Nutramax Labs., Inc. v. Manna Pro Prods., LLC
| Decision Date | 02 August 2017 |
| Docket Number | Civil Action No.: 0:16-cv-01255-JMC |
| Court | U.S. District Court — District of South Carolina |
| Parties | Nutramax Laboratories, Inc., and Nutramax Laboratories Veterinary Services, Inc., Plaintiffs, v. Manna Pro Products, LLC; Nutri-Vet, Wellness, LLC; and 21st Century Animal HealthCare, LLC, Defendants. |
In a December 1, 2016 order ("contempt order"), the court found Defendant 21st Century Animal HealthCare, LLC ("21st Century") in civil contempt for violating the terms of a July 8, 2016 joint stipulation of settlement and order ("settlement order") that had been submitted by the parties and later endorsed by the court. (ECF No. 44.) The contempt order directed 21st Century to disgorge to Plaintiffs Nutramax Laboratories, Inc., and Nutramax Laboratories Veterinary Services, Inc., (together, "Nutramax") "its net profits from all sales, on or after July 8, 2016, of products within its Essential Pet line that employ or employed packaging with comparative advertising containing the word Cosequin or that are sold or were sold through a website that employed comparative advertising containing the word Cosequin at the time of the sale." (Id.) This matter now comes before the court because a dispute has arisen between 21st Century and Nutramax as to the calculation of the proper amount of net profits to be disgorged. (See ECF Nos. 46, 49, 52.) This order resolves the dispute, and the court ORDERS 21st Century to disgorge to Nutramax $11,130.14, which, for the reasons that follow, the court determines is the proper amount of net profits to be disgorged.
In the contempt order, the court outlined the four elements that Nutramax had the burden to establish by clear and convincing evidence in order for the court to find that 21st Century was in contempt, noting that a showing of willfulness was not a required element. (See ECF No. 44 at 6-7 (citing JTH Tax, Inc. v. H&R Block E. Tax Servs., Inc., 359 F.3d 699, 705 (4th Cir. 2004); Ashcroft v. Conoco, Inc., 218 F.3d 288, 301 (4th Cir. 2000); In re Gen. Motors Corp., 61 F.3d 256, 258 (4th Cir. 1995)).) Assessing the evidence and the parties' arguments, the court "conclude[d] that Nutramax ha[d] shown by clear and convincing evidence each of the elements needed to establish a finding of civil contempt." (Id. at 7.) In reaching this conclusion, the court explained that, although there was clear and convincing evidence that 21st Century knowingly violated an unequivocal command in the settlement order, Nutramax had not shown by clear and convincing evidence that 21 Century's violation was willful (see id. at 15) and, in fact, "the court note[d] that nothing [in the record before it] suggest[ed] a willful violation" (id. at 20).
In fashioning a sanction for 21st Century's civil contempt, the court emphasized that sanctions imposed for civil contempt must be only remedial and/or compensatory in nature and, unlike in the criminal contempt context, cannot be punitive in nature. (See id. at 17 ().) Thus, as a general rule, where the court intends a sanction in the form of a fine to be compensatory, the fine imposed should not exceed the actual loss to the complainant caused by the contumacy. (See id. (citing In re Gen. Motors, 61 F.3d at 359); In re Tetracycline Cases, 927 F.2d 411, 413 (8th Cir. 1991)).) For civil contempt proceedings arising from trademark infringement actions, such as this one, the court noted that requiring the contemnor to disgorge its net profits from the infringing activity to the complainant is an oft-used compensatory sanction. (See id. at 18 (citing Manhattan Indus., Inc. v. Sweater Bee by Banff, Ltd., 885 F.2d 1, 5-6 (2d Cir. 1989); Buffalo Wings Factory, Inc. v. Mohd, 574 F. Supp. 2d 574, 581-82 (E.D. Va. 2008); Colonial Williamsburg Found. v. Kittinger Co., 792 F. Supp. 1397, 1407-08 (E.D. Va. 1992)).) Thus, the court determined that it was "appropriate to order 21st Century to disgorge its net profits from all sales, on or after July 8, 2016, of products within its Essential Pet line that employ or employed packaging with comparative advertising containing the word Cosequin or that are sold or were sold through a website that employed comparative advertising containing the word Cosequin at the time of the sale." (Id. at 18-19.) In the court's view, this disgorgement of net profits was "necessary to compensate Nutramax for the injury to its rights under the Settlement Order," was "an appropriate means to coerce 21st Century's compliance with the Settlement Order's terms," and "ensure[d] that the disgorgement does not become punitive in nature." (Id. at 19.) Accordingly, the court ordered 21st Century to disgorge the profits so described, but, anticipating the instant dispute, ordered 21st Century to first "file with the court and serve on Nutramax a statement disclosing all of its sales and net profits . . . that are subject to this disgorgement order and explaining how such net profits were calculated." (Id. at 21.)
