Kira Inc. v. All Star Maintenance Inc.

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
February 26, 2008
No. 06-51650 Charles R. Fulbruge III
Clerk
KIRA INC
Plaintiff - Appellant
v.
ALL STAR MAINTENANCE INC; ALL STAR MANAGEMENT LLC
(NEVADA LIMITED LIABILITY COMPANY); SUNDT-ACTUS-BLAND
COMPANY
Defendants - Appellees
Appeal from the United States District Court
for the Western District of Texas
USDC No. 1:03-CV-950
Before REAVLEY, BENAVIDES, and ELROD,* Circuit Judges.
PER CURIAM:**
Following a jury trial, Plaintiff-Appellant Kira, Inc. filed this appeal and
argues that the district court (1) erroneously granted the defendants’ Rule 50(a)
motion on its Lanham Act and unfair competition claims, (2) erroneously failed
to enter a judgment in its favor in light of the jury’s answers to certain
*
Judge Elrod is concurring in the judgment only.
**
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
No. 06-51650
interrogatories, and (3) abused its discretion by failing to disqualify defense
counsel. We affirm.
In 1999, Kira, Inc. and defendants All Star Maintenance, Inc. and Sundt-
Actus-Bland Co. (“SAB”) formed a limited liability company under Nevada law
known as All Star Management, LLC. Pursuant to the LLC’s operating
agreement, Kira owned ten percent of the company and the defendants each
owned forty-five percent. The LLC was formed to provide housing maintenance
services on military bases under a government privatization initiative. After
several years of effort, All Star Management obtained a subcontract in 2001 from
developer Actus Lend Lease to provide services at Fort Hood. By all accounts,
the Fort Hood project was a successful business venture.
A dispute between Carlos Garcia, Kira’s president, and John Junge,
chairman of All Star Maintenance, caused Junge to decide that he no longer
wished to do business with Garcia outside of the Fort Hood project. Junge and
David “Buck” Bland, president of SAB, then formed a second limited liability
company under Delaware law, also called All Star Management. The Delaware
company later obtained work through Actus Lend Lease. Junge and Bland also
formed a Texas limited partnership, known as Killeen All Star Construction, to
provide renovation services at Fort Hood. Meanwhile, All Star Maintenance,
acting through Junge, entered into management services agreements with one
of its affiliates, Champions of the West, and with SAB to provide general and
administrative (“G & A”) services on the Fort Hood project. In return for these
services, the Nevada LLC paid Champions and SAB a management fee. The
instant litigation concerns Kira’s individual and derivative complaints that the
defendants improperly used the name All Star Management when forming the
Delaware company and breached the operating agreement, fiduciary duties, and
the duties of good faith and fair dealing by using the name and by paying fees
to their affiliates without Kira’s knowledge and consent.
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No. 06-51650
At the close of plaintiff’s case, the district court granted in part the
defendants’ Rule 50(a) motion to the extent that Kira complained about the
Delaware company’s use of the same name. Kira argues that the district court
applied an incorrect legal standard under the Lanham Act and state unfair
competition law because the court found no evidence of actual confusion rather
than considering whether there was a likelihood of confusion between the two
companies. It argues that there was not only a likelihood of confusion but also
actual confusion. We are not persuaded by Kira’s arguments.
Testimony during Kira’s case in chief concerning the name of the Nevada
and Delaware companies was sparse, and we conclude that there was an
insufficient conflict in the substantial evidence to create a jury question on the
service mark claim. See Travis v. Bd. of Regents of the Univ. of Tex. Sys., 122
F.3d 259, 263 (5th Cir. 1997). The evidence showed that the operating
agreement expressly permitted the three members of All Star Management
Nevada to compete with each other and with the LLC, even to the exclusion of
the LLC from business that the LLC was capable of performing. The operating
agreement does not reserve the name to the LLC or otherwise prohibit its use.
The evidence showed that John Junge had been using the name All Star in some
form since 1985 and had created numerous businesses in the military services
industry using that name. When the Nevada company was formed, Junge had
to give his permission before the company could file its articles of organization
under the name All Star Management. John Garcia, Kira’s witness and the
project manager at Fort Hood, testified that All Star had multiple companies,
giving as examples All Star Maintenance, All Star Services, and All Star
Management. Kira’s counsel even referred repeatedly to the “All Star family of
companies” during his examination of John Garcia. Carlos Garcia admitted in
his testimony that All Star was the leading contractor in the military family
housing industry and that Kira was relying on All Star to obtain service
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No. 06-51650
contracts. It is clear that the name existed and was in use long before Kira’s
association with the Nevada company. We conclude that the district court
correctly determined that Kira failed to meet its threshold burden of showing
that it possessed a protectible interest in the service mark. See Elvis Presley
Enters. v. Capece, 141 F.3d 188, 194 (5th Cir. 1998).
