Wine & Canvas Development, LLC v. Muylle, No. 15-3658 (7th Cir. 2017)

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Justia Opinion Summary

Wine & Canvas (W&C) hosts “painting nights.” Patrons, following a teacher’s instructions, create a painting while enjoying wine. W&C operated in Indianapolis, Bloomington, and Oklahoma City. Muylle signed a license agreement, moved to San Francisco, and opened a W&C operation. W&C’s executives were present and taught the first class, worked with Muylle to approve paintings for use, gave Muylle company email addresses, and advertised the San Francisco operation on the W&C website. Disagreements arose. Muylle gave notice to terminate the agreement, changed the business name to “Art Uncorked,” and ceased using the W&C name and marks. W&C alleged trademark infringement, 15 U.S.C. 1051. Muylle’s counterclaims invoked California franchise law, federal trademark cancellation. and Indiana abuse of process law. Plaintiffs failed to meet discovery deadlines, despite being sanctioned three times. The Seventh Circuit affirmed: dismissal of the California law counterclaims; W&C's summary judgment on Muylle’s trademark cancellation counterclaim; Muylle's summary judgment on trademark dilution, sale of counterfeit items, unfair competition, bad faith, tortious conduct, abuse of process, breach of contract, fraud, and a claim under the Indiana Crime Victims Act; and Muylle's partial summary judgment on trademark infringement. Through November 18, 2011, W&C impliedly consented to Muylle’s using the marks. On claims of trademark infringement and false designation of origin (for any use after November 18, 2011), and Muylle’s abuse of process counterclaim, the court affirmed awards to Muylle of $270,000 on his counterclaim and $175,882.68 in fees.

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In the United States Court of Appeals For the Seventh Circuit ____________________ Nos. 15 2088 and 15 3658 WINE & CANVAS DEVELOPMENT, LLC, ANTHONY SCOTT, TAMARA MCCRACKEN, AND DONALD MCCRACKEN, Plaintiffs Appellants, v. CHRISTOPHER MUYLLE, THEODORE WEISSER, YN CANVAS LLC D/B/A ART UNCORKED, ART UNCORKED, LLC, AND WEISSER MANAGEMENT GROUP, LLC, Defendants Appellees. ____________________ Appeals from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 11 cv 01598 — Tanya Walton Pratt, Judge. ____________________ ARGUED NOVEMBER 9, 2016 — DECIDED AUGUST 17, 2017 ____________________ Before BAUER and KANNE, Circuit Judges, and FEINERMAN, District Judge.* * Of the Northern District of Illinois, sitting by designation. 2 No. 15 2088 FEINERMAN, District Judge. Wine and Canvas Develop ment, LLC, Anthony Scott, Tamara McCracken, and Donald McCracken sued Christopher Muylle, Theodore Weisser, YN Canvas CA, LLC, Art Uncorked LLC, and Weisser Manage ment Group LLC, bringing federal trademark and state law claims. Muylle brought several counterclaims, including one for abuse of process under Indiana law. Weisser defaulted, and it appears that Weisser and Muylle were the only mem bers of the defendant LLCs, so practically speaking the case ultimately amounted to Plaintiffs against Muylle. Pretrial motions disposed of much of the case, and the jury found for Muylle on Plaintiffs’ trademark infringement and false des ignation of origin claims and on Muylle’s abuse of process counterclaim. Plaintiffs appeal, and we affirm. I. Background Wine & Canvas is a business that specializes in hosting events colloquially known as “painting nights.” These are social evenings where patrons, following a teacher’s instruc tions, create a painting while enjoying wine and other adult beverages. Wine & Canvas operated locations in Indianapo lis, Bloomington, and Oklahoma City. In 2008, Muylle befriended Scott, who was already ac quainted with Weisser. They discussed a franchise arrange ment under which Muylle and Weisser would move from Indiana to San Francisco to open a Wine & Canvas operation there. Muylle and Weisser signed a license agreement on be half of their entity, YN Canvas CA, LLC. On August 10, 2011, Muylle and Weisser launched their Wine & Canvas location in San Francisco. Tamara McCrack en and Scott were present at the launch, and McCracken No. 15 2088 3 taught the first class that day. McCracken also worked with Muylle and Weisser to approve paintings they would use at their events. Plaintiffs lent additional support by giving company email addresses to Muylle and Weisser and by ad vertising the San Francisco operation on the Wine & Canvas website. Disagreements soon arose over how the San Francisco operation