On January 6, 2017, 21st Century, in compliance with the court's contempt order, filed a statement disclosing its sales subject to disgorgement and explaining how it calculated the net profits therefrom. (ECF No. 46.) It asserts that the amount of net profits from sales subject to the order is $10,912.00. (Id. at 2-3.) To reach this amount, 21st Century begins by pointing to an exhibit of a spreadsheet (the "primary spreadsheet") containing sales and cost information for three products by reference to each product's stock keeping unit ("SKU") number. (See ECF No. 46 at 2; ECF No. 46-2.) For the three SKU numbers combined, the spreadsheet shows that 11,100 units were sold during the relevant period, resulting in $80,314.00 in sales. (See ECF No. 46 at 2; ECF No. 46-2.) To substantiate these figures, 21st Century provides 65 invoices from retailers across the United States, reflecting the number of offending units sold in the relevant period (see ECF Nos. 46-3, 46-4, 46-5), and another spreadsheet breaking down the units sold by date, invoice number, and SKU number (see ECF No. 46-6).1 21st Century also provides the sworn declaration of its chief financial officer, Jim Jumpeter, who states that figures on the primary spreadsheet accurately represent the total number of units sold and total sales revenue therefrom, as derived from the invoices. (See ECF No. 46-1 at 1-2.)
From the sales revenue amount of $80,314.00, 21st Century makes two deductions, one deduction for the raw material costs in producing the offending products and another deduction for labor and overhead costs in producing the offending products. (See ECF No. 46 at 2-3; ECF No. 46-1 at 2-4.) First, 21st Century asserts that the total raw material costs amounted to $50,100.00. (ECF No. 46 at 2.) To reach this figure, 21st Century points to three cost variances reports that provide the per-unit average raw materials cost for each of the three offending products. (See ECF No. 46 at 2 (citing ECF No. 46-7); ECF No. 46-1 at 3 (same).) The cost variance report for SKU 27358 shows a raw materials cost of $8.33987 per unit; for SKU 27359, a cost of $3.69612 per unit; and for SKU 27390, a cost of $3.14574 per unit. (See ECF No. 46-7.) However, in his affidavit, Jumpeter states that "the raw material costs vary by lot, and the estimated average for [each SKU] can be found in the handwritten notes on each [cost variances report]." (ECF No. 46-1 at 3.) Attached to each of the three cost variances reports is a yellow sticky note containing a handwritten estimated average of the raw material cost for each SKU, apparently intended to account for the fact that the raw material costs for the lots subject to the contempt order differ slightly from the raw material costs for the lots that are the subject of the cost variances reports. For SKU 27358, a sticky note lists the raw material cost as $8.4553 per unit; for SKU 27359, a sticky note lists the cost as $3.6728 per unit; for SKU 27390, a sticky note lists the cost as $3.1458 per unit. (See ECF No. 46-7.) The primary spreadsheet shows that during the relevant period, 21st Century sold 2,544 units of SKU 27358, 3,228 units of SKU 27359, and 5,328 units of SKU 27390. (ECF No. 46-2 at 2.) Although the primary spreadsheet calculates the total raw material costs for the three SKUs as $50,127.00 (id.), in Jumpeter's affidavit and in 21st Century's response to the contempt order, the figure is stated as approximately $50,100.00 (see ECF No. 46 at 2; ECF No. 46-1 at 3).2
Second, 21st Century asserts that the total labor and overhead costs amounted to $19,200.00, with $9,600.00 allocated to labor and $9,600.00 allocated to overhead. (See ECF No. 46 at 2.) In reaching these figures, 21st Century admits that it does not track its labor and overhead costs by individual SKU. (Id.) Instead, 21st Century relies on Jumpeter's sworn statement that using 12% of sales revenue from each SKU to estimate overhead costs and another 12% of sales revenue to estimate labor costs would be a conservative method of estimating overhead and labor costs. (Id. at 2-3; ECF No. 46-1 at 3-4.) The primary spreadsheet lists the overhead and labor costs for SKU 27358 as $3,028.00 each, for a total of $6,056.00; for SKU 27359 as $2,222.00 each for a total of $4,444.00; and for SKU 27390 as $4,388 each, for a total $8,776.00. (ECF No. 46-2.) Although, adding these figures together, the primary spreadsheet arrives at figures of $9,638.00 for overhead and another $9,638.00 for labor (id.), which would total $19,276.00, in Jumpeter's affidavit and in 21st Century's response to the contempt order, the figures are stated as approximately $9,640.00 (see ECF No. 46 at 2; ECF No. 46-1 at 3), which would total $19,280.00.3
Subtracting the figure of $50,100.00 in total raw material costs and the...
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