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Mr. Electric Corp. v. Khalil

United States District Court, Tenth Circuit

October 16, 2013

MR. ELECTRIC CORP., Plaintiff,
REIAD KHALIL, an individual, and ALBER ELECTRIC CO., INC., Defendants.


CARLOS MURGUIA, District Judge.

This matter is before the court on plaintiff Mr. Electric Corp. ("Mr. Electric")'s Motion for an Award of its Attorneys' Fees and Costs (Doc. 297). For the reasons below, Mr. Electric's motion is granted in part and the court awards fees in the amount of $351, 634.50. Mr. Electric is entitled to recover its taxable costs and may file its Bill of Costs as described below.

I. Factual Background

This is a trademark infringement, unfair competition, and breach of contract action relating to a Mr. Electric franchise agreement entered into between Mr. Electric and defendant Reiad Khalil ("Khalil") on February 15, 2005. Mr. Electric alleged that Khalil infringed upon Mr. Electric's federally registered trademarks and engaged in unfair competition, in violation of both the Lanham Act and Kansas common law. These claims arise from defendant Alber Electric Co., Inc. ("Alber Electric")'s and Khalil's use of Mr. Electric's trademarks after termination of the franchise agreement. Khalil filed counterclaims alleging that Mr. Electric breached the franchise agreement in violation of Kansas common law.

II. Procedural Background

Mr. Electric brought this case against two defendants - Khalil and Alber Electric. This court held a hearing on October 17, 2006, granting Mr. Electric's motion for preliminary injunction against both defendants and finding that Mr. Electric had established a substantial likelihood of success on the merits of its claim. The court entered its order of preliminary injunction on October 23, 2006. After Khalil filed for bankruptcy, the court stayed litigation as to Khalil on June 4, 2007. The court lifted the stay in April 2011 when Magistrate Judge Rushfelt determined that Khalil's bankruptcy case had been terminated.

During Khalil's bankruptcy, the case proceeded as to Alber Electric. Alber Electric consented to entry of judgment by default on all issues related to its liability in this case, but it contested damages. The court adopted Judge Rushfelt's recommendations for entry of judgment by default against Alber Electric on November 7, 2007. After holding a hearing on damages, the court awarded damages to Mr. Electric, including the profits of Alber Electric in the amount of $358, 277.40, plus costs ("Alber Electric Judgment"). Thereafter, Mr. Electric filed a motion asking for an award of its attorneys' fees against Alber Electric. The court found the motion was premature, as Mr. Electric's Lanham Act claims were alleged jointly and severally against both defendants and Mr. Electric's claims against Khalil were still pending. The court denied the motion without prejudice (Doc. 216).

On February 6, 2013, the court entered a Memorandum and Order ("Order") granting Mr. Electric's motion for partial summary judgment and denying Khalil's motion for summary judgment (Doc. 288). In addition, the Order granted partial summary judgment in Mr. Electric's favor on one of Khalil's counterclaims.

The parties then filed a joint motion narrowing the remaining unresolved claims (Doc. 294). The court entered an order on March 12, 2013, granting the joint motion (Doc. 295). That order detailed the parties' agreement that: (1) Mr. Electric was allowed to withdraw the two remaining unsolved claims; (2) Khalil was allowed to withdraw his three remaining unresolved counterclaims; (3) Alber Electric and Khalil consented to a judgment providing that: (i) both defendants are jointly and severally liable for the full amount of the Alber Electric Judgment; (ii) they will be subject to an injunction making permanent the provisions of the preliminary injunction in this matter (Doc. 16); (iii) they will forego pursuit of any appeals or challenges to the Alber Electric Judgment; and (iv) Alber Electric will withdraw with prejudice all post-trial motions relating to the Alber Electric Judgment; and (4) in exchange for the above agreements made by defendants, Mr. Electric agreed to forego any claims to enhance the Alber Electric Judgment. Finally, the parties agreed that Mr. Electric could pursue its claims for attorneys' fees and costs against defendants.

III. Legal Standard

Under the Lanham Act, the court has discretion to award attorneys' fees to a prevailing party in "exceptional cases." 15 U.S.C. § 1117(a); Nat'l Ass'n of Prof'l Baseball Leagues, Inc. v. Very Minor Leagues, Inc., 223 F.3d 1143, 1146 (10th Cir. 2000) ("[E]ven in exceptional cases, the award of attorney fees is vested in the discretion of the district court."). An "exceptional case" under Tenth Circuit law "is one in which the trademark infringement is malicious, fraudulent, deliberate, or willful." Univ. of Kan. v. Sinks, 2009 WL 3191707, at *1 (D. Kan. Sept. 28, 2009) (citing W. Diversified Servs., Inc. v. Hyundai Motor Am., Inc., 427 F.3d 1269, 1273 (10th Cir. 2005)) (internal and other citations omitted). After a case is deemed an "exceptional" one, the court must then determine whether the request for attorneys' fees is reasonable. Ellis v. Univ. of Kan. Med. Ctr., 163 F.3d 1186, 1202 (10th Cir. 1998).

IV. Analysis

A. Whether This is an "Exceptional Case"

It is undisputed that Mr. Electric was the prevailing party in this case. Instead, the parties dispute whether this is an "exceptional case." Both parties cite the legislative history underlying 15 U.S.C. § 1117(a) and the rationale for awarding attorneys' fees. Specifically, Mr. Electric points to the portion stating that "[d]eliberate and flagrant infringement of trademarks should particularly be discouraged in view of the public interest in the integrity of marks as a measure of quality of products" and that "[i]t would be unconscionable not to provide a complete remedy including attorney fees for acts which courts have characterized as malicious, fraudulent, deliberate, and willful." (Doc. 298 at 13 (citing S. Rep. No. 93-1400 (1974), reprinted in 1974 U.S.C.C.A.N. 7132, 7136).) Defendants point to authority from the Third Circuit stating that the ...

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