Design Gaps v. Distinctive Design: Broad Preclusive Effect of State‑Confirmed Arbitration Awards and Rigorous Use of Laches

I. Introduction

In Design Gaps, Inc. v. Distinctive Design & Construction LLC, No. 24‑1860 (4th Cir. Dec. 5, 2025), the Fourth Circuit addressed how far the doctrines of res judicata, collateral estoppel, statutes of limitation, waiver and laches can go in shutting down follow‑on litigation after a contentious arbitration.

The dispute arose from a luxury home renovation on Ralston Creek Street near Charleston, South Carolina. Design Gaps, Inc., owned by David and Eva Glover, designs and installs custom cabinetry. Shelter, LLC, a general contractor owned by Ryan and Jenny Butler, regularly hired Design Gaps on its high‑end projects. For the Ralston Creek job, homeowners Jason and Kacie Highsmith hired Shelter, which subcontracted with Design Gaps for cabinetry and closets under contracts containing broad arbitration clauses.

After delays and dissatisfaction, the Highsmiths terminated Design Gaps, hired Distinctive Design & Construction LLC (owned by Bryan and Wendy Reiss) to finish the cabinets, and—together with Shelter—initiated arbitration against Design Gaps. That arbitration produced a sweeping loss for Design Gaps on all claims and counterclaims, including copyright and unfair trade practice theories relating to the sharing and use of Design Gaps’ drawings. A state court later confirmed the arbitration award.

Undeterred, Design Gaps and the Glovers filed this second federal lawsuit against:

• the original arbitration parties (Shelter and the Highsmiths),
• corporate principals (Jenny Butler and Kacie Highsmith as trustee), and
• new players (Distinctive Design and the Reisses), some of whom the arbitrator had refused to join in the arbitration.

They asserted sixteen federal and state claims, including copyright infringement, Lanham Act false advertising and unfair competition, misappropriation of trade secrets, SCUTPA violations, tortious interference, defamation, unjust enrichment, and breach of contract for promotional uses of Design Gaps’ work.

The district court dismissed most claims on preclusion grounds and later granted summary judgment on the remnants based on limitations, waiver, and laches. The Fourth Circuit affirmed in full, issuing a detailed opinion that:

• confirms that a state‑court judgment confirming an arbitration award carries full preclusive effect in federal court,
• applies a robust concept of “privity” to extend claim preclusion to non‑arbitration parties such as corporate principals and trustees,
• endorses non‑mutual defensive collateral estoppel by a non‑party to the arbitration, and
• employs laches aggressively to bar delayed Lanham Act claims premised on continuing promotional use.

II. Summary of the Opinion

The Fourth Circuit’s decision can be summarized at a high level as follows:

1. Appellate jurisdiction: Despite some ambiguity in the district court’s order, the court held it had jurisdiction under 28 U.S.C. § 1291. The district court had, in substance, disposed of all claims, including:
   • the second breach‑of‑contract theory against Jenny Butler (the “personal‑use discount” theory was not actually pleaded), and
   • the misappropriation of trade secrets claim against Jenny Butler (implicitly dismissed via the court’s analysis under the Distinctive Design heading).
2. Source of preclusion law: Because a South Carolina state court ultimately confirmed the arbitration award, federal courts must apply South Carolina preclusion law under 28 U.S.C. § 1738. The court looks to the arbitrator’s findings as incorporated into the state‑court judgment to determine preclusion.
3. Res judicata (claim preclusion): Applying South Carolina law, the court held:
   • Jenny Butler is in privity with Shelter; and
   • Kacie Highsmith in her capacity as trustee is in privity with herself as an individual.
   Thus, claims against those individuals, to the extent arising from the Ralston Creek contracts and surrounding conduct, are barred because they either were raised or could have been raised in arbitration (e.g., defamation, copyright, SCUTPA, unjust enrichment, and related Lanham Act theories tied to the Ralston Creek job).
4. Collateral estoppel (issue preclusion): Distinctive Design and the Reisses—who were not parties to the arbitration—were allowed to rely on issue preclusion. The arbitrator had:
   • found that Distinctive Design did not use Design Gaps’ drawings,
   • rejected any claim of copyright violation or conversion, and
   • found no unfair trade practices or civil conspiracy.
   Those determinations were held to preclude Design Gaps’ copyright, Lanham Act, trade secrets, SCUTPA, unjust enrichment, and tortious interference claims against Distinctive Design and its principals.
5. Breach of contract (promotional use) claims:
   • All claims based on unattributed promotional use prior to January 2020 are time‑barred under South Carolina’s three‑year limitations period, as Design Gaps should have known of the violations by at least April 2018.
   • The only timely promotional‑use claim—relating to a Bayley Road project—is barred because Design Gaps impliedly waived its right to enforce the promotional‑use clause by threatening arbitration and then doing nothing for years while continuing to work with Shelter.
6. Lanham Act claims and laches: Design Gaps’ false advertising / false designation / unfair competition claims under § 43(a) are barred by laches:
   • South Carolina’s three‑year limitations period for analogous state claims creates a presumption of laches for violations occurring before January 2020.
   • The court treats Shelter’s ongoing promotional uses as a continuing violation, extending the laches presumption to the entire period.
   • Design Gaps had actual knowledge of potential Lanham Act claims by April 2018 (as reflected in its cease‑and‑desist letter), unreasonably delayed nearly four years, and that delay economically and evidentially prejudiced Shelter (including the death of Ryan Butler).

