United States District Court, D. Maryland
Lipton Hollander, United States District Judge
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”). See ECF
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”).
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.
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”) and Topline submitted a consolidated
reply. ECF 331 (“Reply”).
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.
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.
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.
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.
The Franchise Agreements
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.
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.
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
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.
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
(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.
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.
The High Tech Boot Camp Agreement
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.
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, ¶¶
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.
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.
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.
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.
terms defined in the HTBCA are at the core of the disputes
between Topline and Sandler.
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
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
Four of the HTBCA is titled “Ownership of Subject
Proprietary Assets.” See ECF 312-7 at 6. It
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
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 . . . .
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.
The Co-Development Agreement
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.
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.
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
Building Your Sales Factory
January 2011, Topline, Inc. and/or Kraner registered a work
with the United States Copyright Office, titled Building
Your Sales Factory. 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”). 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.
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.
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.
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.
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).
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.
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.
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.
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.
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
(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) “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).
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
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.
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.
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.
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.
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”).
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.
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
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.
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. 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; and scheduled trial to begin on August
7, 2017. ECF 311. 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.
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.
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).
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).
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.
Legal Standards and Principles
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.
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.
Choice of Law
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.
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,
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.
Standard of Review under Rule 12(b)(6)
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
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).
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).
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
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).
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
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).
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).
“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.
the principles articulated above, I may consider the eleven
exhibits that SSI attached to its ...