BARBARA MILANO KEENAN, Circuit Judge:
In our previous consideration of this trademark infringement dispute between plaintiff Georgia-Pacific Consumer Products, LP (Georgia-Pacific) and von Drehle Corporation (von Drehle), we vacated the district court's award of summary judgment in von Drehle's favor, and remanded the case for a jury determination whether von Drehle was liable for contributory trademark infringement. Georgia Pacific Consumer Prods., LP v. Von Drehle Corp., 618 F.3d 441 (4th Cir.2010). More than three months after we issued that decision, von Drehle sought for the first time to amend its answer to include the affirmative defenses of claim preclusion and issue preclusion (the preclusion defenses). These defenses were based on the purportedly preclusive effect of a judgment in favor of one of von Drehle's distributors, which was entered by a federal district court in Arkansas a few weeks before the district court's summary judgment determination that we vacated in the earlier appeal.
The district court initially denied von Drehle's request to amend its pleadings to assert the preclusion defenses, finding that the request was untimely and was prejudicial to Georgia-Pacific. The matter proceeded to a jury trial, resulting in a verdict in Georgia-Pacific's favor. Thereafter, the
Upon our review, we hold that the district court erred in vacating the jury verdict and in awarding judgment in von Drehle's favor. We reach this decision because: (1) von Drehle waived the preclusion defenses by failing to assert them in a timely manner; and (2) the district court erred in alternatively considering the preclusion defenses sua sponte. Accordingly, we vacate the district court's award of judgment in von Drehle's favor, and we remand the case to the district court with instructions to reinstate the jury's verdict in favor of Georgia-Pacific.
The facts underlying this dispute are discussed in detail in our previous adjudication of this case. See 618 F.3d at 444-48. Georgia-Pacific is a manufacturer of numerous commercial products, including paper towels and dispensers designed for use in the home and in business retail and "hospitality" settings. In the early 2000s, Georgia-Pacific manufactured and began marketing a "touchless" paper towel dispenser (the GP dispenser) under the "enMotion" product line. The GP dispenser was different in size and dimensions from competing dispensers, and Georgia-Pacific developed high-quality paper towels with a fabric-like feel (the GP paper towels), which were designed specifically for use in the GP dispensers. The leases for the dispensers between Georgia-Pacific and its distributors, and the subleases that the distributors were required to enter into with "end-user" customers such as hotels and restaurants, both stipulated that only the GP paper towels were to be used in the GP dispensers. Id. at 444-47.
Soon after the GP dispensers entered the marketplace, von Drehle, a smaller competitor of Georgia-Pacific, developed a line of paper towels (the von Drehle paper towels) that were designed for use in the GP dispensers. The von Drehle paper towels were inferior in quality to the GP paper towels, but von Drehle and its distributors marketed the von Drehle paper towels as a cheaper alternative for use in the GP dispensers, a practice known in the industry as "stuffing." Id. at 447-48.
In July 2005, Georgia-Pacific filed a complaint against von Drehle in the United States District Court for the Eastern District of North Carolina, alleging, among other things, contributory trademark infringement in violation of Section 32 of the Lanham Act, 15 U.S.C. § 1114(1).
In March 2008, the district court in the present case denied Georgia-Pacific's and von Drehle's cross-motions for summary judgment. In April 2009, however, the district court held a hearing during which the court informed the parties that it was reconsidering, sua sponte, von Drehle's motion for summary judgment. On August 14, 2009, the court entered an order granting summary judgment in von Drehle's favor on the contributory trademark infringement claim. 645 F.Supp.2d 532 (E.D.N.C.2009).
In its summary judgment decision, the district court concluded that Georgia-Pacific failed to adduce sufficient facts to allow a jury to find that von Drehle's sale of its paper towels for use in the GP dispensers caused consumer confusion regarding the identity of the towel manufacturer. Id. at 536-37. The court also found that Georgia-Pacific incorrectly focused on the actual users of the towels in the GP dispensers as the relevant class of persons in the "likelihood of confusion" analysis. Id. at 537. The court held that, instead, the relevant class of consumers in such an analysis was the business owners who purchased the paper towels for use by their patrons. Id.
On appeal, in an opinion issued on August 10, 2010, we vacated the district court's award of summary judgment in favor of von Drehle on the contributory trademark infringement claim, and remanded the matter for further proceedings consistent with our decision. 618 F.3d 441. We concluded that "the district court erred in limiting its likelihood of confusion inquiry to distributors who purchased [the von Drehle paper towels] and their respective end-user customers," and that the likelihood of confusion inquiry could take into account confusion among the non-purchasing public, such as restroom users. Id. at 453. We further concluded that Georgia-Pacific "proffered sufficient evidence for a reasonable jury to find [a] likelihood of confusion among restroom visitors as to the source of the paper toweling being dispensed from [the GP dispensers] when such dispensers are stuffed with" the von Drehle paper towels. Id. at 454. Accordingly, we held that Georgia-Pacific had satisfied its burden at the summary judgment stage to allow a jury to make the ultimate determination whether von Drehle was liable for contributory trademark infringement.