would be structured and what degree of owner ship Plaintiffs would hold. These disagreements continued without resolution. Finally, on November 18, 2011, Muylle and Weisser gave notice that they were terminating the li cense agreement. At that point, they changed the name of the business to “Art Uncorked” and ceased using the Wine & Canvas name or other marks. On November 28, 2011, Plaintiffs filed a complaint in In diana state court alleging trademark infringement under the Lanham Act, 15 U.S.C. § 1051 et seq., and other claims. De fendants timely removed the suit to federal court, and Muylle answered and filed several counterclaims. His initial counterclaims invoked California franchise law, but he later added federal trademark cancellation and Indiana law abuse of process counterclaims. From the beginning, the proceedings were slow moving, principally due to the conduct of Plaintiffs and their attor neys. Plaintiffs failed to serve written discovery responses on their initial due date, March 20, 2013. They then failed to meet the extended deadline of May 1, 2013, leading Muylle to file a motion to compel, which was granted. After Plain tiffs failed to respond by early June, the district court im posed sanctions and ordered them to serve their responses by June 14, 2013, a deadline that later was extended to June 4 No. 15 2088 17. Plaintiffs served woefully incomplete responses on June 17 at 11:55 p.m., and “final” responses at 4:10 a.m. the next day. Muylle asserted that the “final” responses were not only late, but also incomplete because they did not itemize Plain tiffs’ damages, and he moved for further sanctions. Citing the responses’ tardiness and also their incompleteness, the magistrate judge recommended sanctions in the amount of $2,156, the costs to Muylle of filing the sanctions motion, and the district court adopted the recommendation. By the end of the case, Plaintiffs had been sanctioned three times. Sum marizing their conduct, the district court observed that they had “flooded the Court with filings … and … filed numer ous claims that the court has found to be without merit.” 2014 WL 4053928, at *15 (S.D. Ind. Aug. 15, 2014). Meanwhile, the district court dismissed the California franchise law counterclaims, and both sides then moved for summary judgment. The court granted Plaintiffs summary judgment on Muylle’s trademark cancellation counterclaim, but his abuse of process counterclaim survived. The court granted summary judgment to Muylle on most of Plaintiffs’ claims, including trademark dilution, sale of counterfeit items, unfair competition, bad faith, tortious conduct, abuse of process, breach of contract, fraud, and a claim for com pensation under the Indiana Crime Victims Act. The court also granted partial summary judgment to Muylle on Plain tiffs’ trademark infringement claim, finding that for any use through November 18, 2011, Plaintiffs had impliedly con sented to Muylle’s using the marks. Only three claims proceeded to trial: Plaintiffs’ claims of trademark infringement and false designation of origin (for any use of the marks after November 18, 2011), and Muylle’s No. 15 2088 5 abuse of process counterclaim. The jury returned a verdict for Muylle on all counts, rejecting Plaintiffs’ claims and awarding Muylle $ 270,000 on his counterclaim. After Plain tiffs filed their appeal, the district court granted Muylle’s motion for fees under the Lanham Act, awarding $ 175,882.68. II. Discussion Plaintiffs challenge fourteen rulings by the district court. Many of those challenges are wholly unsupported by devel oped argument citing the record and supporting authority, and are thus forfeited. See Long Gang Lin v. Holder, 630 F.3d 536, 543 (7th Cir. 2010); Ajayi v. Aramark Business Serv’s, Inc., 336 F.3d 520, 529 (7th Cir. 2003) (noting that an appellant must “identify the legal issue, raise it in the argument sec tion of her brief, and support her argument with pertinent authority”). Other issues, though properly presented, are plainly meritless and need not be addressed. Only the fol lowing issues warrant discussion. A. Sanctions Order for Tardy Discovery Responses Plaintiffs contend that the district court erred in sanction ing them $ 2,156 in connection with their June 2013 discov ery responses, which were tardy and failed to provide a damages itemization. They argue that the sanctions award is fatally inconsistent with a later ruling in which the court de nied additional sanctions for Plaintiffs’ failing to provide the same itemization; the court denied those sanctions on the ground that