Subject Proprietary Assets, including any future updates or modifications thereto, are the sole and exclusive property of SSI.
4.1.2 No copyright registration has or will be obtained by Ram Das, Khalsa, Topline or Kraner in the Subject Proprietary Assets with the United States Copyright Office.
4.2 Ram Das, Khalsa, Topline and Kraner understand and agree that they are hereby forever relinquishing any right to independently produce or re-produce the Subject Proprietary Assets, or any variation thereon, including the Prior Workbook . . . .

         Section Five of the HTBCA, titled “Production Fee, ” provides that Ram Das, Khalsa, Topline, and Kraner would purchase, inter alia, the Manual and the Audio exclusively from SSI. See ECF 312-7 at 6-7. And, ¶ 9.3, in the section, titled “Cross Default Provisions, ” is notable. Id. at 11. It provides, id.: “A material default by Ram Das or Topline under this Agreement shall be deemed a default under the Ram Das or Topline's License Agreement, as may be respectively applicable.” Concurrent with the execution of the HTBCA, Topline and SSI signed an Estoppel Certificate. It bars SSI from pursuing any causes of action against Topline or Ram Das for any prior breaches of the respective franchise agreements by way of improper printing or use of the HTBC Materials. Id. ¶ 37.

         C. The Co-Development Agreement

         Kraner and Khalsa, through Topline, Inc. and RDI, respectively, “jointly invented a unique, proprietary program for teaching negotiation and related skills called ‘Negotiating with the Savvy Buyer' (the ‘TSI/RDI Negotiation Program').” ECF 1, ¶ 21. On or about March 7, 2006, Topline, Inc.; RDI; and SSI entered into the CDA. Id. ¶ 22; see ECF 1-1 (CDA). The CDA provides that the parties “desire to modify the TSI/RDI Negotiation Program by adapting it to the methodology of SSI and adding SSI proprietary concepts in order to jointly develop and produce a new program . . . to be marketed and sold to SSI's Franchisees, International Partners and International Licensees . . . .” ECF 1-1 at 3, ¶ H.

         Under the CDA, SSI agreed to pay both Topline and RDI a twenty percent royalty of “SSI's net receipts, if any, from the sale of the SSI Negotiation Program to the Sandler Franchise Network, including initial and subsequently modified materials.” ECF 1-1 at 14, ¶ 7(a); see also ECF 1, ¶ 27. “Net receipts” was defined to include “all of SSI's revenues of every kind and character actually collected from the sale of the [SSI Negotiation Program], less all applicable sales and use taxes, gross receipts taxes and similar taxes received by SSI, and by any applicable bona fide refunds, rebates or discounts paid by SSI.” ECF 1-1 at 14. Paragraph 7(a) also provided that SSI would “render authenticated and accurate statements of its net receipts, which shall be signed by a duly authorized representative of SSI.” Id.

         In the Complaint, Topline, Inc. asserts that SSI breached the CDA in a number of ways. ECF 1, ¶ 56. For example, Topline, Inc. claims that SSI deducted “from royalties paid to Topline[, Inc.] certain costs and expenses, such as printing, binding, invoicing, and administrative fees, that are not permissible deductions from ‘net receipts' within the meaning of paragraph 7(a) of the CDA . . . .” Id. Topline, Inc. also asserts that SSI sold “the SSI Negotiation Program in bad faith and in a manner intentionally calculated to deprive Topline[, Inc.] of its bargained-for expectation of royalties under the CDA.” Id.

         D. Building Your Sales Factory

         In January 2011, Topline, Inc. and/or Kraner registered a work with the United States Copyright Office, titled Building Your Sales Factory.[7] ECF 312, ¶ 42; see ECF 312-9 (Screenshots of United States Copyright Office, Public Catalog, Registration No. TX7373270) (“Copyright Record”); ECF 312-11 (Building Your Sales Factory or “BYSF”).[8] The Copyright Record for Building Your Sales Factory lists “TopLine Solutions, Inc.” as the “Copyright Claimant”; the date of creation as 2011; the date of publication as January 15, 2011; the author as “Steve Kraner”; and the Type of Work as “Text.” See ECF 312-9. The Copyright Record provides that the “basis of claim” is “revised compilation.” See id. Additionally, as to “Preexisting Material”, the registration states “previous version.” See id.

