Court Opinion

ID: 1021985
Source: CourtListenerOpinion
Date Created: 2013-07-04 23:15:10.156915+00
Date Added: 2024-06-11T08:18:22.969201
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                             No. 06-1358

SAN FRANCISCO OVEN, LLC,

                                              Plaintiff - Appellant,

           versus

FRANSMART,   INCORPORATED;    FRANSMART,   LLC;
DANIEL A. ROWE,

                                            Defendants - Appellees.

Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Gerald Bruce Lee, District
Judge. (1:05-cv-00700-GBL)

Argued:   January 31, 2007                  Decided:   March 9, 2007

Before WILKINS, Chief Judge, and WILLIAMS and DUNCAN, Circuit
Judges.

Affirmed by unpublished per curiam opinion.

ARGUED: Peter R. Silverman, SHUMAKER, LOOP & KENDRICK, Toledo,
Ohio, for Appellant. R. Scott Caulkins, LECLAIR RYAN, Alexandria,
Virginia, for Appellees. ON BRIEF: Leslie V. Heenan, LECLAIR RYAN,
Alexandria, Virginia; George E. Kostel, REED SMITH, L.L.P., Falls
Church, Virginia, for Appellees.

Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

     San Francisco Oven, LLC (“SFO”) appeals district court orders

dismissing its Lanham Act claim against Fransmart, LLC; Fransmart,

Incorporated; and Daniel A. Rowe (collectively, “Fransmart”), and

awarding attorneys’ fees to Fransmart.      Finding no reversible

error, we affirm.

                                I.

     SFO, a franchisor of fast-casual brick oven pizza restaurants,

contracted with Fransmart, a franchise consultant, to perform sales

and consulting services.    A dispute arose between the parties

concerning the amount of compensation owed to Fransmart and other

issues.

     SFO brought this action alleging breach of contract and

various tort claims; the sole jurisdictional basis alleged was

diversity of citizenship.    SFO’s complaint sought, inter alia,

preliminary and permanent injunctive relief.1   Fransmart moved to

dismiss on the ground that the parties were not diverse and

therefore the district court lacked subject matter jurisdiction.

Before the court ruled on this motion, SFO amended its complaint to

add a false advertising claim under the Lanham Act, see 15 U.S.C.A.

      1
       The contracts between SFO and Fransmart required that all
 disputes, except claims for injunctive relief, be resolved by
 arbitration. As a result, certain damages claims arising from the
 parties’ dispute were excluded from this litigation and resolved
 in a separate arbitration proceeding.

                                2
§ 1125(a)(1)(B) (West 1998); this claim was based largely on the

same facts alleged in the original complaint. As is relevant here,

the Lanham Act claim alleges that, on its website, Fransmart

(1) recommended an attorney who could provide franchise-related

legal services but failed to disclose that the attorney also

represented Fransmart; (2) advertised a software product called

“Franchise in a Box” while knowing that it could not provide this

product; and (3) advertised another restaurant franchise, Z-Pizza,

as a fast-casual brick oven pizza restaurant even though it offered

neither fast-casual dining nor brick oven pizza.

      In response to SFO’s amended complaint, Fransmart amended its

motion to dismiss to also seek dismissal of the Lanham Act claim.

The district court determined that most of SFO’s allegations,

including those involving the attorney conflict of interest and

Franchise in a Box, failed to state a claim under the Lanham Act.

The   court   concluded,   however,   that   the   allegations   regarding

Z-Pizza did state a Lanham Act claim and therefore that federal

question jurisdiction existed.

      After a hearing, the district court denied SFO’s motion for a

preliminary injunction.      Fransmart then moved to dismiss, or for

summary judgment on, SFO’s remaining claims.          The district court

granted summary judgment to Fransmart on SFO’s Lanham Act claim

                                      3
concerning Z-Pizza.2      The court concluded that SFO had “failed to

produce evidence that it suffered ‘actual’ or even ‘probable’

injury as a result of any alleged misrepresentations about ... Z-

Pizza[] appearing on Fransmart’s website.” J.A. 669-70. The court

cited testimony by SFO’s chief executive officer conceding that no

potential franchisee had refused to do business with SFO because of

any misrepresentation on Fransmart’s website.

