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Bobrick Corp. v. Santana Products

March 22, 2010

THE BOBRICK CORPORATION, BOBRICK WASHROOM EQUIPMENT, INC. THE HORNYAK GROUP, INC. PLAINTIFFS
v.
SANTANA PRODUCTS, INC., SANTANA PRODUCTS LIQUIDATING TRUST, MICHAEL T. LYNCH, SR., MICHAEL T. LYNCH, JR., JOHN A. CARNEY, JAMES M. GAVIGAN, WILLIAM E. JACKSON, ESQ. DEFENDANTS



The opinion of the court was delivered by: Judge Vanaskie

MEMORANDUM

The Bobrick Corporation and its sales agencies have assiduously sought to seek compensatory and punitive relief from Santana Products, Inc., ("Santana"), its officers, and attorneys for having brought unfair competition litigation against them in the mid-1990s. One of those efforts played out in the federal courts in New York, with the Eastern District of New York concluding that claims brought against Sylvester & Assoc., Ltd., ("Sylvester"), a Bobrick captive sales representative, were neither frivolous nor brought in bad faith. The New York litigation culminated with a finding by the Court of Appeals for the Second Circuit that Sylvester's appeal from the denial of its request for counsel fees, pursued by the same attorney who has represented Bobrick throughout the entire course of this saga, was not only frivolous, but also replete with misrepresentations so as to merit an award of double costs and reasonable counsel fees to Santana. See Santana Prods., Inc. v. Sylvester & Assoc., Ltd., 98-CV-6721, 2006 U.S. Dist. LEXIS, 98045 (E.D.N.Y. Nov. 8, 2006), aff'd., 279 Fed.Appx. 42 (2d Cir. 2008).*fn1

The second effort to recoup the fees incurred in defending against Santana's unfair competition action was brought by counsel representing Bobrick in this matter on behalf of another captive sales representative, Vogel Sales Company ("Vogel"), in the Pennsylvania state court system. That case resulted in the dismissal of claims identical to those presented here on preliminary objections, a result summarily affirmed by the Pennsylvania Superior Court, with the Supreme Court of Pennsylvania denying allowance of appeal. See Vogel Sales Co. v. Santana Prods., Inc., 2005 CV 5085 (Lackawanna County, May 23, 2007), aff'd mem., 963 A.2d 581 (Pa. Super. 2008) app. denied, 973 A.2d 412 (Pa. 2009).

This is the third effort by Bobrick and another of its captive sales agencies, The Hornyak Group, Inc. ("Hornyak"), to obtain redress for having been sued by Santana. The statutory malicious use of civil proceedings and common law abuse of process claims asserted in this case, the same causes of action dismissed by the Pennsylvania courts in the Vogel case, are equally without legal foundation. Accordingly, the Motion to Dismiss the First Amended Complaint (Dkt. Entry 112) will be granted.*fn2

I. BACKGROUND

A. The Parties

Plaintiffs Bobrick and Bobrick Washroom Equipment, Inc. (collectively "Bobrick") are California corporations engaged in the business of manufacturing and selling toilet partitions from solid phenolic materials as well as from laminated plastic over particle board core. (Amended Complaint, Dkt. Entry 96, at ¶ 9). Hornyak is a Delaware Corporation that worked as a sales representative for Bobrick in marketing Bobrick's toilet partitions in Pennsylvania, New Jersey and Delaware.*fn3 (Id. at ¶ 6)

Santana, a Virginia corporation with its headquarters in Scranton, Pennsylvania, was a competitor of Bobrick in the toilet partition market. Santana's toilet partitions were manufactured from a material different than the materials used by Bobrick. Specifically, Santana sold high density polyethylene ("HDPE") toilet partitions. (Id. at ¶¶ 9-11.)

During most of the relevant time frame, Santana was owned and operated by Defendant Michael T. Lynch, Sr. (Id. at ¶¶ 16-20.) Mr. Lynch's son, Defendant Michael T. Lynch, Jr., is alleged to have been "a member of the management control group responsible for continuing the underlying baseless litigation." ("Id. at ¶ 22.) Defendants John A. Carney and James M. Gavigan are also alleged to have been members of the Santana "management control group" responsible for initiating and continuing the underlying litigation. Those Defendants who are members of the "Santana management control group" are citizens of Pennsylvania.*fn4 Defendant William E. Jackson was the lead attorney for Santana in the litigation that serves as the predicate for this action.*fn5 (Id. at ¶¶ 28-30.)

