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Stone Creek Inc. v. Omnia Italian Design Inc.

United States District Court, D. Arizona

February 9, 2016

Stone Creek Incorporated, Plaintiff,
v.
Omnia Italian Design Incorporated, et al., Defendants.

ORDER

Douglas L. Rayes United States District Judge

Before the Court is Defendant Omnia Italia Design, Inc.’s (“Omnia”) Motion for Attorneys’ Fees. (Doc. 178.) The motion is fully briefed, and neither party requested oral argument. For the reasons stated below, the motion is granted in part.

BACKGROUND

The facts of this case are set forth in the Court’s November 9, 2015 Order, (Doc. 175), and will not be repeated herein. After a four-day bench trial, the Court concluded that Plaintiff Stone Creek, Inc. failed to establish an essential element of its trademark infringement claim: likelihood of confusion. (Id. at 12-13.) Judgment was entered in favor of Omnia on all of Stone Creek’s claims.

On November 23, 2015, Omnia filed the instant motion seeking $483, 691 in attorneys’ fees and $22, 079.25 for expert fees. (Doc. 178.) Omnia argues that Stone Creek pursued its “groundless and unreasonable claims in a particularly vexatious manner.” (Id. at 3.) Omnia requests attorneys’ fees under: (1) 15 U.S.C. § 1117, (2) 28 U.S.C. § 1927, (3) A.R.S. § 12-349, and (4) A.R.S. § 44-401.

ANALYSIS

I. 15 U.S.C. § 1117

Section 35(a) of the Lanham Act provides that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” 15 U.S.C. § 1117(a). An action is exceptional “‘[w]hen a plaintiff’s case is groundless, unreasonable, vexatious, or pursued in bad faith.’” Secalt S.A. v. Wuxi Shenxi Constr. Mach. Co., 668 F.3d 677, 687 (9th Cir. 2012) (quoting Stephen W. Boney, Inc. v. Boney Servs., 127 F.3d 821, 827 (9th Cir. 1997)). Exceptional cases also include those “where plaintiff’s case is frivolous or completely lacking in merit, ” meaning the plaintiff “has no reasonable or legal basis to believe in success on the merits” or there is “an utter failure of proof.” Id. at 687-88. “[T]he exceptional circumstances requirement is construed narrowly and thus such an award is rarely granted.” Calmese v. Nike, Inc., No. CV-06-1959-PHX-ROS, 2009 WL 2913489, at *1 (D. Ariz. Sept. 8, 2009).

The crux of Stone Creek’s trademark infringement case was that Omnia’s use of the Stone Creek mark was willful, and thus Stone Creek was entitled to disgorgement of $4.45 million of Omnia’s profits. Omnia argues these claims were groundless and brought as a method of trying to force a policy limits settlement. It asserts Stone Creek knew it could not prove that Omnia’s use of the mark likely caused confusion among consumers. Omnia also argues Stone Creek had no evidence that the unauthorized use of the mark was willful, i.e., that Omnia intended to profit off Stone Creek’s business goodwill, because Stone Creek had no goodwill in the region where Omnia sold its goods bearing the Stone Creek mark: the Bon-Ton Trading Territory (“BTTT”). Omnia asserts Stone Creek knew that it had no established business reputation in the BTTT, but pursued its case notwithstanding.

After review of the parties’ positions and the evidence presented at the various stages of the litigation, the Court concludes that Stone Creek’s pursuit of its case was not groundless and vexatious. At the summary judgment stage, the Court concluded that genuine issues of fact existed regarding likelihood of confusion; specifically, the marketing channels used by Stone Creek, whether Stone Creek intended to expand into other markets (such as the BTTT), consumer recognition of the mark, and evidence of actual confusion. (Doc. 99 at 12.) Stone Creek presented evidence that it had sold its products into the BTTT, and that at least some consumers confused the two companies. It also presented evidence that at least one Bon-Ton employee expressed confusion as to whether Omnia and Stone Creek were the same company. This case is not exceptional within the meaning of § 1117 merely because Stone Creek failed to prove its case.

Omnia argues that Stone Creek’s complaint contained false allegations, which it claims is indicative of Stone Creek’s bad faith. (Doc. 178 at 7.) For example, in its complaint, Stone Creek alleged that Omnia “misappropriated [Stone Creek’s] designs, specifications, marketing materials, and warranty cards. . . .” (Doc. 1, ¶ 30.) Omnia maintains that the furniture designs, specification, marketing materials, and warranty cards were Omnia’s, a fact known by Stone Creek. If, in fact, Stone Creek made these allegations knowing that they were false, such conduct is unprofessional. It does not, however, persuade the Court that Stone Creek pursued a groundless case in bad faith.

Omnia argues Stone Creek negotiated settlement in bad faith. (Doc. 178 at 8.) It asserts it warned Stone Creek multiple times that evidence regarding willful infringement was lacking, but Stone Creek refused to accept a lower settlement amount. But refusing to settle is not, in and of itself, evidence of bad faith. Just because Stone Creek valued its case at an amount larger than Omnia believed was reasonable does not indicate that Stone Creek acted vexatiously during the litigation.

Last, Omnia argues that Stone Creek never intended to seek actual damages, and thus Omnia wasted time and money in preparing its defense of such. (Doc. 178 at 14.) In its initial disclosures, Stone Creek stated that it was seeking actual damages in the form of lost sales, decrease in Stone Creek’s value, loss of goodwill, and loss of expansion opportunity. (Doc. 119-1 at 11.) Stone Creek intended to prove these damages through expert testimony. (Id.) But Stone Creek never provided any evidence of these damages, and Omnia filed a motion to strike the actual damages claims and Stone Creek’s jury demand. (Doc. 118.) Although it conceded its actual damages claim was not viable, Stone Creek argued that its alternate remedy of disgorgement was legal in nature, which was directly contrary to the holding of Fifty-Six Hope Road Music, Ltd. v. A.V.E.L.A., Inc., 778 F.3d 1059, 1074-76 (9th Cir. 2015). The Court granted the motion after Stone Creek appeared to concede that it could only pursue disgorgement and that such a remedy was equitable in nature. (Doc. 129 at 3.) This required vacating the scheduled jury trial and rescheduling it as a bench trial.

The Court finds that Stone Creek acted in bad faith when it opposed Omnia’s motion to vacate the jury trial. Stone Creek admittedly failed to develop its actual damages case. Nonetheless, it argued that its disgorgement remedy was legal in nature even though Ninth Circuit authority holds directly to the contrary. Stone Creek’s opposition to Omnia’s motion was frivolous and caused additional expense and delay. Given the lack of evidence and Stone Creek’s failure to explain the basis for bringing its actual ...


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