UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

BRENCO, INCORPORATED; FULL SPEED

AHEAD REBUILDING, INCORPORATED;

QUALITY BEARING SERVICE OF

KENTUCKY, INCORPORATED; QUALITY

BEARING SERVICE OF MISSOURI,

INCORPORATED; QUALITY BEARING

SERVICE OF CALIFORNIA,

No. 95-1277

INCORPORATED,

Plaintiffs-Appellants,

v.

ROLLER BEARING INDUSTRIES,

INCORPORATED,

Defendant-Appellee.

BRENCO, INCORPORATED; FULL SPEED

AHEAD REBUILDING, INCORPORATED;

QUALITY BEARING SERVICE OF

KENTUCKY, INCORPORATED; QUALITY

BEARING SERVICE OF MISSOURI,

INCORPORATED; QUALITY BEARING

SERVICE OF CALIFORNIA,

No. 95-1792

INCORPORATED,

Plaintiffs-Appellees,

v.

ROLLER BEARING INDUSTRIES,

INCORPORATED,

Defendant-Appellant.

Appeals from the United States District Court

for the Eastern District of Virginia, at Richmond.

Richard L. Williams, Senior District Judge.

(CA-94-388)
Argued: June 3, 1996

Decided: July 23, 1996

Before RUSSELL, HALL, and LUTTIG, Circuit Judges.

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Affirmed by unpublished per curiam opinion.

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COUNSEL

ARGUED: Craig Thomas Merritt, CHRISTIAN, BARTON, EPPS,

BRENT & CHAPPELL, Richmond, Virginia, for Appellants. Stephen

Earl Baril, WILLIAMS, MULLEN, CHRISTIAN & DOBBINS,

Richmond, Virginia, for Appellee. ON BRIEF: Paul W. Jacobs, II,

John W. Montgomery, Jr., CHRISTIAN, BARTON, EPPS, BRENT

& CHAPPELL, Richmond, Virginia, for Appellants. Curtis M. Hairston, Jr., WILLIAMS, MULLEN, CHRISTIAN & DOBBINS, Richmond, Virginia, for Appellee.

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Unpublished opinions are not binding precedent in this circuit. See

Local Rule 36(c).

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OPINION

PER CURIAM:

Brenco, Inc., and several of its subsidiaries appeal final judgments

entered in favor of defendant Roller Bearing Industries (RBI) on

Brenco's Lanham Act, fraud, and unfair competition claims and on

RBI's counterclaim for defamation. RBI cross-appeals the denial of

its request for attorneys' fees as the prevailing party on the Lanham

Act claim. We affirm in all respects.

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I.

Brenco is one of only two manufacturers of roller bearings for railroad cars in the United States. The other manufacturer, Timken, Inc.,

is not involved in this suit. Roller bearings, as the name implies, bear

the weight of railroad cars and simultaneously provide relatively

friction-free rolling motion for the axles. A typical freight car has

eight roller bearings, so there are many millions in use.

When a roller bearing wears out, it can often be salvaged through

reconditioning or, if extensive repairs are needed, remanufacturing.

The plaintiffs other than Brenco itself are its subsidiaries that engage

in reconditioning and authorized remanufacturing.

Comprehensive quality and safety standards for roller bearings are

set by an industry group, the Association of American Railroads

("AAR"), in its Roller Bearing Manual. The AAR standards govern

the reconditioning and remanufacturing of used roller bearings. Two

AAR rules are of significance here. First, only the original manufacturer or its authorized representative may remanufacture the "outer

ring" or roller assembly, or repair and reassemble the cone assembly

and its surrounding "cage." Second, a "shop code" and date must be

marked on each bearing every time it is reconditioned or remanufactured. These markings are intended to assure accountability in the

event a reconditioned or remanufactured bearing fails in service.

In 1980, Brenco's President, Stewart Johnson, and Executive Vice

President, Jack Miller, left the company and formed RBI. RBI is a

reconditioner only. It is not authorized to remanufacture bearings.

