Employers Council on Flexible Compensation v. Kenneth Feltman

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 09-2085
EMPLOYERS COUNCIL ON FLEXIBLE COMPENSATION,
Plaintiff – Appellee,
v.
KENNETH FELTMAN; ANTHONY W. HAWKS; EMPLOYERS COUNCIL ON
FLEXIBLE COMPENSATION, LTD.,
Defendants – Appellants.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. James C. Cacheris, Senior
District Judge. (1:08-cv-00371-JCC-TRJ)
Argued: May 12, 2010 Decided: June 21, 2010
Before WILKINSON and KING, Circuit Judges, and HAMILTON, Senior
Circuit Judge.
Affirmed by unpublished per curiam opinion.
ARGUED: Edward A. Pennington, HANIFY & KING, Washington, D.C.,
for Appellants. Bernard Joseph DiMuro, DIMUROGINSBERG, PC,
Alexandria, Virginia, for Appellee. ON BRIEF: Anthony W. Hawks,
HAWKS LAW OFFICE, Bethany Beach, Delaware, for Appellants.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
In 2008, the Employers Council on Flexible Compensation
(“ECFC”) instituted this civil action in the Eastern District of
Virginia against Kenneth Feltman, Anthony W. Hawks, and the
Employers Council on Flexible Compensation, Ltd. (collectively,
the “defendants”), alleging trademark infringement and
cybersquatting. Shortly thereafter, the parties entered into a
Permanent Injunction Order (the “Consent Order”), agreeing that
certain of ECFC’s marks were protected under the Lanham Act and
the Anticybersquatting Consumer Protection Act (the “ACPA”).
Deeming the Consent Order a concession of liability on the
trademark infringement and cybersquatting claims, the district
court awarded ECFC attorney fees under the Lanham Act and
statutory damages pursuant to the ACPA. See Flexible Benefits
Council v. Feltman, No. 1:08-cv-371 (E.D. Va. May 14, 2009) (the
“Damages Opinion”). 1 The defendants have appealed, primarily
contending they did not admit liability in the Consent Order
and, in any event, that attorney fees and statutory damages were
not warranted. As explained below, we affirm.
1
The Damages Opinion is found at J.A. 1328–58. (Citations
herein to “J.A. ___” refer to the Joint Appendix filed by the
parties in this appeal.)
2
I.
ECFC — a nonprofit lobbying organization dedicated to the
maintenance and expansion of private employee benefit programs —
was incorporated in 1981 in the District of Columbia under the
name “Employers Council on Flexible Compensation.” Between 1981
and 2008, ECFC continuously and exclusively used “Employers
Council on Flexible Compensation” as its legal and trade name.
The organization also used the acronym “ecfc,” as well as an
“ecfc” logo, to further designate its products and services.
For example, in 1999, ECFC registered the domain name
“ecfc.org,” at which it maintained a website promoting flexible
benefit compensation programs.
In 1996, ECFC encountered severe financial problems, which
threatened the organization with bankruptcy. Defendant Kenneth
Feltman, who was then ECFC’s executive director, was asked to
create a separate management company that could assume ECFC’s
day-to-day operations and minimize the organization’s
indebtedness. Accordingly, Feltman incorporated Radnor, Inc.
(“Radnor”), a political consulting firm specializing in, inter
alia, management services. In 1997, 2003, and 2005, ECFC and
Radnor entered into separate management service agreements
(“MSAs”), under which Radnor agreed to hire ECFC’s staff
(including Feltman) and to exercise management services for
ECFC. Thus, although Feltman was technically no longer an ECFC
3
employee after the 1997 MSA, he continued to play a significant
role in its management.
In 2007, ECFC’s relationship with Radnor soured, prompting
ECFC to terminate the 2005 MSA. In November 2007, ECFC
initiated an arbitration proceeding against Radnor in the
District of Columbia, alleging that Radnor and Feltman had
pilfered millions of dollars owed to ECFC. Radnor thereafter
filed a counterclaim in the arbitration proceeding, asserting
that ECFC had wrongfully terminated the 2005 MSA.
In January 2008, defendant Anthony W. Hawks — a lawyer
representing Radnor and Feltman in the arbitration proceeding —
discovered that ECFC’s corporate charter had been revoked in
September 1998 because ECFC had failed to file certain reports
with the D.C. Department of Consumer and Regulatory Affairs (the
“DCRA”). Rather than notifying ECFC, Feltman and Hawks instead
attempted to determine the legal implications of the revocation.
