Case Number: 20STCV47489    Hearing Date: May 16, 2023    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

MOVING PARTY:              Cross-Defendants Samuel Kim and Cali Blue Sky Investment, Inc.

OPPOSITION:                      Cross-Complainant JRJS, LLC.

Background

On December 11, 2020, Plaintiff/Cross-Defendants Samuel Kim and Cali Blue Sky Investment, Inc. (CBSI) filed this action, alleging claims of (1) Statutory Trademark Infringement/Counterfeiting, (2) Dilution of Famous Mark, (3) Common Law Trademark Infringement, (4) Unfair Competition, and (5) Deceptive Business Practices against UHCC, JRJS, LLC, Chango Club, Inc., Jafar Rashid, Vikram Sood, Vibha Patel, Sanjiv Patel, Lorraine Lugo, Mohammed Khalid, Zahid Butt, and Does 1-50. The claims arise from allegations that Samuel Kim owns the trademarks for five ‘Big Chief Marks’ for pre-filled vaporizer cartridges, disposable pens containing cannabis extract, cannabis flower, and related products, and that in December 2018, Kim granted UHCC and JRJS the nonexclusive right to manufacture and distribute cannabis vape cartridges bearing the Big Chief Marks, with Kim revoking the license on June 23, 2019 amid a fallout between the parties, only for Defendants to continue using the marks thereafter without authorization from Kim or Kim’s new licensee, CBSI.

On February 5, 2021, JRJS, LLC (JRJS) filed a Cross-Complaint against Samuel Kim, CBSI, and Roes 1 through 10, with the operative April 21, 2023 Second Amended Cross-Complaint (SAXC) alleging claims of (1) Declaratory Relief, (2) Trademark Infringement, (3) Cancellation of Registration for Trademark [Fraud], and (4) Cancellation of Registration for Trademark [Abandonment]. The claims arise from allegations that JRJS became the rightful owner of the common law Big Chief Marks with respect to cannabis products through the sale of such products and because Kim abandoned any right he held in the Big Chief Marks prior to being employed by JRJS—i.e., Kim abandoned the use of the marks in the United States by ceasing to use the marks in relation to the only product Kim sold bearing the marks in the U.S. (clothing) and where Kim cannot invoke rights in relation to his use of the Big Chief Marks on tobacco products because these were sold outside the United States—such that Kim’s State of California registrations of the Big Chief Marks filed in 2020 were fraudulently made and such that it is Kim and CBSI who have infringed on JRJS’s rights by continuing to use the Big Chief Marks, where JRJS is entitled to a cancellation of the Big Chief Marks registrations in the State of California, either on fraud or abandonment grounds.

On April 24, 2023, Cross-Defendants Kim and CBSI demurred to the SAXC’s first three out of four causes of action on the ground of insufficiency in pleading.

On May 4, 2023, Cross-Complainant JRJS opposed the demurrer.

On May 9, 2023, Kim and CBSI replied to the opposition.

The demurrer is now before the Court. 

Request for Judicial Notice

The court may take judicial notice of “[o]fficial acts of the legislative, executive, and judicial departments of the United States and of any state of the United States,” “[r]ecords of (1) any court of this state or (2) any court of record of the United States or of any state of the United States,” and “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Evid. Code, § 452, subds. (c), (d), (h).) The trial court shall take judicial notice of any matter specified in Evidence Code section 452 if a party requests it and gives each adverse party sufficient notice of the request, through the pleadings or otherwise, to enable such adverse party to prepare to meet the request and furnishes the court with sufficient information to enable it to take judicial notice of the matter. (Evid. Code, § 453.) The court, however, may not take judicial notice of the truth of the contents of the documents. (Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1375.) Documents are only judicially noticeable to show their existence and what orders were made such that the truth of the facts and findings within the documents are not judicially noticeable. (Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 885.) This is because while “[t]he court [may] take judicial notice of records such as admissions, answers to interrogatories, affidavits, and the like, when considering a demurrer, … where the[se] contain statements of the plaintiff or his agent … [that] are inconsistent with the allegations of the pleading before the court,” “[t]he hearing on demurrer may not be turned into a contested evidentiary hearing through the guise of having the court take judicial notice of affidavits, declarations, depositions, and other such material … [that] was filed on behalf of the adverse party and … purports to contradict the allegations and contentions of the plaintiff.” (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604-605.)

