Thursday, May 06, 2010

Tough out there for a plaintiff's attorney

Franklin Mint Company v. Manatt, Phelps & Phillips, LLP, --- Cal.Rptr.3d ----, 2010 WL 1744635 (Cal. App. 2 Dist.)

Manatt represented the executors of the estate of Diana, Princess of Wales and the trustees of The Diana, Princess of Wales Memorial Fund in a lawsuit against Franklin Mint alleging claims related to Franklin Mint’s use of Princess Diana’s name and image in connection with Franklin Mint merchandise. Franklin Mint, after prevailing, sued for malicious prosecution of the false advertising and federal trademark dilution claims. The trial court found that Manatt had probable cause; the court of appeals reversed. (The trustees, executors etc. settled before trial.)

Basic holding: based on the record, no reasonable attorney could have found the false advertising or federal dilution claims tenable, the latter because of lack of trademark use and of secondary meaning—because “Diana, Princess of Wales” had such an “extraordinarily strong primary meaning” as descriptive of the person, the contention that it had secondary meaning was “absurd,” as the district court in the underlying lawsuit (the well-known Cairns v. Franklin Mint) observed.

Manatt argued that the issues were complex and that there was no directly controlling authority. But the fundamental principles of trademark law were clear and well-established, and their application to the case was “straightforward and uncomplicated.” The complexity arose from Manatt’s attempts to avoid those principles. Thus, remand was required for trial on malice and damages.

Further background: Princess Diana was a highly visible celebrity. During her lifetime, Franklin Mint sold over $9 million of Diana-related products. After her death, Franklin Mint produced more products, and sought agreement with the Memorial Fund so that it could advertise official authorization by the Fund. When the Fund didn’t respond, Franklin Mint went ahead, issuing a press release that it was developing a tribute plate, all of whose proceeds would “go directly to The Diana, Princess of Wales Charities,” and an ad stating, “All proceeds to go to Diana, Princess of Wales’ Charities” and “100% of your purchase price will be donated to Diana, Princess of Wales’ favorite charities.” The Fund then said no.

Because Franklin Mint wanted to “associate” its Princess Diana collectibles with donations to charities that supported causes that were important to her, Franklin Mint entered into an agreement with the Great Ormond Street Children’s Hospital (a charity with which she had been involved), allowing the Mint to use the charity’s name in advertising. At some point, Franklin Mint took out the “all proceeds” language but continued to advertise the tribute plate, instead stating that the Mint had pledged a minimum of $1.5 million worldwide to charity in tribute to Diana. Franklin Mint apparently had pretty careful tracking of which purchases were in response to which ads, since each ad had a “response code” that was included in every order, and determined that the “all proceeds” ad generated approximately $2.5 million in sales (eventually interpleaded with the district court, to be distributed to charity on resolution of the suit). The later ad generated $7 to $7.5 million worldwide, $1.5 million of which was paid to the charity.

Eventually, the Fund hired Manatt to sue Franklin Mint. Questions arose about establishing secondary meaning/use in commerce, but Manatt indicated that substantial case law supported using Diana’s charitable activities to establish secondary meaning. The complaint as filed alleged false designation of origin under §43(a)(1)(A), trademark dilution under §43(c), infringement of the California right of publicity, false advertising under §43(a)(1)(B), and California unfair competition/false and misleading advertising claims.

On dilution, the complaint alleged that the Diana mark was famous, inherently distinctive, and also possessed acquired distinctiveness from its past use for charitable activities.

On false advertising, the complaint alleged “a large scale program of deceptive advertising” about the use of the proceeds from the sale of its products. The representations were allegedly false because “Defendants have never donated a penny to the Fund,” and the Fund was damaged by this attempt to benefit from the goodwill associated with Princess Diana’s identity. The claim also included the allegation that consumers were induced to purchase the Mint’s dolls and plates based on a mistaken belief that they were endorsed by, associated with, or affiliated with Diana, her estate, and/or the Fund.

