Foodworks USA, Inc. v. Foodworks of Arlington Heights, LLC

Filing 166

MOTION by Counter Claimant Foodworks of Arlington Heights, LLC, Defendant Foodworks of Arlington Heights, LLC for judgment on damages (Attachments: # 1 Exhibit Exhibit A, # 2 Exhibit Exhibit B, # 3 Exhibit Exhibit C, # 4 Exhibit Exhibit D)(McCormick, Kevin)

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
FOODWORKS USA, INC.,

)
)
Plaintiff,
)
)
v.
)
)
FOODWORKS OF ARLINGTON HEIGHTS, LLC,)
)
Defendant.
)

NO. 10-CV-1020

DEFENDANT’S MOTION FOR JUDGMENT ON DAMAGES
Defendant/Counter-Plaintiff, FOODWORKS OF ARLINGTON HEIGHTS, LLC, by its
attorneys, DEWALD LAW GROUP PC, and for its Motion for Judgment on Damages, states:
INTRODUCTION
On July 1, 2013, the Court granted Defendant/Counter-Plaintiff, Foodworks of Arlington
Heights, LLC’s (“FWAH”), Motion for Default Judgment, in part, finding that a default
judgment on liability on FWAH’s Counterclaim in favor of FWAH was an appropriate sanction
for Plaintiff/Counter-Defendant, Foodworks USA, Inc.’s (“FUSA”) conduct. (Dkt. 152 at p. 22).
While liability has been established in favor of FWAH, the Court has sought additional
information from FWAH relative to the issue of damages, and the instant Motion for Judgment
on Damages is being brought for that purpose.
STANDARD OF REVIEW
A default judgment establishes, as a matter of law, that FUSA is liable to FWAH on each
cause of action alleged in the Counterclaim. e360 Insight v. The Spamhouse Project, 500 F.3d
594, 602 (7th Cir. 2007). “Upon default, the well-pled allegations of the complaint relating to
liability are taken as true, but those relating to the amount of damages suffered ordinarily are
not.” Wehrs v. Wells, 688 F.3d 886, 892 (7th Cir. 2012). Nevertheless, if one party’s conduct

makes it difficult for the other party to prove the precise extent of its damages, the Court will
give broad latitude in quantifying damages. BCS Services, Inc. v. Heartwood 88, LLC, 637 F.3d
750, 759 (7th Cir. 2011).
COUNT I-DECLARATORY JUDGMENT
Count I seeks a declaratory judgment regarding the Fuego Logo and its derivatives, as
well as the common law trademark rights in the name FUEGO MEXICAN GRILL &
MARGARITA BAR, (collectively, and hereinafter the “Fuego Marks”). FUSA licensed the
Fuego Marks to other entities, including an entity called Foodworks 2047, LLC, which operated
an identical Mexican-themed restaurant named FUEGO MEXICAN GRILL & MARGARITA
BAR in Chicago. (Doc. 1 at ¶ 54). FWAH would seek the following relief for Count I, none of
which would require the production of evidence outside of the allegations of the Counterclaim:
(1) declaring, pursuant to 28 U.S.C. § 2201, FWAH as the rightful and sole owner of the
Fuego Marks;
(2) declaring, pursuant to 28 U.S.C. § 2201, FUSA as having no ownership rights in the
Fuego Marks;
(3) declaring, pursuant to 28 U.S.C. § 2201, the License Agreement between FUSA and
FWAH void ab initio and held for naught;
(4) declaring any and all other licenses executed between FUSA and any third-party
regarding any or all of the Fuego Marks void ab initio and held for naught; and
(5) temporarily, preliminarily, and permanently enjoining FUSA and all individuals or
entities acting in concert with FUSA from using the Fuego Marks in any manner.
COUNT II—DECLARATORY JUDGMENT
Count II seeks a declaratory judgment regarding the trade dress found at FWAH’s

2

restaurant (“Fuego Dress”). In addition to the license of the Fuego Marks, FUSA licensed the
trade dress to other entities, including Foodworks 2047, LLC. (Doc. 1 at ¶ 54). FWAH would
seek the following relief for Count II, which, as with Count I, would not require the production
of any evidence outside of the allegations of the Counterclaim:
(1) declaring, pursuant to 28 U.S.C. § 2201, FWAH as the rightful and sole owner of the
Fuego Dress;
(2) declaring, pursuant to 28 U.S.C. § 2201, FUSA as having no ownership rights in the
Fuego Dress;
(3) declaring, pursuant to 28 U.S.C. § 2201, any and all other licenses executed between
FUSA and any third-party regarding the Fuego Dress void ab initio and held for naught;
(4) temporarily, preliminarily, and permanently enjoining FUSA and all individuals or
entities acting in concert with FUSA from using the Fuego Dress in any manner; and
COUNT III—TRADEMARK INFRINGEMENT
Count III seeks damages for trademark infringement of the Fuego Marks. Section 35 of
the Lanham Act provides that a prevailing party may recover:
(1) defendant’s profits,
(2) any damages sustained by the plaintiff, and
(3) the costs of the action.
The court shall assess such profits and damages or cause the same to be assessed
under its direction. In assessing profits the plaintiff shall be required to prove
defendant’s sales only; defendant must prove all elements of cost or deduction
claimed. In assessing damages the court may enter judgment, according to the
circumstances of the case, for any sum above the amount found as actual
damages, not exceeding three times such amount. If the court shall find that the
amount of the recovery based on profits is either inadequate or excessive the court
may in its discretion enter judgment for such sum as the court shall find to be just,
according to the circumstances of the case. Such sum in either of the above
circumstances shall constitute compensation and not a penalty. The court in
3

