F I L E D

United States Court of Appeals

Tenth Circuit

MAR 6 2000

PATRICK FISHER

Clerk

PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

UNITED PHOSPHORUS, LTD., a corporation

organized under the laws of India; INVENTA

CORPORATION, a New Jersey Corporation,

Plaintiffs-Appellees and Cross-Appellants,

v.

MIDLAND FUMIGANT, INC.; DONALD F. FOX,

Defendants-Appellants and Cross-Appellees,

PHOS-FUME CHEMICAL CO., formerly a Kansas

corporation; KAW VALLEY, INC., a Kansas

corporation,

Defendants-Appellants.

Nos. 98-3222

 98-3233

 98-3279

 99-3099

Appeal from the United States District Court

for the District of Kansas

(D.C. No . 91-2133-GTV)

Floyd R. Finch, Jr. (Shelley A. Runion with him on the briefs) of Blackwell

Sanders Peper Martin LLP, Kansas City, Missouri, for Plaintiffs-Appellees and

Cross-Appellants.

John C. Tillotson (D.A.N. Chase of Chase & Yakimo, Overland Park, Kansas with

him on the briefs) of Murray, Tillotson, Nelson & Wiley, Chartered,

Leavenworth, Kansas, for Defendants-Appellants and Cross-Appellees.
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Before BALDOCK, BRORBY and LUCERO, Circuit Judges.

BRORBY, Circuit Judge.

United Phosphorus (United) brought this action against Midland Fumigant

(Midland), and its president, Donald Fox, claiming violation of the Lanham Act,

fraudulent trademark registration, trademark infringement, unfair competition,

violation of the Racketeer Influenced and Corrupt Organization Act (RICO), and

common law fraud, all in conjunction with Midland’s use of the “Quick-Phos”

trademark for the fumigant aluminum phosphide. Following trial, a jury found in

favor of United on every claim save the RICO claim and awarded United a total

of $2,075,929 in damages. The jury also recommended punitive damages be

assessed against Mr. Fox personally for his fraudulent activity. In response to

post-judgment motions, the district court refused to award United treble damages

or prejudgment interest, reduced the amount of the jury’s award, and granted

United’s request for attorney fees. The parties now cross-appeal various district

court rulings. We exercise jurisdiction pursuant to 28 U.S.C. § 1291, affirm in

part, reverse in part, and remand to the district court.
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BACKGROUND

United, a company based in India, manufactures aluminum phosphide,

which is used to fumigate grains, nuts, tobacco, and sealed storage facilities. The

fumigant must be registered with and approved by the Environmental Protection

Agency in order to be sold in the United States. In addition, the registrant must

be a United States-based firm. In order to sell their product in the United States,

United entered into an agreement with J.O. Hibbard. Mr. Hibbard’s corporation,

Phos-Fume Chemical Company (Phos-Fume), agreed to register United’s product

and act as United’s exclusive distributor of its aluminum phosphide in the United

States. United had sold its aluminum phosphide under the name “Quick-Phos”

throughout the world, and eventually asked Mr. Hibbard to use this name when

registering with the Environmental Protection Agency. The Environmental

Protection Agency approved Phos-Fume’s use of the Quick-Phos name for

United’s aluminum phosphide products on October 3, 1983. Despite an

agreement that United owned the name Quick-Phos, Mr. Hibbard also applied for

and received a Kansas trademark registration for Quick-Phos in his company’s

name.

In late 1987, Mr. Hibbard sold Phos-Fume to Donald Fox’s newly-formed

corporation, Midland. After a disappointing initial transaction in May 1988,
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Midland and United had a disagreement concerning the appropriate price for

United’s Quick-Phos, and Midland stopped purchasing aluminum phosphide from

United. Instead, Midland purchased cheaper aluminum phosphide with a

reputation for poor quality. When it had trouble selling the inferior product,

Midland printed its own “Quick-Phos” labels, relabeled the product, and sold the

inferior product to its customers under the Quick-Phos name.

In July 1988, United’s chairman wrote a letter to Mr. Fox and Midland

claiming United owned the exclusive rights to use the Quick-Phos name in the

United States, and Midland could not use the name on other products. In January

1989, Midland applied for a federal trademark registration for “Quick-Phos” with

the Office of the Commissioner of Patents and Trademarks, which was granted in

September of the same year.

On April 19, 1991, United filed its complaint, alleging Midland violated the

Lanham Act, false or fraudulent registration of a trademark, trademark

infringement, and unfair competition. The case was settled in late October 1991. 

In the settlement agreement, Midland agreed to (1) cancel its trademark

registration for Quick-Phos immediately; (2) cancel the name Quick-Phos from its

Environmental Protection Agency registration immediately; (3) sell its existing
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stocks of aluminum phosphide labeled Quick-Phos within three months; (4) not

sell any further product labeled Quick-Phos without United’s permission; and (5)

not sell any further product labeled Quick-Phos unless the product was

manufactured by United. United suspected Midland had breached the settlement

agreement in various ways from the beginning, and ultimately United moved to

set aside the settlement agreement in March 1994. In fact, Midland did not cancel

its Quick-Phos trademark with the United States Patent and Trademark Office

until May 1994. A district court found Midland had repudiated the settlement

agreement through various misrepresentations and its failure to cancel the

trademark, and set aside the settlement agreement in January 1995. In addition to

the revived initial suit, United filed a second suit against Mr. Fox for commonlaw fraud, and various entities, alleging violations of the RICO statute. The cases

were consolidated for trial, which took place over two and one-half weeks in

October 1997.

The jury determined United owned the Quick-Phos mark and Midland had

committed trademark infringement, fraudulently procured a federal trademark

registration, and unfairly competed. The jury awarded United $761,866 in

damages on these counts. In addition, the jury found Mr. Fox was liable for fraud

in the breach of the settlement agreement, awarded United $1,314,063 in damages
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on this count, and recommended the district court impose punitive damages

against Mr. Fox. Finally, the jury found for the defendants on the RICO claim. 

In response to various post-judgment motions, the district court denied United

treble damages and prejudgment interest, imposed punitive damages against Mr.

