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First Nat'l Bank in Sioux Falls v. First Nat'l Bank South Dakota

September 11, 2009

THE FIRST NATIONAL BANK IN SIOUX FALLS, A NATIONAL BANKING CORPORATION, PLAINTIFF,
v.
FIRST NATIONAL BANK SOUTH DAKOTA, SPC, INC. D/B/A FIRST NATIONAL MERCHANT SOLUTIONS, FIRST NATIONAL BANK OF OMAHA, AND FIRST NATIONAL OF NEBRASKA, INC., DEFENDANTS.



The opinion of the court was delivered by: Lawrence L. Piersol, District Judge

AMENDED COURT TRIAL MEMORANDUM OPINION AND ORDER

A court trial was held on the Second Amended Complaint (Doc. 61) of the Plaintiff The First National Bank in Sioux Falls (FNB Sioux Falls). In this Second Amended Complaint FNB Sioux Falls has sought relief for alleged violations of the Lanham Act, common law service mark infringement, and common law unfair competition, as well as for the alleged violation of a preliminary injunction previously issued by this Court in The First National Bank In Sioux Falls v. First National Bank South Dakota, No. 95-4116 (D.S.D. April 14, 1997). *fn1 In its March 31, 2008 Memorandum Opinion, 2008 WL 895931, this Court, after considering the changes of location, advertising and promotional activities of the parties in the cases at hand and the factors of § 24 of The Restatement (Second) of Judgments, rejected the Defendants' argument that res judicata barred FNB's Sioux Falls' claims in the case now before the Court.*fn2

FACTUAL FINDINGS AND PROCEDURAL BACKGROUND

Plaintiff, The First National Bank in Sioux Falls

Plaintiff, The First National Bank in Sioux Falls (FNB Sioux Falls), is a nationally chartered bank with its principal offices in Sioux Falls, South Dakota which offers retail and commercial banking services. FNB Sioux Falls, which has also been known as the "Baker Bank," was originally chartered as Minnehaha National Bank of Sioux Falls in 1885. William Lafayette Baker became an owner and president of the bank around 1910. After surviving the Great Depression and the Bank Holiday, Minnehaha National Bank changed its name to First National Bank & Trust Company. In 1952 the name was then changed to The First National Bank in Sioux Falls.*fn3 In around 1976, FNB Sioux Falls razed its predecessor building and built its current main office on the corner of 9th Street and Phillips Avenue in downtown Sioux Falls. At about that time FNB Sioux Falls adopted the red "Flying F's logo," F's in a pentagonal shape, which is often used in connection with its mark "First National Bank."

The sign on the main office building is "First National Bank." This sign, added at the top of the bank building in the 1980's, is in copper metallic letters. Additional Branches using the term "First National Bank" exist in Minnehaha, Lincoln and Moody Counties in Sioux Falls, Brandon, Baltic, Dell Rapids, Harrisburg and Flandreau. The Farmer's State Bank, Flandreau, was acquired by FNB Sioux Falls' holding company in 1981. The name of that Bank was renamed the Flandreau Branch of First National Bank in Sioux Falls on April 1, 2007. FNB Sioux Falls has consistently used its marks to promote its services in connection with television, radio, billboard and print media in Minnehaha, Lincoln and Moody Counties. A plethora of news articles, advertisements, acknowledgments and announcements displaying the "Flying F's logo" and the mark, "First National Bank," and "First National" were received into evidence at trial. FNB Sioux Falls has spent approximately a half million dollars in advertising for each of the last ten years preceding the trial of this action.

FNB Sioux Falls has a Certificate of Registration for the Service Mark, "THE FIRST NATIONAL BANK IN SIOUX FALLS," which was issued by United States Patent and Trademark Office on March 25, 1997. In this Court's decision in 1997 this Court concluded that "First National," "First National Bank," and "The First National Bank in Sioux Falls" were descriptive marks, that these marks had attained secondary meaning to consumers in the Sioux Falls market area, and that FNB Sioux Falls possessed common law service marks in these marks within a ten-mile radius of its main office at the corner of 9th Street and Phillips Avenue in downtown Sioux Falls.

