Fourth Circuit rejects post-trial preclusion ruling in paper towel 'stuffing' saga

In Georgia Pacific Consumer Products LP v Von Drehle Corporation (Case 12-1444, March 14 2013), the US Court of Appeals for the Fourth Circuit has weighed in on the latest turn of events in a long-standing dispute between Georgia Pacific Consumer Products and Von Drehle Corp, holding that the district court had erred in granting judgment as a matter of law based on Von Drehle’s previously rejected claim preclusion and issue preclusion defences.

Plaintiff Georgia Pacific designs and manufacturers paper products and dispensers. In 2002 Georgia Pacific introduced its enMotion automated touchless paper towel dispenser, designed to use Georgia Pacific’s proprietary, “fabric-like” paper towelling. The dispensers bear the marks ENMOTION , GEORGIA-PACIFIC and a stylised GP. Georgia Pacific leases the enMotion dispensers to distributors who sublease them to end users, such as hotels and restaurants. The leases and subleases expressly provide that only enMotion brand paper towelling may be used in the dispensers.

In 2004 Van Drehle began selling lower-quality paper towels designed for use in Georgia Pacific’s enMotion dispenser. Georgia Pacific brought several suits for contributory trademark infringement against Van Drehle and Van Drehle’s distributors based on the “stuffing” of the enMotion dispenser. In September 2010 the Fourth Circuit vacated the district court’s grant of summary judgment, holding that it was possible that restroom users could confuse inferior paper towels with Georgia Pacific’s product, and remanded the case back to the district court. Less than one month later, the Court of Appeals for the Eighth Circuit affirmed a district court’s holding of non-infringement for Myers Supply, one of Van Drehle’s distributors, after a bench trial.

On remand from the Fourth Circuit case, for the first time Van Drehle raised the defences of claim preclusion and issue preclusion in a motion to amend its answer. The district court initially denied Van Drehle’s request to amend its pleadings and its request for reconsideration, finding that the request was untimely and prejudicial to Georgia Pacific. After Van Drehle’s initial request, the US District Court for the Northern District of Ohio found for another distributor, Four-U-Packaging Inc, based on a preclusion defence arising from the Myers decision. Van Drehle again filed a motion to amend its answer and a motion for summary judgment based on those defences. Without a ruling from the court on those motions, the case proceeded to trial and the jury found in favour of Georgia Pacific.

After trial, Van Drehle renewed its request for judgment as a matter of law based on its preclusion defences and filed an additional motion seeking again to supplement its answer. This time, in a reversal of its previous orders, the district court allowed Van Drehle to assert its preclusion defences and entered judgment as a matter of law in Van Drehle’s favour. The district court explained its reversal by Van Drehle’s reliance on the subsequent Four-U ruling. Alternatively, the court stated that it would consider the preclusion defences sua sponte. Georgia Pacific appealed.

The Fourth Circuit categorically rejected the district court’s finding, holding that it acted in an arbitrary manner and thus abused its discretion. The Four-U decision, the Fourth Circuit reasoned, did not independently address the merits of Georgia Pacific’s claims, but rather was decided on the preclusion defence based on Myers. Therefore, the Four-U decision could not revive Van Drehle’s untimely preclusion defence that was substantively based on Myers. Rather, according to the Fourth Circuit, Van Drehle waived its preclusion defence based on Myers by waiting 480 days after the district court decision in that case to raise the defence. Van Drehle’s delay caused Georgia Pacific to spend considerable time and money litigating the case through appeal and remand and by allowing Van Drehle to assert its untimely defence after trial prejudiced Georgia Pacific.

The Fourth Circuit also rejected the district court’s alternative consideration of the preclusion defences sua sponte, holding that no special circumstances exist that would justify this issue being raised, sua sponte, after prior rejection of it.

Rose Whelan, McDermott Will & Emery LLP, Washington DC