Neles-Jamesbury, Inc. v. Bill's Valves

Decision Date30 May 1997
Docket NumberCivil Action No. H-96-1419.
Citation974 F.Supp. 979
PartiesNELES-JAMESBURY, INC., Plaintiff, v. BILL'S VALVES and Vasilios "Bill" Kallergis, Defendants.
CourtU.S. District Court — Southern District of Texas

William C. Norvell, Jr., Beirne, Maynard and Parsons, Houston, TX, for Plaintiff.

Anastassios Triantaphyllis, Houston, TX, for defendants.

MEMORANDUM AND ORDER

ATLAS, District Judge.

Following a jury trial in this trademark infringement suit, the parties have filed several post-verdict motions. The Court has considered these motions, the responses and replies, all matters of record in this case, and the relevant authorities. For the reasons stated below, Defendants' Motion for Judgment as a Matter of Law as to Conversion [Doc. # 179] is GRANTED; Plaintiff's Motion for Judgment for Enhanced Damages, a Finding of "Exceptional Case" Award of Reasonable Attorneys' Fees and Prejudgment Interest Under 15 U.S.C. § 1117(a) and (b) [Doc. # 174] is GRANTED IN PART; Defendants' Motion to Set Aside the $30,000 Award of [Future] Damages [Doc. # 182] is DENIED; and Plaintiff's Motion for the Release of Bond [Doc. # 178] is GRANTED.

I. PROCEDURAL BACKGROUND

Plaintiff Neles-Jamesbury, Inc. ("Plaintiff") brought this action against Bill's Valves Inc. and Vasilios Kallergis, the individual owner of Bill's Valves ("Defendants"), alleging trademark infringement, false advertising, and trademark dilution in violation of federal statutory law, 15 U.S.C. §§ 1114(1)(a) and 1125, and conversion and unfair competition in violation of state common law.1 Following a one week trial, the jury returned a verdict finding that Defendants' conduct constituted trademark infringement, unfair competition, false advertising, and conversion. The jury found that Plaintiff was entitled to damages of $30,000.00 for future costs of product recall and advertising ("future damages") and $19,824.00 for general damages such as out-of-pocket expenses and injury to Plaintiff's goodwill or reputation ("past damages").2 However, the jury found that Defendants did not infringe Plaintiffs trademark or engage in unfair competition or false advertising with wrongful intent. Therefore, in accordance with the Court's instructions, the jury did not award Plaintiff any of Defendants' net profits that may have been attributable to Defendants' wrongful conduct.3

The jury found that Defendants' conversion of Plaintiff's trademarks was willful but that their conduct which constituted unfair competition was not willful. Because it found that Defendants engaged in willful conduct, the jury assessed punitive damages of $100,000.00 against Bill's Valves, Inc. and $100,000.00 against Vasilios Kallergis. The jury did not find that Defendants willfully traded on Plaintiff's reputation or caused dilution of Plaintiff's trademarks.

II. DEFENDANTS' MOTION FOR JUDGMENT AS A MATTER OF LAW AS TO CONVERSION

In their Motion for Judgment as a Matter of Law [Doc. # 179], Defendants argue that Texas law does not recognize claims for conversion of a trademark.4 In its Post-trial Brief in Support of the Jury's Finding of Conversion [Doc. # 177] and Response to Defendant's Motion [Doc. # 186], Plaintiff argues that Texas law allows claims for conversion of intangible property. The Court is not persuaded that Texas courts' recognition of claims for conversion of intangible property extends to trademarks. Plaintiff has not cited, and the Court is not aware of, any case in which a court has recognized, or a plaintiff has recovered on, a conversion claim in the context of trademark infringement. However, Defendants have cited cases in which federal district courts have refused to recognize such a claim. See Liebowitz v. Maxwell, 1994 WL 517456 (S.D.N.Y.1994) (dismissing claim for conversion of trademark rights under Maryland state law); Financial Matters, Inc. v. Pepsico, Inc., No. 92-7497, 1993 WL 378844 (S.D.N.Y.1993) (dismissing claim for conversion of trademark rights under New York state law).

Conversion is the wrongful exercise of dominion or control over another's property to the exclusion of or inconsistent with the true owner's rights in the property. See Amarillo National Bank v. Komatsu Zenoah America, Inc., 991 F.2d 273, 274 (5th Cir. 1993); Deaton v. United Mobile Networks, L.P., 926 S.W.2d 756, 762 (Tex.App. — Texarkana 1996), revd in part on other grounds, 939 S.W.2d 146 (Tex.1997). In support of its argument that Texas law recognizes conversion claims involving intangible property, Plaintiff relies on cases in which Texas courts have recognized claims for conversion of lease documents, Prewitt v. Branham, 643 S.W.2d 122, 123 (Tex.1983); confidential customer lists, Deaton, 926 S.W.2d 756; and stock certificates, Watts v. Miles, 597 S.W.2d 386, 387-88 (Tex.App. — San Antonio 1980, no writ).