There has been bad blood between Brenco and RBI from the very

beginning. According to Donald Lacy, then Brenco's Assistant Vice

President for Sales,1 the company's initial response to the defections

of its top executives was to buy up all the second-hand reconditioning

equipment in the market so that RBI could not have it. In 1983,

Brenco accused RBI of "dumping" new foreign-built bearings in the

U.S. market. RBI was exonerated. Lesser squabbles have continued

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1 Lacy later left Brenco for RBI, where he ultimately rose to the office

of President.

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over the years, as was testified to by Miller and by a mutual customer,

Thad Schipereitt of CSX Transportation.

In 1992, RBI complained that it had received a defective batch of

bearings from Brenco. It inspected the product by opening three of the

caged cone assemblies, and, when it returned the defective product to

Brenco, it placed wire fasteners on the opened cages to hold them

together.

Brenco then accused RBI of opening and closing the caged cone

assemblies, which the AAR rules reserved to the manufacturer alone.

The AAR thoroughly investigated Brenco's complaint and found

nothing amiss. By letter dated May 26, 1993, it informed Brenco of

this conclusion.

Brenco did not drop the matter, though. It hired a private investigator, who began contacting ex-RBI employees. Sure enough, the investigator found a few former employees who accused RBI of

performing AAR-prohibited remanufacturing of bearings and forging

Brenco marks on the work. Brenco also obtained expert opinion that

certain Brenco-marked remanufacturing had been done on RBI equipment.

Armed with this evidence, Brenco went back to the AAR in May

1994. After further engineering and data review, the AAR was still

unable to conclude that RBI had broken its rules.

On June 16, 1994, Brenco filed this suit charging RBI with violations of the Lanham Act2 and adding common-law claims of fraud

and unfair competition. It then mailed a copy of the complaint, along

with a cover letter entitled "Notice to Users," to the chief mechanical

or purchasing officers of all major domestic railroads. This "Notice"

asserted, among other things, that "for at least ten years, [RBI] routinely remanufactured bearing components in violation of [AAR]

rules." These violations were allegedly "carried out in secret, with a

deliberate intent to deceive the original bearing manufacturers, railroad industry customers, and the AAR's Mechanical Inspection Divi-

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2 15 U.S.C. §§ 1051-1128.

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sion," and they could "seriously impair the reliability of the bearings."

According to the "Notice," RBI's piracy also extended to "other original bearing manufacturers."

RBI, which had not yet been served and had no idea the lawsuit

had been filed, was soon deluged with irate phone calls. According

to trial testimony, it literally had to beg to keep some of its customers.

RBI filed a host of counterclaims, most alleging antitrust theories.

It also pled a common-law defamation claim based upon the allegations in the "Notice to Users."

After a trial, the jury found for RBI on all of Brenco's claims and

for Brenco on all of RBI's claims save one: it held for RBI on its defamation claim and awarded $374,150 plus interest. Judgment was

entered on the jury's verdict.

As the prevailing defendant in the Lanham Act case, RBI moved

for an award of attorneys' fees and costs. The district court, applying

this court's Scotch Whisky standard, denied the motion.

Brenco appeals, and RBI cross-appeals the denial of fees.

II.

After several hours of deliberations, the jury sent a question to the

court:

Does Stipulation Number 35 release Brenco from legal

liability in the event that RBI reconditioned the bearing last

in the event of a malfunction?

Stipulation 35 reads:

The purpose of the rules in the Roller Bearing Manual

with respect to marking is to assure accountability for the

work that has been performed in that particular operation,

and to place responsibility for failure with those who performed the work.

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The district court answered the question as follows:

Now, the Roller Bearing Manual in effect says whoever

reconditions the bearing has to put a mark on the bearing so

that you can identify who did the reconditioning. Now, the

purpose of that is so that the entity that bought that bearing

that has been reconditioned can look, if there was a malfunction at that point in time, they would look to the

reconditioner for damages or a replacement. But if RBI had

done the reconditioning, and when they inspected the bearing and saw that whatever malfunction came about was due

to a manufacturing defect in the bearing itself, then RBI

could implead Brenco and say, look, while we reconditioned

this thing the actual culprit was your manufacturing of it so,

therefore, you owe us money on it.

