Lorillard Tobacco Co v. A&E Oil Incorporated ( 2007 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 06-2676
LORILLARD TOBACCO CO., INC.,
Plaintiff-Appellee,
v.
A&E OIL, INC., THOMAS KURUVILLA, JOSE KURIAN, et al.,
Defendants-Appellants.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 03 C 5833—Charles R. Norgle, Sr., Judge.
____________
ARGUED JANUARY 18, 2007—DECIDED SEPTEMBER 21, 2007
____________
Before BAUER, MANION, and ROVNER, Circuit Judges.
MANION, Circuit Judge. Lorillard Tobacco Company
sued A&E Oil, Incorporated, its two shareholders, and one
of its employees alleging that they violated Lorillard’s
trademark for Newport Cigarettes. The district court
granted Lorillard’s motion for summary judgment, award-
ing $50,000 in statutory damages. The district court sub-
sequently determined that Lorillard was entitled to attor-
neys’ fees and entered a permanent injunction. The defen-
dants appeal only the decision determining Lorillard’s
entitlement to attorneys’ fees. We affirm.
2 No. 06-2676
I.
Thomas Kuruvilla and Emmanuel Joseph each own half
of A&E Oil (“A&E”), a corporation that runs a gas station
and mini-mart in Chicago, Illinois. The corporation em-
ploys Jose Kurian, who is Kuruvilla’s brother. Among
other items, the station sells cigarettes by the pack. In
particular, they sell Newport cigarettes, which are manu-
factured by Lorillard.
During a routine visit to the station, a Lorillard sales
representative noticed five cartons of Newport cigarettes
that she suspected were counterfeit. She purchased six
packs from the suspected counterfeit cartons, which she
then sent to Lorillard’s laboratory for inspection. The
inspection concluded that all six packs were counterfeit,
based on discrepancies in the packaging, printing, and
product codes from authentic Newport cigarette packs. All
of the packs also bore fake tax stamps. Based on this
evidence, Lorillard filed suit against A&E, Kuruvilla,
Joseph, and Kurian under the Lanham Act, 15 U.S.C. § 1051et seq., for trademark infringement and obtained a
seizure order. The seizure order resulted in the confisca-
tion of three opened packs of counterfeit Newport ciga-
rettes found in the station’s office, which bore the same
indicia of counterfeiting.
The critical question remaining in this case is whether
A&E knew about the counterfeit cigarettes found in the
station; resolution of the attorneys’ fees issue requires
discerning whether the defendants knowingly sold coun-
terfeit cigarettes. Kuruvilla claims that he bought New-
port cigarettes for resale exclusively from a wholesaler
called Midwest Cash and Carry. There was no evidence
in the record that Midwest Cash and Carry ever distrib-
uted counterfeit cigarettes or that counterfeit cigarettes
No. 06-2676 3
were ever recovered there. Kuruvilla stated that the only
other possible source for cigarettes to have entered the
store inventory is through customer returns, which oc-
curred at a rate of about one pack every two weeks. A&E,
however, would not sell returned packs. Before the sei-
zure, a customer returned a pack of Newport cigarettes,
complaining about their quality. Kurian, who was work-
ing at the time, took another pack of Newport cigarettes
from A&E stock, opened it, and tried one. He agreed with
the customer that the cigarette tasted “terrible.” Kurian left
the returned pack and the opened pack from the stock in
the office, and later told Kuruvilla about them. The re-
turned pack and the opened pack from stock were among
the three packs seized by Lorillard. (The origin of the
third pack remains unexplained.)
The counterfeit cigarettes found at A&E were not an
isolated occurrence. Beginning in the summer of 2003,
Lorillard became aware of a rash of counterfeit cigarettes
infiltrating the Chicago market. As a result, Lorillard
sued over fifty sellers and distributors and investigated
a common source.
Lorillard claims that the counterfeit cigarettes found
at A&E came from a company called U.S.A. Cigarettes.
