Court Watch

In declining to issue an award of attorneys' fees, the court noted its significant concerns about the increasing trend of “unscrupulous law firms” circumventing the public policy of the ADA to extort money in the form of attorneys' fees without ever fixing the accessibility problems the ADA was drafted to prevent. Before issuing the order, the court took significant steps to confirm the plaintiff's counsel's predatory practices by visiting all of the sites subject to the seven other lawsuits filed by the plaintiff on the same day. The court found that none of the accessibility problems identified in the complaints were remedied, even though all the other lawsuits had settled. The court noted it was aware of the Florida counsel's “increasingly troubling reputation” and the 42 other ADA lawsuits commenced by the Florida and New York attorneys. Expressing its disgust for counsels' behavior, the court stated:

Those who take on the honorable cause of representing disabled individuals must recognize that they not only represent their fellow lawyers of the bar, but also the legal giants who paved the way for passage of crucial civil rights legislation like the ADA. One such legal giant, Charles Hamilton Houston, famously said that “a lawyer is either a social engineer or he's a parasite on society.” The conduct of counsel is indicative of a parasite disguised as a social engineer. It must stop.

The court further informed counsel that their vexatious tactics would not be tolerated in the future and the court “will not be shy about informing the appropriate state bar authorities and chief judges across this country should [counsel] unadvisedly continue to litigate in this fashion.”

Lawsuits like Costello are becoming all too familiar to franchisors and franchisees. Costello serves as an acknowledgment by one federal court that these predatory practices will no longer be tolerated. Certainly when faced with a legitimate ADA claim, a franchisor or franchisee should take immediate steps to remedy accessibility issues. Similarly, when a business owner defendant faces a lawsuit that appears to be no more than a mechanism to obtain an attorneys' fee award, the defendant is also advised to promptly remedy the ADA violations, making the plaintiff's claim for damages and attorneys' fees moot. Another advisable course of action is to inform the court of the likelihood of a predatory practice, likely discoverable by the names of counsel for the plaintiff or by a search of the federal docket for other lawsuits filed by the plaintiff. The commencement of a lawsuit by a disabled plaintiff without first contacting the defendant to discuss the alleged ADA violations is further evidence of a predatory practice.

Court Awards Lost Profits and Royalty Damages to Franchisor for Trademark Infringement

In Choice Hotels Int'l, Inc. v. Bhakta, Bus. Franchise Guide (CCH) ' 15,038 (S.D. Tex. April 5, 2013), the hotel franchisor CHI terminated its franchise agreement with the defendants as of Oct. 29, 2010. The ex-franchisees continued operating as a CHI hotel, however, which led customers to complain to CHI regarding quality issues at the property and to request hotel reward points from CHI. CHI sent cease and desist letters in June 2011, July 2011 and December 2011, and filed suit for trademark infringement on Oct. 24, 2011. The defendants finally removed all of CHI's marks as of March 1, 2012. In response to CHI's infringement claims, the defendants argued that the termination was improper and that they had requested reinstatement of the franchise agreement numerous times.

The court spent little time analyzing the liability for trademark infringement and wrongful termination, finding that CHI properly terminated the franchise agreement and that the continued use of CHI's marks after Oct. 29, 2010 constituted trademark infringement. The likelihood of confusion test for trademark infringement was satisfied because the defendants continued to use the exact same mark after the trademark license had terminated, and because there was uncontroverted evidence of actual customer confusion.

The court then analyzed the requested damages, reaching a figure that was between the amount requested by CHI and the lesser amount suggested by the defendants. The court first considered the defendants' profits for the period of the infringement ' November 2010 through February 2012. The defendants argued that they experienced a total net loss of $25,000 for the time period, and, therefore, there were no profits available for disgorgement. The court disagreed and awarded CHI the defendants' profits for its nine profitable months, in the amount of $105,453.29.

In addition, the court awarded royalty damages in the amount of $39,521.28. It also considered CHI's request for treble damages in the range of $189,007.41 to $423,571.41 as well as attorneys' fees. The defendants suggested that the court consider additional damages of only $39,521.28 to $118,477.53. The court awarded additional damages in the amount of $75,000 but declined to award attorneys' fees, finding that the defendants did not act out of fraud or malice, but rather in the hope that the franchise agreement would be reinstated by CHI.

Cynthia M. Klaus is a shareholder and Susan E. Tegt is an associate with Larkin Hoffman. They can be contacted at [email protected] and [email protected], respectively.

'

'

Federal Court Issues Stern Warning to Counsel for 'Parasitic' ADA Lawsuit

In Costello v. Flatman, LLC, No. 11-CV-287, 2013 U.S. Dist. LEXIS 45860 (E.D.N.Y. Mar. 28, 2013), a federal judge denied a disabled plaintiff's application for attorneys' fees under the Americans with Disabilities Act (“ADA”) and, in doing so, reprimanded the plaintiff's attorneys for filing lawsuits against multiple small-business owners with the intent not to remedy the ADA violations and make businesses more accessible to disabled persons, but rather to collect attorneys' fees. The Hon. Sterling Johnson, Jr. of the Eastern District of New York informed counsel that their “parasitic” litigation strategies would no longer be tolerated.

