Ford Motor Co. v. Auto Supply Co., Inc.

• Decision Date: 14 October 1981
• Docket Number: No. 80-2171,80-2171
• Citation: 661 F.2d 1171
• Parties: 9 Fed. R. Evid. Serv. 249 FORD MOTOR COMPANY, A Corporation, Appellee, v. AUTO SUPPLY COMPANY, INC.; H. K. Auto Supply, Inc.; and Harold H. Karp, Appellants. AAA Business Forms and Systems, Inc.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1171

661 F.2d 1171

9 Fed. R. Evid. Serv. 249

FORD MOTOR COMPANY, A Corporation, Appellee, v. AUTO SUPPLY COMPANY, INC.; H. K. Auto Supply, Inc.; and Harold H. Karp, Appellants.

AAA Business Forms and Systems, Inc.

No. 80-2171.

United States Court of Appeals,

Eighth Circuit.

Submitted July 23, 1981.

Decided Oct. 14, 1981.

Lindsey Miller-Lerman (argued), Kutak, Rock & Huie, Omaha, Neb., for appellants.

Lyle E. Strom (argued), Bruce D. Vosburg, Fitzgerald, Brown, Leahy, Strom, Schorr & Barmettler, Omaha, Neb., William A. Zolbert, Dearborn, Mich., for appellee.

Before LAY, Chief Judge, and STEPHENSON and McMILLIAN, Circuit Judges.

STEPHENSON, Circuit Judge.

The district court, ¹ after a bench trial, ordered a.$3.6 million judgment in favor of the plaintiff Ford Motor Co. based on the defendants' trademark and copyright infringement. On appeal the defendants raise two issues. First, they claim that the district court abused its discretion in refusing to allow the defendants to amend their answer to raise additional defenses following the entry of summary judgment. Second, they claim that exhibit 30, which was principally relied upon to arrive at the amount of damages, lacked proper foundation. We disagree with the appellants' contentions and affirm the district court.

I. BACKGROUND

The original complaint in this case was filed in October 1975. Ford Motor alleged, and the district court held, that defendants Harold H. Karp, H. K. Auto Supply, Inc. and Auto Supply Company, Inc. willfully and unlawfully traded upon the goodwill and reputation of Ford in the sale of certain automotive parts. ² The district court found that Karp, acting through H. K. Auto Supply and Auto Supply Company, engaged in a deliberate, persistent and knowingly fraudulent scheme whereby unmarked automotive parts were purchased from third-party suppliers, stamped with Ford's registered trademarks MOTORCRAFT and FORD and then packaged in boxes bearing Ford's copyrighted art work and color schemes. The boxes were substantially identical to the official Ford packaging. ³

The district court, in a partial summary judgment entered in September 1977, concluded that the defendants were liable under 15 U.S.C. § 1114 for trademark infringement, 15 U.S.C. § 1125 for false designation of origin, 17 U.S.C. § 501 for copyright infringement and Neb.Rev.Stat. § 87-302 for unfair business practices. After a hearing on damages the district court entered a final judgment in November 1980. Based upon exhibit 30, actual damages were found to be $1.7 million. This amount was doubled under 15 U.S.C. § 1117. Attorneys' fees of $200,000 were also awarded. The total judgment entered was.$3.6 million. The district court also granted a permanent injunction against the defendants to prevent further violations of Ford's trademarks and copyrights.

II. ISSUES AND DISCUSSION ⁴

A. Exhibit 30

The most difficult issue raised by the appellants is the admission of exhibit 30. They claim that this exhibit lacked foundation and therefore was improperly relied upon to ascertain the amount of damages. ⁵

The district court held that the proper measure of actual damages was the incremental profit Ford would have made if the sales lost to the defendant had actually been made by Ford. ⁶

In summary, exhibit 30 is a single sheet statement of sales and costs of the five specific parts involved in this litigation for the years 1972-1975. It lists the number of units sold by the defendants. Using that number the plaintiffs applied prices charged by Ford Motor to arrive at gross sales. The remainder of the exhibit lists variable costs such as dealer discounts and material costs. Certain fixed costs such as managerial salaries and warehouse maintenance costs are not part of the calculation. The variable costs, which Ford would have incurred had they been able to make these additional sales, were subtracted from gross sales. The above fixed cost, which Ford would have extended regardless of the additional sales, were not deducted.