Based on limited legal research, Hawks concluded that, pursuant
to D.C. law, ECFC was dissolved as a matter of law and had
forfeited any rights it had in the marks “ecfc” and “Employers
Council on Flexible Compensation.” Accordingly, in February
2008, Feltman and Hawks formed a for-profit corporation in the
District of Columbia under the name “Employers Council on
Flexible Compensation, Ltd.” (“ECFC Ltd.”), with each serving as
part owner thereof. Feltman and Hawks reserved with the DCRA
4
the acronym “ecfc,” the trade name “Employers Council on
Flexible Compensation,” and twenty-one variations of that name.
Moreover, in March 2008, Hawks applied to the United States
Patent and Trademark Office to register the mark “Employers
Council on Flexible Compensation,” as well as a design mark
identical to ECFC’s “ecfc” logo. Finally, Feltman and Hawks
obtained the domain name “ecfc.com” — which was similar to
ECFC’s domain name, “ecfc.org” — and maintained a website that
was nearly identical to that of ECFC.
In March 2008, ECFC first learned of the revocation of its
corporate charter and promptly filed for reinstatement. Because
Feltman and Hawks had reserved “Employers Council on Flexible
Compensation” as the trade name of ECFC Ltd., ECFC could not be
reinstated under its former name and instead chose “Flexible
Benefits Council” (though it continued to operate its website at
the domain name “ecfc.org”). Soon thereafter, on April 17,
2008, ECFC filed this lawsuit against the defendants in the
Eastern District of Virginia, alleging, inter alia, trademark
infringement, in contravention of § 43 of the Lanham Act, 15
U.S.C. § 1125(a), and cybersquatting, in contravention of the
ACPA, 15 U.S.C. § 1125(d). By its complaint, ECFC sought
injunctive relief (1) prohibiting the defendants from using the
name “Employers Council on Flexible Compensation” and any
variation thereof, as well as the acronym “ecfc,” and (2)
5
ordering the defendants to relinquish the “ecfc.com” domain
name. ECFC also sought reasonable attorney fees under § 35(a)
of the Lanham Act, which authorizes a court “in exceptional
cases [to] award reasonable attorney fees to the prevailing
party.” 15 U.S.C. § 1117(a). Finally, pursuant to the ACPA,
ECFC sought up to $100,000 in statutory damages on its
cybersquatting claim. See id. § 1117(d) (authorizing recovery
of “an award of statutory damages in the amount of not less than
$1,000 and not more than $100,000 per domain name”).
During various hearings conducted over the ensuing months,
ECFC and the defendants indicated to the district court that
they were intent on settling the lawsuit, but that they
disagreed on damages. The defendants maintained that, because
they had reasonably believed that they could legally use the
name “Employers Council on Flexible Compensation” and the “ecfc”
logo, their conduct did not warrant awarding ECFC attorney fees
under the Lanham Act or statutory damages under the ACPA.
Because the only issue in dispute was whether attorney fees and
statutory damages were warranted, the parties agreed to the
Consent Order, entered by the court on October 22, 2008.
Therein, the defendants agreed “not to contest further the
distinctiveness of [ECFC’s] marks” or its “ownership of or
rights in” those marks. J.A. 974. The defendants also
acknowledged that ECFC’s “marks are subject to the protections
6
of the Lanham Act.” Id. The Consent Order permanently enjoined
the defendants from using in any manner ECFC’s marks and any
names affiliated with the organization, thereby allowing ECFC to
re-register itself with the DCRA under the name “Employers
Council on Flexible Compensation.” Finally, the defendants
agreed to transfer the domain name “ecfc.com” to ECFC.
Thereafter, the district court — by the Damages Opinion of
May 14, 2009 — granted ECFC’s request for attorney fees and
statutory damages. Notably, the court predicated its ruling on
the Consent Order, recognizing “[a]t the outset . . . that
Defendants have admitted liability for trademark infringement
. . . and cybersquatting.” Damages Opinion 6. The court also
observed that, “[a]s agreed to by the parties, the issues
remaining for the Court are [ECFC’s] requests for two of the
types of damages available under these statutes: attorney[]
fees . . . and statutory damages.” Id. In other words, the
court deemed the Consent Order to be the defendants’ concession
of liability under the Lanham Act and the ACPA, obviating any
need to assess the merits of ECFC’s claims.