William Ludlow Baker, the great grandson of William Lafayette Baker was elected President and Chief Executive Officer of FNB Sioux Falls in 2001 and at the time of the trial was also the Chairman of FNB Sioux Falls. Baker testified that FNB Sioux Falls had substantial growth in the past twelve years. FNB Sioux Falls which had assets of around $500 million at the time of the earlier trial now has assets of over a billion dollars, its loans and deposits have about doubled and it now has 20 locations in Minnehaha, Lincoln, and Moody Counties. FNB Sioux Falls receives a majority, approximately 2/3 of its revenue and loan volume, from business and commercial entities. In Baker's estimate, FNB Sioux Falls competes with FNB South Dakota for business and commercial banking services. Baker does not see a distinction between the market FNB Sioux Falls services and the market FNB South Dakota claims to be approaching. Baker classifies both banks as full service banks. At the time of the 2008 trial Baker and Stephanie Gongopoulos, Vice President and Marketing Director of FNB Sioux Falls, testified that other than the Defendants, FNB Sioux Falls was the only bank operating under "First National" and "First National Bank" in Minnehaha, Lincoln, and Moody Counties.*fn4

FNB Sioux Falls provides retail merchant services under the name First National Bank Merchant Services. Retail merchant services are offered to business enterprises that accept payment from plastic credit or debit cards. However, FNB Sioux Falls out sources the processing of these transactions through a contractual arrangement with a vendor in Colorado that authorizes and settles payments electronically with the credit and debit card issuing companies. FNB Sioux Falls manages the relationship with the local retail merchants. FNB Sioux Falls' merchant services produces an annual $150,000 net income and does no television or radio advertising.

FNB Sioux Falls takes part in numerous community affairs, such as the display of Christmas trees, and has been a substantial contributor to the Sioux Empire United Way and a community supporter of other sports, civic, educational and cultural events and organizations such as the South Dakota Symphony and the President's Bowl in Sioux Falls. The employees of FNB Sioux Falls are encouraged to volunteer in the community and are given 8 hours of paid time annually for such volunteer work.

Defendants

Defendant First National Bank South Dakota (FNB South Dakota), is a nationally charted bank with its principal offices in Yankton, South Dakota. FNB South Dakota offers full-service banking in Yankton, Huron, Mitchell and Woonsocket, South Dakota. These towns are in Yankton, Beadle, Hanson and Sanborn Counties, respectively. The First National Bank in Yankton previously operated under the name "Valley Bank." The banks in Huron, Mitchell and Woonsocket previously operated under the name "Commercial Bank," but since about 1999 when they were acquired by FNB South Dakota from Commercial Bank & Trust, they have operated under the service mark "First National Bank South Dakota." FNB South Dakota uses a circle 1 logo with green coloration. In 2000, FNB South Dakota established a processing center at North Potsdam in Northeast Sioux Falls. FNB South Dakota has operated its automobile finance operation from this location since 2000.

Defendant First National Bank of Omaha (FNB Omaha) is a nationally chartered bank with its principal offices in Omaha, Nebraska. Its service mark of the circle 1 logo and "First National Bank" over "Omaha" was registered with the United States Patent and Trademark office on June 22, 2004. Ex. 542.

Defendant SPC, Inc. (SPC) is a Nebraska corporation with its principal offices in Omaha, Nebraska. Since 2002, SPC has done business under the name "First National Merchant Solutions." Defendant First National Merchant Solutions is a wholly owned subsidiary of FNBO. Defendant First National Merchant Solutions offers credit and debit card transaction processing services to merchants throughout the United States including Southeastern South Dakota. In December of 2003, SPC obtained a United States trademark registration for the word mark, FIRST NATIONAL MERCHANT SOLUTIONS. In 2003 it also celebrated its 50th year of processing payments. First National Merchant Solutions is a nationwide processor of credit card and debit card transactions that competes with large national banks and derives less than one percent of its revenue from the Sioux Falls market.

