G6 Hospitality Franchising LLC v. HI Hotel Group, LLC
Docket: No. 1:11-cv-02176
Court: District Court, M.D. Pennsylvania; March 22, 2016; Federal District Court
Plaintiffs have filed a petition seeking treble damages, attorney's fees, costs, and prejudgment interest in response to trademark infringement and breach of contract claims against Defendants HI Hotel Group, LLC, and 1450 Hospitality PA, LLC, along with their members. The case stems from a franchising agreement between HI Hotel Group and Accor Franchising North America, LLC, concerning a property in Carlisle, Pennsylvania, which was breached in September 2011 due to non-payment of fees and failure to maintain brand standards. Following the breach, the motel was rebranded as a Travel Inn and later as a Red Roof Inn, yet HI Hotel Group continued to use Motel 6 trademarks, which they lost the right to use after the rebranding.
Subsequently, HI Hotel Group sold the property to 1450 Hospitality, which also improperly used the Motel 6 trademarks, including displaying the name on signs and issuing receipts. The franchising agreement was officially terminated on November 2, 2011. Plaintiffs initiated legal action on November 21, 2011, alleging trademark infringement under the Lanham Act and breach of contract. Prior to trial, both HI Hotel Group and 1450 Hospitality admitted to trademark infringement.
The jury trial, which began on April 27, 2015, resulted in findings of actual damages: $81,000 for HI Hotel Group and $125,000 for 1450 Hospitality. The jury also determined personal liability for several defendants: S. Patel for both companies, Zaver for HI Hotel Group, and I. Patel and Shah for 1450 Hospitality. The court will grant the petition in part and deny it in part.
Defendants S. Patel, I. Patel, and Shah were found by a jury to have intentionally or willfully infringed Motel 6’s trademarks. On May 18, 2015, the Court granted judgment against Defendants HI Hotel Group, S. Patel, and Zaver regarding the breach of contract claim. The following day, Plaintiffs requested treble damages, attorney's fees, costs, and prejudgment interest, asserting entitlement under both the Motel 6 franchising agreement and Section 85 of the Lanham Act. On June 2, 2015, Defendants opposed the award of treble damages and attorney's fees.
Section 35 of the Lanham Act (15 U.S.C. 1117) provides various remedies for trademark infringement, distinguishing between general infringement and counterfeiting. It allows for recovery of the defendant's profits, the plaintiff's damages, court costs, and, in exceptional cases, attorney's fees. Specifically, Section 1117(b) mandates treble profits or damages if the infringement involves knowingly using a counterfeit mark. The Court is tasked with determining if treble damages and attorney's fees are required under this provision.
Plaintiffs argue they are entitled to these awards against all defendants except Zaver, claiming that the sale of non-authentic services with an authentic trademark constitutes counterfeiting and that holdover franchisees qualify as counterfeiters under the Act. Defendants, however, only express opposition to increased damages without addressing the specific provisions of the Lanham Act.
The Court must establish whether the Defendants’ use of the Plaintiffs’ trademarks constitutes counterfeiting under 15 U.S.C. 1117(b). A division exists among federal courts regarding whether an ex-licensee's continued use of a trademark qualifies as counterfeiting for the purposes of treble damages and attorney’s fees. The Court notes differing opinions from various circuits and district courts, highlighting a lack of binding precedent in the Third Circuit.
The inquiry starts with the statutory definition of a 'counterfeit mark,' which is described as a spurious mark that is identical or substantially indistinguishable from a registered mark. The term 'spurious' lacks a statutory definition, leading the Court to apply its ordinary meaning, defined as 'deceptively suggesting an erroneous origin.' This suggests that unauthorized use of a genuine trademark may not be counterfeiting. However, the Court questions whether a genuine trademark could be considered spurious when used on counterfeit goods.
