Reinforcing the Corporate Veil or Creating a TM Infringement Loophole? - Examining the Supreme Court’s decision in Dewberry

Background:

In 1956, Dewberry Engineers, an “architectural, engineering, and construction firm,” was founded by Sidney O. Dewberry in Fairfax County, Virginia. [1] According to the firm’s current CEO, Dewberry has always been heavily involved in infrastructure projects within local communities and has done a spectacular job providing countless job opportunities over the years, particularly to young adults. [2] After its founding, the family-owned company grew substantially, developing operations further south and even engaging in the real estate market. Dewberry Capital Corporation, based in Atlanta, Georgia, was created in 1989 by developer John Dewberry, and “provides similar real estate services [to Dewberry Engineers] through several affiliates.” [3] Although the founders of the two firms have the same surname, they have no familial relation to one another and formed their companies independently.

In 2006, Dewberry Engineers sued Dewberry Capital for trademark infringement, and the two firms settled the following year. Dewberry Capital “agreed to certain limitations on its use of ‘Dewberry’ going forward.” [4] Although this was the first interaction between the parties, it wouldn't be the last, as Dewberry Capital reneged on its initial obligation in 2017. That year, the firm changed its name from Dewberry Capital to Dewberry Group, and formed a number of new affiliate brands “including Dewberry Living, Dewberry Office and Studio Dewberry.” [5] Dewberry Engineers sued Dewberry Group once again in 2020 “for allegedly infringing its trademarks and breaking their settlement agreement.” [6] 

District Court Decision:

Unlike in 2006, the second lawsuit ended up going to trial, and in 2021, the US District Court for the East District of Virginia heard the case between the two companies. After deliberation, District Judge Liam O’Grady ruled that Dewberry Group breached the confidential settlement agreement (CSA) signed in 2007. In addition, the court also found that the firm had violated the Lanham Act and committed trademark infringement. [7] As a result, the judge granted nearly $43 million in a disgorgement of profits to Dewberry Engineers.

Due to how Dewberry Group’s relationship with their affiliates was structured, however, it technically “had no profits on the books; [and] its corporate affiliates realized the profits.” [8] Consequently, Dewberry Engineers had not listed any of Dewberry Group’s affiliates as defendants in the lawsuit. The firm used this information to argue that no disgorgement of profits could take place. Unfortunately for the defendant, the court “reasoned that the ‘economic reality’ of Dewberry Group’s relationship with its affiliates warranted [a] disgorgement of those affiliates’ ill-gotten profits” to Dewberry Engineers, despite the affiliates not appearing as defendants in the case. [9] Dewberry Group appealed the District Court’s decision on the preceding grounds.

4th Circuit Decision:

In 2023, the 4th US Circuit Court of Appeals heard Dewberry Group’s challenge to Judge O’Grady’s decision but ultimately affirmed the District Court’s opinion. The Circuit Court stated that according to the “just-sum” provision of the Lanham Act, the court “may in its discretion enter judgment for such sum as the court shall find to be just, according to the circumstances of the case, if the court shall find that the amount of the recovery based on profits is either inadequate or excessive.” [10] According to the Circuit Court, the fact that Dewberry Group’s affiliates were not listed as defendants did not restrict the court from allocating a disgorgement of the affiliates’ profits to Dewberry Engineers due to the discretion given by the Lanham Act. Dewberry Group then appealed to the Supreme Court, and the case was granted certiorari in 2024. [11]

 Supreme Court Decision:

The Supreme Court, in its holding written by Justice Elena Kagan, decided unanimously to throw out the penalties awarded to Dewberry Engineers by the lower courts. Kagan describes that “under the Lanham Act, a court can award only profits ascribable to the ‘defendant’ itself” and not its affiliates. [12] Furthermore, “the term ‘defendant’ bears its usual legal meaning: the party against whom relief or recovery is sought.” [13] According to the plurality opinion, although the “just sum” provision gives a court the power to award a fair disgorgement amount to the plaintiff, the amount awarded must be based on the profits of the party listed as defendants. Since Dewberry Group’s affiliates weren’t listed as defendants, their profits were therefore unable to be taken into consideration by the Court when determining the disgorgement. Although this may appear to be a substantial change to the original interpretation of the Lanham Act’s “just sum” provision, the Court’s ruling simply means that courts are unable to apply a disengagement of profits to entities not listed as defendants, despite any relationship to the party that is listed as a defendant. Essentially, the job of listing the defendants of a lawsuit relies on the plaintiff, and no court has the discretion to bail out a simple yet costly mistake from Dewberry Engineers’s legal team.

