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Diece-Lisa Industries, Inc. v. Disney Enterprises, Inc.

United States Court of Appeals, Fifth Circuit

November 19, 2019


          Appeals from the United States District Court for the Eastern District of Texas

          Before STEWART, DENNIS, and WILLETT, Circuit Judges.


         Plaintiff Diece-Lisa Industries, Inc. (Diece-Lisa) filed two separate lawsuits against various Disney corporate entities alleging that those entities' use of the "Lots-O'-Huggin' Bear" (aka "Lotso") in the movie Toy Story 3 and sales of merchandise depicting Lotso infringed on Diece-Lisa's "Lots of Hugs" trademark. The two cases were consolidated, and more than three years of litigation ensued. Diece-Lisa appeals three of the court's rulings in the consolidated case. We AFFIRM in part, VACATE in part, and REMAND with instructions.


         Diece-Lisa holds a trademark issued in 2008[1] for "Lots of Hugs" as a word mark for use in connection with "[t]oys, namely, puppets" and sells stuffed toy bear products branded with the mark. In 2010, Disney released Toy Story 3, an animated film featuring Disney heroes Sheriff Woody and Buzz Lightyear. In the film, Woody and Buzz battle Lotso, [2] a hot pink teddy bear with a big nose and a Southern accent. The film was a critical and commercial success, becoming the highest-grossing film of 2010. Toy Story 3 gave rise to many consumer products, including toys depicting various characters from the picture. The Lotso character has been sold as a stuffed toy and a plastic figurine, as well as incorporated into a variety of other consumer products.

         Diece-Lisa brought suit in the United States District Court for the Eastern District of Texas, alleging that the sales of Lotso merchandise by various Disney entities infringed on Diece-Lisa's "Lots of Hugs" trademark.[3]There are two primary groups of Disney defendants relevant to this appeal: (1) the retail entities, consisting of Disney Store USA, LLC (DSU) and Disney Shopping, Inc. (DSI); and (2) the IP entities, consisting of Disney Enterprises, Inc. (DEI) and Disney Consumer Products, Inc. (DCP). The retail entities (DSU and DSI) sell merchandise modeled on characters from Disney and Pixar movies. DSU owns brick-and-mortar retail stores that sell the merchandise, while DSI sells similar merchandise online at As for the IP entities, DEI owns intellectual property rights in Disney characters, and, along with DCP, grants licenses to third parties-including the retail entities-to manufacture and sell merchandise based on those characters.

         Diece-Lisa first filed suit in 2012 against the retail entities, DSU and DSI, (docketed as case No. 2:12-CV-00400, referred to herein as the 400 case), alleging federal trademark infringement and unfair competition based on sales of toy bears and other merchandise marked with the Lotso name.[4] In 2014, Diece-Lisa filed a separate suit in the same court (docketed as case No. 2:14-CV-00070, referred to herein as the 70 case), this time against the IP entities, DEI and DCP, claiming trademark infringement based on the IP entities' granting licenses to third parties who manufacture and sell Lotso merchandise. The IP entities moved to dismiss the 70 case for lack of personal jurisdiction and improper venue, arguing that their only activities relating to Texas-granting non-exclusive licenses to third-party licensees who chose to conduct business in Texas-were insufficient to confer personal jurisdiction over the IP entities.

         The district court consolidated the 400 case and the 70 case. Soon after consolidation, the magistrate judge[5] granted Diece-Lisa leave to file a third amended complaint (3AC) that would serve as the complaint in both cases, overruling objections from Disney defendants (both the IP and retail entities). The 3AC increased the number of corporate subsidiary Disney defendants from four to fourteen and expanded the action from claims based on sales of merchandise marked with the allegedly infringing Lotso name to claims based on uses of the Lotso character in the Toy Story 3 movie, video games, CDs, books, ice shows, and other live productions. The consolidated suit then had ten new Disney subsidiary defendants (the "New Parties") and several new infringement claims based on the use of a character, rather than on the alleged use of the "Lots of Hugs" mark. All the New Parties moved to dismiss, arguing that venue was improper and that Diece-Lisa failed to state a cause of action. Five of the New Parties moved to dismiss for lack of personal jurisdiction. As we explain further below, the court never ruled on these motions.

         While these motions from the New Parties were pending, the court turned its focus to the IP entities, denying their pre-consolidation motion to dismiss the 70 case for lack of personal jurisdiction. Because the parties had yet to conduct jurisdictional discovery, the court reasoned, Diece-Lisa had to make only a prima facie showing of personal jurisdiction. While Diece-Lisa had not necessarily "proven personal jurisdiction by a preponderance of the evidence," the court found it met the prima facie standard. The IP entities filed a motion for reconsideration, again urging that they were not subject to personal jurisdiction because their only contact with Texas was their grant of non-exclusive licenses to third parties who conducted business in Texas.

         Following the IP entities' motion for reconsideration, the district court and magistrate judge took a number of actions relevant to this appeal with respect to the various parties in the consolidated action, which we set out in the order they occurred.

         First, nearly a year after granting Diece-Lisa leave to file the 3AC, the magistrate judge vacated that order sua sponte and without prior notice or a hearing, effectively removing the New Parties, and Diece-Lisa's claims against them, from the suit. This vacatur occurred while motions to dismiss based on personal jurisdiction and failure to state a claim were pending that, if granted, would have removed the New Parties from the suit. The magistrate judge said he had "improvidently granted" Diece-Lisa's motion for leave to file the 3AC, reasoning that the 3AC "resulted in needless complication and delay" and "changed the nature of the case." The magistrate judge found the claims alleged in the 3AC were less connected "to the original claims than the court originally perceived" and noted "serious issues of personal jurisdiction and venue" that arose under the 3AC. The effect of the district court's vacatur order was that Diece-Lisa's claims against the New Parties were eliminated, the New Parties were removed from the litigation, and the New Parties' pending motions to dismiss were moot. Diece-Lisa filed objections to the magistrate judge's order in the district court.

