State of Idaho Potato v. G & T Terminal Pack.

• Decision Date: 07 October 2005
• Docket Number: No. 04-35229.,No. 04-35238.,04-35229.,04-35238.
• Parties: The STATE OF IDAHO POTATO COMMISSION, Plaintiff-Appellee, v. G & T TERMINAL PACKAGING, INC., Defendant-Appellant. The State of Idaho Potato Commission, Plaintiff-Appellant, v. G & T Terminal Packaging, Inc., Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

425 F.3d 708

The STATE OF IDAHO POTATO COMMISSION, Plaintiff-Appellee, v. G & T TERMINAL PACKAGING, INC., Defendant-Appellant.

The State of Idaho Potato Commission, Plaintiff-Appellant, v. G & T Terminal Packaging, Inc., Defendant-Appellee.

No. 04-35229.

No. 04-35238.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted July 13, 2005.

Filed October 7, 2005.

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Michael S. Gilmore, Deputy Attorney General (Idaho), Boise, ID, for the plaintiff-appellant and cross-appellee.

Richard C. Boardman, Perkins Coie LLP, Boise, ID, for the defendant-appellee and cross-appellant.

Appeals from the United States District Court for the District of Idaho; David O. Carter, District Judge, Presiding. D.C. No. 98-0088 DOC.

Before TASHIMA, PAEZ, and CALLAHAN, Circuit Judges.

TASHIMA, Circuit Judge.

In its appeal, the Idaho Potato Commission ("IPC") challenges the district court's ruling that a no-challenge provision in its certification mark licensing agreement with G & T Terminal Packaging ("G & T") is unenforceable. G & T appeals several damages awards to IPC for breach of contract and violation of the Lanham Act, as well as an award of attorney's fees and costs. We have jurisdiction over these appeals pursuant to 28 U.S.C. § 1291.

Agreeing with the Second Circuit in Idaho Potato Commission v. M & M Produce Farm & Sales, 335 F.3d 130(2d Cir.2003) (M & M III), cert. denied, 541 U.S. 1027, 124 S.Ct. 2066, 158 L.Ed.2d 642 (2004), we hold that the no-challenge provision in IPC's licensing agreement is unenforceable. We also affirm the district court's $1 and $100,000 damages awards to IPC. We reverse, however, the $50,000 contract damages award to IPC, and vacate the award of attorney's fees and costs to IPC and remand those matters to the district court for reconsideration in light of our limited reversal.

FACTS AND PROCEDURAL BACKGROUND

IPC is a statutorily-created agency of the State of Idaho formed for the purpose of promoting Idaho potatoes. See Hapco Farms, Inc. v. Idaho Potato Comm'n, 238 F.3d 468 (2d Cir.2001). IPC finances its promotional work in part by licensing several certification marks for Idaho potatoes including "Idaho" and "Grown in Idaho." G & T is a wholesale distributor of potatoes. Beginning in 1968, G & T entered into a series of licenses with IPC to use IPC's certification marks. The most recent of these licenses expired on September 1, 1998. This license contained provisions in which G & T recognized the validity of IPC's marks and agreed not to challenge IPC's rights in the marks while the license was in effect or after its expiration.

In February 1998, IPC filed this action in the United States District Court for the District of Idaho against G & T. IPC alleged that G & T had breached its licensing agreement and infringed IPC's certification marks by, inter alia, failing to keep adequate records and using unlicensed potato repackers. In July 1998, G & T filed a complaint in intervention in three consolidated cases involving IPC and potato wholesalers in the United States District Court for the Southern District of New York. G & T's complaint in intervention alleged that IPC's certification marks were unenforceable and subject to cancellation under the Lanham Act. The New York district court stayed further proceedings in IPC's Idaho case against G & T pending resolution of the issues raised in G & T's complaint. The New York court eventually dismissed G & T's claims, concluding that the Eleventh Amendment shielded IPC from suit.¹ M & M II, 95 F.Supp.2d at 156.

After dismissal of G & T's New York action, this Idaho case was reactivated in March 2001. IPC added a breach of contract claim based on G & T's New York complaint, alleging that G & T had violated the no-challenge clause in its license and seeking to recover IPC's costs in defending the suit. The Idaho district court granted partial summary judgment for IPC, concluding that G & T had breached the licensing agreement as a matter of law. It denied summary judgment on the issue of damages, however, determining that an issue of fact remained as to the amount IPC spent defending against G & T's claims. In April 2003, the remaining issues in the case proceeded to trial.