         Of import here, SSI maintains that it only learned of the registration of Building Your Sales Factory on or about May 13, 2016, when Margaret Stevens Jacks, its Executive Vice President of Legal and Administration, searched the Copyright Office's online public catalog. ECF 312, ¶ 45. Thereafter, on or about May 26, 2016, SSI, through counsel, sent Topline, Inc. a Notice of Default and requested that Topline, Inc. submit a copy of Building Your Sales Factory to SSI. Id. ¶ 47. On or about July 14, 2016, counsel for Topline, Inc. provided SSI with a copy of a 98-page document titled The Reluctant Salesman, By Steven Kraner, 2 April 2011. ECF 312, ¶ 48; see ECF 312-10 (The Reluctant Salesman). According to SSI, Topline, Inc.'s counsel “purported it to be the copyrighted publication entitled Building Your Sales Factory.” ECF 312, ¶ 48.

         Because counsel for Topline, Inc. provided the Reluctant Salesman, but the Copyright Record reflected registration of Building Your Sales Factory, SSI requested from the Copyright Office a certified copy of the work registered by Topline as BYSF. ECF 312, ¶ 49. SSI received the certified copy of BYSF on or about August 10, 2016. Id. ¶ 50; see ECF 312-11.

         The copy of Building Your Sales Factory provided by the Copyright Office is a document consisting of 451 pages with fourteen sections. See ECF 312-11; see also ECF 312, ¶ 50. The document is not paginated and appears to include items from a mix of sources. Notably, several of the sections of BYSF indicate that the contents are the intellectual property of SSI. See id. For example, each page of the section “The Parature Sales Process” includes “©2007 Sandler Sales Institute All Rights Reserved.” Moreover, ECF 312-11 contains a variety of handwritten pages. See id.

         According to SSI, “[t]he certified copy of Building Your Sales Factory included numerous pages of Sandler Proprietary Material which had not been disclosed to SSI by Topline, [Inc., ] including: (a) pages from the HTBC Materials; and (b) what appears to be a customized variation of the HTBC Materials for a client by the name of Parature, which was not ordered from or provided by SSI.” ECF 312, ¶ 51. Moreover, SSI claims that “[t]he use of Sandler's [copyrighted] Proprietary Assets as pre-existing material in Plaintiff's copyright application was unauthorized and without Sandler's consent.” Id. ¶ 52. And, SSI asserts that it owns the copyright to its “Proprietary Assets.” Id. ¶ 53; see ECF 312-12 (SSI certificate of copyright registration).

         On what appears to be the first page of BYSF, the words “By Steve Kraner” appear to the right of the title. Id. at 3. Additionally, “Steve Kraner | © 2010 TopLine Solutions, Inc.” appears at the bottom of many pages. See Id. And, above the by-line on the first page is a photograph. See Id. A facsimile of the top-third of page one of BYSF is included below.

         (Image Omitted)

         II. Procedural History

         As indicated, Topline, Inc. filed suit on November 19, 2009. ECF 1. On April 6, 2010, Judge Messitte granted SSI's motion to transfer the case to the Northern Division (ECF 22), and the case was reassigned to Judge Legg. ECF 23. SSI answered the Complaint on April 19, 2010. ECF 24. Topline, Inc. moved to strike SSI's affirmative defenses on June 3, 2010. ECF 29. Judge Legg granted the motion to strike by Order of July 27, 2010 (ECF 35), and SSI docketed its First Amended Answer on August 12, 2010. ECF 37.

