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Security Alarm Financing Enterprises, L.P. v. Alarm Protection Technology, LLC

United States District Court, D. Alaska

February 3, 2017

SECURITY ALARM FINANCING ENTERPRISES, L.P., a California Limited Partnership, Plaintiff and Counterclaim Defendant,
v.
ALDER HOLDINGS, LLC, a Utah Limited Liability Company; ALARM PROTECTION TECHNOLOGY, LLC, a Utah Limited Liability Company; ALARM PROTECTION TECHNOLOGY ALASKA, LLC, a Utah Limited Liability Company; ALARM PROTECTION ALASKA, LLC, a Utah Limited Liability Company, Defendants and Counterclaimants.

          ORDER RE DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

          SHARON L. GLEASON UNITED STATES DISTRICT JUDGE.

         Before the Court is Defendants' Motion for Summary Judgment at Docket 351. The motion is fully briefed, [1] and oral argument was held on December 15, 2016.[2]Plaintiff's motion at Docket 339 for summary judgment on Alarm Protection's counterclaims will be addressed in a separate order.

         BACKGROUND

         The following facts are drawn from SAFE's First Amended Complaint (FAC) at Docket 301, and are offered by way of background.

         In early 2013, the home alarm and security company Pinnacle sold its customer accounts to SAFE. This transaction included hundreds of customers in Alaska; these became SAFE's only customers in Alaska. But almost immediately, SAFE noticed that it was suffering an unusually high rate of attrition among its Alaska customers-many customers were cancelling their service with SAFE using what appeared to SAFE to be prewritten cancellation letters. SAFE suspected its customers were being actively poached by another alarm company and began investigating the cause of the high attrition rates. Based on that informal investigation, SAFE concluded-and subsequently alleged in its Complaint[3]-that Alarm Protection salespersons were systematically targeting SAFE's customers using a customer list obtained from a former Pinnacle employee. SAFE alleged that Alarm Protection's employees were making false statements about SAFE, about Alarm Protection, and about the relationship between the two companies, all in an effort to deceive SAFE's customers into switching to Alarm Protection's services. This suit and countersuit followed.

         DISCUSSION

         I. Jurisdiction

         The Court has jurisdiction over Claim I pursuant to 28 U.S.C. § 1331 because it arises under the Lanham Act, 15 U.S.C. § 1125. The Court has supplemental jurisdiction over the remaining claims pursuant to 28 U.S.C. § 1367 because each arises from the same transaction or occurrence as Claim I.[4]

         II. Standard for Summary Judgment

         Federal Rule of Civil Procedure 56(a) directs a court to “grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” The burden of showing the absence of a genuine dispute of material fact initially lies with the moving party.[5] And because SAFE bears the burden of proof at trial, Alarm Protection may prevail at summary judgment if it shows that “there is an absence of evidence to support [SAFE's] case.”[6]But “[i]t is not enough to move for summary judgment . . . with a conclusory assertion that the plaintiff has no evidence to prove his case.”[7] If Alarm Protection does meet its burden, the burden then shifts to SAFE “to designate specific facts demonstrating the existence of genuine issues for trial.”[8]

         When considering a motion for summary judgment, a court must accept as true all evidence presented by the non-moving party, and draw “all justifiable inferences” in the non-moving party's favor.[9] To reach the level of a genuine dispute, the evidence must be such “that a reasonable jury could return a verdict for the non-moving party.”[10] If the evidence provided by the non-moving party is “merely colorable” or “not significantly probative, ” summary judgment is appropriate.[11]

         III. Analysis

         Defendants Alder Holdings, Alarm Protection Technology, Alarm Protection Technology Alaska, and Alarm Protection Alaska (collectively, Defendants)[12] move for summary judgment to narrow and eliminate several of Plaintiff SAFE's claims.

         First, Defendants seek to limit all of Plaintiff's claims to the fifty customers that Plaintiff specifically identified in discovery.

         Second, they seek summary judgment to limit Plaintiff's Unfair Trade Practices Act (UTPA) claim to alleged misrepresentations.

         Third, they seek to eliminate Plaintiff's Lanham Act and UTPA claims that are based on (1) statements by Alarm Protection employees that Alarm Protection is “local”; (2) statements that SAFE had service issues in Alaska; (3) statements that SAFE resisted customers' cancellation requests; and (4) statements that Alarm Protection was “wireless” and “safer.” They thereby seek to limit SAFE's Lanham Act and UTPA claim to allegations that Alarm Protection employees falsely stated that SAFE had gone out of business and that Alarm Protection had taken over SAFE's accounts. They also seek to eliminate the remaining Lanham Act claim for disgorgement on the grounds that SAFE has no evidence of any specific revenues of Defendants tied to the customers to whom such statements were made.

