Out of the Box Enterprises LLC v. El Paseo Jewelry Exchange, Inc

• Court: Court of Appeals for the Ninth Circuit
• Decided: April 30, 2018
• Docket: 13-55239
• Status: Unpublished

Opinion

NOT FOR PUBLICATION

UNITED STATES COURT OF APPEALS FILED FOR THE NINTH CIRCUIT APR 30 2018 OUT OF THE BOX ENTERPRISES, No. 13-55239 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS LLC, a Texas limited liability company, D.C. No. Plaintiff-Appellee, 5:10-cv-01858-VAP-DTB

v. MEMORANDUM* EL PASEO JEWELRY EXCHANGE, INC., a Nevada corporation; EL PASEO JEWELRY, INC.; IVAN KALENSKY, an individual,

Defendants, and

RAJU MEHTA, an individual,

Defendant-Appellant.

Appeal from the United States District Court for the Central District of California Virginia A. Phillips, Chief Judge, Presiding

Argued and Submitted May 9, 2017 Submission Vacated May 30, 2017 Resubmitted April 27, 2018

Pasadena, California

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Before: CHRISTEN** and FRIEDLAND, Circuit Judges, and LASNIK,*** District Judge.

Defendant-Appellant Raju Mehta appeals a judgment entered in favor of

Plaintiff-Appellee Out of the Box Enterprises, LLC.1 We have jurisdiction under

28 U.S.C. § 1291. Because we conclude that the district court erred by denying

Mehta’s motion for judgment as a matter of law under Rule 50(b) of the Federal

Rules of Civil Procedure, we reverse.

We review de novo an order denying a Rule 50(b) motion for judgment as a

matter of law. Dunlap v. Liberty Nat. Prods., Inc., 878 F.3d 794, 797 (9th Cir.

2017). We ask “whether the evidence, construed in the light most favorable to the

nonmoving party, permits only one reasonable conclusion, and that conclusion is

contrary to that of the jury.” Id. (quoting Estate of Diaz v. City of Anaheim, 840

F.3d 592, 604 (9th Cir. 2016)).

** Judge Christen was drawn to replace Judge Pregerson on the panel following his death. Judge Christen has read the briefs, reviewed the record, and listened to the oral argument. *** The Honorable Robert S. Lasnik, United States District Judge for the Western District of Washington, sitting by designation. 1 Because the parties are familiar with the facts, we do not recite them here. 2 The Lanham Act prohibits false advertising. 15 U.S.C. § 1125(a). Where a

plaintiff establishes that a competitor has engaged in false advertising, the Lanham

Act allows recovery of: (1) the defendant’s profits; (2) the plaintiff’s damages; and

(3) the costs of the action, so long as recovery “constitute[s] compensation and not

a penalty.” 15 U.S.C. § 1117(a). “[T]he court must ensure that the record

adequately supports all items of damages . . . lest the award become speculative or

violate [the Lanham Act’s] prohibition against punishment.” TrafficSchool.com,

Inc. v. EDriver, Inc., 653 F.3d 820, 831 (9th Cir. 2011) (alterations in original)

(quoting ALPO Petfoods, Inc. v. Ralston Purina Co., 913 F.2d 958, 969 (D.C. Cir.

1990)).

Viewing the evidence in the light most favorable to Out of the Box, the only

reasonable conclusion in this case is that Out of the Box failed to meet its burden

of adequately proving: (1) that El Paseo’s advertisements caused Out of the Box to

lose profits; and (2) the amount of any lost profits. See Lindy Pen Co. v. Bic Pen

Corp., 982 F.2d 1400, 1407 (9th Cir. 1993) (“A plaintiff must prove both the fact

and the amount of damage.”), abrogated on other grounds by SunEarth, Inc. v. Sun

Earth Solar Power Co., 839 F.3d 1179, 1181 (9th Cir. 2016) (en banc) (per

curiam). Even assuming Nolte was qualified to render an opinion about how

consumer behavior might change in response to variations in the price of gold, and

3 setting aside Out of the Box’s scant business history, Nolte’s testimony established

only a correlation—not a causal relationship—between El Paseo’s advertisements

and a decline in Out of the Box’s projected profits. Nolte’s testimony also did not

provide the jury with a way to determine by a preponderance of evidence the

amount of any lost profits Out of the Box may have suffered as a result of El

Paseo’s advertisements. In short, the record provides “no way to determine with

any degree of certainty what award would be compensatory,” as required by our

precedent. TrafficSchool.com, 653 F.3d at 831.

Nolte’s disgorgement calculation is also fatally flawed.2 The infirmities in

Nolte’s damages calculation undermine his disgorgement calculation as well.

Additionally, Nolte assumed that all of El Paseo’s profits during the relevant

period were due to its advertisements, without evidence to support that assumption.

As in TrafficSchool.com, there is no way to determine whether the disgorgement

award was compensatory or punitive. See TrafficSchool.com, 653 F.3d at 831.

Out of the Box’s claims under California’s Unfair Competition Law, Cal.

Bus. & Prof. Code §§ 17200 et seq., and False Advertising Law, id. § 17500, fail

along the same lines. Those statutes allow private litigants to recover restitution,

2 Mehta’s Rule 50(b) motion re-raised the arguments he made in his Rule 50(a) motion at the close of Phase II, wherein he pointed out that Nolte’s disgorgement calculation was impermissibly speculative. 4 but not damages. Colgan v. Leatherman Tool Grp., Inc., 38 Cal. Rptr. 3d 36, 59

(Ct. App. 2006). Any award of restitution under those statutes must be of a

“measurable amount” and “that measurable amount must be supported by

evidence.” Pulaski & Middleman, LLC v. Google, Inc., 802 F.3d 979, 988 (9th

Cir. 2015) (quoting Colgan, 38 Cal. Rptr. 3d at 61). Exact proof is not necessary,

but California law requires “some reasonable basis of computation.” Id. at 989

(quoting Marsu B.V. v. Walt Disney Co., 185 F.3d 932, 938–39 (9th Cir. 1999)).

As discussed, Out of the Box’s evidence at trial fell short of that mark.

Because we conclude that Out of the Box failed to introduce evidence

sufficient to establish the existence and amount of its damages or permissible

disgorgement, we need not address the other issues Mehta raises on appeal.

REVERSED.