         Throughout the first half of 2011, the parties engaged in dogged discovery disputes. See docket. Then, in November 2011, the parties filed cross motions for partial summary judgment. ECF 88 (SSI); ECF 89 (Topline, Inc.). In particular, SSI sought summary judgment as to counts II, V, and VI, of the Complaint, pertaining to the HTBCA (see ECF 88), and Topline, Inc. sought summary judgment as to counts I and II of the Complaint, for breach of the CDA and the HTBCA. See ECF 89.[9]

         Judge Legg held a hearing on the cross motions for partial summary judgment on March 28, 2012. See ECF 245 (transcript of 3/28/2012 hearing). His rulings followed on April 18, 2012 (ECF 105) and April 30, 2012 (ECF 106). In ECF 105, Judge Legg granted summary judgment in favor of Topline, Inc. as to the claim for breach of the CDA (Count I of the Complaint). Id. In ECF 106, Judge Legg denied both cross motions with respect to counts II, V, and VI of the Complaint, concerning the alleged breaches of the HTBCA. Id.

         In particular, in ECF 105, concerning Topline, Inc.'s claim that SSI breached the CDA, Judge Legg found that SSI had breached the CDA by:

(1) “deducting shipping and printing costs from net receipts in calculating the royalty payments owed to Topline” (ECF 105 at 3);
(2) “failing to pay required royalties on sales of SSI Negotiation Program materials to [SSI's] in-house clients”; (id.);
(3) “failing to acknowledge or account for the use of the SSI Negotiation Program by its international franchisees” (id. at 4);
(4) “making royalty payments late and delivering inaccurate royalty statements that were not signed by a duly authorized representative of SSI” (id. at 5-6); and
(5) “failing to notify or consult with Topline as to the amount SSI charges members of the Sandler Franchise Network for access to the SSI Negotiation Program through its FTP server” (id. at 6).

         Judge Legg indicated that he was “inclined to appoint a Federal Rule of Evidence 706 accounting expert to conduct an accounting.” ECF 105 at 6-7. He explained, id.: “The Court is inclined to take this step because the protracted, unfruitful discovery process in the case suggests that discovery on this issue would be unlikely to produce answers.” With respect to the cross-motions for partial summary judgment, Judge Legg found ambiguities in the HTBCA that could not be resolved on summary judgment. ECF 106 at 5. He said, id. at 1-2:

Topline contends that the HTBC Agreement gives it the exclusive right to use the “Subject Proprietary Assets.” See HTBC Agreement Explanatory Statement ¶ G; § 2.3. According to Topline, these assets include (i) all pages of the Manual, as that document is updated and modified from time to time, and (ii) the Audio and the PowerPoint materials, as they are modified from time to time. Topline reads the Agreement as conferring on Topline and Ram Das the exclusive right to sell and present any materials in the Manual, whether those materials were created by SSI, Steve Kraner (the owner of Topline), or Guru Ganesha Khalsa (the owner of Ram Das).
* * *
SSI contends that the Subject Proprietary Assets include the following: (i) the version of the Manual attached to the Agreement as Exhibit A, and (ii) the Audio and the PowerPoint materials as modified in accordance with § 3.1 of the Agreement. Under this interpretation, SSI claims the right to sell or distribute modified versions of the Manual, including those portions created by Kraner and Khalsa. For instance, SSI argues that it can defeat Topline and Ram Das's exclusive right to use and sell the Manual by changing a single page.
Judge Legg determined, id. at 3:
The Court finds the HTBC Agreement to be ambiguous. Both Topline and SSI's literal interpretations find support in the language of the Agreement. Yet, both literal interpretations produce unreasonable, apparently unintended results. Under Topline's reading, SSI would have relinquished the right to use or sell a substantial portion of SSI's intellectual property. Under SSI's reading, SSI could defeat Topline's exclusive rights to use and sell the materials developed by Kraner and Khalsa merely by making cosmetic changes.

