Ausable River Trading Post, LLC v. Dovetail Solutions, Inc.

• Decision Date: 23 October 2017
• Docket Number: No. 17-1283.,17-1283.
• Citation: 874 F.3d 271
• Parties: AUSABLE RIVER TRADING POST, LLC, Plaintiff-Appellant, v. DOVETAIL SOLUTIONS, INC.; Tawas Area Chamber of Commerce, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

874 F.3d 271

AUSABLE RIVER TRADING POST, LLC, Plaintiff-Appellant,

v.DOVETAIL SOLUTIONS, INC.; Tawas Area Chamber of Commerce, Defendants-Appellees.

No. 17-1283.

United States Court of Appeals, Sixth Circuit.

Argued: October 5, 2017

Decided and Filed: October 23, 2017

ARGUED: Ronald Tyler, TYLER & TYLER, P.C., East Tawas, Michigan, for Appellant. Robert G. Kamenec, PLUNKETT COONEY, Bloomfield Hills, Michigan, for Appellee Tawas Area Chamber of Commerce. ON BRIEF: Ronald Tyler, TYLER & TYLER, P.C., East Tawas, Michigan, for Appellant. Robert G. Kamenec, Michael J. Barton, PLUNKETT COONEY, Bloomfield Hills, Michigan, for Appellee Tawas Area Chamber of Commerce.

Before: SUTTON, DONALD, and THAPAR, Circuit Judges.

OPINION

BERNICE BOUIE DONALD, Circuit Judge.

Plaintiff-Appellant AuSable River Trading Post, LLC (the "Trading Post") filed this action against Defendants-Appellees Dovetail Solutions, Inc. ("Dovetail") and Tawas Area Chamber of Commerce (the "Chamber") for a declaratory judgment as to whether Defendants hold a valid, enforceable trademark for the term "Perchville," and for damages under Michigan state law claims. The district court granted summary judgment in favor of the Defendants, finding that Plaintiff's trademark challenge is barred by the doctrine of res judicata and remanding the state court claims. In reaching its conclusion, the district court determined that Plaintiff was in privity with an hourly employee who had previously consented to a permanent injunction barring his use of the "Perchville" mark. Plaintiff challenges the district court's finding that it is in privity with its employee for purposes of res judicata. We REVERSE.

I.

Yearly, the city of Tawas, Michigan hosts a winter festival known as "Perchville." The Chamber is a non-profit Michigan corporation dedicated to promoting local business, and Dovetail is a for-profit corporation that oversees and manages the Chamber. In March 2002, the Chamber applied for federal trademark registration for the term "Perchville," which was then registered in May 2003. The trademark was temporarily cancelled in December 2013 for failure to renew the application, but within three weeks the Chamber reapplied for re-registration, which it received just over one year later. The Trading Post is a wholesale provider of miscellaneous products, including mugs, banners, t-shirts, and sweatshirts. It is alleged that the Trading Post had an order to sell or was actively selling merchandise depicting the term "Perchville."

On January 29, 2016, the Chamber filed suit in Michigan state court against Salvatore Agnello, an employee of the Trading Post, seeking to obtain an injunction against his unauthorized use of the term "Perchville" on t-shirts. The Chamber did not include the Trading Post in their lawsuit, as it was initially unaware that Agnello was selling the shirts on behalf of the Trading Post. The state court granted the Chamber an ex parte injunctive order. The language of the order included, "this order shall be binding upon the parties to this action, their officers, agents, servants, employees, and attorneys and on those persons in active concert or participation with them who receive actual notice of this order by personal service [or] otherwise."