What’s Next:

There are many different possible takeaways following the Supreme Court’s decision in Dewberry. For one, it’s quite obvious that the corporate separateness principle has been affirmed. This concept, taken from the case Walkovsky v Carlton (1996), outlined the idea that different affiliated companies under the same umbrella corporation are not subject to liability based on the actions of another affiliate. [14] In its holding, the court determined that because Dewberry Group was dissimilar in nature from its affiliates, its actions couldn’t be automatically attributable to its affiliates, and therefore, those affiliates couldn’t by default be punishable without being specifically cited in the lawsuit.

The corporate veil has also been protected by the Supreme Court’s holding in this case. Many legal experts were concerned with the idea that the corporate veil could be easily pierced by other court decisions following the 4th Circuit Court’s ruling [15] If a court was allowed to hold a firm’s affiliates accountable when they’re not listed as defendants under the Lanham Act, what’s to stop a court from applying that same concept to a company’s shareholders. If the Circuit Court’s decision were to have been affirmed by the Supreme Court, lawsuits could have broken out against the shareholders of various corporations, tanking investment, and leaving investors fearful that the decisions made by companies of which they own shares will cause them to face a possible lawsuit.

Alternatively, one could make a case that this decision creates a loophole allowing firms that are in violation of the Lanham Act to hide their profits in various affiliate companies to avoid having to pay disgorgement. What’s to stop a corporation from changing the way they manage their books and placing their profits in an affiliate company to avoid having to pay anything at all? The simple solution to this dilemma, however, is simply to add all of a firm’s affiliates as defendants in a potential lawsuit, a simple remedy to a critical problem that cost Dewberry Engineers millions of dollars in a disgorgement they never received.

Sources:

1. Fairfax-headquartered Dewberry: 70 Years of Transformative Impact (Sep. 20, 2024), https://fairfaxcountyeda.org/fairfax-headquartered-dewberry-70-years-transformative-impact/#:~:text=Founded in 1956 by Sidney,deep roots in Northern Virginia.
2. Id
3. Blake Brittian, US Supreme Court overturns $43 mln award in 'Dewberry' trademark case (Feb. 26, 2025), https://www.reuters.com/legal/government/us-supreme-court-overturns-43-mln-award-dewberry-trademark-case-2025-02-26/.
4. Leslie A. Demers Jordan Feirman Ryan P. Bisaillon Julia Hammond, Supreme Court Limits Lanham Act Disgorgement to Named Defendants’ Profits (Mar. 3, 2025), https://www.skadden.com/insights/publications/2025/03/supreme-court-limits-lanham-act-disgorgement#:~:text=In Dewberry, the Supreme Court,the defendant that were not.
5. Brittain, Blake. 2025. “US Supreme Court overturns $43 min award in ‘Dewberry’ trademark case.” Reuters. February 26, 2025. https://www.reuters.com/legal/government/us-supreme-court-overturns-43-mln-award-dewberry-trademark-case-2025-02-26/.
6. Id
7. Dewberry Eng’rs, Inc. v. Dewberry Group., Inc., No. 1:20-cv-00610, 2021 U.S. Dist. LEXIS 218628 (E.D. Va. Aug. 11, 2021).
8. Leslie A. Demers Jordan Feirman Ryan P. Bisaillon Julia Hammond, Supreme Court Limits Lanham Act Disgorgement to Named Defendants’ Profits (Mar. 3, 2025), https://www.skadden.com/insights/publications/2025/03/supreme-court-limits-lanham-act-disgorgement#:~:text=In Dewberry, the Supreme Court,the defendant that were not.
9. Id
10. Dewberry Eng’rs Inc. v. Dewberry Group., Inc., 77 F.4th 265, 293 (4th Cir. 2023). 
11. Id
12. Dewberry Eng'rs Inc. v. Dewberry Grp., Inc., 77 F.4th 265 (4th Cir. 2023), cert. granted, 144 S. Ct. 2681, 219 L. Ed. 2d 1297 (2024), and vacated and remanded, No. 23-900, 2025 WL 608108 (U.S. Feb. 26, 2025)
13. Id
14. Andres Sawicki, The "Principles of Equity" in Dewberry, 24 CHI.-KENT J. INTELL. PROP. 146 (2025).
15. Kelly Casey Mullally, The Many Pockets of Dewberry: Do the Principles of Equity Allowing District Courts to Fashion Remedies in Lanham Act Cases Support a Damages Award Based on Profits of Nonparty Corporate Affiliates? (23-900), 52 PREVIEW U.S. SUP. CT. CAS. 33 (2024).