John C. Flood of Virginia, Inc v. John C. Flood, Inc.

Filing

OPINION filed [1313716] (Pages: 14) for the Court by Judge Sentelle [10-7098]

USCA Case #10-7098

Document #1313716

Filed: 06/17/2011

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 8, 2011

Decided June 17, 2011
No. 10-7098

JOHN C. FLOOD OF VIRGINIA, INC., ET AL.,
APPELLANTS
v.
JOHN C. FLOOD, INC., ET AL.,
APPELLEES

Appeal from the United States District Court
for the District of Columbia
(No. 1:06-cv-01311)

Stephen J. Zralek argued the cause for appellants.
With him on the briefs was Paul W. Kruse.
Robert A.W. Boraks argued the cause for appellees.
With him on the brief was Benjamin J. Lambiotte.
Before: SENTELLE, Chief Judge, TATEL, Circuit Judge,
and EDWARDS, Senior Circuit Judge.
Opinion for the Court filed by Chief Judge SENTELLE.
SENTELLE, Chief Judge: Two businesses with nearly
identical names—John C. Flood, Inc. (“1996 Flood”) and

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John C. Flood of Virginia, Inc. (“Virginia Flood”)—brought
suit against each other over which company had the right to
use two trademarks: JOHN C. FLOOD and its abridged form
FLOOD. The district court concluded that 1996 Flood was
the proper owner of the two trademarks and that Virginia
Flood, as the licensee of the marks, was estopped from
challenging 1996 Flood’s ownership. John C. Flood of
Virginia, Inc. v. John C. Flood, Inc., 700 F. Supp. 2d. 90, 9899 (D.D.C. 2010). Because we agree with the district court on
these points, we affirm the decision below, but remand the
case back to the district court for clarification regarding
whether Virginia Flood’s use of the mark JOHN C. FLOOD
OF VIRGINIA was prohibited by its decision.
I.
The parties in this case are two plumbing, heating and
air conditioning businesses and the principals of those
businesses whose histories are intertwined. The story begins
in 1984 when Mark Crooks and Mel Davis—defendants
below and two of the appellees in this case—incorporated
John C. Flood, Inc., a Maryland business that served the
Washington D.C. metropolitan area (“1984 Flood”). 1984
Flood traded under the service mark JOHN C. FLOOD, its
abbreviated form FLOOD, and variations thereof. In 1988,
looking to expand into the Virginia market, Crooks, Davis and
two of their 1984 Flood employees, Clinton Haislip and
James Seltzer—plaintiffs below and two of the appellants in
this case—incorporated a separate Virginia business, John C.
Flood of Virginia, Inc. Haislip and Seltzer originally owned
only 49% of Virginia Flood, but soon came to own 50% of the
business to become equal owners with Crooks and Davis.
Although Virginia Flood had a verbal license to use the marks
JOHN C. FLOOD and FLOOD with or without the modifier
“of Virginia,” the parties disagree over the nature and scope

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of that license. Regardless of what limitations were or were
not part of the original oral agreement, neither party disputes
that Virginia Flood has used the two disputed marks
continuously since 1989.
In June 1991, 1984 Flood filed for Chapter 11
bankruptcy reorganization. One month later, Crooks and
Davis resigned as officers of Virginia Flood, but continued to
operate 1984 Flood in bankruptcy until March 1993, when the
bankruptcy court appointed a trustee and converted the case to
a Chapter 7 bankruptcy. At that time, Crooks and Davis shut
down 1984 Flood’s operations and ceased monitoring the
operation of Virginia Flood and its use of the disputed marks.
In 1995, Haislip and Seltzer purchased Crooks and Davis’s
50% share of Virginia Flood from the trustee, becoming the
sole owners of the business.
After leaving 1984 Flood, Crooks and Davis joined
with Robert and Joanne Smiley—the remaining
defendant/appellees—and continued to trade in the plumbing,
heating and air conditioning business through various
corporations known as J.C.F, Inc., J.C. Flood, Inc., John C.
Flood of DC, Inc. and John C. Flood of MD, Inc. (collectively
the “New Flood entities”). While operating the New Flood
entities, Crooks, Davis, and the Smileys misappropriated the
assets, including the disputed marks, of 1984 Flood. In an
effort to preserve 1984 Flood’s assets, in May 1995 the
bankruptcy trustee filed an adversary proceeding, which
resulted in the bankruptcy court issuing a consent order for a
preliminary injunction against the New Flood entities and for
the appointment of a receiver with the authority to take charge
of the New Flood entities and their assets. By August 1995,
the bankruptcy court made the injunction and the receivership
permanent.