Turning to ECFC’s request for attorney fees under the
Lanham Act, the district court found that the defendants had
willfully and deliberately copied ECFC’s logo and other items
from ECFC’s website in order to divert ECFC’s profits to
themselves. The court also found that Feltman and Hawks had
7
intentionally reserved the name “Employers Council on Flexible
Compensation” in an effort to prevent ECFC from reinstating its
corporate charter under that name. The court thus determined
that the defendants had acted in bad faith and that the dispute
amounted to an “exceptional case,” warranting an award of
reasonable attorney fees to ECFC in an amount to be determined
following an evidentiary hearing. See Damages Opinion 28. 2 As
to ECFC’s request for statutory damages under the ACPA, the
court found that the defendants had deliberately registered a
domain name (“ecfc.com”) that was confusingly similar to ECFC’s
domain name (“ecfc.org”). Accordingly, the court awarded ECFC
$20,000 in statutory damages. See id. at 30.
On May 29, 2009, the defendants filed a motion for
reconsideration pursuant to Federal Rule of Civil Procedure
59(e), contending that the district court’s award of attorney
fees and statutory damages was based on the clearly erroneous
factual finding that the defendants had, by the Consent Order,
admitted liability under the Lanham Act and the ACPA. In
addition, simultaneous with their motion for reconsideration,
the defendants moved the court to amend the Consent Order to
clarify that they had not conceded liability on ECFC’s trademark
2
The district court ultimately awarded ECFC $292,500 in
attorney fees under the Lanham Act. The amount of the award is
not an issue in this appeal.
8
and cybersquatting claims. By its Memorandum Opinion of August
20, 2009, the court denied each of the defendants’ motions,
finding that the Consent Order’s unambiguous terms, coupled with
the parties’ representations to the court before and after the
Consent Order was entered, demonstrated that the defendants had
conceded liability. See Employers Council on Flexible Comp. v.
Feltman, No. 1:08-cv-371 (E.D. Va. August 20, 2009). 3 In denying
both motions, the court emphasized that, “[w]hen both parties
(repeatedly) represent to the Court that they have resolved most
of the issues between them and only one issue remains, they are
necessarily representing that they have resolved all of the
issues but that one.” Id. at 8. Because the court could find
“no reason to second-guess the parties’ representations on
settlement matters,” it again concluded that the defendants had
conceded liability in the Consent Order. Id. at 9.
Accordingly, the court denied the defendants’ motion for
reconsideration and their motion to amend the Consent Order.
The defendants have filed a timely notice of appeal, and we
possess jurisdiction pursuant to 15 U.S.C. § 1121(a) and 28
U.S.C. § 1291.
3
The district court’s August 20, 2009 Memorandum Opinion is
found at J.A. 1403–18.
9
II.
We review for abuse of discretion a district court’s award
of attorney fees under the Lanham Act. See Retail Servs. Inc.
v. Freebies Publ’g, 364 F.3d 535, 550 (4th Cir. 2004). Any
factual findings underpinning such an award, however, including
the court’s determination of whether the case is “exceptional,”
are reviewed for clear error only. See Carolina Care Plan Inc.
v. McKenzie, 467 F.3d 383, 390 (4th Cir. 2006), abrogated on
other grounds by Metro. Life Ins. Co. v. Glenn, 554 U.S. 105(2008); see also Schlotzsky’s, Ltd. v. Sterling Purchasing &
Nat’l Distrib. Co., 520 F.3d 393, 402 (5th Cir. 2008) (“The
findings of the district court regarding the exceptional nature
of a case are reviewed for clear error.”). Similarly, in
assessing a district court’s award of statutory damages within
the range prescribed by statute, we review factual findings for
clear error and the decision to award damages for abuse of
discretion. See Lyons P’ship, L.P. v. Morris Costumes, Inc.,
243 F.3d 789, 799 (4th Cir. 2001).
III.
On appeal, the defendants raise several challenges to the
district court’s award of attorney fees and statutory damages.
