SnugglyCat, Inc. v. Opfer Communications, Inc. ( 2020 )

United States Court of Appeals
For the Eighth Circuit
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No. 18-3500
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SnugglyCat, Inc.
lllllllllllllllllllllPlaintiff - Appellee
v.
Opfer Communications, Inc.; Lori Robertson; The Bargain Show, LLC; Scott Opfer
lllllllllllllllllllllDefendants - Appellants
Krissy Bernhardi; Chris Louzader; Rob White; James Barton; Doug Schaen;
Marci Bowling
lllllllllllllllllllllDefendants
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Appeal from United States District Court
for the Western District of Missouri - Springfield
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Submitted: November 13, 2019
Filed: March 17, 2020
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Before SHEPHERD, GRASZ, and KOBES, Circuit Judges.
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SHEPHERD, Circuit Judge.
Opfer Communications, Inc., Lori Robertson, The Bargain Show, LLC, and
Scott Opfer (collectively Appellants) appeal the district court’s1 order granting
SnugglyCat, Inc.’s (SnugglyCat) motion to voluntarily dismiss this action without
prejudice pursuant to Federal Rule of Civil Procedure 41(a)(2). Having jurisdiction
under 15 U.S.C. § 1121(a) and 28 U.S.C. § 1291, we affirm.
I.
Fred and Natasha Ruckel are the owners of SnugglyCat. Fred Ruckel invented
a cat toy that is marketed under the “Ripple Rug” trademark and service mark. The
Ripple Rug consists of a carpet square that is crumpled and placed on top of a second
carpet square to create a ripple effect. The top carpet square contains holes to allow
a cat to see and reach underneath in order to interact with toys, its owner, and other
animals. SnugglyCat is the sole owner of Federal Trademark Registration No.
4912510 for the Ripple Rug mark and logo design. SnugglyCat alleges that the
Ripple Rug mark distinguishes it from similar products and that the Ripple Rug is
sold in the United States and internationally, both online and in brick-and-mortar
stores. SnugglyCat further alleges that it has spent “substantial sums of money”
developing and marketing the Ripple Rug.
In March 2018, SnugglyCat filed a complaint against Appellants and six other
individuals, asserting claims under the Lanham Act, 15 U.S.C. § 1051 et seq., as well
as pendent state law claims. SnugglyCat alleged that defendants entered into an
agreement to create a nationwide direct response television advertising campaign to
sell the Purr N’ Play, a “knock-off” version of the Ripple Rug. However, SnugglyCat
alleged, defendants never actually produced or sold the Purr N’ Play; rather, the
advertising campaign was in fact a scheme in which defendants utilized SnugglyCat’s
1
The Honorable Stephen R. Bough, United States District Judge for the
Western District of Missouri.
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photographs of, and marketing language for, the Ripple Rug in an attempt to pass off
SnugglyCat’s Ripple Rug as the Purr N’ Play. For example, SnugglyCat alleged that
defendants filmed an infomercial that marketed what was purported to be the Purr N’
Play but was actually the Ripple Rug, and that the Ripple Rug mark was in fact
visible on the product displayed in the infomercial. SnugglyCat alleged that
defendants even accepted some consumers’ orders, including taking down their credit
card and shipping information, despite never producing or selling the Purr N’ Play.
SnugglyCat alleged that the purpose of defendants’ scheme was to destroy
SnugglyCat’s sales so that SnugglyCat would be forced to sell its business, or its
brand and inventory, to defendants. In August 2018, SnugglyCat filed an amended
complaint containing largely the same allegations and claims as contained in the
initial complaint, but naming only Appellants as defendants.