Fox in the amount of $653,217, reduced the jury’s award of fraud damages from

$1,314,063 to $67,694.03, and awarded United $313,133.27 of its requested

$917,411.01 in attorney fees and costs. Not surprisingly, both sides find fault

with the district court’s rulings and these cross-appeals followed.

DISCUSSION

I. Improper Jury Instructions

Midland’s first assigned error is somewhat confused. In its initial brief,

Midland states “Jury Instruction No. 17 regarding trademark ownership was given

in error as it misstated the law and misguided the jury.” Unfortunately for

Midland, it drafted and requested this instruction. We normally will not review

an instruction when the party objecting to the instruction on appeal is the party

who championed the instruction at trial. See Aves v. Shah, 997 F.2d 762, 766

(10th Cir. 1993). However, after a careful review of Midland’s argument, it

becomes clear Midland’s real objection goes not to the submission of Instruction

No. 17, but to the trial court’s refusal to submit five other instructions Midland
1

 United argues Midland did not properly preserve this issue for appeal. 

We disagree. The record clearly shows Midland’s objection and the district

court’s response.

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had offered to the court. As such, the issue on appeal is whether the trial court

erred by not submitting Midland’s proposed instructions numbered 7-11 to the

jury, thus providing the jury with an incomplete picture of applicable law.1

We review the district court's decision to give a particular instruction

for abuse of discretion. To determine whether the jury was

adequately instructed on the applicable law, we review the

instructions in their entirety de novo to determine whether the jury

was misled in any way. The instructions as a whole need not be

flawless, but we must be satisfied that, upon hearing the instructions,

the jury understood the issues to be resolved and its duty to resolve

them.

Medlock v. Ortho Biotech, Inc., 164 F.3d 545, 552 (10th Cir.) (citations omitted),

cert. denied, 120 S. Ct. 48 (1999).

Rather than reproduce the relevant instructions in their entirety here, we

will narrow our discussion a great deal. Midland’s proposed instructions

numbered 7, 10, and 11 dealt with who may own a trademark. The district court

adequately covered this topic in its Instruction No. 16 by pointing out either a

merchant or a manufacturer may develop goodwill in a product and come to own a

trademark through the use of the mark. Instruction No. 16 also makes clear the
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first party to use the mark establishes ownership, thus taking care of the main

thrust of Midland’s Proposed Instruction No. 8. What the district court failed to

provide the jury, then, is the portion of Proposed Instruction No. 8 which deals

with “lawful use,” and the related language in Proposed Instruction No. 9. 

Proposed Instruction No. 9 states: “To have lawful use of a trademark in the

United States for aluminum phosphide requires an EPA approved label. A sale in

interstate commerce in contravention of EPA regulations is not a lawful use.” 

This language misstates the law, and is inconsistent with the evidence presented

at trial.

Midland correctly states that in order to obtain rights in the Quick-Phos

trademark, United needed to show the name was lawfully used in commerce. See

15 U.S.C. § 1127; Gray v. Daffy Dan’s Bargaintown, 823 F.2d 522, 526 (Fed. Cir.

1987); The Clorox Co. v. Armour-Dial, Inc., 214 U.S.P.Q. 850, 851 (TTAB 1982)

(“‘use in commerce’ means a ‘lawful use in commerce’”). Midland then makes

the utterly unsupportable claim that because United did not own the Quick-Phos

registration with the Environmental Protection Agency, and thus could not sell

Quick-Phos in the United States without a domestic registrant, United could not

show prior lawful use in commerce. Midland cites no authority for this theory. 

The Trademark Trial and Appeal Board cases Midland does cite stand for the
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well-reasoned proposition that shipping goods in violation of federal law cannot

qualify as the “use in commerce” necessary to establish trademark rights. See

Medtronic, Inc. v. Pacesetter Sys., Inc., 222 U.S.P.Q. 80, 82 (TTAB 1984);

Clorox, 214 U.S.P.Q. at 851. However, Midland failed to present one piece of

evidence at trial tending to show United’s product was sold or distributed

illegally. Had United sold Quick-Phos without registering with the

Environmental Protection Agency, Midland would have a strong case that United

did not have a right in the trademark, and Midland may have been entitled to its

requested instructions. However, without the offer of any evidence to support the

theory underlying the proposed instructions, the district court did not abuse its

discretion by refusing to submit the instructions to the jury. See Higgins v.

Martin Marietta Corp., 752 F.2d 492, 496 (10th Cir. 1985). The instructions,

taken as a whole, gave the jury an adequate explanation of trademark law, the jury

was not misled, and we find no error.

II. Fraudulent Registration

Midland next argues the evidence was insufficient to support the jury’s

verdict that Midland fraudulently procured the Quick-Phos trademark registration,

therefore the district court erred by denying Midland’s motion for judgment as a

matter of law.
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We review de novo the district court's denial of a litigant's

motion for judgment as a matter of law filed pursuant to Fed. R. Civ.

P. 50(b). We will reverse such a ruling only if the evidence points

but one way and is susceptible to no reasonable inferences supporting

the party opposing the motion. In our review, we may not weigh the

evidence, pass on the credibility of witnesses, or substitute our

judgment for that of the jury. Further, we must construe all evidence

and the inferences therefrom in the light most favorable to the

non-moving party.

Kinser v. Gehl Co., 184 F.3d 1259, 1267 (10th Cir. 1999) (quotation marks and

citations omitted), cert. denied, 120 S. Ct. 985 (2000). When we review a

sufficiency of the evidence claim, “our review is limited to determining whether

the record – viewed in the light most favorable to the prevailing party – contains

substantial evidence to support the jury’s decision.” Comcoa, Inc. v. NEC Tel.,

Inc., 931 F.2d 655, 663 (10th Cir. 1991). “The jury, moreover, has the exclusive

function of appraising credibility, determining the weight to be given to the

testimony, drawing inferences from the facts established, resolving conflicts in

the evidence, and reaching ultimate conclusions of fact.” Kitchens v. Bryan

County Nat’l Bank, 825 F.2d 248, 251 (10th Cir. 1987).

Section 38 of the Lanham Act creates civil liability for those who

fraudulently procure a trademark registration:

Any person who shall procure registration in the Patent and

Trademark Office of a mark by a false or fraudulent declaration or

representation, oral or in writing, or by any false means, shall be

liable in a civil action by any person injured thereby for any damages
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sustained in consequence thereof.