exceptional cases may award reasonable attorney fees to the prevailing party.
15 U.S.C. § 1117(a).
The Seventh Circuit has also long recognized that “the damages occasioned by trademark
infringement are by their very nature irreparable and not susceptible of adequate measurement
for remedy at law.” Processed Plastic Co. v. Warner Communications, Inc., 675 F.2d 852, 858
(7th Cir.1982).
Pursuant to the unauthorized license agreement that FWAH has alleged was executed
unilaterally by Nahlawi without any authority from the remaining membership of FWAH,
FWAH paid 3% of its annual gross sales to FUSA as a royalty fee. Therefore, a fair measure of
actual damages sustained by FWAH would be an amount equal to the royalty fees paid by
FWAH to FUSA from 2005 to 2009 since such sums should never have been paid by FWAH in
the first place.
The FWAH tax returns from 2005-2009, attached hereto as Group Exhibit A,1 show both
the annual gross sales and the “Royalty Fees” per the deductions statements in each return, and
confirm that, in fact, 3% of said gross sales were paid as a royalty fee. Group Exhibit A
indicates the following gross sales and royalty fees paid per the tax returns:
YEAR

GROSS SALES

ROYALTY FEES

2005

$353,096

$10,593

2006

$2,393,558

$74,599

2007

$2,766,776

$86,514

2008

$2,930,394

$91,393

1 Group Exhibit A consists of the first page and relevant worksheet showing the royalty fees for each tax return.
The complete returns can be provided to the Court when conducting the evidentiary hearing on damages, unless
sooner requested by the Court.

4

2009

$2,553,276

TOTAL

$60,4652
$323,564

In case any doubt existed about whether or not FWAH actually paid these amounts to
FUSA, in 2009, after the other Members of FWAH has ousted Nahlawi, they obtained, for the
first time, the banking records of FWAH. These records, attached hereto as Group Exhibit B,
although incomplete, show that payments were made from FWAH to FUSA totaling $130,000 in
2007 and $105,000 in 2008, which are more than $57,000 higher than the 3% amounts identified
in the tax returns. Adjusting for these amounts, the total from above increases to $380,657. It is
not difficult to assume that higher payments were made to FUSA in 2005, 2006, and 2009 as
well, thereby increasing the amount of actual damages incurred by FWAH even higher.
Furthermore, while FWAH has no evidence related to the profits earned by FUSA during
the time it infringed on the Fuego marks because no evidence was produced in discovery, it
would be fair to assume that a similar 3% royalty fee was charged by FUSA to the other known
third-party licensee, Foodworks 2047, LLC.3 It would be further fair to assume that the annual
gross sales of the FWAH restaurant would be the same or similar to the annual gross sales of the
Chicago restaurant. Therefore, a fair way to measure profits to be disgorged would be to simply
double the amount identified above, which would be permitted by BCS Services, Inc. v.
Heartwood 88, LLC, 637 F.3d 750, 759 (7th Cir. 2011).
In addition to these money damages, FWAH would seek:
(A) a money judgment in favor of FWAH and against FUSA in an amount equivalent to
three times the amount awarded above, in accordance with 15 U.S.C. § 1117(a);
2 FWAH stopped paying royalty fees during 2009 after the ouster of Eddie Nahlawi as Manager of the LLC, and
thus the total percentage of royalty fees paid for 2009 is less than 3% of gross annual sales.
3 FWAH is not aware of whether or not FUSA entered into any other license agreements with other third parties.