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In October 1995, the bankruptcy trustee proposed that
the disputed marks, as well as the seized assets and stock of
the New Flood entities, be sold to Crooks, Davis, and the
Smileys. As creditors of the 1984 Flood bankruptcy estate,
Haislip and Seltzer objected to the sale on the grounds that
Crooks, Davis, and the Smileys had unlawfully diverted and
concealed estate assets. In response, Crooks and Davis
withdrew and the Smileys increased the amount of their bid.
Haislip and Seltzer made a competing bid to purchase only
the disputed marks and the 1984 Flood phone numbers. In
February 1996, over Haislip and Seltzer’s objections, the
trustee executed a bill of sale conveying the disputed marks
and the stock of the New Flood entities to the Smileys, who
then incorporated a new Maryland business under the name
John C. Flood, Inc. (“1996 Flood”).
Since 1996, both 1996 Flood and Virginia Flood have
traded in the plumbing, heating, and air conditioning business
in the Washington D.C. metropolitan area with both
companies using the marks JOHN C. FLOOD and FLOOD.
In 2000, Virginia Flood sought and obtained two trademark
registrations from the United States Patent and Trademark
Office, one for the phrase “JOHN C. FLOOD” and one for a
logo incorporating that phrase. According to 1996 Flood,
when it learned that Virginia Flood had registered the
disputed marks, it brought an action before the Trademark
Trial and Appeal Board of the U.S. Patent and Trademark
Office to cancel the registrations. That action was suspended
pending disposition of a civil action in July 2006 after
Virginia Flood brought a trademark infringement suit against
1996 Flood. In response, 1996 Flood filed a counterclaim
claiming, inter alia, that 1996 Flood had priority over
Virginia Flood to the disputed marks.

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Throughout the subsequent litigation, Virginia Flood
argued that 1984 Flood abandoned all rights to the disputed
marks when it created a “naked license” during its Chapter 7
bankruptcy. Virginia Flood also argued that it suffered a
decline in its quality of service, due to no fault of its own,
immediately following the appointment of a trustee and 1984
Flood’s cessation of oversight and involvement. As we noted
above, during that time 1984 Flood did not operate and no one
from 1984 Flood other than the bankruptcy trustee was
available to monitor Virginia Flood’s use of the licensed
trademarks. As the Ninth Circuit has noted, this lack of
supervision is important because “‘uncontrolled or ‘naked’
licensing may result in the trademark ceasing to function as a
symbol of quality and controlled source.’” Barcamerica Int’l.
USA Trust v. Tyfield Importers, Inc., 289 F.3d 589, 596 (9th
Cir. 2002) (quoting MCCARTHY ON TRADEMARKS AND
UNFAIR COMPETITION § 18:48 at 18-79 (4th ed. 2001)).
“Consequently, where the licensor fails to exercise adequate
quality control over the licensee, ‘a court may find that the
trademark owner has abandoned the trademark, in which case
the owner would be estopped from asserting rights to the
trademark.’” Id. (quoting Moore Business Forms, Inc. v. Ryu,
960 F.2d 486, 489 (5th Cir. 1992)). Although naked licensing
was a central element of Virginia Flood’s claim, the district
court never had an opportunity to rule on the merits of the
naked licensing argument.
Instead, ruling on the parties’ cross-motions for
summary judgment, the district court concluded that
“[b]ecause 1996 Flood is the successor-in-interest of 1984
Flood, the original owner of the FLOOD marks, and because
Virginia Flood is barred by the doctrine of licensee estoppel
from asserting its naked licensing claim to obtain priority over
the marks, 1996 Flood is entitled to summary judgment on all
of Virginia Flood’s claims” and to “a declaration of its

