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IOW, LLC v. Breus

United States District Court, D. Arizona

August 26, 2019

IOW, LLC, an Arizona limited liability company; and When Enterprises Corp., a Delaware corporation, Plaintiffs/Counterdefendants,
v.
Michael Breus and Lauren Breus, husband and wife, Defendants/Counterclaimants.

          ORDER

          David G. Campbell Senior United States District Judge

         Plaintiffs IOW, LLC (“IOW”) and When Enterprises Corp. (“WEC”) brought this action against Dr. Michael Breus and Lauren Breus, asserting claims for breach of contract and the implied covenant of good faith and fair dealing, misappropriation of trade secrets, unjust enrichment, unfair competition, and trademark infringement under 15 U.S.C. § 1114. Doc. 1-1 at 1-19. Defendants counterclaimed, seeking to cancel several of Plaintiffs' registered trademarks.[1]

         Defendants move for summary judgment on all claims (Docs. 76, 79) and Plaintiffs cross-move on Defendants' counterclaim (Doc. 81). The motions are fully briefed, and oral argument will not aid in the Court's decision. See Fed R. Civ. P. 78(b). For the following reasons, the Court will grant in part Defendants' motion as to Plaintiffs' claims and deny the parties' cross-motions on Defendants' counterclaims.

         I. Background.

         Dr. Breus is a clinical psychologist, board certified in clinical psychology and sleep disorders, who studies how his patients' chronobiologies effect their treatment. Docs. 77 at 1-2; 84 at 2.[2] Chronobiology is the science of the human body's natural circadian rhythms, and a chronotype is an individual's internal circadian rhythm that influences her sleep cycle and activity. Doc. 77 at 2. Dr. Breus has authored three books and more than eighty blogs discussing chronobiology and circadian rhythms. Id. at 2-3; Doc. 84 at 2.

         In December 2013, Dr. Breus met Randy Miller, the sole member of IOW and the majority shareholder of WEC. Docs. 77 at 7; 83 at 3. Miller told Dr. Breus about his business, WHEN, and shared his ideas for an online counseling platform branded around the name, “If or When” or “If not Now When, ” where coaches would help customers achieve their goals based on the concept of: “If I don't do it now, when will I do it?” Doc. 77 at 7. Dr. Breus and IOW entered into a Confidentiality Agreement regarding their discussions in January 2014, but had no other agreements. Id. Dr. Breus provided no services to Plaintiffs and was never identified as an associate by their promotional materials. Id. In February 2015, IOW assigned the Agreement to WEC, which now owns all intellectual property related to the WHEN business. Id. at 10.[3]

         The present dispute concerns Dr. Breus's third book, The Power of When. Dr. Breus and his ghostwriter, Valerie Frankel, began collaborating on the book in November 2014. Id. at 3. Originally titled The Overnight Solution, the book posits that an individual can be healthier and more productive by adjusting when she accomplishes certain tasks. Id. at 3-4. Based on extensive research, the book identifies four general chronotypes that inform when a person should do certain activities, and includes a “Bio-Time Quiz” that helps readers identify their chronotype. Id. In August 2015, Dr. Breus acquired the domain name thepowerofwhen.com to use as a promotional website for the book, which went live in August 2016. Id. at 5. He also registered thepowerofwhenquiz.com to publish his Bio-Time Quiz, which went live in July 2016. Id.

         The parties agree that Dr. Breus never disclosed information about Plaintiffs or Miller to his ghostwriter or publisher, Little, Brown, and Company (“LB”). Id. at 7. But Plaintiffs assert that Dr. Breus, in developing the concept for his third book, used and incorporated information that he discussed with Miller and that was subject to the Confidentiality Agreement and trade secret protections. Id.; Doc. 84 at 3.

         II. Summary Judgment Standard.

         A party seeking summary judgment “bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, shows “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). Summary judgment is also appropriate against a party who “fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex, 477 U.S. at 322. Only disputes over facts that might affect the outcome of the suit will preclude summary judgment, and the disputed evidence must be “such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

         III. Plaintiffs' Claims.

         A. Breach of Contract.

         1. IOW's Standing.

         A plaintiff must establish that it has standing to bring suit. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560-61 (1992). Three elements are required for Article III standing: (1) an injury-in-fact, (2) causation between the injury and the allegedly wrongful conduct, and (3) that the injury is likely to be redressed by a favorable decision from the Court. Lujan, 504 U.S. at 560.

