Fabick, Inc. v. Fabco Equip., Inc.

296 F.Supp.3d 1022

FABICK, INC., Plaintiff,

v.FABCO EQUIPMENT, INC. and JFTCO, Inc., Defendants.

16–cv–172–wmc

United States District Court, W.D. Wisconsin.

Signed November 8, 2017

Cathleen A. Dettmann, Kevin J. Palmersheim, Haley Palmersheim, S.C., Middleton, WI, for Plaintiff.

Andrea Marie Davenport, Reinhart Boerner Van Deuren S.C., Milwaukee, WI, Jessica Hutson–Polakowski, Monica Ann Mark, Jessica Hutson–Polakowski, Reinhart Boerner Van Deuren, S.C., David J. Harth, Gabrielle E. Bina, Lissa R. Koop, Michelle Marie Umberger, Perkins Coie LLP, Madison, WI, Marc W. Vander Tuig, Robert M. Evans, Jr, John R. Schroeder, Kyle G. Gottuso, Senniger Powers LLP, St. Louis, MO, for Defendants.

OPINION AND ORDER

WILLIAM M. CONLEY, District Judge

This case illustrates some of the perils of going into business with family members, including the obvious risks of intermingling business and personal relationships, but also the less obvious risks associated with using a family name as a trademark. Here, plaintiff Fabick, Inc., asserts claims of trademark infringement under both federal and state common law against defendant FABCO Equipment, Inc., and JFTCO, Inc., based on defendants' use of the "Fabick CAT" name beginning in July 2015. The parties' cross motions for summary judgment are before the court. (Dkt. ## 90, 117.) For the reasons that follow, the court will deny both motions, with one exception: defendant FABCO's motion for judgment in its favor on any claim of direct trademark infringement.

PRELIMINARY ISSUES

I. Motion to Strike Defendants' Affirmative Defenses (dkt. # 195)

In a prior order, the court granted defendants' motion to dismiss count I of plaintiff's first amended complaint and directed plaintiff to file a second amended complaint (dkt. # 88), which it did (dkt. # 143). In response, defendants filed their respective answers. (Dkt. ## 144, 145.) Plaintiff now moves to strike two defenses which it contends were raised for the first time in the amended answers without leave of court: (1) a fair use defense under 15 U.S.C. § 1115(b)(4), and (2) a fraudulent procurement defense under 15 U.S.C. § 1115(b)(1).

In opposing the motion, defendants contend generally that the motion should be denied solely "because a plaintiff's new complaint wipes away prior pleadings, [and, therefore,] the amended complaint opens the door for defendants to raise new and previously unmentioned affirmative defenses." (Defs.' Opp'n (dkt. # 207) 1–2 (quoting Chasensky v. Walker , 740 F.3d 1088, 1094 (7th Cir. 2014) ).) More precisely, however, Chasensky and other cases like it stand for the proposition that in answering the amended complaint, a party may respond to new allegations with new affirmative defenses. Similarly, if the amended complaint does not contain new allegations giving rise to new defenses, then the defendant must seek leave to amend its answer to add those new defenses. See generally 6 Charles Alan Wright, et al. , Fed. Prac. & Proc. Civ. § 1476 (3d ed.) ("[W]hen the complaint is amended defendant should be entitled to amend the answer to meet the contents of the new complaint.").

With respect to the § 1115(b)(4), plaintiff asserts factual allegations for the first time in its second amended complaint that relate to fair use. (Compare 2d Am. Compl. (dkt. # 143) ¶ 54 ("FABCO asserts that prior to selling its assets to JFTCO, and in spite of FABCO having previously sold the Fabick stock and the FABICK Marks to Jay Fabick, that FABCO had a common law 'fair use' right to use the 'Fabick' name in FABCO's business operations."), with 1st Am. Compl. (dkt. # 32) (containing no reference to "fair use").) As such, the court finds that defendants reasonably added a fair use defense in their respective answers to the second amended complaint.

Defendants' new affirmative defense of fraudulent procurement under 15 U.S.C. § 1115(b)(1), however, presents a different situation. With respect to this defense, defendants do not argue that new allegations in plaintiff's second amended complaint open the door to this defense; rather, defendants argue that they "did not have a basis to plead that Plaintiff fraudulently procured its trademark rights at the outset of this case." (Defs.' Opp'n (dkt. # 207) 4.) Instead, defendants maintain they only learned of the availability of this defense during Jay Fabick's deposition in this lawsuit, when he purportedly testified that he was award of the prior use of the Fabick mark by the John Fabick Tractor Company. (Id. ) While perhaps this justified granting leave to amend their respective answers under Rule 15(a)(2), defendants did not seek leave to add this new defense either before or at the time they filed their respective amended answers. Still, the court is reluctant to exalt form over substance, particularly when answering an amended complaint may have seemed a convenient (if somewhat underhanded) opportunity to add this new defense. As such, the court will treat defendants' opposition as a motion for leave to amend their answers to add a defense under 15 U.S.C. § 1115(b)(1).