The Court TAKES JUDICIAL NOTICE—insofar as notice connotes the document’s existence and not the truth of the contents therein—of the USPTO trademark registration for the Big Chief Mark by Samuel Kim. (Mot., Errata Notice, RJN, p. 2, Ex. A; see Evid. Code, §§ 452, subds. (c), (h); see also Herrera v. Deutsche Bank National Trust Co., supra, 196 Cal.App.4th at p. 1375; Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort, supra, 91 Cal.App.4th at p. 885.)

However, in order avoid turning the hearing on demurrer into a contested evidentiary hearing, the Court DECLINES to take judicial notice of (2) the March 3, 2023 declaration of Jafar Rashid in opposition to the now-withdrawn motion for summary adjudication, (3) the April 17, 2023 declaration of Jafar Rashid in opposition to the now-withdrawn motion for summary adjudication, (4) the September 22, 2021 transcript for the deposition of Jafar Rashid as the person most qualified for JRJS, and (5) the April 7, 2023 transcript for the deposition of Jafar Rashid as the person most qualified for JRJS. (Reply, RJN, p. 3, Exs. B-E; see Evid. Code, §§ 452, subds. (d), (h), 453; see also Del E. Webb Corp. v. Structural Materials Co., supra, 123 Cal.App.3d at pp. 604-605.) 

Demurrer

Demurrer Sufficiency Standard

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747; see Code Civ. Proc., § 430.10, subd. (e).) This device can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “To survive a [general] demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.) In testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-67.) A demurrer, however, “does not admit contentions, deductions or conclusions of fact or law.” (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal.App.4th 1216, 1228, disapproved on other grounds, Jones v. Lodge at Torrey Pines Partnership (2008) 42 Cal.4th 1158, 1162.) The face of the complaint includes exhibits attached to the complaint. (Frantz v. Blackwell (1987) 189 Cal.App.3d 91, 94.) If facts appearing in the exhibits contradict those alleged, the facts in the exhibits take precedence. (Holland v. Morse Diesel Intern., Inc. (2001) 86 Cal.App.4th 1443, 1447, superseded by statute on other grounds as stated in White v. Cridlebaugh (2009) 178 Cal.App.4th 506, 521.)

SAXC, First Cause of Action, Declaratory Relief: OVERRULED.

Any party claiming rights under a contract or under a written instrument other than a will or trust, or with respect to property, may bring an action for a declaration of his or her rights or duties with respect to the other. (Code Civ. Proc., § 1060.) The fundamental basis of such a declaratory relief claim is a present and actual controversy between the parties over a proper subject. (City of Cotati v. Cashman (2002) 29 Cal.4th 69, 80.)

The first cause of action is pleaded against Samuel Kim, CBSI, and Roes 8-100 and arises from incorporated allegations and direct allegations that an “actual controversy has arisen and now exists between JRJS and Cross-Defendants, and each of them, concerning their respective rights and duties with respect to the Big Chief Marks” where “JRJS maintains, to the extent that any enforceable rights in the Big Chief Marks exist, those rights belong to JRJS, not Cross-Defendants” Kim and CBSI. (SAXC, ¶¶ 56-57.) In the alternative, the first cause of action “alleges any consent given by Kim to use the Big Chief Marks was rendered irrevocable by JRJS’s substantial investment into and development of the brand” or that “any rights Cross-Defendants’ ever had in the Big Chief Marks ha[ve] been abandoned, or otherwise rendered invalid and unenforceable.” (SAXC, ¶¶ 58-59.) On Kim and CBSI’s end, the SAXC alleges that the dispute arises from Kim and CBSI “deny[ing] that JRJS is the owner of the Big Chief Marks, that [JRJS] ha[s] obtained an irrevocable license, or that the Big Chief Marks are potentially invalid,” for example, through abandonment. (SAXC, ¶ 60.) The claim prays for a “declaration from the Court … to avoid a multiplicity of suits and in order for the parties herein to ascertain their respective rights and duties to one another relating to the Big Chief Marks.” (SAXC, ¶ 61.)

In their demurrer, Samuel Kim and CBSI argue that the first cause of action is insufficiently pleaded because the claim states an oral trademark transfer, which is not a proper transfer under federal and state law, both of which require an assignment in writing, a finding made by this Court on January 13, 2022 in relation to a demurrer raised by Kim and CBSI to the original Cross-Complaint in this action. (See Demurrer, pp. 4-8.)

