Mostly Memories Inc v. For Your Ease Only ( 2008 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 06-3560
MOSTLY MEMORIES, INCORPORATED,
a Missouri corporation,
Plaintiff-Appellee,
v.
FOR YOUR EASE ONLY, INCORPORATED,
an Illinois corporation, LORI GREINER,
individually, and DANIEL GREINER,
individually and d/b/a CLEVER & UNIQUE
CREATIONS WITH LORI GREINER, ON QVC TV,
Defendants-Appellants,
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 05 C 7058—Ruben Castillo, Judge.
____________
ARGUED MAY 2, 2007—DECIDED MAY 27, 2008
____________
Before EVANS, WILLIAMS, and SYKES, Circuit Judges.
SYKES, Circuit Judge. Mostly Memories, Inc. (“Mostly
Memories”) sued For Your Ease Only, Inc. (“For Your
Ease”) and its owners alleging copyright infringement
and various state-law claims. After the district court
dismissed the entire case with prejudice, the defendants
2 No. 06-3560
moved for an award of attorney’s fees on several grounds:
the Copyright Act, 17 U.S.C. § 505; the Illinois Trade
Secrets Act (“ITSA”), 765 ILL. COMP. STAT. 1065/5 (2004);
the vexatious litigation statute, 28 U.S.C. § 1927; and the
court’s inherent power. Although the suit had been dis-
missed on Mostly Memories’ own motion because its
counsel had concluded it was completely baseless, the
district court denied the defendants’ motion without
explanation. The court also sua sponte dismissed the
defendants’ counterclaims with leave to refile them in
the District of Missouri. The defendants argue that
neither ruling can withstand appeal, and we agree.
First, the district court did not explain why it dis-
missed the counterclaims. The court’s apparent ratio-
nale—a defect in jurisdiction or venue—is not sup-
ported by the record. Second, the court’s summary
denial of the defendants’ motion for attorney’s fees was
too threadbare to constitute a reviewable exercise of
discretion. The court neither identified nor applied the
legal principles informing a court’s decision to award
attorneys’ fees under any of the theories asserted by
the defendants. This omission is particularly conspicuous
in light of a prevailing party’s presumptive entitlement
to attorney’s fees under § 505 of the Copyright Act. We
reverse and remand for entry of an appropriate award
of attorney’s fees and reinstatement of the defendants’
counterclaims.
I. Background
Mostly Memories manufactures decorative candles
and other home accessories. For Your Ease specializes in
selling products through QVC, the popular home-shopping
No. 06-3560 3
cable network. Lori Greiner, who co-owns For Your Ease
with her husband, Daniel Greiner, approached Mostly
Memories at a trade show in 2000 and offered to promote
its products to QVC “buyers.” Those buyers determine
which products QVC will offer to the viewing public,
so winning them over is a critical first step for com-
panies looking to market their wares to the legions of QVC
viewers. Mostly Memories accepted Greiner’s offer and
signed a contract in which For Your Ease agreed to act as
Mostly Memories’ exclusive sales agent with respect to
QVC. For Your Ease also agreed to work with Mostly
Memories to develop new products to pitch to the net-
work. In exchange, For Your Ease received a 6% com-
mission on each Mostly Memories product QVC ordered.
That commission increased to 10% for any Mostly Memo-
ries products Greiner featured in her own QVC seg-
ment, Clever & Unique Creations with Lori Greiner.
After a three-year honeymoon period, the relationship
between Mostly Memories and For Your Ease began to
deteriorate. In 2004 Mostly Memories notified For Your
Ease that it would be unable to fill outstanding candle
orders from QVC. Afraid of damaging its reputation
with QVC, For Your Ease scrambled to cover the out-
standing orders, ultimately purchasing substitute can-
dles from a third-party manufacturer. Mostly Memories
President Tricia Derges felt that For Your Ease was to
blame for Mostly Memories’ inability to fill the QVC can-
dle orders. As such, Derges believed Mostly Memories
was entitled to a “reverse commission” on the substitute
candles. For Your Ease refused to pay any “reverse
commissions,” prompting Derges to write a letter to
QVC accusing For Your Ease of passing off proprietary
Mostly Memories’ product designs (i.e., the substitute
4 No. 06-3560
candles) as its own. In that letter Derges also offered to
bypass For Your Ease and sell its products directly to
QVC, an offer For Your Ease later characterized as a
breach of Mostly Memories’ covenant not to compete.
