Townsend Farms, Inc. v. United Juice Corp.

• Court: Court of Appeals for the Ninth Circuit
• Decided: November 27, 2019
• Docket: 18-55067
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS NOV 27 2019 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

TOWNSEND FARMS, INC., No. 18-55067

Plaintiff-counter- D.C. No. defendant-Appellee, 8:15-cv-00837-DOC-JCG

v. MEMORANDUM* UNITED JUICE CORP.,

Defendant-Appellant,

GÖKNUR GIDA MADDELERI ENERJI IMALAT ITHALAT IHRACAT TICARET VE SANAYI A.S, DBA Göknur Foodstuffs Import Export Trading and Production Co., a Turkish corporation doing business in California,

Defendant-counter-claimant- Appellant.

TOWNSEND FARMS, INC., No. 18-55068

Plaintiff-counter- D.C. No. defendant-Appellant, 8:15-cv-00837-DOC-JCG

v.

UNITED JUICE CORP., a New Jersey

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. corporation doing business in California,

Defendant-Appellee,

GÖKNUR GIDA MADDELERI ENERJI IMALAT ITHALAT IHRACAT TICARET VE SANAYI A.S, DBA Göknur Foodstuffs Import Export Trading and Production Co., a Turkish corporation doing business in California,

Defendant-counter-claimant- Appellee.

Appeal from the United States District Court for the Central District of California David O. Carter, District Judge, Presiding

Argued and Submitted November 5, 2019 Pasadena, California

Before: MURGUIA and HURWITZ, Circuit Judges, and GUIROLA,** District Judge.

Townsend Farms, Inc. (“Townsend”) included pomegranate arils supplied

by Göknur Gida Maddeleri Enerji Imalat Ithalat Ihracat Ticaret ve Sanayi A.Ş. and

United Juice Corp. (collectively, “Göknur”) in its Townsend Farms Organic

Antioxidant Blend (the “Antioxidant Blend”). Some of those arils were

contaminated with hepatitis A. After consumers of the frozen fruit mixture

** The Honorable Louis Guirola, Jr., United States District Judge for the Southern District of Mississippi, sitting by designation.

2 contracted the virus, Townsend recalled the product in coordination with the Food

and Drug Administration and the Center for Disease control and Prevention. In the

wake of the Outbreak and subsequent recall of the Antioxidant Blend, injured

consumers filed numerous lawsuits against Townsend. Townsend and its

insurance companies defended and settled most of those lawsuits.

Townsend then sued Göknur seeking equitable indemnity for the entire cost

of defending and settling the consumer lawsuits. Göknur raised a counterclaim

arguing that Townsend’s recall press releases constituted false advertising under

the Lanham Act.

Before trial, the parties stipulated that Townsend and its insurers incurred

$13,705,832.43 in litigation and settlement costs as a result of the contaminated

product. In this action, Townsend sought to recover these costs from Göknur, plus

compensatory and punitive damages.

The district court dismissed Göknur’s Lanham Act counterclaim for failure

to state a claim. A jury awarded Townsend $2.7 million for underlying settlements

and associated litigation expenses and $4.8 million in punitive damages. The

district court denied Göknur’s motion for judgment as a matter of law on punitive

damages. The court also denied Townsend’s motion to alter or amend the

judgment or, alternatively, for a new trial on damages, which requested

enforcement of the parties’ damages stipulation. Finally, the district court

3 dismissed Townsend’s claims for declaratory relief and violation of the California

Unfair Competition Law (“UCL”), CAL. BUS. & PROF. CODE § 17200. We have

jurisdiction over the parties’ appeals pursuant to 28 U.S.C. § 1291. We affirm in

part, reverse in part, and remand.

1. The district court correctly dismissed Göknur’s claim for false

advertising. The Lanham Act holds liable “[a]ny person who . . . in commercial

advertising or promotion, misrepresents the nature, characteristics, quality, or

geographic origin of his or another person’s goods, services, or commercial

activities.” 15 U.S.C. § 1125(a)(1)(B). Here, Göknur’s false advertising claim

fails as a matter of law because Townsend’s recall press release did not propose a

commercial transaction. Rice v. Fox Broad. Co., 330 F.3d 1170, 1181 (9th Cir.

2003) (quoting City of Cincinnati v. Discovery Network, Inc., 507 U.S. 410, 422

(1993)). Therefore, it was not “commercial advertising” for purposes of the

Lanham Act. Id.

2. The district court did not abuse its discretion in refusing to adjust the

jury’s compensatory damages award. Göknur and Townsend stipulated only that

Townsend and its insurers spent approximately $13.7 million in “settlement” costs,

and that these costs were reasonable. But the damages stipulation failed to discuss

who was responsible for those costs. Therefore, in seeking equitable

indemnification, Townsend bore the burden of proving the degree of Göknur’s

4 fault in causing the stipulated damages. See Great W. Drywall, Inc. v. Interstate

Fire & Cas. Co., 74 Cal. Rptr. 3d 657, 663 (Cal. Ct. App. 2008); Gem Developers

v. Hallcraft Homes of San Diego, Inc., 261 Cal. Rptr. 626, 629–30 (Cal. Ct. App.

1989). Thus, it was not an abuse of discretion for the district court to instruct the

jury to consider apportionment of fault. The jury’s award of less than Townsend’s

full stipulated losses was an implicit finding that Göknur was not fully at fault.

3. Under California law, Townsend was required to produce “meaningful

evidence of the defendant’s financial condition” in order to obtain punitive damages.

Adams v. Murakami, 813 P.2d 1348, 1349 (Cal. 1991). Townsend provided

evidence of Göknur’s income and assets, but none about its expenses and liabilities.

“In most cases, evidence of earnings or profit alone are not sufficient ‘without

examining the liabilities side of the balance sheet.’” Baxter v. Peterson, 58 Cal.

Rptr. 3d 686, 691 (Cal. Ct. App. 2007) (quoting Kenly v. Ukegawa, 19 Cal. Rptr. 2d

771, 776 (Cal. Ct. App. 1993)); see also Boyle v. Lorimar Prods., Inc., 13 F.3d 1357,

1361 (9th Cir. 1994) (“The rule established by lower California courts is that only

net, not gross, figures are relevant.”). Because a reasonable jury could not have

relied on evidence of assets and income alone to arrive at a measure of Göknur’s

financial condition or net worth without speculation, the award cannot stand. “When

a punitive damage award is reversed based on the insufficiency of the evidence, no

retrial of the issue is required” if the plaintiff “had ‘a full and fair opportunity to

5 present his case for punitive damages.’” Baxter, 58 Cal. Rptr. 3d at 692 (quoting

Kelly v. Haag, 52 Cal. Rptr. 3d 126, 131 (Cal. Ct. App. 2006)). We thus “remand to

the district court with instructions to dismiss the punitive claims.” Kaffaga v. Estate

of Steinbeck, 938 F.3d 1006, 1019 (9th Cir. 2019).

4. Townsend Farms contends that the district court erred in denying relief

under the UCL because of its “mistaken interpretation that the jury did not find

Göknur fully liable for the pomegranate adulteration.” But the district court’s

interpretation was not mistaken. The decision of the district court is affirmed.

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

Each party shall bear its own costs.