Eagle Hosp. Physicians, LLC v SRG Consulting, Inc.
Case cite: 2009 WL 613603(C.A.11 (Ga.))
Facts of the case:
Eagle Hospital Physicians (“Eagleâ€) is in the business of contracting out doctors who specialize is hospital care out to hospitals that Eagle has contracts with. Dr. Steven Gerst owns SRG Consulting (“SRGâ€) and a 10% stake in Eagle, In July 1999, Eagle and SRG entered into a contract where SRG would give Eagle sales and marketing services to develop business contacts with hospitals. SRG was to be responsible for locating potential contracting doctors, educating them about Eagle’s program, and basically doing anything necessary to get the doctors to contract with Eagle. SRG was to be paid a commission for its services. In 2002, the relationship between Eagle and SRG began to sour.
SRG maintained a website for Eagle (eaglehospitalphysicians.com). SRG and Eagle disagreed about what content should be included on the website. Eagle’s CEO asked Gerst to transfer the website from SRG to Eagle. Gerst refused to give Eagle access to the website. Eagle then registered and developed its own website (ehphospitalists.com). SRG then registered 150 domain names containing versions of Eagle’s name and trademarks, including ehphospitalist.com—Eagle’s domain name without the “s.†Gerst then told Eagle that he would transfer the website to Eagle only if it paid him a large salary and a bigger stake in Eagle.
On October 21, 2003, Eagle sent Gerst notice terminating their contract.
Procedural Posture:
In April 2004, Eagle filed suit against SRG and Gerst asserting claims under the Anti-cybersquatting Consumer Protection Act, the Federal Trademark Act of 1946, and other state laws. Eagle also sought to determine whether it owed any outstanding commissions to SRG under the marketing contract. SRG counterclaimed, seeking payments for the commissions.
During discovery Gerst submitted an affidavit to the District Court that contained emails between Eagle personnel and its attorneys. These documents were privileged. When deposed as to where, when, and how he got this information Gerst invoked his 5th amendment rights. Eagle filed a motion for sanctions. At a hearing to discuss Gerst’s refusal to answer about monitoring the conversations, the District Court found that Gerst had accessed privileged conversations from December 13, 2003 to September 13, 2005.
The District Court determined that the appropriate sanction was to strike Gerst’s answer and counterclaims. Because of this, Gerst defaulted. The default caused the District Court to find that Gerst admitted to all the claims in the complaint and that Eagle had established their liability on the cybersquatting claim.
The District Court awarded statutory damages of $1,000 for each of the 24 “minor†domain names, and $10,000 each for the 3 “major†domain names. Eagle was awarded attorney’s fees due to the misconduct.
Gerst appealed.
The Court of Appeals affirmed.
Issue:
Gerst questioned whether the District Court abused its discretion in issuing the sanctions striking the answer and counterclaim. Gerst also argued that this violated his 5th Amendment rights (1) by drawing adverse inferences from his refusal to testify and (2) by sanctioning him and dismissing his suit in response to him asserting his 5th Amendment rights. (3) Gerst could only argue the sufficiency of the cybersquatting claim on appeal due to the default.—Did the Eagle’s complaint establish that Gerst had a bad faith intent to profit from Eagle’s mark?
Holding:
(1) Gerst failed to argue to the District Court that adverse inference could be drawn from his 5th Amendment silence, so this argument was not preserved on appeal.
(2) The Court of Appeals determined that the District Court dismissed Gerst’s answer and counterclaim because of his misconduct in intercepting Eagle’s emails—not because he invoked his 5th Amendment right and refused to testify. The District Court did not abuse its discretion in striking Gerst’s answer and counterclaims. Because Gerst acted in bad faith no lesser sanctions would suffice.
(3) Eagle’s complaint stated “defendants continue to use the domain names with the bad faith intent of profiting unlawfully from Eagle’s trademarks.†The complaint did establish that Gerst had a bad faith intent.
Critical Analysis:
This case mainly turned on the issue of Gerst’s invocation of his 5th amendment rights. The cybersquatting issue was probably seen as a slam dunk for Eagle by the court and not really addressed in depth on appeal. The Court of Appeals does outline what cybersquatting is by quoting the statute. I don’t really think that a combined award of $53,000 for the minor and major websites will really hurt Gerst and SRG. Gerst’s development costs for the Eagle website were $67,000. (I didn’t include that in the facts because it wasn’t important to the case.) Maybe combined with the attorney’s fee’s Gerst was ordered to pay it will be a more reasonable punishment.—But come on! He registered 150 domain names with Eagle’s trademark and the courts only addressed 27 of them.
Bottom line: Don’t hold client’s website’s hostage and ask for money. And don’t spy on their emails with their attorneys.
