Thursday, September 23, 2021

over dissent, 5th Circuit applies Lanham Act to political speech

Alliance for Good Government v. Coalition for Better Government, No. 20-30233 (5th Cir. May 19, 2021)

I sometimes hold out the hope that courts will develop a general treatment of the First Amendment/Lanham Act interaction. This case suggests that that day, if possible, is still far off.

The district court found that the defendant, a nonprofit that endorsed political candidates, was liable to its counterpart AGG for infringement; joined CBG’s principal Darleen Jacobs post-judgment; and awarded attorneys’ fees to AGG. The court of appeals affirms over a dissent that would have held that the First Amendment precluded application of the Lanham Act to political speech.

Previously, the district court granted AGG summary judgment and enjoined CBG from using the latter’s word and composite marks. The court of appeals affirmed but modified the injunction to restrain only CBG’s use of its composite mark (both parties apparently used bird logos). Then the district court awarded attorneys’ fees, which CBG also appealed; the court of appeals found no abuse of discretion in finding the case exceptional but remanded to adjust the fee award to account for work related to claims on which AGG didn’t prevail/voluntarily dismissed.

On remand, Alliance moved to join Darleen Jacobs, a principal of CBG, because it had learned during post-judgment discovery that CBG lacked resources to pay the fee award. Jacobs opposed Alliance’s motion for fees, but the district court ultimately found it appropriate to hold her directly liable. This was consistent with due process because “[i]t was only after considering Jacobs’s arguments in opposition that the district court found her liable for the fee award.” It was also ok to hold her liable for fees under the principle that “[a]n officer is individually liable for any tortious conduct that he committed in connection with his corporate duties.” The case was exceptional because CBG “litigated in an unreasonable manner, including presenting meritless defenses at the summary judgment stage, filing an unsupported laches defense, meritless counterclaim, and a meritless motion to dismiss, and behaving unreasonably during discovery by insisting on proceeding with depositions even after the district court granted summary judgment.” Jacobs was a principal of CBG and personally signed the motion for summary judgment, the counterclaim, the motion to dismiss, and Coalition’s memorandum insisting on proceeding with depositions after the district court’s summary judgment ruling. So holding her directly liable was not an abuse of discretion.

CBG and Jacobs also raised a First Amendment argument “similar to one raised in the prior two appeals, arguing that the imposition of an attorney fee award would violate their free speech.” But the First Amendment argument in the first appeal had not been preserved or ruled on below, and so the court declined to consider it on appeal. The majority concluded that this discretionary decision was not clearly erroneous, so the law of the case applied. 

And here’s the wow moment: “Moreover, even if Coalition’s speech is rightly considered noncommercial speech, this Court has not previously held that § 32(1) of the Lanham Act, the section at issue here, applies only to commercial speech.” Footnote: Yes, this court has held that §43(a) applies only to commercial use, but it has not extended that holding to §32. (Comment: There is no language in §32 that in any way could be considered broader than §43(a) in this respect.) Also, the Second Circuit has found that §32 applies to “[a] political organization that adopts a platform and endorses candidates under a trade name.” United We Stand Am., Inc. v. United We Stand Am. N.Y., Inc., 128 F.3d 86 (2d Cir. 1997).

Judge Dennis dissents: “The majority strains at gnats but swallows a camel.” Had the judge been part of the first appeal, he “would have worked to persuade the court that applying the Lanham Act to the non- commercial political speech of Coalition for Better Government is contrary to the Act and violates the First Amendment.” The law of the case was not an inexorable command. The previous cases “were predicated on a patent error, i.e., that the Lanham Act can be constitutionally applied to the noncommercial political speech of a political organization, such as the political endorsements made by Coalition in this case.” Further, “misapplying the Lanham Act to noncommercial political speech creates an anomalous precedent that will beget grave injustice—the imposition of liability for, and consequent chilling of, the exercise of constitutionally-protected free speech.”

The parties principally vet and endorse political candidates vying for local and state offices. “Neither organization offers or advertises commercial goods or services. And the speech in which they engage—purely political speech—is at the core of the First Amendment’s protections.” Meanwhile, the Lanham Act “exclusively regulates commercial activity and commercial speech.”

The first appeal determined that First Amendment/commercial speech issues were waived. This was error: (1) “[I]t is axiomatic that a party can only be liable for violating a statute if the statute actually applies to the party and its acts (or omissions)…. [T]here was simply no way for the panel to hold Coalition liable without it concluding that the Lanham Act may, in its view, validly constrain noncommercial political speech.” (2) Applying the Lanham Act to noncommercial political speech infringes on First Amendment free speech rights, violating the judicial duty to avoid constitutional infirmity of statutes. (3) It was plain error to hold otherwise, even if CBG didn’t preserve the issue. “[E]ven if no Fifth Circuit decision squarely holds that the particular provision of the Lanham Act invoked here is limited to commercial speech, the ‘absence of circuit precedent does not prevent the clearly erroneous application of statutory law from being plain error.’” Text, legislative history, and constitutional avoidance all indicated the right result, as did “the near uniform holdings of our sister circuits that the Act does not reach noncommercial speech.” (Extensive discussion of all these things omitted.)

What about United We Stand? Not only was that a sole outlier in an otherwise uniform line of cases, it was also incorrect to hold that purely political speech is a “service” under the Lanham Act. “[S]uch a service is not being rendered in commerce[;] it is being rendered as part of the political process.” Tax Cap Comm. v. Save Our Everglades, Inc., 933 F. Supp. 1077, 1081 (S.D. Fla. 1996). In politics, confusing marks have to be addressed by more speech.

The dissent also didn’t like allowing the district court to add more fees based on the costs of the appeal, considering that a violation of the mandate in the second appeal. And, in holding Jacobs personally liable, the court became the first to allow such liability for a party’s counsel under the Lanham Act. Sanctions for attorney misconduct should have been applied, if appropriate, instead.

The majority reasoned that Jacobs could be personally liable because “[a]n officer is individually liable for any tortious conduct that he committed in connection with his corporate duties.” The dissent rejoined that this principle “has no application to an attorney representing her client; attorneys initiate and prosecute cases at the behest of their clients, but it is the client who ultimately must decide whether to bring a case. Thus, when the fee-shifting provision is applied to individuals who were not party to the underlying litigation, it should be reserved for those who, in their capacity as a high-level officer or owner of an organization, make a case exceptional.” What about Jacobs’s leadership role within CBG? The district court expressly cited her conduct as counsel, not her position within the CBG structure, as rendering the case “exceptional” and thus justifying imposing liability for the award on her personally; it never mentioned any actions that she took as an officer or principal. That wasn’t ok.

Alliance never attempted to pierce CBG’s corporate veil, and Jacobs was joined only after the court held that CBG waived its noncommercial speech and First Amendment defenses. Holding her to that was “highly inequitable, particularly in light of the clear merit of her constitutional and statutory defenses, which she has never personally waived…. [T]he majority offers no analysis as to why Coalition’s litigation choices somehow bind Jacobs personally, and … there was no finding by the district court that Jacobs controlled Coalition such that its litigation conduct could be attributed to her.”

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