Does Rule 15(b)(2) — Amendment of Complaint by Trial of the Issue on Express or Implied Consent — Apply at the Summary Judgment Stage? — Circuit Split

Cedar Valley Exteriors, Inc. v. Professional Exteriors, Inc., 2016 U.S. Dist. LEXIS 84868 (D. Minn. June 29, 2016):

Plaintiff Cedar Valley Exteriors, Inc. ("Cedar Valley") brought this action against defendant Professional Exteriors, Inc. ("Professional Exteriors"), alleging that Professional Exteriors infringed two registered service marks. Cedar Valley's service marks are highly unusual in two respects:  First, both marks are for a color--specifically, the color orange. And second, both marks are extraordinarily broad.  Together, the two marks appear to cover any use of any shade of orange in any article of clothing or any form of advertisement related to any aspect of the construction industry.  Thus, for example, the use of orange safety vests on a construction site would appear to be encompassed by the registered marks--something that would no doubt come as a surprise to thousands of contractors.

How Cedar Valley was able to persuade the United States Patent and Trademark Office ("PTO") to register such marks is a mystery, particularly given that Cedar Valley has used only particular shades [*2]  of orange; used it only on shirts, lawn signs, and a few other advertising items; and used it only in connection with a narrow slice of the construction industry. But the PTO did register the marks, and, as a result, this lawsuit raises a number of difficult legal and factual issues.

This matter is before the Court on the parties' cross-motions for summary judgment on Cedar Valley's claims under the Lanham Act, 15 U.S.C. § 1051 et seq., and under the Minnesota Deceptive Trade Practices Act, Minn. Stat. § 325D.44. For the reasons that follow, the Court grants the motions in part and denies them in part, and orders that Cedar Valley's registrations be substantially amended.

I. BACKGROUND

Cedar Valley's business primarily consists of "repairs" to residences, including "roofing, siding, windows, [and] gutters." ECF No. 42-1 (Hausmann Dep.) at 45:8-48:18. These repairs are often necessitated by storm damage and paid for by homeowners' insurance. Id. at 44:3-9; ECF No. 64 (Mannella Decl.) ¶ 4. Cedar Valley was founded in Minnesota in 1998 and has expanded throughout the Midwest and into the eastern and southern regions of the United States, though its "base of customers" remains in the Twin Cities. Hausmann Dep. at 14:8-19, 61:7-62:1; Mannella Decl. ¶ 3. [*3]  Cedar Valley gets its customers through "door-knocking campaigns, use of yard signs, [and] referrals and other advertising," as well as through preferential relationships with insurance companies and their intermediaries. Mannella Decl. ¶ 2; ECF No. 43-1 (Mannella Dep.) at 49:19-55:2.

Professional Exteriors is in the business of residential "remodel[ing] [and] restoration," including "[r]oofing, siding, windows, [and] gutters." ECF No. 41-1 (Hildreth Dep.) at 30:16-33:12. The majority of its work ("60 to 70 percent") consists of "insurance restoration" of storm-damaged homes. Id. at 34:13-21. Professional Exteriors was founded in 2010, is headquartered in East Bethel, Minnesota, and performs its services primarily in the Twin Cities area. Id. at 19:9-16, 58:3-24, 82:9-83:14, 158:16-17. Most of Professional Exteriors' customers are homeowners who were referred by previous customers or who responded to advertisements. Id. at 37:17-38:4.

Cedar Valley began using the color orange to promote its services in 1998. Hausmann Dep. at 65:18-21, 68:10-11; Mannella Dep. at 182:23-183:13. Cedar Valley uses orange on the signs that it puts on customers' lawns and the shirts that its employees wear, as well as on flyers, door hangers, and [*4]  other advertising materials. See ECF Nos. 87-1, 87-2, 87-3, 87-4. Cedar Valley picked orange "[b]ecause it stands out more than other colors," Hausmann Dep. at 65:24-67:21, and because orange was "the most obnoxious, loud" color it could put on signs and shirts, Mannella Dep. at 182:23-183:2.

In 2008, Cedar Valley registered two service marks involving the color orange. Registration No. 3,429,642 ("the '642 mark") is for "the color orange as applied to yard signs and other advertising materials used in advertising the services." ECF No. 1-1. The drawing depicts a solid-orange yard sign outlined by dotted lines. Id. Registration No. 3,429,643 ("the '643 mark") is for "the color orange as applied to clothing worn during the performance of the services." ECF No. 1-2. The drawing depicts a solid-orange short-sleeved polo shirt outlined by dotted lines. Id. The two marks define the "services" to include "building construction and repair; building inspection; construction and renovation of buildings; construction and repair of buildings; general construction contracting; installing siding; roofing contracting; roofing installation; roofing repair; [and] roofing services . . . ." ECF No. 1-1; see also [*5]  ECF No. 1-2.1 The PTO recognized the marks as "incontestable" in 2013 after Cedar Valley declared that it had continually used them for five years. ECF Nos. 46-2, 46-3; see also 15 U.S.C. § 1065.