The exact scheme of exhibit 30 is as follows. The number of units sold by the defendants and the prices that Ford was charging in the relevant period were used to arrive at gross sales. Ford then subtracted costs from four categories to arrive at a lost profit figure for each product for each year. Ford subtracted revenue deductions (parts returned by dealers, trade discounts and promotional costs), material costs (actual cost of the parts), variable depot in/outbound freight charges (shipping and handling costs) and direct fixed costs (inventory losses resulting from theft, bookkeeping or shipping errors, and costs of scrapping obsolete parts). ⁷ Certain fixed costs, which the exhibit designates as indirect fixed costs, were not subtracted from gross sales to determine lost profit. Examples of this type of expense are warehouse rental and salaries. These were excluded on the theory that these costs would not have varied where there was only a small increment in sales.

Terrence Marrs, manager of the financial analysis department of the parts and service division of Ford Motor, prepared exhibit 30. Marrs testified in detail concerning the origin of the figures and summary. The major source for the material is what is called the Product Line Profitability Analysis (PLPA). The PLPA is prepared annually by Ford and compiles the performance of Ford parts by product line. For example, four of the products in question were included in the electrical products line and the fifth was part of the filter product line. ⁸

Marrs testified that the PLPA were prepared in the ordinary course of business and were compiled each year to aid Ford in making decisions concerning pricing and purchasing. He stated that the PLPA were based on "actuals," the detailed accounting statements compiled on an on-going basis. Thus, the PLPAs are summaries of the "actuals" and were prepared at the close of each year. Marrs also testified that he did not prepare the PLPAs nor was he the custodian for these financial statements at the time they were prepared. ⁹ The PLPAs and other "back up" material were not offered into evidence but were available in the court room.

The defendants-appellees argue that exhibit 30 was inadmissible because it is a summary of a summary, none of which contained original entries kept in the ordinary course of business and because it was based on records not prepared by the witness through whom it was offered.

There are two rules which govern this issue: Rules 803(6), 1006 Fed.R.Evid. Rule 1006 states that the contents of voluminous writings which cannot be conveniently examined in court may be presented in the form of a summary or calculation. The rule also states that the "originals" shall be made available for examination at a reasonable time and place, and that the court may order that they be produced during trial.

Rule 803(6) provides as follows:

The following are not excluded by the hearsay rule * * *:

Records of regularly conducted activity. A memorandum, report, record, or data compilation, in any form, of acts, events, conditions, opinions, or diagnoses, made at or near the time by, or from information transmitted by, a person with knowledge, if kept in the course of a regularly conducted business activity, and if it was the regular practice of that business activity to make the memorandum, report, record, or data compilation, all as shown by the testimony of the custodian or other qualified witness, unless the source of information or the method or circumstances of preparation indicate lack of trustworthiness. The term "business" as used in this paragraph includes business, institution, association, profession, occupation, and calling of every kind, whether or not conducted for profit.

Fed.R.Evid.

Rule 1006 clearly permits the use of a summary such as exhibit 30. ¹⁰ The issue here is whether the summary is based on admissible evidence, i. e., the PLPAs. A summary, if drawn from data that is inadmissible, likewise must be excluded. See Phillips v. United States, 201 F. 259, 269 (8th Cir. 1912). See also United States v. Johnson, 594 F.2d 1253, 1255-57 (9th Cir.), cert. denied, 444 U.S. 964, 100 S.Ct. 451, 62 L.Ed.2d 376 (1979); 5 J. Weinstein & M. Berger, Weinstein's Evidence P 1006(03) (1978).

The question of whether the PLPAs are admissible and therefore a proper source for the exhibit 30 summary can be answered by rule 803(6). That rule allows admission of a record or data compilation, in any form, of events made at or near the time by a person with knowledge if kept in the course of a regularly conducted business activity and if it was the regular practice of that business to make the data compilation. This showing is required to be made by the custodian or other qualified witness.

By its terms rule 803(6) encompasses the PLPA. They are a record or data compilation made at the end of the business year. Marrs testified, and it is undisputed, that the PLPAs were kept in the course of regularly conducted business and that it was an annual practice to prepare these financial statements. Further, the rule expressly permits these elements to be shown by a "qualified witness" as opposed to the custodian. Marrs, as manager of the financial analysis department, was certainly a qualified witness. See United States v. Page, 544 F.2d 982, 987 (8th Cir. 1976). See also United States v. Colyer, 571 F.2d 941, 947 (5th Cir.), cert. denied, 439 U.S. 933, 99 S.Ct. 325, 58 L.Ed.2d 328 (1978); United States v. Rose, 562 F.2d 409, 410 (7th Cir. 1977). ¹¹

We conclude that there was proper foundation for exhibit 30 and, therefore, that it was not an abuse of discretion for the district court to admit and rely upon this exhibit. ¹²

B. Amendment After Summary Judgment

Summary judgment on the liability issue in this case was entered on September 8, 1977. On September 23, 1977, defendants H. K. Auto Supply, Inc. and Auto Supply Company, Inc. purchased the...