Newport News Holdings Corporation v. Virtual City Vision Incorporated, d/b/a VCV, Inc.

This appeal raises numerous issues arising out of the grant of summary judgment to Newport News Holdings Corporation ("NNHC") on its claims against Virtual City Vision and its owner Van James Bond Tran (collectively, "VCV") under the Anticybersquatting Consumer Protection Act ("ACPA").



In addition to challenging summary judgment, VCV argues that the magistrate judge erred in refusing to recuse himself and in improperly finding personal jurisdiction over Tran.1 VCV further contends that the district court abused its discretion in precluding VCV from filing a counterclaim, and in its various rulings on damages, fees and costs, and sanctions. For the reasons that follow, we affirm.



I.



A.



The number of issues raised on appeal necessitates a lengthy recitation of the facts and procedural history. We begin with the factual background.



NNHC is a women's clothing and accessories company that has been in existence for over twenty years. It owns five federally registered trademarks for the mark "Newport News."



These trademarks cover the sale of women's clothing and accessories and the offering of these items for sale through catalogs and the Internet. The trademarks also cover the domain name newport-news.com, which NNHC purchased in November 1997. NNHC attempted to acquire the domain name newportnews.com as well, but VCV had already purchased that domain name in October 1997. NNHC began offering its goods for sale over the Internet in 1999 using the newport-news.com domain name.



VCV, an Alabama corporation, owns at least thirty-one domain names that incorporate the names of geographic locations.



Newportnews.com, which initially focused on Newport News, Virginia, is one such example. VCV's "original intent . . . was to create websites . . . where residents of, and visitors to, these cities could find information and advertising related to th[e] cities." J.A. 1309 (internal quotations omitted). VCV's organization is skeletal. Tran is its president, sole employee, and the only participating member of its board of directors. He operates the business from his home.



NNHC and VCV first clashed in a private dispute resolution forum. In 2000, NNHC brought a complaint against VCV under the Uniform Domain Name Dispute Resolution Policy of the Internet Corporation for Assigned Names and Numbers ("ICANN").2 NNHC alleged that VCV's newportnews.com



"ICANN is a private, non-profit public benefit corporation which was established by agencies of the U.S. government to administer the Internet domain name system." Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 395 (2d Cir. 2004). Its dispute resolution proceedings are non-binding and are not intended to replace formal arbitration. See Dluhos v. Strasberg, 321 F.3d 365, 372 (3d Cir. 2003). website was "confusingly similar to [NNHC's] family of registered trademarks for the mark 'Newport News'"; that "any rights [VCV] has in the domain name in contention are illegitimate"; and that VCV "registered this domain name in bad faith." J.A. 432.



The ICANN panel rejected NNHC's arguments and dismissed its complaint. In doing so, it found that, although the mark and the domain name are identical, "visitors to [NNHC's] branded web site, who seek out the latest women's clothing and home fashions would clearly not be confused when seeing a home page of another web site, bearing an identical mark, that explicitly provides city information . . . with no connection whatsoever to women's and home fashions." J.A. 436. The panel further held that VCV's website provided "bona fide service offerings," which included "disseminating] city information in an effort to increase tourism and other visitor traffic to the city." J.A. 437. Significantly, with respect to NNHC's claim of bad faith, the panel noted that "given the total absence of competition between the businesses of [NNHC and VCV] . . . [VCV] did not register the contested domain name in an effort to cause any likelihood of confusion." J.A. 438.



Between 2000 and 2004, newportnews.com remained relatively unchanged. It continued to provide information about the city of Newport News and link visitors to local businesses, such as hotels, movie theaters, real estate companies, and entertainment venues. In 2004, the website began running occasional advertisements for women's clothing.3



In the summer of 2007, NNHC made an offer to purchase the newportnews.com domain name, which VCV rejected.



VCV responded that it would sell the domain name for a "seven-figure" amount, or, in the alternative, sell NNHC goods on its website for a commission. J.A. 246-59.



