Firehouse Rest. Grp. Inc. v. Scurmont LLC

• Decision Date: 17 October 2011
• Docket Number: C/A No. 4:09-cv-00618-RBH
• Court: U.S. District Court — District of South Carolina
• Parties: Firehouse Restaurant Group, Inc., a Florida corporation, Three Alarm Subs, Inc., a South Carolina corporation, and Fireside Restaurant Company, Inc., a South Carolina corporation, Plaintiffs, v. Scurmont LLC, d/b/a Calli Baker's Firehouse Bar & Grill, and Heath Scurfield, an individual, Defendants.

Firehouse Restaurant Group, Inc., a Florida corporation, Three Alarm Subs, Inc., a South Carolina corporation,and Fireside Restaurant Company, Inc., a South Carolina corporation, Plaintiffs,

v.Scurmont LLC, d/b/a Calli Baker's Firehouse Bar & Grill, and Heath Scurfield, an individual, Defendants.

C/A No. 4:09-cv-00618-RBH

UNITED STATES DISTRICT COURT DISTRICT OF SOUTH CAROLINA FLORENCE DIVISION

Dated: October 17, 2011

ORDER

This is a trademark dispute between competing restaurants. Firehouse Restaurant Group, Inc. ("FRG") is the franchiser of the FIREHOUSE SUBS® restaurant franchise (hereinafter "FRG Restaurants") that operates more than 350 locations throughout various parts of the United States, including Myrtle Beach, South Carolina. The core menu item offered by FRG Restaurants is submarine-style sandwiches. Three Alarm Subs, Inc. ("Three Alarm") and Fireside Restaurant Company, Inc. ("Fireside") are franchisees who own and operate FRG Restaurants in the Myrtle Beach area.¹ Scurmont, LLC ("Scurmont") also operates a restaurant in Myrtle Beach, South Carolina under the name CALLI BAKER'S FIREHOUSE BAR & GRILL ("CALLI BAKER'S"). CALLI BAKER'S is a full-service restaurant that offers a variety of menu items and incorporates a firehouse theme in its décor and menu.Heath Scurfield ("Scurfield") is the sole member of Scurmont and is an active-duty firefighter with Horry County Fire Rescue.²

Factual Background and Procedural History

FRG filed for and obtained more than 60 federal trademark and service mark registrations for its marks from the United States Patent and Trademark Office ("USPTO"). Of the 60 or more registered marks obtained by FRG, one mark is the term "FIREHOUSE" for use in restaurant services: Registration Number 3,173,030 ("FIREHOUSE word mark"). This mark was the subject matter of the Calli Baker's Defendants' claims, specifically their Third Cause of Action for Trademark Cancellation due to Fraud. In their claims, the Firehouse Plaintiffs asserted against the Calli Baker's Defendants, 34 of FRG's United States federal registrations (the "Registrations"), which include various forms of FIREHOUSE® and FIREHOUSE SUBS® marks used in connection with their business. The Registrations cover use of FRG's marks in connection with a broad scope of goods and services that include restaurant services, food products, sandwich platters, sandwiches, drinks, soups, salads, cookies, brownies, catering services, and restaurant franchising.

In June 2008, counsel for FRG issued a cease and desist letter to Scurfield stating that CALLI BAKER'S use of the word "Firehouse" was infringing on FRG's trademarks. In March 2009, the Calli Baker's Defendants filed an action for declaratory judgment of non-infringement and also asserted various other claims. The Firehouse Plaintiffs filed a separate lawsuit alleging trademark infringement under the Lanham Act and common law. The cases were consolidated in January 2010. On June 2, 2010, the Calli Baker's Defendants filed their [46] Second Amended Complaint. The Second Amended Complaint asserted three causes of action against the Firehouse Plaintiffs: (1) Declaratory Judgment for Non-Infringement of Trademarks, (2) South Carolina Unfair Trade Practices Act, and (3) Trademark Cancellation Due to Fraud. On July 6, 2010, the Firehouse Plaintiffs filed their [49] Answer and Affirmative and Additional Defenses to Plaintiffs' Second Amended Complaint, Counterclaim, and Demand for Attorneys' Fees and Jury Trial. Accordingly, the Firehouse Plaintiffs alleged the following claims against the Calli Baker's Defendants: (1) Federal Trademark Infringement (15 U.S.C. § 1114), (2) False Designation of Origin (15 U.S.C. § 1125(a)), (3) Common Law Trademark Infringement and Unfair Competition, and (4) Unjust Enrichment.³

In December 2010, among other motions, the Calli Baker's Defendants filed a [81] Motion for Partial Summary Judgment. In February 2011, the Firehouse Plaintiffs filed a [135] Motion for Summary Judgment or, in the alternative, Partial Summary Judgment on all counts asserted in the Second Amended Complaint and all remaining counterclaims. On June 30, 2011, the Court held a hearing on these motions. By Order dated July 8, 2011, the Court denied the Calli Baker's Defendants' [81] Motion for Partial Summary Judgment, and granted in part, denied in part, the Firehouse Plaintiffs' [135] Motion for Summary Judgment or, in the alternate, Partial Summary Judgment. Specifically, the Court granted summary judgment in favor of the Firehouse Plaintiffs on the Calli Baker's Defendants' Second Cause of Action for violation of the South Carolina Unfair Trade Practices Act. Additionally, the Firehouse Plaintiffs' claim for Unjust Enrichment was deemed withdrawn and therefore moot. Moreover, based on the nature and the remaining claims and for an orderly disposition of the case, the parties were realigned as reflected in the current caption of the case without objection.