On every front—claim preclusion, issue preclusion, limitations, waiver, and laches—the Fourth Circuit affirmed the district court’s efforts to “shut the door” on Design Gaps’ third attempt to relitigate the fallout from the Ralston Creek project and related promotional disputes.

III. Detailed Analysis of the Opinion

A. Procedural Background and Appellate Jurisdiction

1. Multiple proceedings and the arbitration anchor

Four different proceedings form the backdrop:

1. The arbitration between Design Gaps and (a) Shelter and (b) the Highsmiths under the cabinetry contracts. The arbitrator awarded for Shelter and the Highsmiths on their contract and fraud‑related claims and against Design Gaps on its counterclaims, including:
   • copyright infringement,
   • conversion,
   • tortious interference,
   • unjust enrichment,
   • SCUTPA violations, and
   • civil conspiracy.
2. Federal vacatur/confirmation action: Design Gaps initially moved in federal court to vacate the award; the district court instead confirmed it. On appeal, the Fourth Circuit dismissed for lack of subject‑matter jurisdiction (Design Gaps, Inc. v. Shelter, LLC, 130 F.4th 143 (4th Cir. 2025)), prompting the district court to vacate its own confirmation order and dismiss the matter.
3. State‑court confirmation action: The parties then presented the confirmation/vacatur issue to South Carolina state court, which confirmed the award. That state‑court judgment becomes the focal point for preclusion.
4. This second federal action: Design Gaps and the Glovers sued Shelter, the Butlers, Distinctive Design and the Reisses, and Kacie Highsmith (individually and as trustee), asserting sixteen claims primarily tied to:
   • the Ralston Creek termination and drawings, and
   • promotional uses of Design Gaps’ work in other Shelter projects.

2. Final judgment: did the district court really decide “everything”?

The appellants argued that the district court’s orders were non‑final because:

• a supposed “second” breach‑of‑contract claim against Jenny Butler (personal‑use discount) was not addressed; and
• the misappropriation of trade secrets claim against Jenny Butler was not expressly referenced as dismissed.

Invoking its recent jurisdiction precedents (Estate of Cunningham v. Mayor of Baltimore, Hixson v. Moran), the Fourth Circuit looked beyond labels to substance:

• Personal‑use discount theory: The court carefully read the complaint and concluded that the two breach‑of‑contract counts were identically formatted and exclusively addressed violations of the “promotional use” clauses (failure to credit Design Gaps in advertising). The personal‑use discount story appeared only in narrative allegations and was never pleaded as its own claim for relief. The district court therefore resolved the actual contract claims that existed.
• Trade secrets claim against Jenny Butler: While the district court’s introductory paragraph listed all claims against Distinctive Design, the Reisses, and Highsmith (trustee) as dismissed, and referenced only Lanham Act and contract claims as remaining against Shelter and the Butlers, its substantive discussion of the trade secrets claim:
  • repeatedly described Ms. Butler’s role in the alleged misappropriation, and
  • explicitly relied on the arbitrator’s finding that “no one” converted Design Gaps’ designs.
  The Fourth Circuit held this demonstrated that the district court was “aware” of, and substantively resolved, the trade secrets claim against Jenny Butler, satisfying finality.

Accordingly, the court held it had appellate jurisdiction under § 1291.

