Harbor Breeze Corporation et al v. Newport Landing Sportfishing, Inc. et al, No. 8:2017cv01613 - Document 441 (C.D. Cal. 2023)
Court Description: MEMORANDUM OF DECISION by Judge Cormac J. Carney. For the foregoing reasons, the Court declines to disgorge Defendants profits or to award attorneys fees. Pursuant to this Memorandum of Decision, the Judgment and Permanent Injunction, (Dkt. 314 ), remain the same and will not be amended. SEE DOCUMENT FOR FURTHER INFORMATION. (Made JS-6. Case Terminated.) (twdb)
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Harbor Breeze Corporation et al v. Newport Landing Sportfishing, Inc. et al Doc. 441 JS-6 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 SOUTHERN DIVISION 11 12 13 14 15 16 17 18 19 20 21 22 ) ) Case No.: SACV 17-01613-CJC (DFMx) ) HARBOR BREEZE CORPORATION, ) ) et al., ) ) ) MEMORANDUM OF DECISION Plaintiffs, ) ) v. ) ) ) NEWPORT LANDING ) ) SPORTFISHING, INC., et al., ) ) ) Defendants. ) ) ) 23 24 I. INTRODUCTION 25 26 Plaintiffs Harbor Breeze Corporation and L.A. Waterfront Cruises, LLC, brought 27 this false advertising lawsuit against Defendants Newport Landing Sportfishing, Inc., 28 Davey’s Locker Sportfishing, Inc., Ocean Explorer, Inc., and Freelance Sportfishing, Inc. -1- Dockets.Justia.com 1 (See Dkt. 1 [Complaint, hereinafter “Compl.”].) The jury found that Plaintiffs had 2 proven all elements of liability for false advertising but awarded $0 in damages and 3 profits. (See Dkt. 271 [Verdict Form].) The Ninth Circuit reversed in part and vacated in 4 part on disgorgement of profits and attorneys’ fees, respectively, because a subsequent 5 change in the law rendered incorrect the jury instruction that willfulness was a 6 prerequisite to disgorge profits. (See Dkt. 369 [Opinion].) The Court held a bench trial 7 on these two issues on remand. (See Dkt. 431 [Reporter’s Transcript of Proceedings, 8 Nov. 29, 2022, hereinafter “11/29/22 Tr.”]; Dkt. 432 [Reporter’s Transcript of 9 Proceedings, Nov. 30, 2022, hereinafter “11/30/22 Tr.”]). Upon consideration of the 10 evidence, the Court declines to disgorge profits or to award fees. 11 12 II. BACKGROUND 13 14 Plaintiffs and Defendants are competing businesses that operate whale-watching 15 and other boat cruises off the coast of the Los Angeles metropolitan area. (See 11/29/22 16 Tr. 27:1–3, 30:15–23.) Plaintiffs operate out of Long Beach and San Pedro, California, 17 while Defendants operate out of Newport Beach, California. (See id. 27:4–6, 27:22–28:2, 18 30:24–25.) 19 20 The parties’ legal disputes began in 2011. Harbor Breeze brought state-law claims 21 for unfair competition and false advertising in California state court against Newport 22 Landing, Davey’s Locker, and Thor Brisbin, who oversaw the companies’ marketing. 23 (See Dkt. 84 [Order Denying Defendants’ Motion for Judgment on the Pleadings, 24 hereinafter “Order MJP”] at 5 & n.2 [taking judicial notice of state court filings].) The 25 operative complaint alleged a variety of unlawful actions, such as submitting a fake 26 business address in Long Beach, creating misleading website URLs, and posting fake 27 reviews about services. (See id. at 5.) The jury found that the defendants had engaged in 28 false advertising, and the court enjoined them from specified conduct. (See Dkt. 433 -2- 1 [Defendants’ Exhibits Admitted at 2019 Trial] at 103-1 to 103-4 [state court permanent 2 injunction].) 3 4 Harbor Breeze requested that the state court hold the defendants in contempt, 5 which the state court declined on January 2, 2015. (See id. at 102-4 [Notice of Ruling].) 6 At issue were the defendants’ representations about their location—namely, two 7 advertisements referencing “Long Beach Departures” and the sufficiency of “a graphic 8 stating ‘All Vessels Depart from Beautiful Newport Beach’ [on] each of [Newport 9 Landing’s] websites” that purportedly could not “be ‘read’ by third-party search 10 engines.” (Id.) The court found that the two advertisements were “inadvertent” and 11 “subsequently removed” and that the graphic was adequate to comply with the injunction 12 because it was “conspicuous to consumers viewing Newport Landing’s website.” (Id.) 13 14 In September 2017, Plaintiffs filed this action against Defendants. They asserted 15 claims for (1) false advertising in violation of the Lanham Act, ch. 540, 60 Stat. 427 16 (1946) (codified as amended in scattered sections of 15 U.S.C.), (2) violation of 17 California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200–17210, 18 and (3) violation of California’s False Advertising Law, Cal. Bus. & Prof. Code 19 §§ 17500–17509. (See Compl.) The case proceeded to a jury trial in June 2019. 20 21 Plaintiffs’ evidence focused on two aspects of Defendants’ advertising. First, 22 Plaintiffs contended that Defendants engaged in false advertising with respect to their 23 location. For instance, a consumer who searched on the internet for “Long Beach whale 24 watching” would be directed to a page on Defendants’ website repeatedly stating the 25 phrase “Long Beach residents and visitors,” suggesting that their cruises departed from 26 Long Beach rather than Newport Beach. (Dkt. 292 [Reporter’s Transcript of 27 Proceedings, June 18, 2019, Volume III, hereinafter “6/18/19 Tr. vol. III”] 74:14–75:8.) 