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Red Door Real Estate, LLC v. Karwashan

Superior Court of Massachusetts, Suffolk

October 26, 2016

Red Door Real Estate, LLC
v.
Sousan Karwashan et al No. 135384

          FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER OF JUDGMENT

          Janet L. Sanders, Justice

         In this action, plaintiff Red Door Real Estate, LLC (Red Door) alleges that the defendants have infringed upon its state service mark and otherwise engaged in unfair business practices. The five-count Amended Complaint seeks damages as well as injunctive relief. The matter came before this Court for jury-waived trial in August 2016. Based on that evidence this Court finds to be credible together with reasonable inferences drawn therefrom, I make the following findings and rulings.

         FINDINGS OF FACT

         Plaintiff Red Door is a limited liability company that has its principal place of business in Quincy, Massachusetts. It was founded by Madeline Cheney in January 2010. Red Door is a real estate brokerage firm that represents buyers and sellers in commercial and residential real estate transactions. In addition to Cheney, it employs between 12 and 17 other brokers. The focus of Red Door's business is in the South Shore, with most of its residential sales occurring in Quincy and its environs. Its total sales volume in 2015 was $23 million.

         In July 2010, Red Door applied for and obtained state registration of a service mark.[1] Cheney, who holds a bachelor's degree in marketing, was the person who designed the logo that was part of that mark. The logo consists of black and red writing with the word " Red Door" appearing in block letters above the word " Real Estate" written in cursive. An angular drawing suggesting a roof and a door is positioned above the word " Red" in the logo. The registration for this service mark was renewed in 2015. It appears on all of Red Door's marketing and advertising materials. It is also used on its internet site and on each broker's business card.

         Shortly after Red Door opened its business, Cheney learned that there was another real estate agency located in Milton by the name of Red Door Realty. Cheney did not disclose this on her application for a service mark, even though the application expressly sought such information. In any event, the owner of Red Door Realty did not object to Cheney's use of the Red Door title. In fact, the two companies have actually been co-brokers on one deal. There was no evidence presented at trial that there was any confusion among customers of either firm as a result of the name similarity even though they are both in the same line of business and operate in adjoining communities. That there has been no confusion suggests to this Court that the name of a real estate brokerage (unless it is a nationally known business like Century 21) is not what draws customers into doing business with it.

         Defendant Red Door Properties, Inc. (Red Door Properties) was organized in December 2012. Its owner and president is Susan Karwashan. Like Red Door, it represents buyers and sellers in commercial and residential real estate transactions; it also handles residential rentals. Its principal place of business is in Seekonk, Massachusetts, with another office opening in Norwood in 2014. In addition to Karwashan, Red Door Properties employs about five or six brokers, some of them working part-time, and all paid on a commission basis. The sales volume of Red Door Properties is also considerably smaller than that of Red Door. For example, Red Door Properties' tax returns for 2013 show total gross sales of only $74, 258. The 2014 tax returns show total gross sales of $180, 092. Consummated sales between 2012 and 2014 were scattered across different South Shore communities, including Seekonk, towns near the Rhode Island border, and Norwood. This same disparity in size and volume of business is reflected in 2012-2014 listings that appear in the Multiple Listing Service (MLS) under the name of Red Door Properties as compared to Red Door. Compare Exhibits 94 and 95 to Exhibit 98. In short, Red Door is a far larger (and far more profitable) company.

         The logo for Red Door Properties consists of the words " Red Door" written over the words " Properties, Inc." The lettering for Red Door is in stylized loopy print, with sweeping curves in the letters R and D. The words " Properties Inc." is in capital letters and block print. As Karwashan recalls it, the logo was created by the printing company that she hired in 2012 to make up business cards. It charged her $25 to do so. The logo was used on signs posted at properties being offered for sale or rental by Red Door Properties and at its offices. Although the company does have a website (where the logo also appeared) its marketing is much more limited than Red Door's marketing efforts. There was no evidence that Red Door Properties used the same news media outlets as Red Door or that its marketing material (which consisted of postcards to potential sellers and an occasional ad in a local paper) was widely circulated so as to reach the same audience.[2]

         Each of the brokers at Red Door Properties used his or her own cell phones to communicate with clients as well as his or her own personal email account that did not include the company's name. Although they had to conduct their business through the brokerage firm for legal reasons, there was no evidence that the name Red Door Properties figured in any potential client's decision to list property with the defendant. To the contrary, the evidence showed that Red Door Properties generated its business by " word of mouth, " based on the personal relationships each broker cultivated with his/her customer: those customers would then refer new business to the broker. Two of the brokers had worked for another real estate brokerage before moving to Red Door Properties and brought some customers with them in that move.

         This Court finds that these personal relationships were (and are) equally important for the plaintiff Red Door. Although Cheney described her extensive efforts to " protect" her mark, the brokers themselves are prominently featured in those marketing efforts and the goodwill that the broker develops with his or her client is necessarily critical to keeping that client and generating future business. In other words, the name of the real estate entity or the appearance of its logo is not a significant factor in Red Door's ability to attract and keep customers. It is a business driven by the personality of the broker and the extent to which that firm has a dominant presence in a particular community.

         As to the similarities between the two sets of logos, Cheney served as the plaintiff's expert on this subject, with no independent analysis done. Because of her strong interest in the outcome of the case and also because her credentials with regard to making such a comparison are quite limited, this Court does not give her testimony as to the similarities much weight to the extent that it is offered as an expert opinion. The similarities that Cheney points to are fairly obvious: both use the same shade of red and the words themselves are similar. There are clear differences, however: Red Door Properties' logo does not have any roofline or door as part of it, and the lettering for the phrase " Red Door" is quite different. On the more important issue of how name and logo play a part in generating business in this particular field, Cheney's testimony was of no assistance.

         Cheney learned about Red Door Properties in March 2013 when there was a customer inquiry received by Red Door's website that related to property in Seekonk. Red Door did not list any properties in Seekonk. Curious as to why this inquiry was made, Cheney checked the MLS website. MLS contains a list of all residential properties with information concerning their asking price, their status (e.g., " new" or " under agreement"), and the identity of the listing and sales brokers. Cheney determined that the listing broker for the Seekonk property was Red Door Properties. The individual who made this inquiry (Lisa Figueira) did not testify at trial, so there is no evidence as to why she made the inquiry of Red Door instead.

         Cheney immediately contacted Karwashan at Red Door Properties; Karwashan informed her that she had just started her company, and that she did not believe she had done anything wrong since she had registered her corporation with the Secretary of State. Cheney followed this telephone call up with an email, then retained a lawyer when there was no indication that Karwashan was going to change the name. On May 21, 2013, Cheney's counsel sent a " cease and desist" letter to Red Door Properties, alleging in general terms that the similarities in name and logo " could create a likelihood of confusion." Karwashan turned over this letter to her lawyer (not the same lawyer who represented her at trial of this matter), who assured her that she had nothing to worry about and that she could simply ignore the letter. He took no action on her behalf, and Karwashan made no changes. This lawsuit was instituted in November 2014.

         In January 2015, Karwashan took a personal leave of absence from the business to care for her dying father. In the fall of 2015, new counsel took over her representation and around that same time, Red Door Properties changed its name to Red Real Estate, Inc. It also redesigned its logo. This redesign was done by the same printing company that designed the first one: Karwashan instructed it to keep the color red as part of the logo but otherwise left the design up to the printer. The result was a logo that had " Red" in a loopy script similar to the " Red" of Red Door Properties. Two angular lines arched over the word " Red, " presumably to suggest rooftops (although ...


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