In opposition, JRJS argues various points. First, JRJS argues that an oral assignment of a trademark is sufficient to state a valid declaratory relief action. (Opp’n, p. 7.) Second, JRJS argues that the first cause of action also requests declaratory relief based on JRJS obtaining an irrevocable license for the Big Chief Marks. (Opp’n, pp. 7-9.) Third, JRJS points out that the first cause of action premises, in part, declaratory relief based on JRJS’s abandonment of the Big Chief Marks. (Opp’n, pp. 7-9.)

In reply, Samuel Kim and CBSI (1) reiterate their reference to the Court’s January 13, 2022 ruling on demurrer to the original Cross-Complaint in relation to unenforceability of oral assignments for trademarks and (2) make arguments undercutting the opposition’s irrevocable license arguments to support the position that the first cause of action does not sufficiently state a controversy as to rights and duties relating to the Big Chief Marks. (See Reply, pp. 2-4, 8-10.) However, the reply does not address the abandonment allegations supporting the first cause of action. (See Reply, pp. 1-10 [sole reference to abandonment at page 5 relating to quotation of paragraph 42 of the SAXC].)

The Court finds that the first cause of action survives demurrer based on the abandonment allegations supporting it. For this reason, although this Court could issue a ruling differing from the prior court’s reasoning (see Emerald Bay Community Assn. v. Golden Eagle Ins. Corp. (2005) 130 Cal.App.4th 1078, 1086, citation omitted [“Except in circumstances governed by Code of Civil Procedure section 1008, if an action is transferred from one department to another, the latter may issue a ruling inconsistent with a prior interlocutory order made in the first department”]; see also Wrightson v. Dougherty (1936) 5 Cal.2d 257, 265 [demurrer was overruled in one department, judgment on pleadings on the same pleading was later granted in another department]), the Court need not reach that issue.

The first cause of action alleges a present controversy relating to rights and duties between the parties as to the Big Chief Marks as founded in allegations of abandonment of the marks by Samuel Kim. (SAXC, ¶ 59.) This foundation to the first cause of action is not challenged in the demurrer or reply, nor does the demurrer attack the fourth cause of action in the SAXC, which seeks cancellation of the Big Chief Marks, as registered in California, based on abandonment of the marks by Kim. As a result, one of the various grounds underlying the declaratory relief claims survives to support the claim. It follows, therefore, that the Court cannot sustain a demurrer to the entire cause of action, however insufficiently stated parts of the claim may be, where the proper instrument to have challenged the oral assignment and license allegations supporting the first cause of action was a motion to strike. (Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1047 [“A demurrer cannot rightfully be sustained to part of a cause of action or to a particular type of damage or remedy”]; Pierson v. Sharp Memorial Hospital, Inc. (1989) 216 Cal.App.3d 340, 342 [A motion to strike is generally used to reach defects in a pleading that are not subject to demurrer].)

Samuel Kim and CBSI’s demurrer to the FAXC’s first cause of action is therefore OVERRULED.

SAXC, Second Cause of Action, Common Law Trademark Infringement: OVERRULED.

Under California common law, to state a claim for trademark infringement a plaintiff must allege (1) existence of prior and continuous use of a trade name in such a way that a secondary meaning is acquired, (2) subsequent use of a confusingly similar trade name by the defendant, and (3) likelihood of confusion in the minds of the public of the defendant’s business as that of, or as one affiliated with, the plaintiff. (Sunset House Distributing Corp. v. Coffee Dan’s, Inc. (1966) 240 Cal.App.2d 748, 753.)

The second cause of action is pleaded against Samuel Kim, CBSI, and Roes 1-100 and alleges that in early 2018, JRJS became the right owner of the Big Chief Marks with respect to cannabis products, trademarks which JRJS continually used since 2018 until a preliminary injunction by the superior court restricted such use, and that such marks were used prior to Samuel Kim and CBSI’s illegal use of the marks on their counterfeit cannabis vape products and unauthorized website, where Kim and CBSI’s intentional marketing, sale and/or distribution of counterfeit goods bearing Big Chief Marks is likely to cause confusion, or to cause mistake, or to deceive, mislead, betray, and defraud, in that the public will conclude that the goods sold, offered, or distributed by Samuel Kim and CBSI are authorized, sponsored, approved, or associated with JRJS. (SAXC, ¶¶ 62-70.)

