Fair Wind Sailing, Inc. v. Dempster

• Decision Date: 04 September 2014
• Docket Number: 14–1572.,Nos. 13–3305,s. 13–3305
• Citation: 764 F.3d 303
• Parties: FAIR WIND SAILING, INC., Appellant v. H. Scott DEMPSTER, Individually and Doing Business as Virgin Islands Sailing School and Virgin Islands Sailing School.
• Court: U.S. Court of Appeals — Third Circuit

764 F.3d 303

FAIR WIND SAILING, INC., Appellant

v.H. Scott DEMPSTER, Individually and Doing Business as Virgin Islands Sailing School and Virgin Islands Sailing School.

Nos. 13–3305, 14–1572.

United States Court of Appeals,Third Circuit.

Argued May 13, 2014.

Filed: Sept. 4, 2014.

Michael C. Quinn, Esq., Stefan B. Herpel, Esq., [Argued], Gregory H. Hodges, Esq., Dudley, Topper and Feuerzeig, LLP, St. Thomas, VI, Attorneys for Appellant.

Ravinder S. Nagi, Esq., Lisa Michelle Kömives, Esq., [Argued], BoltNagi PC, St. Thomas, VI, Attorneys for Appellees.

Before: RENDELL, FUENTES, and GREENAWAY, JR., Circuit Judges.

OPINION

FUENTES, Circuit Judge:

Fair Wind Sailing, Inc. brought this action against Virgin Island Sailing School (“VISS”) and its co-founder Scott Dempster, alleging, in relevant part, that Defendants infringed upon Fair Wind's “trade dress” in violation of the Lanham Act, 15 U.S.C. § 1051 et seq., and unjustly enriched themselves by copying Fair Wind's business. The District Court dismissed Fair Wind's trade dress and unjust enrichment claims, and subsequently awarded Defendants fees under Virgin Islands law. Fair Wind challenges both the dismissal of its claims and the award of attorneys' fees.

The District Court properly concluded that Fair Wind failed to state claims for trade dress infringement and unjust enrichment. As to the former claim, Fair Wind has failed to adequately explain what “dress” it seeks to protect, and its trade dress, as pleaded, is functional in nature. As to the latter claim, Fair Wind has not pleaded with sufficient particularity in what manner Defendants have been unjustly enriched. We therefore affirm the dismissal of both claims.

However, we agree with Fair Wind that the District Court improperly awarded fees for the entirety of the litigation under Virgin Islands law. While it would have been appropriate for the District Court to award reasonable fees accrued defending the territorial law claims, an award for the portion of the fees accrued defending the Lanham Act claim was appropriate only to the extent that this was an “exceptional” case. 15 U.S.C. § 1117(a). The District Court did not decide whether this case was an “exceptional” one. We therefore remand the fee dispute for further proceedings. In the wake of new Supreme Court precedent, we take this opportunity to amend our recently-abrogated jurisprudence on the standard for finding “exceptionality” under § 35(a) of the Lanham Act.

I.

A.

The complaint alleges the following facts, which we assume to be true and construe in the light most favorable to the plaintiff. See Ashcroft v. Iqbal, 556 U.S. 662, 678–80, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

Fair Wind is a Michigan corporation that owns sailing schools throughout the United States, including one in St. Thomas, Virgin Islands. The St. Thomas school exclusively uses catamarans.¹

In July 2007, Fair Wind hired Larry Bouffard as a captain and sailing instructor for its St. Thomas school. Bouffard entered into a contract with Fair Wind, which contained a provision precluding Bouffard from joining a Fair Wind competitor within 20 miles of the St. Thomas school for two years after the end of his employment with Fair Wind. A popular instructor, Bouffard stayed with Fair Wind for over three years.

In June 2010, Bouffard introduced Dempster to Fair Wind as a potential instructor and captain. Relying on Bouffard's assurance that Dempster was qualified for the post, Fair Wind hired Dempster for a probationary two-week period. Fair Wind was dissatisfied with Dempster's performance, and declined to retain Dempster at the end of those two weeks.

Shortly after Fair Wind terminated Dempster, Bouffard resigned. At or about this time, however, Dempster and Bouffard decided to open a sailing school together in St. Thomas. By the following winter, Dempster and Bouffard's school, VISS, was up and running, in direct competition with Fair Wind. Opening VISS violated Bouffard's two-year noncompete agreement with Fair Wind.