         Fourth, Alarm Protection seeks summary judgment on SAFE's trade secrets claim on the grounds that SAFE has no evidence that Alarm Protection ever possessed SAFE's customer list, much less used it, and no evidence of damages arising from any such use.

         Fifth, Alarm Protection seeks partial summary judgment on SAFE's defamation per se claim because Alarm Protection maintains that the claim is based primarily on statements that cannot be shown to be false and statements that are expressions of opinion. Alarm Protection asserts that the only defamation per se claim that should survive summary judgment is that based on alleged statements that SAFE was going out of business.

         Sixth, Alarm Protection contends that the defamation per quod claim fail because SAFE has no evidence of special damages.

         Seventh, Alarm Protection seeks summary judgment on SAFE's intentional interference of contract claims on the grounds that SAFE's contracts were unenforceable under Alaska law and that SAFE cannot show that Alarm Protection's alleged conduct “engendered” the breach.

         Eighth, Alarm Protection seeks summary judgment on the Lanham Act claim based on Alarm Protection's use of the word “safe” on its websites.

         Ninth, and finally, Alarm Protection argues that because SAFE's damages expert, John Brady, has been excluded, SAFE cannot prove any damages at all.[13]

         The Court will address each of these contentions in turn.

         A. Limiting the case to fifty customers

         Alarm Protection contends that when the Court denied its motion to dismiss, it required that SAFE “disclose, customer by customer, the allegedly improper statements or conduct of Alarm Protection that SAFE intends to present at trial.”[14] And because SAFE has only disclosed statements related to no more than fifty customers, [15] Alarm Protection argues that SAFE cannot recover damages or press any claims based on any other customers.[16] SAFE counters that it can prove a broader unfair practice based on statements made to just a few customers, and that it need not present every statement made to every customer that it claims was lost to Alarm Protection.[17]

         The Court did state that it found “considerable merit in defendant's observation that there is an entitlement to have all of the statements identified that plaintiff has as the basis for its cause of action to defendant, ” and that the Court “would not anticipate or expect there to be any other evidence of other statements made, other than that which has been clearly disclosed in response to a discovery request.”[18] The Court added that “each side, to the extent it's alleging defamation or other misstatements by the other side, must identify each of those statements, to the extent requested in discovery, if that party intends to rely on those statements at trial.”[19] The Court stands by those statements, but it appears that Alarm Protection reads too much into them. The Court did not intend to limit SAFE's entire case to disclosed statements, but only to limit the evidence-that is, the statements that the “party intends to rely on . . . at trial”-to disclosed statements.

         Alarm Protection's reply does not address SAFE's legal argument that it could prove a broader case based on a comparatively narrow group of customers. But Lanham Act damages in particular need not be proven with specificity regarding each customer, as a trier of fact may “accept ‘crude' measures of damages based upon reasonable inferences so long as those inferences are neither ‘inexorable . . . [nor] fanciful.'”[20]Likewise, the UTPA prohibits “unfair or deceptive acts or practices.”[21] Depending on the evidence presented, the jury might reasonably infer from statements made to fifty former SAFE customers that Alarm Protection engaged in a wider practice that was unfair under the act.[22] The Court will not grant summary judgment limiting SAFE's “case” to fifty customers.

         B. UTPA limited to representations

         Alarm Protection seeks to eliminate, at summary judgment, the possibility of liability under the UTPA based on certain alleged conduct. Specifically, Alarm Protection argues that the UTPA does not impose liability for offers to pay cancellation fees, preparation of cancellation letters, or preticketing.[23]

         1. Cancellation Fees and Cancellation Letters

         Alarm Protection contends that there is no evidence or authority that, standing alone, the act of offering to pay a customer's cancellation fee is an unfair or deceptive act or practice under the UTPA. The practice alleged by SAFE, Alarm Protection asserts, does not fall within the UTPA's prohibition on using checks the cashing of which obligates the recipient.[24] And, Alarm Protection continues, there is simply no authority suggesting that assisting a customer in terminating prior contracts is somehow unfair or deceptive. SAFE responds that the practice is in fact deceptive. But SAFE's evidence that the practice is deceptive focuses on other deceptive actions taken in relation to the checks and letters.[25] The Court agrees with Alarm Protection that UTPA liability cannot be based solely on the practice of assisting with cancellation or providing reimbursement. But the Court recognizes that this practice was integrated into other alleged misconduct, and the Court does not mean to suggest by this ruling that SAFE will not be permitted to present evidence related to the predrafting of cancellation letters or offers to reimburse cancellation fees.

