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Days Inns Worldwide, Inc. v. Lincoln Park Hotels

February 22, 2007

DAYS INNS WORLDWIDE, INC., PLAINTIFF,
v.
LINCOLN PARK HOTELS, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Samuel Der-yeghiayan, District Judge

MEMORANDUM OPINION

This matter is before the court on Plaintiff Days Inns Worldwide, Inc.'s ("DIW") motion for summary judgment and on Defendant Lincoln Park Hotels, Inc.'s ("LPH") and Defendant Richard Erlich's ("Erlich") motion for summary judgment on Counts Thirteen and Fifteen. For the reasons stated below, we grant DIW's motion for summary judgment on all counts except for Count Eight, which is denied as moot. We also deny LPH's and Erlich's motion for summary judgment in its entirety.

BACKGROUND

DIW alleges that it owns a proprietary interest in certain marks ("Days Inn Marks") and that on December 27, 1994, it entered into a licensing agreement ("Agreement") with LPH under which LPH was authorized to operate a hotel ("Hotel") using the Days Inn Marks. As part of the deal, Erlich, the sole shareholder of LPH, also allegedly entered into an agreement with DIW under which he agreed to be the contractual guarantor of LPH's obligations ("Guaranty Agreement"). (Erlich Dep. 25).

According to DIW, LPH failed to honor its obligations under the Agreement to obtain a certain amount of insurance and to name DIW as an additional insured. DIW contends that Erlich purposely failed to obtain proper insurance because he was planning to sell the Hotel. Erlich also allegedly furnished DIW with a falsified certificate of insurance. In June 2004, a guest at the Hotel was seriously injured when she fell down a laundry chute at the Hotel and the guest brought a tort action against LPH and DIW ("Guest Action"). DIW contends that under the terms of the Agreement LPH was also obligated to indemnify and defend DIW in the Guest Action and that LPH has done neither.

In late 2005 LPH sold the Hotel to Defendant Gold Coast Investors ("GCI") without obtaining DIW's consent. DIW contends that the sale violated several provisions of the Agreement and DIW claims that it terminated the Agreement upon learning of the sale. Despite the termination of the Agreement, GCI continued to operate the Hotel using the Days Inn Marks. DIW also alleges that LPH has failed to make certain payments required under the Agreement.

DIW brought the instant action and includes in the complaint trademark infringement claims alleging violations of 15 U.S.C. § 1114(1)(a) and 15 U.S.C. § 1125(a) (Counts One and Two), a trademark dilution claim based upon a violation of 15 U.S.C. § 1125(c), (Count Three), an Illinois Deceptive Trade Practices Act ("IDTPA"), 815 ILCS 510/1 et seq., claim (Count Four), an Illinois Consumer Fraud and Deceptive Business Practices Act ("Consumer Fraud Act"), 815 ILCS 505/1 et seq., claim (Count Five), a common law unfair competition claim (Count Six), an accounting claim (Count Seven), an unjust enrichment claim (Count Eight), a breach of contract claim based upon a breach of the post-termination obligations (Count Nine), a breach of contract claim based upon a breach of the obligation to pay recurring fees (Count Ten), a breach of contract claim for liquidated damages (Count Eleven), an alternative breach of contract claim for expectancy damages (Count Twelve), a breach of contract claim based upon a breach of the obligations to indemnify and defend DIW (Count Thirteen), a breach of contract claim based upon a breach of the insurance obligations (Count Fourteen), and a breach of guaranty claim against Erlich (Count Fifteen). The prior judge in this case entered an agreed injunction order prohibiting GCI from using the Days Inn Marks. DIW now moves for summary judgment on all Counts and LPH and Erlich move for summary judgment on the indemnification claims in Count Thirteen and in Count Fifteen.

LEGAL STANDARD

Summary judgment is appropriate when the record, viewed in the light most favorable to the non-moving party, reveals that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). In seeking a grant of summary judgment the moving party must identify "those portions of 'the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)(quoting Fed. R. Civ. P. 56(c)). This initial burden may be satisfied by presenting specific evidence on a particular issue or by pointing out "an absence of evidence to support the non-moving party's case." Id. at 325. Once the movant has met this burden, the non-moving party cannot simply rest on the allegations in the pleadings, but, "by affidavits or as otherwise provided for in [Rule 56], must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). A "genuine issue" in the context of a motion for summary judgment is not simply a "metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Rather, a genuine issue of material fact exists when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Insolia v. Philip Morris, Inc., 216 F.3d 596, 599 (7th Cir. 2000). The court must consider the record as a whole, in a light most favorable to the non-moving party, and draw all reasonable inferences that favor the non-moving party. Anderson, 477 U.S. at 255; Bay v. Cassens Transport Co., 212 F.3d 969, 972 (7th Cir. 2000).

DISCUSSION

I. Trademark Claims and Related State Law Claims (Counts One Through Six)

DIW argues that it is entitled to summary judgment on the trademark infringement claims, IDTPA claims, Consumer Fraud Act claims, and common law unfair competition claims. Defendants do not challenge the sufficiency of evidence on any of the elements of the above listed claims. Neither do any of the Defendants offer any arguments to support a denial of summary judgment on the trademark claims and related state law claims brought against LPH, Erlich, and GCI. The only argument offered by Defendants in defense of the claims is that LPH and Erlich should be excused from liability because after they sold the Hotel to GCI, they lost control over the Days Inn Marks that were misused by GCI. Thus, Defendants' only argument attempts to shift all blame from LPH and Erlich to GCI.