The Court concludes that the cases cited by Plaintiff are materially different from the circumstances at bar. Plaintiff's cases each involved property that is intangible in the sense that it exists in the form of documents. In a recent case in this district, Judge Hittner examined the evolving tort of conversion and concluded that, although Texas law may recognize conversion of intangible property, this new development is limited to cases "where the underlying intangible right has been merged into a document" and "there has been conversion of such document." Pebble Beach Co. v. Tour 18 I. Ltd., 942 F.Supp. 1513, 1569 (S.D.Tex.1996) (appeal pending) (citing Prewitt v. Branham, 643 S.W.2d 122, 123 (Tex.1983); Hurst v. Dezer/Reyes Corp., 82 F.3d 232, 236 (8th Cir.1996)).5 In the case at bar, Plaintiff does not claim that Defendants converted any document representing Plaintiff's intangible rights. Therefore, the Court concludes that, under state common law, conversion does not apply to conduct regulated by the laws prohibiting trademark infringement.6

Unfortunately for Plaintiff, the Court's conclusion that Texas law does not recognize a claim of conversion of a trademark precludes the entry of punitive damages in this case. Because the federal causes of action do not provide for an award of punitive damages, see 15 U.S.C. § 1117, Plaintiff may recover punitive damages here only on its successful state law claims. In this action, Plaintiff's state law claims are unfair competition and conversion. In order for a plaintiff to recover punitive damages on a claim, the factfinder must find that the defendant acted willfully. Because the jury did not find that Defendants willfully engaged in unfair competition and because the Court must grant Defendants' Motion for Judgment as a Matter of Law as to conversion, the Court cannot enter judgment on the jury's punitive damage award.

III. PLAINTIFF'S MOTION FOR JUDGMENT FOR ENHANCED DAMAGES

Plaintiff requests that this Court enter a judgment enhancing the jury's award of damages, pursuant to 15 U.S.C. § 1117(a) and (b) [Doc. # 174]. However, because the jury found that Defendants did not wrongfully intend to infringe Plaintiff's trademarks or engage in unfair competition and false advertising, only § 1117(a) applies to this case.7

Section 1117(a) provides that

In assessing damages the court may enter judgment, according to the circumstances of the case, for any sum above the amount found as actual damages, not exceeding three times such amount. If the court shall find that the amount of the recovery based on profits is either inadequate or excessive the court may in its discretion enter judgment for such sum as the court shall find to be just, according to the circumstances of the case. Such sum in either of the above circumstances shall constitute compensation and not a penalty.

In its Motion, Plaintiff argues at length why the circumstances of this case justify enhanced damages. Plaintiff contends that § 1117(a) authorizes the Court to determine, in its own discretion, whether damages should be trebled. Despite the Fifth Circuit's indication that damages should be enhanced under this provision only in cases involving "willful and deliberate conduct," Taco Cabana Int'l, Inc. v. Two Pesos, Inc., 932 F.2d 1113 (5th Cir.1991), cert. granted and aff'd. on other grounds, 505 U.S. 763, 112 S.Ct. 2753, 120 L.Ed.2d 615 (1992), Plaintiff argues that the Court is not bound by the jury's assessment of Defendants' intent.

The Court finds, based on the evidence presented at trial, that Defendants in this case engaged in reckless conduct in disregard of Plaintiff's rights. See infra Section IV.A. However, since the language of § 1117(a) mandates that the Court's damage enhancement "shall constitute compensation and not a penalty," the Court determines it would be inappropriate to enhance Plaintiff's damages. In Taco Cabana, the Fifth Circuit interpreted this provision of § 1117(a) as follows:

It is anomalous to say that an enhancement of damages, which implies an award exceeding the amount found "compensatory," must be "compensatory" and not "punitive." Responding to that anomaly, we have suggested that enhancement could, consistent with the "principles of equity" promoted in [the statute], provide proper redress to an otherwise under compensated plaintiff where imprecise damage calculations fail to do justice, particularly where the imprecision results from defendant's conduct.

932 F.2d at 1127. Based on "evidence of substantial damages not reflected in the jury award," the Fifth Circuit affirmed the district court's decision to double the plaintiff's damages. Id. In the case at bar, however, the Court does not find that there was evidence of damages that the jury did not include in its verdict. On the contrary, the Court concludes that the evidence supports the jury's decision that Plaintiff suffered $19,824.00 in past damages and will suffer $30,000.00 in future damages.8 Therefore, the Court declines Plaintiff's request for enhancement and will instead enter judgment for the amount of damages that the jury found was incurred.9 In...

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