28 Second, Plaintiffs asserted that Defendants engaged in false advertising with respect to -3- 1 their prices. Defendants advertised, for example, a “$10 whale watching special” even 2 though a consumer could never get on a whale watching cruise operated by Defendants 3 for only $10. (Id. at 75:19–76:5.) Defendants charged a $2.50 fuel surcharge and a 2% 4 wharfage fee on top of the $10. (See id. 76:6–77:22.) There was also evidence that 5 calling these extra charges a “fuel surcharge” or “wharfage fee” was misleading because 6 these fees were a way to get extra revenue, not tied to actual expenses, and Defendants 7 did not disclose these fees until late in the purchase process. (See Dkt. 294 [Reporter’s 8 Transcript of Proceedings, June 20, 2019, hereinafter “6/20/19 Tr.”] 123:4–128:4.) 9 10 The jury found that Plaintiffs had proven all elements necessary to find that the 11 Defendants had engaged in false advertising in violation of the Lanham Act. (See 12 Verdict Form.) But the jury also awarded $0 for Plaintiffs’ actual damages and $0 for 13 Defendants’ profits attributable to the false advertising. (Id.) 14 15 After trial, the Court granted in part Plaintiffs’ motion for a permanent injunction 16 but denied their motions to disgorge Defendants’ profits and to award attorneys’ fees. 17 (See Dkt. 313 [Order Denying Plaintiffs’ Motion for Order for Disgorgement of Profits, 18 Granting in Part Plaintiffs’ Motion for a Permanent Injunction, and Denying Plaintiffs’ 19 Motion for Attorneys’ Fees].) The Court noted that “Plaintiffs chose to submit the 20 question of disgorgement of profits to the jury,” so “the Court must give full effect to that 21 verdict.” (Id. at 5.) And there was “no reason to set aside the jury’s verdict,” as the jury 22 could have reasonably found “that Defendants’ false advertising was not willful” and 23 “that Defendants’ profits were not attributable to false advertising.” (Id. at 5–6.) The 24 Court also noted that if it “were to take its own view of the evidence, it would reach the 25 same result.” (Id. at 6.) For these (and other) reasons, the Court denied the motion for 26 attorneys’ fees as well. (See id. at 13.) 27 28 -4- 1 While they appealed to the Ninth Circuit on disgorgement and fees, (see Dkt. 323 2 [Notice of Appeal]), Plaintiffs moved to hold Defendants in contempt for several 3 purported violations of the injunction, (see Dkt. 357 [Order Denying Plaintiffs’ Motions 4 for Contempt and for Sanctions, hereinafter “Contempt Order”] at 2). The Court 5 concluded that Defendants were not in contempt. (See id.) For example, Defendants’ 6 mobile site temporarily failed to include disclosures required by the injunction because of 7 “a technical error”—“one errant line of code”—but “the webpage in question was 8 updated . . . [to] contain[ ] the required disclosures.” (Id. at 9.) Plaintiffs claimed that 9 Defendants failed to disclose that certain ticket prices applied only on weekdays, but 10 Plaintiffs “failed to prove by clear and convincing evidence that [a] weekend price-hike 11 actually exists.” (Id. at 10.) Plaintiffs also took issue with Defendants “advertising that 12 prices start at or are ‘from’ a listed price,” but “[t]he Court [wa]s unwilling to interpret its 13 own Injunction to proscribe” as much. (Id. at 11.) And Plaintiffs claimed that 14 Defendants did not properly state the “entire cost of the ticket” in their advertisements 15 and webpages because Defendants stated the ticket price and charges in separate lines of 16 text, which the Court found unpersuasive. (Id. at 12–15.) 17 18 Later, the Ninth Circuit reversed in part and vacated in part. (See Opinion.) The 19 Ninth Circuit reversed on disgorgement because the jury instructions “failed to recite the 20 correct legal standard.” (Id. at 5.) It noted that this Court properly instructed the jury 21 under “then-existing Ninth Circuit precedent . . . that, in order to be awarded Defendants’ 22 profits from their alleged false advertising, Plaintiffs had to show that Defendants acted 23 willfully.” (Id.) But the Supreme Court’s decision in Romag Fasteners, Inc. v. Fossil, 24 Inc., 140 S. Ct. 1492 (2020), which postdated the trial and the order denying 25 disgorgement, abrogated that precedent. (See Opinion at 5.) Romag “held that 26 willfulness is not an ‘inflexible precondition to recovery’ . . . . Instead, a ‘defendant’s 27 mental state is a highly important consideration in determining whether an award of 28 profits is appropriate.’” (Opinion at 5 [quoting 140 S. Ct. at 1497].) The Ninth Circuit -5- 1 then vacated on attorneys’ fees “[b]ecause retrial of the disgorgement issue could affect 2 the assessment of some of the relevant circumstances.” (Id. at 12.) 3 The Court held a two-day bench trial on disgorgement and fees on remand. The 4 5 parties designated witness testimony and exhibits from the 2019 trial as evidence and 6 presented additional evidence that largely focused on Defendants’ conduct since 2022. 