15 U.S.C. § 1120. In order to prove fraudulent procurement, United was required

to show:

(1) the false representation regarding a material fact; (2) the

registrant's knowledge or belief that the representation is false

(scienter); (3) the intention to induce action or refraining from action

in reliance on the misrepresentation; (4) reasonable reliance on the

misrepresentation; and (5) damages proximately resulting from such

reliance.

San Juan Prods., Inc. v. San Juan Pools of Kansas, Inc., 849 F.2d 468, 473 (10th

Cir. 1988). Midland concedes we are concerned solely with the second element

for the purposes of this appeal.

As part of the trademark registration application, Midland’s president,

Robert Shockey, signed an affidavit attesting that to the best of his belief and

knowledge, “no other person, firm, or corporation ha[d] the right to use said mark

in commerce, either in the identical form or in such near resemblance hereto as

may be likely when applied to the goods of such other person to cause confusion

or to cause mistake or to deceive.” See 15 U.S.C. § 1051. In determining

whether this statement was fraudulent, we focus on the “declarant’s subjective,

‘honestly held, good faith’ belief.” San Juan Prods., 849 F.2d at 472 (citation

omitted). Therefore, United had the burden of proving, by clear and convincing

evidence, Robert Shockey signed the oath on Midland’s behalf knowing United
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had the right to use the Quick-Phos mark in commerce. See Stanfield v. Osborne

Indus., Inc., 52 F.3d 867, 874 (10th Cir.), cert. denied, 516 U.S. 920 (1995); Beer

Nuts, Inc. v. Clover Club Foods Co., 711 F.2d 934, 942 (10th Cir. 1983) (burden

of proof is clear and convincing). Mindful of our characterization of this burden

as a heavy one, on this record we hold the evidence can support the jury’s finding

of fraud.

When Midland applied for the trademark registration, company

representatives knew United had been selling Quick-Phos in the United States for

several years. Midland itself had purchased Quick-Phos from United and resold

the product in the United States. United had notified Midland that United owned

the Quick-Phos name, that Mr. Hibbard had been permitted to use the name by

specific agreement, and that Midland should not attach the mark to non-United

products. Finally, Midland had already relabeled inferior product under the

Quick-Phos mark after initially trying to sell the product under another name,

because it became clear the marketplace recognized the superior quality of

United’s Quick-Phos product. Given these facts, the jury was free to find

Midland’s representatives knew United owned the Quick-Phos mark and had the
2

 Midland points to the Kansas registration of the Quick-Phos mark in

Phos-Fume’s name as evidence of its good faith. However, knowing an acquired

subsidiary registered a mark in a state is an entirely different issue than whether

Midland knew United had a right to use the mark in interstate commerce. See

Money Store v. Harriscorp Fin., Inc., 689 F.2d 666, 672 n.6 (7th Cir. 1982).

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right to use the mark in interstate commerce.2 Midland seems to argue Mr. Fox’s

and Mr. Shockley’s self-serving testimony that they believed Midland owned the

mark is dispositive. We disagree and join the district court in pointing out the

jury was free to make its own credibility determination and in so doing find these

witnesses had none. United was not required to pry an admission out of

Midland’s representatives on the stand in order to meet its burden of proof. See

Global Maschinen GmbH v. Global Banking Sys., Inc., 227 U.S.P.Q. 862, 867

(TTAB 1985) (“That the record contains no direct evidence of respondent’s intent

does not mitigate the fraud nor preclude us from holding that respondent’s

conduct was fraudulent.”); Hank Thorp, Inc. v. Minilite, Inc., 474 F. Supp. 228,

238 (D. Del. 1979). Mr. Shockley’s subjective belief United did not have a right

to use the mark must be an “‘honestly held, good faith’ belief.” See San Juan

Prods., 849 F.2d at 472 (citation omitted); Stanfield, 52 F.3d at 874 (defendant

could have reasonably believed plaintiff waived rights to trademark). The jury

didn’t buy Mr. Shockley’s and Mr. Fox’s protestations, and we will not disturb

the jury’s verdict given the facts on the record.
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III. Double Recovery

Midland next argues the district court erred by denying its motion for

judgment as a matter of law and letting stand the jury’s award of $761,866 in

damages to United on the trademark infringement, fraudulent registration, and

unfair competition claims. Specifically, Midland claims the jury’s award

constituted a double recovery of both United’s lost profits and Midland’s profits,

the result of which is United’s overcompensation. We disagree.

The Lanham Act’s general damages provision provides in pertinent part:

When a violation of any right of the registrant of a mark registered in

the Patent and Trademark Office, a violation under section 1125(a)

of this title, or a willful violation under section 1125(c) of this title,

shall have been established in any civil action arising under this

chapter, the plaintiff shall be entitled, subject to the provisions of

sections 1111 and 1114 of this title, and subject to the principles of

equity, to recover (1) defendant's profits, (2) any damages sustained

by the plaintiff, and (3) the costs of the action. The court shall

assess such profits and damages or cause the same to be assessed

under its direction.

15 U.S.C. § 1117. While the damages allowed under the statute are joined with

the conjunction “and,” the district court correctly pointed out a plaintiff in a

trademark infringement case generally cannot recover its lost profits in addition to

the defendant’s profits. However, Midland and the district court seem to expand

this general result in infringement cases to a general rule that recovery of both

types of damages is forbidden. We question this interpretation of the case law,
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but because we refuse to speculate on how the jury arrived at the specific amount

of damages awarded in this case, we do not address the issue.