Typically, leave to amend should be "freely" given. Fed. R. Civ. P. 15(a)(2). Notwithstanding this "liberal attitude towards the amendment of pleadings, courts in their sound discretion may deny a proposed amendment if the moving party has unduly delayed in filing the motion, if the opposing party would suffer undue prejudice, or if the pleading is futile." Soltys v. Costello , 520 F.3d 737, 743 (7th Cir. 2008) (internal quotation omitted). Accepting defendants' contention that they did not know of the availability of this defense until Jay Fabick's deposition, the deposition was held on March 14, 2017, while defendants' respective answers were not filed until June 28, 2017, more than three months later. Admittedly, defendants' answers to the second amended complaint were not due until that date, but defendants offer no reason for not seeking to amend more promptly, a particularly poor choice since even defendants concede the fraudulent procurement defense was not triggered by new allegations in the second amended complaint. In sum, defendants could have (and should have) sought leave to add this new defense shortly after Jay Fabick's deposition.

Still, three months is not an inordinate delay absent some prejudice to plaintiff, and that is where plaintiff's opposition stalls. See Dubicz v. Commonwealth Edison Co. , 377 F.3d 787, 792 (7th Cir. 2004) ("Delay, standing alone, may prove an insufficient ground to warrant denial of leave to amend the complaint; rather, the degree of prejudice to the opposing party is a significant factor in determining whether the lateness of the request ought to bar filing." (internal citation and quotation marks omitted)). As far as the court can discern, defendants' unclean hands defense touches on the same factual allegations as those that would support a fraudulent procurement defense, and other than complaining generally about its need to conduct discovery relative to these defenses, plaintiff has identified no way in which its discovery efforts or trial preparations would be prejudiced by the late addition of this defense. See generally 6 J. Thomas McCarthy, McCarthy on Trademarks & Unfair Competition § 31:60 at 31–160 to 31 –161 (discussing interplay between unclean hands defense based on fraud in obtaining registration and a § 1115(b)(1) defense).

For these reasons, the court will deny plaintiff's motion to strike defendants' fair use and fraudulent procurement defenses under 15 U.S.C. §§ 1115(b)(4) and 1115(b)(1), respectively.

II. Reserved Portion of Motion to Compel (dkt. # 211)

Defendants filed a motion to compel discovery or, alternatively, to preclude evidence and argument at trial on advice of counsel. (Dkt. # 211.) After hearing argument from the parties on that motion, the court previously: (1) granted it in part by striking plaintiff's reliance on an advice of counsel defense in its summary judgment briefing and precluding certain related testimony at trial; (2) denied it in part by refusing to compel production of one of the categories of privileged documents; and (3) reserved on compelling production of the other category of documents to defendant JFTCO pending additional briefing from the parties. (10/5/17 Order (dkt. # 215).) Having now reviewed certain of the withheld documents in camera and considered the parties' additional briefing, the court agrees with defendants that FABCO's right to attorney-client privilege transferred at the time of JFTCO's acquisition of substantially all of FABCO's assets. Accordingly, the court will direct plaintiff to produce the "first category" of documents identified in the court's prior order and filed by plaintiff for in camera review.

As set forth in defendants' supplemental briefing, a corporation's rights and authority with respect to the attorney-client privilege passes to the new management along with control. See Commodity Futures Trading Comm'n v. Weintraub , 471 U.S. 343, 349, 105 S.Ct. 1986, 85 L.Ed.2d 372 (1985) ; see also Am. Int'l Specialty Lines Ins. Co. v. NWI–I, Inc. , 240 F.R.D. 401, 407 (N.D. Ill. 2007) (recognizing that following Weintraub , "several courts have recognized that assignees or transferees of most, if not all, of a corporation's assets will have the authority to assert or waive the attorney-client privilege" (internal citations omitted)). (See also Defs.' Suppl. Br. (dkt. # 217) 2–3 & n.3 (citing other cases in support).)

In response, plaintiff does not cite any legal authority to the contrary, but instead argues that any attorney-client privilege attaching to the documents at issue had transferred from FABCO to plaintiff Fabick, Inc., at the time of the 1997 transfer of Fabick stock to Jay Fabick, and therefore had already been lost before the 2015 asset acquisition by JFTCO. (Pl.'s Opp'n (dkt. # 218) 1.) The argument presumes that the attorney's involved in the creation of these communications from approximately 19...