B. Framework: Preclusion After State‑Confirmed Arbitration Awards

1. Full faith and credit and the role of state law

Because a South Carolina court confirmed the arbitration award, the Fourth Circuit was bound by 28 U.S.C. § 1738 to give that state judgment the same preclusive effect that South Carolina courts would give it. Citing Washington v. Pellegrini and Wright & Miller, the court underscored:

• Confirmed arbitration awards are enforced “as any other judgment” under S.C. Code Ann. § 15‑48‑150.
• The preclusive effect of such a judgment is therefore governed by South Carolina’s res judicata and collateral estoppel rules, not federal common law standards.

Critically, the Fourth Circuit clarified that when an arbitration award has been confirmed, courts look to the arbitrator’s findings as incorporated into the judgment to determine what was decided—not to some independent reasoning of the confirming court:

Under South Carolina law, “[u]pon the granting of an order confirming” an arbitration award, a “judgment or decree shall be entered in conformity therewith and be enforced as any other judgment or decree.” … We may now enforce the arbitrator's award, as reflected in the state court's judgment.

2. Harmless error: the vacated federal confirmation order

The district court had originally applied federal preclusion doctrines based on its own (later‑vacated) federal confirmation of the award. The Fourth Circuit acknowledged that, in hindsight, this was legally incorrect because that federal order no longer existed. However:

• By the time of appeal, a state court had confirmed the award.
• South Carolina preclusion rules substantially mirror the federal standards the district court had used.
• Thus any error in relying on the now‑vacated federal confirmation order was deemed harmless under Fed. R. Civ. P. 61.

This pragmatic move allowed the Fourth Circuit to re‑anchor the preclusion analysis in the state‑court confirmation and South Carolina law, without remanding for a do‑over.

C. Res Judicata: Same Parties (or Privies), Same Subject Matter

Under South Carolina law, res judicata bars a later action when:

1. the identities of the parties (or their privies) are the same,
2. the subject matter is the same, and
3. there was a prior adjudication by a court (or, here, a confirmed arbitration award) of competent jurisdiction.

The opinion focuses on the first two elements: “same parties” (via privity) and “same subject matter” (the Ralston Creek dispute and related conduct).

1. Privity: corporate principal and LLC (Jenny Butler & Shelter)

Design Gaps argued that Jenny Butler could not be bound by res judicata because the arbitrator explicitly refused to join her as a party; she was therefore outside the arbitration’s party list.

South Carolina, however, defines privity broadly as “a person’s relationship to the subject matter of the litigation,” not merely formal identity of parties. See Richburg v. Baughman; Yelsen Land Co. v. State.

Applying that principle, the court held:

• Shelter was a small business that acted entirely through its owners, Ryan and Jenny Butler.
• The conduct Design Gaps challenged in arbitration—sharing drawings, coordinating with Distinctive Design, handling the Ralston Creek termination—was the same conduct attributed to Jenny Butler personally in the federal suit.
• Design Gaps had already asserted against Shelter in arbitration the very kinds of claims it later pursued against Jenny Butler (tortious interference, conversion, unfair trade practices, unjust enrichment, and copyright claims, all tied to the Ralston Creek dealings).

Thus, Jenny Butler and Shelter were “so identified in interest” that they represented the same legal right in relation to the Ralston Creek subject matter. She was in privity with Shelter for res judicata purposes, even though the arbitrator declined to add her as a named party.

The court rejected reliance on LaRosa v. Pecora (N.D.W. Va. 2009), where a non‑joined party was held not to be in privity, distinguishing that case on its facts and emphasizing South Carolina’s broader conception of privity.

2. Privity: individual vs. trustee capacity (Kacie Highsmith)

Design Gaps also named Kacie Highsmith in her capacity as trustee of the Highsmith Trust, arguing that the Trust—and Highsmith as trustee—were not parties to the arbitration.

Yet the “subject matter” remained the same: Highsmith’s conduct surrounding the Ralston Creek project and termination. The complaint did not meaningfully differentiate between her individual acts and those as trustee. Under South Carolina’s subject‑matter‑focused view of privity, the court found:

• Highsmith, individually, was a party to the arbitration.
• Highsmith as trustee of the Highsmith Trust was in privity with herself, individually, with respect to actions relating to Ralston Creek.

Thus, claims against Highsmith as trustee were precluded to the same extent as claims against her individually.

3. Same subject matter: defamation and Lanham Act theories as “could have been raised” claims

Res judicata in South Carolina bars not only issues that were litigated, but also those that could have been raised in the prior proceeding. See Hilton Head Ctr. of S.C., Inc. v. Public Service Commission.

