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Beach Mart, Inc. v. L&L Wings, Inc.

United States District Court, E.D. North Carolina, Northern Division

March 28, 2018

BEACH MART, INC., Plaintiff,
v.
L&L WINGS, INC., Defendant L&L WINGS, INC., Counterclaimant,
v.
BEACH MART, INC., Counter Defendant L&L WINGS, INC., Plaintiff,
v.
SHEPARD MORROW, SUPER WINGS, LLC, and BEACH MART, INC. Defendants.

          ORDER

          TERRENCE W. BOYLE, UNITED STATES DISTRICT JUDGE

         This cause comes before the Court for consideration of the parties' motions for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. The appropriate responses and replies have been filed and the matters are ripe for ruling. Also pending and before the Court for ruling is a motion to amend/correct the amended complaint filed by Beach Mart as well as several motions in limine and a motion for extension of time.

         BACKGROUND

         The Court has recounted the procedural history and factual background of this web of litigation involving the rights to the WINGS trademark in numerous previous orders. [DE 183; 211; 220; 233; 301 - 303]. By order entered March 19, 2018, the Court granted Shepard Morrow's motion for summary judgment, concluding that L&L Wings could not demonstrate that Morrow breached the Morrow Agreement and that New York law does not recognize a stand-alone claim for breach of the implied warranty of good faith and fair dealing. [DE 409]. The relevant facts for consideration of the instant motions are as follows.

         L&L Wings has been operating retail beach stores since 1978 under the name WINGS. [DE 330-4] 2012 Levy, S. Dep. at 142-43. In May 1992, Shepard Morrow acquired five federal trademark registrations for the name WINGS from Piedmont Industries, which manufactured men's, women's, and children's clothing and apparel products. [DE 328-4] Morrow Decl. at 2-6. In April 1993, Morrow and L&L Wings entered into a licensing agreement to use the WINGS mark (the Morrow Agreement), naming Morrow as the licensor and L&L Wings as the licensee. [DE 342-2]. Under the terms of the Morrow Agreement, L&L Wings agreed to pay Morrow a royalty totaling $ 100, 000 payable in ten equal annual installments, together with interest on the unpaid balance at the rate of 10% per year. Id. § 2. The Morrow Agreement further provided in section eight that Licensor may terminate this Agreement at any time in the event that

Licensee fails to make a Royalty Payment. In such event, Licensor shall deliver written notice of such non-payment to Licensee and allow Licensee fifteen (15) days after the delivery of such notice in which to remit the Royalty Payment (the "Cure Period"). If the Royalty Payment is not made during the Cure Period, then this Agreement shall terminate fifteen (15) days after the date of such notice.

Id. § 8. L&L Wings made the initial royalty payment of $10, 000 upon entry into the Morrow Agreement. On June 10, 1994, Morrow, through counsel, gave L&L Wings written notice of non-payment of the royalty, stating in a letter that he required a check for the overdue royalty payment in the amount of $19, 000 payable to Shepard Morrow. [DE 330-48]. The letter further included a draft application to register WINGS as a service mark, to be completed by L&L Wings and returned to counsel for Shepard Morrow for filing with the U.S. Trademark Office. Id. On August 2, 1994, Morrow, through counsel, provided L&L Wings with a second notice of nonpayment of the royalty. [DE 330-49]. The letter stated L&L Wings' payment of the royalty remains overdue and that, as interest on the unpaid royalties is compounded, it would be in L&L Wings' best interest to pay the balance as soon as possible. Id. It is undisputed that L&L Wings made no further payment to Shepard Morrow under the Morrow Agreement after the initial royalty payment.

         In a letter agreement dated August 29, 2005, and effective January 1, 2006 (2005 Agreement), Beach Mart was granted by L&L Wings the exclusive right to use the name BIG WINGS or SUPER WINGS in eight counties in eastern North Carolina until the agreement terminated. [DE 334-3] § 1. Prior to the 2005 Agreement, Beach Mart had operated stores on the Outer Banks of North Carolina under the WINGS name pursuant to a 1995 agreement with L&L Wings. [DE 334-1] Golasa Dec. ¶¶ 2-3. In the 2005 Agreement, Beach Mart acknowledged and agreed that L&L Wings is the owner of the unregistered service mark WINGS and that Beach Mart would not contest L&L Wings' exclusive ownership of all rights to the name WINGS and any similar name. [DE 334-3] § 3. The 2005 agreement was expressly contingent on Beach Mart's ceasing its current use of the name WINGS on or before December 31, 2005, and not using the name WINGS thereafter except in the form of BIG WINGS or SUPER WINGS. Id. § 4. On May 5, 2011, L&L Wings notified Beach Mart that it believed Beach Mart to be in violation of the 2005 Agreement as L&L Wings had learned that Beach Mart had placed the words "big" and/or "super" in front of the word WINGS in such small letters as to be barely visible, resulting in unauthorized use of the WINGS mark. [DE 334-4]. L&L Wings then notified Beach Mart by letter dated August 9, 2011, that it would be terminating the 2005 Agreement effective October 21, 2011, due to the "growing number of instances of actual confusion with the L&L Wings service mark WINGS, and your use of the 'Super Wings' designation, as well as instances of your insufficient attention to maintaining appropriate quality standards in relation to the goods sold from your 'Super Wings' locations." [DE 334-5].