Defendants FNB South Dakota, FNB Omaha, and SPC are all subsidiary organizations of Defendant First National of Nebraska, Inc, (FNNI), a bank holding company with its principal offices located in Omaha, Nebraska, and owned by the Lauritzen family. FNNI is one of the largest commercial bank lenders in the nation and holds over $20 billion in managed assets. During the trial in this matter, the Court allowed FNNI to be added as a party.

Previous Action

In 1994, FNB South Dakota advertised in the Yankton newspaper, the Yankton Press and Dakotan, and on Yankton radio stations referring to FNBSD as "First National Bank." In April and May of 1995, FNB South Dakota ran a newspaper advertisement on several different occasions in the Sioux Falls Argus Leader promoting a certificate of deposit with a 7.14 percent annual yield. In June of 1995, FNB Sioux Falls filed CIV. 95-4116 against FNB South Dakota in this Court alleging that FNB South Dakota had infringed upon its common law rights in the service marks "First National," "First National Bank," and "First National Bank in Sioux Falls."

In a Memorandum Opinion and Order dated April 14, 1997, this Court permanently enjoined FNB South Dakota "from using in any manner or fashion whatsoever, within a ten-mile radius of the main offices of the plaintiff, The First National Bank of Sioux Falls, located at the corner of 9th Street and Phillips Avenue in downtown Sioux Falls, South Dakota, the service marks `First National,' `First National Bank,' and `The First National Bank in Sioux Falls,' or any other name, mark, or designation confusingly similar to plaintiff's three marks." This Court denied a permanent injunction that would have enjoined FNB South Dakota "from using its full name, `First National Bank South Dakota,' within a ten-mile radius of the main office of [FNB Sioux Falls]." This Court in its 1997 decision reasoned that if FNB South Dakota used its "full legal name [`First National Bank South Dakota'] in conjunction with its `circle-1' logo in graphic representation" FNB Sioux Falls could not show by a preponderance of the evidence that there would be a likelihood of confusion among an appreciable number of ordinary consumers regarding the source of or association between the two banks. The Eighth Circuit Court of Appeals affirmed this decision. See First Nat'l Bank in Sioux Falls v. First Nat'l Bank, South Dakota, 153 F.3d 885 (8th Cir.1998).

Events after First Litigation

At the time of the first litigation between the parties in this Court FNB South Dakota had communicated its intention to open a branch at the corner of 57th Street and Cliff Avenue in Sioux Falls. However, it is undisputed that no branch was ever opened by FNB South Dakota at this location, and the land that it had purchased at this location was subsequently sold.

In 1998 FNB South Dakota established a loan processing center near 27th and Marion Road in Sioux Falls and placed a mortgage lender in Sioux Falls. In 2000, FNB South Dakota moved its processing center to North Potsdam in the industrial Northeast part of Sioux Falls. FNB South Dakota has also operated its automobile finance operation from this location since 2000. The sign in front of this building displays the circle 1 logo and "First National Bank" over smaller "South Dakota" white lettering on a green background. This processing center is located about .4 of a mile from the Benson Road location of FNB Sioux Falls. In 1999 FNB South Dakota acquired banks in Huron, Mitchell and Woonsocket which previously operated under the name "Commercial Bank." Since 1999 they have operated under the service mark "First National Bank South Dakota."

