Kendall-Jackson v. Superior Court
| Decision Date | 03 December 1999 |
| Docket Number | No. F033305.,F033305. |
| Citation | 90 Cal.Rptr.2d 743,76 Cal.App.4th 970 |
| Parties | KENDALL-JACKSON WINERY, LTD., Petitioner, v. The SUPERIOR COURT of Stanislaus County, Respondent; E. & J. Gallo Winery, Real Party in Interest. |
| Court | California Court of Appeals Court of Appeals |
Ropers, Majeski, Kohn & Bentley, Daniel E. Alberti, Mark G. Bonino, Redwood City, Mary A. Kiker, Los Angeles, and Kathryn C. Curry, for Petitioner.
No appearance for Respondent.
Blecher & Collins, Maxwell M. Blecher, Los Angeles, Steven J. Cannata; Damrell, Nelson, Schrimp, Pallios & Ladine, Roger M. Schrimp, Modesto; Orrick, Herrington & Sutcliffe, George A. Yuhas and Laurie Chambers, San Francisco, for Real Party in Interest.
The doctrine of unclean hands does not deny relief to a plaintiff guilty of any past misconduct; only misconduct directly related to the matter in which he seeks relief triggers the defense. (11 Witkin, Summary of Cal. Law (9th ed. 1990) Equity, § 10, p. 686.) The trial court found that Kendall-Jackson Winery, Ltd. (Kendall-Jackson), the defendant in a malicious prosecution action, had no relevant evidence that the plaintiff, E. & J. Gallo Winery (Gallo), acted with unclean hands in relation to its claim and ordered summary adjudication for the plaintiff on Kendall-Jackson's unclean hands defense. The novel issue presented is this: When "unclean hands" is raised as an affirmative defense to a malicious prosecution claim, is the relevant misconduct limited to that which affected the defendant's decision to file and pursue the prior lawsuit? We hold it is not; misconduct in the particular transaction or connected to the subject matter of the litigation that affects the equitable relations between the litigants is sufficient to trigger the defense.
We issue a writ of mandate directing the trial court to vacate its order granting summary adjudication for real party in interest on petitioner's unclean hands affirmative defense and to enter a new order denying the motion.
Kendall-Jackson has a reputation for producing high quality, mid-priced varietal wines. In 1994, Kendall-Jackson was selling over $100 million worth of Vintner's Reserve wine a year, and its chardonnay was the number one selling chardonnay in the United States. (Kendall-Jackson Winery v E. & J. Gallo Winery (9th Cir.1998) 150 F.3d 1042, 1045.) Gallo is the largest wine producer in the world. But, unlike Kendall-Jackson, Gallo has a reputation for producing lower-priced, non-premium wines. (Ibid.)
During the 1990's, the market for non-premium wines declined rapidly. Gallo researched how best to enter the premium wine market. Much of its research was directed at the success of the market leader — Kendall-Jackson Vintner's Reserve. Gallo learned that consumers associate the name "Gallo" with "jug wine" and that a colorful grape leaf design attracts consumers. In accord with these results, Gallo introduced in the fall of 1995 a line of premium wine, Turning Leaf, that featured a leaf motif and did not use the Gallo name. (Kendall-Jackson Winery v. E. & J. Gallo Winery, supra, 150 F.3d at p. 1045.)
In April 1996, Kendall-Jackson sued Gallo for damages and injunctive relief on causes of action for trademark infringement, trade dress violations and unfair business practices. Kendall-Jackson alleged that Gallo's Turning Leaf wine label and overall appearance mimicked its successful Vintner's Reserve wines. While the lawsuit alleged unfair marketing practices in retail displays, the litigation focused on the label and packaging similarities rather than marketing strategies. (Kendall-Jackson Winery v. E. & J. Gallo Winery, supra, 150 F.3d 1042.) Gallo denied employing unlawful marketing practices and resisted disclosing material related to its marketing strategies. The court found for Gallo on the trademark infringement and unfair competition claims. After a 12-day trial, a jury found for Gallo on the trade dress infringement and "palming off claims. Judgment for Gallo was affirmed on appeal. (Ibid.)
In September 1997, Gallo filed this action against Kendall-Jackson for malicious prosecution and intentional interference with contract. Gallo alleged that Kendall-Jackson had filed and prosecuted the federal action without probable cause and for the improper purpose of harassing a competitor. In addition, Kendall-Jackson had induced Chris Lynch, Gallo's former director of marketing, to breach his confidentiality agreement with Gallo. Kendall-Jackson used the confidential information obtained "to file a facially plausible, but knowingly false lawsuit against Gallo." Among the defenses raised by Kendall-Jackson's answer was an allegation that Gallo's claims were barred by the doctrine of unclean hands.