B. Santana's 1994 Litigation

On November 30, 1994, Santana commenced an action against the Toilet Partition Manufacturer's Council ("TPMC") and eleven TPMC members who manufactured and sold toilet partitions. (Amended Complaint, Dkt. Entry 96, at ¶ 40.) The TPMC members sued in the 1994 litigation made toilet partitions from sold phenolic core and plastic laminate. Formica Corporation ("Formica"), then the world's largest manufacturer of solid phenolic core and plastic laminate, was also a member of the TPMC and a defendant in the 1994 action. Santana alleged that Formica, the TPMC, and its members named in the 1994 lawsuit had engaged in a concerted false advertising campaign that sought to depict toilet partitions made of HDPE, like Santana's products, to be a fire hazard. Formica and another member of the TPMC had produced a videotape, which, according to Santana, falsely depicted Santana's HDPE partitions as flammable. See Santana Prods., Inc. v. Bobrick Corp., 249 F. Supp. 2d, 463, 475 (M.D. Pa. 2003), aff'd in part and rev'd in part, 401 F.3d 123 (3d Cir.), cert. denied, 546 U.S. 1031 (2005). The Formica videotape was used by members of the TPMC to dissuade architects and others responsible for preparing building specifications from sanctioning HDPE toilet partitions. Santana asserted violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2 and Section 43 of the Lanham Act, 15 U.S.C. § 1125, as well as tortious interference with prospective contractual relationships. Neither Bobrick nor any of its captive sales agencies were named as defendants in the 1994 litigation.

On January 27, 1995, less than two months after the 1994 TMPC litigation was brought, the parties reached a settlement. (Amended Complaint, Dkt. Entry 96, at ¶ 42.)

Santana received a payment in excess of $800,000 plus an agreement by the named defendants to discontinue use of the Formica videotape.*fn6

C. The Underlying Litigation

On October 1, 1996, Santana filed its unfair competition action against Bobrick along with three of its architectural sales representatives, Hornyak, Vogel, and Sylvester (the "Underlying Litigation"). The 1996 litigation advanced the same four causes of action that had been presented two years earlier in the TPMC case: violations of sections 1 and 2 of the Sherman Antitrust Act and section 43(a) of the Lanham Act, plus tortious interference with prospective contractual advantage.*fn7 (Amended Complaint, Dkt. Entry 96, at ¶ 47.)

The Underlying Litigation was docketed to No. 3:CV-96-1794, and assigned to the undersigned.*fn8 With the concurrence of the parties, a Special Master was appointed to preside over discovery, which proved to be contentious, protracted, and expensive. After the deposition of nearly 200 witnesses in 22 states, review of hundreds of thousands of pages of documents, exchanges of massive amounts of electronically stored information, and expert witness discovery, all parties moved for summary judgment.*fn9

In a comprehensive opinion that spans more than 75 pages in the Federal Supplement Second, I addressed what I described as "several important and difficult issues for which there is no controlling precedent in this Circuit." 249 F. Supp. 2d at 470. One of those "important and difficult issues" was whether Santana's Lanham Act claims were subject to the Noerr/Pennington doctrine.*fn10 Application of the Noerr/Pennington doctrine to the Lanham Act claims was recognized to have a substantial impact on the scope of Santana's Lanham Act claims because it was evident that "the overwhelming bulk of the toilet partition market is directed at public construction...."*fn11 Id. at 470. I ultimately concluded that Noerr/Pennington was indeed applicable to the Lanham Act claims, thereby restricting any recovery in this matter to lost sales in the private sector.*fn12 I rejected, however, Bobrick's contention that the Lanham Act claims were barred by laches, finding that Santana had sustained its burden of showing that Bobrick had not been prejudiced by the delay in filing this action. Id. at 501. Thus, I found that Santana had presented a cognizable Lanham Act claim.

