Attorneys’ fees denied where Lanham Act case was not ‘exceptional’

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Although the defendants prevailed at summary judgment by demonstrating the Lanham Act claims were time-barred, attorneys’ fees were denied because the plaintiff’s claims were not frivolous or objectively unreasonable, its litigation approach was not so unreasonable as to render it exceptional and the lawsuit was not brought in bad faith.

Background

American Majestic Construction LLC sued defendants for conspiring to falsely present themselves to the public as partners or members of AMC to procure construction contracts for their own benefit. The complaint included three counts: false designation of origin in violation of the Lanham Act; common law unfair competition and statutory business conspiracy in violation of Virginia Code § 18.2-499 and § 18.2-500.

After discovery was completed, defendants filed a motion for summary judgment, arguing, in part, that AMC’s claims were time-barred. Defendants argued AMC had been aware of Chris Junior using its lien waivers since Sept. 18, 2016, because of a text message Chris Junior sent to Raymond Rahbar that day. The court agreed that summary judgment had to be granted in defendants’ favor because any claim arising out of that incident was time-barred and there was no evidence that defendants used AMC’s mark within the statute of limitations period.

Defendants have filed a motion seeking $49,012.50 in attorneys’ fees under 15 U.S.C. § 1117(a), which provides that a court may award attorneys’ fees to the prevailing party in exceptional Lanham Act cases. Defendants also seek attorneys’ fees under Rule 56(h), which provides that courts may award limited attorneys’ fees “[i]f satisfied that an affidavit or declaration . . . is submitted in bad faith or solely for delay.”

Lanham Act

None of the three factors supports a finding that this was an exceptional case warranting an award of attorneys’ fees to the defendants. Initially, plaintiff’s claims were not frivolous or objectively unreasonable. For example, all of plaintiff’s claims survived defendants’ motion to dismiss.

Although the court concluded at the summary judgment stage that plaintiff’s claims were time-barred, plaintiff’s arguments against summary judgment were not frivolous or objectively unreasonable, nor was there a particularly unusual discrepancy in the merits of the positions taken by the parties. Moreover, had plaintiff argued during the summary judgment proceeding that Rahbar did not receive the September 2016 text message, rather than making that argument in its motion for reconsideration, the court might have concluded that there was a genuine dispute as to whether the statute of limitations had been triggered in September 2016 and allowed the case to go to trial.

Defendants also argue that plaintiff needlessly drove up litigation costs by claiming that defendants were engaging in ongoing violations without any proof, failing to promptly produce a document in discovery and filing the second Morales affidavit. Although plaintiff’s litigation approach was less than optimally efficient, its approach was not so unreasonable as to render it exceptional.

Finally, defendants assert that attorneys’ fees are necessary to compensate them for being victimized by plaintiff and to deter plaintiff from similar behavior in the future. Specifically, defendants assert that the lawsuit was brought as retribution against defendants for Chris Junior’s decision to vote Rahbar out as CEO of MakeOffices, and to pressure defendants into getting Rahbar reinstated into that position.

Plaintiff pursued its claims over many months of litigation, presumably at considerable cost to itself, and articulated arguments that the court found meritorious at the motion to dismiss stage and colorable at the summary judgment stage. There is no indication from the record that Rahbar continued throughout the litigation to pressure defendants to assist in his reinstatement as CEO, as might have been expected had the main goal of the litigation been to secure such reinstatement.

Rule 50(h)

Defendants’ argument for attorneys’ fees under Rule 56(h), based on plaintiff’s filing of the second Morales affidavit, is also unsuccessful. Morales appears to have been caught in the middle between two dueling parties and signed both documents to avoid getting into trouble with either side. Neither document perfectly captured Morales’s actual position. On this record, it is not clear that AMC submitted Morales’s affidavit in bad faith or solely for delay.

Defendants’ motion for attorneys’ fees denied.

American Majestic Construction LLC v. Junior, Case No. 19-cv-264, May 4, 2020. EDVA at Alexandria (Brinkema). VLW 020-3-239. 14 pp.