May 14, 2020

Supreme Court Decides Lucky Brand Dungarees, Inc. v. Marcel Fashion Group, Inc.

On May 14, 2020, the Supreme Court of the United States decided Lucky Brand Dungarees, Inc. v. Marcel Fashion Group, Inc., No. 18-1086, holding that a party is not precluded from raising defenses submitted in earlier litigation between the parties when a subsequent lawsuit between them challenges different conduct and raises different claims from earlier litigation between the same parties.

The parties to this lawsuit, Lucky Brand and Marcel, both use the word “Lucky” in their marks on apparel, including jeans. The parties each received trademark registrations for the phrases “Lucky Brand” (Lucky Brand) and “Get Lucky” (Marcel). The parties engaged in three rounds of litigation over each other’s use of these phrases spanning two decades.

In the earliest case, a 2003 settlement agreement required Lucky Brand to stop using the phrase “Get Lucky,” and Marcel to release all claims against Lucky Brand related to Lucky Brand’s use of its own trademarks. In 2005, Lucky Brand sued Marcel and a licensee for copying Lucky Brand’s designs and logos, and Marcel counterclaimed that Lucky Brand’s alleged use of “Get Lucky” violated the earlier settlement agreement, and that Lucky Brand’s use of “Get Lucky” and “Lucky Brand” infringed Marcel’s “Get Lucky” mark. Marcel did not claim that Lucky Brand’s use of its own marks alone infringed the “Get Lucky” mark held by Marcel.

Lucky Brand unsuccessfully tried to dismiss the counterclaims as barred by the release language in the 2003 settlement agreement, so it asserted the defense in its answer. But Lucky Brand never invoked this defense again in the 2005 litigation. As a sanction for discovery misconduct, the Court enjoined Lucky Brand from copying or imitating the “Get Lucky” mark, and a jury found against Lucky Brand on Marcel’s remaining counterclaims. The district court’s injunction did not prevent Lucky Brand’s use of other marks or phrases containing the word “Lucky.”

In 2011, Marcel sued Lucky Brand for continuing to infringe the “Get Lucky” mark. After the U.S. Court of Appeals for the Second Circuit reversed summary judgment in Lucky Brand’s favor on the ground that the claims in the 2011 action were distinct from the claims in the 2005 action, Lucky Brand moved to dismiss on the basis, first raised in the 2005 action, that Marcel had released its claims in the 2003 settlement agreement. Marcel argued that Lucky Brand could not invoke that defense in the 2011 litigation, because it did not pursue that defense in the 2005 litigation. Although the district court granted Lucky Brand’s motion to dismiss, the Second Circuit vacated and remanded on the basis of “defense preclusion.”

In addressing the circumstances under which claim preclusion applies to defenses asserted in a later suit, the Court first recognized that any so-called “defense preclusion” must satisfy the requirements of one of the two doctrines stemming from res judicata: issue preclusion or claim preclusion. Because the defense was not actually decided in the earlier litigation or necessary to the judgment, the parties and Court agreed that issue preclusion did not apply. Instead, the Court focused on claim preclusion, which prohibits a party from raising issues that could have been raised and decided in earlier litigation so long as the same claim is advanced, which requires the lawsuits to rest on the “same transaction” or a “common nucleus of operative facts.”

The Supreme Court held that Marcel could not preclude Lucky Brand from raising the 2003 settlement agreement release as a defense because the two suits involved separate forms of relief, different marks, and different conduct and times. Because the two suits failed to share a “common nucleus” of operative facts, “defense preclusion” did not prevent Lucky Brand from raising a defense based on the release.

Justice Sotomayor wrote the opinion for a unanimous Court.

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