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JDR Indus., Inc. v. McDowell

United States District Court, D. Nebraska

August 4, 2015

JDR INDUSTRIES, INC., a Nebraska corporation, d/b/a Farmer's Choice, Plaintiff,
v.
EDWIN K. McDOWELL, d/b/a LaGrange Supply Co., and LAGRANGE SUPPLY CO., L.L.C., a Nebraska limited liability company, d/b/a LaGrange Supply Co., Defendants

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          For JDR Industries, Inc., a Nebraska corporation doing business as Farmer's Choice, JDR Industries, Inc., a Nebraska corporation, Plaintiffs: Dana C. Bradford, III, Justin D. Eichmann, Bradford & Coenen LLC, Omaha, NE.

         For Edwin K. McDowell, doing business as LaGrange Supply Co., LaGrange Supply Co, L.L.C., a Nebraska limited liability company, doing business as LaGrange Supply Co., Edwin K. McDowell, LaGrange Supply Co, L.L.C., a Nebraska limited liability company, Defendants: Michael F. Polk, SENA, POLK LAW FIRM, Omaha, NE.

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          MEMORANDUM AND ORDER

         John M. Gerrard, United States District Judge.

         This matter is before the Court on plaintiff JDR Industries' Motion for Preliminary Injunction (filing 8) and Motion for Partial Summary Judgment (filing 34). The present dispute concerns the right to

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sell welding rod under the name " LaGrange." JDR claims that, through its predecessors-in-interest, it has been continuously using the LaGrange trademark in connection with the sale of welding rod since as early as approximately 1970. Since the mid to late 1980s, defendant Edwin K. McDowell, a former employee of one of those predecessors, has also been selling welding rod under the name LaGrange. At some point in 2014, McDowell incorporated his company, defendant LaGrange Supply Co., LLC (" LG Supply" ), and assigned to LG Supply his interest in the LaGrange name (whatever that interest is).

         The parties dispute when JDR first became aware of McDowell's sales--but the Court need not resolve that dispute at this time. JDR maintains that it did not pursue any action against McDowell for his infringing activities because his sales were minimal enough that there was no real threat of confusion. In December 2013, however, things changed. Around that time, JDR terminated the employment of one of its salespersons, James Vance. Vance, who is not a party to this case, approached McDowell, and the two entered into a licensing agreement whereby McDowell allowed Vance to sell welding rod under the LaGrange name in exchange for royalties. In contrast to McDowell, who had run an essentially passive sales operation--generally relying on customers to call him--Vance relied on telemarketing. Moreover, Vance specifically targeted a number of JDR's customers. JDR asserts that this has resulted in significant consumer confusion. This prompted JDR to file suit against Vance in state court. That suit remains pending. The present suit against McDowell and LG Supply followed thereafter. For the reasons discussed below, JDR's motion for partial summary judgment will be granted, as to its claims, and denied, as to defendants' counterclaims. JDR's motion for preliminary injunctive relief will be denied as moot.

         Factual Background[1]

         I. JDR's Claim to the LaGrange Mark

         Plaintiff JDR is a Nebraska corporation. Its president is James J. Braun. Filing 10-2 at ¶ 1. JDR traces its ownership in the LaGrange mark through a chain of predecessors, beginning with LaGrange Equipment Company (" LEC" ). LEC was, until its dissolution in April 1986, a Nebraska corporation with its principal place of business in Omaha, Nebraska. Its founder and president was Dan LaGrange. Braun worked for LEC from 1982 to 1985, eventually serving as its Vice President of Marketing. Filing 25-2 at ¶ ¶ 3-4. At least as early as 1970, and continuing through October 1985, LEC sold welding rod using the LaGrange mark. Filing 10-2 at ¶ ¶ 2-4. LEC did not produce the welding rod itself, but purchased it from several suppliers. Filing 10-2 at ¶ 6.