1   The two marks list the same services, but in different orders.

Since its founding in 2010, Professional Exteriors has also used the color orange on its advertising and promotional materials, including yard signs and shirts. Hildreth Dep. at 103:23-105:2, 126:16-127:6. In September 2011, Cedar Valley sent Professional Exteriors a letter claiming that Professional Exteriors was infringing its service marks. ECF No. 51-5. The letter demanded that Professional Exteriors immediately stop using orange in its advertising and destroy all existing orange advertising materials. Id. A second letter in July 2013 added a demand for $25,000 in damages. ECF No. 51-6. Professional Exteriors did not respond to either letter.

In September 2013, Cedar Valley sued Professional Exteriors for infringing its registered marks under 15 U.S.C. § 1114 and for violating Minn. Stat. § 325D.44.2 In answer, Professional Exteriors alleged (among other things) that the use of the color orange in the construction industry is functional and that Cedar Valley's lawsuit was barred by [*6]  the doctrine of laches. Later, Professional Exteriors sought to amend its answer to add other defenses--including that Cedar Valley had perpetrated fraud on the PTO in procuring its registrations--but Magistrate Judge Tony N. Leung denied that motion.

2   Cedar Valley's complaint also includes a count for infringement of common-law trademark rights under 15 U.S.C. § 1125(a), but Cedar Valley has forfeited any right to obtain summary judgment on this claim.

After oral argument on the summary-judgment motions, the Court ordered the parties to file supplemental briefs addressing the following question (among others): "Does plaintiff contend that it has common law or unregistered trademarks that provide broader rights than its registered marks? If so, plaintiff should address the preceding questions [regarding the scope of the marks] as they apply to those common law rights. Among other things, plaintiff should identify the precise scope of its common law rights and describe how, exactly, its common law rights differ from its statutory rights." ECF No. 103 at 2. The Court also advised: "This probably goes without saying, but the parties should not merely answer these questions, but also cite case law and other legal [*7]  authority that supports each of their answers." Id. at 3.

Cedar Valley responded with a supplemental brief that devoted fewer than two full pages to this question. Citing no legal authority, Cedar Valley generally argued that some of its common-law rights might be broader than the rights afforded by its registered marks, other common-law rights might be more limited, and still other common-law rights might be the same. Cedar Valley vaguely concluded that "[t]he precise scope of the rights associated with each item will invariably depend on the specific item's use." ECF No. 107 at 18-20. In short, Cedar Valley said nothing of substance.

In its response, Professional Exteriors pointed out the obvious deficiencies in Cedar Valley's answer to the Court's question. ECF No. 109 at 18-19. Yet, in its reply brief, Cedar Valley said nothing further about its alleged common-law rights. ECF No. 112. Because Cedar Valley's briefing regarding its common-law claim was woefully inadequate, the Court finds that Cedar Valley has forfeited any right that it may have to obtain summary judgment on that claim.

Following discovery, Professional Exteriors moved for summary judgment, asserting that Cedar Valley's registered [*8]  marks should be canceled for functionality and fraud, and alternatively asking the Court to define the scope of the marks. Professional Exteriors also argued that consumers were not likely to confuse the two companies' marks, and that the testimony of Cedar Valley's expert (Gregory Anderson) on the use of orange in the exterior-remodeling industry should be excluded under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). Cedar Valley also moved for summary judgment, arguing that Professional Exteriors did not have sufficient evidence to prove its affirmative defenses and that Professional Exteriors had infringed the registered service marks as a matter of law.

The Court held a lengthy hearing on the summary-judgment motions. At that hearing, the Court and the parties primarily focused on the threshold issue of the scope of Cedar Valley's marks. The Court expressed concern about the potential breadth of the marks and about Cedar Valley's shifting position regarding their scope. As the Court pointed out, the marks on their face appeared to cover any use of any shade of orange in any article of clothing or any form of advertisement related to any aspect of the construction industry. At times, Cedar Valley appeared to agree; at other [*9]  times, Cedar Valley appeared to argue that the marks were narrower, although Cedar Valley had difficulty explaining how they were narrower. Following the hearing, the Court ordered the parties to submit supplemental briefs on a number of questions.

After reviewing the supplemental briefs, the Court concluded that it needed additional assistance before it could rule on the summary-judgment motions. Because the marks were so unusual, the Court was confronting multiple issues that do not ordinarily arise in infringement actions, and on which neither the Court nor the parties were able to find much legal authority.3 The Court therefore suggested--and the parties agreed--that the Court should appoint an attorney who is knowledgeable about trademark4 law to serve as a court-appointed expert witness under Fed. R. Evid. 706. ECF No. 114. With the parties' consent, the Court appointed Scott W. Johnston of Merchant & Gould. ECF Nos. 116-18. In order to minimize expense, the Court did not ask Mr. Johnston to provide a written report, and the parties did not depose Mr. Johnston. Instead, after reviewing the court file, Mr. Johnston appeared at a hearing and answered numerous questions from the Court and the parties. [*10]  Mr. Johnston's testimony was extremely helpful, and the Court expresses its appreciation to him for serving as an expert and to the parties for agreeing to his appointment.

