Baseless Damages Theories and Bad-Faith Settlement Tactics Can Render a Lanham Act Case “Exceptional” and Support § 1927 Sanctions: Second Circuit Affirms Fee Award and Joint-and-Several Liability Without a Hearing

Baseless Damages Theories and Bad-Faith Settlement Tactics Can Render a Lanham Act Case “Exceptional” and Support § 1927 Sanctions: Second Circuit Affirms Fee Award and Joint-and-Several Liability Without a Hearing

Introduction

In Balestriere Fariello v. Gimlet Media, Inc., the United States Court of Appeals for the Second Circuit affirmed a substantial fee award under the Lanham Act’s fee-shifting provision and upheld sanctions against plaintiff’s counsel under 28 U.S.C. § 1927, imposing joint-and-several liability for the bulk of the award. The panel (Judges Pérez and Merriam) issued a nonprecedential summary order that nonetheless offers a detailed roadmap for how weak merits, unsupported and inconsistent damages theories, and settlement tactics perceived as leverage-seeking can together render a trademark case “exceptional” under 15 U.S.C. § 1117(a) and justify personal liability against counsel for unreasonably and vexatiously multiplying proceedings.

The underlying dispute began in 2015, when Reply All Corp. (“ReplyAll”) sued Gimlet Media, Inc. (“Gimlet”) over Gimlet’s popular “Reply All” podcast. After the district court granted summary judgment to Gimlet on all claims, the Second Circuit affirmed in 2021, concluding that none of the eight likelihood-of-confusion factors favored the plaintiff. Gimlet then moved for fees under the Lanham Act and for sanctions under § 1927. The district court awarded $1,071,981 in attorney fees, allocating $168,944.21 solely to the client and the remaining $903,036.79 jointly and severally to the client and its counsel, the law firm Balestriere Fariello (“the Firm”). The Firm—by then the only appellant—challenged the fee award, the § 1927 sanctions, the joint-and-several allocation, and the denial of an evidentiary hearing. The Second Circuit affirmed across the board.

Summary of the Opinion

  • The fee award under 15 U.S.C. § 1117(a) was affirmed. Applying Octane Fitness’s “exceptional case” standard as adopted in Lanham Act cases (Sleepy’s LLC v. Select Comfort), the court held that ReplyAll’s litigating position was objectively unreasonable and that its damages theories and settlement posture supported a finding of bad faith.
  • The § 1927 sanctions against the Firm were affirmed. The district court made sufficiently specific findings that the Firm pursued claims “entirely without color” and acted in bad faith by pressing frivolous legal theories, multiplying proceedings, and attempting to extract a nuisance settlement through unsubstantiated damages claims.
  • Joint-and-several liability for the fees incurred during the Firm’s tenure as counsel was affirmed. Given the interrelationship of attorney and client conduct and the difficulty of parsing relative culpability, the district court acted within its discretion in allocating liability jointly and severally for that period, while limiting the client’s sole responsibility to pre-representation fees.
  • The denial of an evidentiary hearing or oral argument was affirmed. Where sanctions are based on an established record and there is no identified factual dispute requiring live testimony, a court may decide sanctions on the papers.

Background

ReplyAll (a software company) sued Gimlet in 2015 over Gimlet’s “Reply All” podcast, asserting trademark infringement, false designation of origin, and reverse confusion under the Lanham Act. The Firm entered the case in 2017 and added reverse confusion to the amended complaint. The district court granted Gimlet summary judgment on all claims, and the Second Circuit affirmed in 2021, emphasizing that none of the eight likelihood-of-confusion factors favored the plaintiff, that the evidence of actual confusion was “scant,” that the parties’ offerings were competitively distant, and that Gimlet acted in good faith in adopting its mark.

Gimlet then moved for fees under 15 U.S.C. § 1117(a) and for sanctions under 28 U.S.C. § 1927. A magistrate judge recommended a total fee award of $1,071,981, apportioning $168,944.21 solely to the client and $903,036.79 jointly and severally to the client and the Firm. The district court adopted that recommendation and later denied the Firm’s motion for reconsideration. On appeal, the Firm challenged the exceptional-case finding, the § 1927 sanctions, the joint-and-several allocation, and the absence of an evidentiary hearing or oral argument.