A&E admitted purchasing items from U.S.A. Cigarettes,
such as soda pop and cigars, through a contact person
known to A&E only as “Mohammed,” but A&E claims
never to have purchased any cigarettes from U.S.A.
Cigarettes. The evidence, however, shows that “Amin
Arba” endorsed one of the checks Kuruvilla wrote to pay
U.S.A. Cigarettes, and that “Amin Arba” is an alias for
Amin Umar, who has been linked to the counterfeit
cigarettes.
4 No. 06-2676
After initially obtaining a default judgment against the
defendants, which the district court subsequently
vacated, and after contentious discovery proceedings,
Lorillard filed a motion for summary judgment. The dis-
trict court granted the motion, concluding that “A&E
knew it was selling counterfeit cigarettes,” and awarded
Lorillard $50,000 in statutory damages. In particular, the
district court explained that “the individual Defendants
ignored several warning signs, such as their association
with Umar, that the Newports for sale at A&E might have
been counterfeit. Coupled with Defendants’ behavior at
the discovery stage of the litigation, the court finds that
there is sufficient evidence to establish that A&E, and the
individual defendants had knowledge that they were
selling counterfeit cigarettes.” Lorillard then sought a
permanent injunction and a declaration of its entitlement
to attorneys’ fees under the statute, which the district
court also granted. Lorillard subsequently submitted a
motion for attorneys’ fees totaling $136,349.76, although the
district court’s docket indicates that the final amount of
the award has not yet been determined.1 The defendants
1
We recognize that “[g]enerally, an award of attorneys’ fees
that does not fix the amount of the award or specify a formula
that would allow for calculation of the award is not a final
judgment within the meaning of [28 U.S.C.] § 1291.” Kokomo Tube
Co. v. Dayton Equip. Servs. Co., 123 F.3d 616, 621 (7th Cir. 1997)
(citations omitted). However, “[a]n exception to this rule lies
in the case where the initial order awarding fees is reviewed in
conjunction with an appeal from a final judgment on the
merits.” Id. (citation omitted). In this case, the award of attor-
neys’ fees follows from mandatory statutory language that
encompasses the merits of the case. Accordingly, we assume
(continued...)
No. 06-2676 5
do not appeal the summary judgment ruling that awarded
statutory damages or the permanent injunction, but they
do appeal the district court’s decision that Lorillard is
entitled to attorneys’ fees.
II.
Ordinarily, a district court’s decision to award attorneys’
fees is reviewed for abuse of discretion. BASF Corp. v. Old
World Trading Co., Inc., 41 F.3d 1081, 1099 (7th Cir. 1994)
(“A decision to award attorneys’ fees under the Lanham
Act is firmly committed to the district court’s discre-
tion . . . .” (citation omitted)). The award of fees in this case,
however, was not made in the discretion of the district
court, but rather followed from statutory language re-
quiring the award of attorneys’ fees if the defendants
knowingly used a counterfeit mark. 15 U.S.C. § 1117(b).
Because the award of attorneys’ fees follows from an
application of statutory language, we review the district
court’s application of the statute de novo as a question of
law. See Sosebee v. Astrue, No. 06-3326, [___ F.3d ___, ___]
slip op. at 5 (7th Cir. July 17, 2007) (noting that although
review of an award of attorneys’ fees is normally reviewed
for an abuse of discretion, “[i]f the district court reached
its conclusion because of its interpretation of relevant
law, [ ] then we review that question of law de novo because
a district court’s application of an erroneous view of the
1
(...continued)
jurisdiction “on the principle that a court of appeals may, in the
interest of orderly judicial administration, review matters
beyond that which supplies appellate jurisdiction.” Id. at 621-22(internal quotation and citation omitted).
6 No. 06-2676
law is by definition an abuse of discretion.” (citation
omitted)); see also Rolex Watch, U.S.A., Inc. v. Michel Co., 179
F.3d 704, 711 (9th Cir. 1999) (noting that while assessing
a district court’s determination of attorneys’ fees is nor-
mally reviewed for an abuse of discretion, “we review de
novo the district court’s legal analysis and interpretation
of the Lanham Act.” (citation omitted)). In effect, this
standard requires us to consider whether the evidence,
when viewed in the light most favorable to the defendants,
demonstrates that A&E knowingly sold counterfeit ciga-
rettes (a determination made by the district court in its
summary judgment ruling), even though the defendants
limited their appeal to the attorneys’ fee award and did
not appeal the summary judgment against them.
