Counter v. Kennedy Ctr. For Real Estate Educ. Inc.

• Decision Date: 03 September 2010
• Docket Number: No. 08-56791.,08-56791.
• Citation: 621 F.3d 981
• Parties: SELLER AGENCY COUNCIL, INC., Plaintiff-counter-defendant-Appellee, v. KENNEDY CENTER FOR REAL ESTATE EDUCATION, INC., a Georgia corporation; Joe Kennedy, an individual, Defendants-counter-claimants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

621 F.3d 981

SELLER AGENCY COUNCIL, INC., Plaintiff-counter-defendant-Appellee,

v.KENNEDY CENTER FOR REAL ESTATE EDUCATION, INC., a Georgia corporation; Joe Kennedy, an individual, Defendants-counter-claimants-Appellants.

No. 08-56791.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted Feb. 9, 2010.

Filed Sept. 3, 2010.

Arthur A. Gardner and Joseph W. Staley, Gardner, Groff, Greenwald & Villanueva, P.C., Atlanta, GA, for the defendants-appellants.

Grant J. Hallstrom and Timothy D. Otte, Hallstrom Klein & Ward, LLP, Irvine, CA, for the plaintiff-appellee.

Appeal from the United States District Court for the Central District of California, Alicemarie H. Stotler, District Judge, Presiding. D.C. No. 8:06-cv-00679-AHS-MLG.

Before SIDNEY R. THOMAS and BARRY G. SILVERMAN, Circuit Judges, and JEREMY FOGEL, District Judge. ^*

OPINION

FOGEL, District Judge:

Appellants Joe Kennedy (“Kennedy”) and the Kennedy Center for Real Estate Education, Inc. (“KCREE”) appeal the district court's order denying them damages, attorneys' fees, and costs in an action for trademark infringement against Appellees Seller Agency Council, Inc. (“SAC”), RealtyU, Inc. (“RealtyU”), and Stefan Swanepoel (“Swanepoel”). The district court found that Appellants are the owners of the trademarks in question, but it also determined that Appellants consented and acquiesced to the use of the marks by Appellees. Appellants argue that the district court erred in finding consent and acquiescence. We affirm in part, vacate in part, and remand for further proceedings consistent with this opinion.

I. BACKGROUND

A. Factual Background

Kennedy, the owner of KCREE, created an educational curriculum called the Accredited Seller Representative (“ASR”) program. In connection with the ASR program, Appellants developed and registered several trademarks (“the ASR marks”). ¹ In 2003, Appellants began to market and earn income from the ASR program. A third-party real estate school would pay KCREE an annual fee (referred to as the license fee) in order to use the ASR materials to teach an ASR class. In addition to the license fee, KCREE charged the third-party schools a fee for each student in an ASR class, and successful students also would pay yearly fees to KCREE to maintain their ASR registration.

In 2005, Swanepoel, the owner and president of RealtyU, approached Kennedy with a business proposition. RealtyU represented that it could provide KCREE with access to the RealtyU affiliates across the country and thus to a larger number of students. Kennedy and Swanepoel signed a “Letter of Intent” on June 28, 2005, agreeing to form a new company, SAC. KCREE was to transfer the ASR marks to SAC in return for 49% ownership of the company. RealtyU would contribute working capital to SAC and own the remaining 51%. Other than teaching fees earned by Kennedy, all student course fees, provider licensing fees, and renewal fees related to the ASR marks would belong to SAC, and profits would be distributed according to the parties' respective ownership shares. Neither KCREE nor SAC was required to pay the annual licensing fee. Kennedy testified that SAC had discretion to waive the licensing fee for RealtyU affiliated schools.

On or about September 8, 2005, the parties executed a series of formal agreements, including a stock purchase agreement. Among other things, the agreements required SAC to take the “best overall actions” for the company. SAC was to acquire the ASR marks upon closing; however, SAC had to meet certain conditions precedent before the closing could occur, including the transfer of SAC shares to Appellants. Although the share transfer never occurred, SAC and RealtyU utilized the ASR marks between September 8, 2005 and July 12, 2006 without objection by Appellants.

After executing the agreements, Appellants learned that a significant stream of ASR program revenue was being diverted from SAC directly to RealtyU. On July 12, 2006, Appellants sent a cease-and-desist letter to Swanepoel stating that “your companies do not have a contract with[Appellants], [and] your continued use of [their] trademarks constitutes trademark infringement.” SAC filed a complaint for declaratory relief on July 25, 2006, requesting a determination that SAC was the rightful owner of the ASR marks. On February 2, 2007, Appellants filed counterclaims for trademark infringement against SAC, RealtyU, and Swanepoel.