3   See generally 1 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 7:45.70 (4th ed. 2015) ("Largely unexplored in the case law is the question of the scope of exclusionary rights when a mark consists of a single color or a combination of colors. Is a registration showing a shovel with a reddish orange handle infringed by a rake with a handle in a yellowish orange color? Is a candy package trade dress dominated by a dark purple oval infringed by a competitive candy package with a light purple circle? These are some of the most unpredictable and troublesome issues of infringement in trademark law.")

4   The Court appreciates that trademarks and service marks are technically distinct, but will sometimes follow the popular usage of "trademark" as an umbrella term to refer collectively to trademarks, service marks, and related concepts. See 1 McCarthy, supra, § 4:19.

At the hearing, Mr. Johnston described Cedar Valley's marks as "very unusual" and the legal issues raised by those marks as "very hard." ECF No. 131 (Hr'g Tr.) at 41:8. Mr. Johnston [*11]  opined that the "exceedingly broad" (id. at 11:6-7) marks should be amended under the functionality and "phantom mark" doctrines. Mr. Johnston also recommended granting Cedar Valley's motion for summary judgment because, in his view, the record conclusively established that consumers were likely to confuse the two companies' marks.

The Court agrees with Mr. Johnston that the registrations should be amended. But because the Court finds that material facts remain in dispute, the Court respectfully disagrees with Mr. Johnston's recommendation that the Court find infringement as a matter of law.

II. ANALYSIS

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D. Affirmative Defenses

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3. Fraud

Professional Exteriors next moves for summary judgment on the basis of fraud. Fraud is an affirmative defense that must be pleaded--and pleaded with particularity--in the defendant's answer. See Fed. R. Civ. P. 8(c)(1) & 9(b). Professional Exteriors' answer to Cedar Valley's complaint does not include any allegation of fraud.

Magistrate Judge Leung issued a pretrial scheduling order that set March 15, 2014 as the deadline for the parties to amend their pleadings. ECF No. 19. On September 16, 2014--six months after the deadline had passed--Professional Exteriors moved under Fed. R. Civ. P. 15(a) to amend its answer to include the defense that Cedar Valley had perpetrated a fraud on the PTO in procuring its registrations. ECF Nos. 23, 25. Cedar Valley objected to the motion as untimely. [*33]  ECF No. 28. Judge Leung denied the motion, ruling that, notwithstanding the fact that the motion was ostensibly under Rule 15(a), Professional Exteriors needed to show good cause to modify the pretrial scheduling order under Rule 16(b)(4), and Professional Exteriors had failed to establish good cause because it had not acted diligently to pursue discovery on the fraud issue. ECF No. 66.

Professional Exteriors does not directly challenge Judge Leung's ruling, but asserts that it should now be permitted to advance a fraud defense under Fed. R. Civ. P. 15(b)(2), which provides: "When an issue not raised by the pleadings is tried by the parties' express or implied consent, it must be treated in all respects as if raised in the pleadings."

It is true that Rule 15(b)(2) may permit amendment even after the denial of an earlier motion to amend under Rules 15(a) or 16(b). See Am. Family Mut. Ins. Co. v. Hollander, 705 F.3d 339, 350 (8th Cir. 2013). But Rule 15(b)(2), by its terms, applies to issues that are "tried"; in fact, the heading of subsection (b) is "Amendments During and After Trial" (as contrasted with the heading of subsection (a): "Amendments Before Trial"). Rule 15(b)(2) does not apply at the summary-judgment stage or at any other stage before trial. See Cook v. City of Bella Villa, 582 F.3d 840, 852 (8th Cir. 2009) (" . . . Rule 15(b) provides parties with methods to amend a pleading any time during or after trial, and is therefore not directly applicable [*34]  to this situation where the parties intended to amend the complaint before trial . . . ."); Oglala Sioux Tribe v. Hallett, 708 F.2d 326, 329 n.5 (8th Cir. 1983) ("Rule 15(b), on its face, serves to conform the pleadings to the evidence '[w]hen issues not raised by the pleadings are tried by express or implied consent of the parties.' We are not convinced that this rule can be used in a pretrial motion as the Tribe contends." (alteration in original)). But see Liberty Lincoln-Mercury, Inc. v. Ford Motor Co., 676 F.3d 318, 327 n.7 (3d Cir. 2012) (noting circuit split on issue).

Moreover, the text of Rule 15(b)(2) requires that the opposing party "consent"(either "express[ly] or "implied[ly]") to trying the new issue. Compare Culpepper v. Vilsack, 664 F.3d 252, 259 (8th Cir. 2011) (amendment not proper when opposing party repeatedly objected to inclusion of proposed claims), with Hollander, 705 F.3d at 350 (amendment proper when opposing party failed to object to evidence relevant to unpleaded claim). Cedar Valley has not explicitly or implicitly agreed to try the issue of fraud; to the contrary, Cedar Valley has consistently objected to any attempt by Professional Exteriors to add a fraud defense.

For these reasons, the Court will not allow Professional Exteriors to assert a fraud defense. The Court therefore denies Professional Exteriors' motion and grants Cedar Valley's motion for summary judgment on the defense of fraud.

 

 

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