On November 19, 2010, more than three months after we issued our opinion vacating the district court's summary judgment order, and more than two months after our mandate was issued,
In total, more than 480 days elapsed between the Arkansas court's decision in Myers and von Drehle's initial attempt in the district court to assert the preclusion defenses based on the Myers holding. As noted above, the district court in the present case initially denied von Drehle's motion to amend its answer and affirmative defenses on the basis that the motion was untimely.
In November 2011, about two months before the scheduled trial date, von Drehle again filed a motion to amend its answer to include the preclusion defenses, and a motion for summary judgment based on those defenses. von Drehle asserted that consideration of the preclusion defenses was proper because the Northern District of Ohio in the Four-U case had issued a decision four days earlier, holding that Georgia-Pacific's claims against that defendant distributor were precluded based on the Myers judgment.
After more than six years of litigation, a jury trial began in the district court on January 4, 2012. At the conclusion of a three-day trial, the jury issued a verdict in Georgia-Pacific's favor, finding that von Drehle had infringed on Georgia-Pacific's valid trademark, and awarded Georgia-Pacific damages in the amount of $791,431. The district court entered judgment in accordance with the jury verdict.
von Drehle filed a post-trial motion renewing its request for judgment as a matter of law, and an additional motion seeking to supplement its answer to include the preclusion defenses. In a reversal of its previous orders addressing the same issue, the district court allowed von Drehle to assert claim preclusion and issue preclusion as affirmative defenses, and entered judgment as a matter of law in von Drehle's favor based on those defenses, thereby vacating the judgment in favor of Georgia-Pacific. 856 F.Supp.2d at 757.
In a memorandum opinion accompanying its final judgment order, the district court stated that it agreed to consider the preclusion defenses because von Drehle timely brought the Four-U decision to the court's attention. 856 F.Supp.2d at 755. The district court stated that, in the alternative, it would consider the preclusion defenses sua sponte. Id.
Comparing the issues then before the district court with the issues decided by the Arkansas court in Myers, the district court held that Georgia-Pacific's claims were barred under both the doctrine of claim preclusion and the doctrine of issue preclusion. 856 F.Supp.2d at 756-57. Although the district court made passing mention of the Four-U decision, the court's substantive analysis focused on the judgment in the Myers case and whether that case precluded Georgia-Pacific's claims in the present matter. See 856 F.Supp.2d at 757 ("[T]he Court finds that a preclusion defense based on the earlier judgment entered in the Western District
Georgia-Pacific argues that von Drehle waived the preclusion defenses by failing to assert them in a timely manner, and that the district court abused its discretion by considering those defenses. We review a district court's decision to grant or deny a party leave to amend its pleadings under an abuse-of-discretion standard. Edwards v. City of Goldsboro, 178 F.3d 231, 242 (4th Cir.1999); see also Laber v. Harvey, 438 F.3d 404, 428 (4th Cir.2006) (en banc). Among other circumstances, a district court abuses its discretion when it acts in an "arbitrary manner" or relies on an erroneous principle of law. United States v. Nicholson, 676 F.3d 376, 383 (4th Cir.2012).
Under Rule 8(c)(1) of the Federal Rules of Civil Procedure, the defenses of claim preclusion and issue preclusion are affirmative defenses that must be pleaded. Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313, 350, 91 S.Ct. 1434, 28 L.Ed.2d 788 (1971) (citing Fed.R.Civ.P. 8(c)). A party may be held to have waived such preclusion defenses when that party has not properly and timely asserted them. See Arizona v. California, 530 U.S. 392, 410, 120 S.Ct. 2304, 147 L.Ed.2d 374 (2000) ("[R]es judicata [is] an affirmative defense [that is] ordinarily lost if not timely raised."); see also Mun. Resale Serv. Customers v. FERC, 43 F.3d 1046, 1052 n. 4 (6th Cir.1995) ("Res judicata and collateral estoppel are affirmative defenses which are waived if not timely asserted.").
Even when a preclusion defense is not available at the outset of a case, a party may waive such a defense arising during the course of litigation by waiting too long to assert the defense after it becomes available. See Arizona, 530 U.S. at 413, 120 S.Ct. 2304 (holding that party could not raise preclusion as a defense when party could have raised the defense earlier in the proceedings but did not, "despite ample opportunity and cause to do so"); Davignon v. Clemmey, 322 F.3d 1, 15 (1st Cir.2003) (holding that district court abused its discretion by allowing defendant to assert preclusion defense "at the eleventh hour"); Aetna Cas. & Sur. Co. v. Gen. Dynamics Corp., 968 F.2d 707, 711 (8th Cir.1992) (holding that preclusion defense which was not available at the outset of litigation had to be "raised at the first reasonable opportunity after the rendering of the decision having the preclusive effect"); Home Depot, Inc. v. Guste, 773 F.2d 616, 620 n. 4 (5th Cir.1985) ("Even if it is not practicable to raise [preclusion as an affirmative defense] in the pleadings, the party wishing to raise the defense is obliged to assert it at the earliest moment practicable."); Evans v. Syracuse City Sch. Dist., 704 F.2d 44, 47 (2d Cir.1983) ("[T]he party wishing to raise [preclusion as a] defense is obliged to plead [it] at the earliest possible moment.") (citation omitted).
