Grubbs v. Sheakley Gp., Inc., 2015 WL 7964109, -- F.3d – (6th
Cir. Dec. 7, 2015)
District
court’s ruling covered here (with my raised eyebrow).
The court of appeals affirms the dismissal of
the RICO claims (they’re RICO claims), but reverses the dismissal of Lanham Act
claims based on the consequences of a mass employee departure.
Grubbs owns Tri–Serve, Ltd.; TriServe # 1, LLC; and Capital
Concepts, Inc. Capital Concepts is a
financial planning, wealth management, and tax preparation firm, while the
other firms were successors to four professional employment organizations,
which are a type of Ohio regulated entity to which employers may outsource
certain administrative tasks, such as payroll, workers’ compensation, and
benefits. Tri-Serve provides PEO
services to the greater Cincinnati, Ohio market.
After she purchased Tri-Serve, Grubbs asked Defendant Strunk–Zwick
to manage the newly acquired companies because of her expertise with PEOs.
Strunk–Zwick was subject to a non-competition agreement. Defendant Larry Sheakley owns and operates
the Sheakley Group of Companies, which also provide “401(k) services, flexible
benefit plans, workers’ compensation, payroll, [and] human resources
outsourcing solutions,” headquartered in Cincinnati.
One of the Sheakley defendants solicited Strunk–Zwick to ask
for her assistance with Sheakley’s PEO division while she was still employed by
Tri-Serve. “During March and April 2009, Strunk–Zwick was paid by Sheakley on a
consulting basis, and was sometimes absent from the Tri–Serve office during
business hours in order to provide services to Sheakley.” Sheakley solicited Strunk-Zwick and other
Tri-Serve staff members to join Sheakley, and coordinated the transfer of
Tri-Serve clients to Sheakley. Defendant
Steve Wolf, a Sheakley VP, suggested that Strunk–Zwick tell Tri–Serve clients that
“we are partnering with Sheakley and that we may transition them over to give
them better service etc.” For example,
Strunk-Zwick sent an email to 22 Tri-Serve clients:
We are moving! In order to better
serve you, we are partnering with Sheakley HR and moving our offices. As many
of you know, we have partnered with Sheakley over the years with regards to our
workers compensation and unemployment management. We have been blessed to have
experienced tremendous growth over the last 6 months. We find ourselves needing
more office space and more resources to ensure that our customer service level
continues to meet your expectations. By moving into Sheakley Group we will be
able to provide you and your employees with additional resources, services, and
benefits, while continuing to provide you with the service that you have grown
accustomed to expect from TriServe. Nothing will change from your standpoint.
We will have new contact information, but nothing else will change. You will
begin to see the Sheakley HR name and we will be introducing new benefits and
new services to assist you with growing your business. …
Effective Monday, July 6, 2009 our
Contact Information will be:
TriServe LTD c/o Sheakley HR
Solutions…
“Several Tri–Serve clients expressed dissatisfaction with
the move, were upset that they had received no notice, and worried that all of
their information had been transferred to Sheakley.” At that point, Strunk-Zwick resigned from
Capital Concepts. Before she left
Capital Concepts, she removed all files, including all customer files; took
Tri-Serve’s 2009 tax returns; and deleted computer files and e-mails. Sheakley continued to use the Tri–Serve name
thereafter.
Grubbs had sporadic contact with Strunk–Zwick and Sheakley for
the next several months as they tried to work out various issues with payroll,
taxes, and similar matters for 2009. As of August 2009, health insurers and
workers’ compensation departments were still sending third-quarter invoices to
Tri–Serve at Grubbs’ office, but Sheakley, not Grubbs, received the client
payments. Strunk-Zwick denied possessing
Tri-Serve’s own tax documents; Grubbs continued receiving bills for Tri–Serve, “which
she paid from her retirement account.”
(Nice detail, plaintiff’s lawyers!)
Grubbs sued in 2013.
The district court dismissed her Lanham Act and RICO claims, and
declined pendent jurisdiction over 15 state-law claims.
False designation of origin: Grubb argued that Strunk-Zwick’s
conduct could be imputed to Sheakley.
Vicarious liability exists when “the defendant and the infringer have an
actual or apparent partnership, have authority to bind one another in
transactions, or exercise joint ownership or control over the infringing
product.” The “partnership” email sent
to 22 clients used that language at Wolf’s suggestion. “The intent to create an apparent partnership
in the eyes of the Tri–Serve clients is self-evident from this language.”
Next, the court considered whether there was “trademark use”
or instead use in a “non-trademark way,” which would fall outside the Lanham
Act. “This finding may be dispositive: plaintiffs cannot succeed on a trademark
claim where trademark law does not apply.” The district court found that the
email used Tri-Serve’s mark in a non-trademark way, as a source of comparison
between the two organizations.
Hensley Manufacturing v. ProPride, Inc., 579 F.3d 603 (6th
Cir. 2009), found no actionable trademark use where an inventor, Jim Hensley,
left the company bearing his name and designed products for its rival, who
described the products by identifying Jim Hensley as the designer, with a
disclaimer that Jim Hensley was no longer affiliated with Hensley Manufacturing. This was not trademark use. However, Hensley
was inapposite. The email provided a new
address of Tri-Serve at Sheakley HR Solutions at One Sheakley Way, designating
geographic source and implying that those services would be originating from
both Tri–Serve and Sheakley HR. Likewise, including a link to www.triservehr.com
suggested that Tri–Serve would still be the source of payroll services, as
before. Domain name use was use “in a trademark way.”
