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Federal Marketing Company v. Virginia Impression Products Company

May 15, 2003

FEDERAL MARKETING COMPANY, APPELLANT/CROSS APPELLEE,
v.
VIRGINIA IMPRESSION PRODUCTS COMPANY, INC., ET AL., APPELLEES/CROSS APPELLANTS.



Appeals from the Superior Court of the District of Columbia (No. CA 2906-82) (Hon. Michael L. Rankin, Trial Judge)

Before Steadman, Schwelb And Glickman, Associate Judges.

The opinion of the court was delivered by: Glickman, Associate Judge

Argued November 16, 2000

The trial court found Virginia Impression Products Company, Inc. ("VIP"), in civil contempt of a 1982 consent decree that prohibited it from conducting business in the District of Columbia in the name of Federal Marketing Company. At the behest of the parties, the court referred the question of sanctions to two court-appointed co-special masters. Adopting their findings and recommendations, the court awarded $307,384.93 to Federal Marketing Company ("FMC"). Both parties appealed. *fn1

In summary, the main issues before us are (1) whether FMC is entitled to enforce the consent decree despite its own cessation of business activity; (2) whether the trial court construed the consent decree correctly; (3) whether the trial court erred in applying the equitable doctrine of laches to preclude recovery for pre-1989 violations of the consent decree; (4) whether the trial court abused its discretion in awarding FMC attorneys' fees; (5) whether the trial court abused its discretion in declining to award prejudgment interest; and (6) whether the trial court erred in accepting the findings of the co-special masters.

While some of the issues are close ones, neither FMC nor VIP persuades us to disturb the trial court's rulings. We affirm its award.

I.

FMC is a District of Columbia corporation that was founded in 1978 to engage in the business of selling office equipment and supplies to the federal government and other customers. In 1981, FMC learned that its Richmond-based competitor, VIP, was marketing to the federal government through a subsidiary called Federal Marketing Company of Virginia, Inc. FMC objected to VIP's use of the name "Federal Marketing" in the District of Columbia, and VIP agreed to discontinue such use.

FMC soon concluded that VIP was not living up to its promise. Further negotiations ensued, culminating in the filing by FMC in Superior Court of a verified complaint for injunctive and monetary relief and a proposed consent decree to which VIP had agreed. The court signed the consent decree, captioned a "final judgment of permanent injunction," on March 3, 1982. The decree enjoined VIP, its chief executive officer Donald Redman, and persons acting in concert with them "from conducting business in the District of Columbia through the use of any name not readily distinguishable from Federal Marketing's name." The decree specifically prohibited VIP from participating in an upcoming Washington, D.C. trade show and from maintaining any listing in the District of Columbia telephone directory under the Federal Marketing name. These prohibitions were subject to the proviso that VIP would be permitted to use the name "FMC of Virginia, Inc."

The consent decree further provided that if VIP violated its terms, VIP "shall, upon application by Federal Marketing, be ordered to account to Federal Marketing for all profits made by [VIP] from conducting business in the District of Columbia using Federal Marketing's name at any time, including but not limited to prior to the filing of the verified complaint herein." Although the complaint was dismissed with the entry of the decree, the court retained jurisdiction to enforce compliance with its order.

To understand the litigation that lay ahead, it is important to note that the consent decree did not define its key terms. Most importantly, the decree did not define what activity the parties intended to cover by the phrase "conducting business in the District of Columbia through the use of" the Federal Marketing name. The decree also did not define how "all profits made by [VIP] from conducting" such business would be measured, nor how an accounting would be performed if the court ordered one. Many difficult issues could have been avoided had the parties addressed those matters in the decree.

