Free Response to Motion - District Court of Colorado - Colorado

Case 1:04-cv-00617-LTB-BNB

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 04-cv-617-LTB-BNB POLYROCK TECHNOLOGIES, LLC, a Colorado limited liability company, Plaintiff, v. GENERAL STEEL DOMESTIC SALES, LLC, et al. Defendants. P A N IFS OPPOSITION TO L I TF ' DEFENDANTS GENERAL STEEL DOMESTIC SALES, LLC, GENSTONE ENTERPRISES, LLC AND JEFF KNIGHT MOTION TO STRIKE PARAGRAPHS 5 AND 53 O P A N IFSS C N A N E C MP A N F L I T F ' E O D ME D D O L I T The moving defendants ask the Court to strike paragraphs 5 and 53 of P l oks oy c' R Second Amended Complaint as irrelevant or unfairly prejudicial. This case involves allegations of deceptive advertising and misrepresentation in the sale of artificial stone building materials to be used, among other applications, on steel buildings that defendant General Steel normally sold. (2A Cplt. ¶¶ 2-4.) The allegations of paragraphs 5 and 53 are based upon proceedings in a case that the Colorado Attorney General brought against defendants General Steel, Knight and others for deceptive practices in the sale of steel buildings, in which the Colorado District Court for Jefferson County entered findings and an injunction in December 2004. (2A Cplt. ¶ 5.) Movants fail to establish that the challenged allegations are irrelevant (as shown below they are clearly relevant) and fail to satisfy the strict prejudice standard required to strike relevant material. The Court should deny the motion.

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I.

LEGAL STANDARD FOR A MOTION TO STRIKE. The purpose of Fed. R. Civ. P. 12(f), which provides that the Court may strike

" dnati m t i,m e i n o sadl s ae f m a l d g is to conserve time r udn m a r li prn t r cna u m tr r e , ea te , o t " o p ai , e n and resources by avoiding litigation of issues that will not affect the outcome of a case. Sierra Club v. Tri-State Generation and Transmissio As ,n. n s nIc 173 F.R.D. 275, 285 (D. Colo. 1997). ' , Motions to strike, however, are a generally disfavored and drastic remedy. Id. All well-pleaded facts are taken as admitted on a motion to strike. 5C CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE, § 1380 (3d Ed. 2004). The moving party has the burden to show that material challenged as immaterial or impertinent has "ops b ba n o t cn oe y o that "oei nei spot fh aeao n os l er g n h ot vr " r ie i e r s n v ec n upro t lgt n d e l i would be admissible." Id.; United States v. Shell Oil Co., 605 F.Supp. 1064, 1085 (D. Colo. 18) T e t dr ia tc oer u i t t []l aeaos our a dt p i i' 95. h s na s si n,e in h " ny lgt n s ne t o ln fs a d rt q rg a o l i le a tf c i s s ob uw r yo aycni r i sol b si e. Shell Oil, 605 F.Supp. at lm a t e n ot f n os e t n hu e tc n a h d ao d rk " 1085. In addition to showing irrelevance, movants must also show prejudice, in the form of undue burden or difficulty in responding to the challenged allegations, in order to have them stricken. Sierra Club, 173 F.R.D. at 285. II. MOVANTS FAIL TO SHOW THAT THE CHALLENGED ALLEGATIONS ARE IMMATERIAL, IMPERTINENT OR UNFAIRLY PREJUDICIAL. Paragraph 5 of the Second Amended Complaint, cn i di t p ai ' gnr otn n h l d gs ee l ae e e n a factual allegations, states that: 5. When General Steel and Genstone began marketing their own products, they deceptively used advertising and marketing materials received from and dp t gt pouto P l oks r eesr t avrs t poutt t eii h rdc f o R c' pe cs so de i h rdc h cn e s y d o te e s a General Steel and Genstone were now manufacturing on their own. General Stee s cosnt s ea ,s e a i ue f i prpie t ho g t l at n i h r r a w l st s o m s por t e nl y o ' i i gd l s a ad c o