In their demurrer, Kim and CBSI argue several points. First, they argue that the trademark registration judicially noticed by the Court (see Demurrer, Errata Notice, RJN, Ex. A) grants Kim the presumption of prima facie ownership of the trademark. (Demurrer, p. 8.) Second, Kim and CBSI argue that as a matter of law, there are no differences between the “Big Chief” trademark Plaintiff Kim registered in 2013 and the “Big Chief” brand JRJS claims to have first used on cannabis products because the words are identical, the brand is the same, and the 2013 trademark allows Plaintiff Kim to “tack” his first use date of the earlier mark to the subsequent use of the mark by Kim, with the SAXC fatally failing to recognize the doctrine of tacking under trademark law. (Demurrer, p. 8.) Third, Kim and CBSI support their tacking argument by citing case law supporting this position and comparing the outcomes in those cases to the allegations raised in the SAXC. (Demurrer, pp. 8-9.) Fourth, Kim and CBSI argue that the federal and state trademarks Kim owns over the Big Chief Marks are stronger than those claimed by JRJS in the SAXC because (1) per Kiva Health Brands LLC v. Kiva Brands Inc. (N.D. Cal. 2019) 402 F.Supp.3d 877, 880-881, the alleged prior use of the marks in relation to cannabis products by JRJS was technically illegal under federal law, such that JRJS’s use of the marks in relation to cannabis products cannot constitute a legitimate defense to Kim’s federal trademark, and (2) per CreAgri, Inc. v. USANA Health Sciences, Inc. (9th Cir. 2007) 474 F.3d 626, 630, only the lawful use of a trademark can be recognized to grant any priority of use. (Demurrer, pp. 9-11.)

In opposition, JRJS argues four points. First, JRJS argues that it has alleged all necessary elements for trademark infringement as to the Big Chief Marks on cannabis products under California law at paragraphs 46 to 47, 64 to 66, and 69 to 70 of the SAXC. (Opp’n, pp. 9-10.) Second, JRJS argues that Samuel Kim is not the prima facie owner of the Big Chief Marks as a matter of law because (1) federal law indicates that registration of a federal trademark is merely prima facie evidence of the validity of the mark, not prima facie evidence of ownership of the mark and (2) the cases cited by Kim and CBSI state that Kim’s California trademarks are only prima facie evidence of the marks, not evidence of ownership thereof. (Opp’n, p. 10.) Third, JRJS argues that the question of tacking cannot be determined at the pleadings stage because a determination as to whether the 2013 mark and the Big Chief Marks alleged in the SAXC are essentially the same is a factual issue to be adjudicated at trial. (Opp’n, pp. 10-11.) JRJS argues in the alternative that the SAXC alleges that any prior use of the mark by Kim was invalid because it was connected to sale of tobacco outside of the United States. (Opp’n p. 11.) Fourth, JRJS argues that the sale and use of cannabis goods is lawful and protectable under California law, where the demurrer’s reliance on cases relating to cancellation of federal trademarks is distinguishable insofar as this case involves cancellation of State of California trademarks. (Opp’n, p. 11.) In the alternative, JRJS argues that Kim and CBSI have failed to argue that any noncompliance with law asserted in the SAXC was material—i.e., of such gravity and significance to render the use of the mark unlawful and create no trademark rights—where this question is factual and should be left to determination at trial. (Opp’n, pp. 11-12.)

In reply, Kim and CBSI make various arguments driving at the point that JRJS cannot claim any priority use of the Big Chief Marks because any use of the marks by JRJS was undergirded by illegal conduct, e.g., the non-testing of cannabis cartridges prior to sale. (See Reply, pp. 4-8.) To support this position, Kim and CBSI rely on the deposition testimony and declarations of Jafar Rashid, as attached to the reply’s judicial notice request. (See Reply, pp. 5-7.) The Court finds two issues with this line of argumentation. First—and despite the arguments in its favor by Kim and CBSI (Reply, pp. 4-5)—the Court has declined to take judicial notice of the Rashid deposition testimony and declarations because the Court refuses to turn this into a contested evidentiary hearing. (See Request for Judicial Notice discussion supra.) Second, it is unclear why Kim and CBSI did not raise issues related to the Rashid deposition testimony and declarations for the first time in their demurrer, and the reply does not clarify why they are raised for the first time on reply. (Nordstrom Com. Cases (2010) 186 Cal.App.4th 576, 583 [courts generally need not accept arguments raised for the first time on reply without good cause explanation as to why points were not raised earlier].)

The Court finds that the second cause of action is sufficiently stated for demurrer purposes.