A hearing was set for February 2, 2016. Agnello appeared without an attorney. He indicated that he had spoken to a partial owner of the Trading Post about the lawsuit, but repeatedly stated that he was unsure why the injunction was issued against him, rather than the Trading Post. He noted that he had only received notice the Sunday before the hearing date. The judge indicated that a hearing was unnecessary and concluded that anyone that had notice and acted in concert would be bound by the injunction. The judge then asked Agnello if he had any objection to the permanent injunction being entered, to which Agnello initially objected, stating that he did not know exactly what it meant. Specifically, Agnello indicated, "[a]gain, I'm sort of lost at this time. I would ask that the lawsuit itself be thrown out. Again, there was no harm, no foul. And the fact of the matter is, why are you—why are they coming after me? It's not my company." Agnello then consented to the permanent injunction. The judge informed Agnello that the order would be binding on anyone acting in concert with Agnello, stating "just so you understand, you and everybody in your chain is on the hook. So if there's—if there is a violation, you know, then we're talking about contempt of Court...."

Since the entry of the injunction, Agnello and the Trading Post have complied with the injunction. The Trading Post filed this suit on March 4, 2016, challenging the Chamber's trademark of "Perchville," among other claims for damages under Michigan law.¹ The parties filed cross-motions for summary judgment. Defendants argued that Plaintiff's trademark challenge was barred by the doctrine of res judicata because a final determination on the merits occurred in the state court with parties in privity and that the claims before the district court could have been brought in the original state court action. The district court granted the Chamber's motion as to the challenge to the trademark's validity on the grounds of res judicata, finding that Plaintiff's claims were barred by the prior litigation between the Chamber and Agnello. Plaintiff appeals on this issue alone.

II.

The Court reviews de novo the district court's grant of summary judgment. Niemi v. NHK Spring Co., Ltd. , 543 F.3d 294, 298 (6th Cir. 2008). We must determine whether Michigan law precludes this appeal because "federal courts are required to give the judgments of state courts the same preclusive effect as they are entitled to under the laws of the state rendering the decision." Exec. Arts Studio v. City of Grand Rapids , 391 F.3d 783, 795 (6th Cir. 2004). Thus, the Court looks to Michigan law to determine whether Plaintiff's claims are barred by res judicata.

Under Michigan law, a "second, subsequent action" is barred by res judicata when "(1) the prior action was decided on the merits, (2) both actions involve the same parties or their privies, and (3) the matter in the second case was, or could have been, resolved in the first." Adair v. State , 470 Mich. 105, 680 N.W.2d 386, 396 (2004) (citing Sewell v. Clean Cut Mgmt., Inc. , 463 Mich. 569, 621 N.W.2d 222, 225 (2001) ). Res judicata is applied broadly by Michigan courts, barring "not only claims already litigated, but also every claim arising from the same transaction that the parties, exercising reasonable diligence, could have raised but did not." Id. (citing Dart v. Dart , 460 Mich. 573, 597 N.W.2d 82 (1999) ).

The parties appear to concede that the first and third elements of res judicata are fulfilled, and this panel agrees. The Michigan state court's permanent injunction constitutes a merits decision, Ludwig v. Twp. of Van Buren , 682 F.3d 457, 460 (6th Cir. 2012), and the challenge to the validity of the "Perchville" trademark could have been raised by Agnello as a defense in the original action. Plaintiff challenges whether there is sufficient privity between the Trading Post and Agnello such that Plaintiff's claims are barred by res judicata. Privity is defined broadly under Michigan law:

To be in privity is to be so identified in interest with another party that the first litigant represents the same legal right that the later litigant is trying to assert. The outer limit of the doctrine traditionally requires both [1] a ‘substantial identity of interests' and [2] a ‘working functional relationship’ in which [3] the interests of the nonparty are presented and protected by the party in the litigation.

Bates v. Twp. of Van Buren , 459 F.3d 731, 734-35 (6th Cir. 2006) (quoting Adair , 680 N.W.2d at 396 ) (alteration in original). "[A] perfect identity of the parties is not required, only a ‘substantial identity of interests' that are adequately presented and protected by the first litigant." Adair , 680 N.W.2d at 397.

In determining that privity exists, the district court relied in part on a finding that the facts here are parallel to those considered by this Court in Bates , 459 F.3d 731. The Bates Court affirmed a district court's determination that an exotic dancer's challenge to a municipal ordinance banning nude dancing at liquor establishments was barred by res judicata. The...