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Fleetwood Folding Trailers, Inc. v. Coleman Co.

June 29, 2007

FLEETWOOD FOLDING TRAILERS, INC., APPELLANT,
v.
THE COLEMAN COMPANY, INC., APPELLEE.



Appeal from Sedgwick District Court; TIMOTHY G. LAHEY, judge.

SYLLABUS BY THE COURT

1. In deciding a motion for directed verdict, the trial court as well as the appellate court must resolve all facts and inferences reasonably drawn from the evidence in favor of the party against whom the ruling is sought and determine whether evidence exists in which a jury could find a verdict for that party. Therefore, a directed verdict must be denied when evidence exists upon which a jury could properly find a verdict for the nonmoving party. However, where the evidence is undisputed and the minds of reasonable persons may not draw differing inferences or arrive at opposing conclusions, the matter is a question of law for the trial court's determination.

2. The interpretation and legal effect of written instruments are matters of law, and an appellate court exercises unlimited review. Regardless of the construction given a written contract by the trial court, an appellate court may construe a written contract and determine its legal effect.

3. An interpretation of a contractual provision should not be reached merely by isolating one particular sentence or provision, but by construing and considering the entire instrument from its four corners. The law favors reasonable interpretations, and results which vitiate the purpose of the terms of the agreement to an absurdity should be avoided.

4. Where the language of the contract is clear and can be carried out as written, there is no room for construction or modification of the terms.

5. A jury instruction is clearly erroneous if the reviewing court reaches a firm conviction that if the error had not occurred, there was a real possibility that the jury would have returned a different verdict. If the instructions as a whole are substantially correct and the jury could not have been misled by them, the instructions will be approved on appeal.

6. The admission of evidence lies within the sound discretion of the trial court. An appellate court's standard of review regarding a trial court's admission of evidence is an abuse of discretion. An abuse of discretion must be shown by the party attacking the evidentiary ruling, and exists only when no reasonable person would take the view adopted by the district court.

7. Under the federal Lanham Act, an owner of a trademark that is registered in the Patent and Trademark Office may recover monetary remedies from any person who has violated its trademark.

8. Violation of a trademark occurs when any person shall, without the consent of the registrant, use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive.

9. It is a fundamental rule of statutory construction, to which all other rules are subordinate, that the intent of the legislature governs if that intent can be ascertained. The legislature is presumed to have expressed its intent through the language of the statutory scheme it enacted. When a statute is plain and unambiguous, the court must give effect to the intention of the legislature as expressed, rather than determine what the law should or should not be. Stated another way, when a statute is plain and unambiguous, the appellate courts will not speculate as to the legislative intent behind it and will not read such a statute so as to add something not readily found in the statute.

10. The Lanham Act clearly requires the district court to treble the profits award to a trademark owner and award attorneys fees if (1) the trademark violator's conduct meets the definition of a counterfeit mark, (2) the violator intentionally used the mark knowing it was counterfeit, and (3) the court fails to find any extenuating circumstances that would justify the violator's use of that counterfeit mark.

The opinion of the court was delivered by: Hill, J

Affirmed.

Before HILL, P.J., MARQUARDT, J., and KNUDSON, S.J.

INTRODUCTION

We consider here a directed verdict in a case arising from the dissolution of a trademark contract that permitted the use of one corporation's trademark by another. Believing that Fleetwood Folding Trailers, Inc. (FFT) had failed to abide by their agreement, the Coleman Co., Inc. (Coleman) successfully sued FFT for lost royalties, profits, punitive damages, and attorneys fees. FFT appeals.

The court directed a verdict on two key points. First, FFT had breached their contract by using Coleman's trademarks outside FFT's authorized territory. Second, FFT's continued use of Coleman's trademarks breached their agreement, infringed upon Coleman's federal and state common-law trademark rights, and violated federal law by creating a false designation of origin.

Resolving all facts and inferences reasonably drawn from the evidence in favor of FFT, we find that a directed verdict was properly granted to Coleman. Accordingly, we affirm.

FACTS AND PRIOR PROCEEDINGS

FFT manufactured folding camping trailers and, with permission, placed Coleman's trademarks on them. Their business relationship began in 1989 with their first trademark license agreement. They renewed their agreement in 1994 and 2000.

In September 2002, Coleman conducted an audit of FFT. Based on that audit, Coleman told FFT that it had not fully complied with the agreement on unreported sales and advertising minimums. Over the next 6 months after the audit, Coleman advised FFT that it continued to misuse Coleman's trademarks. Finally, on April 11, 2003, Coleman sent written notification to FFT that FFT had breached the 2000 Trademark License Agreement.

Coleman alleged four general breaches of the agreement by FFT:

FFT failed to submit details about five new models of trailers and obtain Coleman's approval to use its logo on them.

FFT continuously failed to submit parts, catalogs, brochures, and other advertising materials for Coleman's approval as required by the contract.

FFT failed to submit additional materials about its new Caravan trailer and continued to use inaccurate trademarks on the products.

FFT sold trailers in Spain, Turkey, the Netherlands, Taiwan, and Norway without Coleman's approval.