Design Gaps tried to escape preclusion for certain claims by pointing out that:

• defamation claims (based on Highsmith’s statements to Downsview Kitchens that Glover “took their money” and did not deliver), and
• some Lanham Act claims tied to the Ralston Creek project

had not actually been litigated in the arbitration.

The court rejected this argument on two grounds:

• Defamation: Highsmith’s statements to Downsview Kitchens were about the same Ralston Creek performance dispute that was the core of the arbitration. Indeed, Design Gaps initially asserted a defamation/libel counterclaim in arbitration but then dropped it in an amended pleading. Because those statements arose from the same transaction or occurrence, they were part of the “same subject matter” and “could have been” litigated. Res judicata therefore bars the later defamation suit.
• Lanham Act claims tied to Ralston Creek use of drawings: To the extent Design Gaps’ Lanham Act counts complained about:
  • the sharing of drawings for the Ralston Creek project, or
  • use of the Ralston Creek images and designs without attribution,
  they arose from the same facts and contractual relationships as the arbitration and thus should have been brought there. As such, they too are barred by res judicata.

Only Lanham Act theories involving unrelated projects and promotional materials survived the res judicata analysis—and those were later dispatched by laches.

D. Collateral Estoppel: Non‑Party Issue Preclusion and Its Cascade Effect

Collateral estoppel (issue preclusion) prevents relitigation of issues actually litigated and decided in a prior proceeding, even where the second suit involves a different claim. Under South Carolina law (Hughes v. Bank of America, N.A.), the proponent must show:

1. the issue was actually litigated in the prior action,
2. it was directly determined, and
3. that determination was necessary to the prior judgment.

The doctrine does not strictly require mutuality of parties; non‑mutual defensive use is permitted, provided the party being estopped had a full and fair opportunity to litigate the issue. See Carolina Renewal, Inc. v. S.C. Department of Transportation; State v. Hewins.

1. Full and fair opportunity despite non‑joinder

Design Gaps argued that because the arbitrator refused to join Distinctive Design and the Reisses as parties, it lacked a full and fair opportunity to litigate against them. The Fourth Circuit disagreed.

Key considerations:

• Design Gaps was not limited in discovery; it could—and did—depose and cross‑examine Bryan Reiss and question Jenny Butler about her interactions with him.
• Distinctive Design’s alleged use of the drawings and the circumstances of its engagement to finish the Ralston Creek cabinets were fully explored during the three‑day hearing.
• All parties agreed before the close of the hearing that they had an adequate opportunity to present their evidence.

Although Design Gaps lacked the leverage that comes from having Distinctive Design formally “in the caption,” the court held that, in substance, it had a full and fair opportunity to litigate the issues underlying its claims against Distinctive Design.

2. What the arbitrator actually decided

The arbitrator made several critical factual and legal findings:

• On tortious interference: Design Gaps “did not establish any tortious interference in its contract by any party.”
• On civil conspiracy: Design Gaps “did not establish that there was a civil conspiracy between and among [Shelter, the Highsmiths], Distinctive Design or any other party.”
• On unfair trade practices: Design Gaps “did not establish that [Shelter and the Highsmiths’] conduct was unfair or deceptive,” nor that any conduct was repetitive or implicated the public interest.
• On conversion and use of designs:
  • Design Gaps “gave” the drawings to Shelter and the Highsmiths for review and use in construction.
  • Design Gaps failed to introduce a valid copyright registration; but even if it had, Shelter and the Highsmiths established “fair use.”
  • “[Design Gaps] failed to prove that [Shelter, the Highsmiths] or anyone else converted its designs for this project.”
  • Critically: “Bryan Reiss of Distinctive Design confirmed that he did not use Design Gaps’ designs for the cabinets. I am convinced by Reiss’s testimony and the exhibits provided that any similarity in the designs is due to the limitations of the space and the client’s desired layout. Therefore, there has been no violation of any copyright which [Design Gaps] may have had.”

These findings were necessary to the arbitrator’s rejection of Design Gaps’ counterclaims and thus were entitled to issue‑preclusive effect.

