Powerlift Door Consultants, Inc. v. Shepard

Background

Powerlift Door Consultants, Inc. owns trademarks and had a distribution agreement with Rearden Steel Manufacturing LLC, which was operated by Lynn Shepard. Powerlift alleged that Defendants breached the agreement and improperly used Powerlift’s trademarks and confidential information. The court had previously entered a preliminary injunction, meaning an order requiring action or forbidding action while the case continued.

The injunction barred Defendants and people acting with them from using Powerlift’s trademarks and required them to comply with certain post-termination duties under the distribution agreement. Those duties included not competing with Powerlift and providing Powerlift with customer lists, customer contracts, warranties, and amounts owed.

Defendants appealed the injunction and moved to stay it, meaning to pause its effect during the appeal. Powerlift opposed the stay and moved for a civil-contempt finding. PowerTek Doors, LLC, which was not a party to the lawsuit, was also involved in the contempt motion.

Motion to Stay

The court denied Defendants’ motion to stay the injunction. Applying four stay factors, the court concluded that Defendants had not shown a strong likelihood of success on appeal. The court reasoned that Shepard’s negative statements about Powerlift sent to at least 12 licensees could indirectly harm the goodwill associated with Powerlift’s trademarks and could support termination of the distribution agreement under its terms.

The court also found that Defendants had not provided evidence supporting their claim that complying with the injunction would force them out of business or cause financial ruin. The court noted that Powerlift had offered to fulfill Defendants’ active contracts and that Defendants had not proposed a specific bond or modification that would protect both sides during the appeal.

The court further determined that staying the injunction likely would substantially injure Powerlift by risking harm to its customer relationships, business reputation, and brand. It also concluded that the public interest favored preventing confusion about the source or approval of goods and services identified by Powerlift’s trademarks and enforcing valid contractual obligations.

Civil Contempt

The court granted Powerlift’s motion for civil contempt. Civil contempt is a court finding that a person or entity failed to comply with a court order, generally used to compel compliance or compensate for harm. The court held that PowerTek could be subject to contempt sanctions because it had notice of the injunction through its relationship with Defendants and was connected to them through shared business roles and an address.

The court found clear and convincing evidence that Defendants and PowerTek had not fully complied with the injunction. The evidence included PowerTek’s use of Powerlift’s name and logo after the injunction, failure to provide customer lists, contracts, and warranties, failure to pay amounts owed, and competition with Powerlift through hydraulic-door services.

The court found that the temporary trademark use had stopped and that Defendants had made a reasonable, good-faith effort to correct that violation, so coercive sanctions were unnecessary for that aspect. But Defendants did not establish that they were unable to comply with the remaining post-termination duties. Their general references to business complexity, an audit, and a need for guidance from the court were insufficient.

Sanctions and Order

The court held Defendants and PowerTek in civil contempt and ordered them to comply fully with the July 12, 2021 injunction. It required them, within 14 days after the date of this order, to file a motion to purge the contempt with evidence showing full compliance or an inability to comply despite a reasonable, good-faith effort.

If Defendants and PowerTek did not purge the contempt within that period, they would incur a daily fine of $1,000 payable to the court until they fully complied. The court also permitted Powerlift to file a separate motion seeking reasonable attorneys’ fees and costs incurred in bringing the contempt motion; the court did not award those fees and costs in this order.