For some time after FNB South Dakota's automobile finance operation at North Potsdam was in operation, misdirected payments with loan coupons from Defendants' loan processing customers were received by FNB Sioux Falls in its mail, night drops and lobbies. FNB Sioux Falls forwarded these misdirected payments to FNB South Dakota or returned them to the Postal Service. These loan coupons designated FNB South Dakota as follows:

FIRST NATIONAL BANK SOUTH DAKOTA PO BOX 85130 SIOUX FALLS SD 57118-8130

The Court views the "SOUTH DAKOTA" on the coupons as resembling more of an address than part of FNB South Dakota's name. The coupon book covers were later modified to include the circle 1 logo before "First National Bank" with the words "South Dakota" in smaller type beneath "First National Bank." The coupons themselves list the bank as "FIRST NATIONAL BANK SD." Ex. 670.

Mike Mahlendorf, Senior Vice President of FNNI, came to Sioux Falls in 2005 to determine the feasibility of establishing a branch in Sioux Falls. In July 2005, FNB South Dakota applied with the Office of the Comptroller of the Currency for a branch to be located at 100 South Dakota Avenue, a location which is two blocks from the main office of FNB Sioux Falls. FNB South Dakota received permission from the Comptroller of the Currency to establish at its Sioux Falls Dakota Avenue site a staffed branch bank with no exclusions. It is chartered to offer all banking services.

On October 19, 2005, the business section of the Sioux Falls Argus Leader printed an article with the heading, "New bank slated for downtown," and with the subheading, "First National to replace vacated Wells Fargo." The body of the article identified "First National Bank South Dakota, a division of First National of Nebraska Inc. in Omaha" as the purchaser of the historic building at 100 South Dakota Avenue and the former drive up space of the Wells Fargo Bank Over the next couple of months FNB South Dakota changed the lettering of the name First National Bank South Dakota from brass or copper lettering similar to the lettering on FNB Sioux Falls' main office building, to green lettering preceded by the circle 1 logo.

One branding guideline issued by FNNI dictates that the First National signature include individual signatures to represent affiliates and location or business unit names. This branding guideline, however, directs that the "key to maintaining the presence of the First National signature is keeping it separate from other elements." (Ex. 563). Another document entitled "Written Communication Standards" (Ex. 365) specifically mentions South Dakota locations, and states:

In South Dakota, we must use the full name of our bank whenever possible. The only acceptable versions are:

First National Bank South Dakota

First National Bank SD

A document entitled "Brand Architecture" directs and depicts the use of the signature "First National Bank" with more prominent lettering, with the city or state location under the signature "First National Bank" and in less prominent, smaller lettering "where possible without use of preposition, thus giving a sense of multiple locations."

First National Merchant Solutions is depicted on business cards with "First National" along side the circle 1 with "Merchant Solutions" in smaller lettering below "First National." In its marketing material "FIRST NATIONAL MERCHANT SOLUTIONS" is set forth as the caption and in other sections of the material, but it is also referenced in the materials as "First National" and described as a "wholly owned subsidiary of First National Bank." Ex. 141. This marketing material which has been distributed by Arlie Gill, a sales representative from Defendant First National Merchant Solutions, also states, "First National Bank has been family owned and run for over 138 years-we've never changed our name and remain committed to remaining independent." Ex. 141. The Court finds this "family-owned" reference mimics the advertisement of FNB Sioux Falls.

Exhibit 386 sets forth the font used by FNB South Dakota in its logo in 1997 and the font used in its current logo. The 1997 logo with all lower-case letters and more prominently displayed circle one is least like the FNB Sioux Falls logo, and the current FNB South Dakota logo with the first letter of each word in upper-case lettering and less prominent circle 1 is noticeably more similar to the FNB Sioux Falls logo. In addition, the current logo has "South Dakota" left justified below and in smaller font than "First National Bank," so as to resemble an address.