5

(B) awarding pre-judgment interest, in accordance with 15 U.S.C. § 1117(a); and
(C) awarding court costs and attorneys’ fees, in accordance with 15 U.S.C. § 1117(a).
COUNT IV—TRADE DRESS INFRINGEMENT
Count IV seeks damages for trademark infringement of the Fuego Dress. As with
trademark infringement, trade dress infringement damages include disgorged profits of FUSA
related to the infringement and actual damages to FWAH due to the infringement. RNA Corp. v.
The Procter & Gamble Co., 747 F.Supp.2d 1008 (N.D. Ill., 2010). No license agreement existed
between FWAH and FUSA related to trade dress, and no royalty fees were paid from FWAH to
FUSA, so the actual damages sustained by FWAH as identified in the chart above would not be
an applicable measure of actual damages.
Nevertheless, FUSA admits in its own Complaint that a license agreement did exist
between FUSA and third parties, including Foodworks 2047, LLC. (Doc. 1 at ¶ 54). It is further
a fair assumption that the royalty fee charged in such license agreement is a similar fee based
upon gross sales. Therefore, at a minimum, a fair measure of damages for trade dress
infringement would be $380,657.
In addition, FWAH would seek the following remedies:
(1) granting a money judgment in favor of FWAH and against FUSA in an amount
equivalent to three times the amount awarded above in accordance with 15 U.S.C. § 1117(a);
(2) temporarily, preliminarily, and permanently enjoining FUSA and all individuals or
entities acting in concert with FUSA from infringing upon the Trade Dress in any manner, in
accordance with 15 U.S.C. § 1116;
(3) awarding pre-judgment interest, in accordance with 15 U.S.C. § 1117(a); and
(4) awarding court costs and attorneys’ fees, in accordance with 15 U.S.C. § 1117(a).

6

COUNT V—DILUTION OF FUEGO MARKS
COUNT VI—DILUTION OF TRADE DRESS
Both Counts V and VI seek damages for dilution of the Fuego Marks and trade dress.
FWAH has not retained an expert to opine regarding the damages caused by dilution, and
therefore would not seek damages under these counts.
COUNT VII—CANCELLATION OF TRADEMARK REGISTRATION
Count VII seeks cancellation of the federal trademark registration for the FUEGO logo
mark. On January 25, 2013, the registration for the FUEGO logo was cancelled by the USPTO
due to failure to maintain the trademark registration, (see Exhibit C), effectively mooting the
necessity for relief under this count.
COUNT VIII—FRAUDULENT/FALSE REPRESENTATION
Count VIII seeks damages for fraudulent or false representations regarding the ownership
interest in the FUEGO logo mark in violation of 15 U.S.C. § 1120 when FUSA filed a federal
trademark application indicating it was the owner of the FUEGO logo mark when FWAH was
the true owner. The damages to FWAH would be (a) related to the application itself, which has
been rendered moot, and (b) the costs and attorneys’ fees incurred by FWAH in bringing the
claim against FUSA, which are subsumed in the other counts above.
COUNT IX—CONVERSION
Count IX seeks damages for conversion from FUSA for converting the royalty fees that
Nahlawi caused FWAH to pay to FUSA and for royalty fees paid by third-parties, including
Foodworks 2047, LLC, to FUSA. These amounts are dealt with above in Counts III and IV;
FWAH would seek the same relief. In addition, FWAH would seek, as punitive damages, an
amount equal to the attorneys’ fees it has incurred in maintaining this action.

7

ATTORNEYS’ FEES
As noted above, the recovery of attorneys’ fees is permitted under several counts of the
Counterclaim, both by statute (15 U.S.C. § 1117(a), Counts III-VIII) and by common law (Count
IX). On August 28, 2012, a Petition for Attorneys’ Fees and accompanying affidavit of Kevin K.
McCormick was filed (Dkt. 95) indicating 289 hours rendering a fee of $75,140.00. Since that
Petition, additional attorneys’ fees were incurred by FWAH. Attached hereto as Exhibit D is an
affidavit of attorneys’ fees by Kevin K. McCormick, which indicates that $11,115.00 in fees
since August 28, 2012 have been incurred by FWAH. In total, FWAH has incurred $86,255.00
in attorneys’ fees related to this action.
CONCLUSION
As the Court is well aware, FUSA has produced a dearth of discoverable information
during this litigation, and the above information is all that FWAH can produce that relates to
damages for this case. It is not unreasonable to believe that the calculation of damages is, in fact,
much higher. In addition to the declaratory relief for Counts I and II, FWAH requests that the
Court enter a money judgment against FUSA in the minimum following amounts:
A. Actual damages for trademark infringement: $380,657
B. Disgorged profits for trademark infringement: $380,657
C. Treble damages for trademark infringement: $2,283,942
D. Disgorged profits for trade dress infringement: $380,657
E. Treble damages for trade dress infringement: $1,141,971
F. Prejudgment interest for trade dress and trademark infringement: TBD
G. Attorneys’ fees: $86,255

8

Respectfully Submitted,
FOODWORKS OF ARLINGTON HEIGHTS, LLC

By:___/s/ Kevin K. McCormick_____________
Kevin K. McCormick
One of Its Attorneys

Kevin K. McCormick
Lee F. DeWald
DeWald Law Group PC
1237 S. Arlington Heights Road
Arlington Heights, Illinois 60005
[phone]
#6286831

9