Upon consideration of the parties' arguments, we agree with Georgia-Pacific that von Drehle's failure to timely assert the preclusion defenses based on the Myers judgment effected a waiver of those defenses.
Instead, von Drehle allowed three significant periods in the litigation to conclude before first seeking to assert the preclusion defenses. These three periods included: (1) the twenty-two days that elapsed between the Myers decision and the district court's award of summary judgment in August 2009; (2) the twelve-month period that this Court retained jurisdiction over this matter in the initial appeal, during which von Drehle could have argued that the Myers decision provided an alternative basis for affirmance of the district court's summary judgment decision;
As the district court duly noted in its initial ruling in March 2011, von Drehle's request was untimely because: (1) von Drehle's counsel had immediate knowledge of the Myers decision; (2) von Drehle failed to provide a valid reason for its delay; (3) von Drehle's inaction caused Georgia-Pacific to expend "considerable time, energy, and resources" litigating this matter; and (4) after several years of litigation in the district court and this Court, the case was ready for trial. Despite this ruling, after the jury's verdict, the district court repudiated these earlier findings by granting judgment in von Drehle's favor based on the same Myers-based preclusion defenses that the court previously had barred. The district court did not change its initial conclusion that von Drehle's delay was unjustified, nor did the court revisit its earlier finding that Georgia-Pacific had been prejudiced by von Drehle's delay in asserting the preclusion defenses. Nonetheless, the district court held that it was "appropriate" to consider von Drehle's preclusion defenses post-trial because von Drehle "promptly alerted the [c]ourt to the holding by the Northern District of Ohio" in the Four-U case.
We conclude that the district court acted in an "arbitrary manner," and, thus, abused its discretion, in relying on the Four-U decision to "revive" the preclusion defenses that substantively were based on Myers. See Nicholson, 676 F.3d at 383. The district court effectively used the Four-U decision as a "strawman" to consider belatedly the preclusive effect of Myers. Referencing the Myers decision, the district court held "that a preclusion defense based on the earlier judgment entered in the Western District of Arkansas, which was affirmed by the Eighth Circuit Court of Appeals and held to be preclusive
The Four-U decision, however, did not address the merits of the trademark claim, as that court did not consider Georgia-Pacific's evidence in relation to the "likelihood of confusion" standard applicable in the Sixth Circuit. Instead, Four-U was decided in the defendant distributor's favor based solely on an application of the issue preclusion doctrine relying on Myers. See Four-U, 821 F.Supp.2d at 952-55. Thus, contrary to von Drehle's contention, the Four-U decision did not have any preclusive effect independent of the Myers decision, and did not provide a separate basis for timely assertion of the preclusion defenses.
For purposes of the present appeal, it is not necessary that we determine the precise point at which von Drehle waived the preclusion defenses, because it is readily apparent that those defenses were no longer available to von Drehle when it first raised them more than 480 days after the Myers judgment was issued. See Arizona, 530 U.S. at 410, 120 S.Ct. 2304 (prohibiting party from asserting preclusion defense that became available earlier during the pendency of the litigation but was not timely raised, and rejecting "the notion that a party may wake up because a `light finally dawned,' years after the first opportunity to raise a defense" arose).
We next consider von Drehle's argument that, irrespective of any waiver on its part, the district court properly considered the preclusion defenses sua sponte. A court may raise sua sponte an affirmative defense based on preclusion only in "special circumstances." Arizona, 530 U.S. at 412, 120 S.Ct. 2304, quoted in Eriline Co. S.A. v. Johnson, 440 F.3d 648, 655 (4th Cir.2006).
In Arizona, the Supreme Court identified one such "special circumstance" as occurring when "a court is on notice that it has previously decided the issue presented" in another case and, by raising the issue on its own motion in a different case, thereby may avoid "unnecessary judicial waste."
Indeed, this case was particularly ill-suited for sua sponte consideration of preclusion defenses that were known long before trial, given that the issue of trademark infringement already had been decided by the jury. Thus, the district court's sua sponte consideration of the preclusion defenses actually wasted judicial resources, rather than sparing them. Cf. id. (observing that "avoidance of unnecessary judicial waste" is one of the policies underlying preclusion-based defenses) (citation omitted).
For these reasons, we conclude that: (1) von Drehle waived its preclusion defenses purportedly arising from the Myers judgment by failing to raise them in a timely manner; (2) the Four-U decision did not have any independent, preclusive effect or otherwise serve to "revive" von Drehle's waived preclusion defenses, and the district court erred in concluding otherwise; (3) the district court abused its discretion by allowing von Drehle to assert its preclusion defenses 16 months after the substantive basis for those defenses was known to von Drehle; (4) the district court erred in alternatively considering, sua sponte, von Drehle's preclusion defenses.
VACATED AND REMANDED