Lone Star Steakhouse & Saloon, Inc. v. Alpha of Virginia, Inc., 93-2076

• Citation: 43 F.3d 922
• Decision Date: 11 January 1995
• Docket Number: No. 93-2076,93-2076
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)
• Parties: , 33 U.S.P.Q.2d 1481 LONE STAR STEAKHOUSE & SALOON, INCORPORATED; Max Shayne, Incorporated, Plaintiffs-Appellees, v. ALPHA OF VIRGINIA, INCORPORATED, d/b/a Lone Star Grill, Defendant-Appellant.

Page 922

43 F.3d 922

31 Fed.R.Serv.3d 1082, 33 U.S.P.Q.2d 1481

LONE STAR STEAKHOUSE & SALOON, INCORPORATED; Max Shayne Incorporated, Plaintiffs-Appellees, v. ALPHA OF VIRGINIA, INCORPORATED, d/b/a Lone Star Grill Defendant-Appellant.

No. 93-2076.

United States Court of Appeals Fourth Circuit.

Argued May 13, 1994.

Decided Jan. 11, 1995.

ARGUED: Burton J. Fishman, Tucker, Flyer & Lewis, Washington, DC, for appellant. Jeffery Alan Handelman, Willian, Brinks, Hofer, Gilson & Lione, Chicago, IL, for appellees. ON BRIEF: Robert W. Steele, Cheryl M. Browning, McCarthy, Steele & Burke, P.C., Washington, DC, for appellant. Jerome Gilson, Willian, Brinks, Hofer, Gilson & Lione, Chicago, IL, Sandra A. Sellers, Robert W. Zelnick, Willian, Brinks, Hofer, Gilson & Lione, Washington, DC, for appellees.

Before RUSSELL and HAMILTON, Circuit Judges, and SPROUSE, Senior Circuit Judge.

Affirmed in part and reversed and remanded in part by published opinion. Judge RUSSELL wrote the opinion, in which Judge HAMILTON and Senior Judge SPROUSE joined.

OPINION

DONALD RUSSELL, Circuit Judge:

Plaintiffs Lone Star Steakhouse & Saloon, Inc., and Max Shayne, Inc. (hereinafter "Lone Star Steakhouse," "Max Shayne," or "Plaintiffs"), filed this action charging defendant Alpha of Virginia, Inc. (hereinafter "Alpha" or "Defendant"), with trademark infringement under the Lanham Act, 15 U.S.C. Secs. 1051-1127, and unfair competition under pendent state law claims. The district court granted Plaintiffs summary judgment on the question of liability and issued a permanent injunction principally enjoining Alpha from using the mark "Lone Star Grill" or any other name or mark containing the words "Lone Star" in association with restaurant services.

On Alpha's appeal, we affirm the district court's granting of summary judgment and issuance of the permanent injunction in favor of Plaintiff Lone Star Steakhouse and reverse and remand the granting of summary judgment and issuance of the permanent injunction in favor of Plaintiff Max Shayne.

I.

Plaintiff Lone Star Steakhouse is a Delaware corporation with its principal place of business in Wichita, Kansas. At the time of the district court proceedings, the company was operating over 30 "Lone Star Steakhouse & Saloon" restaurants in the United States, with four restaurants in Virginia. Lone Star Steakhouse first opened a restaurant in the Washington, D.C., area in September 1992, when the company opened a location in Centreville, Virginia. The company subsequently opened another location in Herndon, Virginia, also in the Washington, D.C., area. In addition to its food service operations, Lone Star Steakhouse sells various clothing items and promotional accessories bearing the restaurant logo. Plaintiff Max Shayne is a New York corporation with its principal place of business in New York, New York. At the time of the district court proceedings, Max Shayne was operating the "Lone Star Cafe Roadhouse" restaurant in New York, New York. Max Shayne also sells various clothing items bearing its restaurant logo.

Lone Star Steakhouse owns the following United States trademark and service mark registrations:

1) No. 1,155,907, issued on May 26, 1981, for the mark "LONE STAR CAFE," which registration is now incontestable under 15 U.S.C. Sec. 1065. This registration is based on a date of first use of February 2, 1977, and covers restaurant services and nightclub services featuring musical entertainment. The registration also explicitly disclaims the word "Cafe" apart from the complete trademark. ¹

2) No. 1,318,227, issued on February 5, 1985, for the mark "LONE STAR CAFE," which registration is now incontestable under 15 U.S.C. Sec. 1065. This registration is based on a date of first use of February 1977 and covers various clothing items and accessories.

