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ADT & ADT U.S. Holdings, Inc. v. Alarm Protection LLC

United States District Court, S.D. Florida

May 17, 2017

ADT & ADT U.S. HOLDINGS, INC., Plaintiffs,
v.
ALARM PROTECTION LLC, et al., Defendants.

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT

          Robin L. Rosenberg UNITED STATES DISTRICT JUDGE

         This matter is before the Court on Defendants' Motion for Partial Summary Judgment [DE 232]. The Motion has been fully briefed. For the reasons set forth below, the Motion is granted as to Defendants' arguments on the issue of attorney's fees and denied in all other respects.

         I. BACKGROUND [1]

         This case is about door-to-door sales. Defendants are a collection of companies, operating under the name of “Alder, ” that target Plaintiffs' customers' houses. At its core, this is case about how Defendants train their sales agents and how those agents conduct themselves. Defendants' position is that they train their sales agents to be honest and forthright but, from time to time, individual agents may utilize aggressive sales tactics or deviate from their training. Plaintiffs' position is that Defendants' sales agents are intentionally deceptive-not just because of their individual preferences, but because of Defendants' training programs.

         The disputes between the parties have a long procedural history. Originally, in case 12-CV-80898 (“ADT I”), the parties litigated whether Plaintiffs' trademark and Defendants' trademark were similar enough to generate confusion in the mind of consumers. Defendants won that lawsuit after a trial by jury. Both parties appealed, and the appellate court ultimately held that the jury's verdict in favor of the Defendants should stand.

         The parties' disputes were not limited to the possibility of confusion with their respective trademarks. Plaintiffs also believed that Defendants' sales practices were deceptive and, as a result, the instant suit was filed prior to the ADT I trial. While ADT I was pending on appeal, this case was stayed. After the appellate court's decision in ADT I, this case resumed. Before the Court is Defendants' Motion for Partial Summary Judgment on the issue of Plaintiffs' theory for damages.

         Plaintiffs, ADT LLC and ADT U.S. Holdings, Inc. (commonly referred to as “ADT”), filed this lawsuit alleging that Defendants train their sales agents to sell Defendants' electronic security services to Plaintiffs' customers under the guise that the agents are affiliated with Plaintiffs. Plaintiffs' Third Amended Complaint alleges unfair competition under the Lanham Act, 15 U.S.C. § 1125(a) (Count I), and common law unfair competition (Count II). Plaintiffs seek a permanent injunction barring further use of deceptive sales practices; compensatory damages; an accounting of Defendants' profits; punitive damages; and attorney's fees and costs incurred by Plaintiffs in bringing this suit.

         Plaintiffs assert that Defendants target Plaintiffs' customers by identifying houses with Plaintiffs' signs in the yard. Plaintiffs contend that Defendants' agents use deceptive sales pitches that mislead Plaintiffs' customers into believing that the agents represent, or are otherwise affiliated with, Plaintiffs. According to Plaintiffs, the purpose of these pitches is to trick Plaintiffs' customers into believing that Plaintiffs have an existing business relationship with the agents. The agents then get the customers to sign contracts with Defendants based on the mistaken belief that they are receiving an upgrade to their alarm system (Plaintiffs' alarm system).

         II. SUMMARY JUDGMENT STANDARD

         Summary judgment is appropriate if “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The existence of a factual dispute is not by itself sufficient grounds to defeat a motion for summary judgment; rather, “the requirement is that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). A dispute is genuine if “a reasonable trier of fact could return judgment for the non-moving party.” Miccosukee Tribe of Indians of Fla. v. United States, 516 F.3d 1235, 1243 (11th Cir. 2008) (citing Anderson, 477 U.S. at 247-48). A fact is material if “it would affect the outcome of the suit under the governing law.” Id. (citing Anderson, 477 U.S. at 247-48).

         In deciding a summary judgment motion, the Court views the facts in the light most favorable to the non-moving party and draws all reasonable inferences in that party's favor. See Davis v. Williams, 451 F.3d 759, 763 (11th Cir. 2006). The Court does not weigh conflicting evidence. See Skop v. City of Atlanta, 485 F.3d 1130, 1140 (11th Cir. 2007). Thus, upon discovering a genuine dispute of material fact, the Court must deny summary judgment. See id.