Addressing the substantive question of whether Bobrick's marketing campaign included false representations pertaining to Santana's products, I found instances where Bobrick's marketing materials were literally false, instances when there was a genuine question of material fact as to the falsity of the marketing materials, and some instances where, as a matter of law, the representations were not false. Id. at 526-39. Summary judgment on the Lanham Act claim was, accordingly, not granted in Bobrick's favor as to those marketing materials for which there was sufficient evidence of falsity and causation of damages. Id. at 542. Although recognizing that Santana would be entitled to injunctive relief with respect to marketing materials found to be literally false, I declined to enter such relief at that time in light of the fact that there were genuine issues of fact material as to the falsity of certain other promotional materials and it appeared that Bobrick had already discontinued use of the materials found to be literally false. Id. at 542 n.66.

As to the Sherman Act claims, I concluded that Hornyak and Vogel, as captive sales representatives of Bobrick, could not be held liable under § 1 of the Sherman Act, which governs concerted anti-competitive action.*fn13 I further concluded that Bobrick's marketing campaign did not constitute an unlawful restraint of trade and that, in any event, Santana had failed to show more than a negligible impact on competition, thus warranting judgment in favor of Bobrick on the Sherman Act § 1 claim. I also found that judgment in favor of Bobrick on the Sherman Act § 2 claim was warranted essentially for the reasons articulated by the Eastern District of New York in the parallel case against Sylvester. Finally, I determined that judgment in favor of the Defendants on the tortious interference claim was appropriate because there was no evidence of the loss of a prospective private sector contract within the applicable one year limitations period.

Observing that the parties had "fought valiantly in this protracted case," id. at 545, and that "appellate consideration of difficult and close questions prior to any trial may serve the interests of the parties and of judicial economy," I directed entry of final judgment in favor of Bobrick as to the Sherman Act and tortious interference claims, and in favor of Hornyak and Vogel as to all claims, in accordance with Rule 54(b) of the Federal Rules of Civil Procedure. Furthermore, I certified that the question involving the applicability of the Noerr/Pennington doctrine to the Lanham Act claims involved a "controlling question of law as to which there is substantial ground for difference of opinion...."*fn14 (Id.)

Santana and Bobrick both petitioned for leave to appeal this Court's summary judgment rulings.*fn15 After granting both petitions, a unanimous panel affirmed the entry of judgment in favor of Bobrick, Hornyak and Vogel on the Sherman Act § 1 claim on the ground that Santana's evidence did not show any restraint of trade sufficient to support an antitrust action. See Santana Prods., Inc. v. Bobrick Washroom Equip., Inc., 401 F.3d 123, 132-35 (3d Cir. 2005). The panel also unanimously affirmed this Court's entry of summary judgment in favor of Bobrick on the tortious interference with prospective economic advantage claim. (Id. at 140-41.) As to the Lanham Act claims, however, the panel split. The majority concluded that the Lanham Act claims were barred by laches, holding that it had been incumbent upon Santana to prove not only the absence of prejudice to Bobrick resulting from the delay in commencing litigation, but also that its delay was excusable. Id. at 139-40. Judge Chertoff dissented, disagreeing with the majority's conclusion that a plaintiff must show both that its delay was excusable and that the defendant did not suffer prejudice as a result of the delay. Id. at 142 (Chertoff, J., dissenting). As a result of the ruling on laches, a decision on the application of the Noerr/Pennington doctrine to the Lanham Act claims was obviated. The Third Circuit directed that judgment be entered in favor of the defendants on all claims.

Santana's petition for a writ of certiorari was denied on November 28, 2005. 546 U.S. 1031 (2005). As a result, the proceedings in this Court terminated in favor of Bobrick, Hornyak, and Vogel. There then ensued Bobrick's quest to recoup its fees and the fees incurred by its captive sales representatives.