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priority over Virginia Flood and of its exclusive right to use
and register the marks JOHN C. FLOOD and FLOOD.” John
C. Flood of Virginia, 700 F. Supp. 2d. at 98-99. For the
reasons set forth below, we agree.
II.
Virginia Flood argues that the district court made two
errors: first, holding that 1996 Flood had priority over the
disputed marks, and second, holding that Virginia Flood was
legally barred under the theory of licensee estoppel from
challenging 1996 Flood’s ownership. Virginia Flood claims
that the district court improperly discounted the New Flood
entities’ unlawful use of the disputed marks when it
determined that 1996 Flood had priority to the marks over
Virginia Flood. Virginia Flood argues that the New Flood
entities’ unlawful use broke the chain of priority upon which
the district court relied to determine that 1996 Flood was the
proper successor-in-interest of 1984 Flood, the creator and
original owner of the marks. Once that chain of priority was
broken, Virginia Flood argues that its continued use of the
marks from 1989 to the present—compared to 1996 Flood’s
use of the marks from 1996 to the present—established its
ownership of the mark by demonstrating that it was the first to
use the mark in commerce.
Virginia Flood also asserts that the equitable doctrine
of licensee estoppel should not apply in this case. Virginia
Flood argues that it should not be estopped from challenging
1996 Flood’s ownership of the disputed marks because the
verbal license between the parties did not include an explicit
no-challenge provision; because Virginia Flood attempted to
maintain the quality of the marks, but failed to do so only
because of lack of supervision by the licensor; and because in
this case, the trademark principles that discourage naked

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licensing should outweigh the contract principles that are
enforced by licensee estoppel. Virginia Flood also rejects the
distinction drawn by the district court between offensive and
defensive use of naked licensing by the licensee. Virginia
Flood asserts that there is no legal authority to support the
district court’s conclusion that Virginia Flood could argue
naked licensing as an affirmative defense in an infringement
case, but could not assert naked licensing offensively to
challenge the priority of the licensor. Finally, Virginia Flood
argues that the equities in this case strongly support Virginia
Flood’s claim to priority over the marks because granting
Virginia Flood priority would be the most just outcome for
the parties.
We review the district court’s summary judgment
determination de novo, drawing all reasonable inferences
from the evidence in Virginia Flood’s favor. Adams v. Rice,
531 F.3d 936, 942 (D.C. Cir. 2008). Summary judgment may
be granted only where there is no genuine issue as to any
material fact and the moving party is entitled to a judgment as
a matter of law. Fed. R. Civ. P. 56(c); Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 247 (1986). In this case, we agree
with the parties who both assert that there is no dispute of
material fact and that judgment as a matter of law is
appropriate.
A.
“Undoubtedly, the general rule is that, as between
conflicting claimants to the right to use the same mark,
priority of appropriation determines the question.” United
Drug Co. v. Theodore Rectanus Co., 248 U.S. 90, 100 (1918).
“Ordinarily, a party establishes ownership of a mark by being
the first to use the mark in commerce,” Estate of Coll-Monge
v. Inner Peace Movement, 524 F.3d 1341, 1347 (D.C. Cir.

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2008), and in this case, there is no dispute that 1984 Flood
was the first entity to acquire priority in the disputed marks
via such use. The district court traced an unbroken chain of
priority from 1984 Flood, to the 1984 Flood bankruptcy
estate, to 1996 Flood. Although this chain does not include
the New Flood entities, Virginia Flood argues that the
unlawful use of the disputed marks by the New Flood entities
breaks the chain of priority established by the district court.
Virginia Flood’s argument is fundamentally flawed.
The unlawful use of the marks by the New Flood entities was
unlawful precisely because they did not have legal title to the
marks when they used them. When the New Flood entities
were misappropriating the disputed marks, the marks were
among the assets owned by the 1984 Flood bankruptcy estate.
There is no evidence or even a suggestion that the New Flood
entities owned the marks or that the bankruptcy trustee
licensed the marks to the New Flood entities. As the district
court properly noted, the chain of priority in no way includes
the New Flood entities and therefore the unlawful use of the
marks by the New Flood entities—companies expressly
excluded from the chain of priority—cannot break that chain.
1996 Flood, a company with no legal relationship to the New
Flood entities, did not obtain the marks from the New Flood
entities or derive any priority from the New Flood entities’
unlawful use. To the contrary, 1996 Flood legally purchased
the marks directly from the bankruptcy estate after offering a
superior bid to the one Virginia Flood offered.
Presumably, Virginia Flood’s unlawful use argument
stems from frustration over the fact that 1996 Flood—a
business associated with the same people who operated the
New Flood entities—now has priority to the disputed marks.
See Brief of Appellants at 24 (“Despite the fact that the [New
Flood entities’] use was in violation of the law and a specific

