United Phosphorus Ltd v. Midland Fumigant Inc.

• Decision Date: 06 March 2000
• Docket Number: 98-3279,99-3099,Nos. 98-3222,98-3233,PHOS-FUME,s. 98-3222
• Citation: 205 F.3d 1219,53 USPQ2d 1929
• Parties: (10th Cir. 2000) UNITED PHOSPHORUS, LTD., a corporation organized under the laws of India; INVENTA CORPORATION, a New Jersey Corporation, Plaintiffs-Appellees and Cross-Appellants, v. MIDLAND FUMIGANT, INC.;DONALD F. FOX, Defendants-Appellants and Cross-Appellees, CHEMICAL CO., formerly a Kansas corporation; KAW VALLEY, INC., a Kansas corporation, Defendants-Appellants
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1219

205 F.3d 1219 (10th Cir. 2000)

UNITED PHOSPHORUS, LTD., a corporation organized under the laws of India; INVENTA CORPORATION, a New Jersey Corporation, Plaintiffs-Appellees and Cross-Appellants, v. MIDLAND FUMIGANT, INC.;DONALD F. FOX, Defendants-Appellants and Cross-Appellees, PHOS-FUME CHEMICAL CO., formerly a Kansas corporation; KAW VALLEY, INC., a Kansas corporation, Defendants-Appellants.

Nos. 98-3222, 98-3233, 98-3279, 99-3099

UNITED STATES COURT OF APPEALS TENTH CIRCUIT

March 6, 2000

Appeal from the United States District Court for the District of Kansas (D.C. No . 91-2133-GTV) [Copyrighted Material Omitted]

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Floyd R. Finch, Jr. (Shelley A. Runion with him on the briefs) of Blackwell Sanders Peper Martin LLP, Kansas City, Missouri, for Plaintiffs-Appellees and Cross-Appellants.

John C. Tillotson (D.A.N. Chase of Chase & Yakimo, Overland Park, Kansas with him on the briefs) of Murray, Tillotson, Nelson & Wiley, Chartered, Leavenworth, Kansas, for Defendants-Appellants and Cross-Appellees.

Before BALDOCK, BRORBY and LUCERO, Circuit Judges.

BRORBY, Circuit Judge.

United Phosphorus (United) brought this action against Midland Fumigant (Midland), and its president, Donald Fox, claiming violation of the Lanham Act, fraudulent trademark registration, trademark infringement, unfair competition, violation of the Racketeer Influenced and Corrupt Organization Act (RICO), and common law fraud, all in conjunction with Midland's use of the "Quick-Phos" trademark for the fumigant aluminum phosphide. Following trial, a jury found in favor of United on every claim save the RICO claim and awarded United a total of $2,075,929 in damages. The jury also recommended punitive damages be assessed against Mr. Fox personally for his fraudulent activity. In response to post-judgment motions, the district court refused to award United treble damages or prejudgment interest, reduced the amount of the jury's award, and granted United's request for attorney fees. The parties now cross-appeal various district court rulings. We exercise jurisdiction pursuant to 28 U.S.C. § 1291, affirm in part, reverse in part, and remand to the district court.

BACKGROUND

United, a company based in India, manufactures aluminum phosphide, which is used to fumigate grains, nuts, tobacco, and sealed storage facilities. The fumigant must be registered with and approved by the Environmental Protection Agency in order to be sold in the United States. In addition, the registrant must be a United States-based firm. In order to sell their product in the United States, United entered into an agreement with J.O. Hibbard. Mr. Hibbard's corporation, Phos-Fume Chemical Company (Phos-Fume), agreed to register United's product and act as United's exclusive distributor of its aluminum phosphide in the United States. United had sold its aluminum phosphide under the name "Quick-Phos" throughout the world, and eventually asked Mr. Hibbard to use this name when registering with the Environmental Protection Agency. The Environmental Protection Agency approved Phos-Fume's use of the Quick-Phos name for United's aluminum phosphide products on October 3, 1983. Despite an agreement that United owned the name Quick-Phos, Mr. Hibbard also applied for and received a Kansas trademark registration for Quick-Phos in his company's name.

In late 1987, Mr. Hibbard sold Phos-Fume to Donald Fox's newly-formed corporation, Midland. After a disappointing initial transaction in May 1988, Midland and United had a disagreement concerning the appropriate price for United's Quick-Phos, and Midland stopped purchasing aluminum phosphide from United. Instead, Midland purchased cheaper aluminum phosphide with a reputation for poor quality. When it had trouble selling the inferior product, Midland printed its own "Quick-Phos" labels, relabeled the product, and sold the inferior product to its customers under the Quick-Phos name.

In July 1988, United's chairman wrote a letter to Mr. Fox and Midland claiming United owned the exclusive rights to use the Quick-Phos name in the United States, and Midland could not use the name on other products. In January 1989, Midland applied for a federal trademark registration for "Quick-Phos" with the Office of the Commissioner of Patents and Trademarks, which was granted in September of the same year.

