Beach Mart, Inc. v. L&L Wings, Inc.

• Decision Date: 26 March 2021
• Docket Number: NO. 2:11-CV-44-FL,2:11-CV-44-FL
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: BEACH MART, INC., Plaintiff, v. L&L WINGS, INC., Defendant.

BEACH MART, INC., Plaintiff, v. L&L WINGS, INC., Defendant.

NO. 2:11-CV-44-FL

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NORTH CAROLINA NORTHERN DIVISION

March 26, 2021

ORDER

This matter came before the court March 16, 2021, for hearing on defendant's post-trial motion to require plaintiff to elect remedies (DE 651), and its motion for declaratory judgment (DE 658), together with plaintiff's motion to seal the court's October 23, 2020, order (DE 673). Arguments concerning plaintiff's proposed judgment (DE 657), and defendant's objections thereto, also were heard. For the following reasons, the court grants in part and denies in part defendant's motion to require plaintiff to elect remedies. The court memorializes herein its conclusion that defendant's conduct constitutes unfair and deceptive trade practices. Defendant's motion for declaratory judgment is denied. Finally, the court directs the clerk to enter judgment in the form herein prescribed.¹

BACKGROUND

This case involves a dispute between two beachwear retailers—formerly aligned in business but now fierce competitors—regarding the trademark "WINGS." The court recounts procedure pertinent to the issues now under consideration. Following reassignment of this matter to the undersigned,² jury trial commenced November 2, 2020, on plaintiff's claims for fraudulent inducement to contract; negligent misrepresentation; cancellation of trademark registration under 15 U.S.C. § 1064; false or fraudulent trademark registration under 15 U.S.C. § 1120; and unfair and deceptive trade practices, in violation of North Carolina General Statute § 75-1.1; as well as its counterclaim for trademark cancellation due to naked licensing. The jury returned a verdict in favor of plaintiff on all claims and counterclaim November 16, 2020, awarding damages in the same amount of $4,184,135.00 on each of plaintiff's claims.

Following return of the jury's verdict, plaintiff requested the opportunity to file a proposed judgment for the court's consideration given anticipated complexities. Pursuant to an agreed upon schedule, plaintiff filed its proposed judgment, to which defendant objected. Defendant also lodged a broad-based motion to require plaintiff to elect its remedies, and made separate motion seeking declarations that plaintiff lacks any rights in the WINGS mark, on various grounds, and that defendant owns the WINGS mark. Supplemental briefing filed several days after hearing March 16, 2021, has been considered as well.

COURT'S DISCUSSION

A. Defendant's Motion to Elect Remedies (DE 651)

"The common law doctrine of election of remedies applies where two possible remedies are available for the same legal injury." Homeland Training Ctr., LLC v. Summit Point Auto. Rsch Ctr., 594 F.3d 285, 292-93 (4th Cir. 2010) (citation omitted). "The basic purpose of the doctrine is to prevent a plaintiff from obtaining a windfall recovery, either by recovering two forms of relief that are premised on legal or factual theories that contradict one another or by recovering overlapping remedies for the same legal injury. Id. (citation omitted).

As a preliminary matter, the election of remedies is an affirmative defense that must be pleaded before it can be asserted. See Baker v. Edwards, 176 N.C. 229, 233-34, (1918); see also Hertz v. Mills, 10 F. Supp. 979, 981 (D. Md. 1935) ("[T]he defense of election of remedies must be pleaded in order to be available."). Although defendant did not plead the election of remedies defense in its answer, it raised the defense in the pretrial order by listing "whether plaintiff's remedy is [ ] factually consistent with its other Counts" as a legal issue under each of plaintiff's claims." (See Pretrial Order (DE 610) 13-17). Accordingly, defendant has preserved the defense. See Rockwell Int'l Corp. v. United States, 549 U.S. 457, 474 (2007) ("[T]he inclusion of a claim in the pretrial order is deemed to amend any previous pleadings which did not include that claim.").

Having found that defendant preserved this defense, the court turns to defendant's arguments in the main. In so doing, it must be noted that plaintiff's proposed form of judgment, (DE 657), filed after defendant moved for election of remedies, renders many of defendant's arguments moot. Specifically, defendant's argument that plaintiff must elect a particular cause of action to recover damages is mooted by plaintiff's election to recover damages on its unfair and deceptive trade practices claim. Moreover, defendant's argument that cancellation of trademarkregistrations due to naked licensing is inconsistent with plaintiff's other remedies is mooted by the fact that plaintiff is no longer pursuing trademark cancellation on the basis of naked licensing.