A substantive evolution in the VCV website began in the fall of 2007. The site shifted from a city focus, similar to that of VCV's other locality sites, to one emphasizing women's fashions. By February of 2008, the homepage was dominated by advertisements for women's apparel.4



At about the same time, the management of the site changed as well. Tran began managing the newportnews.com website personally, taking control away from Local Matters, the company that ran VCV's locality sites. The changes to the website were lucrative. Tran would later testify that most of VCV's revenue during that time came from the newportnews. com website instead of the locality sites, either individually or in total.



B.



On February 21, 2008, NNHC filed its complaint with the district court, alleging trademark infringement under 15 U.S.C. § 1114, federal false advertising and unfair competition under 15 U.S.C. § 1125(a), copyright infringement under 15 U.S.C. § 501, and state law claims of common law trademark infringement, unfair competition, and unjust enrichment. The parties agreed to have the matter handled by a federal magistrate judge.



While discovery was underway in September 2008, the magistrate judge informed the parties that counsel for NNHC had served on the advisory panel that voted to reappoint him.



Both because his only action in the case to that point had been to issue a scheduling order, and because the reappointment committee had concluded its work, he opined that he was not obligated to recuse himself under the Code of Conduct for United States Judges. He nevertheless asked the parties whether they wanted to seek his recusal and promised to give full consideration to any such request. On September 12, 2008, both parties indicated that they would not seek recusal. VCV's counsel specifically stated that he was satisfied that the magistrate judge could preside.



Shortly thereafter, counsel for NNHC mentioned that he and the magistrate judge had previously practiced at the same law firm and had worked on cases together. VCV's counsel did not raise the issue of recusal during that discussion or the subsequent pretrial conference.



In October 2008, NNHC informed VCV that it intended to file an amended complaint. VCV responded that it would file a counterclaim based on evidence obtained through discovery.



On November 20, 2008, after obtaining leave from the court, NNHC filed its amended complaint adding a claim for violation of the ACPA and removing its copyright infringement claim. On November 25, 2008, VCV answered the amended complaint but did not raise any counterclaims. On November 28, 2008, the parties filed cross-motions for summary judgment, with VCV moving for summary judgment on all of NNHC's claims and NNHC moving for partial summary judgment as to the ACPA claim. On January 9, 2009, VCV filed its counterclaim. The court informed VCV that, under the Federal Rules of Civil Procedure, VCV was required to request leave from the court to amend its answer to include a counterclaim. VCV sought leave to file its counterclaim on January 16, 2009.



On February 3, 2009, the magistrate judge issued an order granting summary judgment to NNHC on its ACPA claim pertaining to the newportnews.com domain name. Because NNHC had not moved for summary judgment on its other claims, those claims remained set for trial scheduled to begin on February 9. During a telephone conference that same day, VCV moved for the magistrate judge's recusal for the first time.



The magistrate judge vacated the February 9 trial date and established a briefing schedule to consider the recusal motion. On March 13, 2009, the magistrate judge held a hearing both on VCV's motion for recusal and its motion for leave to file a counterclaim; he denied both.



On June 6, 2009, VCV sought reconsideration of its recusal motion, which the magistrate judge denied on July 23. The following day, the court issued a Final Order awarding VCV costs on NNHC's abandoned copyright infringement claim but denying its motion for attorney's fees on that claim. The Final Order also awarded NNHC statutory damages and attorney's fees on its ACPA claim and imposed sanctions on VCV's counsel.5 VCV timely appealed.



II.



VCV asserts numerous issues on appeal: the magistrate judge's failure to recuse; the court's assertion of personal jurisdiction over Tran; its grant of summary judgment to NNHC on the ACPA claim; its denial of VCV's request to file a counterclaim; its award of statutory damages and attorney's fees to NNHC and sanctions against VCV's counsel; and its finding that VCV was not the prevailing party for purposes of an award of attorney's fees on NNHC's abandoned copyright infringement claim. We address each argument in turn.



A.



VCV challenges the denial of its motion for recusal under 28 U.S.C. § 455 and the denial of its motion for reconsideration seeking recusal. We review for abuse of discretion. United States v. Mitchell, 886 F.2d 667, 671 (4th Cir. 1989).



Section 455(a) states: "Any justice, judge, or magistrate judge of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned."



