JDR Indus., Inc. v. McDowell

121 F.Supp.3d 872

JDR INDUSTRIES, INC., a Nebraska corporation, d/b/a Farmer's Choice, Plaintiff,

v.Edwin K. McDOWELL, d/b/a LaGrange Supply Co., and LaGrange Supply Co., L.L.C., a Nebraska limited liability company, d/b/a LaGrange Supply Co., Defendants.

No. 8:14–CV–284.

United States District Court, D. Nebraska.

Signed Aug. 4, 2015.

Dana C. Bradford, III, Justin D. Eichmann, Bradford & Coenen LLC, Omaha, NE, for Plaintiff.

Michael F. Polk, Sena, Polk Law Firm, Omaha, NE, for Defendant.

MEMORANDUM AND ORDER

JOHN M. GERRARD, District Judge.

This matter is before the Court on plaintiff JDR Industries' Motion for Preliminary Injunction (filing 8) and Motion for Partial Summary Judgment (filing 34). The present dispute concerns the right to sell welding rod under the name "LaGrange." JDR claims that, through its predecessors-in-interest, it has been continuously using the LaGrange trademark in connection with the sale of welding rod since as early as approximately 1970. Since the mid to late 1980s, defendant Edwin K. McDowell, a former employee of one of those predecessors, has also been selling welding rod under the name LaGrange. At some point in 2014, McDowell incorporated his company, defendant LaGrange Supply Co., LLC ("LG Supply"), and assigned to LG Supply his interest in the LaGrange name (whatever that interest is).

The parties dispute when JDR first became aware of McDowell's sales—but the Court need not resolve that dispute at this time. JDR maintains that it did not pursue any action against McDowell for his infringing activities because his sales were minimal enough that there was no real threat of confusion. In December 2013, however, things changed. Around that time, JDR terminated the employment of one of its salespersons, James Vance. Vance, who is not a party to this case, approached McDowell, and the two entered into a licensing agreement whereby McDowell allowed Vance to sell welding rod under the LaGrange name in exchange for royalties. In contrast to McDowell, who had run an essentially passive sales operation—generally relying on customers to call him—Vance relied on telemarketing. Moreover, Vance specifically targeted a number of JDR's customers. JDR asserts that this has resulted in significant consumer confusion. This prompted JDR to file suit against Vance in state court. That suit remains pending. The present suit against McDowell and LG Supply followed thereafter. For the reasons discussed below, JDR's motion for partial summary judgment will be granted, as to its claims, and denied, as to defendants' counterclaims. JDR's motion for preliminary injunctive relief will be denied as moot.

FACTUAL BACKGROUND ¹

I. JDR's Claim to the LaGrange Mark

Plaintiff JDR is a Nebraska corporation. Its president is James J. Braun. Filing 10–2 at ¶ 1. JDR traces its ownership in the LaGrange mark through a chain of predecessors, beginning with LaGrange Equipment Company ("LEC"). LEC was, until its dissolution in April 1986, a Nebraska corporation with its principal place of business in Omaha, Nebraska. Its founder and president was Dan LaGrange. Braun worked for LEC from 1982 to 1985, eventually serving as its Vice President of Marketing. Filing 25–2 at ¶¶ 3–4. At least as early as 1970, and continuing through October 1985, LEC sold welding rod using the LaGrange mark. Filing 10–2 at ¶¶ 2–4. LEC did not produce the welding rod itself, but purchased it from several suppliers. Filing 10–2 at ¶ 6.

Ralston Bank was a secured creditor of LEC. In August 1985, acting in conjunction with its holding company, Ralston Bank foreclosed on its loan to LEC, and acquired all of LEC's assets, equipment, and property, including the rights in the LaGrange name (collectively, the "LEC Assets"). However, Ralston Bank allowed LEC to continue in its operations, and so LEC continued to sell welding rod using the LaGrange mark. Between August 1985 and October 17, 1985, Ralston Bank was the sole owner of the rights to the LaGrange name. Filing 10–2 at ¶¶ 7–8; filing 25–3 at ¶¶ 1–7; filing 25–2 at ¶¶ 1–6; filing 35–2 at ¶¶ 1–8.

Following the 1985 foreclosure, Braun and Dan LaGrange, along with a third partner, formed TGS Marketing, Inc.,² which was a Nebraska corporation until its dissolution on July 3, 2003, and which did business as "Farmer's Choice." Filing 10–2 at ¶¶ 9–11. On October 17, 1985, TGS entered into a purchase agreement with Ralston Bank, whereby TGS purchased from Ralston Bank all of the LEC Assets, including the rights to the LaGrange mark. Filing 10–2 at ¶¶ 9–11; filing 10–3 at pp. 1–3; filing 25–2 at ¶¶ 9–11; filing 25–3 at ¶ 8; filing 35–2 at ¶ 9. The transfer of the LEC assets to TGS was essentially a "turnkey operation," whereby TGS opened the following business day doing all of LEC's business out of the same location and using the same office and assets. Filing 25–2 at ¶¶ 11–15. Between October 17, 1985, and June 23, 2003, TGS sold welding rod using the LaGrange mark. Filing 10–2 at ¶¶ 12–13; see also filing 10–2 at ¶ 15; filing 10–5.