         2. Preticketing

         On this point, Alarm Protection does not argue that its apparently “common practice of including preprinted retail prices for equipment and services on its contracts” and then reducing the prices as a matter of course is not deceptive.[26] Instead, Alarm Protection contends only that “SAFE has no evidence of any specific customer that it lost because of alleged ‘preticketing.'”[27] SAFE points to deposition testimony from one former SAFE customer who indicated that she understood the price reduction to be a “promotion” whereby if she signed a contract with Alarm Protection she would be charged “a much lower fee than they would normally charge.”[28] Alarm Protection points to other aspects of its products and services that were appealing to that customer, but these do not conclusively establish that the “discount” was not a factor in that customer's decision.[29]A jury could reasonably infer from this evidence that Alarm Protection's practices were a proximate cause of this customer's decision to leave SAFE.

         C. Non-liability for certain statements

         1. Statements that Alarm Protection is “local”

         Alarm Protection contends that statements that it is a “local” company cannot be a basis for Lanham Act or UTPA claims because, first, it is a true statement, and second, SAFE has no evidence of causation relating to these statements.[30] SAFE counters that even if Alarm Protection is in some sense a “local” company, the statement is still potentially misleading to customers because much of Alarm Protection's service apparatus is located in Utah.[31]

         SAFE points to the Second Circuit's decision in Harsam Distributors, Inc. v. FTC, which upheld an FTC cease-and-desist order when the distributor of a perfume made in the United States using a French-made concentrate was advertised as “compounded in France.” The Second Circuit reasoned that although the advertising “might well disclose to those familiar with the manufacturing of perfume” that only the concentrate was from France, “such specialized knowledge” could not be “imputed to the average purchaser.” The Court of Appeals accordingly upheld the order, since the FTCA “was not made for the protection of experts, but for the public.”[32] This is an older case, from a different circuit, under a different statute. And yet the fundamental principle for which it stands- that even true statements can be misleading or deceptive-carries over to this context.[33]Whether Alarm Protection truly is “local, ” whatever that term might mean, a reasonable jury could conclude based on the proffered evidence of Alarm Protection's corporate and service structures that such assurances are “deceptive.”[34]

         And one customer stated that the fact that Alarm Protection was based in Alaska was a “major point for me, ” and a point of contrast with SAFE when Alarm Protection's salesperson came by.[35] This is sufficient evidence so as to preclude summary judgment to Alarm Protection on causation.

         2. Statements that SAFE had service issues in Alaska, resisted cancellation requests or that Alarm Protection's services were “wireless and safer”

         Alarm Protection asserts that “claims based on alleged statements relating to whether SAFE has ‘local service people, ' whether SAFE has ‘unscrupulous retention practices, ' and whether Alarm Protection is ‘wireless and safer' fail because these statements are true and because SAFE cannot show any harm caused by them.”[36] SAFE does not address this argument in its opposition; the Court presumes therefore that it lacks evidence of any harm caused by these statements.[37]

         D. Disgorgement under the Lanham Act

         Alarm Protection argues that SAFE cannot obtain disgorgement for two reasons. First, Alarm Protection contends that SAFE cannot tie any revenues obtained by SAFE to the 19 specific customers Alarm Protection believes the claim should be limited to. The Court has already rejected the contention that the Lanham Act claims must be limited to a particular subset of customers, and so it rejects this ground. Second, Alarm Protection contends that Alarm Protection's incontrovertible evidence of its costs show that it did not make any profit from its Alaska operations, including the customers that came from SAFE.[38]

         But the asserted “undisputed fact that there has been no profit in Alaska by Alarm Protection” is, in fact, disputed. SAFE has shown evidence of revenues by Alarm Protection.[39] As the parties agree, it is Alarm Protection's burden, then, to negate that profit by showing its expenses.[40] But Alarm Protection has not demonstrated the absence of a genuine dispute; the costs that it asserts negate any revenue were apparently calculated by assigning some portion of Alarm Protection's total costs nationally to Alaska.[41] One such cost was “residual override, ”[42] which was assigned based on some percentage (the record excerpts do not disclose either the percentage or the basis for that percentage) to Alaska, but Mr. DeMordaunt testified that he could not say whether all Alaskan salespersons even received such payments.[43] Whether this assignment of costs to Alaskan operations is accurate is subject to dispute; summary judgment is not warranted.