         Plaintiffs allege that Defendants breached the January 2014 Agreement by using confidential business strategies and concepts in developing and marketing The Power of When. Doc. 1-1 at 8. Defendants argue that IOW lacks standing because it assigned the Agreement to WEC in February 2015, before Dr. Breus titled or published his book, and that IOW has no injury because WEC now owns all alleged intellectual property of the business. Doc. 76 at 17. IOW responds that it was under common control with WEC during the relevant time and therefore constitutes an “affiliate” under the Agreement and can enforce the confidentiality obligations. Docs. 83 at 5; see 84-9 at 2-3.

         The Agreement deems confidential certain information disclosed by the “Owner” to the “Recipient. See Doc. 84-9 at 2-3. The terms Owner and Recipient are defined to include “affiliates of the parties, ” meaning “any person or entity controlling, controlled by[, ] or under common control with a party.” Id. Defendants do not dispute that IOW is an “affiliate” under the Agreement and was under common control with WEC at the time of the alleged breach. They assert instead that IOW must be a primary party in interest to enforce the Agreement's terms, citing Stratton v. Inspiration Consolidated Copper Co., 683 P.2d 327 (Ariz.Ct.App. 1984), which states that to “recover under the third party beneficiary doctrine, the contract relied upon by the third party must reflect that the parties thereto intended to recognize [it] as a primary party in interest.” Doc. 91 at 2.

         IOW does not argue that it is a third-party beneficiary or that it qualifies to sue for breach of the Agreement as a third-party beneficiary. Nor does it address specifically how it otherwise satisfies the elements required for Article III standing. IOW states that “the rights and obligations under the [Agreement] extend to affiliates of the parties under common control, ” that it “continued to be covered under the terms of the [Agreement], ” and that it owned the proprietary information when Defendants first began breaching. Doc. 83 at 5-6. The broad definitions of Owner and Recipient to include “affiliates” appear to expand the scope of information deemed confidential. But saying that an affiliate's information is to be treated as confidential under the Agreement is not the same as saying that the affiliate is a party to the Agreement with rights to sue for breach. And other than the Agreement language, IOW cites no evidence in the record showing when it was injured, what cognizable injury it suffered as a non-party “affiliate, ” or any legal authority supporting its standing argument. IOW has failed to establish standing to assert the breach of contract claim, and the Court will grant Defendants summary judgment against IOW on this claim. See Celotex, 477 U.S. at 322; Lujan, 504 U.S. at 560-61.

         2. WEC's Claim.

         To prevail on a breach of contract claim, a plaintiff must show the existence of a contract, its breach, and resulting damages. See Thomas v. Montelucia Villas, LLC, 302 P.3d 617, 621 (Ariz. 2013); Snow v. W. Sav. & Loan Ass'n, 730 P.2d 204, 210 (Ariz. 1986). “[I]nterpretation of a contract is generally a matter of law, ” Powell v. Washburn, 125 P.3d 373, 375 (Ariz. 2006), but whether a party has breached the contract is a question for the trier of fact, see Walter v. F.J. Simmons, 818 P.2d 214, 218-19 (Ariz.Ct.App. 1991); Shiloh Custom Homes, Inc. v. Drywall, No. 1 CA-CV 07-0677, 2009 WL 690600, at *7 (Ariz.Ct.App. Mar. 17, 2009). A party breaches a contract when it “fail[s], without legal excuse, to perform any promise which forms the whole or part of a contract.” Snow, 730 P.2d at 210.

         WEC alleges that Defendants breached the Agreement by using confidential business strategies and concepts to their advantage (Doc. 1-1 at 8), including WEC's trademarks, branding, and business models (Doc. 83 at 6-8). Defendants argue that WEC has no evidence that Dr. Breus shared WEC's confidential information with others to show breach. Doc. 76 at 8-10.

         WEC asserts that Dr. Breus “utilize[d] the confidential materials received from [WEC], which included the confidential proposed trademarks and branding of WHEN selected by Mr. Miller.” Doc. 83 at 6. But WEC's unexplained record citations do not support this assertion. They reference Defendants' statement of facts regarding Dr. Breus's collaboration with Frankel, Defendants' characterization of The Power of When book, and Defendants' disputed contention that Dr. Breus acquired the domain names at LB's instruction. Id. (citing Doc. 77 at 3, 5). WEC also cites its statement of facts, which identifies the date on which Dr. Breus released the book, quotes the book's synopsis and selected content, and quotes part of the book's forward, written by Dr. Mehmet Oz. Id. (citing Doc. 84 at 7-8). WEC then discusses how, before Miller met Dr. Breus, Miller requested his attorney perform a trademark search on Power of When, and that he and his attorney “considered that phrase to be highly confidential” until it was publicly disclosed in an August 2016 trademark application. Id. But this evidence does not show that Defendants disclosed confidential information in violation of the Agreement.[4]

         WEC contends that The Power of When and the book's marketing materials and programs mimic the WHEN programs, ideas, and brand models. Doc. 83 at 6-7. But WEC's cited evidence again fails to support these assertions. WEC cites its statement of facts, which reasserts that the Agreement covered financial and business-related information related to the WHEN business, including the phrase, “the power of when, ” again discusses when Dr. Breus released his book, and quotes parts of the book's content, synopsis, and forward. Id. (citing Doc. 84 at 6-8). Defendants do not dispute that Miller shared with Dr. Breus many of the things WEC alleges (see Doc. 91 at 3 n.1), but WEC's citations do not show that Dr. Breus ever disclosed that information to others in violation of the Agreement. The evidence simply describes information purportedly covered by the Agreement, and quotes portions of The Power of When.

