Adt Sec. Services v. A/C Sec. Systems, Inc.

• Decision Date: 03 July 2007
• Docket Number: No. A-05-379.,A-05-379.
• Parties: ADT SECURITY SERVICES, INC., Appellee and Cross-Appellant, v. A/C SECURITY SYSTEMS, INC., and Troy D. Baumert, Appellants and Cross-Appellees, and David W. Baumert, Appellee.
• Court: Nebraska Court of Appeals

736 N.W.2d 737

15 Neb. App. 666

ADT SECURITY SERVICES, INC., Appellee and Cross-Appellant, v. A/C SECURITY SYSTEMS, INC., and Troy D. Baumert, Appellants and Cross-Appellees, and David W. Baumert, Appellee.

No. A-05-379.

Court of Appeals of Nebraska.

July 3, 2007.

Larry E. Welch, Sr., and Larry E. Welch, Jr., of Welch Law Firm, P.C., Omaha, for appellants.

Duane C. Dougherty, Omaha, for appellee ADT Security Services, Inc.

IRWIN and SIEVERS, Judges, and HANNON, Judge, Retired.

SIEVERS, Judge.

This is a deceptive trade practice and trade name infringement case. A/C Security Systems, Inc., (Old A/C Security) was sold in 1997, and one of the stockholders, Troy D. Baumert (Troy), received his payment in 1997. In 2001, Troy started a new corporation using the same name; such company, for clarity, will be henceforth referenced as "New A/C Security." ADT Security Services, Inc. (ADT), effectively acquired Old A/C Security through a series of transactions, and in November 2001, ADT brought this action for injunctive relief and damages against New A/C Security, Troy, and David W. Baumert (David). The district court for Douglas County granted ADT a temporary injunction in April 2002. After a bench trial, the district court found that ADT had not abandoned the disputed trade name, ordered that the causes of action against David be dismissed with prejudice, and found that New A/C Security and Troy (hereinafter collectively Defendants) had violated ADT's common-law right to a trade name/service mark and violated the Uniform Deceptive Trade Practices Act (UDTPA), Neb.Rev.Stat. §§ 87-301 to 87-306 (Reissue 1999 & Cum.Supp.2006). The district court enjoined Defendants from using the name "A/C Security" until November 28, 2005, and ordered them to pay $88,972.27 in damages, but the court denied ADT's request for attorney fees. Defendants appeal, and ADT cross-appeals. We affirm.

I. FACTUAL BACKGROUND

Old A/C Security was initially incorporated with the Secretary of State of Nebraska on November 1, 1982. It was a closely held corporation with most of its stock owned and held by David and his family, including his son, Troy. Old A/C Security sold and installed security alarm systems for homes and businesses, monitored the alarm systems, installed communication and home entertainment systems, and sold and installed lightning protection systems. Old A/C Security entered into alarm monitoring agreements with an indeterminate term, but after being sold in 1997, Old A/C Security entered into alarm monitoring agreements typically with 3-year or 5-year terms, depending upon the agreement. Such agreements would automatically renew for another year if neither party discontinued the agreement. Under the alarm monitoring agreements, the customers paid a monthly fee, referenced in the industry as monthly recurring revenue (MRR). MRR is the industry's "bread and butter."

With this background in place, we trace the transactions involving Old A/C Security. MidAmerican Capital Company (MCC), a wholly-owned subsidiary of MidAmerican Energy Holdings Company, became the parent company of Old A/C Security through a stock purchase agreement dated December 18, 1997. The day prior to the execution of the stock purchase agreement, Troy and David each entered into an employment agreement with Old A/C Security which contained noncompetition provisions stating in part:

Non-Competition. The Employee agrees that at all times during the term of his employment hereunder and for a period of three (3) years after the termination of this Agreement, he will not (1) directly or indirectly induce any customers of the Company to patronize any competing business; (2) canvass, solicit or accept any security and/or lock services related business relationship from any customers of the Company; or (3) directly or indirectly request or advise any customers of the Company to withdraw, curtail or cancel such business with the Company.

Under the stock purchase agreement, MCC paid a total of $3,000,000, of which Troy received $17,500 for his shares of stock. Troy and David continued to work for Old A/C Security, which was held by MidAmerican Security Company (MSC), a subsidiary of MCC, and which was operating under the name "A/C Security Systems."