3. How the arbitrator’s findings knock out each claim against Distinctive Design

The court used these arbitral findings as a foundation to preclude the following claims against Distinctive Design and the Reisses:

• Copyright infringement: A copyright claim requires proof that the defendant copied the protected work. The arbitrator directly found that Reiss “did not use” the drawings and that any similarity was due to space constraints and client preferences. That finding, essential to the prior judgment, bars relitigation of copying. Without copying, there can be no infringement.
• Lanham Act unfair competition (§ 43(a)): Design Gaps alleged that Distinctive Design’s work and marketing created confusion as to the source of the designs. But the arbitrator had already found:
  • no misappropriation or unfair practices in relation to the design work, and
  • that Distinctive Design did not use Design Gaps’ designs at all.
  Those determinations foreclose any claim that Distinctive Design’s finished cabinets or promotional uses were a confusing imitation of Design Gaps’ work.
• Misappropriation of trade secrets (South Carolina Trade Secrets Act): The Act requires misappropriation, wrongful use, or wrongful disclosure of a “trade secret.” The arbitrator’s refusal to find conversion or wrongful use of the drawings by “anyone” (explicitly including Distinctive Design) necessarily resolves this issue against Design Gaps.
• SCUTPA claim: SCUTPA requires an unfair or deceptive act, an adverse effect on the public interest, and resulting damages. The arbitrator:
  • found no unfair or deceptive conduct with respect to the drawings, and
  • found no repetition or public‑interest harm.
  Those findings preclude Design Gaps from re‑characterizing the same conduct as a SCUTPA violation.
• Unjust enrichment: The unjust enrichment claim was predicated on Distinctive Design’s “use of designs that have directly been copied from and/or are confusingly similar to” Design Gaps’ drawings. Because the arbitrator conclusively found that Reiss did not use the drawings and that similarity was attributable to the physical constraints and client preferences, the core factual premise of unjust enrichment is foreclosed.
• Tortious interference with contract: Under South Carolina law (Eldeco, Inc. v. Charleston County School District), tortious interference requires intentional procurement of a breach. Design Gaps alleged that Distinctive Design’s involvement caused Shelter and the Highsmiths to breach the Ralston Creek contracts. But the arbitrator found that:
  • Design Gaps repeatedly failed to meet promised dates,
  • the Highsmiths and Shelter were justified in terminating the contracts, and
  • no party (including Distinctive Design) tortiously interfered.
  If the terminations were justified and there was no breach by the Highsmiths or Shelter, there can be no tortious interference as a matter of law.

Taken together, the arbitrator’s determinations left no factual oxygen for any of the Distinctive Design‑related claims. The Fourth Circuit endorsed using issue preclusion in exactly this robust, cascading way.

4. Independent pleading defect in the SCUTPA claim

The court added an alternative (and instructive) point: even if preclusion did not apply, the SCUTPA claim against Distinctive Design would fail on the pleadings because Design Gaps did not sufficiently allege harm to the public interest.

South Carolina requires SCUTPA plaintiffs to plead:

• that the challenged conduct affects the public interest, and
• that the conduct is likely to be repeated, either because it has occurred before or because the defendant’s procedures create a risk of repetition. See Singleton v. Stokes Motors, Inc.; Woodson v. DLI Properties, LLC.

Design Gaps merely alleged that Distinctive Design’s actions “are being repeated” and “are likely to have an adverse impact upon the public.” The Fourth Circuit characterized these bare assertions as conclusory and insufficient under Rule 12(b)(6).

E. Limitations and Waiver: Breach‑of‑Contract Claims for Promotional Use

1. Statute of limitations and the discovery rule

South Carolina imposes a three‑year statute of limitations on contract actions. See S.C. Code Ann. § 15‑3‑530(1). The state follows a discovery rule: the limitations period begins when the plaintiff “knows or should know, by the exercise of reasonable diligence, that a cause of action exists.” See Epstein v. Brown; Poly‑Med, Inc. v. Novus Scientific Pte. Ltd.

The record showed Design Gaps’ awareness of Shelter’s promotional conduct:

• October 2016 & March 2017: Design Gaps complained to Shelter about unattributed use of its work.
• January 2018: Eva Glover flagged a magazine feature attributing cabinetry to a competitor even where Design Gaps had participated.
• April 2018: David Glover sent Shelter a detailed cease‑and‑desist letter regarding Shelter’s “use of images of our cabinetry or closet work without attribution”—explicitly referencing “false and/or misleading advertising” and the Lanham Act, and threatening arbitration if no monetary settlement were reached.

Objectively, these communications put a reasonably diligent party on notice that Shelter was allegedly breaching promotional‑use clauses across multiple projects. The lawsuit was filed on January 13, 2023, so any contract claims accruing before January 13, 2020, were outside the three‑year window and therefore time‑barred.