On June 23, 2003, plaintiff JDR, also doing business as Farmer's Choice, purchased the LEC assets from TGS, including the rights to the LaGrange mark. Filing 10–2 at 16–17; filing 10–6 at 1–2, 7–8, 11. From that point and continuing through the present day, JDR has sold welding rod under the LaGrange mark. Filing 10–2 at ¶¶ 19–20.

II. Use and Registration of the LaGrange Trademark

JDR and its predecessors-in-interest (TGS and LEC) have sold welding rod using the LaGrange mark since 1970, in over 42 states and Canada. JDR asserts that the LaGrange line of welding rod has become "extremely well known throughout the United States." Filing 10–2 at ¶¶ 22, 25. JDR further asserts that it and its predecessors have spent much time and substantial resources in promoting the LaGrange brand. JDR claims that, as a result, the LaGrange mark has a strong reputation and has built up substantial goodwill, such that the relevant public identifies and associated the LaGrange line of welding rod with JDR and its predecessors. See filing 10–2 at ¶¶ 23–32.

On March 20, 2012, the United States Patent and Trademark Office issued JDR a Registration Certificate for the LaGrange mark, for use in the sale of metal welding rods. The certificate identified JDR's first use of the mark in commerce as occurring on December 31, 1969. Filing 10–2 at ¶ 21; filing 10–7 at 1–3.

III. McDowell's Business

From 1981 to 1985, McDowell worked for LEC as its national sales recruiter. Filing 10–8 at 2–3. McDowell was responsible for selling distributorships for LEC and training and managing four or five other LEC employees involved in such sales. The distributorships that McDowell sold were composed of counties wherein each distributor could exclusively sell LEC's products. Filing 10–8 at 2–3. After LEC closed in 1985, McDowell partnered with various former regional managers of LEC and continued to sell distributorships on their behalf. Essentially, McDowell continued in his previous capacity as a sales recruiter, but instead of working for LEC, he worked for LEC's former managers. For their part, the former regional managers would then train the new exclusive distributors in the sale of welding rod branded as LaGrange.

At some point in the 1980s, McDowell also began selling welding rod on his own, out of his garage, using the LaGrange mark. McDowell has continued these sales through the present day. Filing 10–8 at 4–6, 14–15, 19, 37; filing 23–1 at ¶¶ 4, 13–15, 23, 28, 35–36. And since 1985, McDowell has conducted his business under the name "LaGrange Supply Co." See, filing 23–1 at ¶¶ 4–9, 15; filings 23–2, 23–3, 23–4, and 23–5.³ In July 1997, McDowell registered the trade name "LaGrange Supply Co." with the Nebraska Secretary of State for use in the "[d]istribution of shop equipment and supplies." Filing 10–8 at 7–8; filing 23–9 at 1–3. McDowell renewed the registration in 2007. Filing 10–8 at 7–8; filing 23–9 at 4.

Until Vance later became involved, McDowell's sales of welding rod were, as JDR terms it, "passive." See filing 9 at 9–11. Although McDowell made perhaps 3 to 4 sales calls a week, he was not really running a telemarketing operation, and he primarily relied on customers making calls to him. Filing 10–8 at 11–12. At some point, McDowell had obtained the telephone number formerly used by LEC in its sales of LaGrange welding rod. McDowell would get calls from LEC's former customers whose orders he would then fill. Additionally, McDowell contacted the family who was assigned the telephone number TGS had formerly used to sell LaGrange welding rod and placed a message on their answering machine directing customers to call him to purchase LaGrange welding rod. Filing 10–8 at 12. And in approximately 2006, McDowell developed a website (at http://lagrangesupplycompany.com/) from which he sells welding rod branded as "LaGrange" under the LaGrange Supply Co. name, using a logo formerly used by LEC. Filing 10–8 at 15–16, 47–50. At some point in 2014, McDowell formed defendant LG Supply, a Nebraska limited liability corporation which he owns with his son. McDowell then assigned his interest in the LaGrange Supply Co. trade name to LG Supply. Filing 10–8 at 15, 46.

McDowell testified that he has long been aware that Farmer's Choice (i.e., TGS, and then JDR) was selling LaGrange welding rod, and that Braun was involved in selling LaGrange welding rod since before TGS existed. Filing 10–8 at 9, 19. McDowell also admitted that he had learned that JDR had applied for a federal trademark registration for LaGrange, but did not taken any action to challenge the registration. Filing 10–8 at 18. The parties dispute when Braun, JDR, or JDR's predecessors became aware of McDowell's activities. See, filing 49 at 6–8, 10–15; filing 52 at 8–13, 17–24. But as the Court explains below, that dispute is not material to the pending motions.

IV. Vance's Expansion of McDowell's Business

From 1992 to 2013, James Vance was employed as a telemarketing...