United presented various documentary and testimonial evidence at trial that

placed its claimed damages on the trademark infringement, fraudulent registration

and unfair competition claims at well over $4 million. As part of those claimed

damages, United’s expert witness calculated Midland’s profits on its sale of

mislabeled Quick-Phos from 1990 to 1992 as $385,520, and United’s lost profits

from 1989 to 1992 as $376,346. The sum of these two figures is $761,866, the

exact amount the jury awarded as damages. Therefore, Midland argues, the jury

award must be an improper double recovery of United’s lost profits and Midland’s

profits. We agree with the district court that this conclusion requires us to

speculate as to the jury’s deliberations and calculations. While Midland’s

explanation for the result of the verdict is persuasive, it is not the only

explanation. However slight the chance, the jury could have arrived at the figure

coincidentally, or more likely, picked the number from plaintiff’s exhibits

“because it was within the range of the evidence and the jury was somehow

attracted to it regardless of the [type of damages] to which it was associated on

the exhibits.” Midwest Underground Storage, Inc. v. Porter, 717 F.2d 493, 501

(10th Cir. 1983). See also Jackson v. Pool Mortgage Co., 868 F.2d 1178, 1180
3

 In the alternative, Midland argues the verdict form was ambiguous on its

face and requests a new trial. The cases Midland cites are inapposite here, but we

refuse to address the issue because it is raised for the first time on appeal. Walker

v. Mather (In re Walker), 959 F.2d 894, 896 (10th Cir. 1992).

4

 Kansas law, through Kan. Stat. Ann. § 60-3722, requires the trier of fact

to determine whether punitive damages should be allowed. The statute then goes

on to cap most awards at the defendant’s highest gross annual income earned in

the last five years. The district court determined Mr. Fox earned $653,217 in

gross income in 1993 and, given the relevant factors, the maximum award was

appropriate in this case. The relevant portions of Kan. Stat. Ann. § 60-3072 are:

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(10th Cir. 1989); Estes v. Southern Pac. Transp. Co., 598 F.2d 1195, 1199-1200

(10th Cir. 1979). We would have a much different case if the only evidence of

damages presented at trial was evidence of Midland’s profits and United’s lost

profits. However, given the evidence presented of damages exceeding $4 million,

the jury’s award was well within the range of proof, and we refuse to characterize

the jury’s verdict as an impermissible double recovery. United was not

overcompensated by the jury’s verdict and we affirm the district court’s denial of

Midland’s motion for judgment as a matter of law.3

IV. Constitutionality of Punitive Damages

The jury determined the imposition of punitive damages against Mr. Fox

was warranted by finding he acted in a “willful, wanton, or malicious” manner. 

Meticulously applying Kansas law, the district court awarded United the statutory

maximum of $653,217 in punitive damages for Mr. Fox’s fraudulent conduct.4 
(a) In any civil action in which exemplary or punitive damages

are recoverable, the trier of fact shall determine, concurrent with all

other issues presented, whether such damages shall be allowed....

(b) At a proceeding to determine the amount of exemplary or

punitive damages to be awarded under this section, the court may

consider:

(1) The likelihood at the time of the alleged misconduct

that serious harm would arise from the defendant's

misconduct;

(2) the degree of the defendant's awareness of that likelihood;

(3) the profitability of the defendant's misconduct;

(4) the duration of the misconduct and any intentional

concealment of it;

(5) the attitude and conduct of the defendant upon

discovery of the misconduct;

(6) the financial condition of the defendant; and

(7) the total deterrent effect of other damages and

punishment imposed upon the defendant as a result of

the misconduct, including, but not limited to,

compensatory, exemplary and punitive damage awards to

persons in situations similar to those of the claimant and

the severity of the criminal penalties to which the

defendant has been or may be subjected.

...

(e) Except as provided by subsection (f), no award of

exemplary or punitive damages pursuant to this section shall exceed

the lesser of:

(1) The annual gross income earned by the defendant, as

determined by the court based upon the defendant's

highest gross annual income earned for any one of the

five years immediately before the act for which such

damages are awarded, unless the court determines such

amount is clearly inadequate to penalize the defendant,

then the court may award up to 50% of the net worth of

the defendant, as determined by the court; or

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(2) $5 million.

5

 The jury originally awarded $1.3 million in damages on the fraud count,

which the district court reduced to $67,694.03. We discuss the reduction in detail

in section VI.

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This award amounts to a 9.65:1 punitive to compensatory damages ratio when

compared to the $67,694.03 judgment entered against Mr. Fox on the fraud

claim.5 Midland appeals the award as unconstitutionally excessive. We review

the constitutionality of a punitive damage award de novo. FDIC v. Hamilton, 122

F.3d 854, 857 (10th Cir. 1997).

When reviewing the constitutionality of a punitive damage award, we are

guided by the United States Supreme Court decision in BMW of N. Am. v. Gore,

517 U.S. 559 (1996), and our subsequent interpretation of that decision in

Continental Trend Resources, Inc. v. OXY USA, Inc., 101 F.3d 634 (10th Cir.

1996), cert. denied, 520 U.S. 1241 (1997). Midland argues the current award

must be reduced because it violates the requirement that a “defendant must

receive ‘fair notice ... of the severity of the penalty that a State may impose.’”

OXY, 101 F.3d at 638 (quoting BMW, 517 U.S. at 574).

It is with respect to this requirement that the Supreme Court set forth

its three ‘guideposts:’ (1) the degree of reprehensibility of the

defendant's conduct, (2) the ratio of the punitive award to the actual

harm inflicted on the plaintiff, and (3) the comparison between the
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punitive award and the civil or criminal penalties that could be

imposed for comparable misconduct.

Id.

A. Reprehensibility of Mr. Fox’s Conduct

Reprehensibility is the most important guidepost for determining the

reasonableness of a punitive damage award. See BMW, 517 U.S. at 575. “[I]n

assessing the reprehensibility of a defendant's conduct, we ask whether the

conduct: ‘causes economic harm rather than physical harm; would be considered

unlawful in all states; involves repeated acts rather than a single one; is

intentional; involves deliberate false statements rather than omissions; and is

aimed at a vulnerable target.’” Hamilton, 122 F.3d at 861 (quoting OXY, 101

F.3d at 638).

While Mr. Fox’s conduct caused economic harm and was not directed at a

particularly vulnerable target in United, the other factors tend to support the

imposition of a large award. The jury found Mr. Fox committed fraud, an activity

surely considered unlawful in every state. In addition, the evidence presented at

trial conclusively showed Mr. Fox repeatedly made deliberate false statements to

United, as well as the district court. After settling United’s trademark

infringement suit in 1991, Mr. Fox instructed his attorney to write a letter to
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United claiming all the Quick-Phos product had either been disposed of or

relabeled with an appropriate mark, when in fact he had a significant inventory of

product improperly labeled with the Quick-Phos mark. Despite evidence to the

contrary, Mr. Fox maintained in a letter to United’s attorney that Midland did not

possess a single invoice showing the name “Quick-Phos” after January 25, 1992. 

