Mercedes-Benz Group AG v. A-Z Wheels LLC

— 1 — — 2 — — 3 — — 4 — — 5 — — 6 — — 7 — 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA — 10 — 11 MERECES-BENZ GROUP AG, Case No.: 16-CV-875 JLS (MDD) a German corporation, — 12 — ORDER (1) VACATING HEARING Plaintiff, 13 ON CONTEMPT SANCTIONS v. MOTION; (2) GRANTING IN PART — 14 — MOTION FOR CONTEMPT A-Z WHEELS LLC d/b/a USARim.COM; 15 SANCTIONS; (3) AWARDING EUROTECH WHEELS, a California COMPENSATORY AND COERCIVE 16 company; GALAXY WHEELS & TIRES, SANCTIONS; AND (4) SETTING LLC, a California company; INFOBAHN 17 BRIEFING SCHEDULE FOR INTERNATIONAL, INC. d/b/a MOTION FOR ATTORNEYS’ FEES 18 INFOBAHN; EUROTECH; EUROTECH LUXURY WHEELS; EUROTECH — 19 — WHEELS; USARim; RYAN MOALEMI, (ECF No. 164) 20 an individual; RASOOL MOALEMI a/k/a RUSS MOALEMI, an individual; — 21 — JOSHUA MOALEMI, an individual; 22 and Does 1-10 inclusive, 23 Defendants. — 24 — — 25 — Presently before the Court is Plaintiff Mercedes-Benz Group AG’s1 Motion for 26 Contempt Sanctions (“Mot.,” ECF No. 164). Also before the Court are Defendants’ — 27 — — 28 — 1 On April 28, 2022, the Court granted Plaintiff’s unopposed motion to amend the case caption given that 1 Opposition to (“Opp’n,” ECF No. 165) and Plaintiff’s Reply in Support of (“Reply,” ECF 2 No. 166) the Motion. The Court finds this matter appropriately decided on the papers 3 without oral argument and accordingly VACATES the hearing scheduled for June 30, 4 2022. See S.D. Cal. CivLR 7.1(d)(1); see also Conn. Gen. Life Ins. Co. v. New Images of 5 Beverly Hills, 56 F. App’x 826, 827 (9th Cir. 2003) (rejecting argument that district court 6 should have held evidentiary hearing before holding appellant in contempt and sanctioning 7 appellant as “[a]ppellant was afforded notice and an opportunity to be heard; nothing more 8 was required”) (citing United States v. Ayres, 166 F.3d 991, 995 (9th Cir. 1995)). Having 9 considered the Parties’ arguments and the law, the Court GRANTS IN PART Plaintiff’s 10 Motion and AWARDS compensatory sanctions in the amount of $100,000 plus attorneys’ 11 fees and a coercive forward-looking sanction of $1,000 per mark for future violations. 12 BACKGROUND 13 In 2016, Plaintiff, a producer of luxury automotive vehicles and parts, initiated the 14 instant action against Defendants, sellers of counterfeit automotive wheels, for federal 15 trademark infringement and counterfeiting, federal unfair competition and false 16 designation of origin, trademark dilution, infringement of U.S. design patents, and related 17 violations of California state law. See generally ECF No. 1 (“Compl.”). In January 2018, 18 Plaintiff moved for partial summary judgment against Defendants on its trademark 19 infringement and counterfeiting claim and its design patent infringement claim. See 20 generally ECF No. 58. Following briefing and oral argument on the motion, see ECF No. 21 90, on August 13, 2018, the Court granted Plaintiff’s motion for partial summary judgment 22 in its entirety, see generally ECF No. 91. Plaintiff subsequently filed a motion for partial 23 summary judgment for statutory damages, injunctive relief, and attorneys’ fees. See 24 generally ECF No. 120. On November 2, 2020, the Court denied without prejudice the 25 motion as to statutory damages and attorneys’ fees but granted permanent injunctive relief 26 enjoining Defendants from, inter alia, continuing to sell products that infringe the word 27 mark “MERCEDES-BENZ” or three “Three-Point Star” marks registered to Plaintiff. See 28 generally ECF No. 127. 