Relevant here, Lorillard sued the defendants based on
15 U.S.C. § 1114(1). This statute makes a person liable
who “use[s] in commerce any reproduction, counterfeit,
copy, or colorable imitation of a registered mark in con-
nection with the sale, offering for sale, distribution, or
advertising of any goods or services on or in connection
with which such use is likely to cause confusion, or to
cause mistake, or to deceive.” 15 U.S.C. § 1114(1)(a).
Lorillard alleged that the defendants sold counterfeit
Newport cigarettes, thus violating the statute. The district
court awarded attorneys’ fees based on 15 U.S.C. § 1117(b),
which states that:
In assessing damages under subsection (a), the court
shall, unless the court finds extenuating circumstances,
enter judgment for three times such profits or damages,
whichever is greater, together with a reasonable attor-
ney’s fee, in the case of any violation of section 32(1)(a)
of this Act (15 U.S.C. 1114(1)(a)) or section 220506
of title 36, United States Code, that consists of intention-
No. 06-2676 7
ally using a mark or designation, knowing such mark or
designation is a counterfeit mark (as defined in section
34(d) of this Act (15 U.S.C. 1116(d)), in connection
with the sale, offering for sale, or distribution of goods
or services.
15 U.S.C. § 1117(b) (emphasis added). To prove knowledge
of the counterfeiting, Lorillard was not required to prove
the defendants’ actual knowledge; knowledge includes a
willful blindness or a failure to investigate because one
“was afraid of what the inquiry would yield.” Louis Vuitton
v. Lee, 875 F.2d 584, 590 (7th Cir. 1989). If willful blindness
occurs, an award of attorneys’ fees is required by the
statutory language absent extenuating circumstances. 15
U.S.C. § 1117(b) (“the court shall . . . enter judgment . . .
with a reasonable attorney’s fee.”); see also Hard Rock Café
Licensing v. Concession Servs., Inc., 955 F.2d 1143, 1151
(“Willful blindness is sufficient to trigger the mandatory
provisions of subsection b.” (citing Lee, 875 F.2d at 590)).
In this appeal, we must determine whether the record
demonstrates that the defendants acted with knowledge
or willful blindness in selling counterfeit cigarettes. The
district court made a finding of knowledge in the context
of awarding damages to Lorillard. After thoroughly
reviewing the record, we find that the evidence demon-
strates that the defendants acted with knowledge or will-
ful blindness. Notably, the defendants do not contest on
appeal the counterfeit nature of the cigarettes recovered
from the station. See Def.-App. Br. at 8 (“Lorillard seized
nine counterfeit Newport cigarette[ ] [packs] from the A&E
mini-mart. . . . Each of the nine packets apparently bore
fake tax-stamps.”). Furthermore, the tax stamps on the
counterfeit cigarettes were noticeably fraudulent. Cf. Lee,
875 F.2d at 590 (finding willfulness when shop owner
8 No. 06-2676
failed to consider that “expensive brand-name goods [are]
unlikely to display . . . poor workmanship, to be lined
with purple vinyl, and to be sold by itinerant peddlers at
bargain-basement prices.”). Kuruvilla, who buys the
cigarettes by the carton, affirmed that he placed the
cigarettes on the shelf for sale by the pack. While stock-
ing the cigarettes, he testified that he checks for the tax
stamps and examines each pack “every time,” explaining
that “before I put them in the counter, I—when I open up
a carton, I do” check. Yet somehow he “never noticed” any
discrepancies in the counterfeit tax stamps, notwithstand-
ing the obviousness of the counterfeit. Later, however, in
an affidavit submitted in opposition to the summary
judgment motion, Kuruvilla denies checking tax stamps
“most of the time,” thus contradicting his deposition
testimony. A defendant, however, cannot create “ ’sham’
issues of fact with affidavits that contradict their prior
depositions.” Ineichen v. Ameritech, 410 F.3d 956, 963 (7th
Cir. 2005) (internal quotation and citation omitted).