Mostly Memories and For Your Ease then exchanged a
volley of increasingly accusatory letters before Mostly
Memories brought this lawsuit in December 2005. For
Your Ease and Lori and Daniel Greiner were named
defendants. (We will refer to them collectively as “For
Your Ease”.) QVC was also named as a defendant but is
not a party to this appeal.
Mostly Memories’ mammoth complaint alleged 47
counts of copyright infringement and various state-law
claims. For Your Ease responded with several counter-
claims, alleging (among other things) that For Your
Ease and Lori Greiner, not Mostly Memories and Derges,
owned the copyrights to many of the products at issue,
and that it was Mostly Memories and its affiliates who
were guilty of infringement. For Your Ease also alleged
that Mostly Memories owed roughly $88,000 in commis-
sions under the parties’ sales contract. The case pro-
ceeded to discovery and For Your Ease eventually de-
posed Derges. She made several statements directly at odds
with the infringement and breach-of-contract allegations
she had verified in Mostly Memories’ complaint. Accord-
ingly, John Bickley, Jr., Mostly Memories’ lead counsel,
cut off further questioning and conferred with Derges in
another room.
Bickley returned shortly thereafter and announced that
he would be moving to dismiss Mostly Memories’ com-
plaint. He promptly did so, premising the motion upon
Rule 11 of the Federal Rules of Civil Procedure and stating
that Derges’s “testimony has caused so much damage to
No. 06-3560 5
her credibility, that to continue the proceedings, by at-
tempting to move to Amend the Complaint, would be
irresponsible.” The district court granted the motion and
dismissed Mostly Memories’ entire case with prejudice.
Mostly Memories immediately retained different coun-
sel and moved to vacate the dismissal under Rule 59(e)
on the ground that Bickley acted without Mostly Memo-
ries’ authorization. The district court denied that motion
on June 7, 2006, and Mostly Memories did not timely
appeal.
In the meantime, For Your Ease filed a “Motion for
Attorney’s Fees and Sanctions” based on the Copyright
Act, the ITSA, 28 U.S.C. § 1927, and the court’s inherent
authority. At a hearing on August 23, 2006, the district
court denied the motion, stating only that the “unfortunate
series of events that occurred here [do not] warrant the
imposition of sanctions.” At that hearing the court also
dismissed sua sponte For Your Ease’s counterclaims
without prejudice, telling For Your Ease it could refile
them in the District of Missouri. The court then con-
cluded: “This case is over [within] this district, as far as
I’m concerned.” These oral rulings were consolidated
into an August 23 minute order from which For Your
Ease took this timely appeal.
At the end of the August 23 hearing, counsel for
QVC announced his intention to file an attorney’s fees
petition on behalf of QVC. He later did so, at which point
For Your Ease filed another motion for attorney’s fees,
reiterating its prior arguments and adding one based on
the contract between the parties. The district court sum-
marily denied these motions in a separate order dated
October 19, 2006, roughly one month after For Your
Ease filed its notice of appeal from the August 23 order.
No appeal was taken from this order.
6 No. 06-3560
Also on October 19, the district court denied Mostly
Memories’ Rule 60(b) motion seeking reinstatement of
its claims. Mostly Memories then timely appealed this
order and belatedly attempted to appeal the earlier dis-
missal of its lawsuit and the denial of its Rule 59(e) motion.
In a brief unpublished order, we dismissed the untimely
appeal of the district court’s earlier orders dismissing
the case and denying the Rule 59(e) motion and sum-
marily affirmed the denial of Mostly Memories’ Rule 60(b)
motion.
II. Analysis
For Your Ease challenges the dismissal of its counter-
claims and the denial of its motion for attorney’s fees.
Before considering the merits, we must address two
issues of appellate jurisdiction. See Wingerter v. Chester
Quarry Co., 185 F.3d 657, 660 (7th Cir. 1998) (“A court of
appeals has an obligation to examine its jurisdiction sua
sponte, even if the parties fail to raise a jurisdictional
issue.”). The first issue is whether the court’s August 23
order dismissing For Your Ease’s counterclaims without
prejudice was final for purposes of 28 U.S.C. § 1291. A
dismissal without prejudice is normally nonfinal because
the plaintiff remains free to refile his case. Doctor’s Assocs.
v. Duree, 375 F.3d 618, 622 (7th Cir. 2004); see also
Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 712 (1996)
(“[A] decision is ordinarily considered final and appeal-
able under § 1291 only if it ‘ends the litigation on the
merits and leaves nothing for the court to do but execute
the judgment.’ ” (quoting Catlin v. United States, 324
U.S. 229, 233 (1945))). In some instances, however, a
dismissal without prejudice may effectively end the
litigation and thus constitute a final order for purposes
No. 06-3560 7
of appellate review. Duree, 375 F.3d at 622 (citing as
examples a party’s inability to amend the dismissed
complaint or file a new complaint within the statute of
limitations).