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court order, the lower court considered such action to warrant
no negative consequences.”). 1996 Flood’s priority is
derived, however, not from the New Flood entities, but
instead from the bankruptcy trustee’s sale of the marks to
1996 Flood. The New Flood entities’ unlawful use of the
disputed marks is irrelevant to 1996 Flood’s claim to priority.
Priority over the disputed marks originated with 1984 Flood,
transferred to the 1984 bankruptcy estate, and was then
conveyed to 1996 Flood via a bill of sale with the approval of
the bankruptcy court. The district court did not err when it
held that 1996 Flood was the successor-in-interest of 1984
Flood and the legal owner of the marks.
B.
Once the district court concluded that 1996 Flood was
the rightful owner of the disputed marks, it rejected Virginia
Flood’s arguments attacking 1996 Flood’s ownership under
the theory that, as a licensee, Virginia Flood was barred from
making such an attack by the doctrine of licensee estoppel.
John C. Flood of Virginia, 700 F. Supp. 2d at 97 (“Virginia
Flood’s status as the licensee bars it from using the naked
licensing doctrine as a weapon to pry ownership of the
FLOOD marks from 1996 Flood.”). Although this circuit has
never explicitly recognized the equitable doctrine of licensee
estoppel, some other circuit courts have held that, in general,
trademark licensees are estopped from challenging the
validity of the licensor’s title because by agreeing to the
license, the licensee has recognized the validity of the
licensor’s ownership. See Seven-Up Bottling Co. v. Seven-Up
Co., 561 F.2d 1275, 1279-80 (8th Cir. 1977) (restating the
“‘long settled principle of law that a licensee of a trademark
or tradename may not set up any adverse claim in it as against
its licensor’”) (quoting Pac. Supply Coop. v. Farmers Union
Cen. Exch., 318 F.2d 894, 908-09 (9th Cir. 1963)). More

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recently, other circuits have permitted licensees to make such
challenges, but only based upon facts that arose after the
license expired. See, e.g., Creative Gifts, Inc. v. UFO, 235
F.3d 540, 548 (10th Cir. 2000) (suggesting that a licensee may
challenge the licensor’s title to a trademark based on events
that occurred after the license expired); WCVB-TV v. Boston
Athletic Ass’n, 926 F.2d 42, 47 (1st Cir. 1991) (same); Prof’l
Golfers Ass’n of Am. v. Bankers Life & Casualty Co., 514
F.2d 665, 671 (5th Cir. 1975) (same). The Second Circuit has
taken an even less restrictive view, holding that every claim of
licensee estoppel should be evaluated by balancing the public
interest in favor of challenging invalid trademarks against the
private interest in the enforcement of contracts. See Idaho
Potato Comm’n v. M & M Produce Farm & Sales, 335 F.3d
130, 137 (2d Cir. 2003) (adapting the patent licensee estoppel
test articulated in Lear, Inc. v. Adkins, 395 U.S. 653 (1969),
for use in the trademark context).
Virginia Flood, relying on two unpublished district
court opinions both from districts in the Sixth Circuit, argues
that modern courts “apply licensee ‘estoppel as a non-rigid
equitable doctrine that is only employed based on a full
consideration of the totality of the circumstances.’” Brief of
Appellants at 31 (quoting Kebab Gyros, Inc. v. Riyad, No.
3:09-0061, slip op. at 6 n.7 (M.D. Tenn. Dec. 17, 2009)
(unpublished)). The district court opinions cited by Virginia
Flood derive this interpretation of licensee estoppel from the
Restatement of Unfair Competition, which states: “licensee
estoppel is an equitable doctrine, and a court remains free to
consider the particular circumstances of the case, including
the nature of the licensee’s claim and the terms of the
license.” See, e.g., Pride Publ’g Group v. Edwards, No. 1:08cv-94, slip op. at 4 (E.D. Tenn. May 23, 2008) (unpublished)
(quoting RESTATEMENT (THIRD) OF UNFAIR COMPETITION
§ 33 (1995)). Virginia Flood argues that based on a totality-