3) No. 1,731,247, issued on November 10, 1992, for the mark "LONE STAR STEAKHOUSE & SALOON." This registration is based on dates of first use of October 1989, and February 2, 1977, in another form. The trademark covers clothing, such as men's and women's sport shirts, sweatshirts, polo shirts, and caps. ²

Registration Numbers 1,155,907 and 1,318,227 were originally granted to Max Shayne but were assigned to Texas Lone Star, Ltd., in January 1992. Texas Lone Star, Ltd., was then merged into Lone Star Steakhouse & Saloon, Inc. Max Shayne continues to use the mark under a license from Lone Star Steakhouse, with the use inuring to the benefit of Lone Star Steakhouse. Registration Number 1,731,247 was also originally issued to Texas Lone Star, Ltd., before Texas Lone Star, Ltd., was merged into Lone Star Steakhouse. Lone Star Steakhouse & Saloon is therefore the current owner of each of the above registrations (hereinafter collectively referred to as the "Lone Star" marks).

Lone Star Steakhouse has enjoyed tremendous success over the last few years, as its gross sales have jumped from $4,360,000 in 1990 to $15,980,000 in the first quarter of 1993. Since 1990, Lone Star Steakhouse has spent over $1,200,000 engaging in significant advertising and promotional activities in an effort to increase recognition of its "Lone Star" marks. These activities include newspaper advertising, magazine advertising, couponing, radio advertising, point of purchase advertising, and direct mail. The company's success has attracted noteworthy media coverage in national and local publications.

In 1991 Alpha began operating a restaurant under the name "Lone Star Grill" in Arlington, Virginia. After Lone Star Steakhouse filed this action, Alpha opened another restaurant under the same name in Baltimore, Maryland. Alpha advertises its restaurant in newspapers and magazines and conducts an extensive couponing program in the Washington, D.C., area through which customers obtain meal discounts. Alpha's coupons prominently feature the words "Lone Star," often in conjunction with a five-point star similar in appearance to the five point star used by Lone Star Steakhouse.

Plaintiffs filed this action on March 12, 1993, and alleged four specific causes of action: (1) trademark infringement under Section 32(1) of the Lanham Act, 15 U.S.C. Sec. 1114(1); (2) federal unfair competition under Section 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a); (3) common law unfair competition; and (4) unfair competition under Virginia state law. Alpha filed an answer on April 5, 1993, listing as defenses, among other things, estoppel, waiver, and abandonment. On May 3, 1993, the district court entered a scheduling order requiring all discovery to be completed by July 9, 1993, and requiring summary judgment motions to be filed by June 24, 1993. The court further set the pretrial conference for July 15, 1993.

As reflected in the affidavits, declarations, and deposition testimony before the district court, Alpha's use of the mark "Lone Star Grill" resulted in actual confusion among consumers. For instance, numerous customers visiting the Lone Star Steakhouse restaurants presented coupons from Alpha's Lone Star Grill in Arlington, mistakenly believing that the restaurants were connected. Similarly, people telephoned the Lone Star Steakhouse restaurants in Centreville and Herndon to inquire about the Lone Star Grill in Arlington or to ask about whether the Centreville and Herndon restaurants were accepting the coupons from the Arlington restaurant. Alpha's bartenders and floor managers also testified that they had encountered instances of actual confusion among customers.

Witnesses further testified in depositions that the actual confusion frustrated customers of Lone Star Steakhouse and disrupted its business. On several occasions, customers became highly annoyed upon learning that they would not receive a discount on their meal, and some customers walked out before ordering. To alleviate the problem, employees of Lone Star Steakhouse have given customers free drinks, a reduced bill, or coupons for use at a future meal.

On June 24, 1993, Plaintiffs moved for summary judgment, and the following day, Alpha moved to amend its complaint and add counterclaims. Alpha's proposed amendment stated that the alleged mark was not entitled to federal protection, and its counterclaim asserted fraud based upon third parties' alleged use of the term "Lone Star" in connection with businesses in numerous geographical areas. On June 28, Alpha moved for partial summary judgment; and on July 8, it moved to strike Lone Star's pleadings or, in the alternative, to compel discovery ordering Plaintiffs to present for deposition two witnesses who had produced affidavits supporting Plaintiffs' motion for summary judgment.

At the hearing on Lone Star's motion for summary judgment on July 9, 1993, the district court denied Alpha's motion for leave to amend. The court declined to "inject the defense of fraud" on the date of the close of the discovery period because it concluded that the facts underlying Alpha's allegations were known "as early as March." Joint Appendix ("JA") at 976. On the same date, the district court also granted Plaintiffs summary judgment on the issue of liability, despite the pendency of Alpha's motion to compel discovery. Specifically, the district court held that Alpha's actions constituted trademark infringement under Sec. 32(1) of the Lanham Act, 15 U.S.C. Sec. 1114(1); federal unfair competition under Sec. 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a); and unfair competition in violation of Virginia common law. ³ Alpha moved for reconsideration of the rulings, and the district court denied the motion. One week later, the court struck all of Alpha's defenses. The court entered a permanent injunction on July 23 enjoining Alpha from using any mark containing the words "Lone Star" and from performing any other action likely to cause consumers to associate Alpha's goods and services with those of either Plaintiff. ⁴ Thereafter, the court refused to consider any of the evidence developed by Alpha's counsel...