In order to further conceal his fraudulent statements, Mr. Fox instructed a

Midland employee to state the same information in an affidavit accompanying

Midland’s response to United’s motion to set aside the 1991 settlement; Mr. Fox

submitted falsified invoices to the court suggesting Midland had not sold

mislabeled Quick-Phos product after May 22, 1992. All this in addition to his

fraudulent activity in procuring the trademark registration and years of

deliberately selling inferior aluminum phosphide under the Quick-Phos mark. We

have no reservations about characterizing Mr. Fox’s conduct as particularly

reprehensible.

B. Punitive to Compensatory Damage Ratio

In OXY, we “surmise[d] that in economic injury cases if the damages are

significant and the injury not hard to detect, the ratio of punitive damages to the

harm generally cannot exceed a ten to one ratio.” OXY, 101 F.3d at 639. Midland

points to the 9.65:1 ratio in this case and argues its conduct was not reprehensible
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enough to warrant a punitive award approaching the OXY “limit.” We disagree

for several reasons. First, we have already rejected Midland’s characterization of

the reprehensibility of its conduct as relatively minor. Second, the 10:1 ratio is

not a sacred line in the sand, across which no punitive award may venture without

feeling the wrath of an appellate court’s constitutional sword. The Supreme

Court was very careful to reject such a categorical approach in BMW. See BMW,

517 U.S. at 582-83. We see nothing in the ratio itself that requires us to hold the

award at issue here is unconstitutionally excessive. Nor are we persuaded by

Midland’s more detailed arguments that a reduction of this award is

constitutionally compelled.

Midland argues a modest award is appropriate here because the economic

injury arises out of a contractual relationship, and the parties should have

protected themselves through explicit remedies for breach in the settlement

agreement. See Hamilton, 122 F.3d at 862. We might agree with Midland had a

district court not determined Midland’s conduct was so objectionable as to justify

the rare remedy of completely setting aside the 1991 settlement agreement. Any

explicit remedies for a breach contained in the settlement agreement conceivably

would have been set aside along with the agreement itself.
6

 As discussed in section VI, the district court reduced the original jury

award of over $1.3 million on the fraud count to $67,694.03. Midland argues the

punitive damage award was determined in relation to the original jury award, and

the subsequent reduction of the compensatory damages require a similar reduction

in the punitive award. This argument has no merit. The district court did not

base its punitive damage award on the compensatory damage amount, but instead

employed Kansas law, and the factors listed therein, to award the highest punitive

damage award allowed. The district court explicitly decided not to adjust the

punitive damage award after reducing the compensatory damages. Regardless,

this calculation is entirely separate and distinct from our determination of the

constitutionality of an award.

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In addition, Midland’s objection to the ratio is based on a comparison of

the $67,694.03 in compensatory damages with the $653,217 in punitive damages. 

However, when determining the ratio of punitive damages to the harm caused,

both actual and potential damages may be used to determine the harm. OXY, 101

F.3d at 639-40; see generally BMW, 517 U.S. at 581-82. The district court

awarded the $67,694.03 in damages to compensate United for the costs of

bringing its motion to set aside the 1991 settlement agreement.6 The district court

ruled further damages caused by Fox’s fraud – such as lost income to United and

damage to United’s name and reputation in the marketplace – were subsumed in

the damages awarded on the trademark infringement, unfair competition, and

fraudulent registration claims. Reducing a damage award to avoid a double

recovery is entirely different than reducing an award due to a lack of evidence

supporting the level of damages. A fundamental truth lies at the core of this
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once-settled case: Had Mr. Fox succeeded in masking Midland’s activity through

his fraudulent conduct, none of the damages awarded in this case would have

been discovered or ultimately recovered. And, arguably, the damages suffered

after the settlement in 1991 could have been prevented entirely but for Mr. Fox’s

fraud. Clearly the actual and potential damages caused by Mr. Fox’s fraud

substantially exceeded the $67,694.03 awarded. That those damages were

subsumed in the jury’s $761,866 award on the other counts does not prevent us

from recognizing that fact. United’s damages expert testified Mr. Fox’s scheme

cost United $74,215 in lost profits in 1992 alone. Adding this one small measure

of the additional damages caused by Mr. Fox’s fraud to our original calculation

brings the punitive to harm ratio down to less than 6:1.

C. Civil and Criminal Penalties

The final guideline – whether comparable civil or criminal penalties alert a

defendant to the possibility of substantial punitive damages in the wake of his

illegal conduct – does lean in Midland’s favor. A finding of common law fraud

does not lend itself to comparison with statutory penalties. See OXY, 101 F.3d at

641 (violation of common-law tort duties). In addition, United fails to

specifically cite one statute or case that can be read to put Midland on notice its

conduct could result in a large punitive award of over half a million dollars. 
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While large punitive awards are not unusual in trademark infringement cases, cf.

Big O Tire Dealers, Inc. v. Goodyear Tire & Rubber Co., 561 F.2d 1365, 1376

(10th Cir. 1977) ($4 million award, 6:1 ratio), cert. dism’d, 434 U.S. 1052 (1978),

we did not find any comparable Kansas cases. Therefore, this guidepost lends

credence to a smaller punitive award.

Weighing all the factors relevant to our determination, we hold the punitive

damage award in this case is not unconstitutionally excessive. Even assuming the

total amount of actual and potential harm in this case is $67,649.03, as Midland

suggests, the punitive to actual damage ratio is less than 10:1. We held the

maximum constitutionally permissible ratio in Hamilton and OXY was 6:1. 

Midland’s activity is much more reprehensible than was the defendant’s in

Hamilton, where the court determined the fraudulent conduct did not involve

repeated acts. In addition, the fraud here involved documents submitted to the

courts, and it entailed a complete refusal to make a good-faith effort to comply

with a settlement agreement. Surely the State of Kansas has a strong interest in

deterring this type of conduct, and Fox’s continued efforts to disguise his

abhorrent behavior with further lies warrants a stiff punitive award. Finally, we

note this award was not the product of an emotionally-driven jury run amok, but a

district court thoughtfully applying a strict state statute regulating the process to
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be followed and amounts allowed for punitive damages. Given the specific facts

of this case, we hold the punitive award is constitutional.

