Peter Kiewit Sons’, Inc. v. Wall Street Equity Group, Inc., 2014
WL 4843674, No. 8:10–CV–365 (D. Neb. Sept. 29, 2014)
This is a default so it’s just what the court decided to
examine with respect to the facts; nonetheless there are some points here worth
noting about Lexmark and dilution.
Kiewit is a construction and mining company. The primary defendant is Steven West (apparently
a name he uses for business) who was associated with various corporations,
including the corporate defendants. The
Wall Street entities claimed to help (relatively) small business owners sell
their businesses to larger companies.
Kiewit does from time to time acquire other companies, and in 2008 it
acquired a business that had responded to an ad placed by one of West’s
businesses and West’s company initiated contact with Kiewit. Kiewit concluded
after speaking with them that West’s company did not have any actual expertise
in business acquisition, so Kiewit worked directly with the other business to
complete the sale. “West only appeared at the closing, apparently to collect
his fee.” Then:
Later that year, a small business
owner from Virginia contacted Kiewit and asked if Kiewit was interesting in
buying his business. He explained to Schmidt that he’d been contacted by Mr.
West and that he was told Mr. West performed valuations of companies and that
his valuation was the only one that Kiewit would accept and that Mr. West had a
Kiewit executive in his board room waiting to talk to [the small business
owner] as soon as [he] signed an engagement letter to engage Mr. West’s firm to
perform a valuation.
Wall Street Group sent a letter claiming to be the “leading
private investment bank in America,” and mentioning “[b]ackground on the buyer,
Kiewit.” The business would be expected
to pay $20,000 to $30,000 to create an “appraisal and business profile” to
assist with the sale. Kiewit sent a
C&D, and received a letter denying that any affiliated entities had held
themselves out as representing Kiewit.
But in April 2010, the problem recurred with a small business in
Wyoming.
Kiewit sued, resulting in a “protracted and ugly discovery
process” involving defendants’ misbehavior.
While defendants claimed to have no other documents showing use of
Kiewit’s mark, they in fact did: “Kiewit eventually obtained a number of
effectively-identical letters using the Kiewit mark to solicit different
businesses, and client lists and records suggesting that more letters had been
sent that remained undiscovered.” The
use of the Kiewit mark, the court found, was widespread and “It involved dozens
and perhaps hundreds of solicitations, and at least hundreds of thousands of
dollars in fees paid by unsuspecting businesses.”
The court entered a finding of default as a sanction for the
discovery abuses. On a default judgment,
facts alleged in the complaint—except as to damages—may not be later contested.
But the court has to determine whether
the unchallenged facts constitute a legitimate cause of action, since a party
in default does not admit conclusions of law. Also, the court can conduct a hearing to
“establish the truth of any allegation by evidence” and “investigate any other
matter.” Because the allegations of the
complaint were relatively threadbare, the court did so; Kiewit was entitled to
both the admitted allegations of the complaint and all reasonable inferences
from the evidence admitted at the hearing.
Trademark infringement: yup.
False advertising: Kiewit proved that defendants made
statements that conveyed a false impression that Kiewit was already an
interested purchaser that had engaged the defendants to broker a sale. The court
commented that “[t]he evidence suggests that in conversation, the defendants’
representatives were less ambiguous than the letters that are in the record,”
but thought that private assurances wouldn’t be commercial advertising or
promotion so limited its considerations to the letters. I think this is too limited a reading: once
there is a coordinated campaign of advertising or promotion, statements made in
furtherance of it, at least regularly so, ought to be considered part of that
overall campaign.
The court found other problems, specificially the need for
sufficient dissemination to the relevant purchasing public within an
industry. “The speech must target a
class or category of purchasers or potential purchasers, not merely particular
individuals.” Section 43(a)(1)(B) doesn’t
cover all commercial speech, only organized attempts to penetrate the relevant
market. The court found defendants’ promotional efforts to be “extensive,” but
insufficient to count as commercial advertising or promotion. Each letter referred to a previous telephone
call, making them “individual follow-ups to previous contact with potential
customers. … There may have been a lot of letters, and they may have been form
letters, but they do not suggest a concerted effort to penetrate a marketplace.” Again, this seems to me an unduly narrow
reading of the cases. What is a form
letter, sent apparently hundreds of times, if not a “concerted” attempt to
penetrate a market? Even if the form letter is the second contact, it’s still
part of an organized campaign—and I imagine the phone calls had a script as
well.