Now, if the malfunction was due to something that RBI

did wrong, then that would end the matter and Brenco

wouldn't have any liability for that. Does that clear it up?

 Then, your next question was, does accountability in this

stipulation mean liability? And they are sort of interchangeable, but accountability is so that the customer who bought

the reconditioned bearing knows who [sic] to go to get a

new bearing or money back in his pocket.

One juror then asked if the situation would be different if a malfunction caused death or injury. The court replied:

Well, then, a third party or the victim could sue RBI and

collect damages, or they would sue the railroad first and

then the railroad that had bought the bearing would bring

RBI in and probably Brenco, and if they determined that the

failure was due to bad reconditioning, probably the railroad

would be able to stick it to RBI. If they found that it was a

manufacturing defect then the railroad would be able to pass

the liability on to Brenco. But the victim would get paid,

certainly, so it would work both ways.

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Subsequently, out of the hearing of the jury, the court asked

whether either side had any problem with these instructions. Counsel

for Brenco complained that the jury might misunderstand the court's

comments as meaning that RBI would somehow be responsible for its

reconditioning errors even if it had managed to forge a Brenco mark

on the bearing and the forgery were not detected. The district court

replied that the jury's question rested on the assumption that the

proper marks were there; the court therefore declined to further supplement the instructions.

The form and content of supplemental instructions are within the

district court's discretion, and are reviewed for abuse of that discretion. Price v. Glosson Motor Lines, Inc., 509 F.2d 1033, 1036 (4th

Cir. 1975).3

We see no abuse. If the challenged instructions were wholly

divorced from context, there might be some palpable risk that the jury

misunderstood them in the manner Brenco suggests. With context

restored, there is no such risk. The jury was asking about the meaning

of stipulation 35, which explained the purpose of the marks. The district court prefaced its explanation with the observation that a railroad

could look to the marks to see whom it should hold responsible for

bearing failure. We will not lightly presume that the jurors were so

dull-witted as to fail to perceive that forging the marks would cause

the railroad to look to the wrong entity.

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3 Perhaps in hopes of receiving the benefit of a more exacting appellate

inquiry, Brenco characterizes the court's answers to the jury's inquiry as

"comments on the evidence." Though the court used the parties' names

in its answer, it did so in a purely hypothetical and illustrative sense, and

we are satisfied that the court did not stray from an exegesis on the law

into a commentary on the facts. We treat the court's responses, therefore,

as supplemental instructions.

In any event, even if we viewed the court's answers as comments on

the evidence, we would hold, for the reasons stated in the main text, that

they neither mischaracterized the evidence nor misled the jury in a manner prejudicial to Brenco.

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III.

Brenco also asserts that it was entitled to judgment as a matter of

law on RBI's defamation counterclaim. We disagree.

To prevail on its counterclaim, RBI had to prove by clear and convincing evidence that the Brenco "Notice to Users" was false and

defamatory. Brenco concedes that the notice was defamatory, i.e. it

tended to harm RBI's business reputation. Falsity was at issue, and

the jury obviously found that RBI had not engaged in the conduct

alleged.

Nevertheless, even where his statement is false and defamatory, a

speaker in Virginia has a qualified privilege to comment in good faith

on matters in which he and his listener have a mutual interest or duty.

Smalls v. Wright, 241 Va. 52, 399 S.E.2d 805, 807 (1991). The district court properly instructed the jury that Brenco was entitled to

assert the qualified privilege. It went on to instruct the jury, however,

that Brenco could lose the protection of the qualified privilege if --

(1) Brenco made the statement knowing it was false or

with reckless disregard to its truth or falsity (identical to the

federal "malice" standard);4

(2) the statement was deliberately made in a manner in

which it would be published to persons with no interest in

the subject;

(3) the statement was unnecessarily insulting;

(4) the language used was stronger or more violent than

was necessary; or

(5) the motive for the statement was hatred, ill will, or a

desire to harm RBI, rather than as a fair comment on the

subject.

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4 See Harte-Hanks Communications, Inc. v. Connaughton, 491 U.S.

657, 667 (1989).

