Dependable Sales v. Truecar, Inc.

394 F.Supp.3d 368

DEPENDABLE SALES & SERVICE, INC., et al., Plaintiffs,

v.TRUECAR, INC., Defendant.

15-cv-1742 (PKC)

United States District Court, S.D. New York.

Signed July 12, 2019

Robert E. Chudakoff, Pro Hac Vice, Ulmer & Berne LLP, Cleveland, OH, for Plaintiffs.

Leonard Anthony Bellavia, Steven H. Blatt, Bellavia Gentile & Associates, LLP, Mineola, NY, Thomas Williams, Ulmer & Berne LLP, Chicago, IL, for Plaintiffs Dependable Sales and Service, Inc., Beaver Motors Inc., Westbury Jeep Chrysler Dodge, Inc., Rafferty Subaru, Inc., Valley Motors, Inc., Catanese Volkswagen, Inc., LCC Arnold Chevrolet, Bellavia Buick, Inc., Paul Miller, Inc., Paul Miller Performance, L.L.C., Paul Miller Sportscar, Inc., Genesee Valley Motors, Inc., Genesse Valley Ford LLC, Tustin Buick GMC, Inc., Sam Boswell Motors, Inc., Cascade Auto Group, Park Ford of Mahopac Inc., Cobb Auto Sales, Inc., Hoffman Ford, Inc., Hoffman of Hartford, Inc., Hoffman Motors of New London Inc., Hoffman of Simsbury, Biener Auto Group, Inc., Brentlinger Enterprises, Jim Soutar Dodge City, Incorporated, Soutar's, Elk Grove Toyota, Fitzgerald Motors, Inc., FOC, Inc., Fitzgerald Automall, Inc., Fitzgerald Lakeforest Motors, Inc., LFO, Inc., FLAPM, Inc., Fitzgerald Auto Mall Lexington Park Chrysler Dodge Jeep Ram, CDOHY, Inc., FBI, Inc., ADA Motors Inc., Burien Chevrolet, Inc., Garber Ft. Pierce, Inc., Garber CDJR, Inc., Garber Buick-GMC Truck Inc., Garber Chevrolet, Inc., Garber Doral, Inc.

Dayna Mitsue Chikamoto, Harold Paul Weinberger, Norman Christopher Simon, Kramer Levin Naftalis & Frankel LLP, New York, NY, for Defendant.

OPINION AND ORDER ON MOTION TO RECONSIDER

CASTEL, U.S.D.J.

Defendant TrueCar, Inc. ("TrueCar") has moved for partial reconsideration of the Court's summary judgment decision pursuant to Local Civil Rule 6.3. The central holding was that the plaintiffs, 108 automobile dealerships suing individually under section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), had failed to come forward with evidence of economic or reputational injury. Dependable Sales & Serv., Inc. v. TrueCar, Inc., 377 F.Supp.3d 337, 349-54 (S.D.N.Y. 2019). Because the plaintiff dealerships were not direct competitors of TrueCar, and TrueCar's false advertisements did not make comparative claims, plaintiffs were not entitled to a presumption of injury. Id. at 345-49. However, the Court further ruled that evidence of injury was not required in order to proceed with a claim for the disgorgement of profits from a defendant shown to have willfully violated the Lanham Act. Id. at 353-57. Whether and under what circumstances a showing of injury is a required element of a claim for disgorgement under the Lanham Act had not been a central focus of the parties' summary judgment briefs.

Having reexamined the Second Circuit's authority on the Lanham Act's disgorgement remedy and the Supreme Court's decision in Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 134 S.Ct. 1377, 188 L.Ed.2d 392 (2014), the Court concludes that plaintiffs' failure to come forward with evidence of injury precludes their disgorgement claim, despite evidence of TrueCar's willful Lanham Act violations. TrueCar's motion for reconsideration is therefore granted.

The remedies for a false-advertising claim are set forth in section 35(a) of the Lanham Act, 15 U.S.C. § 1117(a), which states in part that "[w]hen ... a violation under section 1125(a) or (d) of this title ... shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled ... subject to the principles of equity, to recover (1) defendant's profits...." To make out a claim of false advertising, section 43(a) states that "[a]ny person who, on or in connection with any goods or services ... uses ... any ... false or misleading description of fact, or false or misleading representation of fact, which ... in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act." 15 U.S.C. § 1125(a)(1)(B).

Although the statute speaks of "any person" who "believes" he or she was "likely" damaged by false advertisements, the Lanham Act provides a viable claim only to plaintiffs who suffer an actual commercial injury proximately caused by a false advertisement. "Read literally, [the statute's] broad language might suggest that an action is available to anyone who can satisfy the minimum requirements of Article III." Lexmark, 572 U.S. at 129, 134 S.Ct. 1377. But Lexmark concluded that the statute " ‘should not get such an expansive reading.’ " Id. (quoting Holmes v. Sec. Inv. Protection Corp., 503 U.S. 258, 266, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992) ). To have an actionable claim under the Lanham Act, a plaintiff must both fall within the "zone of interests" covered by the Lanham Act and show an injury "flowing directly from the deception wrought by the defendant's advertising...." Lexmark, 572 U.S. at 129-34, 134 S.Ct. 1377.¹ The "zone of interest" in a false advertising case includes "a commercial interest in reputation or sales." Id. at 131-32, 134 S.Ct. 1377.

