Oculus Innovative Sciences, Inc. v. Prodinnv, S.A. de C.V. et al, No. 3:2008cv04707 - Document 76 (N.D. Cal. 2010)
Court Description: ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT. Granting in part and denying in part 51 Motion for Default Judgment. Plaintiff awarded compensatory damages and injunctive relief. Signed by Judge Maxine M. Chesney. (mmclc2, COURT STAFF) (Filed on 11/16/2010)
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Oculus Innovative Sciences, Inc. v. Prodinnv, S.A. de C.V. et al Doc. 76 1 2 3 4 5 6 7 IN THE UNITED STATES DISTRICT COURT 8 FOR THE NORTHERN DISTRICT OF CALIFORNIA 9 For the Northern District of California United States District Court 10 11 OCULUS INNOVATIVE SCIENCES, INC., No. C-08-04707 MMC Plaintiff, 12 ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF’S MOTION FOR DEFAULT JUDGMENT v. 13 14 PRODINNV, S.A. de C.V. and CESAR MANGOTICH PACHECO, 15 Defendants / 16 17 Before the Court is plaintiff Oculus Innovative Sciences, Inc.’s (“Oculus”) Application 18 for Entry of Default Judgment (“Application”) against defendants Prodinnv, S.A. de C.V. and 19 Cesar Mangotich Pacheco (collectively “defendants”), filed June 1, 2010, pursuant to Rule 20 55(b)(2) of the Federal Rules of Civil Procedure. On October 8, 2010, Oculus, with leave of 21 Court, filed a supplemental memorandum and supplemental declarations in support of the 22 Application. Defendants were served with a copy of the Application, (see Proof of Service 23 by Fedex 2, Doc. No. 58) and with a copies of the supplemental memorandum and 24 declarations (see Proof of Service by Fedex 2, Doc. No. 75), and no opposition has been 25 filed.1 Having considered the papers filed in support of the Application, the Court deems 26 the matter suitable for decision thereon and rules as follows. 27 1 28 The Application was noticed for hearing on July 9, 2010. Accordingly, any opposition was to be filed no later than June 18, 2010. See Civil L.R. 7-3(a). By Clerk’s Notice filed July 7, 2010, the hearing was vacated. Dockets.Justia.com BACKGROUND 1 2 Oculus filed the instant action on October 10, 2008. Oculus alleges that defendants 3 misappropriated and wrongfully used, both in the United States and Mexico, Oculus’s 4 confidential information relating to Oculus’s Microcyn technology and product. (See Compl. 5 ¶¶ 11-14, 22-29.) Specifically, Oculus alleges that, during the time it employed defendant 6 Cesar Mangotich Pacheco (“Mangotich”), Mangotich had access to Oculus’s confidential 7 information (see id. at ¶¶15, 20; see also Alimi Decl. ¶¶ 7, 9, June 1, 2010); that as part of 8 his employment, Mangotich had signed an Employment, Confidential Information, Invention 9 Assignment and Arbitration Agreement (“ECIIAA Agreement”) prohibiting Mangotich from 10 disclosing confidential information or competing with Oculus (see Compl. ¶ 18; see also 11 Alimi Decl. ¶ 10); and that Mangotich, while still employed at Oculus and without Oculus’s 12 knowledge, formed Prodinnv, S.A. de C.V. (“Prodinnv”), a Mexican company, to compete 13 with Oculus and manufacture and sell products, namely Esterilife, Varul, and Qx, which 14 products were essentially identical to Oculus’s Microcyn product, and that Mangotich used 15 Oculus’s confidential information to do so (see Compl. ¶¶ 22-26; see also Alimi Decl. ¶¶ 11- 16 13). Oculus further alleges that defendants continue to manufacture those products and to 17 sell them to Oculus’s customers. (See Compl. ¶¶ 27-28; see also Alimi Decl. ¶ 14.) Based 18 thereon, Oculus asserts state law claims for breach of contract, misappropriation of trade 19 secrets, interference with contract and with prospective economic advantage, and unfair 20 competition. (See Compl. ¶¶ 31-58.) 21 A summons attaching Oculus’s complaint was served on defendants on January 8, 22 2009. (See Doc. No. 3.) Defendants did not file an answer, but instead submitted a letter, 23 which was written in Spanish. (See Doc. No. 22.) On November 24, 2009, defendants 24 were ordered to file, on or before December 21, 2009, a responsive pleading in English.2 25 (See Doc. No. 20; see also Proof of Service (attachment to Doc. No. 20).) Further, 26 defendants were reminded that Prodinnv, a corporate entity, must be represented by 27 28 2 On February 11, 2010, defendants’ letter was ordered stricken. 2 1 counsel, and were informed that a failure to retain counsel would result in entry of default 2 as to such corporate party. (See Doc No. 20.) On February 11, 2010, the Court extended 3 defendants’ time to respond to Oculus’s complaint to March 12, 2010. To date, defendants 4 have not filed an answer to the complaint, refiled their letter in English, or made any other 5 appearance. LEGAL STANDARD 6 After entry of a default, a court may grant a default judgment on the merits of the 7 8 case. See Fed. R. Civ. P. 55(b). “The district court’s decision whether to enter a default 9 judgment is a discretionary one.” Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). 10 Factors a court may consider in exercising that discretion include: (1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff’s substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action[,] (5) the possibility of a dispute concerning material facts[,] (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits. 11 12 13 14 Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). As noted in the Court’s previous 15 order deferring ruling on Oculus’s application for default judgment, upon entry of default,3 16 “the factual allegations of the complaint, except those relating to the amount of damages, 17 will be taken as true.” See Televideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th 18 Cir. 1987). 19 DISCUSSION 20 I. Jurisdiction 21 As alleged in the complaint, Oculus is a resident of California and Delaware (see 22 Compl. ¶ 2), defendants are residents of Mexico (see id. at ¶ 3, 4), and the amount in 23 controversy exceeds $75,000 (see id. at ¶ 34 (claiming $6.3 million in damages)). The 24 Court therefore has jurisdiction over this matter pursuant to 28 U.S.C. § 1332. 25 II. Default Judgment 26 As noted, default has already been entered by the Clerk; consequently, this Court 27 28 3 The Clerk entered the default of each defendant on April 28, 2010. 3 1 has discretion regarding whether to enter judgment against defendants. See Aldabe, 616 2 F.2d at 1092. Considering the factors set forth above, the Court finds default judgment is 3 warranted. First, Oculus will be prejudiced unless default judgment is entered; defendants’ 4 refusal to respond to the complaint or to court orders demonstrates such judgment is 5 Oculus’s sole avenue of relief. Second, the allegations in the complaint, taken as true, 6 demonstrate the merits of Oculus’s claim against defendants. Oculus has alleged a 7 contract between itself and Mangotich and breach by Mangotich, as well as interference 8 with Oculus’s contractual relations with customers and misappropriation of trade secrets, 9 namely the Microcyn technology, and unfair competition by both defendants, all with 10 resulting injury. Third, Oculus’s complaint provides sufficient notice under Rule 8(a) of the 11 Federal Rules of Civil Procedure. Fourth, Oculus alleges a substantial loss as a result of 12 defendants’ conduct, as to which defendants have raised no dispute. Fifth, defendants 13 have raised no dispute as to any other material fact. Sixth, defendants have provided the 14 Court with no excuse for their failure to respond to the complaint. Seventh, and lastly, while 15 the Court is mindful of “the general rule that default judgments are ordinarily disfavored” 16 and that “[c]ases should be decided upon their merits whenever reasonably possible,” Eitel, 17 782 F.2d at 1472, defendants utter failure to respond to the complaint has effectively 18 precluded resolution on the merits. 19 III. 20 Damages In its supplemental memorandum, Oculus seeks an award of damages in the total 21 amount of $3,304,794 (Supp. Mem. 1:15), as well as a permanent injunction (1) prohibiting 22 defendants from “using or disclosing Oculus’[s] confidential, proprietary information, 23 including Trade Secrets as defined in Cal. Civ. Code. sec. 3426, et seq.”; (2) prohibiting 24 defendants from “manufacturing the ‘Infringing Products’ marketed and sold under the 25 brand names Esterilife, Varul and Qx”; and (3) requiring defendants (a) to “return to Oculus 26 any documents or materials which contain, discuss or reflect Oculus’[s] Confidential 27 28 4 1 Information, (as defined in the ECIIAA Agreement)[4] including Trade Secrets as defined in 2 Cal. Civ. Code sec. 3426, including without limitation all Confidential Information and 3 Specifications, Customer lists and other documents provided to [d]efendants in connection 4 with the employment contracts at issue in this action,” (b) to “provide Oculus with an 5 accounting of profits from their manufacture and sale of the ‘Infringing Products’ to third 6 parties,” and (c) to “disgorge all such profits to Oculus” (see Proposed Order at 2:4-17, Doc 7 No. 74). 8 A. Calculation of Oculus’s Losses 9 The Court, in its September 8, 2010 order deferring ruling on Oculus’s Application 10 (“Order”), found the Application, as initially filed, suffered from a number of deficiencies 11 related to the calculation of damages. Specifically, the Court noted that Oculus sought 12 recovery for future losses while at the same time seeking injunctive relief, the declaration 13 submitted by Oculus’s Chief Financial Officer, Robert Miller (“Miller), in support of its 14 damages calculation failed to “establish a sufficient foundation for how he arrived at the 15 figures,” and the spreadsheet attached to said declaration contained mathematical errors. 