On April 19, 1991, United filed its complaint, alleging Midland violated the Lanham Act, false or fraudulent registration of a trademark, trademark infringement, and unfair competition. The case was settled in late October 1991. In the settlement agreement, Midland agreed to (1) cancel its trademark registration for Quick-Phos immediately; (2) cancel the name Quick-Phos from its Environmental Protection Agency registration immediately; (3) sell its existing stocks of aluminum phosphide labeled Quick-Phos within three months; (4) not sell any further product labeled Quick-Phos without United's permission; and (5) not sell any further product labeled Quick-Phos unless the product was manufactured by United. United suspected Midland had breached the settlement agreement in various ways from the beginning, and ultimately United moved to set aside the settlement agreement in March 1994. In fact, Midland did not cancel its Quick-Phos trademark with the United States Patent and Trademark Office until May 1994. A district court found Midland had repudiated the settlement agreement through various misrepresentations and its failure to cancel the trademark, and set aside the settlement agreement in January 1995. In addition to the revived initial suit, United filed a second suit against Mr. Fox for common-law fraud, and various entities, alleging violations of the RICO statute. The cases were consolidated for trial, which took place over two and one-half weeks in October 1997.

The jury determined United owned the Quick-Phos mark and Midland had committed trademark infringement, fraudulently procured a federal trademark registration, and unfairly competed. The jury awarded United $761,866 in damages on these counts. In addition, the jury found Mr. Fox was liable for fraud in the breach of the settlement agreement, awarded United $1,314,063 in damages on this count, and recommended the district court impose punitive damages against Mr. Fox. Finally, the jury found for the defendants on the RICO claim. In response to various post-judgment motions, the district court denied United treble damages and prejudgment interest, imposed punitive damages against Mr. Fox in the amount of $653,217, reduced the jury's award of fraud damages from $1,314,063 to $67,694.03, and awarded United $313,133.27 of its requested $917,411.01 in attorney fees and costs. Not surprisingly, both sides find fault with the district court's rulings and these cross-appeals followed.

DISCUSSION

I. Improper Jury Instructions

Midland's first assigned error is somewhat confused. In its initial brief, Midland states "Jury Instruction No. 17 regarding trademark ownership was given in error as it misstated the law and misguided the jury." Unfortunately for Midland, it drafted and requested this instruction. We normally will not review an instruction when the party objecting to the instruction on appeal is the party who championed the instruction at trial. See Aves v. Shah, 997 F.2d 762, 766 (10th Cir. 1993). However, after a careful review of Midland's argument, it becomes clear Midland's real objection goes not to the submission of Instruction No. 17, but to the trial court's refusal to submit five other instructions Midland had offered to the court. As such, the issue on appeal is whether the trial court erred by not submitting Midland's proposed instructions numbered 7-11 to the jury, thus providing the jury with an incomplete picture of applicable law.¹

We review the district court's decision to give a particular instruction for abuse of discretion. To determine whether the jury was adequately instructed on the applicable law, we review the instructions in their entirety de novo to determine whether the jury was misled in any way. The instructions as a whole need not be flawless, but we must be satisfied that, upon hearing the instructions, the jury understood the issues to be resolved and its duty to resolve them.

Medlock v. Ortho Biotech, Inc., 164 F.3d 545, 552 (10th Cir.) (citations omitted), cert. denied, 120 S. Ct. 48 (1999).

Rather than reproduce the relevant instructions in their entirety here, we will narrow our discussion a great deal. Midland's proposed instructions numbered 7, 10, and 11 dealt with who may own a trademark. The district court adequately covered this topic in its Instruction No. 16 by pointing out either a merchant or a manufacturer may develop goodwill in a product and come to own a trademark through the use of the mark. Instruction No. 16 also makes clear the first party to use the mark establishes ownership, thus taking care of the main thrust of Midland's Proposed Instruction No. 8. What the district court failed to provide the jury, then, is the portion of Proposed Instruction No. 8 which deals with "lawful use," and the related language in Proposed Instruction No. 9. Proposed Instruction No. 9 states: "To have lawful use of a trademark in the United States for aluminum phosphide requires an EPA approved label. A sale in interstate commerce in contravention of EPA regulations is not a lawful use." This language misstates the law, and is inconsistent with the evidence presented at trial.

Midland correctly states that in order to obtain rights in the Quick-Phos trademark, United needed to show the name was lawfully used in commerce. See 15 U.S.C. § 1127; Gray v. Daffy Dan's Bargaintown, 823 F.2d 522, 526 (Fed. Cir. 1987); The Clorox Co. v. Armour-Dial, Inc., 214 U.S.P.Q. 850, 851 (TTAB 1982) ("'use in commerce' means a 'lawful use in commerce'"). Midland then makes the utterly unsupportable...