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Applied Underwriters, Inc. v. Lichtenegger

United States Court of Appeals, Ninth Circuit

January 15, 2019

Applied Underwriters, Inc., a Nebraska corporation, Plaintiff-Appellant,
v.
Larry J. Lichtenegger; J. Dale Debber; Providence Publications, LLC, a California limited liability company, Defendants-Appellees.

          Argued and Submitted December 18, 2018 San Francisco, California

          Appeal from the United States District Court No. 2:15-cv-02445-TLN-CKD for the Eastern District of California Troy L. Nunley, District Judge, Presiding

          Kimberly A. Jansen (argued), Hinshaw & Culbertson LLP, Chicago, Illinois; Mark Suri, Peter Felsenfeld, Travis Wall, and Spencer Y. Kook, Hinshaw & Culbertson LLP, Los Angeles, California; for Plaintiff-Appellant.

          Duffy Carolan (argued), Jassy Vick Carolan LLP, San Francisco, California; Kevin L. Vick and Jean-Paul Jassy, Jassy Vick Carolan LLP, Los Angeles, California; for Defendants-Appellees.

          Before: MILAN D. SMITH, JR. and JACQUELINE H. NGUYEN, Circuit Judges, and JANE A. RESTANI, [*] Judge.

         SUMMARY [**]

         Lanham Act / Civil Procedure

         The panel affirmed the district court's dismissal of an action brought by a financial services company under the Lanham Act.

         The panel held that the district court abused its discretion when it sanctioned the plaintiff and dismissed the case pursuant to Federal Rule of Civil Procedure 41(b) absent an order requiring the plaintiff to file an amended complaint.

         The panel nonetheless affirmed the district court's earlier dismissal for failure to state a claim under Rule 12(b)(6). The panel concluded that defendants' use of plaintiff's trademarks in the title of a webcast seminar and in promotional materials was a nominative fair use because plaintiff's service was not readily identifiable without use of the trademarks, defendants used only so much of the trademarks as was reasonably necessary, and use of the trademarks did not suggest sponsorship or endorsement.

          OPINION

          MILAN D. SMITH, JR. JUDGE

         We are confronted with an appeal of a procedurally curious nature. Plaintiff-Appellant Applied Underwriters, Inc. (Plaintiff) appealed the district court's dismissal of its claims for trademark infringement and unfair competition, on the apparent belief that the court dismissed the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). When we asked the district court to clarify its grounds for dismissal, however, it explained that it actually dismissed Plaintiff's complaint as a sanction pursuant to Federal Rule of Civil Procedure 41(b).

         Although we conclude that the district court abused its discretion when it sanctioned Plaintiff and dismissed the case pursuant to Rule 41(b) absent an order requiring Plaintiff to file an amended complaint, we nevertheless affirm the district court's earlier Rule 12(b)(6) dismissal because the use of Plaintiff's trademarks by Defendants-Appellees Larry J. Lichtenegger, J. Dale Debber, and Providence Publications, LLC (Defendants) constituted nominative fair use.

         FACTUAL AND PROCEDURAL BACKGROUND

         I. Factual Background

         Plaintiff is "a financial services company that provides payroll processing services and, through affiliated insurance companies, offers programs through which workers' compensation insurance is offered and provided to employers throughout the United States." It began to use the "Applied Underwriters" mark in October 2001, and has continuously used the mark since. Beginning in October 2002, it also began to use the "EquityComp" mark in connection with its workers' compensation insurance services. The U.S. Patent and Trademark Office has issued Plaintiff five relevant trademark registrations: for the "Applied Underwriters" mark, the "EquityComp" mark, and three stylized versions of these marks, two of which appear to depict a St. Bernard:

         (Image Omitted)

         In its complaint, Plaintiff asserted that these registrations are currently in force and uncontestable, and that it "aggressively advertises and promotes its marks and its services," having "spent millions of dollars advertising" them.

         Defendant Providence Publications, LLC publishes various online news sources, including "Workers' Comp Executive" (WCE). WCE features news reports and offers online seminars, some of which feature Defendants Lichtenegger and Debber.

         Plaintiff alleged that, beginning in November 2015, Defendants began offering a seminar (both online and on DVD) that "uses the Applied Underwriters and EquityComp marks in the title of the webcast." The marks were also featured in various promotional materials, including a widely distributed email advertisement. Defendants used these marks "without Applied Underwriters' authority or permission and in reckless disregard of [its] federal trademark registrations and its rights." Plaintiff also claimed that Defendants "specifically and intentionally target[ed] their marketing and advertising . . . to independent brokers and the business organizations that they serve who use Plaintiff's services." In its complaint, Plaintiff averred that "[a]s a result of the likelihood of confusion caused by Defendants' unauthorized use of" the marks, "Defendants are able to attract customers who mistakenly believe that they will attend a program sponsored or affiliated with Applied Underwriters," leading to dilution of the marks.

         II. Procedural Background

         Plaintiff filed a complaint asserting causes of action for federal trademark infringement and dilution, false designation of origin under the Lanham Act, and federal and state unfair competition. The next day, Plaintiff filed a motion for a temporary restraining order, which the district court denied.

         Defendants moved to dismiss under Rule 12(b)(6), arguing that their use of Plaintiff's marks was protected under the First Amendment, constituted nominal fair use, and satisfied the statutory defenses to trademark dilution. Defendants also filed a request for judicial notice that the district court granted in part and denied in part, taking judicial notice only of the DVD of the seminar. Plaintiff in turn filed an opposition to Defendants' motion to dismiss, accompanied by a declaration and additional evidence not included in its complaint.[1]

         On July 6, 2017, the district court granted Defendants' motion to dismiss, concluding that "Defendants' use of the Trademarks is nominative fair use." At Plaintiff's request, the court granted leave to amend the complaint within 30 days. The district court docket confirms that Plaintiff neither filed an amended complaint (timely or otherwise) nor announced an intent not to do so. Consequently, on August 10, 2017, the district court issued a minute order that read: "In light of Plaintiff's failure to file an Amended Complaint pursuant to the Court's Order (ECF No. [31]), this case is hereby DISMISSED. CASE CLOSED." The clerk of court subsequently entered judgment "in accordance with the Court's Order filed on 8/10/2017."

         This appeal followed. In their briefs, Plaintiff and Defendants disputed whether the district court dismissed Plaintiff's complaint pursuant to Rule 12(b)(6), in which case we would review the sufficiency of the complaint de novo, Starr v. Baca, 652 F.3d 1202, 1205 (9th Cir. 2011), or as a sanction under Rule 41(b), which we would review for abuse of discretion, Yourish v. Cal. Amplifier, 191 F.3d 983, 986 (9th Cir. 1999). To remedy this confusion, we remanded

this case for the limited purpose of allowing the district court to clarify whether the complaint was dismissed as a sanction under Federal Rule of Civil Procedure 41 or for failure to state a claim under Rule 12(b)(6), and, if the final dismissal was intended as a sanction under Rule 41(b), to state the reasoning behind the selection of that sanction.

         Before oral argument in this appeal, the district court responded with a clarification order, in which it explained that it dismissed Plaintiff's complaint as a sanction pursuant to Rule 41(b), and analyzed the five pertinent factors as enumerated in Yourish. It concluded that "[t]hree of the five factors strongly favored dismissal, and this Court dismissed ...


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