Though the district court refused to dismiss the dilution claim because it was required to take the allegations as true, it expressed doubt that the Fund could show secondary meaning distinct from the primary descriptive meaning of Diana’s name, and denied a preliminary injunction on that ground. The results were similar for the false advertising claim: properly pleaded, but no PI because the Fund didn’t show a fair chance of showing likely confusion and the ads didn’t support the Fund’s position that the ads falsely implied that proceeds would be donated to it.

Note: I can see why the Fund thought there was false advertising. From its perspective, references to “The Diana, Princess of Wales Charities” and even the other, less specific references were references to the Fund (though it doesn’t seem to have pursued this theory as the case went on). But the secondary meaning point is fairly critical here: given that the Fund was very new, it’s questionable that anybody else, specifically the targeted consumers, associated the Fund with Diana’s charities, which during her life had not included the Fund. The use of the article “The” is the best hook here, arguably implying that there are some distinct charities known, as a body, as Diana’s charities, and after Anti-Monopoly’s reversal a consumer belief in an unknown-but-single source qualifies as secondary meaning. But again, even if that were true, it would arguably be much more reasonable for consumers to think that this was a body of charities Diana had supported in life, not the Fund, and that false implication would be a heavy weight to hang on a single article.

Though the appeal centered on the district court’s dismissal of the right of publicity claim, the Ninth Circuit also considered the other claims. The court of appeals agreed that “Diana, Princess of Wales” lacked secondary meaning for charitable activities. Diana was known as a person, not a charity. And the Fund didn’t challenge the district court’s holding on whether the ads falsely implied that proceeds would be donated to the Fund.

Back in the district court, the Mint won summary judgment. As noted above, the court found it “absurd” to claim that “Diana, Princess of Wales” had secondary meaning for the Fund’s charitable services. No fame without secondary meaning; that’s the end of the dilution claim.

The false advertising claim as argued was based on the theory that the “all proceeds” ad was false because the Mint retained a bunch of the money. But only one ad said “all proceeds,” and the evidence demonstrated that the Mint gave $1.5 million to the Great Ormond Street Children’s Hospital and interpleaded another $2.5 million for charity upon the resolution of the lawsuit. (If it’s only true because a lawsuit led the Mint to comply with its promise, is it really true? Kind of like the reverse placebo effect, in a way.) So, given the evidence about sales associated with that ad, the “all proceeds” ad was literally true; summary judgment for the Mint. (The question of how to communicate changes in an advertised product to consumers is an interesting one—a consumer who’d seen earlier ads, but only on later exposure decided to buy, might well not notice the change in the “all proceeds” promise and rely on her recollection of the earlier ad. But that’s hard to prove, especially without an extended campaign making the “all proceeds” claim.)

The Mint then sought and was awarded $1.6 million in attorney’s fees under the Lanham Act for the dilution and false advertising claims, though the false endorsement claim—while a stretch—was a non-groundless attempt to extend existing law. The court found the Fund’s secondary meaning argument “just short of frivolous,” and the false advertising claim groundless because the statements at issue were true and because the Fund presented no evidence to cast doubt on their veracity. The Fund shouldn’t have brought the claim, or voluntarily dismissed it when it was clear that there was no evidence to support it.

Now, on to the present lawsuit for malicious prosecution. At the close of a jury trial, the trial court ruled that there was probable cause to bring these claims, “and having consulted with other lawyers to determine whether or not that client’s cause had merit, had [the lawyer] failed to file a cause of action, one would have had a serious question of whether or not he committed malpractice.” (Really? Even if you agree with the dissent (wait for it), bringing the false endorsement/right of publicity claims seems sufficient; especially if one’s remedies for multiple claims overlap, as here, and if extra causes of action raise difficult matters of proof, I can’t imagine why it would be malpractice to bring the claims that seem most obvious and omit the ones that might—as these did—lead down the rabbit hole and to an award of attorney’s fees. It’s annoying enough when plaintiffs bring state trademark claims that are identical with Lanham Act claims and then don’t bother to argue anything about the state claims; I’d hate to have more incentives to add to a shotgun complaint.)