7 (See 11/29/22 Tr.; 11/30/22 Tr.) Plaintiffs’ evidence suggested that Defendants 8 continued to include locations like “Long Beach” in the title tags of some webpages, 9 which appeared in organic search results on Google. (See 11/29/22 Tr. 234:1–12.) 10 Defendants also included “supplemental charges,” such as those purportedly for the 11 decrease in passengers and higher fuel costs due to the COVID-19 pandemic for their 12 regular whale-watching cruises. (See, e.g., Dkt. 436-1 Ex. 2014 [MP4: Video of Davey’s 13 Locker Website (Oct. 5, 2022), hereinafter “Ex. 2014”].) And Defendants sold $10 14 Groupon vouchers that customers could redeem for cruises departing “Before 10am/After 15 5pm,” although Defendants did not offer departures after 5 p.m., and for approximately 16 one week offered vouchers that customers could redeem only when paying an additional 17 $2 fee. (Id. Ex. 2003 [MP4: Video of Davey’s Locker Groupon Webpage (Apr. 4, 2022), 18 hereinafter “Ex. 2003”]; id. Ex. 2004 [MP4: Video of Groupon Voucher Redemption on 19 Davey’s Locker Website].) Further, Defendants used the phrase “Feel the Harbor 20 Breezes” in a pay-per-click advertisement on Google. (Dkt. 436-1 Ex. 2025 [Google 21 Search Results for “Harbor Breeze Whale Watching”] at 1.) 22 23 III. DISCUSSION 24 25 A. Disgorgement of Profits 26 27 28 Section 35(a) of the Lanham Act provides for disgorgement of profits as a remedy to false advertising in violation of Section 43, “subject to the principles of equity.” 15 -6- 1 U.S.C. § 1117(a). Two reasons foreclose disgorging profits here—first, Defendants’ 2 profits are not attributable to their misconduct, and second, the equitable considerations, 3 in the Court’s discretion, do not weigh in favor of disgorgement. 4 1. 5 Profits Attributable to False Advertising 6 “The Lanham Act allows a prevailing plaintiff to disgorge profits that are earned 7 8 by the defendant and attributable to” false advertising. Globefill Inc. v. Elements Spirits, 9 Inc., 756 F. App’x 764, 765 (9th Cir. 2019); see also Mishawaka Rubber & Woolen Mfg. 10 Co. v. S.S. Kresge, 316 U.S. 203, 206 (1942) (holding that a plaintiff is not entitled to 11 profits not attributable to the defendant’s unlawful conduct); U-Haul Int’l, Inc. v. Jartran, 12 Inc., 793 F.2d 1034, 1042 (9th Cir. 1986) (“The amount to be awarded is the financial 13 benefit [the defendant] received because of the advertising.”). “[A] court may deny 14 recovery of a defendant’s profits if,” for example “they are only remotely or speculatively 15 attributable to the infringement.” Frank Music Corp. v. Metro-Goldwyn-Mayer, Inc., 772 16 F.2d 505, 517 (9th Cir. 1985).1 This principle—that misconduct must have “had an 17 effect on profits” to justify disgorgement—is just plain “common sense.” Mackie v. 18 Rieser, 296 F.3d 909, 915 (9th Cir. 2002). A plaintiff must “prove [a] defendant’s sales 19 only,” while a “defendant must prove all elements of cost or deduction claimed.” 15 20 U.S.C. § 1117(a). Thus, the defendant has the burden of proving that misconduct “had no 21 cash value in sales made by” the defendant. Mishawaka, 316 U.S. at 207. 22 23 Evidence connecting Defendants’ false advertising to their profits is lacking. 24 Plaintiffs say that “customers were confused between Defendants and Harbor Breeze, and 25 at times Harbor Breeze allowed customers with Defendants’ tickets on its boats.” 26 27 28 1 Though Frank dealt with the Copyright Act of 1976, Pub. L. No. 94-553, 90 Stat. 2541 (codified as amended in scattered sections of the U.S. Code), that statute’s relevant provisions resemble those of the Lanham Act such that the same rule applies under the latter. See J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 30.65 (5th ed. Dec. 2022 Update). -7- 1 (Dkt. 437 [Plaintiff’s Post-Trial Brief, hereinafter “Pl. Br.”]. at 32.) They argue that 2 “[t]here is no question that Defendants profited extensively from their false and 3 misleading advertising because Defendants’ false fees came with a set dollar value.” (Id. 4 at 32.) But the Court is not convinced that Defendants would have earned less absent 5 their misconduct. Defendants charged significantly lower prices for their cruises even 6 including their fees. (See Dkt. 293 [Reporter’s Transcript of Proceedings, June 19, 2019, 7 Volume I] 116:6–117:12, 123:9–13.) And they ultimately disclosed all fees to consumers 8 before any purchase was completed. (See id. 8:10–10:9, 12:4–13:7, 14:22–25.) It seems 9 more likely than not that consumers would—and did—care more about getting a good 10 deal than where the cruise departs or whether a few dollars get added to the ticket cost. 11 12 To be sure, Defendants may have “thought [that their] advertising was important or 13 would generate profits,” but that “is a truism. Companies obviously hope that advertising 14 will be a boon to business. What [the evidence] failed to do,” however, was persuade the 15 Court “that the advertising actually had this effect.” Ill. Tool Works, Inc. v. Rust-Oleum 16 Corp., 955 F.3d 512, 515 (5th Cir. 2020). In short, Defendants “would have sold just as 17 many” tickets had their advertisements been up to snuff, and “there is no basis for 18 inferring that any of the profits received by [Defendants] . . . are attributable to” their 19 misconduct. Tex. Pig Stands, Inc. v. Hard Rock Cafe Int’l, Inc., 951 F.2d 684, 696 (5th 20 Cir. 1992). 