Case cite: 2009 WL 613603(C.A.11 (Ga.))
Facts of the case:
Eagle Hospital Physicians (“Eagleâ€) is in the business of contracting out doctors who specialize is hospital care out to hospitals that Eagle has contracts with. Dr. Steven Gerst owns SRG Consulting (“SRGâ€) and a 10% stake in Eagle, In July 1999, Eagle and SRG entered into a contract where SRG would give Eagle sales and marketing services to develop business contacts with hospitals. SRG was to be responsible for locating potential contracting doctors, educating them about Eagle’s program, and basically doing anything necessary to get the doctors to contract with Eagle. SRG was to be paid a commission for its services. In 2002, the relationship between Eagle and SRG began to sour.
SRG maintained a website for Eagle (eaglehospitalphysicians.com). SRG and Eagle disagreed about what content should be included on the website. Eagle’s CEO asked Gerst to transfer the website from SRG to Eagle. Gerst refused to give Eagle access to the website. Eagle then registered and developed its own website (ehphospitalists.com). SRG then registered 150 domain names containing versions of Eagle’s name and trademarks, including ehphospitalist.com—Eagle’s domain name without the “s.†Gerst then told Eagle that he would transfer the website to Eagle only if it paid him a large salary and a bigger stake in Eagle.
On October 21, 2003, Eagle sent Gerst notice terminating their contract.
Procedural Posture:
In April 2004, Eagle filed suit against SRG and Gerst asserting claims under the Anti-cybersquatting Consumer Protection Act, the Federal Trademark Act of 1946, and other state laws. Eagle also sought to determine whether it owed any outstanding commissions to SRG under the marketing contract. SRG counterclaimed, seeking payments for the commissions.
During discovery Gerst submitted an affidavit to the District Court that contained emails between Eagle personnel and its attorneys. These documents were privileged. When deposed as to where, when, and how he got this information Gerst invoked his 5th amendment rights. Eagle filed a motion for sanctions. At a hearing to discuss Gerst’s refusal to answer about monitoring the conversations, the District Court found that Gerst had accessed privileged conversations from December 13, 2003 to September 13, 2005.
The District Court determined that the appropriate sanction was to strike Gerst’s answer and counterclaims. Because of this, Gerst defaulted. The default caused the District Court to find that Gerst admitted to all the claims in the complaint and that Eagle had established their liability on the cybersquatting claim.
The District Court awarded statutory damages of $1,000 for each of the 24 “minor†domain names, and $10,000 each for the 3 “major†domain names. Eagle was awarded attorney’s fees due to the misconduct.
Gerst appealed.
The Court of Appeals affirmed.
Issue:
Gerst questioned whether the District Court abused its discretion in issuing the sanctions striking the answer and counterclaim. Gerst also argued that this violated his 5th Amendment rights (1) by drawing adverse inferences from his refusal to testify and (2) by sanctioning him and dismissing his suit in response to him asserting his 5th Amendment rights. (3) Gerst could only argue the sufficiency of the cybersquatting claim on appeal due to the default.—Did the Eagle’s complaint establish that Gerst had a bad faith intent to profit from Eagle’s mark?
Holding:
(1) Gerst failed to argue to the District Court that adverse inference could be drawn from his 5th Amendment silence, so this argument was not preserved on appeal.
(2) The Court of Appeals determined that the District Court dismissed Gerst’s answer and counterclaim because of his misconduct in intercepting Eagle’s emails—not because he invoked his 5th Amendment right and refused to testify. The District Court did not abuse its discretion in striking Gerst’s answer and counterclaims. Because Gerst acted in bad faith no lesser sanctions would suffice.
(3) Eagle’s complaint stated “defendants continue to use the domain names with the bad faith intent of profiting unlawfully from Eagle’s trademarks.†The complaint did establish that Gerst had a bad faith intent.
Critical Analysis:
This case mainly turned on the issue of Gerst’s invocation of his 5th amendment rights. The cybersquatting issue was probably seen as a slam dunk for Eagle by the court and not really addressed in depth on appeal. The Court of Appeals does outline what cybersquatting is by quoting the statute. I don’t really think that a combined award of $53,000 for the minor and major websites will really hurt Gerst and SRG. Gerst’s development costs for the Eagle website were $67,000. (I didn’t include that in the facts because it wasn’t important to the case.) Maybe combined with the attorney’s fee’s Gerst was ordered to pay it will be a more reasonable punishment.—But come on! He registered 150 domain names with Eagle’s trademark and the courts only addressed 27 of them.
Bottom line: Don’t hold client’s website’s hostage and ask for money. And don’t spy on their emails with their attorneys.