C P Interests Inc. v. California Pools Inc., 99-21038

• Decision Date: 30 January 2001
• Docket Number: No. 99-21038,99-21038
• Citation: 238 F.3d 690
• Parties: (5th Cir. 2001) C P INTERESTS INC., doing business as California Pools; CALIFORNIA POOL SERVICE; CALIFORNIA POOL REPAIR & SERVICE CO., Plaintiffs - Appellees, v. CALIFORNIA POOLS INC., ET. AL, Defendants, CALIFORNIA POOLS INC; CALIFORNIA POOLS & SPAS; CALIFORNIA POOLS & SPAS INC; W DOUGLAS STEIMLE, Defendants - Appellants
• Court: U.S. Court of Appeals — Fifth Circuit

Page 690

238 F.3d 690 (5th Cir. 2001)

C P INTERESTS INC., doing business as California Pools; CALIFORNIA POOL SERVICE; CALIFORNIA POOL REPAIR & SERVICE CO., Plaintiffs - Appellees, v. CALIFORNIA POOLS INC., ET. AL, Defendants, CALIFORNIA POOLS INC; CALIFORNIA POOLS & SPAS; CALIFORNIA POOLS & SPAS INC; W DOUGLAS STEIMLE, Defendants - Appellants.

No. 99-21038

UNITED STATES COURT OF APPEALS, FIFTH CIRCUIT

January 30, 2001

[Copyrighted Material Omitted] Appeals from the United States District Court for the Southern District of Texas.

Before DUHE, EMILIO M. GARZA, and DeMOSS, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

Defendant-Appellant California Pools, Inc. appeals the judgment of the district court based on a jury verdict in favor of plaintiff-appellee C.P. Interests, Inc., finding that C.P. Interests had remote junior user rights to the trademark "California Pools" in the Houston area, that California Pools had infringed those rights, and that California Pools had disparaged C.P. Interests. California Pools challenges the finding of business disparagement, the admission of expert testimony, the admission of oral testimony on the transfer of trademark rights, several jury instructions, and the admission of evidence of the use of the mark in the Dallas area. For the reasons assigned, we affirm in part and vacate in part the judgment of the district court.

I

California Pools, Inc. is a California corporation dedicated to the construction of swimming pools and spas in several western states. California Pools has constructed new pools since its inception in 1952, and filed a federal trademark registration for the mark "California Pools & Spas, Inc." in 1995. In 1997, following a failed attempt to establish a branch in Dallas in the 1980s, California Pools sought to open a Houston branch office.

In Houston, California Pools encountered a Texas corporation incorporated as "C.P. Interests, Inc." but doing business as "California Pool Repair & Service Company." C.P. Interests, Inc. is a Texas corporation that traces its roots to the "California Pool Service" company of Dallas, a company dedicated primarily to pool service and repair. Today, C.P. Interests operates exclusively in Houston and has shifted its focus to pool construction. California Pools, Inc. of California informed C.P. Interests of its intention to enter the Houston market and requested that C.P. Interests cease using the "California Pools" name.

It was C.P. Interests, however, that filed suit, claiming rights in the mark "California Pools" since 1961 on the basis of predecessor use. C.P. Interests argued that it had acquired the right to use the "California Pools" mark by virtue of qualifying as a remote junior user of the mark, and added a claim of business disparagement. California Pools had the action removed to federal court, and counterclaimed for trademark infringement, citing its use of the mark since 1952. California Pools argued that it had priority in its use of the mark, and, inter alia, challenged C.P. Interests' ability to establish the alleged predecessor use.

The jury agreed with C.P. Interests and traced the company's good-faith use of the "California Pools" mark in Texas to 1963. The jury awarded damages based on trademark infringement and business disparagement, as well as punitive damages. Following post-trial motions, the court adjusted these damages and issued its final judgment, finding that C.P. Interests owned common law service mark rights in "California Pools," "California Pool Service," and "California Pool Repair and Service" for pool-related work performed within a 100 mile radius of Houston, and that C.P. Interests' use of the mark in that area did not violate California Pools' rights in the mark. The court enjoined California Pools from using the mark in the Houston area and from referring to C.P. Interests as "imposters." Finally, the court awarded C.P. interests $85,000 for common law trademark infringement, $152,000 in general damages for business disparagement, and $139,000 in punitive damages. This appeal followed.