Kuruvilla’s attempt to create such a sham issue negates
his feigned ignorance.
The record contains other contradictory evidence. For
example, when Kuruvilla spoke with his brother, Kurian,
about the seizure of the three packs of cigarettes, Kurian
told Kuruvilla about the source of two of the packs.
Specifically, one pack came from a customer returning
a pack of bad-tasting cigarettes, and a second pack from
Kurian testing a pack from the stock that likewise
tasted “terrible.” Kuruvilla, however, contradicted his
brother and testified subsequently in a deposition that the
cigarette packs belonged to Kurian personally. Kuruvilla
attempted to retract his damaging deposition testimony
by stating in the affidavit submitted in opposition to the
No. 06-2676 9
summary judgment motion that “[t]he three open packs
of cigarettes . . . were stale cigarettes returned by custom-
ers.” Again, this statement merely creates a sham issue
of fact, since the defendants do not contest on appeal that
the seized cigarettes were counterfeits, not just stale. See id.Furthermore, the defendants fail to present any view
of the evidence that plausibly explains the presence of
counterfeit cigarettes at the station or that refutes
Lorillard’s proffered evidence of an illegitimate source.
A&E and its owners and employee posit only two pos-
sible sources for the counterfeits entering the station’s
inventory: through their supplier Midwest Cash and Carry
or through customer returns. A&E would not resell
returned packs. Thus, customer returns cannot account
for the six packs of counterfeit cigarettes obtained from
the sales shelf. Furthermore, customer returns occurred
at a rate of about one pack every two weeks, and with
the high turnover of inventory (Kuruvilla purchased
cigarettes weekly), customer returns cannot explain the
six packs found in the sales inventory or the five cartons
of suspected counterfeit cigarettes originally viewed by
the Lorillard sales representative.
The other source defendants proffer is the wholesaler
Midwest Cash and Carry. There is no evidence in the
record, however, that Midwest Cash and Carry ever
trafficked in counterfeit cigarettes. On appeal, the defen-
dants suggest that counterfeit cartons could have been
returned to Midwest Cash and Carry by another cus-
tomer, and then, without Midwest Cash and Carry or the
defendants knowing they were handling counterfeits, the
counterfeits were resold to the defendants. Other than
Kuruvilla’s speculative deposition testimony, there is no
evidence of counterfeit cigarettes at Midwest Cash and
10 No. 06-2676
Carry. Reed v. AMAX Coal Co., 971 F.2d 1295, 1299 (7th Cir.
1992) (“[A] bare contention that an issue of fact exists is
insufficient to raise a factual issue.” (citation omitted)).
More significantly, A&E never argued in its response to
Lorillard’s motion for summary judgment before the
district court that the counterfeit cigarettes could have
come from Midwest Cash and Carry. Accordingly,
A&E has forfeited this argument. See Assoc. Benefit Servs.,
Inc. v. Caremark RX, Inc., 493 F.3d 841, 853 (7th Cir. 2007)
(“[C]ontentions, not presented in opposition to sum-
mary judgment, have been forfeited.”).
There is simply no evidence in the record to support
defendants’ claims of an innocent source for the counter-
feit cigarettes. Furthermore, the defendants fail to present
any evidence to counter Lorillard’s evidence that the
counterfeit cigarettes came from U.S.A. Cigarettes, a
supplier connected to counterfeit cigarettes. Although the
defendants denied in depositions ever purchasing ciga-
rettes from U.S.A. Cigarettes, they admit that they could
have done so. In fact, they acknowledge that they did
purchase other products from this company whose name
makes it an obvious source for cigarettes. One check
written by A&E to U.S.A. Cigarettes bears the endorse-
ment of Amin Arba, an alias for Amin Umar, who as
shown below is a known source for counterfeit cigarettes.
