Antitrust Law Daily Wrap Up, RICO—E.D. La.: Sanctions denied in ongoing patent and trademark litigation, (Mar 24, 2014)

By Edward L. Puzzo, J.D.

Sanctions were not appropriate against confection machine manufacturers who had alleged that their adversary in patent and trademark litigation had engaged in a litigation scheme that violated federal RICO law, the federal district court in New Orleans has ruled (Snow Ingredients, Inc. v. SnoWizard, Inc., March 21, 2014, Brown, N.).

This order follows prior orders by this court, dated December 14, 2012, January 30, 2013, and February 18, 2013, in ongoing consolidated patent and trademark litigation between manufacturers of shaved ice confection machinery and flavor concentrates.

Various plaintiffs—including Southern Snow Manufacturing, Snow Ingredients, Inc., and Parasol Flavors, LLC—had alleged that SnoWizard’s conduct constituted fraudulent assertion of trademark rights, fraudulent assertion of patent rights, trademark infringement, extortion, and fraudulent assertion of the certification, and that these acts constituted the requisite predicate acts for RICO violations. Earlier, the court disagreed, ruling that none of the conduct qualified as predicate acts under RICO. The court did permit plaintiffs’ antitrust and fraudulent procurement of trademark claims to proceed.

Sanctions sought. SnoWizard moved for sanctions and costs against plaintiffs’ counsel Mark Andrews, alleging that the previous RICO allegations against it were not warranted by existing law or by any nonfrivolous argument for establishing new law. SnoWizard argued that “no reasonable attorney” would believe that alleged litigation scheme they were accused of engaging in was capable of satisfying the criminal act predicate requirement of RICO. SnoWizard further alleged that the filing of the RICO claim was in retaliation for SnoWizard’s defamation suit against plaintiff’s attorney Andrews in another action collateral to these consolidated patent and trademark matters.

In response, Andrews noted that a magistrate had found that SnoWizard’s assertions that the RICO claims were futile were without merit. Andrews also argued that “although obstruction of justice charges are not often applied to lies or misrepresentations in the course of civil discovery, courts have permitted parties to pursue it under certain circumstances.”

Litigation as RICO activity. The court recounted that the allegations against SnoWizard included allegations that they had perpetrated obstructive acts in different civil actions, which qualified as racketeering activity for purposes of RICO. SnoWizard argued that litigation activity cannot be a predicate act for RICO purposes.

The court opined that some of the conduct that SnoWizard had been accused of engaging in—including orchestrating a litigation scheme, engaging in sham litigation and making material misstatements in court—were criminal acts under several federal statutes. In view of the seriousness of the allegations, the court continued, it could not be said that the claims were so misguided as to support sanctions, even if the conduct is not found be a RICO violation or obstruction of justice.

The fact that the Fifth Circuit had not addressed the issue of whether activity conducted during prior litigation was immune from RICO prosecution supported a conclusion that the RICO violation accusations were not unsound or unreasonable to bring. Therefore, the court ruled that the motion for sanctions must be denied.

The case is Civil Action No. 12-1412.

Attorneys: Mark E. Andrews (Andrews Arts & Sciences Law, LLC) for Snow Ingredients, Inc., Simeon, Inc., Theodore Eisenmann and Van’s Snowballs. Jack Edward Morris (Jack E. Morris, Attorney at Law) for SnoWizard, Inc.

Companies: Snow Ingredients, Inc.; Simeon, Inc.; Van’s Snowballs; SnoWizard, Inc.

Cases: LouisianaNews RICO Antitrust StateUnfairTradePractices