Dewberry Group: Structuring the Firm to Avoid Trademark Liability

by Dennis Crouch

The U.S. Supreme Court has granted certiorari in Dewberry Group, Inc. v. Dewberry Engineers Inc., a trademark damages case focused on how corporate separateness principles apply to disgorgement remedies under the Lanham Act, 15 U.S.C. § 1117(a). The Fourth Circuit’s decision affirmed a $43 million disgorgement award against petitioner Dewberry Group (DG) for trademark infringement, an amount that included profits earned by DG’s “legally separate” corporate affiliates. Apparently, the affiliates were “single-purpose entities,” also privately owned by John Dewberry, whose sole function was to own commercial properties serviced by DG.

Docs:

• 20240216111825943_Dewberry — Petition for Writ of Certiorari
• 20240508090550424_23-900 Brief In Opposition
• 20240528111016484_Dewberry — Reply Brief
• 20240408140821234_23-900_Professor Amicus Brief
• 20240216111835057_Dewberry — Appendix

DG argues that the Fourth Circuit erred by disregarding well-established corporate separateness principles and this Court’s precedent requiring “veil piercing” to hold one entity liable for the acts of another.   The parties filed competing questions presented:

Petitioner: Whether an award of the “defendant’s profits” under the Lanham Act, 15 U.S.C. § 1117(a), can include an order for the defendant to disgorge the distinct profits of legally separate non-party corporate affiliates.

Respondent: Whether a district court’s discretion under the Lanham Act permits using the financial statements of “non-arms’ length” affiliates to adjust a disgorgement award against a trademark infringer, and only that infringer, when the infringer has claimed $0 in profits.

As the Patent Act does for design patent infringement, the Lanham Act allows for disgorgement of profits as a remedy for trademark infringement.  The statute is clear that the award must be “subject to the principles of equity” although it also permits the court “in its discretion [to] enter judgment for such sum as the court shall find to be just, according to the circumstances of the case.” 15 U.S.C. § 1117(a)

Merits briefing will continue throughout the summer.

In some ways, the briefs are a bit hard to reconcile because – at times – it seems that DG and Dewberry Engineers are working with two different sets of facts.   But, here is my rough understanding: DG and Dewberry Engineers provide similar real-estate development services in overlapping geographic areas. Dewberry was founded decades earlier, and owns two federally registered trademarks for the name ‘Dewberry.'”  DG and Dewberry Engineers had previously litigated trademark infringement claims against each other back in the 2006-2007. That litigation ended with a settlement agreement that allowed DG to use only the “Dewberry Capital” mark, and only for certain services in certain geographic areas.  Despite the agreement, DG began using “Dewberry Capital” for prohibited services, in prohibited areas, and without a required logo. DG then rebranded to “Dewberry Group” and several other “Dewberry” marks, all of which were prohibited by the agreement. By that time, the DG had a new general counsel who was not aware of the prior litigation, but DG’s leader John Dewberry was clearly aware.  DG also applied to register the new “Dewberry” marks, which were rejected by the USPTO as confusingly similar to Dewberry Engineers’ marks. Dewberry Engineers also sent DG multiple cease-and-desist letters demanding compliance with the CSA, which DG ignored as it pressed forward with the rebranding.  The district court found after a bench trial that DG engaged in “willful, bad faith infringement” following numerous “red flags,” and its “pattern of claiming ignorance” was not credible.  The Fourth Circuit affirmed, agreeing that “Dewberry Group pervasively breached the [agreement] over Dewberry Engineers’ objection, in contravention of its General Counsel’s false assurances, and in the face of multiple red flags.”

In its petition for certiorari, DG argued that the Fourth Circuit’s decision conflicts with United States v. Bestfoods, 524 U.S. 51 (1998), which established a presumption that corporate separateness applies to federal statutes unless clearly displaced. DG argues that nothing in the Lanham Act overcomes this presumption, and therefore veil piercing should have been required to disgorge the profits of DG’s affiliates. The Fourth Circuit decision here splits from the Ninth and Eleventh Circuits, which have required veil piercing to impose liability on affiliates for Lanham Act violations in U-Haul Int’l, Inc. v. Jartran, Inc., 793 F.2d 1034 (9th Cir. 1986), and Edmondson v. Velvet Lifestyles, LLC, 43 F.4th 1153 (11th Cir. 2022).

In an amicus brief supporting DG, Notre Dame law professors Samuel Bray and Paul Miller argue that the Fourth Circuit embraced an excessively broad view of equitable principles that contravenes this Court’s precedents. They contend that a statutory reference to equity, like that in 15 U.S.C. § 1117(a), should be interpreted to incorporate only traditional equitable remedies and their customary limitations, not a freewheeling discretion to fashion new remedies. The professors argue that equity has never allowed courts to ignore corporate separateness based on a case-specific balancing of the equities.

In its brief in opposition, respondent Dewberry Engineers defends the Fourth Circuit’s decision as a proper application of the discretion expressly granted by 15 U.S.C. § 1117(a). That provision allows a court to award such disgorgement sum “as the court shall find to be just” if it finds that a recovery based solely on the “defendant’s profits” would be “inadequate.” Dewberry Engineers contends that the Fourth Circuit faithfully applied this language to approximate DG’s “true financial gain,” not to impose liability on or order payment by DG’s affiliates.