Umar would drive a green van around to various gas
stations selling counterfeit cigarettes (presumably along
with other goods) and, it can be reasonably inferred,
receiving checks made out to U.S.A. Cigarettes. Many other
checks to U.S.A. Cigarettes from other retailers also bear
Umar’s endorsement. In other related investigations and
lawsuits, Lorillard has linked Umar specifically to sales of
No. 06-2676 11
Newport counterfeit cigarettes.2 Joseph, the co-owner of
A&E, also does business with U.S.A. Cigarettes at his
other gas stations and, although Joseph denies ever speak-
ing to Umar, Umar’s telephone records indicate that he
placed a call to Joseph’s telephone number once. Finally,
A&E’s conduct during discovery suggests that it knew
about the counterfeit cigarettes. Notably, A&E did not
produce the checks written to U.S.A. Cigarettes until
July 2004, after A&E had inaccurately represented to the
district court that Lorillard already possessed “all business
records in Defendant’s possession.” The district court
found that “the individual Defendants in this case were
less than forthcoming with Lorillard at the discovery
stage of the litigation . . . stalled . . . and only cooperated
after they were held in default.”
Standing alone, the obvious nature of the counterfeit
tax stamps, coupled with the testimony that Kuruvilla
regularly checked the stamps, would be sufficient to
conclude that the defendants acted with willful blindness.
Lee., 875 F.2d at 590 (holding that knowledge under the
Lanham Act includes a willful blindness or a failure to
investigate because one “was afraid of what the inquiry
would yield.”). This case, however, provides additional
2
Specifically, in other cases, Lorillard has found Umar’s
endorsement on checks to U.S.A. Cigarettes from retailers
that carried counterfeit Newport cigarettes with indicia of
counterfeiting identical to the indicia on the cigarettes in this
case. Some of those checks were accompanied with invoices for
cigarettes, including one for Newport cigarettes. See, e.g.,
Lorillard Tobacco Co. v. Mashni Corp., No. 03-5104 (N.D. Ill.
filed July 23, 2003); Lorillard Tobacco Co. v. Jab Petroleum Inc.,
No. 03-5616 (N.D. Ill. filed Aug. 12, 2003).
12 No. 06-2676
evidence connecting the defendants to a known source
of counterfeit cigarettes. In particular, despite contrary
circumstantial evidence, they denied purchasing cig-
arettes from a known counterfeit source. Yet they provided
no plausible innocent source for the counterfeits. All this,
coupled with the “less than forthcoming” conduct at the
discovery stage, further suggests knowledge or willful
blindness to the counterfeit nature of the cigarettes. The
only reasonable inference is that the defendants knew of,
or were willfully blind to, the sale of counterfeit cig-
arettes at the station.
When reviewing an appeal from summary judgment,
we recognize that, in determining whether a defendant
acted with willful blindness to counterfeit products,
“[a]s a general rule, a party’s state of mind (such as knowl-
edge or intent) is a question of fact for the factfinder, to be
determined after trial.” Chanel, Inc. v. Italian Activewear of
Florida, Inc., 931 F.2d 1472, 1476 (11th Cir. 1991) (citing
Morissette v. United States, 342 U.S. 246, 274 (1952); United
States v. Gregory, 730 F.2d 692, 702 (11th Cir. 1984)). How-
ever, “we are not constrained to accept denials sup-
ported by a mere scintilla of evidence. Such bare deni-
als—for example, where the defendant’s alleged ignorance
amounts to willful blindness, or where the owner’s claims
of ignorance are ‘inconsistent with the uncontested
facts’—are insufficient to create a genuine triable issue.”
United States v. 16328 S. 43rd E. Ave., Bixby, Tulsa County,
Okla., 275 F.3d 1281, 1285 (10th Cir. 2002) (affirming
grant of summary judgment to United States in a forfeiture
case based on legal conclusion that facts showed the
defendant knew of and consented to criminal activities
on property); United States v. One Parcel of Prop., Located at
755 Forest Rd., 985 F.2d 70, 72-73 (2d Cir. 1993) (affirming
No. 06-2676 13
grant of summary judgment to United States in a forfeiture
case based on evidence establishing owner’s willful
blindness to drug activity on property).