Also, if I read this right, the judge took the case away from a jury perhaps ready to render a verdict; this turns out to have been inefficient. Anyway, the Mint appealed the dismissal.

The Mint first argued that Manatt was bound by the district court rulings that the underlying claims were groundless and unreasonable. But the Mint failed to preserve the issue of collateral estoppel for appeal.

So, to prove malicious prosecution, the plaintiff needs to prove that the underlying action was (1) terminated in the plaintiff’s favor, (2) prosecuted without probable cause, and (3) initiated with malice. A claim may be based upon only some of the causes of action alleged in the underlying lawsuit, in order to avoid rewarding shotgun tactics.

Probable cause is a question of law for the court. Counsel can present issues that are arguably correct, even if it’s “extremely unlikely” they’ll win. Since law evolves, the court must ask “whether any reasonable attorney would have thought the claim tenable.”

The court of appeals found that there was no probable cause. Even if Diana used her name or image as a mark, which passed to the Fund after her death, no reasonable attorney would argue that her name or likeness had acquired the necessary secondary meaning. (The court paused to note that it’s possible that the Fund has, in the 12 years since the underlying lawsuit was filed, acquired a valid trademark in Diana’s name or likeness in connection with the Fund’s charitable activities; its analysis is limited to the facts as they were in 1998. Later, however, the court appeared to suggest that secondary meaning could only be found when Diana's name was coupled with that of the Fund.)

First, the court found no legally tenable argument that Diana herself used “Diana, Princess of Wales” as a trademark. Manatt argued that her name and likeness was a mark because it was used on promotional materials to inform the public that she would perform the service of “promoting charities through personal appearances.” The court first expressed uncertainty that “making personal appearances” is a cognizable service under the Lanham Act, as opposed to providing entertainment services once present. The TTAB requires evidence of use of the name “not just to identify the individual but rather to identify goods sold or services rendered by the applicant in commerce.” Though Diana supported many charities and promoted them through personal appearances, Manatt didn’t submit evidence mentioning any services she provided. “[I]f Princess Diana’s name was used only as part of a textual reference to Princess Diana as an individual (i.e., that she would be appearing at, or supporting, a charitable event), even if Princess Diana exercised significant control over that use of her name, her name was not used in a service mark manner and therefore did not qualify as a trademark.”

In addition, there was no tenable argument that “Diana, Princess of Wales” acquired secondary meaning, which would require the name’s primary meaning to be subordinate to its secondary meaning as a source indicator. “To prove secondary meaning, the Fund would have to show that the primary significance of ‘Diana, Princess of Wales’ in the minds of the public was to the charitable services performed by Princess Diana (the source-identifying meaning) rather than to Princess Diana as an individual (the primary meaning of the words).”

Manatt relied on cases finding secondary meaning through use of a person’s name in connection with entertainment services, even when the name continues to refer to the person. But those celebrity cases involved people, including Elvis Presley, Glenn Miller, Johnny Carson, and Paul Prudhomme who “achieved public name (or image) recognition in connection with their provision of services. Princess Diana did not.” The public didn’t know the “primary” meaning of their names except through their services, that is, through secondary meaning. Diana was well-known long before her association with charitable work; those other people didn’t have a strong “primary meaning” to overcome, and could achieve secondary meaning “simply by promoting their names in association with the entertainment services they provided.” By contrast, the extraordinarily strong primary meaning of Diana’s name made it doubtful that “Diana, Princess of Wales” could ever achieve secondary meaning, and even more so in the immediate aftermath of her death. No reasonable attorney would contend that the primary significance of her name was to identify the provider of charitable services.

