4semo.Com. Inc. v. S. Ill. Storm Shelters, Inc.

• Citation: 939 F.3d 905
• Decision Date: 07 October 2019
• Docket Number: Nos. 18-1998 & 18-2095,s. 18-1998 & 18-2095
• Parties: 4SEMO.COM INCORPORATED, Plaintiff-Appellee/ Cross-Appellant, v. SOUTHERN ILLINOIS STORM SHELTERS, INC., Ingoldsby Excavating, Inc., and Bob Ingoldsby, Defendants-Appellants/ Cross-Appellees, and Roman A. Basi and Alfred E. Sanders Jr., Intervenors/ Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

939 F.3d 905

4SEMO.COM INCORPORATED, Plaintiff-Appellee/ Cross-Appellant,

v.SOUTHERN ILLINOIS STORM SHELTERS, INC., Ingoldsby Excavating, Inc., and Bob Ingoldsby, Defendants-Appellants/ Cross-Appellees,andRoman A. Basi and Alfred E. Sanders Jr., Intervenors/ Appellees.

Nos. 18-1998 & 18-2095

United States Court of Appeals, Seventh Circuit.

Argued April 1, 2019

Decided October 7, 2019

Rehearing and Rehearing En Banc Denied November 5, 2019

Charles S. Kramer, Attorney, RIEZMAN BERGER, P.C., St. Louis, MO, for Plaintiff - Appellee.

Douglas D. Churovich, Attorney, SANDBERG, PHOENIX & VON GONTARD, P.C., Clayton, MO, Timothy Charles Sansone, Attorney, SANDBERG PHOENIX & VON GONTARD P.C., St. Louis, MO, for Defendants - Appellants.

Before Easterbrook, Sykes, and Brennan, Circuit Judges.

Sykes, Circuit Judge.

This appeal involves a long-running trademark dispute over ownership and misuse of a wordmark and logo for below-ground storm shelters. The story begins in 2005 when a Missouri-based home-remodeling firm known as 4SEMO.com Inc. began selling storm shelters manufactured by Southern Illinois Storm Shelters, Inc. ("SISS"), an Illinois company run by Robert "Bob" Ingoldsby and his brother Scott. The dealership agreement gave 4SEMO the exclusive right to sell SISS shelters in portions of Missouri and Arkansas. As part of its marketing campaign, 4SEMO created a wordmark—"Life Saver Storm Shelters"—and a logo using that name, which it affixed to the shelters. In 2006 the Ingoldsbys asked 4SEMO for permission to use these marks on shelters marketed in southern Illinois. 4SEMO granted a limited license for that purpose, but the Ingoldsbys violated it by using the marks on products sold throughout the country.

SISS sued 4SEMO for trademark infringement, claiming prior use and ownership of the "Life Saver" wordmark. That claim did not survive summary judgment. 4SEMO counterclaimed for trademark infringement and false endorsement under the Lanham Act, along with several state-law claims. The counterclaims were tried to the bench, and the district judge found for 4SEMO across the board, entered a cease-and-desist order, and awarded more than $17 million in disgorged profits as damages. The judge denied 4SEMO’s motion for vexatious-litigation sanctions under 28 U.S.C. § 1927 and attorney’s fees under the Lanham Act.

On appeal SISS does not contest the judge’s factual findings. It argues instead that 4SEMO’s logo violates a statute that makes it a crime to use the iconic emblem reserved to the American Red Cross: a red Greek cross on a white background. SISS also raises a novel legal argument to attack 4SEMO’s ownership of the wordmark. Finally, SISS challenges the eight-figure monetary award. In a cross-appeal 4SEMO seeks review of the denial of § 1927 sanctions and Lanham Act attorney’s fees.

We affirm for the most part. SISS’s statutory argument is meritless and its legal theory challenging 4SEMO’s ownership of the marks is new on appeal and thus is waived. We also reject the challenge to the damages award; the judge’s conclusion that SISS engaged in trademark infringement on a vast scale is well supported by the evidence. Finally, although the judge reasonably concluded that § 1927 sanctions were not warranted, his summary denial of Lanham Act fees cannot be squared with his factual findings and legal conclusions on the merits of the infringement claim. Because those findings and conclusions satisfy the Act’s standard for recovery of attorney’s fees, we remand for the limited purpose of determining a reasonable fee award.

I. Background

Ray Fielack is the president of 4SEMO, a home-remodeling company located in southeast Missouri. Bob and Scott Ingoldsby have been manufacturing storm shelters since 1998. They began operating under the SISS name in 2000 and continued to do so as Ingoldsby Excavating, Inc., since 2008.

In 2004 4SEMO purchased a storm shelter from an SISS dealer and installed it at the direction of a remodeling client. Pleased with the product, 4SEMO expressed interest in buying more shelters from the dealer and began promoting them to potential customers. The dealer asked if 4SEMO would be interested in simply purchasing its existing inventory and becoming a dealer in its own right. 4SEMO agreed to do so.