21 22 2. Principles of Equity 23 24 The disgorgement remedy “‘is not automatic’ upon a finding of” false advertising. 25 Fifty-Six Hope Road Music, Ltd. v. A.V.E.L.A., Inc., 778 F.3d 1059, 1073 (9th Cir. 2015) 26 (citation omitted). Rather, disgorgement is “subject to the principles of equity,” 15 27 U.S.C. § 1117(a)—“fundamental rules that apply . . . systematically across claims and 28 practice areas,” Romag, 140 S. Ct. at 1496. These principles include (1) “a defendant’s -8- 1 mental state,” id. at 1497, such as “whether the [defendant] had the intent to confuse or 2 deceive, (2) whether sales have been diverted, (3) the adequacy of other remedies, (4) any 3 unreasonable delay by the plaintiff in asserting [the plaintiff’s] rights, (5) the public 4 interest in making the misconduct unprofitable, and (6) whether it is a case of palming 5 off,” Kars 4 Kids Inc. v. America Can!, 8 F.4th 209, 223 (3d Cir. 2021); accord 6 Synergistic Int’l, LLC v. Korman, 470 F.3d 162, 175 (4th Cir. 2006); Quick Techs., Inc. v. 7 Sage Grp. PLC, 313 F.3d 338, 349 (5th Cir. 2002). Courts have “discretion to fashion 8 relief, including monetary relief, based on the totality of the circumstances.” Southland 9 Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1146 (9th Cir. 1997). Separate and apart 10 from the problem of attributing Defendants’ profits to their false advertising, the Court 11 concludes in its discretion that the equities of this case do not favor disgorgement. 12 13 a) Mental State 14 15 Mental states fall along a spectrum. On one end is willfulness, which “carries a 16 connotation of deliberate intent to deceive. Courts generally apply forceful labels such as 17 ‘deliberate,’ ‘false,’ ‘misleading,’ or ‘fraudulent’ to conduct that meets this standard.” 18 Lindy Pen Co. v. Bic Pen Corp., 982 F.2d 1400, 1406 (9th Cir. 1993) (citations omitted), 19 superseded by statute on other grounds, Trademark Amendments Act of 1999, Pub. L. 20 No. 106-43, 113 Stat. 218, as recognized in SunEarth, Inc. v. Sun Earth Solar Power Co., 21 Ltd., 839 F.3d 1179 (9th Cir. 2016) (en banc); see also McCarthy, supra, § 30.62 22 (“Courts have defined a ‘willful’ state of mind using a variety of descriptions, ranging 23 from deliberate and knowing to reckless and indifferent.”). Toward the other end of the 24 spectrum is negligence, which is when a defendant “should have known of a . . . risk but, 25 in fact, did not.” Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754, 769 (2011). 26 Willfulness is more culpable than negligence; the former generally supports disgorging 27 ill-gotten gains, while the latter generally does not. 28 -9- 1 Defendants’ mental state here does not favor disgorgement. They were at worst 2 negligent, not willful. At the 2019 trial, Pam Watts, one of the individual owners of 3 Defendants, testified that Defendants had made changes to their websites and 4 advertisements following state court litigation in 2012 over false advertising and that 5 Defendants afterwards thought they were in compliance. (See 6/20/19 Tr. 20:3–22.) One 6 of those changes was to add language on every page that Defendants’ boats departed 7 from “beautiful Newport Beach.” (See Dkt. 293 [Reporter’s Transcript of Proceedings, 8 June 19, 2019] 10:16–25.) The evidence did not suggest that Defendants intended to 9 mislead consumers with respect to their ticket prices––even if their advertising was, in 10 fact, misleading—since Defendants ultimately disclosed all fees prior to purchase. (See 11 id. 8:10–10:9, 12:4–13:7, 14:22–25.) And the evidence on Defendants’ advertising on 12 location showed that Defendants intended to optimize their search engine results, not 13 confuse consumers. (See Dkt. 295 [Reporter’s Transcript of Proceedings, June 21, 2019] 14 75:18–76:17.) 15 16 Plaintiffs claim that, even after the 2019 trial and injunction, Defendants “still 17 advertise the same nominal $10 or $16 teaser price in their page titles, the titles that 18 Defendants ‘hope’ Google will display exactly as they have written,” and therefore 19 “never accurately communicated their price increase to customers.” (Pl. Br. at 23.) Not 20 so. On their landing pages from Google, for example, Defendants conspicuously stated 21 that a supplemental charge applied of a specified amount at specified cruise times 22 immediately below the ticket prices and that cruises departed from Newport Beach. (See 23 Dkt. 436-1 Ex. 2001 [MP4: Video of Davey’s Locker Website (Apr. 4, 2022), hereinafter 24 “Ex. 2001”]; Ex. 2014; Dkt. 436-1 Ex. 2015 [MP4: Video of Newport Landing Website 25 (Oct. 5, 2022), hereinafter “Ex. 2015”].) A similar disclosure appeared on Defendants’ 26 Groupon webpage. (See id. Ex. 2003 [MP4: Video of Davey’s Locker Groupon 27 Webpage (Apr. 4, 2022), hereinafter “Ex. 2003”].) Multiple cruise options were 28 -10- 1 available at any given moment at Defendants’ advertised “from” or “starting at” prices. 