On appeal, California Pools raises six issues: (1) whether the district court erred by awarding general damages on the business disparagement claim; (2) whether the district court abused its discretion in allowing expert testimony on trademark law; (3) whether the district court erred by permitting oral testimony regarding the trademark transfer; (4) whether the district court erred in its jury instruction on "good faith" adoption under the remote junior user exception; (5) whether the district court erred in its jury instruction on "tacking on" of trademark rights to establish priority; (6) whether the district court abused its discretion by allowing evidence of earlier use of the mark in Dallas. C.P. Interests responds by arguing first that most of these issues were not preserved for appeal, and second that the district court ruled correctly on the merits.

II

A

California Pools first argues that the district court erred as a matter of law in awarding general damages for and ordering an injunction against business disparagement, notwithstanding C.P. Interests' failure to prove special damages. California Pools contends that C.P. Interests could not have successfully made out a business disparagement claim without the required element of special damages-damages which the district court found as a matter of law had not been proved.

Before reaching the merits of this issue, we must first address whether California Pools has waived this argument by failing to bring its motion for judgment as a matter of law (JMOL) as required by Federal Rule of Civil Procedure 50(b). We may review sufficiency of the evidence claims on appeal only if a Rule 50(b) motion was made in the trial court at the conclusion of all the evidence. See McCann v. Texas Refining, 984 F.2d 667, 671 (5th Cir. 1993). California Pools acknowledges that it did not make a timely Rule 50(b) motion, but argues for a liberal construction of our Rule 50(b) requirement. California Pools is correct that we have in the past forgiven Rule 50(b) errors where we determined that the purposes of the rule have been satisfied. See id. These purposes are "to enable the trial court to re-examine the question of evidentiary insufficiency as a matter of law if the jury returns a verdict contrary to the movant, and to alert the opposing party to the insufficiency before the case is submitted to the jury." MacArthur v. University of Texas Health Ctr., 45 F.3d 890, 896-97 (5th Cir. 1995).

Here, because California Pools addressed the same business disparagement issue in its written objection to the district court's proposed jury instructions, we find that the purposes of the Rule 50(b) requirement are met. See Scottish Heritable Trust v. Peat Marwick Main & Co., 81 F.3d 606, 610 (5th Cir.), cert. denied, 519 U.S. 869, 117 S.Ct. 182, 136 L.Ed.2d 121 (1996) ("A defendant's objection to proposed jury instructions on grounds pertaining to the sufficiency of evidence issues it seeks to appeal may satisfy [the purposes of the Rule 50(b) requirement]."); Bay Colony, Ltd. v. Trendmaker, Inc., 121 F.3d 998, 1003-04 (5th Cir. 1997). California Pools' objection to the proposed jury instructions, coupled with its Rule 50(a) JMOL motion, as well as the fact that California Pools attempted on at least one occasion to remind the court verbally of its concern over the "JMOL issues," was adequate to alert both the court and C.P. Interests to California Pools' continued protest over the sufficiency of the evidence on the business disparagement issue.

We review California Pools' allegation that the district court erred as a matter of law in upholding the verdict of business disparagement and awarding general damages de novo. See GAIA Tech. Inc. v. Recycled Prod. Corp., 175 F.3d 365, 373 (5th Cir. 1999) (challenges to the sufficiency of the evidence supporting a jury verdict are reviewed de novo). California Pools argues that the award cannot stand because C.P. Interests did not meet its burden of proving special damages, a required element of the tort of business disparagement. The issue turns on whether, under Texas law, attorneys fees can be a "pecuniary loss" such that no other economic harm need be proven. As our jurisdiction in this case is based on diversity of citizenship, we function as an Erie court, applying Texas law as we think the Supreme Court of Texas would. See Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Salve Regina College v. Russell, 499 U.S. 225, 239-40,111 S.Ct. 1217, 1225, 113 L.Ed.2d 190 (1991) (federal courts of appeals review the state law determinations of district courts de novo).

In deciding the motion for entry of judgment and motion for judgment as a matter of law, the district court found that C.P. Interests was unable to prove that it had experienced a pecuniary loss other than the attorneys fees required to bring this litigation. But the court nevertheless permitted the business disparagement issue to go to the jury, explaining that "I conclude that the Restatement § 623(a) permits a cause of action for disparagement without proof of special damages; and I conclude that the Restatement § 633(b) permits recovery of general damages."

As no Texas court has specifically addressed the issue, we must make an "Erie guess" as to whether attorneys fees alone can constitute a sufficient pecuniary loss to support a claim of business disparagement under Texas law.¹ We agree with the district court that the Restatement is relatively clear on this point, and supports C.P. Interests' position that an additional pecuniary loss need not be proven. Restatement (Second) of Torts § 623A defines business disparagement as the publication of a false statement harmful to the interests of another and creates liability for the resulting "pecuniary loss." Section 633 then defines "pecuniary loss" as including "the expense of...