On July 11, 2003, after trial but before the district court rendered judgment, the Second Circuit issued a decision holding the no-challenge provision of IPC's license agreement unenforceable. M & M III, 335 F.3d at 139. Based on M & M III, G & T moved for reconsideration of the district court's ruling that G & T's New York complaint breached the no-challenge provision of its licensing agreement. The district court granted G & T's motion, and elected to follow M & M III. It thus vacated its previous grant of summary judgment to IPC on that issue.

In October 2003, the district court awarded IPC: (1) $1 as a result of G & T's violation of an IPC rule requiring that Idaho potato packaging identify the variety of potatoes contained therein; (2) $50,000 as a result of G & T's failure to preserve all of its records of sales and purchases of Idaho potatoes in violation of its licensing agreement; (3) statutory damages of $100,000 for G & T's violation of the Lanham Act by purchasing bags with IPC's certification mark on them and using them to package potatoes after G & T's license to use the mark had expired; and (4) IPC's costs. IPC later requested an award of attorney's fees pursuant to the license agreement and G & T made a motion to amend the court's findings and conclusions and to alter or amend the judgment. The court denied G & T's motion and awarded IPC 40 percent of its requested attorney's fees.

ANALYSIS

IPC challenges the district court's ruling that the no-challenge provision in its licensing agreement is unenforceable. G & T contests the propriety of each of the court's damages awards and its award of IPC's attorney's fees and costs.

I. IPC's No-Challenge Provision

IPC asks us to disagree with M & M III and hold the no-challenge provision in its licensing agreement enforceable. G & T argues that issue preclusion bars IPC from litigating the issue in this court and that, in the event we reach the merits of the dispute, we should adopt the Second Circuit's approach.

A. Issue Preclusion

G & T relies on the doctrine of issue preclusion, or collateral estoppel, to argue that M & M III bars IPC from relitigating the issue of whether the no-challenge provision is enforceable.²

Issue preclusion can apply only if: (1) M & M III gave IPC a full and fair opportunity to litigate the issue; (2) the issue was actually litigated in M & M III; (3) IPC lost on the issue as a result of a final judgment in M & M III; and (4) IPC was a party or in privity with a party in M & M III. United States Internal Revenue Serv. v. Palmer (In re Palmer), 207 F.3d 566, 568 (9th Cir.2000). The parties appear to agree that these elements are met.

Nonetheless, IPC argues that because it is a state agency it is not subject to issue preclusion on issues of law. In United States v. Mendoza, 464 U.S. 154, 162, 104 S.Ct. 568, 78 L.Ed.2d 379 (1984), the Supreme Court held that nonmutual offensive collateral estoppel³ did not apply against the federal government so as to preclude relitigation of the issues in that case. Despite the Supreme Court's previous approval of the use of nonmutual offensive collateral estoppel by private litigants, Mendoza recognized that the government differs from private litigants in the geographic breadth of its litigation and in the nature of the issues it pursues. Id. at 159-60, 104 S.Ct. 568("Government litigation frequently involves legal questions of substantial public importance; indeed, because the proscriptions of the United States Constitution are so generally directed at governmental action, many constitutional questions can arise only in the context of litigation to which the government is a party."). It noted that:

A rule allowing nonmutual collateral estoppel against the government in such cases would substantially thwart the development of important questions of law by freezing the first final decision rendered on a particular legal issue. Allowing only one final adjudication would deprive this Court of the benefit it receives from permitting several courts of appeals to explore a difficult question before this Court grants certiorari. Indeed, if nonmutual estoppel were routinely applied against the government, this Court would have to revise its practice of waiting for a conflict to develop before granting the government's petitions for certiorari.

Id. at 160, 104 S.Ct. 568 (citations omitted).

Mendoza's rationale applies with equal force to G & T's attempt to assert nonmutual defensive collateral estoppel against IPC (a state agency). See Coeur D'Alene Tribe of Idaho v. Hammond, 384 F.3d 674, 689-90 (9th Cir.2004) (relying on Mendoza's reasoning to conclude, under Idaho state law preclusion principles, that nonmutual offensive collateral estoppel did not preclude a state agency from relitigating a legal issue that had previously been determined against the agency by a state court); Hercules Carriers, Inc. v. Claimant State of Fla., 768 F.2d 1558, 1578-79 (11th Cir.1985) (applying Mendoza to hold that nonmutual defensive collateral estoppel did not operate against a state government). We therefore hold that issue preclusion does not prevent IPC from challenging the district court's determination that the no-challenge clause of IPC's licensing agreement is unenforceable. Because G & T cannot collaterally estop IPC from relitigating the issue, we go on to assess the validity of IPC's no-challenge provision.

B. M & M III

In M & M III, the Second Circuit held that M & M Produce Farm & Sales ("M & M") could challenge the validity of IPC's certification mark for Idaho potatoes in spite of a no-challenge provision in a licensing agreement between the two. 335 F.3d at 139. M & M's former...