January 26, 2009 5:37 PM

Taco Bell Loses Chihuahua Case--Again

Posted by Zach Lowe

The Taco bell chihuahua litigation has had an ugly history, littered with defeats for the fast food giant, disqualified law firms, and tens of millions in damages payments. It perhaps reached its final chapter Friday, when a unanimous three-judge federal appeals panel ruled that Taco Bell couldn't pawn off $42 million in damages on its former advertising agency, TBWA Chiat/Day. 

The ruling from the U.S. Court of Appeals for the Ninth Circuit marked a defeat for Arent Fox and the Chicago boutique Stein, Ray & Harris, two firms that have been on chihuahua duty almost since the litigation began more than a decade ago. Back then, two Michigan men accused Taco Bell of stealing their "Psycho Chihuahua" image after consulting with them about a possible advertising deal in 1996. Taco Bell eventually used a similar chihuahua theme developed by TBWA for a 1997 pitch, despite internal concerns from at least one Taco Bell exec that the campaigns were so similar Taco Bell would be exposing itself to lawsuits. The two Michigan men indeed sued, and in 2003, a jury in U.S. District Court in Michigan awarded them $30 million in damages; a judge then tacked on $12 million more in interest. 

Taco Bell then turned around and sued TBWA in U.S. District Court for the Central District of California, claiming the ad agency should have known about the chihuahua similarities and that their contract with TBWA indemnified Taco Bell from any infringement liability. 

Taco Bell first hired Irell & Manella as lead counsel, but attorneys for TBWA (Davis & Gilbert) got Irell disqualified from the case in 2007 when they proved Irell was representing TBWA in an unrelated matter at the same time--and unearthed records showing Irell knew TBWA was upset about the conflict, court records show.

Brian Hennigan, an Irell partner on the case at the time, did not return a message seeking comment. David Bayles, the lead Arent Fox attorney listed, also did not return a call for comment. Donald Falk of Mayer Brown says his firm did some work on the district court level but dropped out before the appellate process began. 

Robert Harris, name partner of Stein, Ray & Harris, did not return messages seeking comment. Venable partner Douglas Emhoff also represented TBWA in front of the circuit court; Paul Corcoran, a partner at Davis & Gilbert, argued the case at both the district and appellate level, records show. They did not return messages.

Taco Bell has not said whether it plans to appeal, according to the Los Angeles Times.

Some chihuahua-related trivia, courtesy of the LAT:

• The dog's name is Gidget, and she played Reese Witherspoon's dog Bruiser in the second "Legally Blonde" film (one the Am Law Daily was mercifully allowed to skip). She also appeared in ads for Geico, the insurance company.

• Gidget also appeared on "The Tonight Show With Jay Leno," where Leno allowed her to chow down on her choice of a Taco Bell chalupa or some chicken from Kentucky Fried Chicken. She chose the chicken.

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