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September 08, 2022

Bayou Jambalaya: Sanction Motions, Motions to Vacate and Trade Dress Injunctions

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The US Court of Appeals for the Fifth Circuit issued a three-part ruling that affirmed the district court's denial of a motion to vacate as void the judgment based on Rooker-Feldman doctrine because the earlier state and district court decisions were not "inextricably intertwined," affirmed the district court's permanent injunction because the district court based it on the Fifth Circuit's prior decision, and affirmed the denial of a motion for Rule 11 sanctions because the filed motion was different from the Rule-11-mandated notice that was originally served. Uptown Grill, L.L.C. v. Camellia Grill Holdings, Inc., Case No. 21-30639 (5th Cir. Aug. 23, 2022) (Higginbotham, Higginson, Oldham, JJ.)

This dispute arises from three agreements between Uptown Grill and Camellia Grill: the "Cash Sale, the Bill of Sale and the License Agreement. The Cash Sale and Bill of Sale transferred property from Camellia Grill to Uptown Grill. The License Agreement granted a license to Uptown Grill to use certain trademarks and trade dress. In 2011, Camellia Grill sued Uptown Grill for breach of the License Agreement in state court. The state court found that the appellee breached the license and restored to the appellant all rights to the marks. The court did not, however, construe the Bill of Sale.

While the state court litigation was on appeal, Camellia Grill sued Uptown Grill in federal court for trademark infringement. The district court found that the Bill of Sale transferred the trademarks to Uptown Grill before execution of the License Agreement, and therefore found that Camellia Grill's infringement claim failed. However, the district court also found that the License Agreement limited Uptown Grill's use of the trade dress to a single restaurant, and the court issued an injunction to that effect. The Fifth Circuit affirmed these findings in a 2019 decision in Uptown Grill, LLC v. Camellia Grill Holdings, Inc., but remanded the issue of whether Uptown Grill's use of the Camellia grill trade dress at the new restaurant location constituted a breach of the License Agreement.

On remand, Camellia Grill moved for summary judgment that Uptown Grill breached the License Agreement by using the Camellia Grill trade dress after the termination of the License Agreement. Uptown Grill moved for partial summary judgment on the trade dress injunctions, arguing that Camellia Grill lacked standing since Uptown Grill was not using any trade dress at any new locations. Camellia Grill also filed a motion to dismiss for lack of jurisdiction under the Rooker-Feldman doctrine, under which "inferior federal courts do not have the power to modify or reverse state court judgments' except when authorized by Congress." Finally, Uptown Grill moved for sanctions against Camellia Grill for "abusive and harassing conduct." The district court denied both Camellia Grill's motion to dismiss for lack of jurisdiction and Uptown Grill's motion for sanctions. The district court determined that Uptown Grill had breached the License Agreement's post-termination provisions. The court also decided that the trade dress elements should be limited to that which is protectable under the Lanham Act, and that because the parties had submitted insufficient evidence to determine the scope of the trade dress, a trial would be held on the issue. Camellia Grill filed a motion to alter the order, asking the district court to enjoin Uptown Grill from using any action that might suggest it had rights to use Camellia Grill's trade dress beyond the single location permitted by the parties' agreements. The district court agreed to issue the requested injunction but did so on the basis of the trade dress elements identified in its prior decision, not the License Agreement. Both parties appealed.

The Fifth Circuit affirmed the district court's findings. The Court agreed that Rooker-Feldman did not apply. The Court explained that the district court's conclusion that Camellia Grill transferred the trademarks to Uptown Grill (directly contradicting the state court's holding that the marks were possessed by Camellia Grill) was based on the Bill of Sale. Since the state court never reviewed the Bill of Sale, the district court did not "directly attack" the state court's judgment, and Rooker-Feldman did not void the judgment.

The Fifth Circuit also agreed that the permanent injunction should only prevent the use of "most or all" of the trade dress elements, not the use of any single element. The Court explained that all the elements were included in its previous formulation of the trade dress, and thus the district court's formulation including all of those elements was correct.

Finally, the Fifth Circuit found that a motion filed under Rule 11 must be identical to the corresponding notice required under Rule 11(c)(2). The rule's plain language requiring that a Rule 11 motion "be served under Rule 5" before filing did not allow for any differences between the served notice and the filed motion. Since there were differences between the notice served on Camellia Grill and Uptown Grill's motion, the district court properly denied the Rule 11 motion.

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