2 (See 11/29/22 Tr. 216:4–19.) 3 4 Plaintiffs claim that “Defendants also continue to offer false explanations for their 5 additional charges.” (Pl. Br. at 23.) Plaintiffs overplay their hand. Defendants’ COVID- 6 19 supplemental charges, as listed on their websites, purported to be a result of a “[l]arge 7 reduction in passengers per cruise.” (Ex. 2014; Ex. 2015.) Thor Brisbin explained that 8 Defendants included these charges because Defendants were, in fact, “carrying fewer 9 passengers” and “still are,” having “reduced [their] capacity to 70 percent.” (11/29/22 Tr. 10 265:4–7.) That the reduction may be from some cause other than government mandates 11 does not render them unrelated to COVID-19; Defendants could have understood 12 customers to prefer fewer passengers in proximity because of the contagiousness of the 13 illness. Plaintiffs also believe that these charges are “arbitrary” because they “apply only 14 to regular whale-watching cruises” and not other cruise types, (Pl. Br. at 23), but as 15 Brisbin testified, such a comparison is like “apples and oranges”—the cruises are 16 “different experience[s]” with different boats and numbers of passengers, (11/30/22 Tr. 17 9:2–5.) 18 19 Then, Plaintiffs accuse Defendants of trademark infringement for using the phrase 20 “Feel the Harbor Breezes” in an advertisement in August 2022. (See Pl. Br. at 17.) It is 21 at best unclear that this would even constitute infringement. First, it is dubious whether 22 the phrase possesses the requisite “degree of ‘distinctiveness’” to be “protectable.” S. 23 Cal. Darts Ass’n v. Zaffina, 762 F.3d 921, 929 (9th Cir. 2014). The phrase might be 24 “generic,” or “descriptive” without a “secondary meaning.” Id. (citation omitted). 25 Second, it is questionable whether Defendants’ “use of the mark is likely to cause 26 confusion.” Id. (citation omitted). But the Court need not—and therefore does not— 27 decide whether this use constitutes trademark infringement. This case concerns false 28 advertising as of the date of the complaint. The Court will not allow Plaintiffs to -11- 1 transform this into a new action for infringement, and it will not assign much probative 2 value to conduct occurring well after the advertising at issue. Again, at most, the alleged 3 conduct reflects negligence. 4 5 Plaintiffs further take issue with the series of “mistakes” that Defendants have 6 made in their website advertising practices, which they believe amount to a culpable 7 mental state. (See Pl. Br. at 25–28.) At some point, the volume and nature of mistakes 8 may justify a finding of willfulness. But that moment has not yet arrived. The Court 9 remarked in 2019 that “[b]y all accounts, Defendants have gone to considerable lengths 10 to revamp their online advertising.” (Contempt Order at 17–18.) At the 2022 trial, 11 Brisbin testified that he met with his advertising team immediately after the injunction to 12 coordinate efforts to comply, (see 11/30/22 Tr. 44:5–9), and among Defendants’ primary 13 goals was ensuring compliance with both this Court’s and the state court’s injunctions, 14 (see id. at 35:11–36:2). To date, Defendants’ sloppiness has been just that—sloppiness. 15 16 Plaintiffs finally intimate that disgorgement is warranted even if Defendants are 17 found not to have acted willfully. (See Pl. Br. at 20–21.) To be sure, a court can 18 disgorge profits absent willfulness, which is no longer an “inflexible precondition to 19 recovery.” Romag, 140 S. Ct. at 1497. But mental state remains “a highly important 20 consideration in determining whether an award of profits is appropriate,” id., as “[a]n 21 innocent . . . violator often stands in very different shoes than an intentional one,” id. at 22 1494. Further, “an award of profits under the Lanham Act is truly an extraordinary 23 remedy and should be tightly cabined by principles of equity.” W. Diversified Servs., Inc. 24 v. Hyundai Motor Am., Inc., 427 F.3d 1269, 1274 (10th Cir. 2005); see also Restatement 25 (Third) of Unfair Competition § 37 cmt. e (Am. L. Inst. Oct. 2022 Update) (“The better 26 view limits an accounting of profits to acts intended to create confusion or to deceive 27 prospective purchasers.”); id. (“[A]pplication of the accounting remedy to uses 28 undertaken in good faith can chill lawful behavior.”). All this cautions towards declining -12- 1 to disgorge profits absent a more culpable state—as several other courts have suggested. 2 See, e.g., Stone Brewing Co., LLC v. MillerCoors LLC, No. 18-cv-00331, 2022 WL 3 3021697, at *2 (S.D. Cal. July 29, 2022); Fashion Exch. LLC v. Hybrid Promotions, 4 LLC, No. 14-Cv-1254, 2022 WL 4554480, at *5–6 (S.D.N.Y. Sept. 29, 2022). 5 6 b) Diversion of Sales 7 8 9 Also lacking was evidence that “[P]laintiffs . . . ha[ve] lost [sales] as a result of [their] customers being diverted to . . . [D]efendants.” Maier Brewing Co. v. 10 Fleischmann Distilling Corp., 390 F.2d 117, 121 (9th Cir. 1968); see also Spin Master, 11 Ltd. v. Zobmondo Ent., LLC, 944 F. Supp. 2d 830, 840–41 (C.D. Cal. 2012). That 12 Defendants’ profits are not attributable to false advertising inherently means that no sales 13 were diverted. In any event, the verdict in the first trial also precludes a finding of 14 diverted sales. Though the jury found “that one or more of the defendants’ statements at 15 issue caused or is likely to cause damage to the plaintiffs,” it awarded $0 in damages. 