Court reinstates tradename damages

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The Wisconsin Supreme Court on Dec. 2 issued a must-read opinion for attorneys who draft, or litigate the effect of, purchase asset agreements that include the sale of goodwill.

Among the court’s holdings:

• Both tradename infringement and damages need only be proved with reasonable certainty;
• Intentional tradename infringement supports an award of punitive damages; and
• A contract providing for attorney fees permits an award of fees incurred pursuing both contract claims and non-contract claims such as tradename infringement.

However, the opinion leaves undecided one very important issue -– whether a contract must include a specific provision for recovery of attorney fees incurred defending contract rights on appeal. The unanimous opinion by Justice N. Patrick Crooks reverses a published opinion of the Court of Appeals, D.L. Anderson’s Lakeside Leisure Co., Inc., v. Anderson, 2007 WI App 269, 306 Wis.2d 470, 744 N.W.2d 300. Theresa K. Kobelt, of Haley Palmersheim S.C. in Middleton, who represented the petitioners, said in an interview that she is very appreciative that the court accepted review in the case.

“This area of the law is underdeveloped, and the court’s opinion will protect business interests,” Kobelt said. “I’m glad to have good law in this area.”

Background

In the late 1970s, Donald Anderson started a business installing piers and boatlifts in Waunakee. He named the business D.L. Anderson Co., and operated under that name, as well as under the name D.L. Anderson Marine Contractors. The business offered a wide range of marine-related services and products.

In 2000, Anderson sold the business to M. Scott Statz and Steven Statz, pursuant to an asset purchase agreement. Included in the sale was the tradename, D.L. Anderson Co.
The agreement also contained a noncompete clause, which provided that for seven years, within a radius of 120 miles of the city of Waunakee, Anderson would not permit his name to be used by any business in competition with the pier and lift business as carried on by the buyer, nor would he engage in such a business.

The purchase price of $891,000 was allocated as follows: $400,000 for the noncompete clause; $200,000 for goodwill; $200,000 for equipment; and the remainder for inventory.

The Statzes operated the business under the name D.L. Anderson Co.

Anderson then took a job with a Minnesota-based manufacturer and distributor of piers and boatlifts, which distributes its products throughout Wisconsin. Anderson also formed another business, Anderson Marine LLC.

The Statzes then filed suit against Anderson, alleging that Anderson violated the noncompete clause and the tradename rights they had purchased.

The jury found that Anderson had breached the noncompete clause and awarded $15,000 in compensatory damages. It also found that Anderson committed tradename infringement and awarded $75,000 in compensatory damages. The jury further awarded $180,000 in punitive damages on the tradename infringement claim.

The circuit court then awarded $118,435 in attorney fees, pursuant to an attorney fee provision in the agreement.

Anderson appealed, and the Court of Appeals reversed in part, holding that the Statzes failed to prove damages on the tradename infringement claim. Absent compensatory damages on this claim, the appeals court also reversed the punitive damage claim.

Finally, the court reversed most of the attorney fee award, because the Statzes did not recover damages on the tradename claim.

The Supreme Court reversed on each of these issues.

Tradename Damages

After first upholding that the evidence was sufficient to support the tradename infringement claim, the court held that the jury award of $75,000 in compensatory damages was also supported.

As noted, the Statzes paid $200,000 for goodwill based on the “Anderson” name.

Citing “Callmann on Unfair Competition, Trademarks and Monopolies” 23:55 (4th ed. 2003), with approval, the court held, “The fact of damage need only be proved with reasonable, not absolute, certainty. And once the fact of damage is established with reasonable certainty, the amount of damages need only be shown with as much certainty as the nature of the tort and the circumstances of the case permit.”

Based on testimony establishing confusion on the part of customers and vendors, as to which “Anderson” they were dealing with, the court concluded that the jury could reasonably award $75,000 in damages, a figure less than the $200,000 total value placed on the “Anderson” name.

The court held, “Given a ‘within reasonable limits’ standard of review, we find that the jury could reasonably have awarded $75,000, which was well within the $200,000 the Statzes and Anderson established as the purchase price of the goodwill of the business.”

Punitive Damages

Because the court reinstated the award of compensatory damages, it also reinstated the award of punitive damages that the Court of Appeals vacated.

At trial, Anderson acknowledged that he knew that, when he started his own business, his name would be familiar to customers. Based on this, the court held the infringement was intentional, and upheld the jury’s punitive damage award.

Attorney Fees

The court also reversed the Court of Appeals’ reversal of attorney fees.

The asset purchase agreement stated that it should be given the “broadest” scope permissible, and provided, “In any action concerning this Agreement, the party obtaining the monetary judgment, after all offsets, shall also be entitled to recover reasonable attorneys fees and costs.”

Anderson argued that this provision only applied to contract claims, but excluded fees incurred on non-contract claims, such as tradename infringement.

However, the court disagreed, noting that the agreement stated it was to be given the “broadest” reading, and that the agreement was the instrument by which ownership in the tradename was transferred.

Fees on Appeal

The court declined to address whether the Statzes were entitled to recover attorney fees incurred on appeal, however.

It acknowledged, “appeals cost money, too, and the Statzes have continued to incur attorney fees and costs in defending the circuit court judgment on appeal.”

The Statzes argued they are entitled to fees, pursuant to Chase Lumber and Fuel Co. v. Chase, 228 Wis.2d 179, 596 N.W.2d 840 (Ct.App.1999), which holds that a party is entitled to attorney fees incurred defending a trial court’s award of attorney fees.

However, the Supreme Court limited Chase, because it involved attorney fees awarded as a result of a frivolous action, rather than pursuant to contract.

Finding nothing in the record to establish that the agreement contemplated attorney fees incurred on appeal, the court remanded the case to the circuit court to receive evidence and make that determination.