Tom Everist, President and Chairman of the Board of the Everist Company, long-time resident and business and civic leader in Sioux Falls, has never been a customer of FNB Sioux Falls. Mr. Everist refers to FNB Sioux Falls as First National or First National Bank. When Mr. Everist first saw the FNB South Dakota building at 100 South Dakota Avenue he believed it was an annex to FNB Sioux Falls until told that it was another bank. Dan Kirby, another long-time resident and business and civic leader in Sioux Falls, and former general counsel and executive vice president of Western Surety has never been a customer of FNB Sioux Falls. Mr. Kirby refers to FNB Sioux Falls as the Baker Bank and equates the bank with a tradition of home-owned banking in Sioux Falls with a good reputation in its civic and community involvement and banking business matters. When Mr. Kirby saw the FNB South Dakota building at 100 South Dakota Avenue he believed it was a part of FNB Sioux Falls until he was later told otherwise by William Ludlow Baker.

Liz Lloyd, a Sioux Falls realtor and diplomat for the Sioux Falls Chamber of Commerce, apologized to Stephanie Gongopoulos from FNB Sioux Falls for missing the ribbon cutting ceremony for FNB Sioux Falls. As it turned out the ribbon cutting was for the opening of FNB South Dakota at 100 South Dakota Avenue, but Ms. Loyd was confused by the notice for the ribbon cutting. Ms. Lloyd, who refers to FNB Sioux Falls as the Baker Bank, is not a customer of either FNB Sioux Falls or FNB South Dakota. Gerald Benenga, a long-time Sioux Falls resident, is the President and C.E.O. of the Center for Active Generations in Sioux Falls, and a Sioux Falls City Council member. The Center for Active Generations has received donations from FNB Sioux Falls. In the fall of 2006, Benenga was trying to contact Don Scott, an employee of FNB Sioux Falls, to discuss a trust issue. After consulting the telephone book Benenga mistakenly called FNB South Dakota. The employee of FNB South Dakota who answered the telephone advised Benenga that Don Scott was not employed there and that Benenga had called the wrong bank. When Benenga apologized the FNB South Dakota employee stated that the incorrect dialing happens frequently and is a "great marketing tool."

Vicki LeVene, an administrator of Family Dental Center in Sioux Falls, oversees the banking for Family Dental Center. Since 1981 Family Dental Center has had a relationship with FNB Sioux Falls. Family Dental Center uses First National Bank Merchant Services for credit card processing for its patients who use credit card services to pay for their dental services. In September of 2005 Vicki LeVene received a telephone call to set up an appointment with Arlie Gill, a sales representative from Defendant First National Merchant Solutions, for credit card processing. Vicki LeVene believed that Gill was with FNB Sioux Falls, so she set up an appointment with Gill for October 4, 2005. Since Vicky LeVene had usually dealt with Paula Hoy, an administrative assistant for First National Bank Merchant Services, Vicki LeVene called First National Bank Merchant Services to see why she was to meet with Gill. After Vicki LeVene was advised that Gill did not work for First National Bank Merchant Services, Paula Hoy agreed to and did cancel the appointment Gill had with Vicki LeVene. On October 4, 2005, Gill showed up to meet with Vicki LeVene and was told that the appointment had been cancelled. On June 25, 2007, a customer of Defendant First National Merchant Solutions mistakenly called FNB Merchant Services to add additional services.

In November of 2005, counsel for FNB Sioux Falls wrote Randy Johnson, President of FNB South Dakota, and requested that FNB South Dakota choose an alternative name for the branch it intended opening in Sioux Falls. The letter states that FNB Sioux Falls was "extremely concerned about increased customer confusion and dilution of the service marks that the bank possesses in the ten-mile radius from its main location." The November 2005 correspondence further advised that FNB Sioux Falls intended "to implement a process to collect, as a part of the business records kept in the ordinary course at the bank, information on consumer confusion" regarding FNB South Dakota and FNB Sioux Falls. After consulting with counsel FNB Sioux Falls hired a company, Electric Pulp, to create an internal utility in FNB Sioux Falls' internal website in order for the employees of FNB Sioux Falls to create an electronic business record of alleged instances of confusion. FNB Sioux Falls has maintained this confusion log (Ex. 298) for the time period of December 8, 2005, through March 6, 2008. FNB Sioux Falls contends this log records over 1,400 instances of documented actual confusion by customers of both FNB Sioux Falls and FNB South Dakota, their vendors, and the public.