V. Attorney Fees

Finally, Midland argues the district court erred by awarding attorney fees

under the Lanham Act, or in the alternative, the court should have reduced the

fees by more than it did. On cross-appeal, United argues the court erred by

substantially reducing the requested fees.

The Lanham Act gives the trial court discretion to award reasonable

attorney fees to the prevailing party in “exceptional” cases. See 15 U.S.C.

§ 1117(a). We review the decision to award attorney fees, and the amount

awarded, for abuse of discretion. See Case v. Unified Sch. Dist. No. 233, 157

F.3d 1243, 1249 (10th Cir. 1998); Bishop v. Equinox Int’l Corp., 154 F.3d 1220,

1224 (10th Cir. 1998). “Underlying factual findings will only be upset when

clearly erroneous. However, a district court’s statutory interpretation or legal

analysis which provides the basis for the fee award is reviewable de novo.” 

Bishop, 154 F.3d at 1224 (quotation marks and citations omitted).

The Lanham Act does not define what is an “exceptional” case, but we have
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determined it occurs when a trademark infringement is malicious, fraudulent,

deliberate, or willful. See id. (citing VIP Foods, Inc. v. Vulcan Pet, Inc., 675 F.2d

1106, 1107 (10th Cir. 1982) (quoting S. Rep. No. 93-1400 (1974), reprinted in

1974 U.S.C.C.A.N 7132, 7133)). The district court found more than enough

evidence to characterize Midland’s trademark infringement as malicious,

fraudulent, deliberate, and willful. The court based its decision on Midland’s

deliberate relabeling of inferior product under the Quick-Phos mark, even after

repeated warnings to stop doing so. This conduct not only took unfair advantage

of United’s trademark, but it deceived Midland’s customers. Remarkably,

Midland continued to infringe on United’s trademark even after agreeing to stop

doing so in the settlement agreement. The court also stressed Midland’s

explanations for this egregious conduct lacked credibility. Based on the record

before us, we are unwilling to say the district court abused its discretion in

awarding attorney fees to United.

Midland complains the district court improperly based its award of attorney

fees on Midland’s violation of 15 U.S.C. § 1120. While the district court did

mention, in near exasperation, Mr. Fox’s fraudulent filing of the trademark

registration, and it is true § 1120 does not allow for the award of attorney fees,

the remark came at the end of a long list of inappropriate activity that supports
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the “exceptional” case label. In addition, the district court specifically stated

later in its Order that attorney fees are not recoverable under § 1120. We are not

convinced the district court incorrectly considered the facts of this case when

making its determination that attorney fees were warranted.

Having determined the district court acted within its discretion in awarding

United its attorney fees, we now turn to the amount awarded. United sought a

total of $912,976.01 for attorney fees and expenses. United’s attorney submitted

an affidavit in support of the motion for attorney fees stating the hourly rates

charged by his firm ranged from $160 to $200 per hour for partners, $105 to $135

for associates, $65 to $80 for paralegals, and $25 for document clerks. In

addition, United submitted one affidavit from another attorney in Kansas City

who reviewed the rates, stating the rates were within the range of what attorneys

with comparable skill and experience practicing trademark infringement law in

the Kansas City area would charge. After considering United’s evidence of

prevailing market rates, the district court awarded the following rates based

instead on its “own familiarity with the relevant rates in this community:” $150

per hour for lead counsel, $125 per hour for all other attorneys (unless United

requested a lower figure in its motion), $50 per hour for paralegals and staff, and

$25 per hour for document clerks. The district court found United’s time records
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cumbersome, and stated it was difficult to determine how much time was spent on

successful versus unsuccessful claims. The court further found United overstaffed the suit, and the attorneys and staff who did do significant work on the

case billed for an excessive number of hours. After reducing unreasonable

billings, the court determined a total allowable fee, which was then reduced a

further twenty percent to account for time spent on claims which were either not

filed under the Lanham Act, or which did not allow recovery of attorney fees. 

The end result was an award of attorney fees and costs to United in the amount of

$313,133.27.

We first dispose of Midland’s argument that the twenty percent general

reduction for time spent on non-Lanham Act claims was insufficient. Midland

argues the non-compensable aspects of the lawsuit represented a higher

percentage of the total time and energy expended by United than the twenty

percent reduction shows. This is a complex determination, going beyond the mere

number of claims involved, but examining the time reasonably spent on each

claim and the overlap between compensable and non-compensable claims. The

trial court is in a much better position to make this determination than we are, and

we find nothing on this record to convince us the district court abused its

discretion here. In The Post Office v. Portec, Inc., 913 F.2d 802, 813 (10th Cir.
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1990), vacated on other grounds, 499 U.S. 915 (1991), we approved a reduction

of an actual award of fees by twenty percent to account for the existence of nonLanham Act claims in the suit. The district court cited Portec when it stated the

fairest way to avoid overcompensation was to reduce this award by twenty percent

after eliminating all unreasonable billings. Midland argues the court misread

Portec and automatically reduced the award by twenty percent, instead of

reducing the award by an appropriate percentage as applicable in this case. We

find no support for this argument in the record. First, the court imposed the

reduction after eliminating all “unreasonable” billings, so the reduction was

applied only to fees reasonably earned in the pursuit of successful claims. The

court also explicitly stated no attorney fees were awarded for work on the fraud

claim because the sole damages under that claim already included the attorney

fees incurred in setting aside the settlement agreement. Finally, the court noted

the attorney fees awarded would compensate United only for work done on the

trademark infringement claim, with the addition of the small amount of time

spent on United’s unfair competition claim which cross-pollinated the trademark

infringement case. The resulting twenty percent reduction is not on its face

inadequate given the importance of the infringement case as opposed to United’s

other claims. The district court carefully examined all elements of this case, the

pleadings, the time spent at trial, and the jury instructions to arrive at the
-30-

appropriate reduction in this case. We will not find error solely because the

resulting reduction happened to be the same amount as affirmed in a different

case.