D. The Fee Request in Sylvester

As noted above, the parallel litigation against Sylvester in the Eastern District of New York had been stayed pending the outcome of the case in this court. As a result of the final disposition of this matter, Santana sought to voluntarily dismiss the claims remaining in the New York action with prejudice. Sylvester, now represented by counsel who represented Bobrick in the Underlying Litigation and in this case, objected to any dismissal that did not include an award of fees and costs in favor of Sylvester, contending that such an award was warranted under § 35 of the Lanham Act, 15 U.S. § 1117.*fn16 The matter was referred to Chief United States Magistrate Judge Michael L. Orenstein, who rendered an oral report and recommendation that the motion to dismiss with prejudice be granted and that Sylvester's request for counsel fees be denied. Sylvester objected, and the matter was then addressed by District Judge Ross. As described in Judge Ross's comprehensive opinion, Sylvester argued that it should be awarded fees "because (1) plaintiff filed and prosecuted claims having no real substance; (2) plaintiff filed its suit without any investigation of the merits of its claims; and (3) plaintiff filed suit as a competitive ploy," the grounds recognized by the Second Circuit for awarding fees in favor of a prevailing defendant in a Lanham Act case. Santana Prods., Inc. v. Sylvester & Assocs., Ltd., 2006 U.S. Dist. LEXIS 98045, at *10-*11 (E.D.N.Y. Nov. 13, 2006). Judge Ross addressed each of Sylvester's contentions. Id. at *16.

First, Judge Ross concluded that the evidence presented by Santana in the Underlying Litigation showed that the Lanham Act claims had real substance. Judge Ross further observed that the evidence indicated that Sylvester had participated in a conspiracy to violate the Lanham Act, thus dispelling Sylvester's contention that the claim had been brought in bad faith. Id. at *16-*43. Judge Ross then concluded that Sylvester failed to show that the action against it had been brought without any investigation. Id. at *44-*45. Finally, Judge Ross found that the evidence presented by Sylvester was "patently insufficient to demonstrate that the suit was brought merely for harassment or as a competitive ploy." Id. at *47.

Sylvester appealed the denial of its application for fees and costs to the Second Circuit, which affirmed Judge Ross's ruling on May 22, 2008. Santana Prods., Inc. v. Sylvester & Assocs., Ltd., 279 F. App'x 42 (2d Cir. 2008). Not only did the Court of Appeals affirm Judge Ross, but it also granted Santana's request for an award of double costs and fees, with the Second Circuit describing Sylvester's appeal as frivolous and rife with misrepresentations made by Sylvester's counsel.*fn17 See No. 9:98-CV-06721, Dkt. Entry 127.

E. The Dragonetti and Abuse of Process Claims Brought in State Court

Undeterred by the rejection of Sylvester's claim for fees in the New York litigation, Vogel, another captive sales representative of Bobrick, commenced litigation in the Court of Common Pleas of Lackawanna County, asserting a claim of wrongful use of civil proceedings under 42 Pa.C.S.A. §§ 8351, et seq. (popularly known as the "Dragonetti Act"), as well as a common law claim for abuse of process.*fn18 The Hon. Carmen D. Minora sustained Santana's preliminary objections and dismissed Vogel's action, finding that "the claims of Vogel are disingenuous as well as legally insufficient...." Vogel Sales Co. v. Santana Prods., Inc., No. 2005 CV 5085, at 8 (Lacka. Co. May 23, 2007). In a Memorandum Opinion dated September 9, 2008, the Pennsylvania Superior Court affirmed Judge Minora's May 23, 2007 ruling. 963 A.2d 581 (Pa. Super. 2008) (Table). Both the state trial and appellate court concluded that Bobrick, Hornyak and Vogel were viewed in the Underlying Litigation as having a "unity of economic interests," (id. at 10), and that it was proper to regard them as such for purposes of the Dragonetti and abuse of process claims as well. (Id.) The Pennsylvania Supreme Court denied Vogel's petition for allowance of appeal on May 28, 2009. 973 A.2d 412 (Pa. 2009).

F. Procedural History

On August 17, 2007, after Judge Ross had rejected Sylvester's fee request and after Judge Minora had dismissed Vogel's Dragonetti and abuse of process claims, Bobrick and Hornyak commenced this litigation against Santana, its principals, and its former attorney. The claims presented here mirror those rejected by the Pennsylvania state courts in the litigation initiated by Vogel.

On October 18, 2007, defendants moved for dismissal of the action. (Dkt. Entry 17 & 18.) By Order entered on February 26, 2008, essentially all discovery was stayed pending a decision on the Motions to Dismiss.*fn19 (Dkt. Entry 44.) Oral argument ...


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