Appellants moved to dismiss the amended complaint under Federal Rule of
Civil Procedure 12(b)(6) for failure to state a claim. They argued, among other
things, that in light of SnugglyCat’s admission that Appellants never produced or sold
the Purr N’ Play, SnugglyCat could not satisfy the “use in commerce” element of its
Lanham Act claims because “mere advertising is not enough to constitute ‘use in
commerce[.]’”2 See Sensient Techs. Corp. v. SensoryEffects Flavor Co., 613 F.3d
754, 762 (8th Cir. 2010), cert. denied, 562 U.S. 1270 (2011). Appellants asked the
district court to dismiss the amended complaint with prejudice. SnugglyCat filed a
response to the motion, arguing that it had alleged that Appellants “did far more than
2
SnugglyCat’s Lanham Act claims are brought pursuant to 15 U.S.C. §§ 1114
and 1125(a), both of which require, “as a prerequisite to finding liability, that the
defendant ‘use in commerce’ the protected mark or a colorable imitation thereof.”
DaimlerChrysler AG v. Bloom, 315 F.3d 932, 936 (8th Cir. 2002). A mark is
“deemed to be in use in commerce . . . on goods when . . . (A) it is placed in any
manner on the goods . . . or the tags or labels affixed thereto . . . and . . . (B) the goods
are sold or transported in commerce.” 15 U.S.C. § 1127.
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‘merely advertise’ the Purr N’ Play,” such as actually accepting orders from
consumers. Appellants filed a reply the following day.
Two days later, SnugglyCat filed a motion to voluntarily dismiss the action
without prejudice pursuant to Rule 41(a)(2). As the basis for its motion, SnugglyCat
stated,
despite the merits of the claims that it has plead [sic] and the good faith
basis it has for filing those claims, SnugglyCat’s efforts and resources
are insufficient to proceed with its claims against Defendants.
SnugglyCat is a small company. It believes the cost of continuing the
suit against Defendants’ aggressive defense is unsustainable.
SnugglyCat noted that the parties were still in the early stages of discovery, and that
no depositions had been scheduled or taken. SnugglyCat also informed the district
court that Appellants had rejected SnugglyCat’s offer to dismiss the action with
prejudice in exchange for Appellants’ agreement not to seek attorney fees.
Appellants filed a response in opposition to SnugglyCat’s motion, arguing that
dismissal of the action without prejudice would prevent Appellants from obtaining
“prevailing party” status and, thus, deprive them of the opportunity to recover
attorney fees under the Lanham Act. Arguing that such a result would constitute
plain legal prejudice, Appellants asked the district court to deny SnugglyCat’s motion
and to dismiss the action with prejudice, either as a condition of voluntary dismissal
or pursuant to the pending Rule 12(b)(6) motion.
The district court issued an order granting SnugglyCat’s motion to voluntarily
dismiss the action without prejudice and denying as moot Appellants’ Rule 12(b)(6)
motion. The district court stated:
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Plaintiff moves the Court to dismiss this case without prejudice based
on Plaintiff’s inability to sustain the cost of continuing suit. Defendants
urge the Court to dismiss the case with prejudice, arguing that dismissal
without prejudice would deprive them of the ability to recover attorney’s
fees as a prevailing party. The Court finds Plaintiff’s motion to be made
in good faith and acknowledges that discovery in this case is still in the
early stages. The Court further finds that Defendants will not be
prejudiced by dismissal without prejudice.
This appeal followed.
II.
Appellants contend that the district court abused its discretion in allowing
SnugglyCat to voluntarily dismiss the action without prejudice. Rule 41(a)(2)
provides that “an action may be dismissed at the plaintiff’s request only by court
order, on terms that the court considers proper.” “We review the district court’s
decision to grant a plaintiff’s motion for voluntary dismissal for abuse of discretion.”
Mullen v. Heinkel Filtering Sys., Inc., 770 F.3d 724, 727 (8th Cir. 2014). The abuse-
of-discretion standard means the district “court has a range of choice, and that its
decision will not be disturbed as long as it stays within that range and is not
influenced by any mistake of law.” Kern v. TXO Prod. Corp., 738 F.2d 968, 970 (8th
Cir. 1984).
“When determining whether to allow a voluntary dismissal without prejudice,
a district court should consider whether the party has presented a proper explanation
for its desire to dismiss; whether a dismissal would result in a waste of judicial time
and effort; and whether a dismissal will prejudice the defendants.” United States v.