         E. Trade Secrets Claim

         SAFE's trade secret claim requires proof of three elements. SAFE must show that (1) SAFE's trade secret was (2) misappropriated by Alarm Protection, (3) causing damages to SAFE or unjust enrichment of Alarm Protection.[44] Alarm Protection contends that SAFE cannot prove any of these elements.

         1. Trade Secret

         “A trade secret misappropriation claim cannot be established unless the plaintiff had a trade secret that was communicated to the defendant in circumstances giving rise to a duty of secrecy.”[45] A trade secret is information that “derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by” an entity's competitors and also “is the subject of efforts . . . to maintain its secrecy.”[46] This two-part test requires, first, that the information is “worthy of being kept secret, ” and second, that it was “actually kept secret.”[47] To answer the first inquiry, a court considers, among other factors, “the amount of effort or money expended by [the business] in developing the information, ” and “the ease or difficulty with which the information could be properly acquired or duplicated by others.”[48]

         In Alarm Protection's view, the identity of SAFE's customers cannot be a trade secret because that information is not kept secret-SAFE customers put a SAFE sign in their yards-and therefore anyone may properly acquire the information simply by looking for SAFE signs in people's yards.

         So far as the Court can discern, and the parties have not indicated otherwise, the Alaska Supreme Court has given no guidance on the circumstances in which a customer list, standing alone, is a protectable trade secret.[49] It may well be within a jury's common experience that people who have already purchased a type of product or service are generally more likely to purchase that same type of product in the future. A cigar salesman may always be on the lookout for new customers, but he will likely sell more cigars to someone who already smokes them. A list of people that are currently paying for alarm services-and thus apparently value the service-would be valuable to someone trying to sell those services because the salesperson could concentrate her time and energy on those prospective customers most likely to become actual customers. The customer list is not just a collection of people and their contact information, but a collection of people who are likely to buy certain services.

         But different customer lists have different value. In this regard, the California Supreme Court has differentiated between customer lists in the “retail delivery route” industry, such as for the provision of pick-up/delivery laundry services, and customer lists in the building maintenance industry. In the first industry, “[t]he names of the customers of a business concern whose trade and patronage have been secured by years of business effort and advertising, and the expenditure of time and money” and are thus protectable trade secrets.[50] But in the second industry, building maintenance, a customer list is not as valuable because prospective customers “are commonly known to the trade or may easily be discovered through business directories or by observation.”[51]

         Alarm Protection's view is that SAFE's customer list could be obtained in large part simply by driving around Alaskan neighborhoods looking for SAFE signs. SAFE responds that given the wide distribution of its customers, this was not truly feasible.[52] But while it might not be easy to compile such a list, the Court finds that the customer list, standing alone, appears to be ascertainable “by observation, ” since SAFE's customers display their affiliation with SAFE by signs in their front yards, and that the list of customers, by itself, is thus not a protected trade secret.

         However, SAFE claims trade secrets broader than just the identity of its customers. It asserts that valuable information includes of “a combination of [the customers'] identities, their contract information, and their type of equipment.”[53] SAFE has produced evidence-admittedly disputed-that Alarm Protection personnel had this type of information.[54] Alarm Protection maintains that this information is easily gathered “through multiple proper means including neighbors, signs, and the customers themselves.”[55] But obtaining information by questioning people with a SAFE sign in their yard about their and their neighbors' contracts is a far greater undertaking than simply driving neighborhoods with a clipboard. This type of detailed information is precisely the type of customer information that courts routinely consider a trade secret.[56]

         2. Misappropriation

         The trade secret claim requires SAFE to prove “misappropriation, ” which means the “acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means” or the “use of a trade secret of another without express or implied consent by a person who [] used improper means to acquire knowledge of the trade secret.” The Alaska statute defines “improper means” to include “breach or inducement of a breach of a duty to maintain secrecy.”[57]

         Alarm Protection presents evidence in the form of two (essentially identical) declarations by its employees who attest that they did not use any confidential information obtained from SAFE or Pinnacle.[58] Alarm Protection is correct that SAFE has not presented any direct evidence-such as testimony from those same or other employees-that Alarm Protection personnel were using proprietary information. But SAFE has compelling circumstantial evidence: First, both of those employees were previously employed by Pinnacle.[59] Second, these employees knew details about customer's contracts that were not readily ascertainable.[60] Third, SAFE lost nearly 258 customers it acquired from Pinnacle to Alarm Protection within months of acquiring them.[61]

         While this is all circumstantial evidence, it is nonetheless substantial evidence. If, at trial, the jury disbelieves the employees' testimony, [62] and accepts SAFE's evidence offered above, it could reasonably conclude that these employees had proprietary information about SAFE's customers and their contracts and used this information in their solicitation of those customers.