16 (Verdict Form at 3.) The jury must have found that Plaintiffs failed to prove that they 17 suffered any harm, or failed to prove to a reasonable degree of certainty an amount of 18 harm, which would include diverted sales. Since this portion of the judgment was 19 untouched on appeal, it remains binding. See FCA US, LLC v. Spitzer Autoworld Akron, 20 LLC, 887 F.3d 278, 289 (6th Cir. 2018) (“[A] partial reversal of a judgment generally 21 does not vacate or void the entire judgment.”); Laborers’ Int’l Union of N. Am. v. Foster 22 Wheeler Energy Corp., 26 F.3d 375, 396 n.24 (3d Cir. 1994). The Court also would take 23 the same view of the evidence now. And it is telling that Plaintiffs acknowledge in their 24 brief that diverted sales is an equitable factor, (see Pl. Br. at 19 n.3), but do not discuss it. 25 “[A]n award of profits with no proof of harm is an uncommon remedy in a false 26 advertising suit,” thus cautioning against disgorgement. TrafficSchool.com, Inc. v. 27 Edriver Inc., 653 F.3d 820, 831 (9th Cir. 2011). 28 -13- c) 1 Adequacy of Other Remedies 2 3 “It is a ‘basic doctrine of equity jurisprudence that courts of equity should not act 4 . . . when the moving party has an adequate remedy at law . . . .’” Morales v. Trans 5 World Airlines, Inc., 504 U.S. 374, 381 (1992) (first alteration in original) (citation 6 omitted). Thus, a finding of liability coupled with an award of $0 in damages may 7 “support[ ] a finding that there is no [ ]adequate remedy at law.” Monster Energy Co. v. 8 Integrated Supply Network, LLC, 533 F. Supp. 3d 928, 935 (C.D. Cal. 2021); see also 9 Cont’l Airlines, Inc. v. Intra Brokers, Inc., 24 F.3d 1099, 1105 (9th Cir. 1994) (“Th[e] 10 difficulty of establishing economic harm . . . , lack of proof of damages, and possible 11 immeasurability or unascertainability of harm, does not mean [the plaintiff] was not 12 harmed. . . . ‘[W]here the threat of injury is imminent and the measure of that injury 13 defies calculation, damages will not provide a remedy at law.’” (citation omitted)). 14 Further, disgorging profits is sometimes necessary to deter a defendant whose 15 misconduct “is deliberate and willful,” lest both the plaintiff and the public be “slighted.” 16 Playboy Enters., Inc. v. Baccarat Clothing Co., Inc., 692 F.2d 1272, 1274 (9th Cir. 1982). 17 Merely enjoining the misconduct of a defendant who acted willfully does not suffice, for 18 “a profit seeking businessperson, not unwilling to violating federal law,” may simply 19 “switch from one . . . scheme to another as soon as” the first scheme is enjoined. Id. at 20 1274–75. 21 22 Of course, this is not always the case. Even if a plaintiff fails to recover damages, 23 “the equities of the case may not require” disgorgement, and “injunctive relief” 24 sometimes “provides a complete and adequate remedy.” Tamko Roofing Prods., Inc. v. 25 Ideal Roofing Co., Ltd., 282 F.3d 23, 35 (1st Cir. 2002); see also Synergistic Intern., LLC 26 v. Korman, 470 F.3d 162, 176 (4th Cir. 2006); Minn. Pet Breeders, Inc. v. Schell & 27 Kampeter, Inc., 41 F.3d 1242, 1247 (8th Cir.1994). Thus, an injunction often is enough 28 when a defendant’s misconduct was not willful, as the need for disgorgement “to serve as -14- 1 a convincing deterrent” to the wily, “profit maximizing entrepreneur” inclined to 2 transgress the law is not great. Playboy, 692 F.2d at 1274; see also Streamline Prod. 3 Sys., Inc. v. Streamline Mfg., Inc., 851 F.3d 440, 459 (5th Cir. 2017) (noting that 4 monetary remedies under the Lanham Act “are not warranted” when “an injunction alone 5 fully satisfies the equities of a given case,” which “is particularly true in the absence of a 6 showing of wrongful intent” (cleaned up)); Tamko, 282 F.3d at 35 (noting that 7 “injunctive relief may be adequate if there has been no fraud or palming off”). 8 The equities of this case do not require disgorgement, as they were satisfied upon 9 10 issuing the injunction. Since Defendants did not act willfully, disgorgement is not 11 required to “take all the economic incentive out of” false advertising for a business 12 unwilling to abide by the strictures of the law. Playboy, 692 F.2d at 1275. Disgorgement 13 also is not necessary to remove any ill-gotten gains or to compensate for Plaintiffs’ harm. 14 As discussed above, no profits are attributable to Defendants’ misconduct, and Plaintiffs 15 suffered $0 in damages. Finally, Plaintiffs are incorrect that the injunction in this action 16 and the state-court action are insufficient because Defendants have “failed to stop 17 ongoing culpable behavior.” (Pl. Br. at 30.) Plaintiffs have sought to hold Defendants in 18 contempt twice, yet this Court and the state court rebuffed those attempts because the 19 challenged conduct amounted at best to inadvertent, short-lived violations or simply did 20 not constitute violations at all. That Plaintiffs have brought unsuccessful motions to hold 21 Defendants in contempt is no reason to think that the injunctions are insufficient. It 22 shows that Plaintiffs picked the wrong battles to fight—or that the injunctions are, in fact, 23 working to deter misconduct. Thus, the equities of this case do not justify awarding 24 disgorged profits on top of the injunction. 