         Thereafter, the parties disagreed as to the appointment of the accounting expert. See, e.g., ECF 108; ECF 109; ECF 114. On May 22, 2012, Judge Legg appointed Barry Bondroff, C.P.A., as an independent accounting expert, pursuant to Fed.R.Evid. 706. ECF 111. Judge Legg directed Bondroff to submit a report and to testify at trial as to: 1) the amount of damages to which Topline is entitled as a result of SSI's deduction of printing and shipping costs from net receipts before calculating royalty payments under § 7(a) of the CDA; 2) whether royalties due to Topline under the CDA in connection with in-house client sales were properly accounted for and paid by SSI; and 3) a “retroactive accounting of royalties owed to Topline on the percentage of international franchise fees attributable to the Negotiation Program.” Id. Bondroff submitted his report on August 9, 2013. ECF 152. He submitted a supplement on March 10, 2016 (ECF 233), responding to plaintiff's exceptions to the prior findings. See ECF 172.

         In the interim, on October 25, 2012, the case was reassigned to Judge Quarles. See docket. Shortly thereafter, on November 16, 2012, the parties filed a joint motion to reopen discovery with respect to the HTBCA. ECF 137. Judge Quarles approved the motion by Order of the same day. ECF 138. Throughout 2013, 2014, 2015, and the first half of 2016, the parties were embroiled in extensive disputes regarding Bondroff's accounting and as to discovery. See, e.g., ECF 151; ECF 165; ECF 178; ECF 194; ECF 208; ECF 225. Judge Quarles resolved disputes pertaining to bifurcation of claims (ECF 194; ECF 204) and determined that Topline was entitled to a jury trial as to Count II of the Complaint, alleging breach of the HTBCA. ECF 204; ECF 205.

         The case was reassigned to me on January 22, 2016, due to the retirement of Judge Quarles. See docket. After telephone conferences with counsel on June 15, 2016 and June 27, 2016 (see docket), I scheduled the case for trial, to begin January 30, 2017. ECF 241.

         SSI filed a second motion for partial summary judgment on August 8, 2016 (ECF 248), supported by a memorandum (ECF 248-1) (collectively, “Second Summary Judgment Motion”) and many exhibits. See ECF 248-3 through ECF 248-19. In particular, SSI renewed its motion for partial summary judgment with respect to the HTBCA. Id. Then, on August 30, 2016, SSI filed a motion for leave to file a counterclaim, third-party complaint, and second amended answer. ECF 253 (“Motion to Amend”).

         Because of his availability, Judge Motz generously agreed to address SSI's Second Summary Judgment Motion and Motion to Amend. He held a motions hearing on November 30, 2016. See ECF 292. As noted, at the conclusion of the hearing, Judge Motz granted both motions. See also ECF 293.

         As to the claim of Topline, Inc. that SSI breached the HTBCA, Judge Motz said, ECF 308 (11/30/16 hearing transcript) at 62:

I don't understand how Mr. Kraner thought that he bought into the concepts. I mean, the agreement and mutual release - and I'm going to call it that because that's what it's called - pertains to, it defines the subject, what the subject matter is. And I do not find that he, Mr. Kraner, bought the concepts that merge. I just don't see that. So I'm going to grant the motion for partial summary judgment.
And, with respect to the Motion to Amend, Judge Motz stated, id. at 62-63:
I'm going to grant the motion for leave to file a counterclaim. I'm going to leave it up to Judge Hollander to decide whether or not that requires a postponement [of trial]. But clearly, the counterclaim can be filed. If there are other issues that are going to be, that the plaintiff wants to raise by filing a motion to dismiss, so be it . . . . I'll leave it up to the plaintiff whether to file a motion to dismiss.

         On December 8, 2016, I held a telephone conference with counsel to discuss the effect of Judge Motz's rulings on the trial schedule. See docket; ECF 311.[10] Among other things, I set a discovery deadline of April 10, 2017, limited to the Counterclaim; set a deadline of April 28, 2017, for dispositive motions[11]; and scheduled trial to begin on August 7, 2017. ECF 311.[12] At the end of the telephone conference, counsel for Topline indicated his intent to note an interlocutory appeal, pursuant to 28 U.S.C. § 1292(a)(1), as to Judge Motz's ruling on the Second Summary Judgment Motion. The appeal was filed on December 23, 2016. ECF 316.

