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Marcel Fashions Group, Inc. v. Lucky Brand Dungarees, Inc.

United States Court of Appeals, Second Circuit

August 2, 2018

Marcel Fashions Group, Inc., Plaintiff-Appellant,
v.
Lucky Brand Dungarees, Inc., Lucky Brand Dungarees Stores, Inc., Leonard Green & Partners, L.P., Lucky Brand, LLC, Lucky Brand Dungarees Stores, LLC, Kate Spade & Co., Defendants-Appellees, Liz Claiborne, Inc., LBD Acquisition Co., LLC, Defendants.

          Argued: October 12, 2017

          Appeal from the United States District Court for the Southern District of New York. No. 11-cv-05523 - Laura Taylor Swain, Judge.

          Robert L. Greener, Law Office of Robert L. Greener, New York, NY, for Plaintiff-Appellant.

          Dale M. Cendali, Kirkland & Ellis LLP, New York, NY (Claudia Ray, Mary C. Mazzello, Kirkland & Ellis LLP, New York, NY; P. Daniel Bond, Kirkland & Ellis LLP, Chicago, IL, on the brief), for Defendants-Appellees.

          Before: Winter, Walker, and Pooler, Circuit Judges.

          JOHN M. WALKER, JR., CIRCUIT JUDGE:

         Plaintiff-Appellant Marcel Fashions Group, Inc. ("Marcel") and Defendants-Appellees Lucky Brand Dungarees, Inc. and affiliates ("Lucky Brand"), competitors in the apparel industry, have been hotly contesting their respective rights as to certain trademarks for nearly two decades. In this latest round, Marcel sues under the Lanham Act, alleging that Lucky Brand is infringing on Marcel's "Get Lucky" trademark through its use of "Lucky" on its merchandise, and that Lucky Brand does so in violation of an injunction entered in an earlier action between the parties. The district court dismissed the action, concluding that Marcel released its claims through a 2003 settlement agreement that resolved an earlier substantially similar litigation between the parties. We conclude that the district court did so in error because res judicata precludes Lucky Brand from raising its release defense in this action. To arrive at that result, we determine that under certain conditions parties may be barred by claim preclusion from litigating defenses that they could have asserted in an earlier action, and that the conditions in this case warrant application of that defense preclusion principle.

         Consequently, we VACATE the judgment entered by the district court and REMAND for further proceedings.

         Plaintiff-Appellant Marcel Fashions Group, Inc. ("Marcel") and Defendants-Appellees Lucky Brand Dungarees, Inc. and affiliates ("Lucky Brand"), competitors in the apparel industry, have been hotly contesting their respective rights as to certain trademarks for nearly two decades. In this latest round, Marcel sues under the Lanham Act, alleging that Lucky Brand is infringing on Marcel's "Get Lucky" trademark through its use of "Lucky" on its merchandise, and that Lucky Brand does so in violation of an injunction entered in an earlier action between the parties. The district court dismissed the action, concluding that Marcel released its claims through a 2003 settlement agreement that resolved an earlier substantially similar litigation between the parties. We conclude that the district court did so in error because res judicata precludes Lucky Brand from raising its release defense in this action. To arrive at that result, we determine that under certain conditions parties may be barred by claim preclusion from litigating defenses that they could have asserted in an earlier action, and that the conditions in this case warrant application of that defense preclusion[1] principle. Consequently, we vacate the judgment entered by the district court and remand for further proceedings.

         I.

         In a previous opinion vacating the entry of summary judgment dismissing the claims in Marcel's initial complaint, we discussed in detail the claims at issue in this case, as well as the parties' relevant history of litigation. Marcel Fashions Grp., Inc. v. Lucky Brand Dungarees, Inc., 779 F.3d 102, 105-07 (2d Cir. 2015) ("Marcel I"). We reiterate that discussion here to the extent necessary to frame the issues relevant to an assessment of Lucky Brand's release defense.[2]

         The 2001 Action. The settlement agreement through which Lucky Brand in this action asserts Marcel released its claims resolved a 2001 suit in which Marcel sued Lucky Brand for its alleged infringement of Marcel's "Get Lucky" mark (the "2001 Action"). See Marcel I, 779 F.3d at 105. The agreement provided that, inter alia, Lucky Brand would "desist henceforth from use of 'Get Lucky, '" and, pertinent to this appeal, Marcel agreed, through Section 8(e) of the agreement, to release certain claims it might have in the future arising out of its trademarks:

Marcel hereby forever and fully remises, releases, acquits, and discharges Defendants [Lucky Brand] . . . from any and all actions, causes of action, suits . . . or relief of any nature whatsoever, whether known or unknown, foreseen or unforeseen . . . that Marcel ever had, now has or hereafter can, shall or may have, by reason of or arising out of any matter, cause or event occurring on or prior to the date hereof, including, but not limited to . . . any and all claims arising out of or in any way relating to Lucky Brand's rights to use, license and/or register the trademark LUCKY BRAND and/or any other trademarks, trade names, brands, advertising slogans or tag lines owned, registered and/or used by Lucky Brand. . . as of the date of this Agreement. No claims of any kind are reserved.