         WEC argues next that the origin of Dr. Breus's book title is disputed and creates an issue of fact regarding breach. Doc. 83 at 7. Defendants cite evidence that Dr. Breus's publisher, LB, conceived the title in a meeting where Dr. Breus was not present and later suggested the title to him via email. Doc. 76 at 9-10 (citing Doc. 77-2 at 8-13). WEC responds with the following evidence. Doc. 83 at 7. In a series of emails between Dr. Breus, Frankel, Dr. Breus's agent, Alex Glass, and Tracy Behar of LB, Behar stated that Glass and she had discussed Perfect Timing, When to Do Everything, and Time of Your Life as title options, and that Frankel liked The Science of When. See Doc. 84-14 at 2-3. Glass responded that he liked The Science of When and that Dr. Breus liked Perfect Timing and Time of Your Life. Behar suggested The Power of When several days later. Id. Based solely on these communications, WEC contends that “serious question[s] of credibility” preclude summary judgment because Glass and Dr. Breus discussed title options before Behar suggested The Power of When and Frankel had also previously suggested a similar title. Doc. 83 at 7.[5]

         These emails are the sole basis for WEC controverting Behar's sworn testimony that she and LB conceived the title without input from Dr. Breus. See Docs. 77 at 5; 84 at 3. The email discussion involves no communication by Dr. Breus, and Glass stated specifically that Dr. Breus's title suggestions were Perfect Timing and Time of Your Life. See Doc. 84-6 at 2. Behar testified about how the title was suggested. She testified that she immediately disliked the book's working title, The Overnight Solution, and described the common title-change process that the publisher engaged in of emailing and meeting to brainstorm alternatives. Doc. 77-2 at 8-13. She testified that The Power of When title was developed in a meeting involving only the publisher, marketing director, managing editor, and paperback publisher. Id. at 15. She explained that Frankel came up with The Science of When, but the publisher found the word “science” too technical-sounding so she suggested “power, ” which Behar then suggested via email to Dr. Breus, Frankel, and Glass.

         This evidence clearly contradicts WEC's assertion that the book title came from Dr. Breus's violation of the Agreement, and WEC presents no contrary evidence. WEC's argument that credibility issues preclude summary judgment is likewise not supported by any evidence undercutting the truthfulness of the email exchange or the participants' testimony about it. “[M]ere allegation and speculation do not create a factual dispute for purposes of summary judgment.” Sudre v. The Port of Seattle, NO. C15-0928JLR, 2016 WL 7035062, at *7 (W.D. Wash. Dec. 2, 2016) (quoting Nelson v. Pima Cmty. Coll., 83 F.3d 1075, 1081-82 (9th Cir. 1996)); see also Tropigas de Puerto Rico, Inc. v. Certain Underwriters at Lloyd's of London, 637 F.3d 53, 59 (1st Cir. 2011) (“theoretical possibilities alone are inadequate to block the swing of the summary judgment ax”). And the Court has no obligation to search the record for evidence creating a dispute of fact that WEC fails to identify. Carmen v. S.F. Unified Sch. Dist., 237 F.3d 1026, 1031 (9th Cir. 2001); Keenan v. Allan, 91 F.3d 1275, 1279 (9th Cir. 1996); see also Independent Towers of Wash. v. Washington, 350 F.3d 925, 929 (9th Cir. 2003).

         WEC argues that even if Dr. Breus did not suggest The Power of When as a book title, he had a duty under the Agreement not to use it. Alternatively, WEC argues that a dispute of fact exists regarding whether the Agreement created such a duty. Doc. 83 at 8. WEC cites two paragraphs of its statement of facts in support of this assertion, but the citations refer to 41 pages of the record and cite no specific pages. Such a general reference fails to identify evidence “so that it could conveniently be found.” Carmen, 237 F.3d at 1031. In any event, Dr. Breus's duties under the Agreement are questions of law, not fact. WEC fails clearly to explain why, in the absence of evidence that Dr. Breus disclosed confidential information, summary judgment is inappropriate. WEC has failed to present evidence showing breach, an essential element on which it would bear the burden of proof at trial. See Celotex, 477 U.S. at 322. The Court will grant Defendants summary judgment on the breach of contract claim.