         Thereafter, I asked counsel to inform the Court of their views as to whether the interlocutory appeal deprived the Court of jurisdiction with respect to the Counterclaim and, even if the Court retained jurisdiction, whether the case should be stayed pending the outcome of the appeal. ECF 317. Before responding, Topline filed the motions at issue. See ECF 320; ECF 321. The parties responded to my jurisdiction inquiry in late January 2017, and disagreed as to whether an appeal would divest the Court of jurisdiction to consider matters pertaining to the Counterclaim and whether the case should be stayed. ECF 325 (SSI); ECF 326 (Topline). I subsequently determined that the Court was not divested of jurisdiction to consider the Motion to Dismiss and the Motion to Strike, and I declined to stay the case. ECF 330.

         In any event, the Fourth Circuit dismissed the appeal on March 14, 2017. ECF 343. It concluded that Topline, Inc. did not appeal from a final order and that it had not demonstrated irreparable harm absent an immediate appeal. Id. at 3-4; see also 28 U.S.C. § 1292(a)(1).

         In the meantime, the parties engaged in discovery as to the Counterclaim. In doing so, they have continued their entrenched practice of failing to cooperate with each other - a practice that has plagued this case since its inception. See, e.g., ECF 332 through ECF 340; see also ECF 291 (observing that a “‘scorched-earth' style of litigation” dominates the case).

         On March 16, 2017, pursuant to Fed.R.Civ.P. 72(a), SSI objected to Judge Coulson's resolution of a discovery dispute (ECF 340) concerning, inter alia, the scope of discovery as to the Counterclaim. ECF 344 (“Objection”). I denied the Objection by Memorandum (ECF 348) and Order (ECF 349) of April 3, 2017.

         III. Legal Standards and Principles

         Topline, Inc. and Kraner assert multiple grounds in support of their Motion to Dismiss the Counterclaim. See ECF 320-1. They argue that SSI has failed to allege facts sufficient to support a claim that Kraner is personally liable as to any of the counterclaims or third-party claims; counts I, II, and III of the Counterclaim are barred by limitations; and each of the four counts of the Counterclaim fails to state a claim for relief. See id.

         Before addressing the challenges raised in the Motion to Dismiss, there are several preliminary matters that I shall review, because they provide a framework for my analysis.

         A. Choice of Law

         The parties did not address whether federal or state law applies to review of the state law claims. Nor have they identified which state's law would apply.

         The Counterclaim is predicated on the Court's federal question jurisdiction (see 28 U.S.C. § 1331) and the Court's diversity jurisdiction (28 U.S.C. § 1332) or supplemental jurisdiction (28 U.S.C. § 1367). In reviewing state law claims brought under diversity or supplemental jurisdiction, federal courts apply federal procedural law and the substantive law of the state in which the proceeding is brought, including the forum state's choice-of-law rules. See, e.g., Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938); Leichling v. Honeywell Intern., Inc., 842 F.3d 848, 851 (4th Cir. 2016); see also Kerr v. Marshall Univ. Bd. of Governors, 824 F.3d 62, 74 (4th Cir. 2016); Colgan Air, Inc. v. Raytheon Aircraft Co., 507 F.3d 270, 275 (4th Cir. 2007); C. Wright & A. Miller, Fed. Practice and Procedure, § 3567 (“Wright & Miller”). As to contract claims, Maryland applies the law of the state in which the contract was formed (“lex loci contractus”), unless the parties to the contract agreed to be bound by the law of another state. See, e.g., Am. Motorists Ins. Co. v. ARTRA Group, Inc., 338 Md. 560, 573, 659 A.2d 1295, 1301 (1995).

         Both the HTBCA (ECF 312-7 at 12, ¶ 11.2) and the Franchise Agreements (e.g., ECF 312-4 at 25, ¶ 14.1; ECF 312-5 at 31, ¶ 14.1) provide that they are to be governed by Maryland law. Counts I, II, and IV assert claims under Maryland law. Count III asserts a claim under federal law. Accordingly, Maryland substantive law applies as to counts I, II, and IV, and federal substantive law applies as to Count III.