We now turn to the district court’s specific reductions of hours and fees. 

Having thoroughly explored the proper process to be used by a trial court in

awarding attorney fees recently in Case, we will keep our discussion here brief. 

When determining what is a reasonable award of attorney fees, the district court

must calculate the “lodestar,” which is the reasonable number of hours spent on

the litigation multiplied by a reasonable hourly rate. See Case, 157 F.3d at 1249. 

The party requesting attorney fees bears the burden of proving the amount of

hours spent on the case and the appropriate hourly rates. Id. In order to prove the

number of hours reasonably spent on the litigation, the party must submit

“meticulous, contemporaneous time records that reveal, for each lawyer for whom

fees are sought, all hours for which compensation is requested and how those

hours were allotted to specific tasks.” Id. at 1250. The district court can reduce

the number of hours when the time records provided to the court are inadequate. 

Id. Finally, the district court must reduce the actual number of hours expended to

a reasonable number to ensure services an attorney would not properly bill to his

or her client are not billed to the adverse party. Id.
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When determining the appropriate rate to apply to the reasonable hours,

“the district court should base its hourly rate award on what the evidence shows

the market commands for ... analogous litigation.” Id. at 1255. The party

requesting the fees bears “the burden of showing that the requested rates are in

line with those prevailing in the community for similar services by lawyers of

reasonably comparable skill, experience, and reputation.” Ellis v. University of

Kan. Med. Ctr., 163 F.3d 1186, 1203 (10th Cir. 1998) (quotation marks and

citation omitted). The focus must be on the “prevailing market rate in the

relevant community.” See id. (quotation marks and citation omitted). “[A]

district court abuses its discretion when it ignores the parties’ market evidence

and sets an attorney’s hourly rate using the rates it consistently grant[s].” Case,

157 F.3d at 1255 (quotation marks and citation omitted). The court may not use

its own knowledge to establish the appropriate rate unless the evidence of

prevailing market rates before the court is inadequate. Id. at 1257; see Lucero v.

City of Trinidad, 815 F.2d 1384, 1385 (10th Cir. 1987). Applying these general

principles to the case before us, we determine the district court did not abuse its

discretion in reducing the number of United’s requested hours, but improperly

substituted its own knowledge for the evidence presented on prevailing market

rates.
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The district court reduced the lodestar hours for several reasons: the court

was convinced United had not adequately reduced its claimed hours for work

performed on its unsuccessful RICO claim, which was a significant portion of

United’s case; United failed to provide sufficiently specific billing records to

allow the court to delineate hours spent on successful and unsuccessful claims;

work on this case by seven partners, thirty-two associates, one summer clerk, ten

paralegals, and one document clerk showed United’s counsel over-staffed the

case. As a result, the court eliminated from the billing request everyone who

spent “minimal” time on the case, defined by the court as less than forty hours. In

addition, the district court eliminated hours spent on background research

designed to familiarize attorneys with trademark law, and hours spent traveling

when no work was done on the case. The court found most of the billing records

too vague to aid in determining the reasonableness of the time spent, and noted

the attorneys in the case billed for activities properly performed by support staff. 

Finally, the court determined United’s attorneys requested a significant number of

hours for activities unrelated to the case, such as research on venue transfer issues

and the decisional histories of judges in the district of Kansas. Ultimately, after

eliminating the billings of less than forty hours, the district court reduced the

requested hours by thirty-five percent prior to calculating the lodestar. Given the

inadequacy of the billing records, and the district court’s detailed explanation of
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its reasons for reducing the hours, we are unwilling to say the court abused its

discretion.

Unfortunately, such detail is lacking in the district court’s determination of

the reasonable hourly rate. The district court’s decision makes no reference to the

evidence presented by either party on prevailing market rate. While the district

court decided this issue without the benefit of our guidance in Case, the court’s

sole articulated basis for awarding the hourly rates applied in this case was its

“own familiarity with the relevant rates in this community.” This is an abuse of

discretion. “[I]n order to comply with precedent, the district court must award

rates compatible with competent, trustworthy evidence of the market.” Case, 157

F.3d at 1256. Without some reference to the evidence presented by the parties as

justification for setting the hourly fee, we must reverse the district court’s

decision and remand for redetermination of a reasonable hourly fee consistent

with the guidelines we articulated in Case.

VI. Damages

In its cross-appeal, United assigns error to the district court’s reduction of

the jury’s award of damages for the fraud claim from $1.3 million to $67,694.03,

the trial court’s denial of treble damages on the trademark infringement claim,
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and the court’s denial of prejudgment interest.

Ruling on Midland’s motion for judgment as a matter of law, the district

court determined the maximum allowable damage award on United’s fraud claim

was $67,694.03. The court based its decision on several related factors: (1) the

final pretrial order limited United’s request for damages to this amount; (2) no

evidence was presented at trial as to damages beyond the legal fees incurred in

setting aside the 1991 settlement; and (3) awarding damages beyond the legal fees

would amount to a double recovery. As stated earlier, we review the grant of a

motion for judgment as a matter of law de novo. See Kinser, 184 F.3d at 1267.

“A pretrial order controls the subsequent course of the suit unless 

the trial court modifies it to prevent manifest injustice.” Rock Island

Improvement Co. v. Helmerich & Payne, Inc., 698 F.2d 1075, 1081 (10th Cir.),

cert. denied, 461 U.S. 944 (1983). In the pretrial order, United stated the

“[d]amages caused to plaintiffs by this fraud are the delays incurred by plaintiffs

in uncovering defendants’ wrongdoing and would be subsumed within the actual

damages and prejudgment interest sought by plaintiffs on the other counts of the

complaint.” Final Pretrial Order. Later, United claimed as relief for this count

“[d]amages in the amount of $67,694.03 representing the legal fees incurred in
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setting aside the settlement.” Id. at 14. The district court correctly pointed out a

jury award exceeding the requested relief does not invalidate the award. See

Menne v. Celotex Corp., 861 F.2d 1453, 1474 (10th Cir. 1988) (citing Fed. R.

Civ. P. 54(c)). However, the information in the pretrial order does support the

district court’s ruling that a remittitur was necessary to avoid a double recovery.