         Ralston Bank was a secured creditor of LEC. In August 1985, acting in conjunction with its holding company, Ralston Bank foreclosed on its loan to LEC, and

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acquired all of LEC's assets, equipment, and property, including the rights in the LaGrange name (collectively, the " LEC Assets" ). However, Ralston Bank allowed LEC to continue in its operations, and so LEC continued to sell welding rod using the LaGrange mark. Between August 1985 and October 17, 1985, Ralston Bank was the sole owner of the rights to the LaGrange name. Filing 10-2 at ¶ ¶ 7-8; filing 25-3 at ¶ ¶ 1-7; filing 25-2 at ¶ ¶ 1-6; filing 35-2 at ¶ ¶ 1-8.

         Following the 1985 foreclosure, Braun and Dan LaGrange, along with a third partner, formed TGS Marketing, Inc.,[2] which was a Nebraska corporation until its dissolution on July 3, 2003, and which did business as " Farmer's Choice." Filing 10-2 at ¶ ¶ 9-11. On October 17, 1985, TGS entered into a purchase agreement with Ralston Bank, whereby TGS purchased from Ralston Bank all of the LEC Assets, including the rights to the LaGrange mark. Filing 10-2 at ¶ ¶ 9-11; filing 10-3 at pp. 1-3; filing 25-2 at ¶ ¶ 9-11; filing 25-3 at ¶ 8; filing 35-2 at ¶ 9. The transfer of the LEC assets to TGS was essentially a " turnkey operation," whereby TGS opened the following business day doing all of LEC's business out of the same location and using the same office and assets. Filing 25-2 at ¶ ¶ 11-15. Between October 17, 1985, and June 23, 2003, TGS sold welding rod using the LaGrange mark. Filing 10-2 at ¶ ¶ 12-13; see also filing 10-2 at ¶ 15; filing 10-5.

         On June 23, 2003, plaintiff JDR, also doing business as Farmer's Choice, purchased the LEC assets from TGS, including the rights to the LaGrange mark. Filing 10-2 at 16-17; filing 10-6 at 1-2, 7-8, 11. From that point and continuing through the present day, JDR has sold welding rod under the LaGrange mark. Filing 10-2 at ¶ ¶ 19-20.

         II. Use and Registration of the LaGrange Trademark

         JDR and its predecessors-in-interest (TGS and LEC) have sold welding rod using the LaGrange mark since 1970, in over 42 states and Canada. JDR asserts that the LaGrange line of welding rod has become " extremely well known throughout the United States." Filing 10-2 at ¶ ¶ 22, 25. JDR further asserts that it and its predecessors have spent much time and substantial resources in promoting the LaGrange brand. JDR claims that, as a result, the LaGrange mark has a strong reputation and has built up substantial goodwill, such that the relevant public identifies and associated the LaGrange line of welding rod with JDR and its predecessors. See filing 10-2 at ¶ ¶ 23-32.

         On March 20, 2012, the United States Patent and Trademark Office issued JDR a Registration Certificate for the LaGrange mark, for use in the sale of metal welding rods. The certificate identified JDR's first use of the mark in commerce as occurring on December 31, 1969. Filing 10-2 at ¶ 21; filing 10-7 at 1-3.

         III. McDowell's Business

         From 1981 to 1985, McDowell worked for LEC as its national sales recruiter. Filing 10-8 at 2-3. McDowell was responsible for selling distributorships for LEC and training and managing four or five other LEC employees involved in such sales. The distributorships that McDowell sold were composed of counties wherein each distributor could exclusively sell LEC's products. Filing 10-8 at 2-3. After LEC closed in 1985, McDowell partnered with various former regional managers of LEC and continued to sell distributorships on their behalf. Essentially, McDowell continued in his previous capacity

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as a sales recruiter, but instead of working for LEC, he worked for LEC's former managers. For their part, the former regional managers would then train the new exclusive distributors in the sale of welding rod branded as LaGrange.