1 On October 4, 2021, Plaintiff filed a motion for contempt. See ECF No. 145. On 2 November 30, 2021, the Court held a half-day hearing on the contempt motion, at which 3 both sides presented evidence and witness testimony. See ECF No. 155. On January 31, 4 2022, the Court granted Plaintiff’s contempt motion. See ECF No. 158 (the “Contempt 5 Order”). The Contempt Order thoroughly summarized the evidence of Defendants’ 6 contempt, and the Court incorporates by reference the summary set forth therein. See id. 7 at 3–6. In brief, the Court found that the evidence clearly and convincingly showed 8 Defendants had violated the permanent injunction and that Defendants failed to make any 9 argument concerning their inability to comply. Id. at 6–8. The Court then determined that 10 a finding of contempt would serve a coercive purpose given Defendants’ failure to evidence 11 their alleged cessation of infringing business activity. Id. at 9–10. In so doing, the Court 12 reasoned that Defendant Rasool Moalemi’s self-serving testimony at the contempt hearing 13 and Defendants’ attorney argument were “clearly insufficient to demonstrate compliance 14 with the permanent injunction and a cessation of infringing business activities.” Id. at 9 15 (internal quotation marks and citation omitted). The Court further found that an order of 16 contempt would serve a compensatory purpose, rejecting Defendants’ argument that the 17 twelve infringing center caps sold to Plaintiff’s investigator “sold for less than $100” and 18 noting that Plaintiff potentially was entitled to both disgorgement of profits and its 19 attorneys’ fees. Id. at 10. Accordingly, the Contempt Order required Defendants to fully 20 comply with the permanent injunction within fourteen days, and, within sixty days, to 21 produce to Plaintiff certain information relevant to a determination of Defendants’ profits 22 on sales in violation of the permanent injunction and an accounting of the destruction or 23 disposal of infringing products in Defendants’ possession. Id. at 11. 24 The Court subsequently ordered the Parties to file a joint status report regarding 25 Defendants’ compliance with the Contempt Order. See ECF No. 159 (“Joint Br.”). 26 Defendants represent in the Joint Brief that they are in full compliance with the Court’s 27 permanent injunction. See id. at 2. Plaintiff contests this statement, contending that 28 “Defendants had not complied with the Permanent Injunction Order at time of the hearing 1 on the Motion for Contempt of that Order, and have not provided any evidence to 2 substantiate their current claim of otherwise having complied.” Id. at 3. Concerning the 3 documents Defendants were ordered to produce to Plaintiff to assess Plaintiff’s damages, 4 Defendants indicate that “[a]ll responsive documentation was presented (mostly by 5 Plaintiff) and discussed with the Court at the November 30, 2021 hearing. Defendants 6 have no more documentation than what was presented and discussed, and their profits were 7 less than $500.” Id. at 3; 5; 6 (citations omitted). Plaintiff contends that Defendants have 8 provided no documents accounting for their profits or the sourcing of Defendants’ 9 infringing parts and that the Declaration of Russ Moalemi attached to the Joint Brief is 10 wholly inadequate. Id. at 3–5, 5–6, 6–7. Concerning the destruction of the infringing 11 products and an accounting thereof, Defendants’ position is that, “[a]s discussed and 12 documented with the Court at the November 30, 2021 hearing, Defendants have destroyed 13 all inventory in the process of closing down all of their business operations.” Id. at 7 14 (citation omitted). Plaintiff counters that the infringing wheel caps and wheel sets shipped 15 to its investigator are still in Plaintiff’s possession, so clearly not all infringing products 16 have been destroyed; at any rate, “a mere statement confirming disposal made by either 17 Defendants or counsel in the present circumstances would be insufficient to satisfy the 18 accounting requirement set forth by the Court.” Id. at 7–8. Thereafter, the Court set a 19 briefing schedule and a hearing date for the instant Motion. 