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Versatile Housewares & Gardening Systems, Inc v. Thill Logistics

June 29, 2011


The opinion of the court was delivered by: Kenneth M. Karas, District Judge


Plaintiff Versatile Housewares & Gardening Systems, Inc., ("Versatile") brought this action in September 2009 against Defendants Thill Logistics, Inc., ("Thill"), SAS Group, Inc., ("SAS"), NAT, LLC ("NAT"), Jordan Drew Corp. ("Jordan Drew"), Michael Sobo, Scott Sobo, and Gene Sobo. (Second Am. Compl. ("SAC") (Dkt. No. 160) ¶¶ 3-10.) The Complaint contains claims under both federal and state law for trademark infringement, false advertising, copyright infringement, fraudulent trademark registration, and breach of contract. Following the case's transfer to this Court by the U.S. District Court for the Eastern District of Wisconsin (Dkt. No. 28), Defendants SAS and Jordan Drew answered the Complaint and asserted a number of counterclaims against Versatile.*fn1 (Dkt. No. 33.) In the counterclaim that is the subject of the pending motions, SAS asserts that Versatile breached the Worldwide Distribution & Royalty Agreement ("Distribution Agreement"), entered into between Versatile and SAS on December 22, 2006 (Decl. of Michael T. Griggs ("Griggs Decl.") (Dkt. No. 131) Exh. A.), by bringing this action originally in Wisconsin in violation of the Distribution Agreement's forum selection clause. The Parties have filed cross-motions for summary judgment on this claim. For the reasons stated herein, SAS's motion is DENIED to the extent SAS seeks damages in the form of attorneys' fees but GRANTED to the extent SAS seeks other damages, and Versatile's motion is DENIED except to the extent SAS seeks attorneys' fees, and in that respect Versatile's motion is GRANTED.

I. Background

A. Facts

The facts of the underlying action are largely irrelevant to the pending motions, so what follows is only a brief summary, as alleged by the Parties. Between 2000 and 2004, Versatile, a company based in Cambridge, Wisconsin, developed three versions of a gardening tool designed primarily for the disabled and began selling them under the trademarks "Ground Aug," "Awesome Auger," and "Weed Aug." (SAC ¶¶ 3, 17-20.) In October 2005 Versatile acquired U.S. Patent 6,955,227 ("the '227 patent"), the scope of which is disputed. (Id. ¶ 21.)*fn2 In November 2006 Versatile and SAS began negotiating a distribution agreement for Versatile's tools. (Decl. of Scott Sobo in Supp. of Def./Counterclaim and Third-Party Pl. SAS Group, Inc.'s Mot. for Partial S.J. ("Sobo Decl.") (Dkt. No. 117) ¶ 3). These negotiations culminated in the parties executing two agreements in late December 2006: the Distribution Agreement, whereby SAS acquired exclusive rights to manufacture, sell, and market the tools allegedly covered by the '227 patent in exchange for royalty payments to Versatile (Distribution Agreement ¶¶ 1.1, 3.1); and a Patent Assignment Agreement (Griggs Decl. Exh. B.), whereby Versatile assigned the '227 patent to SAS. (Versatile Rule 56.1 Statement (Dkt. No. 129) ¶¶ 1, 3; Sobo Decl. ¶¶ 4, 8.)

The agreements both contain forum selection clauses designating New York as the parties' chosen forum for resolving any disputes that might arise relating to them. The Distribution Agreement provides that its "[i]nterpretation and enforcement" are to be governed by New York law, (Distribution Agreement ¶ 8.1), and that:

[a]ny dispute which may arise under this Agreement or concerning any business dispute between the parties to this Agreement, shall be resolved by the State or Federal Courts located in the State of New York, Westchester County. The parties agree to submit to the jurisdiction of all such courts for the purpose of resolving any such dispute(s). The judgment of such court(s) shall be granted full faith and credit by the courts of all such other countries where the parties may be located at the time such judgment is entered. (Id. ¶ 8.2.) Similarly, the Patent Assignment Agreement provides:

This agreement shall be construed in accordance with, and governed in all respects by, the laws of the State of New York, without regard to conflicts of law principles. Any dispute concerning this assignment shall be resolved by courts located in the State of New York and the Parties consent to the jurisdiction of such courts for that purpose. (Patent Assignment Agreement ¶ 5.)

In June 2008, SAS stopped making royalty payments to Versatile. (SAC ¶ 36.) According to SAS, this was after it came to SAS's attention that Versatile was selling a competing gardening tool that was nearly identical to that distributed by SAS. (Sobo Decl. ¶ 10.) Until that point, SAS had believed that Versatile's new product was covered by the '227 patent, which had been assigned to SAS pursuant to the Patent Assignment Agreement. (Id. ¶ 18; Exh. D, at 2.) SAS then "conducted a review" of the '227 patent and the product which SAS had been selling under the trademark "Awesome Auger," and determined that this product "did not fall within the claims of" the patent. (Id. ¶¶ 11-12.) Because of this, SAS cut off its royalty payments and demanded both reimbursement of all previously paid royalties and so-called "reverse royalty" payments from Versatile. (Id. ¶ 15; Exh. D, at 2-3.) Meanwhile, Versatile alleges, although it was understood between the parties that Versatile would maintain ownership of the products' trademarks (SAC ¶¶ 26-30), when SAS stopped making royalty payments it nevertheless also filed its own trademark applications for the "Awesome Auger," "Ultimate Awesome Auger," and "Ultimate Auger" marks on behalf of Jordan Drew, an affiliated company, (id. ¶¶ 37-38). Versatile alleges that SAS acquired these marks by making false and misleading statements to the U.S. Patent and Trademark Office concerning the ownership of the "Awesome Auger" mark. (Id. ¶ 37.)

