Denali Real Estate, LLC v. Denali Custom Builders, Inc.

302 Neb. 984

926 N.W.2d 610

DENALI REAL ESTATE, LLC, a Nebraska limited liability company, doing business as Denali Construction and Denali Homes, appellee,

v.DENALI CUSTOM BUILDERS, INC., a Nebraska corporation, appellant.

No. S-18-287

Supreme Court of Nebraska.

Filed April 25, 2019

Matt Catlett, of Law Office of Matt Catlett, Lincoln, for appellant.

Joseph C. Byam, of Byam & Hoarty, Omaha, for appellee.

Heavican, C.J., Miller -Lerman, Cassel, Stacy, Funke, Papik, and Freudenberg, JJ.

Cassel, J.

I. INTRODUCTION

A company using registered trade names obtained a permanent injunction, statutory damages, and attorney fees against a corporation using a similar name. The corporation appeals, contending that it used only its legal corporate name. But because evidence showed otherwise and actual confusion resulted, the corporation’s central argument fails. We first consider whether the denials of the corporation’s pretrial motions to dismiss and for judgment on the pleadings survive the trial, reaching only the latter motion. Upon de novo review, we uphold the judgment on the company’s claims of trade name infringement and deceptive trade practices, but not its claim for intentional interference with a business relationship. Otherwise finding no merit to the appeal, we affirm the judgment.

II. BACKGROUND

1. PARTIES

Denali Real Estate, LLC (DRE), doing business as Denali Construction and Denali Homes, is a Nebraska limited liability company with an office in Omaha, Nebraska. It filed a certificate of organization with the Nebraska Secretary of State in 2014. In September 2015, DRE registered with the Secretary of State the trade names "Denali Construction" and "Denali Homes." That same month, it began building, advertising, and selling new homes under the name "Denali Homes." DRE markets its homes in eastern Nebraska and has built homes in Douglas, Lancaster, and Sarpy Counties.

Denali Custom Builders, Inc. (DCB), is a Nebraska corporation with an office in Lincoln, Nebraska. It filed articles of incorporation and commenced business on February 29, 2016. It builds new homes in Lancaster County.

2. LAWSUIT

In July 2016, DRE demanded that DCB stop using the name "Denali Custom Builders, Inc." in its business. DCB continued to use the name, and DRE filed suit in the district court in October.

DRE alleged misuse of trade name, claiming that DCB’s "use of the trade name ‘Denali Custom Builders, Inc.’ has caused confusion, mistake, and deception among purchasers and potential purchasers of homes in Nebraska." DRE sought injunctive relief and damages attributable to DCB’s "wrongful use of [DRE’s] trade name," including lost profits and reasonable attorney fees.¹

DRE also alleged deceptive trade practices in violation of the Uniform Deceptive Trade Practices Act.² It alleged that DCB’s use of DRE’s trade name caused confusion and misunderstanding as to DCB’s affiliation with DRE. On this claim, DRE sought an injunction and costs.³

Finally, DRE alleged interference with a business relationship. It claimed that DCB was "deceiving the members of the public" into believing that DCB’s advertising was that of DRE, thereby interfering with DRE’s "business relationships with the public generally."

3. PRETRIAL PROCEEDINGS

DCB responded by filing a motion to dismiss, alleging that the complaint failed to state a claim upon which relief may be granted. The district court denied the motion.

After the denial of DCB’s motion to dismiss, DCB filed an answer. As an affirmative defense, it alleged that "[t]he Complaint fails to state a claim upon which relief can be granted because ‘Denali Custom Builders, Inc.’ is [DCB’s] legal name, not [DCB’s] trade name."

After the close of the pleadings, DCB moved for judgment on the pleadings. The court overruled the motion. In doing so, the court stated that "there is a reasonable dispute as to whether there’s a misuse of the trade name or of the names used by [DCB]" and that the factual allegations in the complaint were sufficient to support the causes of action.

Forty-nine days after a pretrial conference, DRE moved to amend its complaint and the joint pretrial conference memorandum. DRE sought to add Roger Watton, a potential homebuyer, as a witness and to add as exhibits two bills from a Lincoln utility. DCB filed an objection, noting that the trial was set to begin in 13 days and that DRE had had more than 1 year to amend its complaint. DCB also alleged that it would be prejudiced by any amendment to the complaint. During a hearing on the motion to amend and the objection, DRE represented that neither the utility bills nor the testimony of Watton were known to DRE at the time of completing the pretrial conference memorandum "because this has just occurred in the last couple weeks." The court overruled the motion to amend the complaint, but sustained the motion to add the witness and exhibits to the pretrial joint conference memorandum.