On March 6, 2000, MCC sold all of its interest in the stock of MSC and its subsidiary Old A/C Security to Signature Security Systems, Inc. (SSS). In April 2000, MSC changed its name to Cambridge Security Systems, Inc. (Cambridge). David retired in the summer of 2000, but Troy continued to work for Cambridge. Cambridge honored the Old A/C Security contracts with customers, including the alarm monitoring agreements. In June 2000, a Domestic Corporation Occupation Tax Report was filed with the Nebraska Secretary of State on behalf of Old A/C Security for the calendar year commencing January 1, 2000.

In July 2000, Bob McBroom began working for Cambridge as the director of business development. In August 2000, Robert Gaucher began working for Cambridge as the vice president of operations. Both McBroom and Gaucher knew and worked with Troy, who was then the Omaha general manager for Cambridge. According to Gaucher and McBroom, Cambridge had acquired other companies in the "burglar alarm business" in addition to Old A/C Security. According to Gaucher, who was responsible for the day-to-day operations of Cambridge, Cambridge sent a letter to the Old A/C Security customers informing them that their accounts had been bought by Cambridge.

Gaucher explained that Cambridge had a "roll-up business plan" under which after acquiring companies in the burglar alarm business, it would begin "`rebranding'" those businesses as "Cambridge" following a 6- to 12-month transition period. The rebranding process consisted of having companies acquired by Cambridge operate under the standard rules and procedures as well as under the Cambridge name and brand, which required changing the names on the trucks, uniforms, stationery, and advertising material. According to Gaucher, Cambridge began rebranding Old A/C Security as Cambridge in early 2001.

On October 15, 2000, Cambridge, the parent company of Old A/C Security, adopted the articles of a merger with Old A/C Security. The "Agreement of Merger," which was filed with the Nebraska Secretary of State, provided that on December 14, 2000, Old A/C Security's separate existence would cease and Cambridge, the parent company of Old A/C Security, would continue as the surviving corporation. Part of the "Agreement of Merger" provided that Cambridge owned all the stock of Old A/C Security on the effective date of the merger, December 14, 2000; that Old A/C Security's shares would not be converted, but would be extinguished; and that Cambridge's shares would remain as outstanding shares of the surviving corporation. The "Agreement of Merger" stated in part:

Upon the merger becoming effective, all the property, rights, privileges, franchises, patents, trademarks, licenses, registrations, and other assets of every kind and description of . . . A/C shall be transferred to, vested in and devolve upon Cambridge, without further act or deed and all property, rights, and every other interest of Cambridge shall effectively be the property of Cambridge.

In January 2001, Cambridge in turn merged with its parent company, "Cambridge Protection Industries, Inc." As part of the merger, the parent company changed its name to "Cambridge Security Systems, Inc.," which we will continue to reference as "Cambridge." Cambridge operated its Omaha office out of the leased premises formerly occupied by MCC and Old A/C Security. The building has a large sign on its front which reads "A/C Security Systems, Inc." The record reflects that as of 2000, Cambridge entered into 3- and 5-year contracts using Old A/C Security alarm monitoring agreements, and that as of May 25, 2001, Cambridge entered into an alarm monitoring agreement for a 5-year term using an Old A/C Security contract.

ADT, a Delaware corporation licensed to transact business in Nebraska and engaged in the business of selling and monitoring residential and commercial alarm systems throughout the United States including east central Nebraska, entered the picture in May 2001. On May 16, ADT entered into an agreement to purchase the stock of Cambridge, and that purchase closed effective July 3. The purchase agreement between ADT and Cambridge gave ADT the right to use all "trademarks (whether registered or unregistered), service marks, trade names, services names, brand names, logos, and copyrights" of Cambridge. The purchase agreement included a schedule entitled "Cambridge Trading Name Listing" with Cambridge's owned intellectual property as of May 9. Part of Cambridge's owned intellectual property included the trade name "A/C Security," and the schedule provided that "A/C Security" was "[r]ebranded as Cambridge Security Systems." In the same attachment, there were notes indicating that some names of the owned intellectual property were "not in use," but "A/C Security" was not designated as such.

ADT took over Old A/C Security customer files, which consisted of approximately 4,700 customers, and honored all of the Old A/C Security customer contracts, which included multiyear monitoring agreements. ADT leased the Omaha location formerly occupied by Cambridge, MCC, and Old A/C Security, but operated its security business from a different location in Omaha. ADT retained Old A/C Security's telephone number.

On August 9, 2001, Troy was not selected to be the ADT general manager in Omaha and Troy's employment ended with ADT. Troy was offered an agreement with a general release and a noncompetition provision in exchange for approximately $60,000, but Troy declined ADT's offer.

Upon inquiry, the Nebraska Secretary of State informed Troy that there was no record of the trade name "A/C Security Systems, Inc." Thus, on August 13, 2001, Troy filed articles of...