         At some point in the 1980s, McDowell also began selling welding rod on his own, out of his garage, using the LaGrange mark. McDowell has continued these sales through the present day. Filing 10-8 at 4-6, 14-15, 19, 37; filing 23-1 at ¶ ¶ 4, 13-15, 23, 28, 35-36. And since 1985, McDowell has conducted his business under the name " LaGrange Supply Co." See, filing 23-1 at ¶ ¶ 4-9, 15; filings 23-2, 23-3, 23-4, and 23-5.[3] In July 1997, McDowell registered the trade name " LaGrange Supply Co." with the Nebraska Secretary of State for use in the " [d]istribution of shop equipment and supplies." Filing 10-8 at 7-8; filing 23-9 at 1-3. McDowell renewed the registration in 2007. Filing 10-8 at 7-8; filing 23-9 at 4.

         Until Vance later became involved, McDowell's sales of welding rod were, as JDR terms it, " passive." See filing 9 at 9-11. Although McDowell made perhaps 3 to 4 sales calls a week, he was not really running a telemarketing operation, and he primarily relied on customers making calls to him. Filing 10-8 at 11-12. At some point, McDowell had obtained the telephone number formerly used by LEC in its sales of LaGrange welding rod. McDowell would get calls from LEC's former customers whose orders he would then fill. Additionally, McDowell contacted the family who was assigned the telephone number TGS had formerly used to sell LaGrange welding rod and placed a message on their answering machine directing customers to call him to purchase LaGrange welding rod. Filing 10-8 at 12. And in approximately 2006, McDowell developed a website (at http://lagrangesupplycompany.com /) from which he sells welding rod branded as " LaGrange" under the LaGrange Supply Co. name, using a logo formerly used by LEC. Filing 10-8 at 15-16, 47-50. At some point in 2014, McDowell formed defendant LG Supply, a Nebraska limited liability corporation which he owns with his son. McDowell then assigned his interest in the LaGrange Supply Co. trade name to LG Supply. Filing 10-8 at 15, 46.

         McDowell testified that he has long been aware that Farmer's Choice (i.e., TGS, and then JDR) was selling LaGrange welding rod, and that Braun was involved in selling LaGrange welding rod since before TGS existed. Filing 10-8 at 9, 19. McDowell also admitted that he had learned that JDR had applied for a federal trademark registration for LaGrange, but did not taken any action to challenge the registration. Filing 10-8 at 18. The parties dispute when Braun, JDR, or JDR's predecessors became aware of McDowell's activities. See, filing 49 at 6-8, 10-15; filing 52 at 8-13, 17-24. But as the Court explains below,

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that dispute is not material to the pending motions.

         IV. Vance's Expansion of McDowell's Business

         From 1992 to 2013, James Vance was employed as a telemarketing salesperson for TGS and then JDR. In December 2013, JDR terminated his employment. Filing 10-8 at 9-11. Shortly thereafter, Vance arranged a meeting with McDowell, and the two reached an agreement. Specifically, McDowell purported to authorize Vance to sell, through telemarketing, welding rod branded as LaGrange and to use the LaGrange Supply Co. name. Filing 10-8 at 9-11. The record contains a copy of this " Tradename & Trademark License Agreement." Filing 10-8 at 25-36. In the agreement, McDowell, as " licensor," granted Vance (or more accurately, Vance's LLC) a license to use various permutations of the LaGrange name in connection with the sale of welding rod. Filing 10-8 at 25. In return, Vance agreed (among other things) to pay a percentage of his proceeds as a royalty and to be subject to certain quality control standards. See filing 10-8 at 26. Unlike McDowell, who had relied primarily upon people calling him, Vance commenced telemarketing operations, including making sales calls to JDR's clients. See filing 10-2 at ¶ 36.

         Braun avers that, within approximately 1 month following Vance's termination, JDR learned, from contacts with its own customers, that defendants and their " agents/licensees" (i.e., Vance) were directly contacting JDR's customers, including those customers Vance had previously serviced while employed with JDR. Filing 10-2 at ¶ ¶ 36(a). Since then, JDR has begun tracking instances of confusion by its customers and others, and JDR has documented numerous instances in which a customer has expressed confusion concerning defendants (and Vance's) use of the LaGrange name.