Analysis

Precedents Cited and Their Influence

  • Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545 (2014). Octane held that an “exceptional case” for fee-shifting in patent law is one that “stands out” in terms of the strength of a party’s litigating position or the unreasonable manner of litigation, assessed under the totality of circumstances. The Second Circuit has adopted this standard in Lanham Act cases (Sleepy’s LLC v. Select Comfort). Here, Octane’s flexible, totality-based inquiry allowed the district court to consider not only the weakness of the merits (no likelihood-of-confusion factors favored the plaintiff) but also settlement conduct and damages theories.
  • Sleepy’s LLC v. Select Comfort Wholesale Corp., 909 F.3d 519 (2d Cir. 2018). Sleepy’s confirms that Octane’s standard governs Lanham Act fee awards in this Circuit and applies abuse-of-discretion review. The panel relied on Sleepy’s to frame its review and to affirm the district court’s discretion in finding the case “exceptional.”
  • Merck Eprova AG v. Gnosis S.p.A., 760 F.3d 247 (2d Cir. 2014). Merck emphasizes deference to district court determinations of bad faith under § 1117, recognizing the trial court’s “inherent institutional advantages.” The panel invoked this deferential lens to uphold the district court’s finding that the plaintiff pursued settlement in bad faith with the aim of extracting payment.
  • Huebner v. Midland Credit Mgmt., Inc., 897 F.3d 42 (2d Cir. 2018); Kim v. Kimm, 884 F.3d 98 (2d Cir. 2018); Eisemann v. Greene, 204 F.3d 393 (2d Cir. 2000); Schlaifer Nance & Co. v. Estate of Warhol, 194 F.3d 323 (2d Cir. 1999). These decisions set the standard for § 1927 sanctions: there must be clear evidence that claims were “entirely without color” and pursued in bad faith. Findings of bad faith must be specific. The panel concluded those requirements were met, given detailed district court findings that the Firm pressed frivolous claims and inflated, legally infirm damages positions to force settlement.
  • United States v. Int’l Bhd. of Teamsters, 948 F.2d 1338 (2d Cir. 1991). Teamsters underscores § 1927’s deterrent purpose: to avoid unnecessary delay and expense caused by counsel. The court referenced this purpose in affirming sanctions designed to curb litigation abuse.
  • Calloway v. Marvel Ent. Grp., 854 F.2d 1452 (2d Cir. 1988); Koster v. Perales, 903 F.2d 131 (2d Cir. 1990), abrogated on other grounds by Buckhannon; Gallop v. Cheney, 642 F.3d 364 (2d Cir. 2011); United States v. Potamkin Cadillac Corp., 689 F.2d 379 (2d Cir. 1982). These cases collectively confirm the district court’s broad discretion to structure sanctions and to impose joint-and-several liability on attorneys and clients where culpability overlaps and apportionment is impracticable. The panel applied those principles to uphold joint-and-several liability for fees incurred during the Firm’s tenure as counsel.
  • Greene v. WCI Holdings Corp., 136 F.3d 313 (2d Cir. 1998); In re 60 East 80th Street Equities, Inc., 218 F.3d 109 (2d Cir. 2000); J.C. v. Zimmerman, 150 F.4th 136 (2d Cir. 2025). These authorities support deciding sanctions without an evidentiary hearing where the record suffices and no material factual disputes require live testimony. The panel found no abuse of discretion in resolving the fee and sanctions issues on the papers.
  • Reply All Corp. v. Gimlet Media, LLC, 843 F. App’x 392 (2d Cir. 2021) (summary order). The earlier appellate merits decision—holding that no likelihood-of-confusion factor favored the plaintiff, actual confusion evidence was “scant,” and competitive proximity was lacking—supplied powerful support for objective unreasonableness under Octane and for the “entirely without color” finding under § 1927.