         B. Breach of the Implied Covenant of Good Faith and Fair Dealing.

         Under Arizona law, every contract “implies a covenant of good faith and fair dealing.” Rawlings v. Apodaca, 726 P.2d 565, 569 (Ariz. 1986). The implied covenant “prohibits a party from doing anything to prevent other parties to the contract from receiving the benefits and entitlements of the agreement. The duty arises by operation of law but exists by virtue of a contractual relationship.” Wells Fargo Bank v. Ariz. Laborers, 38 P.3d 12, 29 (Ariz. 2002). “A party may breach the implied covenant even in the absence of a breach of an express provision of the contract by denying the other party the reasonably expected benefits of the agreement.” Nolan v. Starlight Pines Homeowners Ass'n, 216 Ariz. 482, 489 (Ariz.Ct.App. 2007).

         Plaintiffs allege that Dr. Breus breached the Agreement's implied covenant of good faith and fair dealing by developing, marketing, and selling confidential material covered by the Agreement, and engaging in self-dealing in bad faith to advance his interests to Plaintiffs' detriment. Doc. 1-1 at 9.

         Defendants argue that IOW lacks standing because it assigned the Agreement to WEC before the titling and publication of Dr. Breus's book, meaning that IOW had no contractual relationship with Dr. Breus at the time of the alleged injury. Doc. 76 at 17. IOW does not meaningfully respond. See Doc. 83 at 5-6. As with its breach of contract claim, IOW fails to explain why it has standing to raise a breach of implied covenant claim without a contractual relationship with Dr. Breus. Id. Nor does IOW cite any evidence of an injury it suffered while still a party to the Agreement. See Id. IOW asserts that Dr. Breus interfered with its rights under the Agreement, but cites only a sentence of its statement of facts which refers to 67 pages of the record and includes no specific page citation. See Id. (citing Doc. 84 at 6). IOW's general and unsupported assertions are insufficient to establish standing, as well as elements of its claim - namely that Dr. Breus prevented IOW, as a party to the contract, from receiving the Agreement's benefits. See Celotex, 477 U.S. at 322; Carmen, 237 F.3d at 1031; Wells Fargo, 38 P.3d at 29.[6]

         Defendants argue that WEC's claim fails for lack of evidence that Dr. Breus breached the Agreement or used any material that he learned from Miller. Doc. 76 at 10. WEC asserts that even if Dr. Breus did not breach the Agreement, his actions interfered with its rights under the Agreement and he competed directly with WEC while “supposedly collaborating with Plaintiffs under the [Agreement].” Doc. 83 at 9. Other than a general citation to two exhibits totaling 67 pages, WEC cites no supporting evidence in the record for these assertions. WEC states that Miller repeatedly told Dr. Breus to “hold all business activities close to the vest, ” but fails entirely to cite evidence showing that Dr. Breus breached or interfered with the Agreement. Again, the Court will not search the record for evidence to support WEC's arguments. See Carmen, 237 F.3d at 1031; Keenan, 91 F.3d at 1279; Independent Towers, 350 F.3d at 929.

         Indeed, Defendants' cited evidence shows that Miller repeatedly testified that numerous aspects of Dr. Breus's book appeared nowhere in WHEN programs or materials, including chronobiology, chronotypes, and instructing people on when to perform certain tasks. See Doc. 77-3 at 8, 12, 17, 19-20, 22-23, 26, 28-33, 40-42. Miller also testified that numerous aspects of the WHEN business did not appear in the book, including online counseling services, membership and service levels, and WHEN's gratitude tool. Id. at 35-36, 38-39. When asked specifically what confidential information was disclosed in The Power of When, Miller answered: “I think we've covered that it's not confidential information. It's more of a misappropriation of use of ‘WHEN,' ‘Power of WHEN,' and other uses of ‘WHEN' throughout the book.” Id. at 43. Miller admitted that his business's use of the word “when” was not confidential. Id. at 47-46. And the Agreement excludes from confidentiality any information that is or becomes publicly available through no wrongful act of the Recipient or which is disclosed to the Recipient by a third party. See Doc. 84-9 at 2. The Court will grant summary judgment for Defendants on Plaintiffs' breach of the implied covenant of good faith and fair dealing claim.

         C. Misappropriation of Trade Secrets.

         1. Arizona Law.

         “To establish a claim for misappropriation of a trade secret, the claimant must first prove a legally protectable trade secret exists. Arizona has adopted the Uniform Trade Secrets Act (‘UTSA'), which codifies the basic principles of common law trade secret ...


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