Likely confusion: Tri-Serve is a suggestive mark, “toward the
stronger end of the spectrum,” and “Tri–Serve customers were perfectly
acquainted with the name.” The services
directly compete, making confusion likely in cases of sufficient
similarity. Mark similarity: defendant
copied “wholesale,” favoring confusion. Actual confusion: Some clients expressed
dissatisfaction and worry, and they started sending payments to Sheakley,
indicating that they were duped.
Marketing channels/customer base: the same. Degree of customer care: there was no
evidence that business owners purchasing HR services need to be held to an
unusually high standard—the question was whether “a typical buyer exercising
ordinary caution receiving Strunk–Zwick’s e-mail could be confused as whether
the HR services were coming from Sheakley or Tri–Serve.” Intent: “The use of the Tri–Serve name cannot
have been anything other than purposeful; we therefore read Strunk–Zwick’s
e-mail as calculated to mislead the Tri–Serve clients into diverting their
business to Sheakley.”
All the factors supported a finding of likely confusion, and
this was not in any way counterintuitive.
“Taking the facts in the light most favorable to Plaintiffs, as we must,
we read the frequent use of the first person plural throughout the e-mail to
mean Tri–Serve, not simply Strunk–Zwick and the other Tri–Serve staff members
who were entering Sheakley’s employ; according to the e-mail, all of Tri–Serve
was moving, and was partnering with Sheakley.”
The email was chock full of ambiguous (at best) references, which could
sow confusion and strongly implied affiliation, even though Grubbs—the actual
owner of Tri-Serve—did not affiliate with Sheakley.
False advertising: The district court used the Gordon & Breach test for “commercial
advertising or promotion.” The Sixth
Circuit hasn’t adopted Gordon & Breach,
but circuit precedent was silent about what constitutes “advertising or
promotion.” The court of appeals here noted
the Seventh Circuit precedent stating that advertising was “promotion to
anonymous recipients,” but (like other courts) didn’t note that the Seventh
Circuit subsequently walked that back a bunch.
(Does this failure by subsequent courts to notice later refinements tend
to happen more with Seventh Circuit cases because they are so breezy about
precedent generally and thus it’s harder to tell when they’re
limiting/contradicting earlier precedent?)
The Second Circuit has adopted most of Gordon & Breach in Fashion Boutique of Short Hills, Inc. v.
Fendi USA, Inc., 314 F.3d 48 (2d Cir.2002), requiring that “the contested
representations are part of an organized campaign to penetrate the relevant
market. Proof of widespread dissemination within the relevant industry is a
normal concomitant of meeting this requirement.”
Like the Second Circuit, the court of appeals adopted the Gordon & Breach requirements that
“commercial advertising or promotion” must consist of “ ‘commercial speech’
that is made for the purpose of influencing the purchasing decisions of the
consuming public.” Likewise, it adopted
the “organized campaign to penetrate the relevant market” standard, which need
not entail widespread, market-wide dissemination. “[P]roducers today employ data as never
before to track our consumption habits, especially on the Internet, and send
out personalized promotional material accordingly.” Targeted promotion to a discrete segment of a
larger market could be an organized campaign even without “flooding” the
market. “[T]he plain meaning of the
terms ‘commercial advertising’ or ‘commercial promotion’ accommodates targeted
communications to a substantial portion of a company’s existing customer or
client base.”
Still, not all commercial speech should be actionable under
the Lanham Act (because …?). Thus, the appropriate definition was:
(1) commercial speech; (2) for the
purpose of influencing customers to buy the defendant’s goods or services; (3)
that is disseminated either widely enough to the relevant purchasing public to
constitute advertising or promotion within that industry or to a substantial
portion of the plaintiff’s or defendant’s existing customer or client base.
No competition was required.
(This is also entailed by Lexmark,
as other courts have observed.)
The letter to all of Tri-Serve’s clients fit squarely within
this definition.
The complaint sufficiently pled that the emails contained
several false and misleading statements of fact about Tri-Serve’s services and
its “partnership” with Sheakley. “Tri–Serve
was not moving and the companies had no relationship whatsoever.” The new
address at One Sheakley Way “was also a false representation of the geographic
origin of the PEO services and could also have created a further misimpression
as to the relationship between the companies.”
There was also evidence of actual deception, necessary for a damages
claim. Health insurers and workers’
compensation departments billed Tri–Serve at Grubbs’ office, but clients paid Sheakley,
not Grubbs.
What about interstate commerce? Grubbs didn’t allege that
the e-mail, or the mailed versions thereof, ever traveled outside Ohio, or
where any of the relevant e-mail servers might have been. However, a civil plaintiff need not allege
that an e-mail crossed state lines to survive a motion to dismiss; stating that
an email was sent was enough to allow the reasonable inference that the
allegedly false advertisements were introduced into interstate commerce.