App'x 85-86 (the "Release"). Marcel and Lucky Brand's views have been consistently at odds on the scope of the Release. Marcel contends that it only released claims as to infringement that occurred prior to the 2003 execution of the agreement. Lucky Brand, for its part, contends that the Release is far broader, releasing any claim Marcel may have in the future in relation to any trademark registered prior to the execution of the agreement. The distinction is vital. Because each of Marcel's claims in this action ultimately allege a misappropriation of a mark registered before 2003, the latter interpretation would bar Marcel's claims, but the former would not.

         The 2005 Action. Due at least in part to the parties' conflicting views on the breadth of the Release, further litigation followed the parties' settlement of the 2001 Action. Specifically, in 2005, Lucky Brand sued Marcel over Marcel's issuance of a license for use of the "Get Lucky" mark and Marcel counterclaimed with infringement claims of its own while also contending that Lucky Brand's use of "Get Lucky" violated the 2003 settlement agreement (the "2005 Action"). See Marcel I, 779 F.3d at 105-06.

         Early in the 2005 Action, Lucky Brand tested its theory that the Release broadly barred Marcel's infringement claims. Specifically, Lucky Brand argued that, because the marks at issue were registered prior to the settlement agreement, Marcel released any claim alleging infringement of those marks. Lucky Brand moved to dismiss on this theory, arguing that Marcel's infringement counterclaims were barred by the terms of the Release. App'x 225-27. Marcel opposed the motion, arguing, as it does here, that the Release does not bar any claims as to infringing uses occurring after execution of the settlement agreement. See No. 05-cv-06757, Dkt. No. 49 at 8-9 (S.D.N.Y. Oct. 26, 2005). The district court denied the motion in relevant part, effectively concluding that it was premature to determine which claims in that action, if any, were subject to the Release. See App'x 257-58. The district court stated, however, that Lucky Brand was "free to raise the issue . . . again after the record is more fully developed, including further development of the nature and use of the post-2003 marks." App'x 257-58. Heeding the district court's instruction, Lucky Brand again raised the Release in its answer, asserting as an affirmative defense that the "Settlement Agreement bars [Marcel's] Counterclaims." No. 05-cv-06757, Dkt. No. 67 ¶ 100 (S.D.N.Y. Jan. 2, 2007).

         Despite relying on the release argument as part of its motion to dismiss and in its answer, however, Lucky Brand never again asserted a release defense in the 2005 Action. It was not for want of opportunity. The parties engaged in extensive summary judgment proceedings, substantial pre-trial motion practice, and a lengthy jury trial during which the release defense could have been asserted, but was not. And, without any argument to the jury by Lucky Brand that the Release barred Marcel's counterclaims as to infringement of its "Get Lucky" mark, the jury found in favor of Marcel on its counterclaim that Lucky Brand infringed that mark. See Marcel I, 779 F.3d at 106. The district court thereafter entered an injunction prohibiting Lucky Brand's use of the "Get Lucky" mark, and entered a declaration that the "Lucky Brand Parties infringed Marcel Fashion's GET LUCKY trademark . . . by using GET LUCKY, the LUCKY BRAND trademarks, and any other trademarks including the word 'Lucky' after May 2003." Id.

         The Instant Action. Lucky Brand did not appeal the judgment in the 2005 Action, but the parties' dispute over use of the relevant marks continued. In 2011, relying on the broad language of the court's injunction in the 2005 Action, Marcel filed the instant suit, seeking relief for Lucky Brand's alleged continued use of the "Lucky Brand" mark following that injunction. See id. at 106-07. Consistent with its non-assertion of the Release before the jury in the 2005 Action, however, Lucky Brand did not assert a release defense in the early stages of the instant action. Lucky Brand did not plead the Release as an affirmative defense in its answer to the initial complaint. No. 11- cv-05523, Dkt. No. ...


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