Linda Grubbs v. Sheakley Group, Inc.
807 F.3d 785
6th Cir.
2015

Background

  • Linda Grubbs owned Tri-Serve (a Cincinnati-area PEO) and Capital Concepts; Angelia Strunk‑Zwick managed Tri‑Serve under a non‑compete.
  • Strunk‑Zwick consulted for and then planned to join Sheakley, a competing PEO group; she emailed/mailed Tri‑Serve clients (July 2009) stating Tri‑Serve was "partnering" with and "moving into" Sheakley and provided contact info at Sheakley addresses and a TriServeHR domain.
  • After resigning, Strunk‑Zwick removed client files and Tri‑Serve clients began paying Sheakley; Tri‑Serve alleged deception and client diversion.
  • Plaintiffs filed a 19‑count complaint asserting Lanham Act claims (false designation of origin and false advertising), RICO substantive and conspiracy claims, and multiple state claims.
  • District court dismissed Lanham Act and RICO claims for failure to state a claim and declined pendent jurisdiction over state claims; Sixth Circuit affirmed RICO dismissal but reversed as to Lanham Act claims (false designation and false advertising) and remanded.

Issues

Issue Plaintiff's Argument Defendant's Argument Held
Whether Sheakley can be vicariously liable under the Lanham Act for Strunk‑Zwick's communications Strunk‑Zwick acted on behalf of Sheakley and her statements should be imputed to Sheakley No agency/partnership/apparent authority sufficient to impute liability Vicarious liability available under Rosetta Stone/Hard Rock/Coach test; plaintiffs plausibly alleged apparent partnership/authority to bind and sufficiently pleaded facts to impute Strunk‑Zwick’s emails to Sheakley.
Whether the July 2009 communications used Tri‑Serve’s name in a "trademark way" (Lanham Act §1125) The emails and domain/address identified source and implied affiliation, so they were trademark use The messages were non‑trademark descriptive/comparative statements (relying on Hensley) Use was in a trademark way (domain, c/o address, and source‑identifying statements); Hensley was distinguishable.
Whether the communications were likely to cause consumer confusion (8‑factor test) The content, identical mark use, intent, related services, and evidence of actual confusion support likelihood Defendants argued no confusion and communications not trademark advertising Applying the eight factors the court found plausible likelihood of confusion; Lanham Act false designation claim survives.
Whether the July emails constituted "commercial advertising or promotion" for false advertising under §1125(a) The emails were targeted commercial promotion to a substantial portion of Tri‑Serve’s client base and intended to induce transfers Defendants argued the messages lacked the breadth/market penetration required (relying on Gordon & Breach/LidoChem) Court adopted a refined test (commercial speech + intent + dissemination either widely in industry or to a substantial portion of a party’s customer base); the targeted client emails meet the test and the false advertising claim survives.
Whether alleged mail/wire fraud predicate acts support RICO pattern (closed‑ or open‑ended continuity) The scheme to steal clients involved multiple wire/mail acts over months and indicates ongoing risk The acts were a single, short‑term, terminable scheme against a single victim within eight months — insufficient continuity Dismissal affirmed: plaintiffs failed to plead closed‑ or open‑ended continuity for a RICO pattern; conspiracy claim fails without a substantive RICO predicate.

Key Cases Cited

  • Casias v. Wal‑Mart Stores, Inc., 695 F.3d 428 (6th Cir. 2012) (de novo review standard for Rule 12(b)(6))
  • Laborers’ Local 265 Pension Fund v. iShares Trust, 769 F.3d 399 (6th Cir. 2014) (pleading standards and factual-acceptance rule on dismissal)
  • Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility pleading standard)
  • Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ( pleading requirement to state a plausible claim)
  • Coach, Inc. v. Goodfellow, 717 F.3d 498 (6th Cir. 2013) (vicarious liability test for Lanham Act claims adopting Rosetta Stone/Hard Rock factors)
  • Hensley Mfg. v. ProPride, Inc., 579 F.3d 603 (6th Cir. 2009) (distinguishing trademark vs. non‑trademark uses and likelihood‑of‑confusion framework)
  • PACCAR Inc. v. TeleScan Techs., L.L.C., 319 F.3d 243 (6th Cir. 2003) (domain names as source identifiers)
  • Audi AG v. D’Amato, 469 F.3d 534 (6th Cir. 2006) (eight‑factor likelihood‑of‑confusion test)
  • Am. Council of Certified Podiatric Physicians & Surgeons v. Am. Bd. of Podiatric Surgery, 185 F.3d 606 (6th Cir. 1999) (five‑part false advertising test)
  • H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229 (1989) (RICO continuity and pattern analysis)
  • Moon v. Harrison Piping Supply, 465 F.3d 719 (6th Cir. 2006) (short‑term, single‑scheme activity insufficient for RICO continuity)
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