Manatt argued that the Fund didn’t need to prove secondary meaning because “Diana, Princess of Wales” is inherently distinctive because it identifies only one specific person, and because celebrity false endorsement cases haven’t required secondary meaning. The court held that this position “ignores basic trademark law.” “As with Manatt’s other attempts to avoid well established trademark law, neither argument is tenable.” Personal name marks are considered descriptive because they are usually understood to refer to a person (however unique) rather than a provider of goods and services. As for the false endorsement cases, here the court entered the tangle of incoherence that those cases represent: they involve a confusion test like a trademark infringement analysis, but because the traditional multifactor confusion test “did not make much sense in the context of a celebrity endorsement case,” courts tend to rejigger the factors, and sometimes they do that by analogizing a “mark” to a celebrity persona. But this is just shorthand.

Moreover, even if Manatt’s contentions about inherent distinctiveness were true with respect to ownership, secondary meaning—fame of the mark for designating Princess Diana’s charitable services—was required to establish the dilution claim. Shakespeare is surely a famous person, but adopting Shakespeare as a mark doesn’t make it famous as a mark. Argument to the contrary was untenable.

Manatt argued that, in order to avoid chilling novel or debatable legal claims, malicious prosecution was only available in cases involving simple legal issues arising in uncomplicated factual contexts. The court noted that trademark law is specialized and requires “rigorous analysis.” (If only!) Moreover, it was true that there was “no previous case quite like the underlying case, where a person achieved worldwide fame unconnected to any goods or services she provided and her successor subsequently sought protection for her name and image under the trademark dilution law.” But immunity from malicious prosecution claims isn’t established simply because the general area of law at issue is complex and there’s no case with the exact same facts. “Lawyers are charged with the responsibility of acquiring a reasonable understanding of the law governing the claim to be alleged. That achieving such an understanding may be more difficult in a specialized field is no defense to alleging an objectively untenable claim.”

Nor could Manatt claim to be arguing for extension, modification, or reversal of existing law when its arguments asserted “legal theories that simply ignore fundamental principles on which that law is based.” In fact, that was especially true here, because the fundamental principles of trademark law on source identification and secondary meaning are “clear and well established,” not mysterious.

Likewise, there was no probable cause to prosecute the false advertising claim. The Mint’s objection to the Fund’s alleged lack of standing was procedurally barred, but its argument that there was no evidence of falsity or misleadingness carried the day. The theory in the underlying complaint was that the Mint stated in ads that all proceeds from Princess Diana merchandise would be donated to Princess Diana’s charities, and that those statements were false because the Mint didn’t donate any money to the Fund. But the actual ads, attached to the complaint, clearly didn’t make the alleged representation, and “no reasonable attorney could argue that the advertisements could be construed to even suggest that all proceeds from all Princess Diana merchandise would be donated to charity (let alone to the Fund).”

One tribute plate ad said: “All proceeds to go to Diana, Princess of Wales’ Charities …. 100% of your purchase price will be donated to Diana, Princess of Wales’ favorite charities.” A subsequent ad for the tribute plate instead included: “The Franklin Mint has pledged a minimum of 1.5 million dollars worldwide to charity in tribute to the beloved Princess Diana,” a statement repeated in other ads. One final ad, for a doll, stated that the doll was presented by the Franklin Mint, in association with Great Ormond Street Hospital Children’s Charity and that “[t]he doll wears the only exact replica of the dress The Franklin Mint purchased at Christie’s auction where all proceeds were donated to Diana’s favorite charities.”

Manatt nonetheless continued to assert that “at least one” of the ads stated that all proceeds from all Princess Diana merchandise would be donated to her charities. At the summary judgment stage, Manatt modified its theory, arguing that the ads were false because the Mint “retained many times more from their sales of Princess Diana merchandise than they have ‘pledged’ to charity,” and it had not even pledged an amount equal to the proceeds it obtained from sales of “the particular product which used that [all proceeds] ad.” Manatt further argued that reasonable consumers would believe that the Mint was donating a portion of the proceeds from the particular products in the ads, when the Mint wasn’t actually doing that. (In other words, the consumers’ purchases wouldn’t actually increase the amount the Mint gave to Diana’s charities, but consumers would be misled to think so.)