Similarly, in this case defendants must do more than
baldly deny the reasonable inferences and facts presented
by Lorillard to avoid the conclusion that they knowingly
sold counterfeit cigarettes. Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (explaining
that an opponent of summary judgment “must do more
than simply show that there is some metaphysical doubt
as to the material facts”); Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 249-50 (1986) (“[T]here is no issue for trial
unless there is sufficient evidence favoring the nonmoving
party for a jury to return a verdict for that party. If the
evidence is merely colorable, or is not significantly proba-
tive, summary judgment may be granted.” (internal
citations omitted)). Yet we reiterate that defendants offer
no plausible explanation for the presence of the counter-
feit cigarettes, the failure to notice the tax stamps when
checked, implausible denials of knowledge of known
counterfeit trafficker Umar and U.S.A. Cigarettes, and
questionable discovery practices. Even when asked at oral
argument what new evidence could be presented at a
hearing regarding the defendants’ mental state, counsel
failed to cite with specificity any new evidence beyond
denials of their knowledge. As we have noted in the
summary judgment context, “neither presenting a
scintilla of evidence, . . . nor the mere existence of some
alleged factual dispute between the parties or some
metaphysical doubt as to the material facts, is sufficient to
oppose a motion for summary judgment. . . . The party
must supply evidence sufficient to allow a jury to render
a verdict in his favor.” Van Diest Supply Co. v. Shelby
14 No. 06-2676
County State Bank, 425 F.3d 437, 439 (7th Cir. 2005)
(internal quotation and citation omitted). The defendants
have failed to do so. Accordingly, the district court did
not err as a matter of law in determining that defendants
knowingly sold counterfeit cigarettes and, therefore,
the mandatory award for attorneys’ fees under 15 U.S.C.
§ 1117(b) applied.3
Finally, we note that the statute awards reasonable
attorneys’ fees “unless the court finds extenuating circum-
stances.” 15 U.S.C. § 1117(b). The district court did not
make any finding regarding extenuating circumstances in
its one-sentence order determining entitlement to attor-
neys’ fees. Regardless, A&E has not argued that extenuat-
ing circumstances exist precluding an award of fees be-
fore this court or before the district court, instead focusing
on the alleged lack of willfulness. Accordingly, A&E
forfeited any argument based on possible “extenuating
3
Before the district court, Lorillard has requested attorneys’
fees amounting to $136,349.76. As noted previously, only the
final decision of the district court determining the entitlement
to attorneys’ fees under the statute is before this court. The
district court has not yet ruled on the amount of the award, and
the parties do not contest the amount of the fees before this
court at this time. In fact, the defendants did not even file a
response brief to Lorillard’s motion for attorneys’ fees before
the district court and it is not clear whether the parties dispute
the amount. Although the sum requested is substantially
more than the $50,000 award of statutory damages for liability
that defendants did not appeal, the entitlement to attorneys’ fees
in cases of willful blindness to counterfeiting is part of the
statutory scheme. The fact that the amount may be greater than
the award for liability does not factor into our analysis at this
stage.
No. 06-2676 15
circumstances.” See Lee, 875 F.2d at 590 (“We needn’t
worry about the defense of extenuating circumstances . . .
under section 1117(b), because as an affirmative defense
it must be pleaded or otherwise presented to the district
court. It was not, and is therefore waived.”).
III.
Because we find no genuine issue of material fact re-
garding the appellants’ knowledge or willful blindness to
the presence of counterfeit cigarettes, the mandatory
statutory language of 15 U.S.C. § 1117(b) applied. Accord-
ingly, the statute required the district court to award
reasonable attorneys’ fees, absent a showing of extenu-
ating circumstances. Since appellants presented no ex-
tenuating circumstances, we AFFIRM the district court’s
decision that Lorillard is entitled to attorneys’ fees.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—9-21-07