Martinizing Int'l, LLC v. BC Cleaners, LLC
| Decision Date | 28 April 2017 |
| Docket Number | No. 16-1069,16-1069 |
| Citation | 855 F.3d 847 |
| Parties | MARTINIZING INTERNATIONAL, LLC, Plaintiff–Appellant v. BC CLEANERS, LLC, et al., Defendants–Appellees |
| Court | U.S. Court of Appeals — Eighth Circuit |
Counsel who represented the appellant was Elizabeth L. Sokol of Birmingham, MI.
The appellee did not file a brief.
Before LOKEN, MURPHY, and KELLY, Circuit Judges.
Martinizing International, LLC commenced this action against BC Cleaners, LLC and two of its member-managers, Brent Lundell and Timothy Carver, asserting claims of Lanham Act trademark infringement, see 15 U.S.C. § 1125(a), and violation of the Minnesota Deceptive Trade Practices Act (MDTPA), see Minn. Stat. § 325D.44. Defendants failed to appear. The district court granted a default judgment against BC Cleaners, concluding that it willfully infringed Martinizing's trademarks and engaged in a deceptive trade practice. Martinizing Int'l, LLC v. BC C leaners, LLC , 2015 WL 8483280 (D. Minn. Dec. 9, 2015). The court denied Martinizing a default judgment against Lundell and Carver, concluding they were not personally liable for trademark infringement or a deceptive trade practice. Id. at *3. Martinizing appeals, arguing the court erred when it denied a default judgment against Lundell and Carver and reduced the award of attorneys' fees for willful infringement. Defendants have not appeared in this Court. We affirm the grant of a permanent injunction enjoining BC Cleaners from using Martinizing's trademarks. We conclude Martinizing failed to prove willful infringement by BC Cleaners and therefore reverse the award of damages, an accounting for profits, and attorneys' fees. We affirm the denial of a default judgment against defendants Lundell and Carver.
Martinizing's amended complaint alleged that, in June 2011, it entered into two franchise agreements with Markus Kanning, dba KM Cleaners, Inc., authorizing use of Martinizing's trademarks in operating dry-cleaning stores in Eagan and Inver Grove Heights, Minnesota. The agreements prohibited Kanning as franchisee from selling the franchise locations or assigning the franchise agreements without Martinizing's prior written consent. Martinizing learned that KM Cleaners and BC Cleaners entered into an Asset Purchase Agreement dated August 22, 2014, without Martinizing's consent, and that defendants continued to operate the franchised stores, using and displaying Martinizing's trademarks without its approval. On January 15, 2015, counsel for Martinizing sent a letter to BC Cleaners and Lundell, demanding that they sign a franchise agreement or refrain from using the trademarks, but defendants continued to use Martinizing's marks and trade dress. Martinizing attached to the complaint copies of a document entitled "Asset Purchase Agreement of Martinizing Dry Cleaners" between KM Cleaners, Inc. and BC Cleaners, LLC, and the January 2015 "Cease and Desist" letter. The complaint generally alleged that Lundell and Carver were member-managers who "aided, abetted, directed and controlled BC with respect to the wrongful conduct."1
When a default judgment is entered, facts alleged in the complaint are taken as true, but "it remains for the [district] court to consider whether the unchallenged facts constitute a legitimate cause of action, since a party in default does not admit mere conclusions of law." Marshall v. Baggett , 616 F.3d 849, 852 (8th Cir. 2010) (quotation omitted). Thus, after entry of default, Martinizing had to prove it was entitled to the relief sought in its complaint against each defendant—treble damages under the Lanham Act, an injunction enjoining use of its trademarks and unfair competition, prejudgment interest, costs, and attorneys' fees. Whether Martinizing met that burden is an issue of law we review de novo . Marshall , 616 F.3d at 853.
In support of its motion for entry of default, Martinizing submitted two email responses from defendants, neither of which was filed with the court. In a March 1, 2015 email, Lundell stated: In a June 23, 2015 email, Lundell wrote:
As an additional follow-up, BC Cleaners, LLC was never a franchisee of Martinizing.... BC Cleaners was operating the units for KM Cleaners, LLC along with an agreement to purchase the units from KM Cleaners [that] was never fully executed.
In support of its motion for default judgment, Martinizing submitted with an attorney affidavit copies of its franchise agreements with Kanning, the purported Asset Purchase Agreement and "Closing Documents" between KM Cleaners and BC Cleaners, the January 2015 Cease and Desist letter, photos of the dry-cleaning stores showing use of the Martinizing trademarks, and documents supporting its claim for an award of $18,592.92 in costs and attorneys' fees. The attorney claimed personal knowledge of facts supporting the claim for costs and attorneys' fees, but no first-hand knowledge of facts relating to the underlying franchise transactions.
In our review of this abbreviated record, we found the most notable aspect to be that the allegations of trademark infringement and deceptive trade practice by defendants in the amended complaint are directly contradicted by the terms of the Asset Purchase Agreement that was made part of the amended complaint. As relevant here, the Agreement provided:
Exhibit D is an interest-free $10,000 Promissory Note dated August 22, 2014, personally guaranteed by Lundell and Carver, in which BC Cleaners promised to pay KM Cleaners $5,000 on October 15, 2014, and $5,000 on November 30, 2014.
From the plain meaning of these Asset Purchase Agreement provisions, together with the other facts of record, we conclude the following:
First, the Asset Purchase Agreement contractually obligated Kanning and KM Cleaners to assign the franchise agreements to BC Cleaners. The Agreement deferred Kanning's assignment of his franchisee interest in the dry-cleaning stores until November 30, 2014, after defendants finished paying the Exhibit D Promissory Note. In the interim period, the Agreement obligated KM Cleaners to continue paying the annual franchise fee to Martinizing, with BC Cleaners agreeing to reimburse KM Cleaners on May 31, 2015. KM Cleaners' promise to assign valid franchise agreements necessarily included obtaining Martinizing's approval.2
Second, until the franchised stores were transferred to BC Cleaners in accordance with the Asset Purchase Agreement, Kanning and KM Cleaners remained Martinizing's authorized franchisee. Martinizing did not allege that it terminated the franchise agreements. See Minn. Stat. § 80C.14, subd. 3. To prevail on its claim of trademark infringement, Martinizing must prove that defendants' conduct was "likely to cause confusion" as to the origin or approval of products or services. See, e.g. , Everest Capital Ltd. v. Everest Funds Mgmt., L.L.C. , 393 F.3d 755, 759 (8th Cir. 2005), citing 15 U.S.C. § 1125(a)(1)(A). Here, continued...
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