Fielack decided that a set of identifiable trademarks would assist his company’s foray into storm-shelter marketing and installation. In late March or early April 2005, he settled on the name "Life Saver Storm Shelters." He also designed a logo: a red Greek cross on a black background with the "Life Saver" product name written across its horizontal bar in yellow lettering. Fielack testified at trial that no one at 4SEMO had seen the name or logo before.

4SEMO took possession of the former dealer’s inventory, stenciled its new logo and wordmark onto the shelters, and displayed them for sale. Starting in April or early May 2005, 4SEMO’s brochures and signage, and the shelters it sold, featured the marks as shown below:

On May 5 4SEMO signed a formal dealership agreement with SISS. The contract granted 4SEMO exclusive retail rights in a territory that included portions of Missouri and Arkansas. It did not mention the marks. Around this time Scott Ingoldsby visited 4SEMO to exchange one of the inventory shelters for an updated model. He expressed no familiarity with the marks. 4SEMO continued to market its inventory under the "Life Saver Storm Shelters" brand.

In February 2006 the Ingoldsbys asked 4SEMO for permission to use the "Life Saver Storm Shelters" marks in connection with retail sales and installations in southern Illinois. 4SEMO orally agreed to permit use of the marks in that region on three conditions: only shelters manufactured by the Ingoldsbys could be sold under the marks, the Ingoldsbys would install all branded shelters in a manner familiar to 4SEMO, and 4SEMO would maintain control over all promotional materials bearing the marks.

The Ingoldsbys did not comply with the license agreement. Doing business as SISS and later as Ingoldsby Excavating, they used the marks to promote a nationwide sales campaign, supplied other dealers with "Life Saver" branded shelters, and even registered the domain name "www.lifesaverstormshelters.com." The Ingoldsbys planned to continue this activity until 4SEMO discovered it, at which point they would try to buy the marks. And that’s precisely what happened. In 2011 4SEMO discovered the widespread unauthorized use and demanded cessation. Scott Ingoldsby immediately offered to purchase the marks. The parties were headed toward an agreement until August 2012 when Bob Ingoldsby called off the deal. The Ingoldsbys later terminated the dealership agreement with 4SEMO and continued to use the marks even up to the month of trial.

In March 2013 SISS and Ingoldsby Excavating sued 4SEMO alleging trademark infringement in violation of the Lanham Act and several state-law claims. The suit was premised on a theory of retroactive ownership. The Ingoldsbys claimed that SISS and one of its licensed distributors sold shelters under the name "Life-Saver Storm Shelters" (with a hyphen) years before 4SEMO entered the picture. They characterized the 2006 license agreement as covering only the logo, not the wordmark.

4SEMO responded with multiple counterclaims against SISS, Ingoldsby Excavating, and Bob Ingoldsby (collectively "SISS" unless the context requires otherwise): trademark infringement and false endorsement under the Lanham Act, violation of the Illinois Uniform Deceptive Practices Act, breach of contract, unjust enrichment, and civil conspiracy. After several years of litigation, SISS acknowledged that most of its claims against 4SEMO lacked an adequate factual or legal basis. The judge dismissed most counts of the complaint and entered summary judgment for 4SEMO on the Lanham Act claims.

In late July 2017, the judge commenced a bench trial on the counterclaims with the case now reconfigured to show 4SEMO as the plaintiff. Fielack and the Ingoldsby brothers testified. 4SEMO presented a damages expert who testified that SISS’s revenue from its decade-long nationwide sales of "Life Saver" branded shelters totaled approximately $17.4 million. SISS did not contest that calculation and waived its right to prove up offsetting costs.

Confronted with irreconcilable factual accounts, the judge sided with 4SEMO and entered findings of fact, conclusions of law, and a remedial award in its favor. The judge found that the Ingoldsbys were not credible witnesses. He found that 4SEMO owned both marks and SISS breached a valid license, generating consumer confusion and deception, and thus violated the Lanham Act, 15 U.S.C. § 1125(a). The judge also found for 4SEMO on the state-law claims.

Addressing damages, the judge found that the decade-long infringement was willful, intentional, egregious, even malicious. He awarded $17,371,003 in damages under 15 U.S.C. § 1117(a) and $26,940 for the breach of contract. He also ordered injunctive relief in the form of a cease-and-desist order. Finally, the judge held Bob Ingoldsby and his proprietorships jointly and severally liable for the judgment and denied 4SEMO’s motions for attorney’s fees under the Lanham Act and sanctions under 28 U.S.C. § 1927.

SISS appealed. 4SEMO filed a cross-appeal seeking review of the denial of attorney’s fees and sanctions. Two of SISS’s trial attorneys, Roman A. Basi and Alfred E. Sanders Jr., intervened as cross-appellees. After oral argument we issued an order noting a defect in the form of the order for injunctive relief under Rule 65 of the Federal Rules of Civil Procedure. We stayed the appeal pending entry of a proper injunction. The district court promptly entered an amended judgment, and the case is now ready for decision.

II. Discussion

"We review the judge’s factual findings following a bench trial for clear error and his conclusions of law de novo." Ill. Liberty PAC v. Madigan , 904 F.3d 463, 469 (7th Cir. 2018). SISS has not...