The only surviving contract theory pertained to a Bayley Road project—where the promotional use fell within the limitation period. As explained below, that claim succumbed to waiver.

2. Implied waiver of the Bayley Road contract claim

Waiver under South Carolina law is the voluntary and intentional relinquishment of a known right, which may be expressed or implied by conduct (Janasik v. Fairway Oaks Villas; Parker v. Parker). An implied waiver arises from conduct reasonably showing that the right will not be enforced.

The district court—and the Fourth Circuit—found that Design Gaps had, as a matter of law, waived its claim to enforce the promotional‑use clause for Bayley Road:

• By April 2018, Design Gaps knew, or reasonably should have known, that Shelter was using its work without attribution across multiple projects, including Ralston Creek.
• Design Gaps sent a strong cease‑and‑desist letter threatening arbitration and demanding monetary settlement.
• Yet it:
  • never followed through with an arbitration demand,
  • continued working with Shelter,
  • raised no promotional‑use issue during the subsequent arbitration initiated by Shelter and the Highsmiths, and
  • waited over four years to file this lawsuit.

Because waiver is evaluated objectively, the question is not what Design Gaps subjectively intended, but what its conduct reasonably communicated. The court held that its long inaction—despite clear knowledge and explicit threats—was “inconsistent with the continued assertion” of its contractual rights and thus constituted an implied waiver, even for promotion on the Bayley Road job that occurred within the limitations period.

F. Laches: Equitable Time‑Bar for Lanham Act Claims

Design Gaps brought Lanham Act § 43(a) claims for:

• false advertising,
• false designation of origin, and
• unfair competition,

all premised on Shelter’s promotion of images of Design Gaps’ cabinetry without attribution.

1. Laches and the analogous state limitations period

Because § 43(a) has no explicit federal limitations period, courts look to:

• the most analogous state limitations period (here, South Carolina’s three‑year periods for fraud and unfair trade practices: §§ 15‑3‑530(7), 39‑5‑150), and
• use that as a guide for laches, adopting a presumption that laches applies when the plaintiff delays beyond that period. See Belmora LLC v. Bayer Consumer Care AG; PBM Products, LLC v. Mead Johnson & Co.

  Design Gaps filed suit in January 2023. By April 2018, it:

  • had identified specific examples of Shelter’s unattributed promotional use, and
  • explicitly framed those as “false and/or misleading advertising” under the “Federal Lanham Act.”

  The court therefore treated April 2018 as, at the latest, the date when Design Gaps knew or should have known of its Lanham Act claim.

  2. Continuing violation and the scope of the presumption

  A critical step was whether Shelter’s conduct constituted a “continuing violation” such that the presumption of laches would apply not only to clearly time‑barred acts but to the entire period of challenged conduct. Relying on Jarrow Formulas, Inc. v. Nutrition Now, Inc. and its own reasoning in PBM Products, the Fourth Circuit held:

  • Shelter consistently engaged in the same type of conduct—using photographs or images of completed projects featuring Design Gaps’ work, without attribution, in various promotional channels.
  • Even though the media and precise images varied, the core wrongful act alleged (misleading consumers about the source of cabinetry work) remained the same.
  • Consequently, the Lanham Act violations formed a continuing course of conduct; once the claimant slept on its rights beyond the analogous limitations period, the presumption of laches attached to all of the conduct in that continuing course.

  This aspect of the decision is significant: it prevents plaintiffs from avoiding laches merely by pointing to more recent iterations of a long‑running promotional practice.

  3. Overcoming the presumption: knowledge, reasonableness, prejudice

  To overcome the laches presumption, Design Gaps had to show:

  1. lack of knowledge of the wrongful conduct,
  2. a reasonable/excusable delay in filing suit, and
• lack of undue prejudice to Shelter.

The court found that Design Gaps failed on all three.

Knowledge. Design Gaps argued that it lacked enough information to fully plead Lanham Act elements until arbitration discovery unfolded. The Fourth Circuit rejected this, invoking the “objective” standard of Ray Communications, Inc. v. Clear Channel Communications, Inc.:

• By April 2018, Design Gaps knew that:
  • Shelter was using images of projects featuring Design Gaps’ work;
  • Shelter was not crediting Design Gaps; and
  • this was potentially actionable under the Lanham Act (as explicitly stated in the letter).
• Those facts are essentially identical to the factual basis of the complaint’s Lanham Act counts.