         Each of the five Piedmont WINGS trademark registrations either expired or were cancelled by the U.S. Patent and Trademark Office (PTO) in 1995, 1997, 2005, and 2008. [DE 330-14, 15, 16, 20, 21]. Between 2008 and 2012, L&L Wings obtained three registrations for the WINGS mark from the PTO. Registration No. 3, 458, 144 for use of WINGS in connection with "retail apparel stores, retail clothing stores, retail discount stores in the field of beachwear clothing" was obtained on July 1, 2008 [DE 330-50]; Registration No. 4, 193, 881 in connection with beach towels; retail stores services featuring body boards, swim boards, and swim floats; as well as, among other things, men's women's, and children's clothing was obtained on August 21, 2012 [DE 330-51]; and Registration No. 4, 205, 040 for use in connection with the same goods and services as identified in No. 4, 193, 881 was obtained on September 11, 2012. [DE 330-52].

         On December 31, 2013, Morrow assigned to Super Wings his right, title, and interest in the Morrow Agreement. [DE 330-55]. Such assignment was later rescinded, and Morrow assigned his right, title, and interest in the Morrow Agreement to Beach Mart. [DE 330-55; 330-57]. On April 18, 2014, Morrow notified L&L Wings that he would assign all of his rights and duties under the Morrow Agreement to Beach Mart. [DE 305] Second Amd. Compl. ¶ 39.

         The following claims remain to be adjudicated as between the parties. Beach Mart has raised in its first amended complaint against L&L Wings [DE 184] claims arising out of the 2005 Agreement for fraudulent inducement to contract, negligent misrepresentation, and unfair and deceptive trade practices under N.C. Gen. Stat. § 75-1.1. Beach Mart seeks a declaration that it is lawfully entitled to use the WINGS mark for retail store services on the Outer Banks without permission or consent from L&L Wings, or, alternatively, that the 2005 Agreement remains in full force and effect and that Beach Mart may continue to use the name SUPER WINGS in retail stores pursuant to the 2005 Agreement. Beach Mart has also alleged claims against L&L Wings in connection with L&L's trademark registration of WINGS for cancellation of trademark registrations pursuant to 15 U.S.C. § 1064 and for false or fraudulent registration pursuant to 15 U.S.C. § 1120. In response to Beach Mart's complaint are L&L Wings' counterclaims [DE 304] for breach of the 2005 Agreement, breach of the implied covenant of good faith and fair dealing arising out of the 2005 Agreement, for a declaration that Beach Mart acquired no rights in the WINGS trademark or otherwise as a result of the 2014 assignment from Shepard Morrow, and a declaration that L&L Wings is the owner of the WINGS name in connection with retail stores, beachwear, and beach related products.

         In L&L Wings' second amended complaint against Beach Mart and Super Wings [DE 305] it has alleged claims arising out the 2014 assignment of the Morrow Agreement for tortious interference with contract and civil conspiracy to tortiously interfere with contract. In response, Beach Mart has counterclaimed seeking a declaration that the 2014 assignment of the Morrow Agreement was valid, effective, and continuing; that it was properly assigned to Beach Mart in 2014; and that all rights and registrations in the WINGS trademark presently held by L&L Wings be held in a constructive trust in favor of Beach Mart. [DE 325]. Alternatively, Beach Mart seeks cancellation of L&L's trademark registrations due to L&L Wings' widespread and unrestricted licensing.

         DISCUSSION

         Motion to Amend

         Beach Mart seeks to amend or correct its complaint to add additional factual support for its claims for cancellation of trademark registrations under 15 U.S.C. § 1064 and for fraudulent registration pursuant to 15 U.S.C. § 1120. Beach Mart specifically seeks to add factual allegations concerning information provided by L&L Wings in its 2013 and 2015 incontestability declarations filed with the PTO. See 15 U.S.C. § 1065. In those declarations, counsel for L&L Wings affirmed that "there is no proceeding involving said rights pending in the United States Patent and Trademark Office or in a court and not finally disposed of, " when, in fact, this litigation was pending. Id. at (2). The decision to allow leave to amend a pleading rests within the discretion of the trial court and should "be freely given when justice so requires." Fed.R.Civ.P. 15(a); Edwards v. City of Goldsboro,178 F.3d 231, 242 (4th Cir. 1999). Leave to amend should be ...


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