Almost twelve years passed after the entry of the consent decree without any question being raised about VIP's compliance. Then, in December 1993, FMC received a check payable to "Federal Marketing Company" from a District of Columbia company that had contracted with VIP to process orders under a federal contract. The check had been intended for VIP. FMC's receipt of this check roused it to investigate whether VIP had been complying with the 1982 consent decree. FMC concluded that VIP had been violating the decree in numerous ways, including: (1) bidding on and entering into government contracts in the District of Columbia under the name "Federal Marketing Company"; (2) filling orders in the District under that name; (3) receiving checks payable to Federal Marketing Company from government sources in the District; (4) mailing product catalogs bearing the name of Federal Marketing Company to governmental and other recipients in the District; (5) soliciting sales in the District under the Federal Marketing name; and (6) maintaining a telephone listing in the Northern Virginia directory under the name of Federal Marketing Company and answering calls from the District under that name. When confronted by FMC with its findings, VIP denied any wrongdoing and claimed that any violations of the consent decree were simply innocent mistakes.

On August 6, 1994, FMC filed a petition for an order directing VIP to show cause why it should not be held in contempt of the 1982 consent decree. Following over a year of pretrial discovery and the denial of motions for partial summary judgment, the case came to trial before the court without a jury in May 1996.

At the conclusion of the trial, the court found VIP in civil contempt of the consent decree because it had made sales using the Federal Marketing name to government agencies located within the District of Columbia. These sales were not de minimis or innocent mistakes; despite VIP's efforts to comply with the consent decree, the court said, VIP had "continued conducting business pretty much the way [it] had been conducting business" before the decree was entered. The court rejected VIP's arguments that FMC should be denied relief and that the consent decree should be dissolved because FMC was no longer an active competitor of VIP. The court agreed with VIP, however, that the prohibitions of the consent decree did not extend to sales that VIP had made to federal agencies located outside the District of Columbia, even when those sales were pursuant to contracts VIP had obtained in the District by using the Federal Marketing name in bids and other submissions to the General Services Administration or other federal agencies. The court also agreed with VIP that FMC's demand for the profits that VIP had earned in violation of the consent decree before 1989 was barred by the doctrine of laches, since FMC had failed to take any steps to protect its rights under the decree until the end of 1993. Accordingly, the court decided to order an accounting of the profits that VIP had earned in violation of the consent decree during the five year period from 1989 through 1993, but not earlier.

The court agreed with the parties' suggestion that the accounting be referred to a special master. In view of the complexity of the task, the court selected an attorney and a certified public accountant to serve as co-special masters: Sallie H. Helm of Dickstein Shapiro Morin & Oshinsky and Marvin M. Levy of KPMG Peat Marwick. The court's referral order of December 2, 1996 directed that "[t]he investigation and examination shall encompass the period from January 1, 1989 through December 31, 1993 and shall include a determination of defendant's sales at issue, the appropriate measure of profit, and any other economic and/or accounting findings that may be relevant in the judgment of the Special Masters." The court granted the co-special masters ample authority to obtain and verify information from the parties themselves and from other sources and directed FMC and VIP to cooperate fully with the investigation. The court ordered that the co-special masters' fees and expenses were to be borne equally by FMC and VIP.

After eleven months of work, the co-special masters delivered their report. By their accounting, VIP had earned profits of $165,560.51 in violation of the consent decree during the years 1989 through 1993. The co-special masters also determined that FMC reasonably had incurred approximately $140,000 in attorneys' fees to enforce the consent decree. Accordingly the co-special masters recommended that the court award FMC a total of $305,560.51.

The court received the parties' written objections to the report and held an evidentiary hearing at which the co-special masters were available for examination. Thereafter, on May 18, 1998, the court issued an order in which it adopted the report of the co-special masters in its entirety (subject only to a small upward adjustment of FMC's attorneys' fees) and awarded $307,384.93 to FMC for VIP's violations of the consent decree. Both parties appealed.

II.

A.

In its appeal, VIP makes the threshold claim that FMC was not entitled to enforce its rights under the consent decree because it was a dormant (though not defunct) corporation that had not engaged in business for at least a decade. *fn2 VIP argues that since FMC was commercially inactive, it suffered no loss of profits or other injury from VIP's violations of the ...


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