25 // 26 // 27 // 28 // -15- 1 d) Unreasonable Delay by Plaintiffs 2 3 “Determining whether a delay was unreasonable requires answering two questions: 4 how long was the delay, and what was the reason for it?” Eat Right Foods Ltd. v. Whole 5 Foods Mkt., Inc., 880 F.3d 1109, 1116 (9th Cir. 2018). The clock to measure “the length 6 of delay” starts at “the time the plaintiff knew or should have known about its potential 7 cause of action” and ends at the time the plaintiff brought the suit. Jarrow Formulas, Inc. 8 v. Nutrition Now, Inc., 304 F.3d 829, 838 (9th Cir. 2002). “Reasonable justifications for 9 a delay include,” for example, “exhausting remedies through administrative processes, 10 evaluating and preparing complicated claims, and determining ‘whether the scope of 11 proposed infringement will justify the cost of litigation.’” Eat Right Foods, 880 F.3d at 12 1117 (quoting Danjaq LLC v. Sony Corp., 263 F.3d 942, 954 (9th Cir. 2001)). “In 13 contrast, delay is impermissible when its purpose or effect is to capitalize on the value of 14 the [defendant’s] labor by determining whether the [mis]conduct will be profitable.” 15 Evergreen Safety Council v. RSA Network Inc., 697 F.3d 1221, 1227 (9th Cir. 2012). 16 17 Any accusation against Plaintiffs of a “lack of diligence” rings hollow. In re 18 Beaty, 306 F.3d 914, 927 (9th Cir. 2002). Plaintiffs first sued Defendants in state court in 19 2011, resulting in a permanent injunction against certain advertising practices. (See 20 Order MJP at 4–5.) Plaintiffs moved unsuccessfully to hold Defendants in contempt in 21 2014. (See id. at 5–6.) Plaintiffs brought this action in 2017 for “new and continuing 22 misconduct from after the contempt proceedings and for wrongdoings from January 1, 23 2015.” (Id. at 6 [emphasis omitted] [quoting Compl. ¶ 33].) Plaintiffs then moved for 24 contempt in this Court. (See Contempt Order at 2.) And Plaintiffs’ principal, Dan Salas, 25 checks Defendants’ websites daily. (See 11/29/22 Tr. 105:25–106:11). This pattern 26 hardly smacks of dillydallying. 27 28 -16- 1 Nonetheless, Defendants baldly assert that Plaintiffs “failed to raise any issue 2 regarding Defendants’ fee disclosure practices in” state court and “waited several years” 3 to bring this action “in an apparent attempt to increase their” monetary recovery. 4 (Dkt. 439 [Defendants’ Post-Trial Brief in Support of Opposition to Plaintiffs’ Request 5 for Disgorgement of Profits and Attorenys’ (sic) Fees] at 30.) Yet Defendants cite 6 nothing in the record in support, and their contention flies in the face of the facts. If 7 anything, Plaintiffs have hounded Defendants about their advertising practices for over a 8 decade. Indeed, Brisbin bemoaned “living in [litigation] for the last 14 years.” (11/29/22 9 Tr. 256:3–4.) The absence of unreasonable delay by Plaintiffs thus, admittedly, favors 10 disgorgement. 11 e) 12 Public Interest in Making Misconduct Unprofitable 13 14 “The public has an interest in avoiding confusion” from false advertising. Internet 15 Specialties W., Inc. v. Milon-DiGiorgio Enters., Inc., 559 F.3d 985, 993 n.5 (9th Cir. 16 2009); see also Playboy, 692 F.2d at 1275 (noting that “an inadequate judicial response” 17 harms the “consuming public” because “[m]any consumers are willing to pay substantial 18 premiums for particular items which bear famous trademarks based on their belief that 19 such items are of the same high quality as is traditionally associated with the trademark 20 owner”). 21 22 “[W]hile the public has a general interest in making [false advertising] 23 unprofitable, no factors strengthen or distinguish that general interest in this case.” Idaho 24 Golf Partners, Inc. v. TimberStone Mgmt., LLC, No. 14-cv-00233, 2017 WL 3531481, at 25 *14 (D. Idaho Aug. 17, 2017). This case does not involve willful misconduct, when the 26 need to deter misconduct is at its apex. See Bracco Diagnostics, Inc. v. Amersham 27 Health, Inc., 627 F. Supp. 2d 384, 485 (D.N.J. 2009) (finding disgorgement warranted 28 given the equities of the case, “especially” since the defendant’s “violative conduct is not -17- 1 willful”). An injunction satisfies the equities of this case. Any generalized public 2 interest in minimizing false advertising, moreover, is mitigated by the competing interest 3 of the public in robust competition from a competitor that, candidly, offers lower prices 4 than Plaintiffs. See Buzz Off Insect Shield, LLC v. S.C. Johnson & Son, Inc., 606 F. Supp. 5 2d 571, 590 (M.D.N.C. 2009) (noting the possibility of “an undesired anti-competitive 6 effect” in concluding that the public interest factor does not favor enhanced damages 7 under the Lanham Act). And