Thirty-Two Thousand Eight Hundred Twenty Dollars and Fifty-Six Cents
($32,820.56) in United States Currency ($32,820.56 in U.S. Currency), 838 F.3d 930,
937 (8th Cir. 2016) (internal quotation marks omitted). On appeal, Appellants
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challenge the district court’s finding with respect to prejudice only.3 Specifically,
they argue that, in finding that Appellants would not be prejudiced by dismissal of the
action without prejudice, the district court (1) failed to consider Appellants’ argument
regarding legal prejudice; (2) committed an error of law; and (3) committed a clear
error of judgment. We summarize Appellants’ argument regarding legal prejudice,
and then address each argument in turn.
A.
The Lanham Act provides that, “in exceptional cases,” the court “may award
reasonable attorney fees to the prevailing party.” 15 U.S.C. § 1117(a); see First Nat’l
Bank in Sioux Falls v. First Nat’l Bank S.D., 679 F.3d 763, 771 (8th Cir. 2012)
(“Because the statute states that the court ‘may’ award attorney’s fees in exceptional
cases, the district court retains discretion as to the award of attorney’s fees even if it
finds a case to be exceptional.”); Aromatique, Inc. v. Gold Seal, Inc., 28 F.3d 863,
876 (8th Cir. 1994) (per curiam) (emphasizing that the district court’s discretion to
award attorney fees “is limited to exceptional cases”). Where an action is dismissed
without prejudice, there is no “prevailing party” and, thus, neither party is entitled to
seek an award of attorney fees under the Lanham Act. See Advantage Media, L.L.C.
3
Appellants do not argue that the district court abused its discretion in
considering whether SnugglyCat presented a proper explanation for its motion.
Nonetheless, they maintain that SnugglyCat’s true reason for seeking dismissal of the
action without prejudice was to prevent Appellants from prevailing on their Rule
12(b)(6) motion to dismiss. However, in finding SnugglyCat’s motion to have been
made in good faith, the district court clearly considered and rejected this argument.
See Blaes v. Johnson & Johnson, 858 F.3d 508, 514-15 (8th Cir. 2017) (finding
plaintiff’s asserted reason for dismissal to be proper and, thus, implicitly rejecting
defendants’ argument that plaintiff’s asserted reason for dismissal was mere pretext
for an improper reason). While Appellants might disagree with the district court’s
determination, such a finding was within the court’s range of choice and, thus, will
not be disturbed absent a showing that the court abused its discretion.
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v. City of Hopkins, Minn., 511 F.3d 833, 837 (8th Cir. 2008) (holding that
“prevailing party status” requires a “judicially sanctioned material alteration of the
legal relationship between the parties”); see also $32,820.56 in U.S. Currency, 838
F.3d at 937 (holding that a “district court’s dismissal without prejudice d[oes] not
materially alter the legal relationship of the parties”). In the district court, Appellants
argued that dismissal of the action without prejudice would cause them legal
prejudice, as a matter of law, by preventing them from obtaining “prevailing party”
status and, thus, depriving them of the opportunity to seek attorney fees under the
Lanham Act.
B.
We reject Appellants’ contention that the district court failed to consider their
argument regarding legal prejudice. As is clear from the text of the order, the district
court expressly addressed Appellants’ argument that a dismissal of the action without
prejudice would “deprive them of the ability to recover attorney’s fees as a prevailing
party.” Further, the district court expressly found that in the context of this case
Appellants would not be prejudiced by dismissal without prejudice. We find that, by
ruling on the issue of prejudice, the district court implicitly rejected Appellants’
argument. See Blaes, 858 F.3d at 514-15 (holding that, by ruling that plaintiff’s
stated purpose for seeking voluntary dismissal was proper, the district court implicitly
considered and rejected defendants’ argument that plaintiff was seeking voluntary
dismissal for the improper purpose of forum shopping). Thus, we find that the district
court properly considered Appellants’ argument regarding legal prejudice. See id. at
515.
C.