Legal Reasoning

1) Exceptional case under § 1117(a)

The court affirmed the district court’s application of Octane Fitness to find the case “exceptional.” Two strands of reasoning converged:

  • Objective unreasonableness. The summary judgment record and the 2021 appellate affirmance showed that “no reasonable jury could conclude” likelihood of confusion existed. None of the eight factors favored the plaintiff; the evidence of actual confusion was anecdotal and sparse; and the products were not competitively proximate. This extreme weakness on the merits made the case stand out.
  • Unreasonable manner of litigation and bad faith. The district court found that the plaintiff pursued “baseless damages theories,” including sweeping, unsubstantiated ranges ($4 to $60 million), despite the absence of evidence of deceptive intent and despite at one point offering a $1-per-year license. The court characterized the settlement posture as aimed at extracting a nuisance payment. On appeal, the panel emphasized deference to this bad-faith finding and concluded the totality of circumstances warranted a fee shift.

2) Sanctions against counsel under § 1927

To impose § 1927 sanctions, the district court needed clear evidence that the Firm’s conduct (a) was “entirely without color” and (b) was undertaken in bad faith. The court identified three pillars:

  • The Firm pressed objectively unreasonable and frivolous claims, persisting despite rulings that undermined the theories.
  • The Firm attempted to obtain a nuisance settlement through escalating and legally infirm damages theories (including disgorgement and reasonable royalty claims that lacked evidence of deceptive intent).
  • The Firm multiplied proceedings—forcing multiple rounds of briefing and motion practice (e.g., hiring damages experts to rebut baseless claims, two summary judgment motions on damages, a Daubert motion, and in limine practice)—thereby inflating costs over years of litigation.

These findings were “characterized by a high degree of specificity,” as required by Schlaifer Nance, and justified inferring bad faith from frivolous actions under Huebner and related cases.

3) Joint-and-several allocation of fees

The district court declined to attempt a granular apportionment between client and counsel for fees incurred during the Firm’s representation, citing the intertwined nature of their actions. Relying on Calloway and Koster, the Second Circuit affirmed the joint-and-several allocation as a prudent exercise of discretion, while approving the carveout that left the client solely responsible for pre-representation fees.

4) No evidentiary hearing or oral argument required

A sanctions decision can be made on the papers when the record is sufficient and no material factual disputes require live testimony. The panel noted the protracted litigation history, the extensive record, and the absence of any concrete factual showing by the Firm of disputes necessitating a hearing. A calendared hearing was therefore not required to satisfy due process.

Impact

  • Fee exposure in weak trademark cases. The decision underscores that where a plaintiff’s case is unusually weak on the merits—particularly after a comprehensive failure on the likelihood-of-confusion factors—fee shifting under § 1117(a) becomes a live risk, especially if coupled with aggressive or unsupported damages positions.
  • Personal liability for counsel under § 1927. The opinion is a pointed reminder that attorneys can be personally liable for fees when they unreasonably and vexatiously multiply proceedings. Persisting with claims “entirely without color,” advancing damages theories without evidentiary support, or leveraging litigation burdens to force settlement can trigger sanctions.
  • Joint-and-several liability as a practical default when fault overlaps. Where conduct by client and counsel is intertwined and granular apportionment is infeasible, courts may default to joint-and-several liability for the relevant period. Attorneys entering a case midstream should be mindful that their own conduct from entry onward can expose them to shared liability.
  • Sanctions without a hearing. Courts may resolve fee and sanctions motions without evidentiary hearings when the record suffices. Parties resisting sanctions should identify concrete factual disputes requiring testimony; otherwise, an argument-by-brief posture will often be deemed adequate.
  • Nonprecedential but instructive. Although this is a summary order without precedential effect (see FRAP 32.1 and Local Rule 32.1.1), it provides persuasive authority and practical guidance on applying Octane Fitness to Lanham Act fee awards, tailoring § 1927 sanctions, and allocating joint-and-several liability.