The crux of the defendants’ appeal, however, is their contention
that the court rested its damages award on a clearly erroneous
10
factual finding with respect to the Consent Order — namely, that
the defendants had therein conceded liability under the Lanham
Act and the ACPA. Accordingly, we must first assess the
defendants’ contention that the court erred by not independently
determining whether they were liable on ECFC’s trademark
infringement and cybersquatting claims. We then turn to the
defendants’ assertion that the court erred in deeming the matter
an “exceptional case,” warranting an attorney fees award under
the Lanham Act. Finally, we assess the defendants’ contention
that the court abused its discretion in determining that their
conduct warranted an award of statutory damages under the ACPA.
A.
The defendants’ primary contention on appeal is that the
district court abused its discretion because its award of
attorney fees and statutory damages was based on the erroneous
finding that they had admitted liability in the Consent Order.
Emphasizing the terms thereof, the defendants maintain that the
Consent Order enjoined them only from using ECFC’s marks in the
future and contained no explicit admission of liability with
respect to their past use of ECFC’s marks. They contend that,
before the court could properly assess whether the defendants’
conduct was willful — and warranted awarding attorney fees and
statutory damages — the court first had to determine whether
they were in fact liable under the Lanham Act and the ACPA. The
11
defendants conclude that, because the court made no such
determination, its award of attorney fees and statutory damages
must be vacated.
The defendants’ contention on their concession of liability
is belied by the record, however, which is replete with
representations to the district court that the Consent Order
resolved all issues concerning the merits of the trademark and
cybersquatting claims. For example, during a motions hearing on
October 15, 2008 — before the parties had agreed to the Consent
Order — ECFC informed the court that the parties had resolved
“98 percent” of the issues and that the only remaining issue was
ECFC’s request for attorney fees and statutory damages. J.A.
960. Indeed, both parties confirmed to the court that there was
no longer any need for a jury trial, which had been scheduled
for early December 2008, and that the damages issue could be
resolved following a short evidentiary hearing. Shortly
thereafter, during an evidentiary hearing on the damages issue,
the court asked the parties whether there were any outstanding
issues other than ECFC’s request for attorney fees and statutory
damages, and all parties responded that there were none.
In light of these unambiguous representations, the district
court did not clearly err in finding that, by the Consent Order,
the defendants had conceded liability under the Lanham Act and
the ACPA. See In re Charlie Auto Sales, Inc., 336 F.3d 34, 37
12
(1st Cir. 2003) (“A court’s interpretation of a contract or
consent order is reviewed for clear error . . . if the court
relies on extrinsic evidence such as the parties’ intent.”
(citation omitted)). At no point after entry of the Consent
Order did the defendants indicate to the court that the issue of
their liability on the trademark and cybersquatting claims was
outstanding and needed to be resolved. To the contrary, they
asserted that those issues had been resolved by the Consent
Order. See, e.g., J.A. 1367 (defendants’ counsel explaining to
court that “the only thing left [after the Consent Order] was
the issue of willfulness” and that “[t]he only reason that was
an issue is because of [ECFC’s request for] attorney[] fees”).
Accordingly, the defendants cannot successfully claim that the
court erred in finding that, by agreeing to the Consent Order,
they had admitted liability. Thus, the court did not abuse its
discretion in declining to further assess the merits of ECFC’s
trademark infringement and cybersquatting claims. 4
4
Because this record supports the district court’s finding
that the defendants conceded liability in the Consent Order, we
also reject their appellate contention that the court abused its
discretion in refusing to amend the Consent Order. Similarly,
the defendants’ assertion — presented for the first time on
appeal — that they could not be held liable under the ACPA
because they were not the “registrants” of the “ecfc.com” domain
name, see 15 U.S.C. § 1125(d)(1)(D), is without merit.
13
B.
The defendants next contend that, in awarding attorney fees
pursuant to § 35(a) of the Lanham Act, the district court erred
in finding this to be an “exceptional case.” Section 35(a)
authorizes a district court, in “exceptional cases” involving
trademark infringement or cybersquatting, to “award reasonable
attorney fees to the prevailing party.” 15 U.S.C. § 1117(a).
Although the statute does not define the term “exceptional
case,” we have recongized that an “exceptional case” is one in
which “the defendant’s conduct was malicious, fraudulent,
willful or deliberate in nature.” People for the Ethical
Treatment of Animals v. Doughney, 263 F.3d 359, 370 (4th Cir.