The legislative history of 15 U.S.C. 1117(b), particularly the Trademark Counterfeiting Act of 1984, clarifies that counterfeiting pertains to spurious marks that are identical or similar to registered marks. It emphasizes that 'spurious' refers to items that are not genuine, stressing that a counterfeit mark is likely to cause confusion. The Court ultimately aligns with the Sixth Circuit's ruling that Section 1117(b) does not apply when a former franchisee continues using the franchisor’s trademark post-termination.
The Sixth Circuit determined that unauthorized use of an original trademark does not equate to the use of a counterfeit mark. The court highlighted that while exact trademark use can lead to confusion, the statute 15 U.S.C. 1117(b) pertains to spurious marks rather than unauthorized genuine marks post-license termination. Consequently, the court denied the Plaintiffs’ request for treble damages and attorney’s fees under this statute.
Regarding attorney’s fees under 15 U.S.C. 1117(a), the court assessed whether such an award was appropriate for the Plaintiffs' Lanham Act claims. Plaintiffs argued for fees against all defendants except Zaver, citing the case as "exceptional" due to defendants' obstructive behavior during discovery and a jury finding of intentional infringement by specific defendants. The Lanham Act allows for recovery of the defendant’s profits, damages, and costs, and permits fee awards in exceptional cases, although it does not define "exceptional." The Third Circuit has historically interpreted "exceptional" as involving culpable conduct from the losing party, with willful or knowing infringement qualifying as such. The court noted that findings of willfulness can render a case exceptional, referencing a recent case that elaborated on the "exceptional cases" standard following a Supreme Court decision.
The Third Circuit adopted an expansive definition of "exceptionality" from Octane Fitness in its interpretation of 35(a) of the Lanham Act. It determined that "culpability" is not a threshold requirement for a case to be deemed "exceptional." A district court can classify a case as "exceptional" and award attorney’s fees if there is a significant discrepancy in the parties' positions or if the losing party has engaged in unreasonable litigation behavior. This decision is to be made on a case-by-case basis, considering all circumstances.
In the current case, the Court found it "exceptional" for awarding fees under 15 U.S.C. 1117(a) because the plaintiffs had a clear claim regarding a former franchisee's unauthorized use of trademarks, which was complicated by the defendants’ conduct, leading to lengthy litigation. The defendants repeatedly changed counsel and delayed the trial, with the trial date being rescheduled eight times due to their actions. A jury found the defendants intentionally infringed on the plaintiff's trademarks, further supporting the case's exceptional status. The defendants were also deemed culpable for failing to secure legal representation despite warnings, contributing to the Court's conclusion that the case warranted attorney’s fees and costs.
The Court has decided to award reasonable attorney’s fees and costs to the Plaintiffs for their Lanham Act claims under 15 U.S.C. 1117(a) against all Defendants except Zaver. Additionally, the Court is considering the Plaintiffs’ request for attorney’s fees and costs related to breach of contract claims against HI Hotel Group, S. Patel, and Zaver, based on the Motel 6 franchising agreement. Section 14.7 of this agreement mandates that the franchisee (HI Hotel Group) must cover all damages, costs, and attorney’s fees incurred by the franchisor due to the franchisee's default or early termination of the agreement. Section 14 outlines the obligations of the franchisee upon termination, which include ceasing to use the Motel 6 name and making modifications to avoid public confusion.
Furthermore, Defendants Zaver and S. Patel have jointly and severally guaranteed the franchisor against losses, including reasonable attorneys’ fees, stemming from the franchisee's non-compliance with the agreement. Given these provisions, the Court will grant reasonable attorney's fees and costs for the breach of contract claims against HI Hotel Group, S. Patel, and Zaver.
Regarding the reasonableness of the requested attorney's fees, Plaintiffs seek a total of $349,250.80 for fees incurred since November 2011, categorized as follows: $117,982.60 for the breach of contract claims against HI Hotel Group, Zaver, and S. Patel; $105,877.43 for trademark infringement claims against the same defendants; and $125,389.77 for trademark infringement claims against 1450 Hospitality and others.