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In Virginia, whether a speaker with a qualified privilege has abused

and thereby lost it is a question for the jury. Smalls, 399 S.E.2d at

808. Viewing de novo the evidence in the light most favorable to RBI,

as we must,5 we conclude that there was sufficient evidence to submit

this issue to the jury and to support its verdict.

IV.

The district court instructed the jury that Brenco had to prove its

common-law unfair competition claim by clear and convincing evidence. Brenco asserts that this heightened standard is erroneous, citing a Virginia case closely on point -- involving, as here, alleged

unauthorized use of a trade name -- that required proof by "a fair preponderance of the evidence." Rosso & Mastracco, Inc. v. Giant Food

Shopping Center of Virginia, Inc., 200 Va. 159, 104 S.E.2d 776, 780

(1958). RBI counters that because Brenco's theory here is more akin

to fraud than to simple trademark infringement, 6 the "clear, cogent,

and convincing evidence" standard applicable to common-law fraud

claims7 should apply.

We need not decide whether a Virginia court would apply Rosso

& Mastracco here or adopt RBI's analogy, because any error is

clearly harmless. The Lanham Act claim is similar yet narrower than

the state unfair competition claim,8 and the burden of proof there is

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5 Smith v. Barry, 985 F.2d 180, 184 (4th Cir.), cert. denied, 114 S.Ct.

207 (1993).

6 For example, the dispute in Rosso & Mastracco was whether the

plaintiffs had established that their use of the word "Giant" had acquired

a secondary meaning that could engender consumer confusion.

7 See Patrick v. Summers, 235 Va. 452, 369 S.E.2d 162, 164 (1988).

8 The district court instructed the jury that the Lanham Act claim had

three elements: (i) that RBI sold bearings containing components that

purchasers would believe had not been remanufactured except by

Brenco; (ii) that RBI had remanufactured those components; and (iii) that

RBI failed to inform the buyers that it had engaged in such remanufacturing. The unfair competition claim required proof that (i) RBI sold bearings in a manner likely to confuse purchasers of the source of any

remanufacturing work that had been performed; (ii) the buyers were

deceived by RBI; (iii) RBI profited from the sale; and (iv) Brenco was

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a mere preponderance. The jury found for RBI. Moreover, the defamation verdict establishes that the "Notice to Users" was false. In

light of these verdicts, the jury would not possibly have held for

Brenco on the unfair competition claim, even under a lesser burden

of proof.

V.

In Lanham Act cases, attorneys' fees are available in "exceptional"

cases. 15 U.S.C. § 1117(a). This court, in reliance on legislative history, has given "exceptional" a different meaning depending on

whether the plaintiff or defendant prevails. A prevailing plaintiff must

prove bad faith on the defendant's part, but a prevailing defendant

may receive an award on a showing of "something less." Scotch

Whisky Ass'n v. Majestic Distilling Co., Inc., 958 F.2d 594, 599-600

(4th Cir.), cert. denied, 506 U.S. 862 (1992). The district court's decision on a Lanham Act fee application is reviewed for abuse of discretion. Shell Oil Co. v. Commercial Petroleum, Inc., 928 F.2d 104, 108

n.6 (4th Cir. 1991).

The court reasoned that Brenco's Lanham Act claim, though it

failed, was not "unfounded," and awarding fees here would be tantamount to automatic fee-shifting, which it deemed incompatible with

the statute's limitation of fees to "exceptional" cases. This reasoning

falls well within the broad discretion entrusted to the district courts

in Scotch Whisky.9

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damaged. Thus, at least under Brenco's theory of the case here, a Lanham Act violation would not necessarily constitute unfair competition,

but no instance of unfair competition could occur without a subsumed

violation of the Lanham Act.

9 We recognize that Scotch Whisky's dual standard was called into considerable doubt by disapproving dicta in Fogerty v. Fantasy, Inc., 114

S.Ct. 1023, 1028-1029 n.12 (1994). The same test-- be it bad faith or

"something less" -- may well apply to applications for fees from both

plaintiff and defendant. In any event, because RBI has not made even the

"something less" showing here, the continuing vitality of the Scotch

Whisky standard need not be decided.

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The judgment of the district court is affirmed.

AFFIRMED

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