Applied Underwriters, Inc. v. Lichtenegger

• Decision Date: 15 January 2019
• Docket Number: No. 17-16815,17-16815
• Parties: APPLIED UNDERWRITERS, INC., a Nebraska Corporation, Plaintiff-Appellant, v. Larry J. LICHTENEGGER ; J. Dale Debber; Providence Publications, LLC, a California Limited Liability Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

913 F.3d 884

APPLIED UNDERWRITERS, INC., a Nebraska Corporation, Plaintiff-Appellant,

v.Larry J. LICHTENEGGER ; J. Dale Debber; Providence Publications, LLC, a California Limited Liability Company, Defendants-Appellees.

No. 17-16815

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 18, 2018 San Francisco, California

Filed January 15, 2019

Kimberly A. Jansen (argued), Hinshaw & Culbertson LLP, Chicago, Illinois; Mark Suri, Peter Felsenfeld, Travis Wall, and Spencer Y. Kook, Hinshaw & Culbertson LLP, Los Angeles, California; for Plaintiff-Appellant.

Duffy Carolan (argued), Jassy Vick Carolan LLP, San Francisco, California; Kevin L. Vick and Jean-Paul Jassy, Jassy Vick Carolan LLP, Los Angeles, California; for Defendants-Appellees.

Before: MILAN D. SMITH, JR. and JACQUELINE H. NGUYEN, Circuit Judges, and JANE A. RESTANI,^* Judge.

M. SMITH, Circuit Judge:

We are confronted with an appeal of a procedurally curious nature. Plaintiff-Appellant Applied Underwriters, Inc. (Plaintiff) appealed the district court’s dismissal of its claims for trademark infringement and unfair competition, on the apparent belief that the court dismissed the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). When we asked the district court to clarify its grounds for dismissal, however, it explained that it actually dismissed Plaintiff’s complaint as a sanction pursuant to Federal Rule of Civil Procedure 41(b).

Although we conclude that the district court abused its discretion when it sanctioned Plaintiff and dismissed the case pursuant to Rule 41(b) absent an order requiring Plaintiff to file an amended complaint, we nevertheless affirm the district court’s earlier Rule 12(b)(6) dismissal because the use of Plaintiff’s trademarks by Defendants-Appellees Larry J. Lichtenegger, J. Dale Debber, and Providence Publications, LLC (Defendants) constituted nominative fair use.

FACTUAL AND PROCEDURAL BACKGROUND

I. Factual Background

Plaintiff is "a financial services company that provides payroll processing services and, through affiliated insurance companies, offers programs through which workers’ compensation insurance is offered and provided to employers throughout the United States." It began to use the "Applied Underwriters" mark in October 2001, and has continuously used the mark since. Beginning in October 2002, it also began to use the "EquityComp" mark in connection with its workers’ compensation insurance services. The U.S. Patent and Trademark Office has issued Plaintiff five relevant trademark registrations: for the "Applied Underwriters" mark, the "EquityComp" mark, and three stylized versions of these marks, two of which appear to depict a St. Bernard:

In its complaint, Plaintiff asserted that these registrations are currently in force and uncontestable, and that it "aggressively advertises and promotes its marks and its services," having "spent millions of dollars advertising" them.

Defendant Providence Publications, LLC publishes various online news sources, including "Workers’ Comp Executive" (WCE). WCE features news reports and offers online seminars, some of which feature Defendants Lichtenegger and Debber.

Plaintiff alleged that, beginning in November 2015, Defendants began offering a seminar (both online and on DVD) that "uses the APPLIED UNDERWRITERS and EQUITYCOMP marks in the title of the webcast." The marks were also featured in various promotional materials, including a widely distributed email advertisement. Defendants used these marks "without Applied Underwriters’ authority or permission and in reckless disregard of [its] federal trademark registrations and its rights." Plaintiff also claimed that Defendants "specifically and intentionally target[ed] their marketing and advertising ... to independent brokers and the business organizations that they serve who use Plaintiff’s services." In its complaint, Plaintiff averred that "[a]s a result of the likelihood of confusion caused by Defendants’ unauthorized use of" the marks, "Defendants are able to attract customers who mistakenly believe that they will attend a program sponsored or affiliated with Applied Underwriters," leading to dilution of the marks.

II. Procedural Background

Plaintiff filed a complaint asserting causes of action for federal trademark infringement and dilution, false designation of origin under the Lanham Act, and federal and state unfair competition. The next day, Plaintiff filed a motion for a temporary restraining order, which the district court denied.