2001) (internal quotation marks omitted). Put differently, “for
a prevailing plaintiff to succeed in a request for attorney
fees, she must show that the defendant acted in bad faith.”
Scotch Whisky Ass’n v. Majestic Distilling Co., Inc., 958 F.2d
594, 599 (4th Cir. 1992). If the court deems the case
exceptional, it must then exercise its discretion to determine
whether attorney fees should be awarded. See Enzo Biochem, Inc.
v. Calgene, Inc., 188 F.3d 1362, 1370 (Fed. Cir. 1999).
The defendants maintain that the district court erred in
deeming this case exceptional. More specifically, they contend
that, when Feltman and Hawks reserved “Employers Council on
Flexible Compensation” as their new business’s trade name, they
14
in good faith believed that ECFC had abandoned any rights it had
in that name. Because Hawks and Feltman reasonably believed
that they could legally use ECFC’s marks, the theory goes, the
court could not have made the requisite finding of bad faith.
The record, however, provides ample support for the
district court’s determination that Feltman and Hawks willfully
and deliberately infringed on ECFC’s marks and reserved the name
“Employers Council on Flexible Compensation” in order to prevent
ECFC from reinstating itself under that name. Indeed, the
defendants’ ill-will toward ECFC is highlighted in emails
exchanged between Hawks and Feltman, wherein they admit that
their goal in copying ECFC’s marks was to “cause[] consternation
in the ranks.” J.A. 764. Moreover, the record reveals that
Hawks and Feltman believed that ECFC had wrongly “stolen” the
company and its profits when it terminated the 2005 MSA, and
that the revocation of ECFC’s corporate charter presented “an
opportunity [for Feltman to] retrieve his business by competing
directly against ECFC.” Id. at 227. There is also ample
support for the court’s determination that Hawks had only
conducted minimal legal research before concluding that ECFC had
lost any rights to the name “Employers Council on Flexible
Compensation” and the “ecfc” logo. Hawks himself testified that
he spent “no more than one to two hours” researching the
15
trademark issues, despite not having encountered such a legal
issue in the past “ten to twenty” years. Id. at 1075–76.
In these circumstances, the district court did not clearly
err in finding that the defendants acted in bad faith and that
the matter was an “exceptional case” under § 35(a) of the Lanham
Act. And, having so concluded, the court did not abuse its
discretion in determining that attorney fees were warranted,
given the nature of the defendants’ conduct. Accordingly, we
reject the defendants’ contentions in this regard and affirm the
award of attorney fees.
C.
Finally, the defendants contend that the district court
abused its discretion in concluding that their conduct warranted
an award of statutory damages under the ACPA. That statute
authorizes the owner of a protected mark to bring an action
against any person who “has a bad faith intent to profit from
that mark” and “registers, traffics in, or uses a domain name
that . . . is identical or confusingly similar to . . . that
mark.” 15 U.S.C. § 1125(d)(1)(A). Upon proving a violation of
the ACPA, the owner of the protected mark may “recover, instead
of actual damages and profits, an award of statutory damages in
the amount of not less than $1,000 and not more than $100,000
per domain name, as the court considers just.” Id. § 1117(d).
16
The district court acted well within its discretion in
awarding ECFC $20,000 in statutory damages under the foregoing
statutory provisions. The court carefully weighed several
aggravating and mitigating factors before concluding that the
defendants’ conduct warranted that award. For example, the
court acknowledged that the defendants had used the “ecfc.com”
domain name for only a short time and apparently earned no
profits therefrom. Indeed, the court observed that there had
been only one occasion of actual confusion between the two
domain names. Nevertheless, the court identified several
factors that supported the award of statutory damages. In
particular, the court emphasized that Feltman had exploited a
long and close working relationship with ECFC; that the
defendants had acted surreptitiously in registering their domain
name, without first notifying ECFC of its corporate revocation;
and that Hawks had only briefly researched whether ECFC had
abandoned its legal rights in the marks “ecfc” and “Employers
Council on Flexible Compensation.” In these circumstances, the
court did not abuse its discretion in making the award of
statutory damages.
IV.
Pursuant to the foregoing, we reject the defendants’
contentions and affirm.
AFFIRMED
17