The Sixth Circuit, in Dominic’s Restaurant of Dayton Inc. v. Mantia, No. 10-3376, July 7, 2012, affirmed a District Court decision to continue contempt proceedings against a defendant in a trademark infringement action after the defendant initiated bankruptcy.

The automatic stay provision of the Bankruptcy Code, 11 U.S.C. § 362(a)(1), was not implemented.

The Sixth Circuit opinion, beyond its recounting of the history of the proceedings, was brief and succinctly focused on its conclusion that this was not a case to be treated under the general rule of staying proceedings commenced prior to a petition for bankruptcy.

At the District Court, there was the complaint, a TRO order, a preliminary injunction, four contempt motions (three successful) and a default judgment.

The last contempt motion and the default judgment were granted separately, both over one of the defendants’ objection that the automatic stay under the Bankruptcy Code should apply.

The only issue on appeal before the Sixth Circuit was whether the automatic stay provisions precluded further action on the last contempt motion.

The Sixth Circuit opinion noted:

  1. statutory and non-statutory exemptions exist;
  2. the court with jurisdiction decides whether the automatic stay applies;
  3. the plaintiffs were neither creditors or claimants to defendant’s property;
  4. the automatic stay was “intended to prevent interference with a bankruptcy court’s orderly disposition of the property of the estate,” not to prevent injunctive relief permitting the bankrupt business to operate post-petition to violate a plaintiff’s rights with impunity;
  5. quoting Seiko Epson Corp. v. Nu-Kote Int’l, Inc., 190 F.3d 1360, 1364 (Fed. Cir. 1999), “the statutory stay of proceedings as to [defendant] did not free [defendant] of the contempt orders and the injunctions upon which contempt was based, all of which were entered before [defendant] suggested bankruptcy”; and
  6. application of the automatic stay would permit defendant to continue his tort of trademark infringement, and the commission of a tort is not protected by the Bankruptcy Code.

Certainly, there is good language here for trademark owners going after infringers who try to use bankruptcy to shield ongoing activity. However, the particular circumstances of this case have to be kept in mind. There were contempt orders in place before the bankruptcy proceeding was initiated restricting what the defendant could do.

A default judgment granting plaintiffs injunctive relief on their trademark claims was not appealed by the defendant even though it was entered after bankruptcy commenced. These facts support the Sixth Circuit’s conclusions. How far the Court’s opinion should extend beyond similar circumstances is an open question.

The U.S. Court of Appeals, Sixth Circuit case is Dominic’s Restaurant of Dayton, Inc. vs. Christie L. Mantia, et al., case nos. 10-3376/3377. The appeal is from the U.S. District Court, Southern District of Ohio, case no. 3:09-cv-131.

This article was prepared by Paul Williamson (pwilliamson@fulbright.com / 202 662 4545), Tara Vold (tvold@fulbright.com / 202 662 4657) and Tracy DeMarco (tdemarco@fulbright.com / 202 662 4653) of Fulbright’s Trademark Practice.