As the Court discussed in the summary judgment decision, there is authority in this Circuit that section 35(a) allows, under certain circumstances, for the disgorgement of a defendant's profits to advance the interest of deterrence, even where the plaintiff has not demonstrated injury. See Int'l Star Class Yacht Racing Ass'n v. Tommy Hilfiger U.S.A., Inc., 146 F.3d 66, 72 (2d Cir. 1998) ("We have held that an accounting for profits is available, even if a plaintiff cannot show actual injury or consumer confusion, ‘if the accounting is necessary to deter a willful infringer from doing so again.’ ") (quoting George Basch & Co. v. Blue Coral, Inc., 968 F.2d 1532, 1537 (2d Cir. 1992) ); Burndy Corp. v. Teledyne Industries, Inc., 748 F.2d 767, 772 (2d Cir. 1984) ; W.E. Bassett Co. v. Revlon, Inc., 435 F.2d 656, 664 (2d Cir. 1970).

TrueCar notes that the line of cases arose in the trademark and trade dress arena.

More recently, in a false-advertising case, the Second Circuit observed that "[o]ur precedent permits a district court to award a defendant's full profits based solely on deterrence." Merck Eprova AG v. Gnosis S.p.A., 760 F.3d 247, 262 (2d Cir. 2014). However, in Merck, the Second Circuit approved the application of a presumption of injury where the plaintiff and defendant were "obviously in direct competition." Id. at 260. Then-District Judge Sullivan "found injury" to the plaintiff with regard to various materials published by the defendant. Id. at 254. Relying on trademark precedent, Merck affirmed the disgorgement remedy, noting that disgorgement would be appropriate on any of the three grounds set by section 35(a): unjust enrichment, compensation or deterrence. Id. at 262.

The Second Circuit has not addressed the availability of the disgorgement remedy where a false-advertising plaintiff has failed to demonstrate injury and is unable to rely on a presumption of injury because the parties are not in direct competition. This Court now concludes that a false advertising plaintiff must demonstrate injury either by proof of injury or a presumption of injury in order to proceed with a disgorgement claim.

There are important differences in the elements of a trademark claim and a false advertising claim, as well as in the interests at stake. The Lanham Act protects a trademark "against infringement by use of colorable imitations of the mark which are ‘likely to cause confusion, or to cause mistake, or to deceive.’ " Hormel Foods Corp. v. Jim Henson Prods., Inc., 73 F.3d 497, 502 (2d Cir. 1996) (quoting 15 U.S.C. § 1114(1) ). "[T]he plaintiff must prove (1) that the mark is distinctive as to the source of the good, and (2) that there is a likelihood of confusion between its good and the defendant's." Yurman Design, Inc. v. PAJ, Inc., 262 F.3d 101, 115 (2d Cir. 2001).

In a trademark case, a plaintiff may be harmed by virtue of losing exclusive control over its own mark. "The trademark laws are designed not only to prevent consumer confusion but also to protect the synonymous right of a trademark owner to control his product's reputation." Dallas Cowboys Cheerleaders, Inc. v. Pussycat Cinema, Ltd., 604 F.2d 200, 205 (2d Cir. 1979) (quotation marks omitted). The unauthorized use of a mark "invariably threatens injury to the economic value of the goodwill and reputation" associated with the mark. Church of Scientology Int'l v. Elmira Mission of the Church of Scientology, 794 F.2d 38, 43 (2d Cir. 1986). A plaintiff is harmed where it "will lose control over the reputation of its trademark .... Reputation is not calculable nor precisely compensable ... and may very well diminish as a result of confusion ...." Power Test Petroleum Distributors, Inc. v. Calcu Gas, Inc., 754 F.2d 91, 95 (2d Cir. 1985). Even where a trademark plaintiff cannot point to lost sales, it may still be harmed by "a loss of control ... over how the public perceives" its goods or services. The Sports Authority, Inc. v. Prime Hosp. Corp., 89 F.3d 955, 964 (2d Cir. 1996).

Thus, in W.E. Basset Co., the Second Circuit concluded that the district court should have ordered disgorgement solely to deter willful infringement because the "deliberate[ ] and fraudulent[ ]" infringement of plaintiff's mark warranted disgorgement of defendant's full profits, even though plaintiff did not demonstrate lost sales, consumer confusion or damage to good will. 435 F.2d at 664. Defendant's "callous disregard for the rights of a competitor" was sufficient. Id.

By contrast, a plaintiff in a false-advertising case must demonstrate injury by way of lost sales or damage to business reputation. "To prevail on a Lanham Act false advertising claim, a plaintiff must...