Defendants moved to dismiss under Rule 12(b)(6), arguing that their use of Plaintiff’s marks was protected under the First Amendment, constituted nominal fair use, and satisfied the statutory defenses to trademark dilution. Defendants also filed a request for judicial notice that the district court granted in part and denied in part, taking judicial notice only of the DVD of the seminar. Plaintiff in turn filed an opposition to Defendants’ motion to dismiss, accompanied by a declaration and additional evidence not included in its complaint.¹

On July 6, 2017, the district court granted Defendants’ motion to dismiss, concluding that "Defendants’ use of the Trademarks is nominative fair use." At Plaintiff’s request, the court granted leave to amend the complaint within 30 days. The district court docket confirms that Plaintiff neither filed an amended complaint (timely or otherwise) nor announced an intent not to do so. Consequently, on August 10, 2017, the district court issued a minute order that read: "In light of Plaintiff’s failure to file an Amended Complaint pursuant to the Court’s Order (ECF No. [31] ), this case is hereby DISMISSED. CASE CLOSED." The clerk of court subsequently entered judgment "in accordance with the Court’s Order filed on 8/10/2017."

This appeal followed. In their briefs, Plaintiff and Defendants disputed whether the district court dismissed Plaintiff’s complaint pursuant to Rule 12(b)(6), in which case we would review the sufficiency of the complaint de novo, Starr v. Baca , 652 F.3d 1202, 1205 (9th Cir. 2011), or as a sanction under Rule 41(b), which we would review for abuse of discretion, Yourish v. Cal. Amplifier , 191 F.3d 983, 986 (9th Cir. 1999). To remedy this confusion, we remanded

this case for the limited purpose of allowing the district court to clarify whether the complaint was dismissed as a sanction under Federal Rule of Civil Procedure 41 or for failure to state a claim under Rule 12(b)(6), and, if the final dismissal was intended as a sanction under Rule 41(b), to state the reasoning behind the selection of that sanction.

Before oral argument in this appeal, the district court responded with a clarification order, in which it explained that it dismissed Plaintiff’s complaint as a sanction pursuant to Rule 41(b), and analyzed the five pertinent factors as enumerated in Yourish . It concluded that "[t]hree of the five factors strongly favored dismissal, and this Court dismissed the case under Rule 41(b) as a sanction for failure to comply with the Court’s order."

STANDARD OF REVIEW AND JURISDICTION

"We review de novo a district court’s dismissal of a complaint under [ Rule] 12(b)(6) for failure to state a claim," Starr , 652 F.3d at 1205, and "[w]e review the district court’s dismissal of a complaint pursuant to Rule 41(b) for abuse of discretion," Yourish , 191 F.3d at 986. We have jurisdiction pursuant to 28 U.S.C. § 1291 —regardless of the basis for the district court’s dismissal of Plaintiff’s complaint, its entry of judgment constituted a final decision of the court. Cf. De Tie v. Orange County , 152 F.3d 1109, 1111 (9th Cir. 1998) ("The dismissal of an action, even when it is without prejudice, is a final order.").

ANALYSIS

I. Rule 41(b)

Under Rule 41(b), "[i]f the plaintiff fails to prosecute or to comply with ... a court order"—such as by failing to file an amended complaint after being ordered to do so—"a defendant may move to dismiss the action or any claim against it. Unless the dismissal order states otherwise, [such] a dismissal ... operates as an adjudication on the merits." Fed. R. Civ. P. 41(b). We have noted that "[w]hen a district court dismisses an action because the plaintiff has not filed an amended complaint after being given leave to do so and has not notified the court of his intention not to file an amended complaint, we may deem the dismissal to be for failure to comply with a court order based on Federal Rule of Civil Procedure 41(b)." Harris v. Mangum , 863 F.3d 1133, 1142 (9th Cir. 2017).

In the order clarifying its dismissal of Plaintiff’s complaint, the district court analyzed the five factors that must be considered before dismissing a case pursuant to Rule 41(b) : "(1) the public’s interest in expeditious resolution of litigation; (2) the court’s need to manage its docket; (3) the risk of prejudice to the defendants; (4) the public policy favoring disposition of cases on their merits; and (5) the availability of less drastic alternatives." Yourish , 191 F.3d at 990 (quoting Hernandez v. City of El Monte , 138 F.3d 393, 399 (9th Cir. 1998) ).² However, the district court did not consider whether Rule 41(b) was even applicable in this case, given that Plaintiff was granted leave—not ordered—to amend its complaint. We hold that the district court abused its discretion when it invoked Rule 41(b) under these circumstances.

We are not the first panel to address this question. See, e.g. , Yourish , 191 F.3d at 986 n.4 ("This approach is somewhat problematic because a plaintiff’s failure to amend a complaint is not easily described as disobeying a court order because the plaintiff has the right simply to allow the complaint to be dismissed."). Decades ago, the Fifth Circuit considered a similar factual scenario and concluded that

[h]ad the District Judge intended what he wrote literally—that the action was being dismissed because the March order had been "disobeyed"—he would have been guilty of an abuse of his Rule

...