In Costello, the plaintiff's application for attorneys' fees followed the court's entry of default judgment against a Subway franchisee in the amount of $14.31. The wheelchair-bound plaintiff filed his lawsuit against the franchisee and others, alleging violations of the ADA because the plaintiff could not access the franchisee's Subway restaurant. On the same day that the plaintiff commenced the lawsuit, he filed seven other lawsuits against nearby businesses with similar boilerplate allegations. Subsequent to the entry of default, the plaintiff's counsel brought a motion to recover more than $15,000 in attorneys' fees purportedly incurred in prosecuting the action. The plaintiff's two attorneys, located in Florida and New York, claimed to have spent more than 35 hours in obtaining the $14.31 award, each at an hourly rate of $425.

In declining to issue an award of attorneys' fees, the court noted its significant concerns about the increasing trend of “unscrupulous law firms” circumventing the public policy of the ADA to extort money in the form of attorneys' fees without ever fixing the accessibility problems the ADA was drafted to prevent. Before issuing the order, the court took significant steps to confirm the plaintiff's counsel's predatory practices by visiting all of the sites subject to the seven other lawsuits filed by the plaintiff on the same day. The court found that none of the accessibility problems identified in the complaints were remedied, even though all the other lawsuits had settled. The court noted it was aware of the Florida counsel's “increasingly troubling reputation” and the 42 other ADA lawsuits commenced by the Florida and New York attorneys. Expressing its disgust for counsels' behavior, the court stated:

Those who take on the honorable cause of representing disabled individuals must recognize that they not only represent their fellow lawyers of the bar, but also the legal giants who paved the way for passage of crucial civil rights legislation like the ADA. One such legal giant, Charles Hamilton Houston, famously said that “a lawyer is either a social engineer or he's a parasite on society.” The conduct of counsel is indicative of a parasite disguised as a social engineer. It must stop.

The court further informed counsel that their vexatious tactics would not be tolerated in the future and the court “will not be shy about informing the appropriate state bar authorities and chief judges across this country should [counsel] unadvisedly continue to litigate in this fashion.”

Lawsuits like Costello are becoming all too familiar to franchisors and franchisees. Costello serves as an acknowledgment by one federal court that these predatory practices will no longer be tolerated. Certainly when faced with a legitimate ADA claim, a franchisor or franchisee should take immediate steps to remedy accessibility issues. Similarly, when a business owner defendant faces a lawsuit that appears to be no more than a mechanism to obtain an attorneys' fee award, the defendant is also advised to promptly remedy the ADA violations, making the plaintiff's claim for damages and attorneys' fees moot. Another advisable course of action is to inform the court of the likelihood of a predatory practice, likely discoverable by the names of counsel for the plaintiff or by a search of the federal docket for other lawsuits filed by the plaintiff. The commencement of a lawsuit by a disabled plaintiff without first contacting the defendant to discuss the alleged ADA violations is further evidence of a predatory practice.

Court Awards Lost Profits and Royalty Damages to Franchisor for Trademark Infringement

In Choice Hotels Int'l, Inc. v. Bhakta, Bus. Franchise Guide (CCH) ' 15,038 (S.D. Tex. April 5, 2013), the hotel franchisor CHI terminated its franchise agreement with the defendants as of Oct. 29, 2010. The ex-franchisees continued operating as a CHI hotel, however, which led customers to complain to CHI regarding quality issues at the property and to request hotel reward points from CHI. CHI sent cease and desist letters in June 2011, July 2011 and December 2011, and filed suit for trademark infringement on Oct. 24, 2011. The defendants finally removed all of CHI's marks as of March 1, 2012. In response to CHI's infringement claims, the defendants argued that the termination was improper and that they had requested reinstatement of the franchise agreement numerous times.

The court spent little time analyzing the liability for trademark infringement and wrongful termination, finding that CHI properly terminated the franchise agreement and that the continued use of CHI's marks after Oct. 29, 2010 constituted trademark infringement. The likelihood of confusion test for trademark infringement was satisfied because the defendants continued to use the exact same mark after the trademark license had terminated, and because there was uncontroverted evidence of actual customer confusion.

The court then analyzed the requested damages, reaching a figure that was between the amount requested by CHI and the lesser amount suggested by the defendants. The court first considered the defendants' profits for the period of the infringement ' November 2010 through February 2012. The defendants argued that they experienced a total net loss of $25,000 for the time period, and, therefore, there were no profits available for disgorgement. The court disagreed and awarded CHI the defendants' profits for its nine profitable months, in the amount of $105,453.29.

In addition, the court awarded royalty damages in the amount of $39,521.28. It also considered CHI's request for treble damages in the range of $189,007.41 to $423,571.41 as well as attorneys' fees. The defendants suggested that the court consider additional damages of only $39,521.28 to $118,477.53. The court awarded additional damages in the amount of $75,000 but declined to award attorneys' fees, finding that the defendants did not act out of fraud or malice, but rather in the hope that the franchise agreement would be reinstated by CHI.

Cynthia M. Klaus is a shareholder and Susan E. Tegt is an associate with Larkin Hoffman. They can be contacted at [email protected] and [email protected], respectively.

'

'