As we have noted, "[t]imeliness is an essential element of a recusal motion. . . . To prevent inefficiency and delay, motions to recuse must be filed at the first opportunity after discovery of the facts tending to prove disqualification." United States v. Whorley, 550 F.3d 326, 339 (4th Cir. 2008) (first alteration in original) (internal quotations omitted); see also United States v. Owens, 902 F.2d 1154, 1155 (4th Cir. 1990) (noting that timeliness is a "judicially implied" element of § 455). VCV's recusal argument is predicated on two facts: (1) that the magistrate judge and NNHC counsel once worked at the same law firm and collaborated on cases; and (2) that NNHC counsel participated in the committee that reappointed the magistrate judge.



VCV learned of opposing counsel's participation on the reappointment committee no later than September 11, 2008, and expressly declined to move for recusal when the court held a phone conference on the issue the next day. In fact, VCV affirmatively communicated its satisfaction with the magistrate judge continuing to preside. VCV learned of the law firm relationship on November 7, 2008, but did not raise the issue during the scheduling conference that took place that same day. In fact, it did not move for recusal until February 3, 2009, the day the court issued a partial summary judgment ruling in favor of NNHC. By way of explanation, VCV asserts only that "[e]lucidation of the relevant facts took time." Appellants' Br. at 7. We are not persuaded.



VCV had an opportunity to raise the issue almost immediately after becoming aware of the facts of which it now complains, and it chose not to do so. Instead, it waited several months, until the very day the magistrate judge granted summary judgment to NNHC on its ACPA claims. The timing of VCV's motion smacks of gamesmanship. Allowing such belated and seemingly tactical recusal motions would permit a party "to gather evidence of a judge's possible bias and then wait and see if the proceedings went his way before using the information to seek recusal." Sine v. Local No. 992 Int'l Bhd. of Teamsters, 882 F.2d 913, 916 (4th Cir. 1989). The magistrate judge's denial of the motion for recusal is therefore justified on timeliness grounds alone. Id. at 915-16 (finding lack of timeliness to be an alternative ground for affirming the denial of a motion to recuse).



Furthermore, VCV's allegations regarding recusal lack merit. The issue of NNHC's counsel's involvement on the reappointment committee is addressed in an advisory opinion on the Code of Conduct for United States Judges, which provides that "after reappointment the magistrate judge is not required to recuse or to notify the parties and attorneys in the proceeding that a member of the panel is appearing as counsel." J.A. 1414 n.4 (citing Committee on Codes of Conduct, Advisory Opinion No. 97: Recusal Due to Appointment or Reappointment of a Magistrate Judge (Oct. 13, 1999)).



As to the law firm relationship between counsel and the magistrate judge, the "objective standard asks whether the judge's impartiality might be questioned by a reasonable, well-informed observer who assesses all the facts and circumstances." United States v. DeTemple, 162 F.3d 279, 286 (4th Cir. 1998) (internal quotations omitted). The law firm rela- tionship in question ended more than ten years before the instant action began, and VCV does not seem to dispute the fact that the magistrate judge had little personal contact with counsel in the intervening years. Under these circumstances, the magistrate judge did not abuse his discretion in finding that the circumstances would not cause a reasonable observer to question his impartiality.6



B.



VCV also claims that the district court failed to make findings that would justify exercising personal jurisdiction over Tran and holding him personally liable for VCV's actions. We review the district court's legal findings de novo and the facts underlying its determination for clear error. Mylan Lab., Inc. v. Akzo, N.V., 2 F.3d 56, 60 (4th Cir. 1993). Contrary to VCV's contention, the district court made sufficient findings to establish personal jurisdiction as part of its analysis regarding piercing of the corporate veil between Tran and VCV. As the Fifth Circuit has noted:



[F]ederal courts have consistently acknowledged that it is compatible with due process for a court to exercise personal jurisdiction over an individual . . . that would not ordinarily be subject to personal jurisdiction in that court when the individual . . . is an alter ego . . . of a corporation that would be subject to personal jurisdiction in that court. Patin v. Thoroughbred Power Boats Inc., 294 F.3d 640, 653 n. 18 (5th Cir. 2002) (collecting cases); see also Mylan Labs, 2 F.3d at 63 (declaring in the analogous context of Maryland law that the analysis of whether the court could pierce the corporate veil of a corporation to reach its parent company is "virtually identical" to the analysis of whether the court could exercise personal jurisdiction over that parent company); Estate of Thomson v. Toyota Motor Corp. Worldwide, 545 F.3d 357, 362 (6th Cir. 2008) (endorsing "the use of the alterego theory to exercise personal jurisdiction"). Under Virginia law, a court may pierce the corporate veil to find that an individual is the alter ego of a corporation where it finds "(i) a unity of interest and ownership between [the individual and the corporation], and (ii) that [the individual] used the corporation to evade a personal obligation, to perpetrate fraud or a crime, to commit an injustice, or to gain an unfair advantage." C.F. Trust, Inc. v. First Flight Ltd. P'ship, 306 F.3d 126, 132 (4th Cir. 2002) (internal quotations omitted). Here the district court found that such veil piercing was appropriate because: VCV had no separate identity from Tran. . . . Tran is the President of VCV, Tran is the sole employee of VCV, and Tran is the only participating member of VCV's Board of Directors. . . . Additionally, Tran admits that VCV's business is conducted out of his home and Tran is the only board member invited to, and present at, meetings of the VCV Board of Directors.



. . . It is Tran, and Tran alone, who is responsible for the decisions and actions of VCV . . . and it would present a manifest injustice if Tran were now allowed to hide behind a non-existent corporate veil to avoid personal liability for his actions. There is a unity of interest and ownership between Tran and NEWPORT NEWS HOLDINGS v. VIRTUAL CITY VISION 11 VCV, and Tran controlled and used VCV to commit an injustice.



J.A. 2123 n.5. The court clearly found both a unity of interest and an intent by Tran to "commit an injustice" using VCV. C.F. Trust, Inc., 306 F.3d at 132. Accordingly, the district court found sufficient facts to pierce the corporate veil and, consequently, to exercise its jurisdiction over Tran.



C.



VCV challenges the district court's grant of summary judgment in favor of NNHC on its claim under the ACPA. We review de novo an award of summary judgment, viewing all facts and drawing all reasonable inferences in the light most favorable to the nonmoving party. See EEOC v. Navy Fed. Credit Union, 424 F.3d 397, 405 (4th Cir. 2005). Summary judgment is appropriate when there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). "[T]here is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). To establish an ACPA violation, NNHC was required to "(1) prove that [VCV] had a bad faith intent to profit from using the [newportnews.com] domain name, and (2) that the . . . domain name is identical or confusingly similar to, or dilutive of, the distinctive and famous [Newport News] Mark." People for the Ethical Treatment of Animals ("PETA") v. Doughney, 263 F.3d 359, 367 (4th Cir. 2001) (citing 15 U.S.C. § 1125(d)(1)(A)). VCV argues in particular that the district court erred in finding that VCV acted in bad faith, and that it mistakenly rejected VCV's defenses of laches and acquiescence.7 We address each contention in turn.



1.



We first consider the issue of bad faith. The ACPA directs courts to consider several factors in making a determination of bad faith. These include whether the defendant has a "bona fide noncommercial or fair use of the mark in a site accessible under the domain name" and whether the defendant intended to divert customers away from the trademark holder by "creating a likelihood of confusion as to the source, sponsorship, affiliation, or endorsement of the site." 15 U.S.C. § 1125(d)(1)(B)(i). Courts are not limited to consideration of these factors. Instead, "[t]he ACPA allows a court to view the totality of the circumstances in making the bad faith determination." Virtual Works, Inc. v. Volkswagen of Am., Inc., 238 F.3d 264, 270 (4th Cir. 2001).



VCV challenges the district court's finding of bad faith in several respects. It attacks the court's determination that VCV did not provide legitimate services that would constitute a fair use of the domain name. VCV also asserts that the evidence does not support a finding that it intended to create a likelihood of confusion. Finally, it challenges the court's reliance on the ICANN ruling as evidence that VCV knew it was acting unlawfully when it changed its website.



a.



VCV claims that, contrary to the district court's conclusion, its website offered a legitimate service by providing information about the city of Newport News. The ACPA permits a registered trademark to be used by someone other than the mark owner if it is a "use, otherwise than as a mark, . . . of a term or device which is descriptive of and used fairly and in good faith only to describe the goods or services of such party, or their geographic origin."