First, the Court finds that the elements of the claim are sufficiently stated in the SAXC. (See SAXC, ¶¶ 62-70.)

Second, the Court finds that deciding this demurrer based on arguments related to the federal trademark registration of the Big Chief Marks threatens to convert this hearing into a contested evidentiary hearing, which the Court declines to do. (Del E. Webb Corp. v. Structural Materials Co., supra, 123 Cal.App.3d at pp. 604-605.) The SAXC pleads JRJS’s ownership of the Big Chief Marks through JRJS’s prior use of the marks on cannabis products in California without reference to the federal trademark filed by Kim with the USPTO in 2013. (See, e.g., SAXC, ¶ 64; see SAXC generally [no reference to USPTO registration].)

Alternatively, the Court finds that the cases cited as to prior use by Kim and CBSI are distinguishable or not sufficiently elaborated on demurrer. The Kiva decision is distinguishable because that case, by the very text cited in the demurrer, involved the defendant’s attempt to leverage prior use of trademarks on cannabis products in California as a defense to a federal trademark claim. (See Demurrer, pp. 9-10.) Here, the only trademark registrations being challenged involve state registrations. (See SAXC, Third and Fourth Causes of Action.) Next, to the extent that the demurrer argues, based on references to federal case law in CreAgri, Inc., that only the lawful use of a trademark can be recognized to grant any priority of use of a mark (Demurer, p. 10), the Court is not satisfied with this line of argumentation. Specifically, it is unclear to the Court how any party—even Kim and CBSI—can argue they have priority use of a trademark on cannabis products given that sale of the same is illegal under federal law—even if legal in the State of California. If federal law applies, no party in the State of California can establish priority use over trademarks used in connection with the sale of cannabis products because such sale is illegal under federal law. If state law applies, Kim and CBSI have failed to provide arguments or case law explaining why prior use of a trademark on cannabis products sold in conformity with California law does not permit a finding of lawful priority use pursuant to the laws of California. As the burden on demurrer lies with Kim and CBSI, the Court finds that Kim and CBSI have failed to show that the prior use of the Big Chief Marks alleged by JRJS in the SAXC is fatally defective, therefore failing to undercut the prior use element of common law trademark infringement, and failing to undercut JRJS’s alleged ownership of the Big Chief Marks through prior use.

Third, the Court agrees with JRJS that questions of tacking are better left for trial or dispositive evidentiary motions because these arguments relate to evidence of a federal trademark registration by Kim, threatening to turn this hearing into a contested evidentiary hearing. (See Request for Judicial Notice discussion supra; Del E. Webb Corp. v. Structural Materials Co., supra, 123 Cal.App.3d at pp. 604-605.)

Samuel Kim and CBSI’s demurrer to the FAXC’s second cause of action is therefore OVERRULED.

SAXC, Third Cause of Action, Cancellation of Trademark Registration (Bus. & Prof. Code § 14230(c)(2)-(4) [Fraud]: OVERRULED.

Under Business and Professions Code section 14230, subdivisions (c)(1) to (c)(4), the California Secretary of State shall cancel from the register, in whole or in part, a trademark that (1) has been abandoned, (2) is registered under a person who is not the owner thereof, (3) was granted improperly, or (4) was obtained fraudulently. Actions to require cancellation of a mark registered or in mandamus to compel registration of a mark pursuant to the Business and Professions Code shall be brought in the superior court. (Bus. & Prof. Code, § 14254, subd. (a).)

The third cause of action is pleaded against Samuel Kim, CBSI, and Roes 1-100 and seeks cancellation of the Big Chief Marks registered in the State of California by Samuel Kim in 2020—(see 12/29/22 RJN, Exs. 1-5 [copies of five relevant registration filed in support of now-withdrawn summary judgment or adjudication motion by Kim and CBSI])—based on incorporated pleadings and direct allegations that in 2018, JRJS became the owner of the marks based on, among other grounds, Kim’s offer of the Big Chief brand in exchange for his continued employment and role within the company, as well as JRJS’ first and prior use and sale of Big Chief branded cannabis goods, such that Kim’s 2020 registrations for the Big Chief Marks with the California Secretary of State were obtained through fraud, i.e., through Kim making false representations as to ownership of the Big Chief Marks at a time when they were lawfully owned by JRJS. (SAXC, ¶¶ 76-84.)