         Second, the district court stayed the case on the parties' agreed motion. Specifically, while awaiting a ruling from the district court on Diece-Lisa's objections to the magistrate judge's vacatur of the 3AC, Diece-Lisa and the defendants submitted, and the district court entered, an agreed order that closed fact discovery and prohibited further "assertion of additional claims, defenses, or theories of liability or damages." Despite this agreed order, Diece-Lisa filed a fourth amended complaint (4AC), which alleged new theories of contributory trademark infringement and vicarious liability and attempted to revive the character-based infringement claims eliminated by the vacatur of the 3AC. Diece-Lisa also issued deposition notices for fact witnesses and requests seeking production of a broad array of documents. The magistrate judge granted defendants' motion to strike the 4AC and quashed notice of the depositions, finding that Diece-Lisa violated the agreed order.

         Third, the district court adopted the magistrate judge's order vacating the 3AC, overruling Diece-Lisa's objections.[6] Like the magistrate judge, the district court focused on how the 3AC changed the nature of the case from one alleging misuse of a mark to one alleging misuse of the Lotso character. Diece-Lisa raised concerns of prejudice "in light of the extensive discovery and completed expert reports related to the most recently added defendants," but the district court found these concerns "both minimal and outweighed by the considerations favoring denial of leave to amend." The district court explained that Diece-Lisa was free to use any discovery it obtained while the 3AC was pending "in a separate action" but also noted that "the statutes of limitations applicable to [Diece-Lisa's] claims may significantly and negatively impact its rights."

         Fourth, and finally, the district court turned its attention back to the IP entities' motion for reconsideration of its personal jurisdiction order. The court granted the motion and dismissed the IP entities for lack of personal jurisdiction, agreeing with the IP entities' argument that "a non-exclusive license agreement alone is insufficient to trigger personal jurisdiction over the licensor." Because the IP entities were the only defendants remaining in what was the 70 case before consolidation, the court dismissed the 70 case and deconsolidated the two cases. On Diece-Lisa's unopposed motion, the district court stayed the 400 case against the retail entities pending the resolution of this appeal.[7]

         Diece-Lisa appeals two of the district court's rulings and one magistrate judge's ruling in the consolidated case: (1) the district court's final judgment in the 70 case dismissing the IP entities for lack of personal jurisdiction; (2) the district court's adoption of the magistrate judge's vacatur of his prior order allowing Diece-Lisa to file the 3AC; and (3) the magistrate judge's striking of Diece-Lisa's 4AC.


         Before we evaluate the merits of Diece-Lisa's challenges to these rulings, we must first determine the ambit of our jurisdiction. Each constituent case must be analyzed individually on appeal to ascertain jurisdiction and to decide its disposition. Hall v. Hall, 138 S.Ct. 1118, 1128 (2018). We have jurisdiction over "appeals from all final decisions of the district courts," except those directly appealable to the Supreme Court. 28 U.S.C. § 1291. A final judgment is one that "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Ray Haluch Gravel Co. v. Cent. Pension Fund, 571 U.S. 177, 183 (2014). Consolidation complicates this finality inquiry, as the district court may issue a final judgment in one constituent case while another constituent case or cases remain pending, as occurred here. The Supreme Court recently addressed the reviewability of final judgments issued in consolidated cases, holding unanimously that "when one of several consolidated cases is finally decided, a disappointed litigant is free to seek review of that decision in the court of appeals" regardless of whether any of the other consolidated cases remain pending. Hall, 138 S.Ct. at 1131. When the district court dismissed the IP entities from the 70 case and deconsolidated the cases, it terminated all the claims in the 70 case, making that dismissal a final, appealable judgment. See id. at 1124.

         The more difficult question, however, is whether our jurisdiction extends to the two interlocutory orders-vacating the prior allowance of the 3AC and striking the 4AC-issued while the 400 and 70 cases were still consolidated. Generally, "a party may obtain review of prejudicial adverse interlocutory rulings upon his appeal from adverse final judgment, at which time the interlocutory rulings (nonreviewable until then) are regarded as merged into the final judgment terminating the action." Dickinson v. Auto Ctr. Mfg. Co., 733 F.2d 1092, 1102 (5th Cir. 1983); see also 28 U.S.C. § 1291. Here, both orders that Diece-Lisa appeals were issued while the 400 and 70 cases were consolidated, without distinguishing between their applicability to one or the other case. With a final judgment issued in the 70 case but not the 400 case, the question is whether these interlocutory orders "merged into" the final judgment in the 70 case as opposed to some future, hypothetical final judgment in the 400 case.[8]

         Defendants argue that the orders from the consolidated case "can only be reviewed on appeal from a final judgment in the [400] case, which remains to be tried." They claim that Diece-Lisa's motions were filed "in both of the consolidated actions," and because only one of the formerly consolidated actions has resulted in a final judgment, the orders in the consolidated case are not yet reviewable. Diece-Lisa argues that the orders are reviewable because the orders were "effectively" rulings "in the 70 case . . . made final when the 70 case was dismissed." Diece-Lisa emphasizes that the theories advanced and the New Parties added in the 3AC demonstrate that the 3AC was part of the 70 case, not the 400 case.

         When cases are consolidated, their "merger is never so complete in consolidation as to deprive any party of any substantial rights which he may have possessed had the actions proceeded separately." Hall, 138 S.Ct. at 1130. Moreover, "the parties to one case [do] not become parties to the other by virtue of consolidation[, and] the right of each to pursue his individual case on appeal should not be compromised by the litigation conduct of the other." Id. at 1128. Finally, ...

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