“Where a jury award duplicates damages, the court, either sua sponte or on

motion of a party, should reduce the judgment by the amount of the duplication.” 

Mason v. Oklahoma Turnpike Auth., 115 F.3d 1442, 1459 (10th Cir. 1997)

(citation omitted). Whether damage awards are duplicative is a question of fact,

which we review for clear error. Id. The district court found the evidence

presented at trial of Mr. Fox’s fraudulent behavior “abundant,” but also stated

none of that evidence tended to show damages separate and distinct from those

sought under United’s other claims. United fails to direct us to one place in the

trial transcript that refutes the court’s finding. In fact, the pretrial order language

seems to us a tacit admission by United that any recovery on the fraud claim

above and beyond $67,694.03 would constitute a double recovery. We also note

United does not advance a single argument on appeal, other than pure speculation

on how the jury reached its various verdicts, directly attacking the double

recovery aspect of the district court’s ruling. United’s argument seems to rely on
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the following logic: (1) the evidence at trial was sufficient to prove Mr. Fox’s

fraud; (2) United presented sufficient evidence to prove over $4 million in

damages; (3) the jury’s total award on all claims was less than $4 million;

therefore, we offered evidence at trial to support an award on the fraud claim

above $67,694.03. Unfortunately for United, this argument ignores the issue

before us, namely whether there was any evidence presented showing fraud

damages separate and distinct from the trademark infringement, unfair

competition, and fraudulent registration damages. The silence from United on

this point is deafening. Finally, United is reduced to arguing over the definition

of “subsumed” in the pretrial order, claiming the word means “intertwined,” and

not “indivisible.” We find such hair-splitting unnecessary here. The only

evidence presented at trial on the issue of damages for the fraud count, separate

and distinct from the other claims, was the evidence of the legal fees incurred in

setting aside the settlement agreement. The district court’s finding that any award

above that amount constituted a double recovery was not clearly erroneous.

In the alternative, United claims the district court abused its discretion in

denying United’s motion to amend the pretrial order to conform with the evidence

presented at trial. We review a denial of a motion to amend the pretrial order for

abuse of discretion. See R.L. Clark Drilling Contractors, Inc. v. Schramm, Inc.,
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835 F.2d 1306, 1308 (10th Cir. 1987). The pretrial order may be amended to

prevent manifest injustice. Id. (citing Fed. R. Civ. P. 16(e)). In addition, the

pretrial order is considered amended when an issue is tried with the consent of the

parties. Id. Our analysis of the district court’s reduction of damages exposes the

futility of this argument. First, there was no evidence presented at trial justifying

an amendment; the evidence presented pertaining to damages was necessary for

the non-fraud counts. Second, the district court made clear it did not reduce the

award solely because the pretrial order seemed to limit damages, but instead

reduced the award to avoid a double recovery. Amending the pretrial order would

have no impact on the double recovery analysis. We see no manifest injustice in

this case requiring an amendment of the pretrial order.

United next claims the district court erred by not awarding treble damages. 

The Lanham Act gives a district court discretion to award treble damages: “In

assessing damages the court may enter judgment, according to the circumstances

of the case, for any sum above the amount found as actual damages, not

exceeding three times such amount.” 15 U.S.C. § 1117(a). The statute

specifically states a court “may” award treble damages, therefore our review of

the district court’s decision not to award treble damages is for an abuse of

discretion. See Woodworker’s Supply, Inc. v. Principal Mut. Life Ins. Co., 170
-38-

F.3d 985, 996 (10th Cir. 1999). After careful consideration, the district court

determined United’s request for treble damages was not warranted in this case

because the jury award adequately compensated United. We see nothing in the

record to convince us the court abused its discretion by denying United’s request.

United also appeals the district court’s denial of prejudgment interest. We

review a decision to grant or deny prejudgment interest for an abuse of discretion. 

See Kleier Adver., Inc. v. Premier Pontiac, Inc., 921 F.2d 1036, 1040 (10th Cir.

1990). We look to federal law to determine the propriety of prejudgment interest

on the federal claims and to Kansas law for the pendent state claim. See U.S.

Indus., Inc. v. Touche Ross & Co., 854 F.2d 1223, 1254-55 (10th Cir. 1988),

implied overruling on other grounds recognized by Anixiter v. Home-Stake Prod.

Co., 77 F.3d 1215 (10th Cir. 1996). In its denial of United’s motion during trial,

the district court based its decision on the somewhat speculative nature of the

damages calculations and the fact the damages could not “even approach[] being a

liquidated amount.” Based on the limited record we have before us, we are

concerned the trial court incorrectly applied the governing standards of

prejudgment interest.

While the general rule in Kansas is that prejudgment interest is awarded
-39-

only for liquidated claims, there are exceptions which may or may not apply in

this case. See Lightcap v. Mobil Oil Corp., 562 P.2d 1, 15-16 (Kan.) cert. denied,

434 U.S. 876 (1977). Regardless, in the federal context, this Court has adopted a

preference, if not a presumption, for prejudgment interest. See FDIC v. UMIC,

Inc., 136 F.3d 1375, 1388 (10th Cir.) (“prejudgment interest should normally be

awarded on successful federal claims”), cert. denied, 119 S. Cg. 404 (1998);

Kleier Adver., 921 F.2d at 1041-42; Touche Ross, 854 F.2d at 1256 (“under

federal law prejudgment interest is ordinarily awarded, absent some justification

for withholding it”). In addition, “[w]hether or not the damages were liquidated

is not dispositive under federal law.” Overbrook Farmers Union Coop. Ass’n v.

Missouri Pac. R.R. Co., 21 F.3d 360, 366 (10th Cir. 1994). We must reverse the

district court’s denial of prejudgment interest because the court employed the

wrong federal standard, and may have needlessly limited his decision on the state

law claims. On remand, the district court should more fully develop its analysis

as to the state law claims, and for federal purposes focus on a two-step analysis: 

(1) whether an award of prejudgment interest would serve to compensate United;

and (2) if so, whether equity precludes an award. Kleier Adver., 921 F.2d at 1042

n.4.

Accordingly, we AFFIRM in part, REVERSE in part, and REMAND for
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redetermination of attorney fees and a re-examination of whether prejudgment

interest is appropriate.