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of-the-circumstances analysis, licensee estoppel would not
apply in this case.
We disagree. As we noted above, we have not
previously had the opportunity to define the contours of the
licensee estoppel doctrine in this circuit and there is no need
to do so now. We need not determine whether licensee
estoppel should be an automatic bar to all trademark licensee
challenges of its licensor’s ownership, or whether the court
should engage in a totality-of-the-circumstances analysis, or
whether some intermediate standard should apply, because in
this case the result is the same. The theory underlying the
licensee estoppel doctrine is that a licensee should not be
permitted to enjoy the benefits afforded by the license
agreement while simultaneously urging that the trademark
which forms the basis of the agreement is void. Lear, 395
U.S. at 656. Virginia Flood, which has benefitted from its
license of the disputed marks for over two decades, now asks
us to declare that the licensed trademarks have been void
since 1993. The facts in this case convince us that the
equities, no matter how balanced, weigh in favor of applying
licensee estoppel here.
First and foremost, Virginia Flood’s case is irreparably
harmed by Virginia Flood’s failure to raise an appropriate
objection to the sale of the disputed marks by the 1984 Flood
bankruptcy trustee in 1995. Virginia Flood concedes that, at
that time, it was licensing the disputed marks from the 1984
Flood bankruptcy estate and had been doing so continuously
either from 1984 Flood or from the estate since 1989. If, in
1995, Virginia Flood believed that 1984 Flood’s trademark
had lapsed, due to naked licensing or for any other reason,
Virginia Flood should have made that objection to the sale of
the trademark by the bankruptcy trustee. Although Virginia
Flood did object to the consideration of 1996 Flood’s

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bid—due to the prior misappropriation of the trademarks by
the New Flood entities—Virginia Flood never suggested that
it took issue with the validity of the disputed trademarks. To
the contrary, Virginia Flood offered to buy the marks, and
only failed to do so because it was outbid by 1996 Flood.
Virginia Flood not only failed to raise its objection at
the time of the sale, but it also failed to raise it in June 1996
when 1996 Flood informed Virginia Flood that it was
infringing its trademarks and demanded that Virginia Flood
stop using the marks without the distinguishing designator “of
Virginia.” Virginia Flood concedes that in response to 1996
Flood’s demands, Virginia Flood’s counsel informed 1996
Flood that its telephone ads and signage would include the
words “of Virginia.” Virginia Flood also concedes that it did
not contest 1996 Flood’s ownership of the marks at that time
and did not raise its naked licensing claim until filing the
current lawsuit a decade later.
Faced with the reality of these significant failures,
Virginia Flood argues that the bankruptcy trustee should have
commenced, sua sponte, an adversary proceeding to resolve
the priority and ownership interests prior to selling 1984
Flood’s trademarks. This argument is a non-starter. As
Virginia Flood expressly conceded at oral argument, no party
contested the validity of the bankruptcy estate’s title to the
disputed marks or its right to sell those marks. Rather than
objecting to the sale or at least raising the possibility of
problems with the bankruptcy estate’s ownership of the
marks, Virginia Flood instead offered to purchase the marks.
Although Virginia Flood argues that its attempt to purchase
the marks should have put the bankruptcy court on notice that
Virginia Flood believed that it had an interest in the marks,
exactly the opposite is true. By offering to purchase the

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disputed marks, Virginia Flood implicitly recognized the
bankruptcy estate’s ownership of those marks.
Because we agree with the district court that 1996
Flood was the proper successor-in-interest to 1984 Flood, and
that Virginia Flood is barred by the doctrine of licensee
estoppel from challenging 1996 Flood’s ownership of those
marks, we affirm the district court’s order granting 1996
Flood’s motion for partial summary judgment and denying
Virginia Flood’s motion for summary judgment.
III.
One issue remains that we cannot resolve. The district
court’s order granted 1996 Flood priority to the disputed
marks and the “exclusive right to use and register the trade
name and service mark JOHN C. FLOOD and any other name
or mark similar to JOHN C. FLOOD that, by colorable
imitation or otherwise, is likely to cause confusion or
mistake.” John C. Flood of Virginia, 700 F. Supp. 2d at 99.
The district court further held “that no Virginia Flood party
has the right to register or use beyond the terms of its license
the name and mark JOHN C. FLOOD or its abbreviated
version FLOOD.” Id. A question remains, however, whether
Virginia Flood is permitted to use the disputed marks with the
distinguishing modifier “of Virginia.” The answer to that
question depends on the exact scope of Virginia Flood’s
license, a factual issue that was disputed before the district
court but never resolved because the district court decided the
case on summary judgment. Although we affirm the decision
of the district court holding that 1996 Flood was the proper
successor-in-interest to 1984 Flood, we must remand the case
to the district court for determination of the ownership and
priority rights of the parties as to the modified trademark
“John C. Flood of Virginia.” To clarify, our decision to

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affirm the district court is limited to the unmodified marks
and leaves open the possibility that with regard to the
modified marks, Virginia Flood is not estopped and could
establish abandonment or some other basis of priority or
ownership.
IV.
For the reasons set forth above, we affirm the decision
of the district court. We remand the case to the district court
for further proceedings.
So ordered.

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