Thus, Design Gaps knew of its claims long before suit.

Excuse / reasonableness of delay. Two asserted justifications were rejected:

• “We only had preliminary knowledge” (reliance on What‑A‑Burger): The court distinguished that line of cases, noting that Design Gaps did not merely suspect a future infringement—it knew of present conduct that matched the elements of its claim and even cited the Lanham Act.
• Settlement discussions: While a genuine, sustained settlement process can sometimes explain delay, the record showed no such negotiations after the April 2018 letter. Shelter did not respond; Design Gaps did not follow up or demand arbitration. A unilateral hope for settlement, unsupported by an active back‑and‑forth, could not make a four‑year delay reasonable.

Prejudice. The court recognized both:

• Economic prejudice: Shelter continued investing in branding and promotional materials over several years. Although the financial magnitude was not comparable to the multimillion‑dollar sums discussed in PBM Products, the court deemed this ongoing reliance and investment significant once matched against a long, unexplained delay.
• Evidentiary prejudice: Ryan Butler—Shelter’s principal and key witness regarding its dealings with Design Gaps—died unexpectedly. Written discovery could not substitute for live testimony. The court emphasized the need for specific articulations of prejudice and found Shelter satisfied that requirement by tying Butler’s death to its ability to defend the Lanham Act claims.

Considering all three factors, the Fourth Circuit concluded that laches barred the Lanham Act claims and that the district court did not abuse its discretion in so holding.

G. The Misappropriation of Trade Secrets Claim Against Jenny Butler and Finality

A smaller but notable issue was how the court treated the ambiguity around the trade secrets claim against Jenny Butler. Despite the district court’s organizational confusion (discussing the claim under the “Distinctive Design” heading), the Fourth Circuit looked to:

• the court’s explicit recognition that Ms. Butler was an alleged participant in the sharing of drawings; and
• its reliance on the arbitrator’s finding that “no one” converted the designs.

This demonstrated that the district court had substantively rejected the claim against Jenny Butler on the same collateral estoppel rationale as that against Distinctive Design. Under Cunningham and Hixson, that was enough to treat the order as final and appealable.

IV. Complex Concepts Simplified

1. Res judicata vs. collateral estoppel

• Res judicata (claim preclusion) stops a party from bringing:
  • the same claim again, or
  • a different claim arising from the same transaction or occurrence
  against the same party (or those in privity), when there has already been a final judgment on the merits.
• Collateral estoppel (issue preclusion) does not bar entire claims, but bars relitigation of specific issues of fact or law that:
  • were actually litigated and decided,
  • were essential to the prior judgment, and
  • are the same as an issue in the new case.

2. Privity

“Privity” in preclusion law is not about formal relationships (like “shareholders” or “spouses”) in the abstract. It asks: Is this person so closely aligned with a prior party on the same subject matter that it is fair to treat them as the same party for preclusion purposes? Examples here:

• Jenny Butler (principal of Shelter) and Shelter as to the Ralston Creek contracts.
• Kacie Highsmith individually and in her capacity as trustee of the trust that later owned the same property involved in the dispute.

3. “Full and fair opportunity to litigate”

Before a court will estop a party from relitigating an issue, it must be satisfied that the party had a realistic chance to litigate that issue the first time. Factors include:

• Access to discovery,
• Ability to call and cross‑examine witnesses,
• Time and procedural fairness, and
• Whether the party recognized the stakes and had incentives to litigate vigorously.

Even though Distinctive Design wasn’t a party to the arbitration, Design Gaps had a full and fair opportunity to litigate whether Distinctive had used the drawings, because Reiss testified and was subject to cross‑examination, and the issue was central to Design Gaps’ copyright counterclaim.

4. Laches vs. statutes of limitations

• Statutes of limitations are legislative time bars: file by a set deadline or lose the claim.
• Laches is an equitable doctrine: even if no traditional statute directly applies, a court may deny relief if a plaintiff has unreasonably delayed and that delay has harmed the defendant (through lost evidence, changed economic position, etc.).

In Lanham Act cases, courts often:

• borrow the most analogous state statute of limitations to determine what delay is presumptively unreasonable, then
• ask whether the plaintiff can justify delay and whether the defendant has been prejudiced.

5. Waiver and implied waiver

Waiver is relinquishing a known right. It can be:

• Express: “We will not enforce this clause.”
• Implied: Behavior that would signal to a reasonable observer that the right will not be asserted (e.g., knowing repeated breaches of a term, threatening action, then never acting and continuing to cooperate for years).

