After a “hotly contested” four-year litigation that resulted in mutual, without prejudice dismissals, the plaintiff in Vitaform, Inc. v. Aeroflow, Inc., 2023 NCBC 76, said it would refile and try again. But first, the Business Court entertained defendants’ claim that the first go-round merited a nearly $1 million award of attorney’s fees for bad faith and pursuit of claims after plaintiff knew they were meritless.
The dispute under the fee dispute revolved around plaintiff’s development of maternity clothes with compression features and defendant Aeroflow’s distribution and sale support. The Court narrowed the suit substantially in motions practice, including exclusion of expert evidence by both sides we wrote about here. But the parties litigated on with claims largely focused on the alleged sale of similar products by Aereflow subsidiary Motif Medical, Inc., also a defendant.
“In North Carolina, a trial court may award attorney’s fees only as authorized by statute.” Id. ¶ 26 (quoting Winkler v. N.C. State Bd. of Plumbing, 374 N.C. 726, 729 (2020)). And such measures “must be strictly construed.” Id. (quoting Barris v. Town of Long Beach, 704 S.E.2d 285, 289 (2010).
Judge Bledsoe found that defendants successfully threaded that narrow needle on plaintiff’s Lanham Act allegation that Motif had “copied [plaintiff’s products] and passed them off as” its own. Id. ¶ 38. Under the Lanham Act’s attorney fee provision, “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” Id. ¶ 37 (quoting 15 U.S.C. § 1117(a)). And in the Fourth Circuit, under Georgia-Pacific Consumer Prods., LP v. Von Drehle Corp., 781 F.3d 710, 721 (4th Cir. 2015), “exceptional” cases involve:
- an “unusual discrepancy in the merits . . . based on the non-prevailing party’s position as either frivolous or objectively unreasonable”; or
- when “the non-prevailing party has litigated the case in an unreasonable manner” or
- where “there is otherwise the need in particular circumstances to advance considerations of compensation and deterrence.”
The Court found Vitaform’s “litigation conduct” made the case “exceptional” because, at summary judgment, the Court determined there was a “total failure of proof” in support of the Lanham Act claim. The Court found that the testimony and documents of record could not allow a jury to “conclude that Aeroflow’s marketing caused consumer confusion.” Id. ¶¶ 37-38. Thus, the Business Court imposed an attorney fee burden on plaintiff because it “surely knew by the close of discovery that it had not discovered any evidence to support its Lanham Act claim.” As Judge Bledsoe put it (Id. ¶ 39):
“Plaintiff should have dismissed its Lanham Act claim at that time and not required Defendants to seek summary judgment on what had clearly been shown to Plaintiff to be a meritless claim.”
The Court found plaintiff’s “continued litigation of this claim after the close of discovery was objectively unreasonable” and that pressing it to summary judgment demonstrated it litigated “in an unreasonable manner.” Id. It noted the Middle and Western districts of North Carolina agreed. See Design Rsch., Inc. v. Leather Indus. of Am., 2016 WL 5477611, *5 (M.D.N.C. Sept. 29, 2016) (awarding fees in Lanham Act claim where “evidence gleaned in discovery failed to reveal any evidence” of a violation); LendingTree, LLC v. Zillow, Inc., 54 F. Supp. 3d 444, 463 (W.D.N.C. 2014) (award of fees under similar Patent Act provision where plaintiff “should have realized the strength of [defendant’s] defenses at summary judgment.”).
Importantly for North Carolina litigators, the Court also held its finding on plaintiffs’ “continued litigation” of its Lanham Act claim met the Chapter 75 standard for fee awards that “[t]he party instituting the action knew, or should have known, the action was frivolous and malicious.” Id. ¶¶ 43, 47 (quoting N.C.G.S. § 75-16.1(2)). Judge Bledsoe reminded that “[m]aliciousness can develop during the course of litigation if a party persists after discovering that his claim is meritless.” Id. ¶ 43 (quoting Laschkewitsch v. Legal & Gen. Am., Inc., 2017 WL 4976442, *2 (E.D.N.C. Nov. 1, 2017), aff’d, 725 Fed. App’x 252 (4th Cir. 2018)).
Takeaways
- The Court’s decision commends extraordinary caution regarding assessment of a party’s merits position at discovery close when litigating statutes with attorney fee provisions.
- The Court endorsed the view of several federal courts that where a defendant’s efforts in securing summary judgment “were based on a common nucleus of operative fact and thus were inextricably interwoven,” no apportionment of attorney work between claims with, and without, statutory fee provisions is required. Id. ¶ 49 (citing Irwin Indus. Tool Co. v. Worthington Cylinders Wis., LLC, 747 F. Supp. 2d 568, 591 (M.D.N.C. 2010).
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