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manufacture products without permission, are not the first time it has engaged in deceptive trade practices. In December 2004, a judge of the Jefferson County, Colorado, District Court found that in connection with the sale of steel buildings G nr Sel" rya eggd i sl pate t tw r r d d wt ee l t f er nae n a s r i s h a e o s e cc a e il e de i h m s peeti s n o i i s adi psdc ipnle aa sdf dn ier n t n ad m s o " n m oe i l eai gi t e nat r s ao sn v ts n e Jeff Knight of $200,000 and against defendant Kevin Kissire of $20,000, and permanently enjoined defendants General Steel, Knight and Kissire from engaging in deceptive sales practices or actions contrary to the Colorado Consumer Protection Act. See State of Colorado v. General Steel Domestic Sales, LLC, Case No. 04 CV 143 (Jeff. Co. Dist. Ct.; Findings, Conclusions and Order of Judgment dated December 7, 2004 at 2, 39-40). Paragraph 53, contained in PolyRock' c i fr i ao o t C l aoC nu e s lm o v li fh o r a o tn e o d osm r Protection Act, states that: 53. Genstone and General Steel acted in bad faith, willfully violated the injunction entered by the Jefferson County District Court, and willfully and wantonly disregarded the rights of plaintiff. Movants fail to discharge their burden to establish that there is no possibility the matters p di pr r h 5ad5 wlb r eatoP l oks lm .Is a,h matters alleged l n a ga s n 3 i e e vn t o R c'c i s nt d t e a p l l y a e e in paragraphs 5 and 53 tend to disprove any assertion by movants that the deceptive practices alleged in this case were the result of mistake or inadvertence, rather than design. As shown in detail below, the challenged allegations are thus relevant t P l oksc i sfr nacd o o R c' lm o ehne y a damages based upon bad faith under the Colorado Consumer Protection Act as well as PolyRock'c for punitive damages. sl aim In support of their argument that paragraphs 5 and 53 are immaterial, movants first contend that P l oks o R c' Second Amended Complaint contains no allegations of deceptive sales y but instead is based solely on the theory of misappropr t n f oy oksr e er s (Mot. ii o P l c't d sc t ao R a e. at 2-3, ¶¶ 4-5.) To the contrary, P l oks eodA eddC m ln including one of the o R c' Scn m ne o p i , y at paragraphs (¶ 5) that movants attack (but only partially quote in their motion), plainly and

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expressly alleges that defendants engaged in deceptive advertising and sales practices. Paragraph 5, quoted above, includes allegations that defendants deceptively used materials depicting P l oks rdc t falsely advertise products that defendants manufactured using o R c' pout o y s PolyRocks 'trade secrets. Elsewhere in the Second Amended Complaint, PolyRock expands on and further details these allegations (¶¶ 28 and 34) and seeks to enjoin and recover damages for df dn ' e nat false and deceptive advertising. (Count I ­ e s Violation of the Lanham Act at ¶¶ 34, 37; Count IV ­Violation of the Colorado Consumer Protection Act at ¶¶ 52, 55 (alleging and sei t ej n" ied gaddcp v sl pate o G nt eadG nr Sel ) ek g o n i m s ai n eet e a s r i s f es n n ee l t " . n o l n i e cc o a e) The Colorado Attorney General action likewise involved deceptive sales practices (2A Cplt. ¶ 5); therefore, the connection between the two cases is not attenuated, as movants would have the Court believe. Instead, the conduct alleged in the Attorney General action is similar and related to the conduct about which PolyRock complains in this case. The Colorado Consumer Protection Act permits the recovery of treble damages where plaintiff clearly and convincingly shows that defendant engaged in bad faith conduct. C.R.S. § 6-1-113(2)(a)(III). The statute de ns bdf t t i l e wlu ko i o i et nl f e "a ah o n u " ifl nwn rn n oa i i" cd l, g t i cnutht assn r. CRS § odc t cue i uy a j " .. 6-1-113(2.3). P l oks lgt n t t oatw r . oy c' aeaosh m vn e R l i a s e previously sued and found to have engaged in deceptive sales practices and that General Steel and Knight were enjoined from engaging in such practices and from violating the Consumer Protection Act, as alleged in paragraphs 5 and 53, tend to show that any deceptive sales practices proven in this case were not the product of mistake or inadvertence, but were instead part of a pattern of conduct undertaken willfully or knowingly. The allegations of paragraphs 5 and 53 a t se vntt pof f oy oks osm r rt t n cc i . r h r eatoh ro o P l c'C nu ePo co A tlm e u l e R ei a