         B. Standard of Review under Rule 12(b)(6)

         Topline has moved to dismiss the Counterclaim under Rule 12(b)(6). Such a motion tests the legal sufficiency of a complaint. Goines v. Valley Cmty Servs. Bd., 822 F.3d 159, 165-66 (4th Cir. 2016); McBurney v. Cuccinelli, 616 F.3d 393, 408 (4th Cir. 2010), aff'd sub nom. McBurney v. Young, ___ U.S. ___, 133 S.Ct. 1709 (2013); Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999).

         A Rule 12(b)(6) motion constitutes an assertion by a defendant (or a counter defendant) that, even if the facts alleged by a plaintiff are true, the complaint fails as a matter of law “to state a claim upon which relief can be granted.” Whether a complaint states a claim for relief is assessed by reference to the pleading requirements of Fed.R.Civ.P. 8(a)(2). It provides that a complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” The purpose of the rule is to provide the defendants with “fair notice” of the claims and the “grounds” for entitlement to relief. Bell Atl., Corp. v. Twombly, 550 U.S. 544, 555-56 (2007).

         To survive a motion under Fed.R.Civ.P. 12(b)(6), a complaint must contain facts sufficient to “state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570; see Ashcroft v. Iqbal, 556 U.S. 662, 684 (2009) (“Our decision in Twombly expounded the pleading standard for ‘all civil actions' . . . .” (citation omitted)); see also Simmons v. United Mortg. & Loan Inv., LLC, 634 F.3d 754, 768 (4th Cir. 2011). But, a plaintiff need not include “detailed factual allegations” in order to satisfy Rule 8(a)(2). Twombly, 550 U.S. at 555. Moreover, federal pleading rules “do not countenance dismissal of a complaint for imperfect statement of the legal theory supporting the claim asserted.” Johnson v. City of Shelby, ___ U.S. ___, 135 S.Ct. 346, 346 (2014) (per curiam).

         Nevertheless, the rule demands more than bald accusations or mere speculation. Twombly, 550 U.S. at 555; see Painter's Mill Grille, LLC v. Brown, 716 F.3d 342, 350 (4th Cir. 2013). If a complaint provides no more than “labels and conclusions” or “a formulaic recitation of the elements of a cause of action, ” it is insufficient. Twombly, 550 U.S. at 555. Rather, to satisfy the minimal requirements of Rule 8(a)(2), the complaint must set forth “enough factual matter (taken as true) to suggest” a cognizable cause of action, “even if . . . [the] actual proof of those facts is improbable and . . . recovery is very remote and unlikely.” Twombly, 550 U.S. at 556 (internal quotations omitted).

         In reviewing a Rule 12(b)(6) motion, a court “‘must accept as true all of the factual allegations contained in the complaint'” and must “‘draw all reasonable inferences [from those facts] in favor of the plaintiff.'” E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 440 (4th Cir. 2011) (citations omitted); see Semenova v. Maryland Transit Admin., 845 F.3d 564, 567 (4th Cir. 2017); Houck v. Substitute Tr. Servs., Inc., 791 F.3d 473, 484 (4th Cir. 2015); Kendall v. Balcerzak, 650 F.3d 515, 522 (4th Cir. 2011), cert. denied, 565 U.S. 943 (2011). But, a court is not required to accept legal conclusions drawn from the facts. See Papasan v. Allain, 478 U.S. 265, 286 (1986). “A court decides whether [the pleading] standard is met by separating the legal conclusions from the factual allegations, assuming the truth of only the factual allegations, and then determining whether those allegations allow the court to reasonably infer” that the plaintiff is entitled to the legal remedy sought. A Society Without a Name v. Virginia, 655 F.3d 342, 346 (4th. Cir. 2011), cert. Denied, ___ U.S. ___, 132 S.Ct. 1960 (2012).

