Burford v. Accounting Practice Sales, Inc.

In an appeal between two parties to a contract for marketing and selling defendant’s accounting practices in various states, the U.S. Court of Appeals for the Seventh Circuit addressed whether the defendant breached the contract by terminating plaintiff and whether the district court abused its discretion by denying attorneys’ fees for defendant’s counterclaim. On the first issue, the 7th Circuit reversed the district court’s breach of contract analysis, granting summary judgment in favor of defendant, but affirmed the district court’s denial of attorneys’ fees under 15 U.S.C. § 1117(a) of the Lanham Act. Burford v. Accounting Practice Sales, Inc., Case No. 14-2692 (7th Cir., May 13, 2015) (Hamilton, J.).

William J. Burford sued former employer APS in Illinois state court for breach of contract after APS terminated him. APS removed to federal court and argued throughout the district court proceedings that there was no breach because the agreement allowed APS to terminate at will. Once the case was in federal court, APS also counterclaimed for misappropriation of its trade name because, after Burford was terminated, he started a rival business named “American Accounting Practice Sales.” The district court agreed with APS on its contract theory and determined as a matter of law that the contract with Burford was of indefinite duration and was therefore terminable at will. The grant of summary judgment on the contract claim came shortly before trial. Rather than prosecute its Lanham Act counterclaim, APS voluntarily dismissed its counterclaim with prejudice, mooting the need to proceed to trial. Burford, the prevailing party on the allegations of trade name misappropriation, then filed a post-judgment motion for attorneys’ fees under 15 U.S.C. § 1117(a). The district court denied the request for attorneys’ fees because the evidence and procedural history did not suggest that APS’s counterclaim amounted to an abuse of the litigation process. Burford appealed.

On the contract issue, the 7th Circuit agreed with the district court that the contract was of indefinite duration because it automatically renewed, but disagreed that the indefinite duration necessarily makes it terminable at will. Here, the contract as to Burford was terminable only for cause or upon the occurrence of a specific event. The contract was therefore terminable at-will by Burford, the employee, but was not terminable at-will by APS, the employer. The 7th Circuit concluded that APS could only terminate in the event of breach by Burford. The circuit court further explained that adoption of the theory under which the district court granted summary judgment threatened to deprive Burford of the economic basis for the bargain.

Turning to whether APS’s Lanham Act counterclaim was “exceptional” under the statute, the 7th Circuit explained that in order to show the counterclaim allegations were exceptional, Burford was required to demonstrate “an abuse of process.” Such an abuse could be established if the claim was “objectively unreasonable” because “a rational litigant would pursue it only because it would impose disproportionate costs on his opponent.” Applying the abuse of discretion review standard, the 7th Circuit affirmed the reasoning of the trial court. First, the court noted there no definitive link between the merits of APS’s claim and the voluntarily dismissal (even if it was on the eve of trial). As the court explained, APS sought dismissal after it won summary judgment on Burford’s claim, and it was rational in walking away at that point “without further expense or effort.” A party is entitled to pursue a reasonable claim if it thought it had to be in court anyways, but need not pursue the counterclaim as a stand-alone effort after the opponent’s claim falls away. Second, the court agreed that APS supported its allegations with evidence during summary judgment such that it was not frivolous. The 7th Circuit noted in dicta that it was skeptical as to whether APS’s mark was protectable, but it declined to decide the ultimate merits of the claim.