Furthermore, Kira also failed to create a jury question as to a likelihood
of confusion. See Elvis Presley Enters., 141 F.3d at 193 (holding that liability for
trademark infringement requires a likelihood of confusions between the marks).
The evidence showed that All Star Management Nevada obtained the Fort Hood
contract as a subcontractor from Actus Lend Lease. John Garcia testified that
the LLC was formed to provide facility services for Actus. The second All Star
Management also obtained subcontracting work with Actus as the principal
contractor before later changing its name. Junge and Bland had a longstanding
relationship with the people at Actus. Kira argues that the defendants wanted
others to think that the second All Star Management was the same company as
the entity doing business at Fort Hood. However, Carlos Garcia testified that
Actus knew about the dispute between Kira and All Star Maintenance and also
knew that Kira would not be doing future projects with All Star Maintenance
and SAB. In light of this knowledge, there is no likelihood that Actus would be
confused about the identity of the subcontractor.1 See Westchester Media v. PRL
USA Holdings, Inc., 214 F.3d 658, 663–64 (5th Cir. 2000) (holding that a
1
As evidence of actual confusion, Kira points to testimony from John Garcia and Jose
Ceballos, both of whom served as project manager at Fort Hood, to show that these employees
purportedly did not know the identity of the company for which they were working because
they were apparently unsure whether Kira was included in the second company. The
testimony has more to do with uncertainty of the corporate structure of the various companies
than it does confusion between two service marks. Furthermore, the testimony is a mere
scintilla of evidence and insufficient to present a question for the jury. See Anthony v. Chevron
USA, Inc., 284 F.3d 578, 583 (5th Cir. 2002).
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No. 06-51650
likelihood of confusion requires a probability of confusion, which is more than a
mere possibility).
Kira also presents several arguments that the defendants’ method of
competition was unfair and breached their fiduciary duties and duties of good
faith. We do not find any of Kira’s arguments persuasive.2
Kira next argues that the district court should have entered judgment in
its favor in connection with the payment of management fees to Champions of
the West and SAB because the jury found that All Star Maintenance breached
the operating agreement by causing the fees to be paid and that All Star
Maintenance and SAB breached their duty to act in good faith and to deal fairly
with Kira. Kira argues that the management fee contracts were void and the
district court was required to enter a judgment that effectively rescinded the
contracts and disgorged the fees to the company. It contends that disgorgement
is the appropriate remedy for breach of a fiduciary duty. We find Kira’s
arguments untenable because the jury specifically found that Kira, and by
implication the company, suffered no harm. The jury also specifically found that
the defendants did not breach any fiduciary duties. Under the controlling
Nevada law, rescission is an equitable remedy that seeks to place the parties in
the same position they occupied before entering into a contract. Bergstrom v.
2
For example, Kira argues that the Delaware company obtained “contractual
opportunities” discovered by the Nevada company’s employees, that those employees also did
work for Killeen All Star Construction, and that it had a reasonable expectation that the
Nevada company would be the vehicle the parties used to obtain maintenance contracts. The
only substantial evidence of employees doing work other than for the Nevada company showed
that John Garcia presented bids in Hawaii and spent approximately five percent of his time
overseeing the work of Killeen. There is no evidence, however, that Garcia was required to
work exclusively for the Nevada company, or that he was paid by the Nevada company while
doing work for someone else. Garcia testified that he kept a separate accounting of his time
while working for Killeen. Moreover, to the extent Kira complains that Killeen performed work
that should have gone to the LLC, Garcia testified that Actus prohibited the LLC from bidding
on renovation work and wanted a local company. Junge and Bland had no obligation under
the operating agreement to include Kira when forming Killeen as a Texas limited partnership.
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No. 06-51650
Estate of DeVoe, 854 P.2d 860, 861 (Nev. 1993). A judgment returning the fees
here would effectively disregard the jury’s determination that Kira was not
harmed and would serve no equitable purpose. The jury’s verdict was
understandable in light of evidence that Champions and SAB performed
necessary G&A services at a rate that was substantially below the market rate.
Champions and SAB combined to charge a fee of 6.25% of total revenue when
Champions’ normal rate alone was 7% to 8% and Kira’s rate ranged from 6.7%
to 10%. Kira’s argument that it was entitled to equitable relief is without merit.
Finally, Kira argues that the district court erroneously denied its motion
to disqualify defense counsel due to conflicts in representing both All Star
Management, LLC and the two members accused in the derivative claims of
harming the LLC’s interests. Any conflicts asserted by Kira are more theoretical
than real. All members of the LLC were parties to this action, and Kira was the
only party who stood to benefit from a plaintiff’s verdict. We cannot imagine,
and the plaintiff does not identify, any remedy that could be obtained on behalf
of the company that would be different from a remedy in favor of Kira, and we
see no purpose that would have been served by independent counsel for the
company under the facts of this case. The district court did not abuse its
discretion. See FDIC v. U.S. Fire Ins. Co., 50 F.3d 1304, 1311 (5th Cir. 1995).
AFFIRMED.
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