A jury trial of this case began on August 15, 2011. After a five day trial, the jury unanimously found that the Calli Baker's Defendants had not infringed any of the 34 registered trademarks asserted by FRG. Further, the jury unanimously found that "the [Calli Baker's] Defendants have proved by clear and convincing evidence that Plaintiff [FRG] obtained the registration for the trademark FIREHOUSE, Registration Number 3,173,030, through fraud on the U.S. Patent & Trademark Office." Verdict Form, Doc. #218. On August 22, 2011, Judgment was entered in favor of the Calli Baker's Defendants; the Court ordered the cancellation of the FIREHOUSE word mark based on the jury's finding that FRG committed fraud on the USPTO and ordered that the Calli Baker's Defendants shall recover costs from the Firehouse Plaintiffs.

On August 29, 2011, the Firehouse Plaintiffs filed the instant [226] Motion for Judgment as a Matter of Law as to Defendants' Claim of Fraud . . . or in the Alternative a New Trial as to All Issues, to which the Calli Baker's Defendants have filed a response in opposition; the Firehouse Plaintiffs have also filed a reply. The Calli Baker's Defendants have filed the instant [227] Motion for Attorneys' Fees and [228] Bill of Costs,⁴ to which the Firehouse Plaintiffs have filed a response in opposition and objections, respectively. The Court will now address each of these issues in turn.⁵

Discussion

I: Firehouse Plaintiffs' Motion for Judgment as a Matter of Law or Alternatively a New Trial

In their Motion for Judgment as a Matter of Law, the Firehouse Plaintiffs move the Court for an Order entering judgment as a matter of law on the Calli Baker's Defendants' claim for cancellation dueto fraud on the USPTO as to registration of the FIREHOUSE word mark, Registration No. 3,173,030, or, in the alternative, a new trial on all claims, pursuant to Fed. R. Civ. P. 50(a) and 59. "A district judge may overturn a jury verdict on a motion [pursuant to Fed. R. Civ. P. 50] only if 'there is no legally sufficient evidentiary basis for a reasonable jury to have found for [the prevailing] party.'" Anheuser-Busch, Inc. v. L. & L. Wings, Inc., 962 F.2d 316, 318 (4th Cir. 1992) (citing Fed. R. Civ. P. 50(a)(1)). "In making this determination, the judge is not to weigh the evidence or appraise the credibility of witnesses, but must view the evidence in the light most favorable to the non-moving party and draw legitimate inferences in its favor." Id. (citation omitted). A party may join a motion for a new trial with a motion for judgment after trial, or request a new trial in the alternative.

A. Claim of Insufficient Evidence to Support Jury Verdict as to Fraud

First, the Firehouse Plaintiffs argue that the jury's verdict that FRG committed fraud in obtaining the registration of the FIREHOUSE word mark must be set aside as a matter of law because there was insufficient evidence to support the jury's verdict. "Fraud on the [USPTO] in connection with trademark registration requires that the following elements be alleged and proven: (1) The challenged statement was a false representation regarding a material fact[;] (2) The person making the representation knew that the representation was false ('scienter')[;] (3) An intent to deceive the USPTO[;] (4) Reasonable reliance on the misrepresentation[; and] (5) Damage proximately resulting from such reliance." J. Thomas McCarthy, McCarthy on Trademarks & Unfair Competition § 31:61 (West 2010). As such, a trademark is obtained fraudulently only if the applicant or registrant "knowingly makes a false, material representation with the intent to deceive the [USPTO]. In re Bose Corp., 580 F.3d 1240, 1245 (Fed. Cir. 2009); see Brittingham v. Jenkins, 914 F.2d 447, 453-54 (4th Cir. 1990) ("A number of courts have held that procurement of a trademark registration through the use of false or misleading statements does not constitute fraud within the meaning of 15 U.S.C. § 1115(b)(1) unless the statements were both material to the decision to grantthe registration and made with a deliberate intent to defraud."). Specifically, the Firehouse Plaintiffs argue that there is no evidence in the record, let alone clear and convincing evidence, to support two critical elements of the Calli Baker's Defendant's cancellation due to fraud claim: (1)intent to deceive and (2) materiality of the misrepresentation.

1. Intent to Deceive

According to the Firehouse Plaintiffs, the Calli Baker's Defendants "presented no evidence at trial to establish, under any standard, that FRG knowingly withheld information from the USPTO with a specific intent to deceive. [Thus,] Defendants, as a matter of law, could not and did not meet their burden." Doc. #226-1, p.6. However, the Calli Baker's Defendants argue that there was sufficient evidence in the record to support the conclusion that FRG intended to deceive the USPTO, and the Court agrees with the Calli Baker's Defendants.

In seeking cancellation of the FIREHOUSE word mark due to fraud...