The first “all proceeds from all merchandise” theory was untenable, since no reasonable attorney could have thought that any of the ads “even suggested” this. The “all proceeds” ad “could only be construed” to mean that the sales proceeds generated as a result of that ad would be donated. And this was true, even though the Mint didn’t donate proceeds from sales of the tribute plate generated by other ads. The court rejected Manatt’s argument that the Mint ultimately donated the interpleaded funds to charities with no direct connection to Diana; the issue was whether there was probable cause based on the evidence at the time of the lawsuit.

The second theory—donations based on purchases—is a misleadingness argument. It requires evidence of consumer deception, and the only thing in the record that might support it was a single sentence in a single declaration by a Mint customer, most of which focused on the false endorsement claim. That customer believed that the Fund was going to get some portion of the proceeds of the sale. The other declarations in the record were just about false association. (And that doesn’t even really get to the key question: did the customer believe that the Fund would get more money because she bought and less if she didn’t?) Given the paucity of evidence, no reasonable attorney would have found this theory tenable.

The dissent would have affirmed. The dissent first expressed extreme caution about the malicious prosecution cause of action as a hazard for lawyers. We don’t want to chill the creativity of lawyers who develop the law; the law changes, and that’s because new claims change it. Lack of probable cause is a key limit on the malicious prosecution tort, and should be construed strictly.

There shouldn’t be exposure to a malicious prosecution claim just from asserting claims not within the four corners of precedent or of relevant statutory warning, if the lawyer uses defensible analogical reasoning and has evidence that arguably permits an inference of the ultimate facts to be proved. The burden was on the Mint to prove lack of probable cause, and it didn’t, in significant part because it didn’t submit all the evidence that Manatt submitted in the underlying federal action—you can’t conclude that evidence was legally untenable without knowing what it was.

Given the variations in how lawyers and judges see claims, it’s important to preserve distinctions between merely unsuccessful and legally untenable claims. A claim isn’t necessarily untenable even if existing authority is directly adverse, as long as there’s a tenable basis to argue for an extension, modification, or reversal of existing law. The lawyers in Brown v. Board of Education, for example, confronted adverse precedent. Unless the claim is patently meritless, “the benefit of the doubt should go to the lawyer.”

Lack of probable cause requires either that no reasonable attorney would contend that the facts as alleged would establish liability, or that the attorney alleged facts that s/he knew or subsequently learned weren’t true or had no reasonable basis to infer that supportive evidence could be developed through discovery/investigation. But lawyers need not possess all necessary evidence; a reasonable lawyer can rely on discovery and further investigation.

The legal tenability of both claims, as alleged “was established” by the federal district court’s denial of the motion to dismiss. (I have to wonder how the tighter Iqbal/Twombly standards, which may well have required more in the way of specific factual allegations than the Fund offered in the underlying litigation, will affect a similar analysis in the future.) And, taking into account the evolutionary nature of the law, Manatt had an arguable legal basis. Nor was there evidence that Manatt knew or learned that its factual allegations were false or had no reasonable basis to believe them.

Though the district judge characterized the dilution claim as “absurd” and then “just short of frivolous” in awarding fees, just short of frivolous is not frivolous and not frivolous is legally tenable. There was no authority directly adverse to the dilution claim, because of Diana’s unique circumstances. A reasonable lawyer, “zealously and creatively representing his client’s interests,” could have argued the dilution claim. That’s how the law evolves: “good lawyers, usually in weak cases, reasoning from established principles to advocate an extension, modification, or reversal of existing law.” (Put that way, evolution sounds unattractive—if they’re weak cases, do we like this? Or does this mean, legally weak but morally sound? If so, how do we determine what’s morally sound?) Indeed, in Peaceable Planet, Inc. v. Ty, Inc., 362 F.3d 986 (7th Cir. 2004), Judge Posner argued that the rule against giving trademark protection to personal names without secondary meaning was a common-law “generalization” rather than a statutory absolute, and should be modified where appropriate.

