Weak case is not exceptional for fees purposes

American Traffic Solutions, Inc. v. Redflex Traffic Systems, Inc., 2011 WL 772310 (D. Ariz.)

The parties compete to compete photo traffic enforcement services to governments, and until mid-2008, defendant Redflex did so with radar units that required, but lacked, FCC certification, but touted its compliance with applicable laws in its sales pitches. The court granted summary judgment on claims relating to about two dozen governments because plaintiff American lacked either prudential standing or evidence of “advertising.” The remaining claims, covering about a dozen governments, went to a two-week jury trial. At the close of American’s case, the court denied Redflex’s motion for judgment as a matter of law, while noting that American’s case was “weak at every point.” The jury found for Redflex. American sought attorneys’ fees and nontaxable costs.

Attorneys’ fees are available in exceptional cases, and an exceptional case is "groundless, unreasonable, vexatious, or pursued in bad faith." Redflex argued that the claims were grounless and unreasonable, because in many instances American did not compete for the relevant contract, it was not a viable candidate to win the contract, or the contract did not involve radar units. American allegedly presented a moving target with respect to its claims and its experts, which drove up Redflex’s litigation costs, and unreasonably waited until closing argument to drop claims regarding two governmental entities.

American argued that a significant portion of its case had merit, surviving motions for summary judgment and judgment as a matter of law; that Redflex is disingenuous because it’s pursuing its own Lanham Act claims against American based on American’s statements about the American-made nature of its systems; and that the court condemned both parties’ excessive approach to motion practice.

The court began: “The Lanham Act is a complex statute with a broad scope and low thresholds for liability. Unfortunately, this makes it susceptible to creative legal theories based on less than compelling facts. This is particularly true where, as here, a plaintiff can raise a genuine issue with respect to intentional deception and rely on a presumption of deception.” Here, however, while there was evidence that Redflex knew its radar units lacked FCC certification at the same time that it was touting its legal compliance, the jury apparently accepted Redflex’s evidence that FCC certification did not matter to the relevant entities. Regardless, “our inquiry is not whether plaintiff's case was strong or successful, but whether it was groundless or unreasonable.”

Redflex raised “significant issues” with American’s case. “Plaintiff's decision to put on an executive instead of its expert to discuss damages showed little faith in its theory of damages.” But Redflex also complained too much—it wasn’t entitled to rely on the claim that its statements weren’t false. Ultimately, American’s case was not groundless or unreasonable because, despite its weaknesses, it raised debatable issues of law and fact.

Redflex also argued that American’s case was vexatious and pursued in bad faith. “Defendant faults plaintiff for publicizing defendant's use of uncertified radar units, raising various state court and administrative challenges, and pursuing claims against two of defendant's executives.” But American retained experienced counsel on a contingency basis to pursue this action, “which would seem to cut against the presence of bad faith.” The parties also offered competing versions of a conversation between their CEOs about the likelihood of plaintiff's claims surviving summary judgment. “[T]he parties' approach to this action has been needlessly contentious. This is no doubt due, in part, to the related nature of their origins and their current status as the principal competitors in their industry.” But there wasn’t enough to convince the court that American litigated vexatiously or for an improper purpose.