         3. Causation and Damages

         SAFE can recover on its trade secret claim only if it establishes damages or unjust enrichment were caused by the misappropriation.[63] Alarm Protection contends that SAFE has “no evidence or expert testimony as to damages allegedly arising from any misappropriation.”[64] But this is not a complex medical or scientific case that would require SAFE to produce an expert to establish legal or proximate causation; summary judgment on this basis is unwarranted. And specifically with respect to the determination of the amount of damages, the Court declines to grant summary judgment on this issue to Alarm Protection. While SAFE will be required at trial to prove its damages by a preponderance of the evidence, it has presented sufficient evidence of some damage, albeit disputed, to survive summary judgment.[65]

         F. Defamation Per Se

         SAFE's defamation per se claim requires showing that Alarm Protection negligently made a false statement about SAFE's business to third parties, that those third parties would understand the statements to be about SAFE, and that the statement was “so unambiguous as to be reasonably susceptible of only one interpretation-that is, one which has a natural tendency to injure another's reputation.”[66]

         Alarm Protection argues that many of the statements it is alleged to have made cannot support this claim. In Alarm Protection's view, only the alleged statements that “SAFE is going out of business or is out of Alaska” could support a defamation per se claim.[67] SAFE argues that statements that SAFE has “no service people in Alaska” are also defamatory per se. The Court agrees, as having no personnel in Alaska would imply that SAFE was unable to service its alarms in Alaska, which if true would “adversely affect [SAFE's] fitness for the proper conduct of [its] lawful business, trade, or profession.”[68] But Alarm Protection responds that this statement was true. Alarm Protection has presented substantial evidence that indicates SAFE service technicians were unavailable in many areas.[69] And SAFE has not pointed the Court to any evidence to demonstrate a genuine dispute on this topic.[70] Accordingly, the Court concludes that Alarm Protection is entitled to summary judgment on SAFE's defamation claims based on statements that SAFE did not have service people in Alaska.

         Alarm Protection also argues that SAFE's recovery must be limited to damages related to the specific customers and statements that SAFE has identified. SAFE counters that the jury can infer that the statements were made to all of SAFE's customers that it lost to Alarm Protection.[71] SAFE cites to a Fifth Circuit case for this proposition.[72]

         In that case there was evidence that the person responsible for training the salespersons told all the salespersons to tell potential customers that the competitor was going out of business, [73] and several of those salespersons testified that they did make the statements, including one who testified that she made the statements to hundreds of potential customers.[74]

         In SAFE's motion for summary judgment, which this order does not directly address, it argued that Alarm Protection could not prove damages arising from any defamation because each of the customers to whom SAFE allegedly defamed Alarm Protection is still an Alarm Protection customer.[75] In response, Alarm Protection argued that it could present the recordings of the statements made to these four customers and the jury could infer from those statements that SAFE had made the same statements to others.[76] Alarm Protection has not explained its apparent inconsistency on this issue.[77]Given Alarm Protection's view in support of its own defamation claims, the Court will deny its motion for summary judgment on this issue.

         G. Defamation Per Quod

         Alarm Protection contends that SAFE's defamation per quod claims-claims for which SAFE must show specific damages caused by the statements-also fail for various reasons. Chief among them for purposes of this order is that SAFE does not demonstrate any triable issues of fact as to this claim except as to statements that indicated that SAFE was going out of business.[78] As discussed above, the Court agrees, and will grant partial summary judgment to Alarm Protection on SAFE's defamation claims-per se and per quod-and will allow those claims to proceed only with respect to the alleged statements that SAFE was going out of business.

         H. Intentional Interference with Contract

         The parties agree that the elements of SAFE's contract interference claims are (1) the existence of a contract; (2) the defendant's awareness of the contract; (3) breach of the contract; (4) causation; (5) damages; and (6) the defendant's actions were not privileged.[79] Alarm Protection asserts that SAFE cannot show the existence of a contract, causation, damages, or lack of privilege.

         1. ...


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