Complex Concepts Simplified

  • Exceptional case (Lanham Act § 1117(a)). A case is “exceptional” if it stands out, either because one side’s legal/factual position was unusually weak or because it was litigated in an unreasonable way (e.g., bad-faith tactics). Courts look at the total picture, not any single factor.
  • Reverse confusion. Unlike “forward confusion” (consumers think the junior user’s goods come from the senior user), reverse confusion arises when the junior user is so prominent that consumers might think the senior user’s goods come from the junior user. The same likelihood-of-confusion framework applies, including competitive proximity and evidence of actual confusion.
  • Disgorgement vs. reasonable royalty. Disgorgement seeks the defendant’s profits attributable to the infringement; a reasonable royalty approximates the fee the parties would have agreed to in a hypothetical license. In the Second Circuit, evidence of willfulness or deceptive intent is often pivotal in obtaining such monetary relief; absent such evidence, these damages can be legally or evidentially infirm.
  • 28 U.S.C. § 1927 sanctions. This statute allows a court to order an attorney personally to pay excess costs and fees caused by unreasonable, vexatious multiplication of proceedings. Courts require clear evidence that the claims were “entirely without color” and that the conduct was in bad faith.
  • Joint-and-several liability. When liability is joint and several, each liable party (here, the client and its counsel) is responsible for the entire amount, allowing the prevailing party to collect all from either, subject to any equitable arrangements between those parties.
  • Abuse-of-discretion review. On appeal, fee awards and sanctions are reviewed deferentially. The appellate court asks whether the district court’s decision fell within a range of permissible choices, given the record and governing law.
  • Summary order (nonprecedential). In the Second Circuit, a summary order can be cited (with a “summary order” notation) but does not carry precedential weight. It may still be persuasive, especially when factually analogous.

Practical Takeaways for Litigators

  • Calibrate damages to evidence. Before asserting disgorgement or a royalty theory, ensure there is evidence of willfulness or deceptive intent and a sound methodology. Vast, unsupported ranges undercut credibility and may support a finding of bad faith.
  • Reassess after adverse merits signals. When a case fares poorly on core factors (e.g., competitive proximity, actual confusion, good-faith adoption), reassess claims and damages to avoid multiplying proceedings without colorable basis.
  • Settlement posture matters. Negotiation tactics perceived as attempts to extract a nuisance settlement—especially when inconsistent with asserted damages—can contribute to an “exceptional” finding and § 1927 sanctions.
  • Document factual disputes if seeking a hearing. If you want an evidentiary hearing, identify concrete, material factual disputes that cannot be resolved on the existing record and explain why live testimony is necessary.
  • Manage joint exposure. Attorneys should recognize the risk of joint-and-several exposure for fees incurred during their representation when client and counsel conduct is intertwined. Engagement agreements and litigation strategy should account for this risk.

Notable Details and Clarifications

  • Amounts and allocation: The total fee award was $1,071,981. ReplyAll alone was liable for $168,944.21 (pre-Firm period). ReplyAll and the Firm were jointly and severally liable for $903,036.79 (Firm’s period as counsel).
  • Minor typographical slip: The order states that the district court “granted ReplyAll’s fees motion,” which, context shows, refers to Gimlet’s motion for fees.
  • Panel composition: Judge Alison J. Nathan was originally on the panel but did not participate; under internal procedures, the two remaining judges decided the appeal.

Conclusion

This summary order confirms several important points for Lanham Act and sanctions practice in the Second Circuit. First, a case can be “exceptional” for fee-shifting when the merits are notably weak and the litigation strategy includes baseless or inconsistent damages postures and settlement tactics aimed at extracting payment. Second, counsel may face personal liability under § 1927 when they press claims that are “entirely without color,” multiply proceedings through frivolous theories, or attempt to leverage cost-imposition rather than evidence. Third, where attorney and client conduct cannot be meaningfully disentangled, joint-and-several fee liability for the period of representation is within the trial court’s discretion. Finally, courts may resolve fee and sanctions issues without an evidentiary hearing where the established record suffices and no material factual dispute requires live testimony.

Though nonprecedential, the decision provides a clear cautionary tale: in trademark litigation, unsupported damages theories and tactics perceived as settlement-by-pressure can transform a losing case into an “exceptional” one—with serious financial consequences for both client and counsel.

Case Details

Year: 2025
Court: Court of Appeals for the Second Circuit

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