Erchonia Corp. v. Bissoon

SUMMARY ORDER Appellees move this Court for sanctions pursuant to Federal Rule of Appellate Procedure 38 arguing principally that Appellant’s appeal was frivolous for the same reasons the underlying lawsuit was frivolous — “Erchonia had ... virtually no physical evidence of its purported use of ‘lipo-laser’ as a trademark.” A court of appeals has significant discretion in determining whether an appeal was so frivolous as to warrant sanctions. We *123 have held that sanctions under Federal Rule of Appellate Procedure 38 may be imposed when one party proceeds with an argument “ ‘totally lacking in merit, framed with no relevant supporting law, conclusory in nature, and utterly unsupported by the evidence.’ ” United States v. Potamkin Cadillac Corp., 689 F.2d 379, 381 (2d Cir.1982). We have also held that in cases where there is a “clear showing of bad faith,” Rule 38 sanctions may issue. See In re 60 E. 80th St. Equities, Inc., 218 F.3d 109, 119 (2d Cir.2000). In the context of sanctions issued under Federal Rule of Civil Procedure 11, which governs sanctions issued by the district court, we have held that “[t]he fact that a legal theory is a long-shot does not necessarily mean it is sanctionable.” Fishoff v. Coty Inc., 634 F.3d 647, 654 (2d Cir.2011). That principle is instructive here. Although we found Appellant’s claims to be meritless, they were not entirely baseless. Among other things, Appellant directed us to registered marks that were somewhat similar to the “lipolaser” mark it sought to protect. These included, for example, “li-pojection” for “medical services providing injections to dissolve fat.” Appellant also pointed us to evidence that it had used the “lipolaser” mark over a period of 10 years, and although we concluded that the district court did not err in granting judgment to Appellees on the ground that the evidence of use demonstrated, at most, sporadic and inconsistent use over that period, Appellant’s arguments in support of its use were not so outrageous as to warrant sanctions. Further, we note that Appellees have effectively asked this Court to sanction Appellant on the ground that the initial action filed was frivolous. That is, in large part, Appellees’ motion for sanctions is based upon the fact that “[t]he District Court already found bad faith,” and “the baselessness of Erchonia’s claims has been plain from the start.” However, that an action may have been frivolous when initially filed, does not automatically mean that an appeal from a dismissal of that action will be frivolous. See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 407, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990) (Federal Rule of Civil Procedure 11 and Federal Rule of Appellate Procedure 38 “are better read together as allowing expenses incurred on appeal to be shifted onto appellants only when those expenses are caused by a frivolous appeal, and not merely because a Rule 11 sanction upheld on appeal can ultimately be traced to a baseless filing in district court.”). Finally, Appellees ask us to infer bad faith on the part of Appellant’s filing based in part on facts well-beyond the scope of this case and beyond the record before us. In particular, Appellees reference a Texas lawsuit that Appellees’ allege Erchonia was “reckless” in pursuing. Appellees also reference a separate appeal in this Circuit (No. 10-3245), which was taken from the district court’s award of fees in the underlying case. Appellees argue that the fact that the separate appeal was dismissed as time-barred indicates that the current appeal before us (No. 09-2858) was undertaken in bad faith. However, we note that the fact that a party may have filed one time-barred appeal is not necessarily probative of bad faith in a separate appeal, especially where, as here, the ease before us (09-2858) was filed before the time-barred appeal (10-3245), the two appeals were never consolidated, and this Court issued no sanctions in'connection with the time-barred appeal. We have considered Appellees’ remaining arguments in support of sanctions and find them to be without merit. For the foregoing reasons, Appellees’ motion for *124 sanctions under Federal Rule of Appellate Procedure 38 is DENIED.