         The moving party bears the initial burden of showing the absence of a genuine dispute of material fact. See Shiver v. Chertoff, 549 F.3d 1342, 1343 (11th Cir. 2008). Once the moving party satisfies this burden, “the nonmoving party ‘must do more than simply show that there is some metaphysical doubt as to the material facts.'” Ray v. Equifax Info. Servs., LLC, 327 F. App'x 819, 825 (11th Cir. 2009) (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). Instead, “[t]he non-moving party must make a sufficient showing on each essential element of the case for which he has the burden of proof.” Id. (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)). Accordingly, the non-moving party must produce evidence, going beyond the pleadings, to show that a reasonable jury could find in favor of that party. See Shiver, 549 F.3d at 1343.

         III. ANALYSIS

         Defendants' Motion for Summary Judgment seeks a ruling from this Court on the issue of damages.[2] Defendants argue that Plaintiffs' request for royalty damages is improper as a matter of law. Defendants similarly argue that Plaintiffs' request for compensatory damages (determined by market value), request for goodwill and reputational damages, request for punitive damages, and request for attorney's fees are improper as a matter of law. The Court addresses each category of damages separately below.

         A. Plaintiffs' Request for Royalty Damages

         Plaintiffs seek royalty damages from Defendants because it is Plaintiffs' contention that customer accounts have been essentially stolen from Plaintiffs' dealers and taken over by Defendants. Plaintiffs therefore seek to recover from Defendants compensation akin to the compensation Plaintiffs would have otherwise received from their dealers had the customers not been transferred to Defendants. Defendants argue these damages are improper for many reasons: royalties are not recoverable pursuant to Plaintiffs' claim as a matter of law, Plaintiffs' royalty damages are speculative, Plaintiffs should be judicially estopped from seeking royalty damages, and Plaintiffs should be sanctioned under the Federal Rules of Civil Procedure through exclusion of Plaintiffs' royalty damages theory. The Court addresses each of these arguments in turn, however, the Court first addresses two central premises at the heart of many of Defendants' arguments on this issue.

         1. Premises Underpinning Defendants' Arguments on the Issue of Royalty Damages

         Two central premises are at the heart of many of Defendants' arguments. Defendants' first premise encompasses several different points. Defendants contend that there are no allegations of trademark infringement in this case and, as a result, (i) Plaintiffs may not utilize any damages theory that in turn requires trademark infringement, (ii) lost profit damages require trademark infringement, and (iii) Plaintiffs therefore cannot pursue lost profits. Defendants' second premise is that Plaintiffs do not utilize a royalty as part of their business model and thus Plaintiffs may not utilize any damages theory that involves a royalty. Each of these premises underpins the theme of Defendants' arguments against Plaintiffs' royalty damages theory. Each of these premises is incorrect.

         First, with respect to whether there are allegations of trademark infringement in this case, this is an issue Defendants have developed in a confusing manner. What Plaintiffs have alleged is that Defendants have violated the Lanham Act, 15 U.S.C. § 1125(a). Section 1125, which is entitled “False designations of origin, false descriptions, and dilution forbidden, ” reads as follows:

Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which-
(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or (B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities,
shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

(emphasis added). Plaintiffs have alleged that Defendants have confused Plaintiffs' customers by falsely affiliating themselves with Plaintiffs. DE 174 at 32. Colloquially, Plaintiffs' cause of action is classified as a “false affiliation” claim. The Lanham Act provides for an award of loss profits when the Act is violated. 15 U.S.C. § 1117(a). A false affiliation claim is, of course, a cause of action under the Lanham Act. Plaintiffs have prayed for an award of lost profits. DE 174 at 36. Lost profits may be awarded under the Lanham Act for, inter alia, an unjust enrichment caused by a violation of 15 U.S.C. § 1125(a), which Plaintiffs have alleged here; a plaintiff need not show diverted sales in order to obtain lost profits. Optimum Techs., Inc. v. Home Depot, Inc., 217 F. App'x 899, 902 (11th Cir. 2007); Maltina Corp. v. Cawy Bottling Co., 613 F.2d 582, 584-85 (5th Cir. 1980). An unjust enrichment occurs when a defendant sells “by tapping into the reputation and goodwill” of the plaintiff. Howard Johnson Co. v. Khimani, 892 F.3d 1512, 1521 n.9 (11th Cir. 1999). Plaintiffs have so alleged. See generally DE 174. Thus, regardless of whether Plaintiffs have brought “a trademark infringement ...


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