20 LEGAL STANDARD 21 The district court has wide latitude and a broad range of civil contempt sanctions at 22 its disposal, such as “fine[s], imprisonment, receivership, and a broader category of 23 creative, non-traditional sanctions.” United States v. States of Tenn., 925 F. Supp. (W.D. 24 Tenn. 1995 ); see also Hook v. Arizona, 907 F. Supp. 1326, 1339 (D. Az. 1995). Sanctions 25 may be imposed to coerce defendants into compliance with the court’s order, to 26 compensate the party pursuing the contempt action for losses sustained as a result of the 27 contemptuous behavior, or both. United States v. United Mine Workers, 330 U.S. 258 , 28 303–04 (1947); United States v. Bright, 596 F.3d 683 , 696–97 (9th Cir. 2010). 1 Regarding coercive sanctions, “[g]enerally, the minimum sanction necessary to 2 obtain compliance is to be imposed.” Whittaker Corp. v. Execuair Corp., 953 F.2d 510 , 3 517 (9th Cir. 1992) (citing Spallone v. United States, 493 U.S. 265, 280 (1990)). 4 Compensatory sanctions, meanwhile, “are limited to ‘actual losses sustained as a result of 5 the contumacy.’” Gen. Signal Corp. v. Donallco, Inc., 787 F.2d 1376, 1380 (9th Cir. 1986) 6 (quoting Shuffler v. Heritage Bank, 720 F.2d 1141, 1148 (9th Cir. 1983)) (emphasis in 7 original); see also United Mine Workers, 330 U.S. at 304 (holding compensatory fine must 8 “be based upon evidence of complainant’s actual loss”). In a trademark case such as this 9 one, “[t]he district court may use the Lanham Act as a guide for imposing contempt 10 sanctions.” Toyo Tire & Rubber Co. v. Hong Kong Tri-Ace Tire Co., 281 F. Supp. 3d 967 , 11 988 (C.D. Cal. 2017) (citing Howard Johnson Co. v. Khimani, 892 F.2d 1512, 1519 (11th 12 Cir. 1990)). Further, “[c]ompensatory awards may, under certain circumstances, include 13 an award to the aggrieved party of the attorneys’ fees and costs in bringing the contempt 14 proceeding.” Id. at 992 (citations and footnote omitted). “[A]ttorneys’ fees in a civil 15 contempt proceeding are limited to those reasonably and necessarily incurred in the attempt 16 to enforce compliance.” Id. at 993 (citations omitted). 17 ANALYSIS 18 I. Summary of the Parties’ Arguments 19 Plaintiff seeks maximum statutory damages under the Lanham Act of $2,000,000 20 per mark, or $6,000,000 total, given that Defendants’ infringement was blatantly willful. 21 Mot. at 6–10 (citing, inter alia, 15 U.S.C. § 1117 (c)(2)). 22 Alternatively, Plaintiff asks the Court to award maximum statutory damages under — 23 — 15 U.S.C. § 1117 (c)(1) of $200,000 per mark, or $600,000 total. Id. at 10–15. Plaintiff 24 notes that Defendants’ failure to produce the information requested in the Contempt Order 25 has made it virtually impossible to calculate Defendants’ actual profits, and that such 26 noncompliance should not be rewarded; thus, statutory damages are an appropriate 27 measure of damages for Defendants’ contempt. Id. at 11–12. Plaintiff further claims that 28 “an award of the maximum statutory damages is in line with a reasonable estimate of the 1 historical sales and profit performance of Defendants.” Id. at 12. Plaintiff notes that, from 2 March 2010 to June 2017, incomplete financial records from Defendants show that 3 Defendants realized sales of approximately $34,000 per month of products using Plaintiff’s 4 “MERCEDES-BENZ” word mark. Id. at 12–13. Using that figure as a guide, Defendants 5 would have sold more than $373,000 in goods using the “MERCEDES-BENZ” word mark 6 during the eleven-month period between the issuance of the injunction and the filing of 7 Plaintiff’s contempt motion. Id. at 14. Defendants have claimed, in documents, a profit 8 realization of fifteen percent; thus, Defendants would have made, extrapolating from the 9 incomplete historical sales data, an estimated $56,000 on the “MERCEDES-BENZ” word 10 mark during that time. Id. Further, it is reasonable to assume that sales of products using 11 the “MERCEDES-BENZ” word mark also use at least one Three-Point Star mark, as the 12 wheel sets Plaintiff’s investigator purchased from Defendants did. Id. at 14–15. 13 Accordingly, at least $56,000 in profits from infringing sales of products using Plaintiff’s 14 Three-Point Star marks were likely made during the eleven-month period in question as 15 well. Id. at 15. 