And also there was the issue of standing. When the case was filed, it was DOA on
standing, but Lexmark might’ve
revived it. Now the question is whether
Kiewit is within the zone of interests protected by the Lanham Act, and whether
its injuries were proximately caused by defendants’ false advertising. This
requires economic or reputational injury flowing directly from the deception
wrought by the defendant’s advertising, “and that that occurs when deception of
consumers causes them to withhold trade from the plaintiff.” In a footnote, the
court commented that it saw no reason to apply the same proximate cause standard
to §43(a)(1)(A), even though the Court referred generally to §43(a), because
the Court’s reasoning was particular to false advertising and because that
standard would cause a “sea change” in trademark law. Well, yes, it would. So too has eBay (or, going back further, Wal-Mart
and Dastar). I myself don’t see a basis in Lexmark’s statutory interpretation—which
includes the Court saying that proximate cause is always, always, always
required unless Congress does something magical—for making this distinction.
Anyway, Kiewit was ultimately unaided by Lexmark.
It was “arguably possible to get from the defendants’ false claim about
an association with Kiewit to a reputational injury to Kiewit, by virtue of
associating Kiewit with disreputable defendants.” But defendants’ customers weren’t likely to
be Kiewit’s, “and it is difficult to imagine how the defendants’ false
representations—even if they reflected poorly on Kiewit—could result in an
actual commercial injury to Kiewit capable of clearing the bar set by the
Supreme Court in Lexmark.” So here we have the payoff: the court wants
to find trademark harm, but not false advertising harm. Proximate cause may be required, but
proximate cause of what? Like eBay,
Lexmark may force courts to confront
the return of the repressed: the fact that about a hundred years ago courts
accepted sketchy theories of trademark harm that don’t actually apply across
the board and may rarely be true at all.
Surprisingly, after its extreme care with §43(a)(1)(A), the
court proceeds to be extremely sloppy about federal trademark dilution. Kiewit’s evidence and allegations established
a prima facie case of dilution by tarnishment, and “[t]he allegation that
Kiewit’s mark is famous is admitted,” so that was it. Because actual economic injury isn’t
required, the reputational injury of being seen as complicit in what defendants’
customers could fairly describe as a scam was sufficient for liability. But, as I noted in an earlier post, “famous”
shouldn’t be treated as a factual allegation, and it defies credulity to claim
that Kiewit is widely recognized by the general consuming public, as the
statute requires.
State law claims: yep, liability, except for liability under
Nebraska’s Consumer Protection Act, which requires that unfair or deceptive
acts or practices affect the public interest/the people of Nebraska. There was no evidence that defendants
solicited in Nebraska, at least on more than an isolated basis.
Damages: defendants’ conduct was willful, but there was
little reason to conclude that Kiewit suffered actual damages, which also put
treble damages off the table. However, the court could also look at awarding
profits, including an award of an amount found to be “just” if profit-based
recovery was inadequate or excessive to make violating the Lanham Act
unprofitable. The court therefore
enhanced the profit award, in part to avoid rewarding defendants for successfully
concealing and destroying evidence. The
court had no doubt that the actual profit from use of the Kiewit mark was “substantially
greater” than that for which direct evidence was obtained. Kiewit was prejudiced by defendants’
spoliation; though this wasn’t a monetary sanction for spoliation, an adverse
inference from the spoliation was justified.
There was direct evidence of $124,910 paid to the defendants
based on solicitations known to have contained the Kiewit mark, plus payment of
unknown amounts from four other businesses.
Using the average from the known payments, that went up to $174,874. Tripling
that amount was a conservative measure to recover amounts paid from unknown
businesses. The incomplete records suggested that “at least dozens of
businesses were contacted and paid the defendants,” which then got them on a do
not call list for further solicitations.
The court inferred from the type of businesses on the list and the
consistency of the defendants’ solicitations that they used the Kiewit mark in
many if not all of these sales. Thus,
the court awarded $524,622 for disgorged profits as a remedy for the defendants’
willful trademark infringement—“and the Court stops there in no small part
because Kiewit conservatively elected not to ask for more.”
No damages for dilution.
Although defendants intended to take advantage of Kiewit’s reputation,
there was nothing to suggest they “willfully intended to harm the reputation of
the famous mark.”
Attorneys’ fees and injunctive relief were also awarded (the
court using a presumption of irreparable harm), and the court pierced the
corporate veil to get at West. No
prejudgment interest, though, since that’s appropriate “when the amount of the
underlying liability is reasonably capable of ascertainment and the relief
granted would otherwise fall short of making the claimant whole because he or
she has been denied the use of money which was legally due.” Given that the amount of the underlying
liability was substantially questionable—even though that was defendants’ fault—and
that the remedy here was disgorgement instead of compensation for injury, the
court found prejudgment interest inappropriate.
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