Next, Appellants argue that, as a matter of law, dismissal without prejudice of
an action involving a fee-shifting statute results in legal prejudice to the defendant by
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depriving it of the opportunity to seek attorney fees as the prevailing party. As
already noted, only “prevailing part[ies]” are entitled to seek attorney fees under the
Lanham Act, see 15 U.S.C. § 1117(a), and there is no dispute that Appellants did not
prevail in the district court. Therefore, Appellants’ argument that they suffered legal
prejudice is premised on their belief that, but for SnugglyCat’s voluntary dismissal,
Appellants would have prevailed in the action and then, as prevailing parties, been
able to seek and potentially recover attorney fees under the Lanham Act. Appellants’
contention that they would have prevailed in the action, however, is pure speculation.
The lawsuit was still in its infancy at the time of dismissal; thus, the record is sparse,
consisting mostly of the pleadings, briefings on the motions to dismiss, an order to
show cause regarding mediation, and some very limited initial discovery. The record
contains no substantive rulings or significant factual developments to indicate which
party would have prevailed had the action continued. Accordingly, it is pure
speculation to contend that Appellants would have been the “prevailing parties” and
thus been able to seek—let alone, recover—attorney fees under the Lanham Act. See
First Nat’l Bank in Sioux Falls, 679 F.3d at 771; Aromatique, Inc., 28 F.3d at 876.
While we have found legal prejudice when dismissal would cause the loss of a
material advantage that the nonmoving party would enjoy only if the pending action
were to continue, such as the loss of a “proven, valid statute of limitations defense,”
Metro. Fed. Bank of Iowa, F.S.B. v. W.R. Grace & Co., 999 F.2d 1257, 1262-63 (8th
Cir. 1993), we have never held that a mere potential, speculative loss of opportunity
as described by Appellants in this case constitutes legal prejudice.
To the extent Appellants ask us to hold that, as a matter of law, dismissal
without prejudice of an action involving a fee-shifting statute necessarily causes the
defendant to suffer such plain legal prejudice as to bar the plaintiff from obtaining the
dismissal of the action without prejudice, we decline to do so. “Motions to dismiss
without prejudice are addressed to the sound discretion of the district courts.” Kern,
738 F.2d at 970. If, in an appropriate case, a district “court is convinced that
dismissal without prejudice at the [plaintiff’s] request would cause legal prejudice to
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a [defendant] by unfairly depriving her of the ability to seek attorney fees under [a
fee-shifting statute],” the court may exercise its broad discretion to deny the
plaintiff’s motion or, alternatively, to dismiss the action with prejudice. $32,820.56
in U.S. Currency, 838 F.3d at 936 (emphasis omitted). However, we see no need to
adopt a per se rule that would bar dismissal without prejudice in all cases in which
a plaintiff has sued under a fee-shifting statute. Accordingly, we find that the district
court did not commit an error of law.
D.
Finally, Appellants argue that the district court abused its discretion by
committing a clear error of judgment. However, all of “the relevant factors were
before the district court,” including the parties’ arguments supporting and opposing
the pending Rule 12(b)(6) motion. Mullen, 770 F.3d at 728. Moreover, the district
court considered SnugglyCat’s purported reason for seeking dismissal of the action
without prejudice—its inability as a small company to sustain the cost of continuing
suit—and expressly found the motion to have been made in good faith. The district
court also noted that the parties were still in the early stages of discovery. We must
also “be mindful that the district courts are closer to the facts and the parties, and that
not everything that is important about a lawsuit comes through on the printed page.”
Id. (internal quotation marks omitted). In considering the relevant factors, the district
court determined that Appellants would not be prejudiced by dismissal without
prejudice. Such a finding did not fall outside the range of the district court’s
permissible choices. Kern, 738 F.2d at 970 (noting that the court’s decision will not
be disturbed as long as it stays within its range of choice and is not influenced by a
mistake of law). Thus, the district court did not commit a clear error of judgment.
Accordingly, we hold that the district court did not abuse its discretion in
granting SnugglyCat’s motion to voluntarily dismiss without prejudice.
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III.
For the foregoing reasons, we affirm.
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