In their demurrer, Samuel Kim and CBSI argue several points. First, Kim and CBSI argue that the allegations that JRJS became the owner of the Big Chief Marks are insufficiently stated because Kim owned a federal trademark over the Big Chief Marks in 2018, which could only be transferred in a written instrument that was recorded, and which the SAXC fails to plead. (Demurrer, p. 11.) Second, Kim and CBSI argue that ownership rights as grounded in prior use of the trademarks on cannabis products cannot supersede Kim’s federal trademark because such use of the trademark was illegal under federal law and where case law holds that “use in commerce” must be lawful to establish priority use for trademark purposes. (Demurrer, pp. 11-12.) Third, Kim and CBSI argue that by claiming that Kim gave JRJS the “Big Chief” trademark through oral means—apparently assignment—JRJS concedes it is the permissive user of the trademark, such that Kim remains the protected senior user of the Big Chief trademark, citing to Mallard Creek Industries, Inc. v. Gary Morgan (1997) 56 CalApp.4th 426, 441-442 for this proposition. (Demurrer, pp. 12-13.)

In opposition, JRJS argues several points. First, JRJS argues that the SAXC sufficiently pleads valid ownership of the Big Chief Marks based on prior use on cannabis products, as stated in the 77th and 82nd paragraphs of the SAXC. (Opp’n, p. 12.) Second, JRJS argues that the case law cited by Kim and CBSI related to permissive use through oral assignment of the Big Chief Marks is distinguishable because that case—Mallard Creek—involved a mere distributor’s use of a mark, whereas the SAXC does not allege that JRJS was a mere distributor of Big Chief branded cannabis products, but rather, alleges that JRJS worked together with Kim and CBSI to develop the brand and cannabis product prior to Kim and CBSI’s termination based on misconduct, such that JRJS had protectable rights to use the Big Chief branded cannabis products for its own benefit, unlike the defendant in Mallard Creek, who only had the right to distribute the product bearing the marks for another’s benefit. (Opp’n, 12-13.)

In reply, Kim and CBSI argue that JRJS cannot claim any priority of use over the Big Chief Marks because any use of the marks by JRJS was undergirded by illegal conduct, e.g., the non-testing of cannabis cartridges prior to sale, a position supported by the testimony and declarations of Jafar Rashid, as attached to the reply’s judicial notice request. (Reply, pp. 4-8.) The reply fails to address the opposition distinguishing Mallard Creek. (See Reply generally [no mention of Mallard Creek or permissive use].)

For the following reasons, the Court finds that Kim and CBSI fail to advance arguments showing that the third cause of action is not sufficiently stated.

First, the arguments raised in the reply regarding prior use have been rejected by the Court as stated in the discussion relating to the second cause of action above. (See Second Cause of Action discussion supra [problems related to turning demurrer hearing into contested evidentiary hearing and relying for first time on reply on deposition testimony and declarations].)

Second, the Court is not convinced that the SAXC’s first-use allegations plead that JRJS’s prior use of the Big Chief Marks in California supersede Kim’s federal trademark, but rather, allege that, as it relates to use of the marks in California on cannabis products, JRJS first used the marks in commerce and therefore established ownership thereof through that use. To the extent that the demurrer argues illegality undercutting prior use on federal grounds, the Court finds that these arguments are insufficient on demurrer as stated in the discussion relating to the second cause of action. (See Second Cause of Action discussion supra [arguments of illegality best left to trial or dispositive evidentiary motion and case law cited by demurrer relating to prior use distinguishable or not sufficiently elaborated].)

Last, the Court finds that JRJS distinguished the Mallard Creek case as to undercut the permissive use argument raised on demurrer by Kim and CBSI, where the reply by Kim and CBSI fails to address this issue altogether. (See Reply generally [no mention of Mallard Creek or permissive use].) In the alternative, the Court finds that even if the SAXC alleges an improper transfer of the Big Chief Marks through oral form, JRJS’s ownership of the marks through prior use still supports the third cause of action. (See Second Cause of Action discussion supra [case law cited by demurrer relating to prior use distinguishable or not sufficiently elaborated].)

Samuel Kim and CBSI’s demurrer to the FAXC’s third cause of action is therefore OVERRULED. 

Conclusion

 Cross-Defendants Samuel Kim and Cali Blue Sky Investment, Inc.’s Demurrer to Second Amended Cross-Complaint’s first to third causes of action is OVERRULED because, even if some parts of these claims appear to be legally insufficient, other parts of these claims allege sufficient grounds to state valid causes of action surviving a challenge on demurrer.