Lower Attorneys Fees Proper Against Defaulted Parties When No Willfulness Proven

The Court of Appeals for the Eighth Circuit upheld the district court’s decision denying plaintiff’s attorneys fees against a defendant in default because (a) the Federal Trademark Act, the Lanham Act, 15 U. S.C. § 1051, et seq, is grounded in equity; (b) plaintiff did not prove defendant’s willfulness in this Lanham Act – trademark infringement action, 15 U.S.C. §1125(a); and (c) the evidence submitted with the complaint showed that defendants stopped using the complained-of trademark and plaintiff did not establish that this was an exceptional case that would entitle it to damages, an accounting of profits, or attorneys’ fees under 15 U.S.C. §1117(a). Martinizing Int’s LLC v. BC Cleaners, LLC, Case No. 16-1069 (8th Cir., Apr. 28, 2017) (Available Here).

Plaintiff Martinizing International, LLC sued BC Cleaners, LLC and two of its member-managers, asserting claims of Lanham Act trademark infringement under 15 U. S.C. § 1125( a). Defendants failed to appear and the lower court granted a default judgment. Martinizing appealed, arguing the lower court erred when it (a) denied a default judgment against the managers and (b) reduced the award of attorneys’ fees for willful infringement and (c) failed to issue an injunction. However, the lower court did award damages to plaintiff. The Appeals Court affirmed the lower award of attorneys fees and the denial of injunctive relief, and reversed the award of damages.

Plaintiff had franchise agreements with KM Cleaners, Inc. Plantiff learned that KM Cleaners and BC Cleaners entered into an Asset Purchase Agreement. However, the Asset Purchase Agreement never closed.

“When a default judgment is entered, facts alleged in the complaint are taken as true, but ‘it remains for the [district] court to consider whether the unchallenged facts constitute a legitimate cause of action, since a party in default does not admit mere conclusions of law.’ Marshall v. Baggett, 616 F.3d 849, 852 (8th Cir. 2010).”

The Appeals Court noted that the defendant manager “stated: ‘We will comply with [Martinizing’s demands]. Signage will [be] handled by KM Cleaners and the landlord who are operating the stores. The stores are no longer under our control.’ ‘As an additional follow-up, BC Cleaners, LLC was never a franchisee of Martinizing . . . . BC Cleaners was operating the units for KM Cleaners, LLC along with an agreement to purchase the units from KM Cleaners [that] was never fully executed.’”

Plaintiff submitted evidence including photos of the dry-cleaning stores showing use of the Martinizing trademarks, and documents supporting its claim for an award of $18,592 in costs and attorneys’ fees. It sought treble attorneys fees and alleged willful infringement.

Per the Court, “The allegations of trademark infringement and deceptive trade practice by defendants in the amended complaint are directly contradicted by the terms of the Asset Purchase Agreement.”

“To prevail on its claim of trademark infringement, Martinizing must prove that defendants’ conduct was ‘likely to cause confusion’ as to the origin or approval of products or services. See, e.g.,
Everest Capital Ltd. v. Everest Funds Mgmt., L.L.C., 393 F.3d 755, 759 (8th Cir. 2005), citing 15 U.S.C. § 1125(a)(l )(A). Here, continued operation of the stores under franchise agreements that had not been terminated obviously caused no customer confusion whatsoever. As [the manager] put it in his second email, BC Cleaners simply operated the stores ‘for KM Cleaners’ during this interim period.” Also, Defendants email declined to seek a franchise agreement, stated they were no longer operating the stores, and agreed to comply with the cease and desist demands in Martinizing’s cease and desist letter.

“Because the Lanham Act is grounded in equity and bars punitive remedies, ‘relief in a Lanham Act case should be limited to an injunction if that is sufficient to do equity.’ Minnesota Pet Breeders, Inc. v. Schell & Kampeter, Inc., 41 F.3d 1242, 1247 (8th Cir. 1994)”.

“Whether a Lanham Act plaintiff must prove willful infringement to recover money damages is an open question in this circuit after the Lanham Act amendments in 1999. See Masters v. UHS of Del., Inc., 631F.3d 464, 471 n.2 (8th Cir. 2011). But even if willful infringement is not a prerequisite, on this record we conclude Martinizing failed to prove that BC Cleaners’ conduct makes this the kind of exceptional case that would entitle Martinizing to damages, an accounting of infringer profits, or attorneys’ fees, in addition to the injunctive relief we have upheld. See 15 U.S.C. § 1117(a).”

The manager defendants were involved in BC Cleaners, but Martinizing submitted no evidence addressing the extent of their involvement in the continued use of Martinizing trademarks after BC Cleaners entered into the Asset Purchase Agreement but prior to KM Cleaners completing the Agreement by assigning its franchise agreements to BC Cleaners.

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