Coach, Inc. v. Goodfellow

• Decision Date: 31 May 2013
• Docket Number: No. 12–5666.,12–5666.
• Citation: 717 F.3d 498
• Parties: COACH, INC. and Coach Services, Inc., Plaintiffs–Appellees, v. Frederick GOODFELLOW, dba the Southwest Flea Market, aka 3rd Street Flea Market, Defendant–Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

717 F.3d 498

COACH, INC. and Coach Services, Inc., Plaintiffs–Appellees,

v.Frederick GOODFELLOW, dba the Southwest Flea Market, aka 3rd Street Flea Market, Defendant–Appellant.

No. 12–5666.

United States Court of Appeals, Sixth Circuit.

Argued: April 30, 2013.

Decided and Filed: May 31, 2013.

ARGUED:Stephen R. Leffler, Memphis, Tennessee, for Appellant. J. Britt Phillips, Sutter O'Connell Co., Franklin, Tennessee, for Appellees. ON BRIEF:Stephen R. Leffler, Memphis, Tennessee, for Appellant. J. Britt Phillips, Sutter O'Connell Co., Franklin, Tennessee, Matthew C. O'Connell, Sutter O'Connell Co., Cleveland, Ohio, for Appellees.

Before: NORRIS, COOK and McKEAGUE, Circuit Judges.

OPINION

McKEAGUE, Circuit Judge.

This case presents a question the Sixth Circuit has not directly addressed: Can a flea market operator be held contributorially liable for trademark infringement by vendors? Plaintiffs brought suit under the Lanham Act, alleging a Memphis flea market operator is liable for sales of counterfeit products at his flea market. The district court granted plaintiffs' motion for summary judgment on liability, entered judgment on the jury's damages verdict of $5,040,000, and awarded attorney's fees and costs to plaintiffs in the amount of $186,666.61. Defendant argues on appeal that the Lanham Act does not provide for contributory liability for trademark infringement by third persons and that this is not an “exceptional case” warranting attorney's fees. Because we find the district court neither erred as a matter of law nor abused its discretion, we affirm.

I. BACKGROUND

Plaintiffs Coach, Inc. and Coach Services, Inc. (hereinafter “Coach”) are in the business of designing, marketing, and selling products such as handbags, briefcases, leather goods, eyewear, and footwear. Coach owns an extensive portfolio of trademarks. Defendant Frederick Goodfellow, d/b/a The Southwest Flea Market (“Goodfellow”), at all times relevant owned and operated a flea market as a sole proprietorship in Memphis. Goodfellow controlled, managed, and oversaw the day-to-day operations of the flea market. The flea market rented seventy-five to one hundred booths to vendors at the rate of $15 per day Thursday through Sunday each week. The flea market also rented storage containers to vendors for storage of their goods. The flea market was managed by Director of Operations Karl Johnson, an employee of Goodfellow. Although Johnson managed the flea market's day-to-day business, Goodfellow controlled the flea market and had ultimate authority in allowing and removing vendors who sold goods at the flea market.

On January 15, 2010, Coach sent a letter to Goodfellow, notifying him of counterfeit sales of Coach products at the flea market, advising him of the potential violation of both federal and state laws, and demanding that all sales of counterfeit Coach products cease. On March 26, 2010, Goodfellow received another letter, this time from the Shelby County Office of the District Attorney General. The letter notified Goodfellow that counterfeit sales of Coach items were continuing at the flea market. The letter also stated that Goodfellow was in willful disregard of the law. On April 23, 2010, law enforcement officers raided the flea market and seized counterfeit Coach products.

In June 2010, Coach filed this action against Goodfellow and the flea market demanding the sale of counterfeit Coach products be stopped. After a Coach investigator discovered continuing sales of counterfeit Coach products in February 2011, law enforcement officers conducted another raid on March 4, 2011. Yet another raid was conducted on June 23, 2011, this time involving approximately 150 local, state and federal officers and various Coach investigators. More than 4,600 counterfeit Coach products were seized and the flea market was permanently shut down.

Goodfellow admitted knowing that vendors continued to sell counterfeit Coach products at the flea market between the time he received the first letter from Coach in January 2010 and the time he received the letter from the District Attorney in March 2010. Goodfellow also admitted that he was aware of the multiple raids, and he knew that arrests were made during these raids. The flea market's employees never received any training to identify counterfeit goods. Johnson did not remember any vendors having been expelled or rejected for selling counterfeit products. Neither Goodfellow nor Johnson inspected vendors' goods or questioned them as to whether their goods were counterfeit or authentic. The flea market did not have a license to sell Coach products and neither Goodfellow nor Johnson asked vendors if they had licenses. Nor were vendors required to sign a statement agreeing, as a condition of renting a booth, that they would not sell counterfeit products.