Exhibit 168, an envelope and promotional material on retirement plans sent by FNB Omaha to William Ludlow Baker in June of 2006 was received into evidence at trial. Ex. 168. The envelope appears to be part of a bulk mailing. The return address on the envelope was designated "First National Bank" behind the circle 1 logo in green print. The first page of the promotional brochure has "First National Bank" behind the circle 1 logo at the top of the first page of the brochure without reference to Omaha. The fourth and last page of the brochure references "First National Bank Retirement Plan Services" over an Omaha address which is printed in smaller font. The retirement plan services referenced in the brochure are also offered by FNB Sioux Falls.

Baker has encountered several instances when FNB Sioux Falls' customers came to FNB Sioux Falls wanting Certificate of Deposits at the rates advertised by FNB South Dakota, and these customers appeared to him to be disappointed and disillusioned when they found FNB Sioux Falls was not offering that rate. Baker testified to knowledge of FNB Sioux Falls' customers intending to secure loans from FNB Sioux Falls, but instead, contacting FNB South Dakota. Likewise, customers intending to do business with FNB South Dakota came to FNB Sioux Falls and displayed frustration. Baker also testified he has concerns that what he views as confusion by the public regarding the identities of FNB Sioux Falls and FNB South Dakota could result in violation of the Gramm-Leach-Bliley Act's requirement to protect the nonpublic personal information of bank customers.*fn5

Russell Dean purchased a vehicle on August 8, 2006, from Amdahl Automotive, Inc., then a Sioux Falls car dealer. Since his brother, Ryan, worked for FNB Sioux Falls, Russell wanted to finance the car through a loan with FNB Sioux Falls. After Russell was approached by Amdahl's finance officer Russell told the finance officer that he wanted to finance through First National Bank in Sioux Falls and that there was a difference between the banks. Although Russell Dean signed three loan documents (Ex. 675) which refer to First National Bank South Dakota, with the last of the three documents setting forth the circle 1 logo, Russell Dean did not realize until later that he had not taken out a loan with FNB Sioux Falls. When he discovered the error he refinanced with FNB Sioux Falls.

In September of 2006, FNB Sioux Falls received a letter from the Governor of South Dakota asking if FNB Sioux Falls would be a $1,000 corporate sponsor of a Christmas tree at the 2006 Christmas at the Capitol in Pierre, South Dakota. FNB Sioux Falls employee, Bert Olson, received the letter which was addressed to First National Bank of SD, but did not notice the incorrect reference to FNB South Dakota. FNB Sioux Falls had been a corporate sponsor in prior years. FNB Sioux Falls donated the $1,000, but credit for the sponsorship was given to FNB South Dakota. Also, FNB South Dakota's name was on the sign on the tree sponsored by FNB Sioux Falls. FNB Sioux Falls employee Bert Olson contacted the Governor's office and advised of the mistake and requested the name on the tree be corrected. In 2007 the Governor's office again wrote Bert Olson requesting that FNB Sioux Falls again provide a $1,000 corporate sponsorship for the 2007 Christmas at the Capitol. The letter was addressed to Bert Olson at First National Bank of South Dakota, as opposed to First National Bank in Sioux Falls. Bert Olson again called the Governor's office to correct the misunderstanding. FNB Sioux Falls contributed the $1,000 and eventually FNB Sioux Falls received credit for the sponsorship of the tree at the 2007 Christmas at the Capitol.

In February of 2007 a branch manager of FNB Sioux Falls dropped off FNB Sioux Falls scholarship applications to the Sioux Falls Christian Schools. The branch manager was then contacted by the Sioux Falls Christian Schools questioning why he had submitted more scholarship applications. The branch manager had the Sioux Falls Christian Schools telefax him the alleged previously ...


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