Muylle had not produced the financial records necessary for Plaintiffs to itemize their damages. In Plain tiffs’ view, when the district court agreed that Muylle’s fail ure to produce records prevented them from preparing an 6 No. 15 2088 itemization, it undermined the basis for the earlier sanctions award. We review a trial court’s imposition of discovery sanc tions for abuse of discretion. See Scott v. Chuhak & Tecson, P.C., 725 F.3d 772, 778 (7th Cir. 2013); Maynard v. Nygren, 332 F.3d 462, 467 (7th Cir. 2003). “Under this standard, we up hold any exercise of the district court’s discretion that could be considered reasonable, even if we might have resolved the question differently.” Maynard, 332 F.3d at 467. “A party meets its burden under this standard only when it is clear that no reasonable person would agree with the trial court’s assessment of what sanctions are appropriate.” Scott, 725 F.3d at 778 (internal quotation marks and alteration omitted). The district court did not abuse its discretion. As the magistrate judge explained, sanctions were warranted be cause Plaintiffs’ discovery responses were late, albeit by one day. Sanctions for missing a deadline by one day certainly are not mandatory, but neither are they prohibited given the wide latitude district courts have in such matters. See Flint v. City of Belvidere, 791 F.3d 764, 768 (7th Cir. 2015) (“[C]ase management depends on enforceable deadlines … . In man aging their caseloads, district courts are entitled to—indeed they must—enforce deadlines.”) (internal quotation marks omitted); Raymond v. Ameritech Corp., 442 F.3d 600, 605 (7th Cir. 2006) (“Rule 6(b) … clearly gives courts both the authori ty to establish deadlines and the discretion to enforce them.”); Shine v. Owens Ill., Inc., 979 F.2d 93, 96 (7th Cir. 1992) (“[J]udges must be able to enforce deadlines.”) (internal quo tation marks omitted). Of course, sanctions must be reasona ble, and a heavy sanction such as dismissal or an outsized monetary award might be unwarranted in response to minor No. 15 2088 7 tardiness. See FM Indus. v. Citicorp Credit Servs., Inc., 614 F.3d 335, 339 (7th Cir. 2010) (holding unreasonable an $815 mil lion sanctions request for missing a discovery deadline by one day). But the sanctions here were reasonable, consisting solely of the costs Muylle incurred related to the sanctions motion. Thus, even though the district court later held Plain tiffs’ failure to itemize their damages to be reasonable, the untimeliness of the June 2013 discovery responses provided a legitimate, independent ground for sanctions. This is par ticularly so given Plaintiffs’ dilatory conduct prior to the sanctions order; they had already missed multiple discovery deadlines, causing Muylle to file a motion to compel, and they had been sanctioned once before. Against this back drop, it was not unreasonable for the district court to con clude that even a single day’s tardiness required some sanc tion to deter future misbehavior. B. Implied Consent to Use the Wine & Canvas Marks In moving for summary judgment on Plaintiffs’ trade mark infringement claim, Muylle contended that from Au gust 2011 through November 18, 2011, Plaintiffs had granted him implied consent to use their marks. Citing Bobak Sausage Co. v. A & J Seven Bridges, Inc., 805 F. Supp. 2d 503 (N.D. Ill. 2011), Plaintiffs responded that to show implied consent, Muylle had to demonstrate that: “(1) the senior user actively represented it would not assert a right or claim; (2) the delay between the active representation and the assertion of the right or claim was not excusable; and (3) the delay caused the defendant undue prejudice.” Id. at 512–13. The district court disagreed, reasoning that the Seventh Circuit had not adopted the second and third requirements. 2014 WL 4053928, at *8. And finding that Plaintiffs’ conduct—such as 8 No. 15 2088 aiding Muylle in establishing and operating the Wine & Canvas location in San Francisco—constituted an active rep resentation that they would not assert a claim, the district court held that Muylle had established implied consent and thus granted summary judgment for all trademark in fringement claims based on his use of the marks from Au gust 2011 to November 18, 2011. Ibid. Two years after the district court ruled, in Hyson USA, Inc. v. Hyson 2U, Ltd., 821 F.3d 935, 941 (7th Cir. 2016), we adopted the three part test that Plaintiffs had proposed to the district court in this case. The district court’s understand able failure to anticipate Hyson is of no moment, however, as Muylle was entitled