         In general, courts do not “resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses” through a Rule 12(b)(6) motion. Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999). The purpose of the rule is to ensure that defendants are “given adequate notice of the nature of a claim” made against them. Twombly, 550 U.S. at 555- 56 (2007). But, “in the relatively rare circumstances where facts sufficient to rule on an affirmative defense are alleged in the complaint, the defense may be reached by a motion to dismiss filed under Rule 12(b)(6).” Goodman v. Praxair, Inc., 494 F.3d 458, 464 (4th Cir. 2007) (en banc); accord Pressley v. Tupperware Long Term Disability Plan, 533 F.3d 334, 336 (4th Cir. 2009); see also U.S. ex rel. Oberg v. Penn. Higher Educ. Assistance Agency, 745 F.3d 131, 148 (4th Cir. 2014). However, because Rule 12(b)(6) “is intended [only] to test the legal adequacy of the complaint, ” Richmond, Fredericksburg & Potomac R.R. Co. v. Forst, 4 F.3d 244, 250 (4th Cir. 1993), “[t]his principle only applies . . . if all facts necessary to the affirmative defense ‘clearly appear[ ] on the face of the complaint.'” Goodman, 494 F.3d at 464 (quoting Forst, 4 F.3d at 250) (emphasis added in Goodman ).

         Under limited exceptions, a court may consider documents beyond the complaint without converting the motion to dismiss to one for summary judgment. Goldfarb v. Mayor & City Council of Baltimore, 791 F.3d 500, 508 (4th Cir. 2015). A court may properly consider documents that are “explicitly incorporated into the complaint by reference and those attached to the complaint as exhibits . . . .” Goines, 822 F.3d at 166 (citations omitted); see U.S. ex rel. Oberg, 745 F.3d at 136 (quoting Philips v. Pitt Cty Memorial Hosp., 572 F.3d 176, 180 (4th Cir. 2009)); Anand v. Ocwen Loan Servicing, LLC, 754 F.3d 195, 198 (4th Cir. 2014); Am. Chiropractic Ass'n v. Trigon Healthcare, Inc., 367 F.3d 212, 234 (4th Cir. 2004), cert. denied, 543 U.S. 979 (2004); Phillips v. LCI Int'l Inc., 190 F.3d 609, 618 (4th Cir. 1999).

         A court may also “consider a document submitted by the movant that was not attached to or expressly incorporated in a complaint, so long as the document was integral to the complaint and there is no dispute about the document's authenticity.” Goines, 822 F.3d at 166 (citations omitted); see also Int'l Longshoreman's Ass'n., Local 333 v. Int'l Longshoremen's Ass'n., AFL-CIO, ___ Fed. App'x ___, 2017 WL 1628979 (4th Cir. May 2, 2017); Kensington Volunteer Fire Dep't. v. Montgomery Cnty., 684 F.3d 462, 467 (4th Cir. 2012). To be “integral, ” a document must be one “that by its ‘very existence, and not the mere information it contains, gives rise to the legal rights asserted.'” Chesapeake Bay Found., Inc. v. Severstal Sparrows Point, LLC, 794 F.Supp.2d 602, 611 (D. Md. 2011) (citation omitted) (emphasis in original).

         However, “before treating the contents of an attached or incorporated document as true, the district court should consider the nature of the document and why the plaintiff attached it.” Goines, 822 F.3d at 167 (citing N. Ind. Gun & Outdoor Shows, Inc. v. City of S. Bend, 163 F.3d 449, 455 (7th Cir. 1998)). “When the plaintiff attaches or incorporates a document upon which his claim is based, or when the complaint otherwise shows that the plaintiff has adopted the contents of the document, crediting the document over conflicting allegations in the complaint is proper.” Goines, 822 F.3d at 167. Conversely, “where the plaintiff attaches or incorporates a document for purposes other than the truthfulness of the document, it is inappropriate to treat the contents of that document as true.” Id.

         Under the principles articulated above, I may consider the eleven exhibits that SSI attached to its ...

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