as noted, Defendants ultimately disclosed to consumers the 8 final prices for tickets before any purchases could be completed. The public interest 9 factor, therefore, only marginally favors Plaintiffs—if at all. 10 11 f) Palming Off 12 13 Defendants’ conduct that forms the basis of this action does not constitute 14 “‘palming off” or ‘passing off,’ which involves selling a good or service of one person’s 15 creation under the name or mark of another.” Lamothe v. Atl. Recording Corp., 847 F.2d 16 1403, 1406 (9th Cir. 1988). Defendants’ advertising with respect to a Long Beach 17 departure location or fuel or wharfage fees in no way amounts to Defendants representing 18 that their services are under Plaintiffs’ name or mark. This factor accordingly does not 19 favor disgorgement. 20 21 * * * 22 23 The lack of profits attributable to Defendants’ false advertising itself justifies 24 denying disgorgement. The equities of the case dictate the same conclusion. The Court 25 assigns great weight to the mental state and diverted sales factors, which alone would 26 convince the Court to exercise its equitable discretion not to disgorge profits. This point 27 is only accentuated when considering these two factors in conjunction with the other 28 -18- 1 factors weighing against disgorgement. One way or another, however, this much is 2 certain: disgorgement is not warranted. 3 4 B. Attorneys’ Fees 5 6 Section 35(a) of the Lanham Act also provides that “[t]he court in exceptional 7 cases may award reasonable attorney fees to the prevailing party.” 15 U.S.C. § 1117(a). 8 Courts must “examine the ‘totality of the circumstances’ to determine if the case was 9 exceptional, exercising equitable discretion in light of the nonexclusive factors” that the 10 Supreme Court identified in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 11 U.S. 545 (2014), and Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994), “and using a 12 preponderance of the evidence standard.” SunEarth, 839 F.3d at 1181 (citation omitted). 13 Those factors include “frivolousness, motivation, objective unreasonableness (both in the 14 factual and legal components of the case) and the need in particular circumstances to 15 advance considerations of compensation and deterrence.” Octane Fitness, 572 U.S. at 16 554 n.6. “[B]ecause the Lanham Act ‘permits, but does not mandate, an award of 17 attorneys’ fees’ in ‘exceptional’ circumstances, ‘[a] party alleging that the district court 18 erred by failing to award attorneys’ fees . . . faces an uphill battle.’” Nutrition Distrib. 19 LLC v. IronMag Labs, LLC, 978 F.3d 1068, 1081 (9th Cir. 2020) (second alteration in 20 original) (citation omitted). 21 22 Awarding fees here is inappropriate. It is doubtful whether Plaintiffs are 23 “prevailing part[ies]” entitled to fees under the Lanham Act. 15 U.S.C. § 1117(a); see 24 Kaloud, Inc. v. Shisha Land Wholesale, Inc., 741 F. App’x 393, 396–97 (9th Cir. 2018) 25 (upholding denial of attorneys’ fees because the plaintiff “was not the ‘prevailing party,’” 26 since the plaintiff “did not receive any damages in this case, and a permanent injunction 27 does not qualify as ‘actual damages’”). Even if they were, this case is not exceptional. 28 Plaintiffs’ case does not stand out from others with respect to its substantive strength. -19- 1 They proved liability and obtained an injunction yet failed to recover damages or profits. 2 Although the injunction confers some public benefit, stopping misleading advertising 3 about whale watching does not ameliorate a serious public harm. Cf. TrafficSchool.com, 4 653 F.3d at 832 (remanding for district court to consider, in determining attorneys’ fees, 5 the substantial benefits gained through an injunction where plaintiffs stopped consumers 6 from mistakenly transferring sensitive personal information to a commercial website 7 called DMV.org). That Plaintiffs have spent eight years litigating related issues, in both 8 state and federal court, does not make this case exceptional. If anything, it undermines 9 Plaintiffs’ claim of exceptionality, as the litigation has achieved mixed results. Nor have 10 Plaintiffs shown that Defendants conducted this litigation in an “unreasonable manner.” 11 S.D. Comic Convention v. Dan Farr Prods., 807 F. App’x 674, 676 (9th Cir. 2020) 12 (citation omitted). To be sure, the conduct of all parties in this action has been at times 13 vexing to everyone involved. But there has been no significant “failure to comply with 14 court rules, persistent desire to re-litigate issues already decided, advocacy that veered 15 into ‘gamesmanship,’ [or] unreasonable responses to the litigation” by Defendants. Id. 16 17 IV. CONCLUSION 18 19 For the foregoing reasons, the Court declines to disgorge Defendants’ profits or to 20 award attorneys’ fees. Pursuant to this Memorandum of Decision, the Judgment and 21 Permanent Injunction, (Dkt. 314), remain the same and will not be amended. 22 23 24 25 DATED: March 13, 2023 __________________________________ CORMAC J. CARNEY 26 27 UNITED STATES DISTRICT JUDGE 28 -20-
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