FFT replied to Coleman's accusations. FFT thought that Coleman would support FFT's development of new products since Coleman would receive royalties from the sales. FFT denied failing to comply with the contract's approval procedures, stating that it had appreciated the informal relationship between the two companies that had developed over the years. FFT also contended that since it had submitted photos of the Caravan to Coleman and, in FFT's opinion, "if you've seen one Caravan, you've seen them all," no further information was necessary. FFT admitted it had sold trailers in five countries without Coleman's permission, but FFT claimed it was an oversight.

In May 2003, Coleman informed FFT, in writing, that FFT had failed to remedy the breaches. Accordingly, under paragraph 12.2 of the 2000 Trademark License Agreement, Coleman ended its relationship with FFT. Coleman advised FFT that, in accordance with paragraph 12.3, FFT was required to immediately cease all use of Coleman's licensed trademarks on all its materials and products.

In response, FFT filed a lawsuit against Coleman, seeking declaratory judgment on Coleman's unlawful termination of the agreement and also sought a temporary restraining order against Coleman from licensing its trademarks to other recreational vehicle manufacturers. Coleman counterclaimed, alleging that FFT's conduct constituted trademark infringement and FFT's unauthorized use of Coleman's trademarks entitled Coleman to punitive damages. Coleman also requested a preliminary injunction to prevent FFT from continuing to use its trademarks.

While considering both parties' requests for preliminary injunctions, the district court ruled that, based upon the 1989 and 2000 agreements of the parties, Coleman had a right to restrict the use of its name and trademarks and FFT had failed to establish any right to continue the use of Coleman's name and trademarks after Coleman's termination of the agreement. The court did not grant Coleman's injunction at that time because the request required a determination of the ultimate issues in the case.

Soon afterwards, Coleman moved for reconsideration, asserting that FFT was still using Coleman's name and trademarks. In response, FFT argued that because the district court had yet to decide whether Coleman lawfully terminated the 2000 Trademark License Agreement, it was still authorized under that agreement to use Coleman's trademarks. In compliance with the agreement, FFT proffered royalty payments to Coleman for the continued use of Coleman's trademarks.

On August 18, 2003, the district court granted Coleman's motion for a temporary injunction and enjoined FFT and its affiliates from using Coleman's trademarks. Its order stated again that FFT did not have any right to use the Coleman name and trademarks.

The case was submitted to a jury in December 2004. At the conclusion of FFT's presentation of evidence, Coleman moved for a directed verdict on two grounds: (1) on FFT's breach of contract claim, and (2) for FFT's post-termination breach of contract and trademark infringement. After reviewing the undisputed facts, the district court decided that (1) FFT's sales of trailers outside its authorized territory violated the territorial provision of the contract; (2) FFT had failed to follow Coleman's approval process; (3) FFT's use of Coleman's trademarks exceeded the scope of the license; and (4) FFT had not cured its contract breaches. Accordingly, the district court granted Coleman's motion and directed a verdict.

The court submitted all remaining questions to the jury. The jury unanimously found (1) reasonable royalties in this case were $508,137; (2) FFT's post-contract termination conduct in using the trademark was willful or in bad faith; (3) FFT earned $4,665,735 in profits during the period of May 12 to August 20, 2003; (4) Coleman should be awarded punitive damages; and (5) FFT failed to prove that it reasonably relied on competent legal advice when it infringed on Coleman's trademarks.

Based on the jury's findings, Coleman moved to treble the award of profits and attorneys fees, alleging that FFT's unauthorized trademark was a "counterfeit mark" according to the Lanham (Trademark) Act, 15 U.S.C. §1051 (2000) et seq. Under that Act, Coleman asserted that the district court was required to award to Coleman three times the profits made by FFT and award Coleman its attorneys fees and costs. The district court concluded that the evidence clearly showed that FFT's conduct, combined with the jury's findings, satisfied the Lanham Act's definition of a counterfeit mark. Therefore, the court granted Coleman's motion.

In its final judgment, the court made three rulings pertinent to this appeal. First, it held that Coleman did not breach the 2000 Trademark License Agreement when it terminated its relationship with FFT. Second, because FFT's continued use of Coleman's trademarks breached the agreement, infringed upon Coleman's trademarks, and constituted a false designation of origin in violation of federal law, the district court decided that FFT owed Coleman reasonable royalties. Third, based on the jury's determination that FFT's infringement of Coleman's trademarks was willful, the district court ruled that Coleman was entitled to FFT's profits received during the period of infringement. Furthermore, since FFT's conduct constituted counterfeiting under the Lanham Act, the district court trebled the profits award and, in addition, awarded Coleman its attorneys fees and litigation expenses. But, because of this enhanced award, the district court denied an additional award for punitive damages.