On July 28, 2006, three days after commencement of the action for declaratory relief, Kennedy sent an email to Tom Mitchell (“Mitchell”), the Senior Vice President of RealtyU Group, Inc. ² Kennedy forwarded a complaint of a potential ASR student who was having difficulty registering for an on-line ASR course. Kennedy told the potential student that he was “forwarding this to our IT folks.” Mitchell responded to Kennedy that it was “[t]aken care of.” More than a year later, on November 19, 2007, Kennedy sent Mitchell a facsimile regarding “Candidate Apps.” The cover page read “[f]rom Kennedy Center to be placed in database.” The facsimile contained several ASR candidate applications and the candidates' completed ASR course exams. The district court found that Kennedy had “ask[ed] SAC to make use of the intellectual property by requesting that it process certificates and certify members in the ASR program for classes.”

B. The District Court's Determinations

The district court determined that Appellants are the rightful owners of the ASR marks. It concluded that SAC could not enforce the agreement requiring Appellants to transfer the intellectual property because SAC had not satisfied the conditions precedent contained in the stock purchase agreement, including its obligation to issue stock to Appellants. The district court also found that SAC could not enforce the agreement because it had unclean hands: while the stock purchase agreement required SAC to take the “best overall actions” for the company, SAC in fact diverted many of the ASR student course fees to RealtyU rather than keeping the fees itself.

The district court noted that “[f]rom September 8, 2005, until July 12, 2006, [i]t is undisputed that ... SAC had permission or an implied license to use the ASR Trademarks.” It also concluded that Appellants' conduct after the July 12, 2006 cease-and-desist letter led SAC, RealtyU, and Swanepoel to believe they had permission to continue using the ASR marks, and it denied damages and royalties for that period “in light of [Appellants'] acquiescence to [Appellees'] use of the trademarks” after the cease-and-desist letter and the initiation of litigation. For the same reason, the district court declined to award attorneys' fees. The district court did, however, permanently enjoin SAC, RealtyU, and Swanepoel from infringing or otherwise making use of Appellants' intellectual property.

II. ANALYSIS

Appellants challenge the district court's decision on several grounds. They argue that because SAC had unclean hands, the court erred in sustaining SAC's affirmative defense of acquiescence. They also contend that the record is insufficient to support the conclusion that they gave any form of consent for RealtyU to use the ASR marks, either before or after the July 12, 2006 cease-and-desist letter. Finally, they also challenge the finding of acquiescence itself, arguing that the evidence in the record is insufficient to support the conclusion that they acquiesced to use of the ASR marks by SAC or RealtyU.

A. Standards of Review

To the extent that Appellants challenge the district court's factual findings, such findings are reviewed for clear error. Fed.R.Civ.P. 52(a)(6). A district court's finding of fact is clearly erroneous if it is “(1) ‘illogical,’ (2) ‘implausible,’ or (3) without ‘support in inferences that may be drawn from the facts in the record.’ ” United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir.2009) (citing Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 577, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985)).

The application of the equitable doctrine of unclean hands is within the discretion of the trial court and is reviewed for abuse of that discretion. See TransWorld Airlines, Inc. v. Am. Coupon Exch., Inc., 913 F.2d 676, 694 (9th Cir.1990) (citing Wash. Capitols Basketball Club, Inc. v. Barry, 419 F.2d 472, 478 (9th Cir.1969)) (finding that the application of the unclean hands doctrine was committed to the district court's discretion). Similarly, while the question appears to be one of first impression in our circuit, we join our sister circuits in concluding that the application of the equitable doctrine of acquiescence is within the discretion of the trial court and also is reviewed for abuse of discretion. See Coach House Rest., Inc. v. Coach & Six Rests., Inc., 934 F.2d 1551, 1558 (11th Cir.1991) (finding that “[b]ecause acquiescence is an equitable defense, it will be reviewed for an abuse of discretion”); Piper Aircraft Corp. v. Wag-Aero, Inc., 741 F.2d 925, 932-33 (7th Cir.1984) (finding that because acquiescence imports a fact-based analysis, its determination rests in the “sound discretion” of the trial court and only will be disturbed on review for “clear abuse” of that discretion).

Finally, “ ‘[w]e may affirm on any basis supported by the record, whether or not relied upon by the district court.’ ” Bank of N.Y. v. Fremont Gen. Corp., 514 F.3d 1008, 1020 n. 8 (9th Cir.2008) (quoting Hall v. N. Am. Van Lines, Inc., 476 F.3d 683, 686 (9th Cir.2007)) (alteration in the original).

B. SAC's Equitable Defenses and the District Court's Finding of Unclean Hands

Appellants argue that SAC's unclean hands should preclude it as a matter of law from benefitting from the equitable defense of acquiescence. “The doctrine [of unclean hands] bars relief to a plaintiff who has violated conscience, good faith or other equitable principles in his prior conduct, as well as to a plaintiff who has dirtied his hands in acquiring the right presently...