16 Finally, Plaintiff seeks its fees and costs in bringing the contempt motion. Id. at 15– 17 16. Through March 31, 2022, Plaintiff had incurred more than $78,000 in fees and more 18 than $15,000 “in disbursements associated with the instant Motion for Contempt”; 19 however, Plaintiff acknowledges that additional costs will be incurred in filing its reply 20 and preparing for and attending any hearing and seeks leave to supplement its figures. Id. 21 at 16. 22 Defendants respond that the requested sanctions are “preposterous” for “a single sale 23 of . . . ‘twelve infringing center caps.’” Opp’n at 1. Defendants rely on their claim in the 24 Joint Brief that they are in full compliance with the injunction and Contempt Order, as well 25 as Plaintiff’s failure to bring forth any contrary evidence, to argue that “only a nominal, de 26 minimis amount of contempt sanctions and/or attorneys’ fees etc.” is appropriate here. Id. 27 at 1–3. 28 / / / 1 In reply, Plaintiff argues that Defendants’ arguments “are misleading, immaterial to 2 the determination of appropriate contempt sanctions, and/or directly contradicted by the 3 information already of record in the present case.” Reply at 1. Plaintiff notes that 4 Defendants repeatedly argue that Plaintiff fails to support its requests with evidence, but 5 Plaintiff argues “that it was Defendants who were mandated to (and did not) provide 6 information and/or documents which would have enabled presentation of such evidence.” 7 Id. at 3. Plaintiff further argues that Defendants’ focus on the products purchased by 8 Plaintiff’s investigator is inappropriate, as Plaintiff is entitled to disgorgement of all 9 Defendants’ infringing profits from November 2, 2020, the date the permanent injunction 10 was entered. Id. at 4. Further, Plaintiff claims that Defendants’ reliance on testimony from 11 the contempt hearing is similarly inappropriate, as that hearing focused on whether 12 Defendants were in compliance with the injunction and not the issue of damages. Id. at 7. 13 To the extent the testimony presented by Defendants at the hearing is relevant, it “lacked 14 any credibility.” Id. Finally, Plaintiff argues that Defendants’ claims that the documents 15 they were ordered to produce do not exist or are unavailable “should be taken with 16 skepticism, as [Defendants] have made similar representations in the case, only to produce 17 such documents when compelled.” Id. at 8. 18 II. Quantum of Sanctions 19 In its Contempt Order, the Court found Defendants’ self-serving and incredible 20 statements insufficient to establish that they had ceased sales of infringing products in 21 contravention of the permanent injunction. See Contempt Order at 7–8 (Mr. Blue), 9–10 22 (Mr. Moalemi). Despite that finding and the Court’s express order that Defendants produce 23 evidence to Plaintiff to show their infringing sales during the relevant period and their 24 compliance with the permanent injunction, Defendants claim no such evidence exists. 25 The Court agrees with Plaintiff that Defendants’ failure to provide Court-ordered 26 evidence should not be used as a sword in arguing that there is insufficient evidence of 27 Defendants’ profits to award Plaintiff compensatory damages for Defendants’ clear 28 contempt. In copyright cases, courts have sometimes turned to statutory damages in 1 awarding compensatory contempt sanctions where “it is difficult to place monetary value 2 on the intangible harm caused be Defendants’ actions – e.g., dilution of the brand or harm 3 to reputation.” Lyons P’ship, L.P. v. Nat’l Disc. Costume Co., No. 06CV605 BTM, 2007 4 WL 9776595 , at *4 (S.D. Cal. Feb. 5, 2007); see also BMG Music v. Perez, 952 F.2d 318 , 5 320 (9th Cir. 1991) (upholding contempt sanction of $10,000 per violation of injunction as 6 not an abuse of discretion given that it was “an amount no greater than the statutory 7 damages for the resulting copyright infringement”); Adobe Sys. Inc. v. Software Tech, No. 8 5:14-CV-02140-RMW, 2015 WL 6951875 , at *5–6 (N.D. Cal. Nov. 10, 2015) (awarding 9 sanction based on statutory damages at $100,000 per infringed copyrighted work); Oracle 10 USA, Inc. v. Rimini St., Inc., No. 210CV00106LRHVCF, 2022 WL 112187 , at *34 (D. 11 Nev. Jan. 12, 2022) (awarding contempt damages of $100,000 per willfully infringed work 12 and $30,000 per non-willfully infringed work in copyright action). Accordingly, given the 13 lack of clear evidence of Plaintiff’s harm and the fact that that shortcoming is attributable 14 to Defendants’ failure to comply with the Contempt Order and produce evidence to 15 Plaintiff to aid in these calculations, the Court finds it appropriate here to award a measure 16 of statutory damages for Defendants’ contemptuous infringement of Plaintiff’s trademarks. 17 Although the Court finds that the evidence here does support a finding that 18 Defendants’ contemptuous infringement was willful, the Court also is concerned that an 19 award of damages under 15 U.S.C. § 1117 (c)(2) is more punitive than remedial and 20 therefore inappropriate as a civil contempt sanction. See, e.g., Lyons P’ship, 2007 WL 21 9776595, at *3 (finding civil contempt sanctions guided by statutory damages provision at — 22 — 17 U.S.C. § 504 (c)(2) punitive and instead awarding civil contempt sanctions guided by 23 statutory damages provision at 17 U.S.C. § 504 (c)(1)). 24 Accordingly, the Court finds it appropriate to award statutory damages pursuant to — 25 — 15 U.S.C. § 1117 (c)(1) as a compensatory sanction. The Court believes $50,000 for 26 violations of the “MERCEDES-BENZ” word mark and $50,000 for violations of Plaintiff’s 27 Three-Point Star marks, for a total award of $100,000, is sufficient to compensate Plaintiff 28 for Defendants’ infringement following the entry of the permanent injunction, particularly 1 || as historical sales data suggests these figures may be in line with Defendants’ actual profits 2 || during that period of time. Further, to coerce Defendants’ compliance with the injunction, 3 || the Court finds it appropriate to order a forward-looking sanction of the minimum statutory 4 ||damages of $1,000 per mark for violations of the injunction going forward. See Fendi 5 || Adele S.R.L. v. Burlington Coat Factory Warehouse Corp., 642 F. Supp. 2d 276 , 280 6 ||(S.D.N.Y. 2009). Finally, the Court finds it appropriate to award Plaintiff its reasonable 7 || attorneys’ fees and costs in pursuing the instant contempt proceedings against Defendants. 8 || See, e.g., Lyons P’ship, 2007 WL 9776595 , at *4 (finding, in ruling on successful contempt 9 || motion, that movant “is entitled to compensation in the form of reasonable attorney’s fees 10 || and costs it incurred in connection with bringing this motion’); Toyo Tire, 281 F. Supp. 3d 11 |/at 993 (similar). Because the fees and costs adduced by Plaintiff in its Motion were not 12 complete, see Mot. at 16, the Court will afford Plaintiff an opportunity to brief this issue. 13 CONCLUSION 14 In light of the foregoing, the Court VACATES the June 30, 2022 hearing in this 15 || matter and GRANTS IN PART Plaintiff's Motion for Contempt Sanctions (ECF No. 164). 16 || The Court AWARDS Plaintiff compensatory sanctions in the amount of $100,000 as well 17 Plaintiff's reasonable attorneys’ fees in litigating Defendants’ contempt. The Court 18 || further AWARDS a forward-looking coercive sanction of $1,000 per infringed mark for 19 || future violations of the injunction. 20 Plaintiff SHALL FILE a motion for attorneys’ fees on or before June 30, 2022. 21 Defendants SHALL FILE their opposition on or before July 14, 2022. Plaintiff MAY 22 || FILE its reply, if any, on or before July 21, 2022. Following briefing, the Court will decide 23 || Plaintiff's motion for attorneys’ fees on the papers, without oral argument, pursuant to 24 || Civil Local Rule 7.1(d)(1), at which time the Court will set this matter for a status hearing. 25 IT IS SO ORDERED. 26 Dated: June 23, 2022 . tt 27 pon Janis L. Sammartino 28 United States District Judge