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Martinizing International, LLC v. BC Cleaners, LLC

United States Court of Appeals, Eighth Circuit

April 28, 2017

Martinizing International, LLC Plaintiff- Appellant
v.
BC Cleaners, LLC, et al. Defendants-Appellees

          Submitted: December 12, 2016

         Appeal from United States District Court for the District of Minnesota - Minneapolis

          Before LOKEN, MURPHY, and KELLY, Circuit Judges.

          LOKEN, Circuit Judge.

         Martinizing International, LLC commenced this action against BC Cleaners, LLC and two of its member-managers, Brent Lundell and Timothy Carver, asserting claims of Lanham Act trademark infringement, see 15 U.S.C. § 1125(a), and violation of the Minnesota Deceptive Trade Practices Act (MDTPA), see Minn. Stat. § 325D.44. Defendants failed to appear. The district court granted a default judgment against BC Cleaners, concluding that it willfully infringed Martinizing's trademarks and engaged in a deceptive trade practice. Martinizing Int'l, LLC v. BC Cleaners, LLC, 2015 WL 8483280 (D. Minn. Dec. 9, 2015). The court denied Martinizing a default judgment against Lundell and Carver, concluding they were not personally liable for trademark infringement or a deceptive trade practice. Id. at *3. Martinizing appeals, arguing the court erred when it denied a default judgment against Lundell and Carver and reduced the award of attorneys' fees for willful infringement. Defendants have not appeared in this Court. We affirm the grant of a permanent injunction enjoining BC Cleaners from using Martinizing's trademarks. We conclude Martinizing failed to prove willful infringement by BC Cleaners and therefore reverse the award of damages, an accounting for profits, and attorneys' fees. We affirm the denial of a default judgment against defendants Lundell and Carver.

         I.

         Martinizing's amended complaint alleged that, in June 2011, it entered into two franchise agreements with Markus Kanning, dba KM Cleaners, Inc., authorizing use of Martinizing's trademarks in operating dry-cleaning stores in Eagan and Inver Grove Heights, Minnesota. The agreements prohibited Kanning as franchisee from selling the franchise locations or assigning the franchise agreements without Martinizing's prior written consent. Martinizing learned that KM Cleaners and BC Cleaners entered into an Asset Purchase Agreement dated August 22, 2014, without Martinizing's consent, and that defendants continued to operate the franchised stores, using and displaying Martinizing's trademarks without its approval. On January 15, 2015, counsel for Martinizing sent a letter to BC Cleaners and Lundell, demanding that they sign a franchise agreement or refrain from using the trademarks, but defendants continued to use Martinizing's marks and trade dress. Martinizing attached to the complaint copies of a document entitled "Asset Purchase Agreement of Martinizing Dry Cleaners" between KM Cleaners, Inc. and BC Cleaners, LLC, and the January 2015 "Cease and Desist" letter. The complaint generally alleged that Lundell and Carver were member-managers who "aided, abetted, directed and controlled BC with respect to the wrongful conduct."[1]

         When a default judgment is entered, facts alleged in the complaint are taken as true, but "it remains for the [district] court to consider whether the unchallenged facts constitute a legitimate cause of action, since a party in default does not admit mere conclusions of law." Marshall v. Baggett, 616 F.3d 849, 852 (8th Cir. 2010) (quotation omitted). Thus, after entry of default, Martinizing had to prove it was entitled to the relief sought in its complaint against each defendant -- treble damages under the Lanham Act, an injunction enjoining use of its trademarks and unfair competition, prejudgment interest, costs, and attorneys' fees. Whether Martinizing met that burden is an issue of law we review de novo. Marshall, 616 F.3d at 853.

         In support of its motion for entry of default, Martinizing submitted two email responses from defendants, neither of which was filed with the court. In a March 1, 2015 email, Lundell stated: "We will comply with [Martinizing's demands]. Signage will [be] handled by KM Cleaners and the landlord who are operating the stores. The stores are no longer under our control." In a June 23, 2015 email, Lundell wrote:

As an additional follow-up, BC Cleaners, LLC was never a franchisee of Martinizing . . . . BC Cleaners was operating the units for KM Cleaners, LLC along with an agreement to purchase the units from KM Cleaners [that] was never fully executed.

         In support of its motion for default judgment, Martinizing submitted with an attorney affidavit copies of its franchise agreements with Kanning, the purported Asset Purchase Agreement and "Closing Documents" between KM Cleaners and BC Cleaners, the January 2015 Cease and Desist letter, photos of the dry-cleaning stores showing use of the Martinizing trademarks, and documents supporting its claim for an award of $18, 592.92 in costs and attorneys' fees. The attorney claimed personal knowledge of facts supporting the claim for costs and attorneys' fees, but no firsthand knowledge of facts relating to the underlying franchise transactions.

         II.

         In our review of this abbreviated record, we found the most notable aspect to be that the allegations of trademark infringement and deceptive trade practice by defendants in the amended complaint are directly contradicted by the terms of the Asset Purchase Agreement that ...


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