In this appeal, FFT raises five general issues. (1) Improper grant of directed verdict. In a two-fold argument, FFT contends that the question of what is a material breach of the agreement is a question of fact which should be decided by the jury and not the court; secondly, with the evidence submitted in its case, the question of whether FFT had cured any breach of the agreement is also an issue of fact for the jury and not an issue for the court. (2) Improper jury instruction about profits. FFT argues that there was insufficient evidence to prove that it had willfully infringed upon Coleman's trademark rights to support giving an instruction that the jury had to award Coleman all of FFT's profits. Also the court's instruction erroneously told the jury it must award profits to Coleman if FFT had misused the trademarks. And, finally, the instruction should have informed the jury that the only profits it was to consider were those attributable to any unlawful use of the trademark, not all of FFT's profits. (3) Erroneous exclusion of evidence about a covenant not to compete in original contract. Here, FFT contends that the jury awarded a windfall to Coleman because it was not told that Coleman could not have licenced its trademark with any other company in the RV industry. A covenant not to compete in the original agreement between Coleman and the parent company of FFT allowed only FFT to use the trademarks. FFT thinks the jury would have reacted differently had it known. (4) Lanham Act misinterpretation. According to FFT, the court erred when it concluded FFT had engaged in counterfeiting of Coleman's trademarks. (5) No need for punitive damage instruction. For guidance in any future retrial of this matter, FFT argues that the Lanham Act precludes any award for punitive damages that might have been granted in this case. Therefore, FFT argues, with no possibility of a punitive damage award, there is no need for such an instruction.

ANALYSIS

We begin first with some general rules concerning directed verdicts and how we review them. From there, we deal with the issues in the order set out above. We will incorporate additional facts into this opinion, especially provisions of the contract, as needed.

In deciding a motion for directed verdict, the trial court as well as the appellate court must resolve all facts and inferences reasonably drawn from the evidence in favor of the party against whom the ruling is sought and determine whether evidence exists in which a jury could find a verdict for that party. Therefore, a directed verdict must be denied when evidence exists upon which a jury could properly find a verdict for the nonmoving party. However, where the evidence is undisputed and the minds of reasonable persons may not draw differing inferences or arrive at opposing conclusions, the matter is a question of law for the trial court's determination. Brown v. United Methodist Homes for the Aged, 249 Kan. 124, 126-27, 815 P.2d 72 (1991).

Issue 1: Improper Grant of Directed Verdict

While granting Coleman's motion for directed verdict, the court found that the undisputed evidence demonstrated that (1) FFT had breached the agreement when it sold trailers outside the authorized territory and did not comply with Coleman's approval process in its use of Coleman's trademarks, and (2) FFT had failed to cure these errors. We examine these two findings.

Breach

FFT argues that triable issues of material fact remain regarding whether FFT's breaches were material to the agreement. Since the agreement did not define "cure," FFT alleges it cured the agreement when it ceased breaching the contract 30 days after receiving the written notice from Coleman. In FFT's opinion, whether it did so cease, was a question of fact for the jury.

Paragraph 12.2 of the agreement states that Coleman may terminate the agreement if all three of the following events occur: (1) FFT must fail to perform or fulfill any term or obligation of the agreement; (2) Coleman must provide "written notice" to FFT of those defaults; and (3) after receipt of written notice, such default continues for 30 days.

Several facts about this are not disputed. Larry Marsh, general manager and vice president of FFT, testified that FFT received written notification that FFT had breached the sales territory and approval process provisions in the agreement. In response, on April 17, 2003, FFT instructed its production line to stop placing videotapes disapproved by Coleman in its trailers on May 10, 2003. Furthermore, on April 22, 2003, FFT admitted to Coleman that it had distributed its trailers outside the authorized territory but promised to fully comply "from this point forward." Contrary to that assertion, on May 7, 2003, FFT shipped 16 trailers to Norway, an unauthorized territory. As a result, on May 12, 2003, Coleman terminated the 2000 Trademark License Agreement, claiming that FFT had failed to demonstrate that it had remedied the breaches that were cited in the written notice.

Fundamentally in their argument, FFT relies upon the district court's finding that paragraph 12.2 of the agreement requires a "material" breach to occur before Coleman may terminate the agreement. FFT argues that it did not materially breach the agreement because (1) its noncompliance with the territorial provision was a technical, not material, breach and (2) the evidence proved that FFT substantially complied with Coleman's approval process.

In contrast, Coleman challenges this ruling. Coleman argues that paragraph 12.2 does not require a breach to be material in order to trigger Coleman's option to terminate. Nonetheless, Coleman additionally argues that FFT's breaches were material to the agreement because those breaches threatened Coleman's ability to control its license, which was the essential purpose of the agreement.

We think the district court was incorrect here. The court interpreted the termination provision to implicitly require FFT's breaches to be material in order to terminate, while paragraph 12.2 does not include the word "material" in its language. But a separate paragraph of the agreement, paragraph 4.2, concerning royalties, specifies that FFT's failure to deliver the required royalty reports and payments shall constitute a material breach.

It has been said many times, the interpretation and legal effect of written instruments are matters of law, and an appellate court exercises unlimited review. Regardless of the construction given a written contract by the trial court, an appellate court may construe a written contract and determine its legal effect. See Unrau v. Kidron Bethel Retirement Services, ...


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