The Distribution Agreement terminated on January 1, 2009, Versatile alleges, due to SAS's failure to make its royalty payments. (SAC ¶ 39; see also Distribution Agreement ¶ 1.2 (providing for automatic two-year renewals from January 1, 2007, "for so long as [SAS] shall comply with all its obligations under this Agreement"). During the spring and summer of 2009, both parties sought royalty payments and reimbursements that each allegedly owed the other. (SAC ¶¶ 40-43; Sobo Decl. ¶¶ 16-18.)

B. Procedural History

Versatile filed the initial complaint in this action in the Eastern District of Wisconsin on September 3, 2009. (Compl. (Dkt. No. 1).) Versatile's Complaint asserted claims for violations of the Lanham Act and Copyright Act, for trademark infringement under Wisconsin law, and for common law trademark infringement, fraud, and breach of the Distribution Agreement. (Id. ¶ 1.) Versatile named SAS and Jordan Drew as defendants, as well as two Wisconsin corporations, Thill Logistics, Inc., ("Thill") and NAT, LLC ("NAT"); Versatile alleged that Thill and NAT acted essentially as distributors of SAS's allegedly infringing products within Wisconsin. (Id. ¶¶ 2, 5-6, 63-65.)

As relevant to the pending motions here, SAS and Jordan Drew moved to dismiss the case for improper venue and lack of personal jurisdiction or, in the alternative, to transfer the case to this Court, pointing to the forum selection clauses of the Distribution and Patent Assignment Agreements. (Dkt. No. 13; Defs. SAS Group, Inc. & Jordan Drew Corp.'s Br. in Supp. of Their Mot. to Dismiss (Dkt. No. 14) 9.) On December 4, 2009, the Wisconsin District Court entered an order transferring the case to this Court pursuant to 28 U.S.C. § 1404(a), based on those provisions. See Versatile Housewares & Gardening Sys., Inc.v.Thill Logistics, Inc., No. 09-CV-846, 2009 WL 4730825 (E.D. Wis. Dec. 7, 2009) (Dkt. No. 28) ("Versatile Transfer Order"). The court first determined that the clauses were "mandatory" rather than "permissive," meaning that the parties had agreed to "vest[] jurisdiction and venue exclusively" where the clauses specified. Id. at *4. The court rejected Versatile's argument that the clauses constituted mere consents to jurisdiction in New York, pointing to the mandatory nature of the language in the clauses, which required that "[a]ny dispute . . . shall be resolved" by the courts in Westchester County, New York. Id. (quoting Distribution Agreement ¶ 8.2). The court went on to conclude that enforcement of the forum selection clauses would not be unreasonable or unjust, rejecting Versatile's arguments that several of its claims were not covered by the clauses, id. at *4-5, and finding that convenience and judicial economy would be served by the transfer, id. at *5-6.

After the transfer, this Court denied the Parties' competing motions for preliminary injunctions in April 2010. (Dkt. No. 96.) SAS then filed a motion for partial summary judgment on its counterclaim on June 18, 2010. (Dkt. No. 113.) It contends that Versatile's decision to bring this action originally in Wisconsin constituted a knowing breach of the mandatory forum selection clause of the Distribution Agreement, and that SAS is therefore entitled to all damages stemming from Versatile's breach, including the attorneys' fees and costs expended to defend this case in Wisconsin and litigate its transfer to this Court. (Mem. of Law in Supp. of Def./Counterclaim and Third-Party Pl. SAS Group, Inc.'s Mot. for Partial S.J. (Dkt. No. 115)

("SAS Mem.") 10-12.) SAS and Jordan Drew seek a total of $37,269.71 in damages; this figure includes the nearly $11,000 paid to local Wisconsin counsel and nearly $25,000 to SAS's current counsel, along with prejudgment interest. (Id. at 11-12.) Versatile cross-moved for summary judgment on the counterclaim (Dkt. No. 127), contending that New York law does not allow for the recovery of attorneys' fees under these circumstances and that the damages SAS seeks are excessive. (Pl.'s Mem. of Law in Supp. o[f] Its Mot. for Partial S.J. and in Opp'n to SAS's Mot. for Partial S.J. (Dkt. No. 128) ("Versatile Mem.") 2, 5.) The Court held oral argument on these motions on November 10, 2010. The Court denied both motions without prejudice in March 2010, after the Parties informed the Court that they were engaged in settlement discussions. (Dkt. No. 151.) These proved unsuccessful, and earlier this month the Parties asked to have the motions reinstated.

II. Discussion

A. Standard of ...

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