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Similar to bad faith under the Consumer Protection Act, a plaintiff seeking punitive damages under Colorado law must show that defendant engaged in knowing or willful misconduct. For the same reasons that the matters alleged in paragraphs 5 and 53 are relevant to P l oks osm r rt t nA t lm they are also relevant to prove knowing or willful o R c' C nu e Po co c c i , y ei a m sodctspot oy oks lmfr uiv dm gs i nuto uprP l c'c i o pn i a ae. c R a te The matters alleged in paragraphs 5 and 53 are also relevant to evaluate the appropriate amount of enhanced or punitive damages. One of the purposes underlying punitive damages is the deterrence of future misconduct by defendant or others. Coors v. Security Life Of Denver Ins. Co., 112 P.3d 59, 65 (Colo. 2005). Deterrence is similarly a goal of enhanced statutory damages, which serve similar purposes to punitive damages. Becker & Tenenbaum v. Eagle Rest. Co., Inc., 946 P.2d 600, 602 (Colo. App. 1997), cert. denied (1998) (citing Lexton-Ancira Real Estate Fund v. Heller, 826 P.2d 819 (Colo. 1992)). A relevant consideration in the

f tne s vl t nof the appropriate amount of punitive or enhanced statutory damages is a f dr ea ao ci ' ui thus the probability that defendant will engage in similar misconduct in the future. Moat vn ' s commission of deceptive conduct in the past is certainly probative of, and admissible to prove, the likelihood that they will engage in similar conduct in the future. Campbell v. State Farm Mut. Auto. Ins. Co., 65 P.3d 1134, 1155-58 (Utah 2001) (evidence of other instances of df dn s a f tc i hnl g d i i eo s b s i et lack of mistake in proving e nat bd ah lm ad n am s b t et lh n n and e ' i a i sl ai t punitive damages), rv o o e gons 538 U.S. 408 (2003); TXO Production Corp. v. e' n t r rud, d h Alliance Resources Corp., 419 S.E.2d 870, 881-84 (W.Va. 1992) (evidence of other lawsuits against defendant for similar acts admissible to contradict assertions of good faith or lack of malice). For these reasons as well, the factual allegations set forth in paragraphs 5 and 53 of the

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Scn A eddC m ln cne i df dn ' at eet ecnut relevant and eod m ne o p i ocr n e nat ps dcp v odc are at ng e s i should not be stricken. Moat other contentions also fail to establish a basis for their motion to strike. The vn ' s Court should ignore m vn ' oat assertions concerning the alleged differences between this case s and the Attorney General action (including the nature of the claims, the nature of the customers deceived and the status of that case on appeal) for at least two reasons. (Mot. at 2-3, ¶ 4.) First, these assertions are extraneous matters not included in the Second Amended Complaint and therefore not properly considered on a motion to strike. Supra at 2. Moreover, m vn ' oat s assertions go at most to the weight of the facts alleged. Because PolyRock is entitled to all favorable inferences on a Rule 12 motion, m vn ' oat contentions are not sufficient to warrant an s order striking the material in question at this stage of the proceedings. Moat cn n o t th "reo a ori a i laehts no g ol nt e vn ' ot t n h t odr f cutn c ics t iogi w u o b s ei a e v a n d am s b a ei net spot n pooio i asbeun cs, fr h hthey cite d i i e s v ec o upray rpsi n usqet ae o w i sl d tn " c nothing in support, is incorrect. (Mot. at 3, ¶ 5.) An injunction, unless stayed, is enforceable immediately upon entry. Alexander v. District Court, 29 Colo. 182, 199, 68 P. 242, 248 (1901) ( pa de ntupn i uco, h hi t d" m i i fr until, in ordinary course, a el os o ssed n nt n w i n e r a sn oce p j i c sa e n t j g etsr e e" Murphy v. Arlington Cent. School Dist., 2000 WL 511564 at *2 h u m n i e r d) e d vs ; (.... pi2, 00 ( e fi o a apa de nt c t ssedeeu o o SDNY A r 7 20) " r in f n pel os o ato upn xct n r l m e lg i efr m no aug etrn nt n it judgment grants an injunction, the injunction is noc et f j m n o i uco ... fh e d j i e e et e n s s yd) f cv ul s t e"(unpublished opinion attached as Ex. 1). Evidence of the injunction and f i e a the type of conduct prohibited is relevant to show m vn ' oat intent in undertaking similar actions s that PolyRock complains of in this case. Moreover, as shown above, evidence that similar

