Antitrust Law Daily Wrap Up, ADVERTISING—D. Nev.: Attorney’s fees were not warranted in unexceptional case, (Aug 6, 2013)

By Jody Coultas, J.D.

Registered agent service Incorp Services, Inc. was granted dismissal with prejudice of its claims against competitor Nevada Corporate Services, Inc. (NCS) for false advertising under the Lanham Act by the federal district court in Las Vegas (Incorp Services, Inc. v. Nevada Corporate Services, Inc., August 5, 2013, Navarro, G.). Each party will bear its own costs and fees.

NCS sent out mass mailings to Nevada businesses, warning the recipients that some registered agent services in Nevada had gone out of business without notifying their customers, thus leaving those customers legally vulnerable. The mailings also touted the alleged benefits of using NCS as a registered agent. Incorp alleged that the mailings constituted defamation under state law and false advertising under the Lanham Act.

The court had sanctioned NCS twice for dilatory discovery behavior, imposing fines of nearly $15,000 and entering an adverse jury instruction against them. Incorp sought dismissal based on NCS’s inability to pay discovery sanctions or any significant judgment, NCS’s failure to produce certain evidence, and the passing of Incorp’s Chief Operating Officer.

NCS’s request that the court reserve the right to hear NCS’ request for fees, costs, and sanctions against Incorpat a later date was denied by the court. NCS could not meet its burden to show exceptional circumstances to warrant a finding of attorney’s fees and costs in its favor, and failed to give a reason or legal basis to save the argument for another day or to be allowed to re-argue the same issues. Incorp’s request of dismissal with prejudice would amount to judgment on the merits in favor of NCS. Therefore, the only consideration before the court was whether NCS was entitled to fees and costs.

The court held that NCS was not entitled to fees and costs and would not face any legal prejudice by being unable to argue for fees and costs at a later time. Prevailing parties on Lanham Act claim may be entitled to reasonable attorney fees in exceptional cases. Exceptional cases are those that are groundless, unreasonable, vexatious, or pursued in bad faith. NCS argued that Incorp’s claim was groundless because it could not prove damages and Incorp had filed at least six prior suits alleging identical damages. Incorp’s evidence of the number of customers lost, the historical average of the value of each customer, and evidence of NCS’s profits were sufficient to show damages, and supported a reasonable belief and legal basis to believe in success on the merits. Incorp also did not engage in any dilatory litigation conduct to support a finding of exceptional circumstances.

NCS was not entitled to additional sanctions because, even if Incorp acted in bad faith in bringing the suit, NCS equally engaged in dilatory discovery behavior amounting to stalling, according to the court.

The case is No. 2:09-cv-01300-GMN-CWH.

Attorneys: Bradley J. Richardson (Gordon & Silver, Ltd) for Incorp Services, Inc. David F. Sampson (Law Office of David Sampson, LLC) for Nevada Corporate Services, Inc.

Companies: Incorp Services, Inc.; Nevada Corporate Services, Inc.

Cases: Advertising NevadaNews