Here, the district court’s dismissal of For Your Ease’s
counterclaims (following the dismissal of Mostly Memo-
ries’ complaint) unequivocally ended the litigation in
the Northern District of Illinois. The judge made it clear
that he considered the case “over [within] this district, as
far as I am concerned.” Neither an amended pleading nor
a newly filed action could resurrect For Your Ease’s
counterclaims in the Northern District. See Kaba v. Stepp,
458 F.3d 678, 680 (7th Cir. 2006) (“[D]ismissal without
prejudice . . . is effectively a final order because no amend-
ment could resolve the problem.”); ITOFCA, Inc. v.
MegaTrans Logistics, Inc., 235 F.3d 360, 363 (7th Cir. 2000)
(no final order where defendant was free to refile its
counterclaims in the district court). The risk of piecemeal
appeals from the district court—one of the concerns
underlying the “final order” requirement in § 1291—is
therefore nonexistent here. ITOFCA, 235 F.3d at 364. The
district court conclusively disposed of For Your Ease’s
counterclaims in the Northern District, and For Your
Ease is entitled to appeal that final disposition in this
circuit. See Hill v. Potter, 352 F.3d 1142, 1144 (7th Cir.
2003) (“The test [for finality] is whether the district
court has finished with the case.”).
The second issue is whether For Your Ease can chal-
lenge the denial of its motion for attorney’s fees in this
appeal given that it later filed a second motion adding
a contractual basis for an award of fees. The district
court’s October 19 order denying this second motion was
separately appealable, see Sonii v. Gen. Elec. Co., 359 F.3d
8 No. 06-3560
448, 449 (7th Cir. 2004) (“[P]ost-judgment decisions on
requests for attorneys’ fees are appealable independently
of the merits.”), but no appeal was taken. That does not
affect the finality of the court’s August 23 order, how-
ever. For Your Ease has confined its appellate arguments
to the points it raised in the district court in its first
motion for attorney’s fees, and the August 23 order deny-
ing that motion is properly before this court.
A. For Your Ease’s Counterclaims
For Your Ease seeks reinstatement of its counter-
claims, and ordinarily our review of the district court’s
decision dismissing them would be for an abuse of dis-
cretion. That deferential standard of review applies to
certain categories of dismissals (e.g., a dismissal of pendant
state-law claims under 28 U.S.C. § 1367, see Montano v. City
of Chicago, 375 F.3d 593, 601 (7th Cir. 2004), or a forum
non conveniens dismissal, see Sinochem Int’l Co. v. Malay.
Int’l Shipping Corp., 127 S. Ct. 1184, 1190 (2007)), but here,
the district court’s one-sentence dismissal order defies
categorization and thus is a poor candidate for defer-
ential appellate review. Indeed, we have no idea why
the district court dismissed For Your Ease’s counter-
claims. The order is silent on that matter, and the record
offers little in the way of clarification. If the district
court dismissed the counterclaims for reasons committed
to its discretion (as opposed to nondiscretionary reasons
such as want of subject-matter jurisdiction, see FED. R.
CIV. P. 12(h)(3)), this dearth of explanation could itself
warrant a reversal and remand. See Montano, 375 F.3d at
601 (district court’s failure to explain its dismissal deci-
sion is “practically a fatal one for abuse-of-discretion
review”). The order might be entitled to the benefit of the
No. 06-3560 9
doubt if the record otherwise established a basis for
the dismissal, Burrell v. Powers, 431 F.3d 282, 285 n.1 (7th
Cir. 2005), but our review of the record has revealed none.
One passing statement in the transcript implies that the
court’s rationale for the dismissal had something to do
with the state of residency (Missouri) of the counter-
claim defendants. To the extent the court was hinting
at a defect in jurisdiction or venue, this was error. Because
For Your Ease’s copyright infringement counterclaim
presented an independent and live federal controversy,
jurisdiction was proper under §§ 1331 and 1338 (along
with § 1367 for the supplemental state-law claims), and
thus the counterclaim defendants’ state of residency or
domicile is irrelevant.1 Any objection to personal jurisdic-
tion or venue in the Northern District of Illinois was
waived. See FED. R. CIV. P. 12(b)(2), (3), & 12(h); see also
§ 1406(b) (“Nothing in this chapter shall impair the juris-
diction of a district court of any matter involving a
party who does not interpose timely . . . objection to the
venue.”).