to summary judgment on implied con sent even under the correct standard. As noted, it was clear around the time of Muylle’s August 2011 launch in San Francisco that the parties disagreed over the new location’s ownership structure. At that point, it would have been perfectly reasonable for Plaintiffs to re quire Muylle to cease using the Wine & Canvas marks until the disputes were resolved. Instead, Plaintiffs allowed Muylle to continue using the marks for months. That delay is inexcusable, satisfying the second part of the three part test. As to the third, undue prejudice, given that Muylle moved across the country to start the San Francisco opera tion and stayed there to operate it, Plaintiffs’ failure to promptly assert their rights prejudiced him. Accordingly, summary judgment would have been appropriate on the implied consent issue even had the district court applied the Hyson framework. No. 15 2088 9 C. Testimony Regarding Settlement Negotiations Plaintiffs challenge the district court’s admission of testi mony concerning a statement that Scott made to Muylle dur ing the parties’ September 2012 settlement discussions re garding Plaintiffs’ trademark claims. Specifically, Scott said that his goal was to “close [Muylle’s] door[] or [Scott’s] ass hole attorney would close [it] for [him].” Plaintiffs argue that testimony regarding the statement was inadmissible under Federal Rule of Evidence 408. “This court reviews a district court’s interpretation of the Federal Rules of Evidence de novo but the district court’s de cision to admit evidence for abuse of discretion.” United States v. Turner, 836 F.3d 849, 857 (7th Cir. 2016). Rule 408 provides in pertinent part: (a) Prohibited Uses. Evidence of the following is not admissible—on behalf of any party—either to prove or disprove the validity or amount of a disputed claim or to impeach by a prior inconsistent statement or a contradiction: (1) furnishing, promising, or offering—or accept ing, promising to accept, or offering to accept—a valuable consideration in compromising or at tempting to compromise the claim; and (2) conduct or a statement made during compro mise negotiations about the claim—except when offered in a criminal case and when the negotia tions related to a claim by a public office in the ex ercise of its regulatory, investigative, or enforce ment authority. 10 No. 15 2088 Although statements made in settlement negotiations are inadmissible to prove liability on the underlying claim, they may be admissible for other purposes, including “to show the defendant’s … intent.” Bankcard Am., Inc. v. Universal Bancard Sys., 203 F.3d 477, 484 (7th Cir. 2000). That is precisely what Muylle did here. Scott’s statement, made in the context of settlement negotiations concerning Plaintiff’s claims against Muylle, were not offered to disprove liability on those claims, but rather to show Plaintiffs’ improp er intent and ulterior motive in filing their lawsuit for the purpose of proving Muylle’s abuse of process counterclaim. See Watson v. Auto Advisors, Inc., 822 N.E.2d 1017, 1029 (Ind. App. 2005) (“Abuse of process has two elements: (1) ulterior purpose or motives; and (2) a willful act in the use of process not proper in the regular conduct of the proceeding.”) (in ternal quotation marks omitted). Under these circumstances, the testimony was not inadmissible. This conclusion follows from the text of Rule 408. Para graph (a) uses the term “a disputed claim,” not “disputed claims” or “any claims.” Subparagraphs (1) and (2) of para graph (a) likewise speak of “the” claim. The Rule’s use of the singular term “claim” suggests that settlement discussions concerning a specific claim are excluded from evidence to prove liability on that claim, not on others. That is, when a settlement discussion concerns Claim A, and statements from that discussion are later offered to prove or disprove liability on Claim B, Rule 408(a) does not make those state ments inadmissible. We do not expect such circumstances to arise very often, as settlement discussions usually encom pass multiple claims all at once. Here, however, there is no possibility that the settlement discussion, which occurred in No. 15 2088 11 September 2012, addressed Muylle’s abuse of process claim, which was not filed until months later. D. Summary Judgment on the Unfair Competition Claim Plaintiffs challenge the district court’s grant of summary judgment to Muylle on their state law unfair competition claim. Muylle’s summary judgment motion argued that Plaintiffs had presented no evidence showing a likelihood of confusion between Muylle’s marks and those belonging to Plaintiffs. The district court held that Plaintiffs failed to ad dress that argument in the section of their opposition brief addressing the state law unfair competition claim and, citing Palmer v. Marion County, 327 F.3d 588, 597 (7th Cir. 2003), considered the claim abandoned. 