In response to Gallo's interrogatory requesting each fact supporting the defense, Kendall-Jackson stated:
(1) Kendall-Jackson has learned that Gallo has numerous representatives working for chain stores who are involved with shelf schematics for the stores or are otherwise involved with moving wine products. Alternatively, Gallo representatives have directed non-Gallo employees to make schematic changes for Gallo.
(2) Gallo employs a technique which it calls "piggy-back adjacencies." The technique involves training its distributor/salesperson to place an inferior, lowerpriced Gallo product adjacent to a higher-priced category leader. The category leader's display attracts the consumer's attention. When the consumer reaches for the well-known product, he or she will see the lower-priced Gallo product, and may buy that product instead.
(3) Gallo employees have admitted moving Turning Leaf wines next to Kendall-Jackson wines, which would require them to move a non-Gallo product in violation of federal and state regulations.
Kendall-Jackson identified a number of documents that described conduct supporting its unclean hands defense. The documents contain direct and circumstantial evidence showing that Gallo used its influence to have retailers place Turning Leaf wine next to Kendall-Jackson Vintner's Reserve wine. The documents also reflect that Gallo representatives or employees moved Kendall-Jackson products, provided free labor to retailers in exchange for favorable product placement, prepared shelf schematics for retailers, maintained offices in some retailers' stores, wore retailer badges while stocking product, removed Kendall-Jackson wines from a retail store, participated in retailer resets which involved handling a competitor's product, and interfered with Kendall-Jackson's marketing displays. While most of the documents were generated during the federal litigation (1996-1997), many reflected or implied ongoing unclean hands conduct since 1994.
Kendall-Jackson designated Michael Haarstad, its director of marketing, as the person most knowledgeable about the facts supporting its unclean hands defense. Gallo deposed Haarstad. According to Gallo, Haarstad confirmed that the documents produced were the only evidence known to Kendall-Jackson that support its defense, and Haarstad was unaware of any Gallo misconduct relating to Turning Leaf wine that occurred prior to the filing of the infringement action. In fact, Haarstad's testimony provided considerably more evidence regarding Gallo's purportedly illegal or improper marketing strategies in relation to Kendall-Jackson.
At one point in his deposition, Haarstad stated he did not recall any unclean hands conduct by Gallo concerning Turning Leaf before the federal lawsuit was filed. Later, however, he stated that between 1994 and 1996, he was generally aware of Gallo's influence over, and inappropriately close working relationship with, chain stores. After the lawsuit was filed and Kendall-Jackson elicited written information from employees in the field, he became aware of the depth and scope of the improper activity. Haarstad also testified that he had received oral reports from the field regarding inappropriate Gallo adjacencies from 1994 through the period when Turning Leaf was introduced.
Gallo moved for summary adjudication on Kendall-Jackson's unclean hands defense. Gallo admitted for purposes of the motion that the "actions described in [Kendall-Jackson]'s unclean hands documents took place." Gallo contended, however, it was entitled to judgment on the defense because the conduct identified was not directly related to its malicious prosecution claim. According to Gallo, in a malicious prosecution action, the plaintiffs unclean hands conduct must have affected the defendant's decision to file and pursue the underlying lawsuit. Thus, only unclean hands conduct known to the defendant at the time it filed the underlying suit is relevant. Because Kendall-Jackson's documents describing the misconduct were generated after Kendall-Jackson filed the underlying action, they were irrelevant, and Kendall-Jackson had no evidence to support its defense.
Gallo also argued that further discovery would not cure the evidentiary defects. Because the unclean hands conduct had to affect Kendall-Jackson's decision to file the infringement action, only unclean hands conduct known to Kendall-Jackson at that time could be used to support its defense.
Kendall-Jackson opposed the motion on procedural and substantive grounds.
The trial court granted the motion for summary adjudication. It found that Kendall-Jackson had no relevant evidence that Gallo acted with unclean hands in relation to its malicious prosecution or inducing breach of contract claims. The court denied Kendall-Jackson's request to continue the matter for further discovery, finding no showing of due diligence.
Kendall-Jackson filed a petition for writ of mandate challenging those orders. This court issued an order to show cause.
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Kendall-Jackson v. E&J Gallo Winery
... Page 743 ... 90 Cal.Rptr.2d 743 (Cal.App. 5 Dist. 1999) ... KENDALL-JACKSON WINERY, LTD., Petitioner, ... THE SUPERIOR COURT OF STANISLAUS COUNTY, Respondent; E. & J. GALLO WINERY, ... Real Party in Interest ... IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA ... ...