IP Law Daily, TRADEMARK—S.D. W. Va. Bankr.: Debt from willful, malicious, bad-faith mark infringement not dischargeable in bankruptcy, (Apr 7, 2023)

By Robert Margolis, J.D.

In dispute over “Brothers of the Wheel” motorcycle club mark, bankruptcy court applies collateral estoppel to grant summary judgment to club whose trademark was infringed

Applying collateral estoppel to findings made in a federal district court trademark infringement action that an individual willfully, maliciously, and in bad faith infringed the registered trademark of Brothers of the Wheel MC Executive Council, Inc. (“BOTW”), the federal bankruptcy court in Charleston, West Virginia, has granted BOTW summary judgment on its Adversary Proceeding complaint and held that the $17,493 judgment entered against the individual in the district court for damages and attorney fees is nondischargeable. A former member of the club, the individual’s mark infringement was willful, malicious, and done in bad faith. Those findings were critical and necessary to the final judgment entered, and Mollohan had a full and fair opportunity to litigate those issues in the district court (Brothers of the Wheel MC Executive Council, Inc. v. Mollohan, April 4, 2023, Mignault, B.).

Infringement claims. BOTW is a motorcycle club that first began in 1977, which has continually operated under the “Brothers of the Wheel” name and federally registered trademark. BOTW’s bylaws provide that the club retains ownership of the trademark-protected patch and items but grants a license to members and retirees to use the protected items. Defendant-debtor Gerald Roscoe Mollohan was formerly a full member of BOTW and, in accordance with the by-laws, he received permission to use items featuring the club’s trademark and agreed to follow the by-laws as a condition of his membership.

Following his retirement from BOTW, Mollohan started his own motorcycle club, which he named “Brothers of the Wheel Nomads.” BOTW brought suit, claiming that Mollohan has been using the initials “BOTW” and the Brothers of the Wheel mark in derogation of his license to use the protected items and in violation of federal and state laws protecting trademarks. BOTW alleged several causes of action, under the Lanham Act and state law.

Court ruling. In a November 14, 2012 Memorandum Opinion and Order, the federal district court in Charleston determined that Mollohan had willfully and in bad faith infringed BOTW’s registered trademark and falsely designated the origin of its mark in violation of Sections 32(1)(a) and 43(a) of the Lanham Act. Specifically, the court found that Mollohan infringed the federal trademark formally protecting the name “Brothers of the Wheel M.C.” and the logo of the club through his use of the word mark “Brothers of the Wheel,” the initials “BOTW,” and a similar logo to identify the motorcycle club he created called “Brothers of the Wheel Nomads.”

The district court granted BOTW’s motion for permanent injunctive relief against Mollohan and adopted a magistrate judge’s recommendation of an award of both treble damages and attorney fees. In doing so, the court found that this was an “exceptional case” warranting payment of fees, because there was “willful infringement by the defendant,” who admitted he used BOTW’s marks “in derogation of the license … and in bad faith.” At a subsequent hearing, final judgment was entered for BOTW, awarding it only nominal damages (trebled) to $3.00, plus $17,490 in attorney fees, and providing permanent injunctive relief.

Bankruptcy. Several years after final judgment, Mollohan commenced a voluntary bankruptcy proceeding under Chapter 13. BOTW timely filed a proof of claim asserting the $17,493 awarded in the district court judgment for “damages and attorney fees for trademark infringement,” and subsequently commenced an adversary proceeding against Mollohan, asserting in its complaint that the full amount is nondischargeable pursuant to 11 U.S.C. § 523(a)(6), because Mollohan caused willful and malicious injury to BOTW. Mollohan filed a motion to dismiss the adversary complaint, and BOTW moved for summary judgment, arguing that because all of the elements necessary to establish nondischargeability were found by the district court, the bankruptcy court should apply those findings under the doctrines of res judicata or collateral estoppel.

Dismissal motion. The bankruptcy court denied Mollohan’s motion to dismiss, finding that BOTW had alleged the elements of a nondischargeability claim: (1) Mollohan caused an injury; (2) his actions were willful; (3) his actions were malicious; and (4) he engaged in his conduct with the intent to cause injury. Allegations of his willful and malicious trademark infringement, with the intent to injure BOTW, satisfied these elements, the bankruptcy court held.

Collateral estoppel. The court granted BOTW”s motion for summary judgment on collateral estoppel grounds, based on the district court findings leading to that court’s final judgment. After rejecting BOTW’s res judicata argument based on Supreme Court precedent holding that the doctrine does not apply in the bankruptcy nondischargeability context, the court found collateral estoppel applicable and that BOTW had established all of that doctrine’s elements.

Collateral estoppel, also known as issue preclusion, bars subsequent litigation on issues that are identical to those that were actually and necessarily decided by a court of competent jurisdiction in prior litigation, when those issues were critical and necessary to a final judgment in the prior proceeding. In addition, the party to be foreclosed must have had a full and fair opportunity to litigate those issues in the prior proceeding. Collateral estoppel applies in bankruptcy nondischargeability actions where the elements of a claim proved in the prior case suffice to establish the elements required for nondischargeability.

The court found that the issues litigated and actually resolved in the district court were identical to those at issue in the adversary proceeding, and satisfy the above-described elements for nondischargeability. In awarding the treble damages, attorney fees, and injunctive relief, the district court found that Mollohan’s conduct injured BOTW, his acts were both willful and malicious, as well as in bad faith. Those findings were critical and necessary to the final judgment entered, and Mollohan had a full and fair opportunity to litigate those issues in the district court. The court thus granted summary judgment for BOTW, finding the $17,943 debt to be nondischargeable.

The case is No. 2:21-ap-02007.

Attorneys: Richard Lindroth (Richard Lindroth, Attorney at Law) for Brothers of the Wheel MC Executive Council, Inc. Gerald Roscoe Mollohan, pro se.

Companies: Brothers of the Wheel MC Executive Council, Inc.

Cases: Trademark WestVirginiaNews