16 (See Order 2:18-3:26.) 17 In its supplemental memorandum, Oculus no longer seeks damages for future 18 losses. Further, Oculus has submitted a revised declaration from Miller as support for its 19 damages calculation, along with a revised spreadsheet. Miller now states that “[i]n 20 preparing this spreadsheet, [he] reviewed data contained in the company’s financial and 21 accounting records, including data provided to [him] by Everado Garibay, Director of 22 Finance and Administration, Oculus, Mexico.” (See Miller Supp. Decl. ¶ 4.) Miller attests to 23 the accuracy of the data contained in those documents, states that he receives such 24 reports monthly, and notes that it is the same data used by Oculus to prepare filings with 25 the Securities and Exchange Commission and in “disseminating information to financial 26 analysts and the investing public.” (See id.) Miller’s supplemental declaration provides a 27 28 4 The ECIIAA Agreement is attached as an exhibit to Oculus’s complaint. 5 1 sufficient foundation for Oculus’s submission of a damages calculation. See U.S. v. 2 Shumway, 199 F.3d 1093, 1104 (9th Cir. 1999) (finding where “personal knowledge and 3 competence is established by the affidavit,” such affidavit should be admitted by the court). 4 Lastly, Miller has cured the mathematical errors contained in his previous declaration. 5 Oculus’s damages calculation nonetheless continues to suffer from a number of 6 deficiencies, and thus fails to support its claim for $3,304,794. 7 First, $2,456,519 of the amount claimed is attributed by Oculus to losses resulting 8 from the sale of units at a discount due to the need to compete with defendants’ infringing 9 products. (See Compl. ¶ 26; Miller. Supp. Decl. Ex. A.) To calculate that loss, Oculus 10 subtracted the average price per unit (calculated by dividing total sales proceeds for a 11 given period by the total number of units sold in that period) from $25, the price “Oculus 12 was targeting in the several years prior to the onset of [d]efendants’ conduct.” (See Miller 13 Supp. Decl. ¶¶ 6-7 (emphasis added).) The relevant price, however, is not the price 14 Oculus sought, but the price Oculus likely would have received but for defendants’ conduct. 15 See St. Paul Fire and Marine Ins. v. Am. Dynasty Surplus Lines Ins. Co., 101 Cal. App. 4th 16 1038, 1061 (Cal. Ct. App. 2002) (noting, “the breaching party is only liable to place the non- 17 breaching party in the same position as if the specific breach had not occurred”); see also 18 23 Cal. Jur. Damages § 39 (“Damages that are speculative, remote, imaginary, contingent, 19 or merely possible cannot serve as a legal basis for recovery.”). Here, Miller states that 20 “Oculus sold the product at $22.00 to $25.00 per unit prior to” defendants’ unlawful 21 conduct. (Miller Supp. Decl. ¶ 7; see also Garibay Decl. ¶ 8.) Oculus provides no evidence 22 from which the Court can determine the number of units that were sold at the high end, the 23 low end, or somewhere in the middle of that range. The Court thus finds Oculus has 24 provided evidence sufficient to demonstrate a sale price of no more than $22 per unit. 25 Based on a price of $22 per unit and the sales data submitted by Miller, Oculus has 26 demonstrated it is entitled to $1,597,289 in lost profits. 27 28 Second, $848,275 of the total amount claimed is attributed by Oculus to lost sales resulting from its public sector customers’ substitution of defendants’ products for Oculus’s 6 1 products. (See Miller Supp. Decl. ¶ 10.) Oculus arrived at this figure by looking to actual 2 sales from public hospitals and privately owned hospitals, and then attributing to 3 defendants’ unlawful conduct the reduction in sales to public hospitals. (See id. ¶¶ 9, 10.) 4 In so doing, Oculus “assumed that sales in the public sector should have been equal to 5 those in the private sector.” (Id. ¶. 10.) Oculus, however, has provided no historical sales 6 data suggesting sales in the two markets were roughly equivalent prior to defendants’ 7 unlawful conduct, or that the two markets tend to trend in parallel fashion. Without 8 evidence establishing the relevance of the comparison, the Court is unwilling to adopt 9 Miller’s assumption.5 Consequently, the Court finds Oculus has failed to prove damages 10 based on the sale of fewer units. 11 B. Injunctive Relief 12 In addition to damages, Oculus seeks injunctive relief as described above. 