     Following the grant of summary judgment, Fransmart moved for

an award of $127,972.50 in attorneys’ fees for its defense of SFO’s

Lanham Act claim.   SFO opposed the motion, arguing that attorneys’

fees were not warranted and that the billing records submitted by

Fransmart did not support a fee award in the amount sought.          The

district court agreed with Fransmart that this was an “exceptional

case” warranting the imposition of attorneys’ fees.         Id. at 880;

see 15 U.S.C.A. § 1117(a) (West Supp. 2006).       The court found that

SFO had brought the Lanham Act claim in bad faith, solely to avoid

an impending dismissal for lack of subject matter jurisdiction.

The court further emphasized that SFO had pursued the claim without

any substantial factual or legal basis to support it. Recognizing,

however, that the fee award should be limited to work performed in

connection   with   the    Lanham   Act   claim,   the   district   court

concluded--based on its review of the materials submitted by the

      2
       The court dismissed or remanded each of the other remaining
 claims. Those claims are not at issue in this appeal.

                                    4
parties--that the requested fee award should be reduced. The court

thus awarded Fransmart $117,000 in attorneys’ fees.

                                   II.

     In its opening appellate brief, SFO raised various arguments

challenging the dismissal of its Lanham Act claim.                 At oral

argument, however, SFO clarified that it is raising only one issue

concerning the merits of this claim. SFO contends that in granting

summary   judgment   to   Fransmart,    the   district   court   failed   to

specifically address SFO’s request for a permanent injunction. SFO

argues that to be entitled to a permanent injunction, it did not

need to present evidence of actual damages but only evidence of a

likelihood of harm.       As SFO’s counsel conceded at oral argument,

however, SFO first raised this argument in its reply brief.               We

therefore do not consider it.3     See Washington v. Wilmore, 407 F.3d

274, 280 n.6 (4th Cir. 2005).

                                  III.

     SFO also challenges the award of attorneys’ fees to Fransmart

for its defense of the Lanham Act claim.        SFO contends that no fee

      3
       Even if we were to consider this argument, we would conclude
 that it lacks merit. The district court properly determined that
 SFO had produced evidence of neither actual nor likely harm
 resulting from the statements about Z-Pizza on Fransmart’s
 website. See Scotts Co. v. United Indus. Corp., 315 F.3d 264, 272
 (4th Cir. 2002) (explaining that “a plaintiff asserting a false
 advertising claim under the Lanham Act must establish that ...
 [it] has been or is likely to be injured as a result of the
 misrepresentation” (internal quotation marks omitted)).

                                    5
award was justified here and, alternatively, that the attorney time

records submitted by Fransmart did not support the $117,000 fee

award by the district court.

     We review the award of attorneys’ fees by the district court

for abuse of discretion.      See Ale House Mgmt., Inc. v. Raleigh Ale

House, Inc., 205 F.3d 137, 144 (4th Cir. 2000).               The Lanham Act

permits an award of reasonable attorneys’ fees to the prevailing

party in “exceptional cases.”       15 U.S.C.A. § 1117(a).          Under this

standard, a prevailing defendant such as Fransmart may recover fees

based on “a showing of something less than bad faith.”              Ale House,

205 F.3d at 144 (internal quotation marks omitted).                  Relevant

considerations include “economic coercion, groundless arguments,

and failure to cite controlling law.”           Id. (internal quotation

marks & alteration omitted).

     We   conclude   that    the   district   court    did    not   abuse   its

discretion   in   awarding     attorneys’     fees    to     Fransmart.     In

particular, the record supports the findings by the district court

that SFO brought the Lanham Act claim solely to avoid a dismissal

for lack of subject matter jurisdiction and that it pursued this

claim without any factual or legal support.

     We also conclude that the district court did not abuse its

discretion in determining the amount of the fee award.                Although

the district court did not discuss in detail its rationale for

awarding $117,000 in fees, the record indicates that it reviewed

                                     6
the submissions by the parties--including the time records and

billing   rates   submitted   by   Fransmart--and   concluded   that   the

requested fee award should be reduced by approximately $11,000. In

so doing, the court specifically recognized that the fee award

should be limited to work performed in connection with the Lanham

Act claim.   Based on the record, we cannot say that the calculation

of fees by the district court was unreasonable.

                                    IV.

     For the reasons set forth above, we affirm the judgment of the

district court.

                                                                AFFIRMED

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