Intellectual Property Case not ‘exceptional’ under Lanham Act

Where the district court’s conclusions that one party was prevailing and that this case was “exceptional” under the Lanham Act were both rejected, an award of attorneys’ fees was reversed.

Background

Citi Trends Inc. filed a declaratory judgement action against Coach Inc. and Coach Services Inc. The district court exercised its discretion to decline to take jurisdiction of the case. Coach then filed a motion for attorneys’ fees. The district court concluded that Coach was a “prevailing party” and that this was an “exceptional case,” and so granted Coach’s motion and awarded fees in the amount of $154,565. Citi Trends timely appeals the award and amount of attorneys’ fees.

Analysis

The district court held that Coach was a prevailing party because the effect of the district court’s refusal to hear the Maryland case meant that Coach could litigate in its chosen forum. Before us, the parties dispute not only whether preclusion is required, but whether the district court’s ruling is fully preclusive. For these reasons and because we conclude that even if Coach was a prevailing party, the district court abused its discretion in determining that this case is “exceptional,” we decline to determine whether Coach was a prevailing party here.

The district court offered two findings to support its determination that this case, under the totality of the circumstances, was an “exceptional” case warranting attorneys’ fees: Citi Trends (1) engaged in forum shopping and (2) failed to file counterclaims in the California case. The court indicated that these reasons were cumulative, rather than independent.

With respect to the second basis for granting fees, we infer that the court understood Citi Trends’ failure to file counterclaims in the California case as an implicit admission that these claims were frivolous or objectively unreasonable. In March 2018, when Citi Trends answered the California complaint, however, Citi Trends had no reason to file counterclaims as to the “sold goods,” because Coach had repeatedly asserted it had no claim against Citi Trends for the “sold goods.”

Citi Trends’ failure to file counterclaims to the “sold goods” in the California case does not render unreasonable its initial assertions in its complaint, filed almost a year earlier in Maryland. Rather, the lack of counterclaims in the California case as to “sold goods” reflects a decision made after Coach’s unequivocal representations that Coach had no claims to the “sold goods” in the Maryland case. The district court was clearly erroneous in weighing Citi Trends’ failure to file counterclaims in the California case as to the “sold goods” when it considered whether to award fees.

Given that the district court did not regard its two findings for awarding fees as independent, it may be the elimination of one of those findings requires us to vacate the award of fees. But we need not so hold because the remaining finding as to Citi Trends’ forum shopping does not by itself provide an adequate rationale for fees.

Coach has not cited any case in which forum shopping alone has been held to render a case “exceptional” and so warranting attorneys’ fees. We have found none. The cases that do discuss forum shopping as possibly evidencing “exceptional” conduct are not on all fours with this case. Nonetheless, these cases either hold the parties’ forum shopping behavior not “exceptional” or found ample other evidence of exceptionality. Moreover, the underlying facts here—that Citi Trends raced to the courthouse to file suit in the district in which the opposing parties are incorporated—suggest neither an “unreasonable” “abuse of process,” as Coach contends, nor that this case “stands out from others” and so warrants fees. For all these reasons, the district court abused its discretion in awarding attorneys’ fees to Coach.

Reversed.

Citi Trends Inc. v. Coach Inc. (Per curiam) Case No. 18-1678. Oct. 18, 2019. From D. Md. (Richard D. Bennett, J.) Jamaica Potts Szeliga for Appellants, David B. Jinkins for Appellees.