The key is the objective impression created by the party’s conduct, not their inner intent.

6. SCUTPA “public interest” requirement

South Carolina Unfair Trade Practices Act (SCUTPA) is not designed to remedy purely private wrongs. A plaintiff must show:

• the challenged practice has a potential impact on the public, either because it has affected others or is likely to be repeated, and
• conclusory assertions that conduct is “repeated” or “adverse to the public interest” are not enough without facts about past instances or business practices.

7. Arbitrations and confirmation

An arbitration award is just that—an award—until a court confirms it. Upon confirmation:

• the award becomes a judgment, enforceable like any other judgment, and
• its findings can carry claim‑ and issue‑preclusive force, provided the governing state law recognizes that effect (South Carolina does).

If an award is confirmed in state court, federal courts must respect its preclusive force to the same extent as state courts would.

V. Impact and Significance

1. Strong message about arbitral finality

The opinion sends a clear signal: parties cannot treat arbitration as a “dress rehearsal” and then attempt to relitigate the same grievances—against slightly different targets—in federal court.

• Once an award is confirmed in state court, its factual and legal determinations will heavily constrain any subsequent litigation in federal court.
• Attempting to reframe the same factual narrative as different causes of action (e.g., switching from copyright to Lanham Act, or from contract to defamation) will often fail under South Carolina’s broad “same transaction or occurrence” test for res judicata.

2. Broad privity and non‑party preclusion

The court’s willingness to:

• treat corporate officers and LLCs as privies, and
• allow non‑mutual defensive collateral estoppel by non‑parties to the arbitration,

means that plaintiffs must assume that:

• adverse arbitral findings about the facts (e.g., who used which designs) can bar later claims against related entities and individuals that were not formally in the arbitration, and
• attempts to circumvent an adverse award by adding new defendants and new labels will be closely scrutinized.

3. Litigation strategy in arbitration

For businesses and their counsel, the case underscores the need to:

• assert all related claims in arbitration when the arbitration clause is broad (“all disputes arising out of or in connection with the contract”), including:
  • defamation,
  • Lanham Act / unfair competition,
  • SCUTPA and trade secrets,
  • tortious interference and civil conspiracy.
• Vigorously litigate key factual issues (e.g., “Did the nonparty actually use our drawings?”), recognizing that findings will reverberate into future litigation involving other defendants.
• Consider the practical consequences of an arbitrator’s refusal to join proposed parties; even if joinder is denied, the resulting findings may still shield those non‑parties via issue preclusion.

4. Lanham Act plaintiffs: act quickly or risk laches

The decision reinforces that:

• Sending a cease‑and‑desist letter that identifies Lanham Act violations, but then waiting years to sue, is highly risky.
• Courts will treat continuing promotional practices as a single ongoing violation for laches purposes, so plaintiffs cannot “reset the clock” simply because the defendant keeps advertising.
• Defendants who show concrete reliance (continued investment in marketing strategy) and evidentiary prejudice (loss of key witnesses) can use laches to defeat even timely segments of a continuous violation.

5. Capacity distinctions won’t easily defeat preclusion

Suing a person in a different capacity (e.g., “as trustee” instead of “individually”) or adding affiliates and principals will not circumvent preclusion where the subject matter and core conduct remain the same. Counsel should assume courts will look past capacity labels to the underlying relationship to the dispute.

VI. Conclusion

Design Gaps v. Distinctive Design is a comprehensive reaffirmation of finality principles in the context of arbitration‑related litigation. By giving robust preclusive effect to a state‑confirmed arbitration award, recognizing privity between closely aligned actors, and applying collateral estoppel defensively on behalf of non‑parties to the arbitration, the Fourth Circuit sharply limits the ability of disappointed arbitration losers to repackage grievances into new federal suits.

At the same time, the court’s rigorous application of statutes of limitations, waiver, and laches—especially in the Lanham Act context—highlights the cost of delay and inconsistency. Parties who know of potential claims, threaten action, and then sit on their rights while evidence fades and relationships change risk losing not only the merits but also the chance to litigate at all.

In sum, the opinion stands as a strong statement that “the third time is not the charm”: once claims and core factual issues have been fully and fairly arbitrated and confirmed, and once a party has slept on additional theories for years, the law of preclusion and equitable time bars will generally not permit another bite at the apple.