Since its inception, VISS has copied Fair Wind's St. Thomas school in several respects. VISS employs 45–foot catamarans, the same boats used by Fair Wind. VISS also uses teaching curriculum and itineraries identical to those used by Fair Wind, and employs the same procedures for student feedback. The marketing on VISS's website is identical to Fair Wind's marketing. Additionally, the VISS website contains a picture of a catamaran belonging to Fair Wind, includes “student testimonials” from students who took classes with Dempster while he worked for Fair Wind, and mentions Bouffard's experience teaching “[o]ver the last year,” presumably in reference to his time teaching at Fair Wind. First Am. Compl. ¶ 32.

Fair Wind alleges that “[s]ince VISS began competing with Fair Wind, Fair Wind has lost considerable business and reputation.” Id. ¶ 35. It also alleges that “Dempster and VISS have been enriched by their improper and unjustified conduct.” Id. ¶ 48.

B.

Fair Wind filed an action against Dempster and VISS in the District Court of the Virgin Islands. The complaint, as amended shortly thereafter, alleged three claims against Dempster and Fair Wind: (1) a “trade dress” infringement claim under § 43(a) of the Lanham Act; (2) a common-law tortious interference claim; and (3) a common-law unjust enrichment claim. VISS filed a motion to partially dismiss the complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure, arguing that Fair Wind failed to state claims for trade dress infringement or unjust enrichment.

The District Court concluded that Fair Wind had failed to state claims for either trade dress infringement or unjust enrichment. As to the trade dress claim, the District Court concluded that the complaint had several dispositive flaws. First, the District Court explained that Fair Wind had failed to allege facts about its business that “amount[ed] to its trade dress.” Fair Wind Sailing, Inc. v. Dempster, No. 2011–55, 2013 WL 1091310, at *4 (D.V.I. Mar. 15, 2013). “Without knowing the precise product features that Fair Wind seeks to protect” as trade dress, the District Court “struggle[d] to undertake a productive Rule 12(b)(6) analysis.” Id. Second, assuming that the product features at issue amounted to a trade dress, the Court determined that the complaint was “devoid of any allegations that [these features were] inherently distinctive or ha[d] acquired any secondary meaning.” Id. at *4–5. Third, the District Court determined that the product features comprising Fair Wind's alleged trade dress were “functional” and therefore fell beyond the protections of the Lanham Act. Id. at *5–6. With respect to the unjust enrichment claim, the District Court concluded that Fair Wind had failed to “allege any facts to support the first element required for an unjust enrichment claim—that the defendant was enriched.” Id. at *7. Accordingly, the District Court granted VISS's motion to dismiss in its entirety. In response, Fair Wind voluntarily dismissed its remaining claim for tortious interference, making the judgment final and appealable. See Camesi v. Univ. of Pittsburgh Med. Ctr., 729 F.3d 239, 246 (3d Cir.2013).

Thereafter, Defendants moved for $41,783 in attorneys' fees under § 35(a) of the Lanham Act and Title 5, section 541 of the Virgin Islands Code. This constituted the “total amount of legal fees incurred by Defendants in this matter” over the course of the litigation. App. 64. Relying solely on the Virgin Islands fee statute, the District Court concluded that Defendants were entitled to a “fair and reasonable award of attorney's fees” for their effort defending the entirety of this case. Fair Wind Sailing, Inc. v. Dempster, No. 2011–55, 2014 WL 886832, at *1 (D.V.I. Mar. 6, 2014). After concluding that a portion of the fees sought was unreasonably expended, the District Court awarded Defendants fees in the amount of $36,347. Id. at *3.

Fair Wind filed separate, timely appeals of both the dismissal order and the fees order, which were subsequently consolidated for disposition.²

II.

We first consider Fair Wind's trade dress claim. Like the District Court, we conclude that Fair Wind has failed to properly state a claim for trade dress infringement. We therefore affirm the District Court's dismissal of the claim.³

Section 43(a) of the federal Lanham Trademark Act sets forth the standard for infringement of unregistered trademarks. It provides in relevant part that:

(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which—(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or (B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

15 U.S.C. § 1125(a)(1). Section 43(a) protects from deceptive imitation not only a business's trademarks, but also its “trade dress.” 15 U.S.C. § 1125(a)(3); Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 776, 112 S.Ct. 2753, 120 L.Ed.2d 615 (1992) (Stevens, J., concurring). “Trade dress has been defined as the total image or overall appearance of a product, and includes, but is not limited to, such features as size, shape, color or color combinations, texture, graphics, or even a particular sales technique.” Rose Art Indus., Inc. v. Swanson, 235 F.3d 165, 171 (3d Cir.2000). In short, trade...