A. Infringement Claims and Related State Law Claims

DIW includes in its complaint trademark infringement claims based upon violations of 15 U.S.C. § 1114(a)(1) (Count One) and 15 U.S.C. § 1125(a) (Count Two). The IDTPA claims (Count Four), Consumer Fraud Act claims (Count Five), and common law unfair competition claims (Count Six) are evaluated under the same analysis as the trademark infringement claims. Trans Union LLC v. Credit Research, Inc., 142 F.Supp.2d 1029, 1038 (N.D. Ill. 2001)(stating that unfair competition claims brought under Illinois law and IDTPA claims are reviewed under the same analysis that is employed for a Lanham Act trademark infringement claim); D 56, Inc. v. Berry's Inc.,955 F.Supp. 908, 920 (N.D. Ill. 1997)(stating that "[u]nder Illinois law, claims under the ICFDBPA and the IDTPA are to be resolved according to principles set forth under the Lanham Act"). For a trademark infringement claim, a plaintiff is required to establish that: (1) "his mark is entitled to protection," and (2) "there is a likelihood of confusion between [the plaintiff's] mark and [the defendant's] mark." Sullivan v. CBS Corp., 385 F.3d 772, 775-76 (7th Cir. 2004).

In the instant action, DIW has referred to evidence showing that the Days Inn Marks are entitled to protection. Defendants have also admitted this point, pursuant to Local Rule 56.1, and have not contested this point in the answer to DIW's motion for summary judgment. (LPH R DIW SF Par. 10-16); (GCI R DIW SF Par. 10-16). In regards to the likelihood of confusion determination, a court should consider factors such as: "(1) the similarity of the marks; (2) the similarity of the products; (3) the area and manner of concurrent use; (4) the degree of care likely to be used by consumers; (5) the strength of the plaintiff's mark; (6) whether any actual confusion exists; and (7) the defendant's intent to palm off its goods as those of the plaintiff." Sullivan, 385 F.3d at 776. In the instant action, Defendants have not contested DIW's position that there is sufficient evidence to show a likelihood of confusion. Defendants have also made various admissions, pursuant to Local Rule 56.1, that show that there is a likelihood of confusion.

DIW asserts in Paragraph 38 of its statement of material facts ("Paragraph 38") that, among other things, GCI did not have authorization to use the Days Inn Marks and that GCI used the Days Inn Marks in the operation of the Hotel after the sale of the Hotel by LPH to GCI. (GCI R DIW SF Par. 38). GCI failed to file any response to Paragraph 38, and thus, pursuant to Local Rule 56.1, the facts contained therein are deemed to be undisputed. LPH and Erlich also failed to dispute the facts contained in Paragraph 38. (LPH R DIW SF Par. 38). Defendants acknowledge that not only were the marks being used by GCI similar to the Days Inn Marks, the marks were the same that LPH was licensed to use. (GCI R DIW SF Par. 38); (LPH R DIW SF Par. 38). Defendants also acknowledge that GCI used the marks in operating the Hotel and thus used the marks in the same manner as DIW's franchises used the marks. (GCI R DIW SF Par. 13, 38); (LPH R DIW SF Par. 13, 38). Defendants have also acknowledged that DIW's mark is a strong mark. (LPH R DIW SF Par. 10-16); (GCI R DIW SF Par. 10-16). Finally, Defendants admit that GCI used the Days Inns Marks without the authorization of DIW. (GCI R DIW SF Par. 38); (LPH R DIW SF Par. 38). Thus, no reasonable trier of fact could conclude other than that there was a likelihood of confusion. DIW has pointed to sufficient evidence to find in its favor as a matter of law on the infringement claims and related state law claims in Counts One, Two, Four, Five, and Six, and Defendants have failed to point to any evidence to support a ruling in their favor on those claims.

B. Trademark Dilution Claim

DIW includes in its complaint trademark dilution claims based upon violations of 15 U.S.C. § 1125(c) (Count Three). To prevail on a trademark dilution claim a plaintiff must establish: "(1) that the mark is famous; (2) that [the defendant] adopted the mark after the mark became famous; (3) the infringer diluted the mark; and (4) the defendant's use is commercial and in commerce." AM General Corp. v. DaimlerChrysler Corp., 311 F.3d 796, 811 (7th Cir. 2002)(stating that "dilution differs from trademark infringement; it does not require a showing of consumer confusion as to source"). In the instant action, Defendants do not dispute that the Days Inn Marks are well established, widely recognized, and would be considered famous marks. (GCI R DIW SF Par. 10-16); (LPH R DIW SF Par. 10-16). Defendants also admit that GCI used the Days Inn Marks without authorization after the marks became famous. (GCI R DIW SF Par. 10-16, 38); ( LPH R DIW SF Par. 10-16, 38). Neither do Defendants dispute that GCI diluted the Days Inn Marks or that GCI's use of the marks was commercial and in commerce. No reasonable trier of fact could find in Defendants' favor on the dilution claims. Thus, DIW has pointed to sufficient evidence to find in its favor as a matter of law on the trademark dilution claims in Count Three, and Defendants have failed to point to any evidence to support a ruling in their favor on those claims.

C. Relinquishment of Control Argument

Defendants argue that LPH and Erlich cannot be liable for unauthorized use of the Days Inn Marks because when DIW terminated the Agreement, LPH and Erlich relinquished their control over the Hotel to GCI. DIW responds by arguing that LPH and Erlich are liable for contributory infringement. A party can be "held responsible for their infringing activities" if the party "intentionally induces another to infringe a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement. . . ." Inwood Labs., Inc. v. Ives Labs, Inc., 456 U.S. 844, 854 (1982). A party can be held liable for contributory infringement if the party had "[w]illful blindness" to the trademark infringement, which is determined by assessing "what a reasonably prudent ...


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