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allegations have been brought against movants, successfully or not, is probative evidence of other misconduct in support of P l okspunitive damages claim. TXO Production, 419 o R c' y S.E.2d at 884 (upholding admission of allegations from another case in which defendant had ultimately prevailed). T eC utsol t sr etm vn 'uspot asro t t h or hu h e c oat nupr d s t n h d u j s e ei a

evidence of the injunction in the Attorney General action is not admiss l t spot ay i e o upr "n b pooio"n h cs. rpsi it s ae tn i Finally, in addition to failing to establish that the allegations of paragraphs 5 and 53 are irrelevant or impertinent, movants fail to establish any prejudice that would justify striking them. Movants claim, without explanation or support, t tt s pr r h wl b "ii l t h h e a ga s i e d f u o a e a p l fc t respond and defend against." (Mot. at 3 ¶ 4.) To the contrary, the allegations of paragraphs 5 and 53 are factual in nature and specific: PolyRock alleges that certain matters were found against movants in the Colorado Attorney General action (¶ 5) and that m vn ' oat actions in this s case, among other things, violated an injunction entered in the Attorney General action (¶ 53). T eeaeaosa ehr reo t ya nt nd movants face no undue burden in either hs lgt n r i e t r h r ' a l i e t u e e admitting or denying them and then justifying their response. Movants further argue that the allegations of paragraphs 5 and 53 will confuse the issues in this case but again fail to explain or support the assertion and thus fail to discharge their burden to establish this purported basis for their motion. Movants also contend that the allegations of paragraphs 5ad5 cst m i a" l n 3 ath n f s e ae addrgt yl h" ( ta 3¶ Moat dislike of the allegations in these paragraphs, n e a r i t Mo t 6.) o o g. . vn ' s however, does not establish unfair prejudice. Where, as here, the material at issue is relevant, it wl ol b si e w e t aeaosdgae df dn 'm r ca c r cn i i n e tc n hr h lgt n er l y rk e e l i d e nat oa hr t , otn e s l ae a

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repulsive language or detract from the dignity of the Court and go into unnecessary detail. Sierra Club, 173 F.R.D. at 285. Movants attempt none of these showings and the material at issue clearly is not susceptible of being characterized as degrading, repulsive, detracting from the C ut d ors ignity or unnecessarily detailed. Moreover, the allegations involve matters of public ' record that movants cannot legitimately assert degrade or harass them by bringing private facts to light. CONCLUSION For all of the reasons stated, the Court should deny the motion to strike. DATED: September 9, 2005 Respectfully submitted s/ John A. DeSisto John A. DeSisto W. Curtis Graves FEATHERSTONE DESISTO LLP 600 17th Street, Suite 2400 Denver, Colorado 80202 Telephone: (303) 626-7100 Facsimile: (303) 626-7101 E-mail: [email protected] E-mail: [email protected] Attorneys for Plaintiff PolyRock Technologies, LLC

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CERTIFICATE OF SERVICE I hereby certify that on September 9, 2005, I electronically filed the foregoing with the Clerk of Court using the CM/ECF system, which will send notification of such filing to the following e-mail addresses: Susan M. Hargleroad Pendleton, Friedberg, Wilson & Hennessey, P.C. [email protected] Kurt S. Lewis Lewis Scheid LLC [email protected]

s/ John A. DeSisto John A. DeSisto W. Curtis Graves FEATHERSTONE DESISTO LLP 600 17th Street, Suite 2400 Denver, Colorado 80202 Telephone: (303) 626-7100 Facsimile: (303) 626-7101 E-mail: [email protected] E-mail: [email protected] Attorneys for Plaintiff PolyRock Technologies, LLC