The district court does have discretion to transfer a
case to another proper venue “in the interest of justice” and
“[f]or the convenience of parties and witnesses,” § 1404(a),
but the court dismissed rather than transferred For Your
Ease’s counterclaims. Cf. Hyatt Int’l Corp. v. Coco, 302 F.3d
1
For Your Ease conceded in its brief and at oral argument
that the dismissal with prejudice of Mostly Memories’ com-
plaint rendered moot two of its counterclaims seeking de-
claratory relief: counterclaim IV for declaration of invalidity
of copyrights and counterclaim V for declaration of noninfringe-
ment of copyrights. We agree and affirm the dismissal of
these two counterclaims. See 28 U.S.C. § 2201(a); Super Sack Mfg.
Corp. v. Chase Packaging Corp., 57 F.3d 1054, 1059 (Fed. Cir. 1995).
10 No. 06-3560
707, 717 (7th Cir. 2002) (“[W]ith respect to cases wholly
within the system of U.S. federal courts, the doctrine [of
forum non conveniens] has been largely replaced by
the transfer of venue statute.”). Having found no defect
in jurisdiction or venue, we can discern no rationale for
the dismissal of For Your Ease’s counterclaims. Accord-
ingly, we remand with instructions to reinstate them.
B. For Your Ease’s Entitlement to Attorney’s Fees as the
“Prevailing Party”
For Your Ease moved for attorney’s fees under § 505
of the Copyright Act of 1976 and section 1065/5 of the
ITSA. See 17 U.S.C. § 505; 765 ILL. COMP. STAT. 1065/5
(2004). Section 505 authorizes an award of fees to the
prevailing party in a suit under the Copyright Act; the
state statute permits an award of fees as a sanction for
bad faith ITSA litigation. Compare Fogerty v. Fantasy, Inc.,
510 U.S. 517, 534 n.19 (1994) (concerning fee-shifting
under § 505), with 765 ILL. COMP. STAT. 1065/5 (the sanc-
tioned party must have acted in “bad faith”). For Your
Ease also invoked the vexatious litigation statute, 28
U.S.C. § 1927, and the court’s inherent authority. The
district court denied the motion without explanation.
While an award of attorney’s fees under § 505 is en-
trusted to the district court’s discretion, FASA Corp. v.
Playmates Toys, Inc., 108 F.3d 140, 141 (7th Cir. 1997), we
have held that the prevailing party in Copyright Act
litigation is presumptively entitled to an award of fees
under § 505, Woodhaven Homes & Realty, Inc. v. Hotz,
396 F.3d 822, 824-25 (7th Cir. 2005); Assessment Techs. of WI,
LLC v. WIREData, Inc., 361 F.3d 434, 436-37 (7th Cir. 2004).
In the case of prevailing defendants, we have described
No. 06-3560 11
this presumption as “very strong.” Assessment Techs., 361
F.3d at 437. There is no question that a dismissal with
prejudice makes the defendant the prevailing party for
purposes of an award of attorney’s fees under § 505.
Claiborne v. Wisdom, 414 F.3d 715, 719 (7th Cir. 2005). This
is no less true when a case is dismissed because the plain-
tiff “threw in the towel”—that is, where the dismissal is
on the plaintiff’s own motion. Riviera Distributors, Inc. v.
Jones, 517 F.3d 926, 928 (7th Cir. 2008).
The district court’s summary ruling reflects no con-
sideration of these principles. The judge simply said Mostly
Memories’ conduct did not “warrant[ ] the imposition of
sanctions,” but the loser’s conduct need not be
“sanctionable” for the winner to be entitled to attorney’s
fees under § 505. Id. For Your Ease was the prevailing
party and is entitled to an award of attorney’s fees under
the Copyright Act. Because For Your Ease is entitled
to reimbursement of its attorney’s fees under § 505,
we need not consider its arguments for an award of
fees under the ITSA, § 1927, or the court’s inherent au-
thority.
Accordingly, we REVERSE the district court’s order
dismissing For Your Ease’s counterclaims and remand
with instructions to reinstate them.2 We also REVERSE
the court’s order denying For Your Ease’s motion for
attorney’s fees under § 505 and REMAND with instruc-
tions to enter an appropriate award of fees.
2
As noted in note 1, however, we affirm the dismissal of the
counterclaims For Your Ease has conceded are moot.
USCA-02-C-0072—5-27-08