With regard to issues remaining for decision, defendant argues, among other things, that plaintiff cannot recover monetary damages under its unfair and deceptive trade practices claim and also obtain cancellation of the WINGS registrations based on fraud because those remedies amount to a double recovery. Because the jury awarded the same amount of damages on each of plaintiff's claims, defendant urges that plaintiff would have suffered the same damage regardless of whether defendant fraudulently obtained the WINGS registrations. It contends that cancellation of a trademark registration is inappropriate if the plaintiff would have suffered the same damages irrespective of the alleged fraudulently procured trademark registration, exclusively relying on an unpublished district court case arising from the District of New Jersey, Fenwick v. Dukhman, No. CIV.A. 13-4359 CCC, 2015 WL 1307382, at *8 (D.N.J. Mar. 20, 2015).

Fenwick, however, is inapposite. It did not concern a post-trial election of remedies defense but rather a motion to dismiss for lack of standing at the pleadings stage. There, the court dismissed plaintiff's trademark cancellation claim because plaintiff's damages "would exist wholly independent of Defendants' allegedly false registration", and therefore, plaintiff did not have standing to assert the trademark cancellation claim. Fenwick, 2015 WL 1307382, *7.

Even assuming that defendant's contention is correct, and plaintiff failed to show the independent harm necessary to assert a claim for trademark cancellation, the appropriate course of action would not be to require plaintiff to elect its remedies, and possibly elect to obtain trademark cancellation. Rather, the appropriate course of action would be to bar plaintiff's recovery on its trademark cancellation claim. See e.g., Campbell v. Bos. Sci. Corp., 882 F.3d 70, 79 (4th Cir. 2018) (citing Cavazos v. Smith, 565 U.S. 1, 2 (2011)) ("A reviewing court may set asidethe jury's verdict on the ground of insufficient evidence only if no rational trier of fact could have agreed with the jury.). Where a motion to elect remedies is not the proper vehicle for this argument, defendant's motion is denied in this part, without prejudice to defendant reasserting this argument in the context of any post-judgment motion.

Defendant also argues that plaintiff cannot obtain cancellation of defendant's WINGS registrations and a declaratory judgment that defendant's WINGS registrations are held in a constructive trust for plaintiff because these remedies are inconsistent. To avoid this inconsistency, plaintiff now seeks the court to "rectify the register", pursuant to 15 U.S.C. § 1119, instead of cancelling defendant's WINGS registrations. Plaintiff did not, however, request that the court rectify the register in its amended complaint or include this relief in the pretrial order; rather, plaintiff consistently sought the remedy of trademark cancellation. (See Am. Compl. (DE 184) ¶ 73; Pretrial Order (DE 610) ¶ II(3)(m)). Plaintiff even requested a jury instruction on trademark cancellation, (see Prop. Jury Instr. (DE 604) at 50-51), and the court so instructed the jury. (See Jury Instr. (DE 643) at 28).

Plaintiff cannot circumvent defendant's preserved election of remedies defense by requesting relief that it neither pleaded nor included in the pretrial order. See Rockwell Int'l, 549 U.S. at 474; see also Elvis Presley Enters., Inc. v. Capece, 141 F.3d 188, 206 (5th Cir. 1998) ("In the Joint Pre-Trial Order signed by the parties' counsel, [plaintiff's] demand for an accounting of profits is not mentioned . . . the Lanham Act . . . provides for the remedy of an accounting of profits and lists it separately from damages. Therefore, [plaintiff's] listing of injunctive relief, damages, and attorneys' fees under the Lanham Act in the Joint Pre-Trial Order does not act to preserve its claim for an accounting of profits, and the issue therefore was waived.").

Plaintiff also argues a constructive trust remedy is not inconsistent with its trademark cancellation remedy because plaintiff "does not seek a forward looking 'trust' to govern the conduct of [defendant's] fraudulently-obtained trademark registrations in the future"; instead plaintiff seeks a "declaration that all rights to WINGS superficially held in the past in the name of [defendant] are and have been subject to a constructive trust." (Mem. (DE 656) at 7-8).

However, to the extent a constructive trust is a retrospective remedy, it would amount to a double recovery, since plaintiff is receiving damages for defendants' past conduct related to the parties' 2005 agreement and defendant's 2006 and 2011 trademark applications. See Sec. Nat. Bank of Greensboro v. Educators Mut. Life Ins. Co., 265 N.C. 86, 95 (1965) (emphasis added) ("A constructive trust does not arise where there is no fiduciary relationship and there is an adequate remedy at law."); see also Berman v. Johnson, 315 F. App'x 461, 463 (4th Cir. 2009) ("[T]he jury, in finding a breach of contract and awarding damages, compensated [plaintiff] for all losses flowing from the breach. A declaration granting [plaintiff] the promotion and distribution rights, which had already been taken into...