          See generally, filing 25-4; filing 40-1 at ¶ ¶ 6-11; see also filings 10-10 through 10-20.

         Standard of Review

         I. Motion for Summary Judgment

         The Court may grant summary judgment on all or part of a party's claim or defense. Fed.R.Civ.P. 56(a). Summary judgment is proper if the movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(a). The movant bears the initial responsibility of informing the Court of the basis for the motion, and must identify those portions of the record which the movant believes demonstrate the absence of a genuine issue of material fact. Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc). If the movant does so, the nonmovant must respond by submitting evidentiary materials that set out specific facts showing that there is a genuine issue for trial. Id.

         On a motion for summary judgment, facts must be viewed in the light most favorable to the nonmoving party only if there is a genuine dispute as to those facts. Id. Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the evidence are jury functions, not those of a judge. Id. But the nonmovant must do more than simply show that there is some metaphysical doubt as to the material facts. Id. In order to show that disputed facts are material, the party opposing summary judgment must cite to the relevant substantive law in identifying facts that might affect the outcome of the suit. Quinn v. St. Louis Cnty., 653 F.3d 745, 751 (8th Cir. 2011). The mere existence of a scintilla of evidence in support of the nonmovant's position will be insufficient; there must be evidence on which the jury could conceivably

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find for the nonmovant. Barber v. C1 Truck Driver Training, LLC, 656 F.3d 782, 791-92 (8th Cir. 2011). Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial. Torgerson, 643 F.3d at 1042.

         II. Preliminary Injunction

         When deciding whether to issue a preliminary injunction, the Court weighs the four Dataphase factors: (1) the threat of irreparable harm to the movant; (2) the state of the balance between this harm and the injury that granting the injunction will inflict on other parties; (3) the probability that the movant will succeed on the merits; and (4) the public interest. Johnson v. Minneapolis Park & Recreation Bd., 729 F.3d 1094, 1098 (8th Cir. 2013); (citing Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 114 (8th Cir. 1981) (en banc)). A preliminary injunction is an extraordinary remedy, and the movant bears the burden of establishing its propriety. Roudachevski v. All-Am. Care Centers, Inc., 648 F.3d 701, 705 (8th Cir. 2011); see also Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 129 S.Ct. 365, 376, 172 L.Ed.2d 249 (2008).

         Analysis

         In its complaint, JDR asserts that defendants' conduct constitutes (1) trademark infringement in violation of the Lanham Act, 15 U.S.C. § 1114(1); (2) unfair competition in violation of the Lanham Act, 15 U.S.C. § 1125(a); and (3) a violation of the Nebraska Uniform Deceptive Trade Practices Act (" NUDTPA" ), Neb. Rev. Stat. § 87-301 et seq. JDR has asserted various other theories of recovery in its complaint, but only these claims are before the Court at this time.

         Defendants have filed a counterclaim, seeking cancellation of JDR's federal registration and alleging violations of the Nebraska Consumer Protection Act, Neb. Rev. Stat. § 59-1601 et seq., and the NUDTPA. Defendants have since moved to dismiss their claim under the Nebraska Consumer Protection Act (filing 50), and that claim will be dismissed.

         In its motion for preliminary injunctive relief, JDR asks the Court to enjoin defendants from using the LaGrange name in connection with the sale of welding rod. And in its motion for partial summary judgment, JDR asks the Court to enter judgment for JDR as to several portions of its claims noted above: for trademark infringement, unfair competition, and under the Nebraska Deceptive Trade Practices Act. JDR also asks the Court to dismiss defendants' counterclaim under the NUDTPA.

         For reasons that will become clear, the Court will proceed in reverse of the usual order, and will begin by examining JDR's motion for partial summary judgment. The Court will grant JDR's motion as to its own claims. But the Court will deny JDR's motion as to defendants' counterclaims, which will be allowed to proceed. Finally, JDR's motion for a preliminary injunction will be denied as moot.

         I. JDR's Motion for Partial Summary Judgment (on ...


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