13 Injunctive relief is available under the California Uniform Trade Secrets Act (“UTSA”), Cal. 14 Civ. Code §§ 3426-3426.11, and California’s unfair competition law (“UCL”), Cal. Bus. & 15 Prof. Code §§ 17200-17209. Under the UTSA, “[a]ctual or threatened misappropriation 16 may be enjoined.” Cal. Civ. Code. § 3426.2. Under the UCL: 20 Any person who engages, has engaged, or proposed to engage in unfair competition may be enjoined . . . [and] [t]he Court may make such orders or judgments . . . as may be necessary to prevent the use or employment by any person of any practice which constitutes unfair competition . . . or as may be necessary to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition. 21 Cal. Bus. & Prof. Code. § 17203. “As a general rule, a permanent injunction will be granted 22 when liability has been established and there is a threat of continuing violations.” MAI Sys. 23 Corp. v. Peak Comp., Inc., 991 F.2d 511, 520 (9th Cir. 1993). As a Clerk’s default has 24 been entered, Oculus has established defendants’ liability. Further, as alleged in the 25 complaint, defendants continue to sell products using Oculus’s confidential information, and 17 18 19 26 27 28 5 Oculus’s calculation is insufficient for two additional reasons. First, it uses the unsupported sales price of $25 discussed above. Second, it uses a gross sales price rather than a figure representing net profit. 7 1 2 thus there is a threat of continuing violations. As noted, Oculus seeks an injunction prohibiting future misappropriation of its trade 3 secrets and sale of products manufactured as a result of misappropriation, as well as an 4 injunction mandating the return of confidential information, an accounting, and 5 disgorgement of profits. Although both of the above-referenced sections expressly 6 authorize issuance of an injunction to prevent future misappropriation and unfair 7 competition, and although section 17203 of the UCL additionally provides for return of 8 money and property, section 3426.2 of the UTSA is silent as to a court’s authority to order 9 disgorgement of profits and such disgorgement has been held not to be available as a 10 remedy under the UCL. See Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 11 1134, 1149, 1152 (2003) (holding sole monetary relief available under section 17203 is 12 restitution; finding, in suit brought by competitor who lost sale to defendant, disgorgement 13 of profit from such sale was “not restitutionary because plaintiff [did] not have an ownership 14 interest in the money it [sought] to recover from defendants”). Moreover, disgorgement of 15 profits in this instance would be largely duplicative of Oculus’s compensatory damages. 16 See, e.g., id. at 1151 (noting disgorgement would be in ”exactly the same amount that 17 plaintiff [was] seeking to recover as damages for its traditional tort claim of interference with 18 prospective economic advantage”). Consequently, to the extent Oculus seeks an injunction 19 requiring disgorgement of profits, or an accounting for the purposes of obtaining such an 20 order, such injunctive relief will be denied. CONCLUSION 21 22 23 24 For the reasons stated above, Oculus’s Application for Entry of Default Judgment is hereby GRANTED in part and DENIED in part, as follows: 1. To the extent the Application seeks compensatory damages for lost profits, the 25 Application is GRANTED, and Oculus shall have judgment against defendants, jointly and 26 severally, in the amount of $1,597,289; 27 28 2. To the extent the Application seeks injunctive relief as set forth below, the Application is GRANTED: 8 1 a. Defendants Prodinnv, S.A. de C.V. and Cesar Mangotich Pacheco are 2 hereby ENJOINED from using or disclosing Oculus’s confidential, proprietary information, 3 including Trade Secrets as defined in California Civil Code Section 3426.1(d); 4 5 6 b. Said defendants are hereby ENJOINED from manufacturing the products marketed and sold under the brand names Esterilife, Varul, and Qx; and c. Said defendants are hereby ORDERED to return to Oculus any documents 7 or materials that contain, discuss or reflect Oculus’s confidential information (as defined in 8 the ECIIAA Agreement referenced in the complaint) including Trade Secrets as defined in 9 California Civil Code Section 3426.1(d), including without limitation, all confidential 10 information and specifications, customer lists and other documents provided to defendants 11 in connection with defendant Cesar Mangotich Pacheco’s employment. 12 3. In all other respects, Oculus’s Application is DENIED. 13 IT IS SO ORDERED. 14 15 Dated: November 16, 2010 MAXINE M. CHESNEY United States District Judge 16 17 18 19 20 21 22 23 24 25 26 27 28 9
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