Two days before trial, DCB moved for attorney fees under Neb. Rev. Stat. § 25-824(2) and (4) (Reissue 2016). It alleged that the action was frivolous and was brought to harass DCB.

4. TRIAL

The court bifurcated the trial, with the initial portion of the trial addressing liability and a second portion being reserved for consideration of remedies.

By the time of trial, DRE had built approximately 10 homes. It was building a home "within half a mile" of a home that DCB was building. DCB’s signage and its website identified it as "Denali Custom Builders" and, according to DRE’s managing partner, used the same fonts and colors as DRE.

DRE adduced evidence demonstrating confusion regarding DRE and DCB. Internet searches for "denali construction nebraska" or "denali home construction nebraska" directed the searcher to DCB’s website. DRE received a document from a lumber company with which it frequently transacted business that identified DRE as both "Denali Custom Homes" and "Denali Custom Builders." A bill from a utility for one of DRE’s projects identified the customer as "Denali Custom Builders." Another time, DRE returned materials to an Omaha furniture store but the store gave the credit to DCB. An employee testified that there was confusion as to which entity should get the credit. An appliance sales associate for the same furniture store testified that an order belonging to DRE ended up in the store’s system under DCB, which caused confusion. Watton testified that in September 2017, he and his wife met with representatives of DRE in Omaha to discuss the process for building a home. The following weekend, Watton and his wife toured some homes in Lincoln and there was a home built by an entity containing the name "Denali." After touring the home, Watton did not know what entity had built it. Watton subsequently spoke with a representative of DRE, who clarified that DRE had not built that particular house.

After DRE presented its case in chief, it asked that the pleadings be amended to conform to the evidence presented. Specifically, DRE wanted the complaint to be amended to show that DCB used names other than its true legal name. DCB objected. The court overruled the motion, because "this is already incorporated into the allegations that have been made and consistent with the matters that we’ve addressed before." DCB moved for a directed verdict, which the court denied. The only evidence DCB offered was an attorney fee affidavit.

5. INTERLOCUTORY ORDER AND FINAL JUDGMENT

After the first phase of the trial, the court entered an order finding in favor of DRE on the issue of liability. The court found that DRE and DCB were operating the same type of business, which generally consisted of building new homes. It found that both businesses advertised on social media, that they were building homes in Lincoln within a half mile of each other, and that they have signs using "Denali."

Significantly, the court determined that DCB generally did not use its corporate name when conducting business, but, rather, typically removed " ‘Inc.’ " and used " ‘Denali Custom Builders.’ "

The court also determined that DRE’s evidence provided a reasonable basis for concluding that there was confusion and that it was likely for such confusion to exist in the future. The court found that DRE’s right to use " ‘Denali’ " was superior to that of DCB, noting that DRE used and registered the trade name for a home construction business first and that it had used the trade name in the ordinary course of business in a manner that associated its business with that name. The court concluded that DRE had met its burden of proof and established its claim for relief for misuse of a trade name.

The court also found that DRE met its burden of proof and established its claim for relief against DCB for engaging in deceptive trade practices. The court noted that both parties were in the home construction business, that both parties transacted business and advertised in Lancaster County, and that there had been actual confusion by suppliers and the consuming public. The court observed that DCB used similar colors, type fonts, images, and design as those used by DRE.

Finally, with regard to interference with business relationships, the court found that DCB’s use of " ‘Denali’ " interfered with DRE’s business relationships. The court found that DRE had a valid business relationship with its suppliers and an expectancy of a business relationship with the consuming public. The court stated that DCB’s "failure to terminate the use of the name after being aware of [DRE’s] use creates intentional interference under the law."

Following the second phase of the trial, the court entered judgment. It permanently enjoined DCB from using or displaying " ‘Denali’ " in its business in any manner and gave it a set amount of time to remove " ‘Denali’ " from anywhere it used or displayed that word, including "registration of its corporate name or trade name with the Nebraska Secretary of State and from any signage, website, advertising, social media ...