As for whether the dilution claim was factually untenable, the dissent argued that the Mint failed to introduce the underlying factual record into evidence and thus failed to meet its burden. The rulings in the underlying case are no substitute for the evidence. The Mint had no evidence to establish that Diana didn’t use her name and likeness as a mark, or that Manatt was aware of “specific information as to verifiable facts that, if true, would totally negate its cause of action” (citation omitted), and the majority improperly shifted the burden. The Mint couldn’t rely on the trial judge’s conclusions that there was no evidence of use as a mark.

The dissent argued that other celebrity cases couldn’t be distinguished “based on our own assumptions and views about Princess Diana.… Whether the ‘public’ associates the phrase ‘Diana, Princess of Wales’ with the Diana of the fairytale wedding and tabloid divorce, on the one hand, or the Diana who did charitable work, on the other, is a matter subject to proof, as is the questionable assumption that the words ‘Diana, Princess of Wales’ could never gain secondary meaning.” Manatt could even have tenably argued post-death association with charities.

The dissent reasoned similarly with respect to false advertising. The district court judge, looking at the ads at issue, denied the motion to dismiss, showing that it was legally tenable. There was no attempt in the body of the complaint to misstate the facts or mislead the court, so the complaint should be reconciled with the ads. One ad did say “All proceeds go to Diana, Princess of Wales’ Charities.” It didn’t limit its claims to all sales of that particular plate generated by that particular ad. And, when the action was filed, none of the proceeds had yet been donated to any charity. That’s probable cause. The deposit with the court of a portion of revenue from sales of the plate didn’t divest Manatt of probable cause, because it was also undisputed that a significant portion of the proceeds were never donated to “Diana, Princess of Wales’ Charities,” but instead to charities favored by the Mint’s owners. One could view this representation, then, as actually false. “These circumstances suggest that there was evidence that Manatt could develop to support its false advertising claim.” Manatt’s failure to establish that all the ads were false or misleading doesn’t mean it lacked probable cause as to its claim, theory, or ground of recovery, which should be the standard.

The dissent ended by questioning the California rule that malicious prosecution claims can be brought based only on some of the claims in an underlying lawsuit. Other states, more hesitant to chill litigation (more hesitant than California? That’s got to be a first), follow the opposite rule, assessing probable cause with respect to the underlying complaint as a whole. It’s odd, the dissent observed, that “a remedy for excessive litigation expands the opportunity for lawsuits.” And malicious prosecution actions can increase the cost of legal services and harm the attorney-client relationship. Litigators face a dilemma: if they assert various alternative causes of action, they risk a malicious prosecution claim, but if they fail to allege alternative causes of action, they risk a malpractice claim. And defense attorneys face no such risks when asserting affirmative defenses, most of which often have no relationship to the case at hand.

Here, it wouldn’t have been unreasonable to assume that the Mint’s marketing campaign interfered with the Fund’s rights. “At first glance,” the Fund “might reasonably be apprehensive” about a US company “marketing goods that use the name and likeness of Princess Diana and suggest that proceeds from the sale of those goods will go to an undisclosed Princess Diana charity.” The Fund could justifiably believe that many other companies would follow, adversely affecting the Fund’s charitable activities. Maybe there was no valid claim under existing law to prevent such conduct. But if there was probable cause under one theory, the attorneys shouldn’t have been vulnerable to malicious prosecution litigation for asserting other claims arising out of the same operative (or, in the case of false advertising, related) facts.

Comment: among the many interesting features of this case, it's notable that the Mint--likely to be a repeat player in right of publicity controversies--was willing to go beyond attorney's fees, presumably as a signalling device: suing the Mint may not be cost-free, paying one's own way aside.

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