A party seeking attorney fees must demonstrate the reasonableness of both the hourly rates and the hours claimed, as established in Interfaith Cmty. Org. v. Honeywell Int’l, Inc. The fee petitioner is required to provide supporting evidence for the hours worked and rates claimed, commonly referred to as the 'lodestar,' which is generally presumed to be a reasonable fee. The court evaluates the reasonableness of the hourly rates based on the experience and skill of the attorneys and prevailing rates for similar services in the area. While the attorneys’ usual billing rates provide a baseline, their claims must be supported by evidence beyond their own affidavits. If the prevailing party fails to meet this burden, the court exercises discretion to set a reasonable market rate.
In this case, Plaintiffs’ counsel, Edward Greenberg and Kristin Topolewski, asserted their hourly rates, which were not contested by the defendants. Greenberg charged between $280 and $300 per hour, while Topolewski charged between $180 and $200 per hour. Greenberg's affidavit detailed his extensive experience, including 34 years of practice and representation for Motel 6 for 20 years, as well as Topolewski’s background. However, the court noted that the Plaintiffs failed to provide evidence beyond Greenberg’s affidavit to support the reasonableness of the rates, necessitating the court to exercise discretion in determining a reasonable rate. Ultimately, considering the prevailing market rates, qualifications, and quality of representation, the court found the proposed hourly rates to be reasonable.
The court then assessed the reasonableness of the hours billed, emphasizing the need to review the time charged and exclude any hours deemed excessive, redundant, or unnecessary.
A court can exclude hours claimed for attorney fees if the evidence does not adequately document them. However, a district court cannot reduce a fee award based on factors not raised by the opposing party. After reviewing the evidence, the court found no reason to reduce the hours claimed by Edward Greenberg and Kristin Topolewski. The plaintiffs requested prejudgment interest due to the intentional nature of the defendants' infringement and the duration of litigation. While the Second and Sixth Circuits allow for prejudgment interest at the trial court's discretion, the Lanham Act does not provide for it except in counterfeiting cases. As this case does not involve counterfeiting, the court denied the plaintiffs' request for prejudgment interest. The plaintiffs' petition for treble damages, attorney’s fees, costs, and prejudgment interest was granted in part and denied in part. The parties had previously stipulated to amend the names of the plaintiffs and acknowledged that the defendants did not fully remove materials bearing the Motel 6 name until December 31, 2011. A default judgment for trademark infringement and breach of contract was granted against HI Hotel Group and 1450 Hospitality. The determination of whether infringement constitutes counterfeiting is a legal conclusion for the court. Although the plaintiffs referenced a case affirming that a franchisee continuing to use a franchisor's marks after termination was liable for counterfeiting damages, the case did not address the relevant circuit split regarding statutory counterfeiting damages.
Section 1116(d) establishes two criteria for a "counterfeit mark": it must be registered with the U.S. Patent and Trademark Office's principal register, and the defendant must not have been authorized to use the mark at the time of manufacturing or producing the goods or services. This section is relevant for assessing damages under 15 U.S.C. 1117(b). The legislative history clarifies that "counterfeiting" involves the use of spurious marks rather than the unauthorized use of genuine marks, as indicated in the exemption of "overrun goods" and "parallel imports." The court denied Plaintiffs' request for treble damages under 15 U.S.C. 1117(a), finding that the case circumstances did not warrant such an award. The parties agree that Plaintiffs are the prevailing party, supported by testimony from Defendants Shah and I. Patel regarding a sham transaction theory. Defendants faced discovery disputes for failing to respond to Plaintiffs' requests, which led to extended case management deadlines. The court previously issued a preliminary injunction against the Defendants, which was only partially complied with by December 31, 2011. In terms of cost recovery under the Lanham Act, Plaintiffs are not required to prove malice or willfulness. The court agreed to award reasonable attorney’s fees and costs against Defendant Zaver based on the franchising agreement, with Plaintiffs claiming specific costs related to breach of contract and trademark infringement against various defendants. The decision on joint and several liability for attorney’s fees is within the district court's discretion.