There was some evidence of remedial measures. Goodfellow distributed pamphlets to vendors, posted copies of a “counterfeit is prohibit” sign, and called a meeting with vendors to address the selling of counterfeit goods. However, the pamphlets were distributed randomly and incompletely; the signs that were posted were actually intended to address a growing problem with counterfeit currency, not counterfeit products; attendance at the meeting with vendors, scheduled on a day when the flea market was not open for business, was voluntary and attended only by some vendors; and communication was frustrated by language differences, as many of the vendors were from West Africa.

In the complaint, Coach alleged that Goodfellow was liable for the sale of counterfeit products and infringement of Coach's trademarks, in violation of the Lanham Act, 15 U.S.C. § 1114. The parties consented to have the case decided by United States Magistrate Judge Diane K. Vescovo pursuant to 28 U.S.C. § 636(c). Coach filed a motion for partial summary judgment on the issue of liability on October 11, 2011. Goodfellow failed to respond to Coach's motion. On February 21, 2012, the district court, without conducting a hearing, granted partial summary judgment to Coach on the issue of contributory liability. Despite Goodfellow's failure to respond, the court viewed the record in the light most favorable to him as non-movant, but still held that Goodfellow was contributorially liable for sales of counterfeit Coach products by his vendors.

On March 1, 2012, Goodfellow moved to set aside the order granting partial summary judgment. Goodfellow asked for relief from judgment because notice of the motion for partial summary judgment had been misplaced by his attorney and because Coach's counsel had filed notice of intent to strike the motion for partial summary judgment on January 20, 2012. While setting forth these grounds for his failure to timely respond, Goodfellow's motion offered no argument on the merits. The district court denied Goodfellow's motion, finding that his showing of attorney error did not amount to excusable neglect, as required by Fed.R.Civ.P. 60(b)(1). The court also noted that even if the neglect were deemed excusable, Goodfellow did not assert a meritorious defense in his motion to justify setting aside the order.

Goodfellow's liability having thus been established, the district court conducted a jury trial to determine Coach's damages. On March 20, 2012, Coach was awarded $5,040,000 in damages. The jury found that Goodfellow willfully infringed Coach's trademarks. The jury awarded $240,000 per mark for twenty-one total infringed marks. The district court entered judgment on the verdict and granted Coach permanent injunctive relief on April 2, 2012. In granting Coach's ensuing motion for attorney's fees, awarding Coach $186,666.61 in fees and costs, the district court noted that the Lanham Act, 15 U.S.C. § 1117(a), allows for award of attorney's fees to the prevailing party in exceptional cases. The court determined the case was exceptional because Goodfellow failed to litigate the liability issue at all and because the jury found his infringement to be willful.

II. ANALYSIS

A. Secondary Liability for Trademark Infringement

Goodfellow appears to frame the claim of error on appeal as a question of law, contending the Lanham Act does not provide for contributory liability for trademark infringement by third persons. In substance, however, his claim is in the nature of a challenge to the sufficiency of the evidence to support liability in this case. Yet, Goodfellow's liability was established in a summary judgment ruling the merits of which he never challenged below. By failing to present evidence creating a genuine issue of material fact and failing to otherwise contest Coach's motion below, he has effectively forfeited his right to appeal the liability ruling.

Ordinarily, we will not address issues raised for the first time on appeal. McFarland v. Henderson, 307 F.3d 402, 407 (6th Cir.2002). This is a prudential rule that promotes judicial economy. Its application is left to the discretion of the court. Id. We may elect not to enforce the rule where the appellate issue is developed with sufficient clarity and completeness, in “exceptional cases,” to avoid “a plain miscarriage of justice,” or for some “over-arching purpose beyond that of arriving at the correct result in an individual case.” Foster v. Barilow, 6 F.3d 405, 407–08 (6th Cir.1993). Although Goodfellow's counsel's failure to defend may have handicapped full development of the record below, the factual record on which the district court's ruling was based is clear and the parties' appellate briefing of the legal issue is adequate. Inasmuch as adjudication by default is disfavored and this case affords opportunity to provide guidance on contributory trademark infringement, we take up the merits of the district court's ruling notwithstanding Goodfellow's default below.

We review the partial summary judgment ruling on contributory liability de novo based on the record as it existed at the time of the ruling....