2014 WL 4053928, at *13. That holding was in error, as Plaintiffs’ argument on their state law unfair competition claim incorporated by ref erence their discussion of likelihood of confusion from the section of their brief addressing their Lanham Act trademark infringement claim. Indeed, the district court analyzed whether Plaintiffs had adduced sufficient evidence of likeli hood of confusion in denying summary judgment to Muylle on the trademark infringement claim for the period follow ing November 18, 2011. Id. at *9–11. Thus, the district court should not have granted summary judgment to Muylle on Plaintiffs’ unfair competition claim. Still, Plaintiffs are not entitled to reversal. The Lanham Act trademark infringement claim for the period following November 18, 2011 went to the jury and the jury found for Muylle. This matters because analysis of trademark in fringement is essentially the same as analysis of Indiana un 12 No. 15 2088 fair competition claims where, as here, the state law claim rests on trademark infringement. See Fortres Grand Corp. v. Warner Bros. Entm’t, Inc., 763 F.3d 696, 700 n.4 (7th Cir. 2014) (“[A]ll relevant authority we have found analyzes Indiana unfair competition claims based on trademarks the same as Lanham Act trademark claims, so we analyze all the claims together.”). Thus, if the unfair competition claim had been tried, the jury would have rejected it along with the federal trademark infringement claim. See Am. Cas. Co. of Reading, Pa. v. B. Cianciolo, Inc., 987 F.2d 1302, 1306 (7th Cir. 1993) (“Appellate courts should be slow to impute to juries a dis regard of their duties, which implies that we should do what we can to save the verdict against the specter of inconsisten cy.”) (internal quotation marks and citation omitted). It fol lows that there would be no point to reversing the grant of summary judgment on the unfair competition claim and re manding for trial. E. Lanham Act Attorney Fee Award The district court awarded attorney fees to Muylle under the Lanham Act. 2015 WL 5513461 (S.D. Ind. Sept. 15, 2015). Plaintiffs seek reversal of that award on the ground that the award was entered after they had filed their notice of appeal. As a general rule, once a notice of appeal is filed, jurisdiction lies in the appeals court and not in the district court. See Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982); United States v. Ali, 619 F.3d 713, 722 (7th Cir. 2010). There are several exceptions to this rule, however, and we have unequivocally held that those exceptions include mo tions for attorney fees. See Terket v. Lund, 623 F.2d 29, 33 (7th Cir. 1980) (holding that a district court may award fees while the merits of a case are on appeal); see also Kusay v. United No. 15 2088 13 States, 62 F.3d 192, 194 (7th Cir. 1995) (applying Terket to a non fee issue that was not an “aspect[] of the case involved in the appeal”). The district court’s order denying Plaintiffs’ motion to re consider the attorney fee order cited Terket and Kusay to support its exercise of jurisdiction over Muylle’s motion. 2015 WL 6554641, at *3 (S.D. Ind. Oct. 28, 2015). On appeal, Plaintiffs cite Kusay for the proposition that filing a notice of appeal divests the trial court of jurisdiction, but they inexpli cably fail to acknowledge that Kusay describes the exception to the rule invoked by the district court. Nor do Plaintiffs at tempt to distinguish Kusay and Terket or argue that they were wrongly decided. This follows an unfortunate pattern in this litigation; as the district court noted, Plaintiffs “filed many motions to reconsider numerous court orders simply to reargue unaccepted arguments.” 2015 WL 5513461, at *2. While a party may argue in good faith for the inapplicability, modification, or reversal of existing authority, it nonetheless has a duty to acknowledge and grapple with such authority. Pretending the authority does not exist in hopes that the court will overlook it is never the appropriate course. III. Conclusion For the foregoing reasons, the district court’s judgment is AFFIRMED.

Primary Holding

Seventh Circuit affirms rejection of trademark infringement claims involving "painting night" businesses.

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