Nutrivita Labs., Inc. v. VBS Distribution Inc.

• Decision Date: 27 January 2016
• Docket Number: Case No.: SACV 13-01635-CJC(DFMx)
• Citation: 160 F.Supp.3d 1184
• Parties: Nutrivita Laboratories, Inc., Plaintiff, v. VBS Distribution Inc., et al., Defendants.
• Court: U.S. District Court — Central District of California

160 F.Supp.3d 1184

Nutrivita Laboratories, Inc., Plaintiff,

v.VBS Distribution Inc., et al., Defendants.

Case No.: SACV 13-01635-CJC(DFMx)

United States District Court, C.D. California, Southern Division.

Signed January 27, 2016

Anthony B. Cartee, Ng Do–Khanh, Irvine, CA, Daniel D. Do-Khanh, Ng Do–Khanh PC, Costa Mesa, CA, for Plaintiff.

Henry P. Friesen, Friesen Guy and Associates, Irvine, CA, William Edward Levin, Levin Intellectual Property Law Group, Laguna Beach, CA, for Defendants.

ORDER DENYING DEFENDANTS' MOTION FOR ATTORNEYS' FEES AND SANCTIONS

CORMAC J. CARNEY, UNITED STATES DISTRICT JUDGE

I. INTRODUCTION

Plaintiff Nutrivita Laboratories, Inc. (“Nutrivita”) brought this action against VBS Distribution Inc., Kings Herb Corporation, and Joseph C. Nguyen (collectively, “VBS”), alleging that VBS unlawfully copied its trade dress in violation of the Copyright Act, the Lanham Act, and various state statutes. The parties evidently reached an agreement that the case should be dismissed, and on December 23, 2015, Nutrivita filed a stipulation to dismiss the case with prejudice, (Dkt.40), which the Court granted on December 30, 2015. Currently before the Court is VBS's motion for attorneys' fees and sanctions. (Dkt.41.) For the following reasons, that motion is DENIED.¹

II. BACKGROUND

Plaintiff Nutrivita is a marketer and distributor of what it calls “nutraceutical supplements,” including a dietary supplement called Arthro–7. (Dkt. 17 (“First Amended Complaint” (“FAC”)) ¶ 10.) Arthro–7 is sold in capsule form and was developed to promote joint health. (Id. ¶ 11.) Arthro–7 is a registered trademark. (Id. ¶ 11.)

Defendant VBS markets and sells a competing product called “JN–7 Best,” which is apparently also a dietary supplement, sold in capsule (or caplet) form, and designed to promote joint health. (FAC ¶ 15.) Arthro–7 and JN–7 Best are marketed toward the same set of consumers and are occasionally sold side-by-side in stores. (Id. ¶ 16.) In September 2013, Nutrivita noticed that the packaging for JN–7 Best “included the same design elements found on the Arthro–7 label, including the same or similar fonts, colors, and patterns.” (Id. ¶ 15.) Believing that VBS was attempting to “unfairly capitaliz[e] on [Nutrivita's] goodwill,” (FAC ¶ 16), Nutritiva sent VBS a demand letter on October 8, 2013. (See Dkt. 44–3.) The letter accused JN–7 Best of “closely mimic[king] the name, label, style, and distinctive elements of Arthro–7's trademark, copyright, and trade dress” by “us[ing] the same color schemes, layout, almost identical fonts, and art to make the box and labels of [JN–7 Best] substantially similar and infringing [sic] of Arthro–7.” (Id. at 1.) Nutrivita also highlighted a number of claims JN–7 Best's packaging made regarding the product's health, informing VBS that it believed those claims to be false and in violation of Food and Drug Administration regulations. (Id. at 1.) Nutrivita demanded that VBS immediately stop promoting, advertising, and selling JN–7 Best, disclose the quantities of JN–7 Best being held by VBS, and disclose the profits VBS had already earned from selling JN–7 Best. (Id. at 2.) Finally, the letter threatened suit if VBS did not respond and cooperate.

On October 12, 2013, Defendant Joseph C. Nguyen sent a polite letter back to Nutrivita, apologizing for the “confusion” between the products and telling Nutrivita that it was “not [VBS's] intention” to infringe its intellectual property. (Dkt. 44–4 at 1.) Nguyen also offered to sell JN–7 Best in bottle form only (i.e., without any cardboard box packaging) “until [VBS could] come up with a new design and a new color for [its] box.” (Id. )

Apparently unhappy with this response, Nutrivita filed a complaint in this Court on October 18, 2013. The complaint alleged thirteen causes of action, for (1) trademark infringement in violation of the Lanham Act, 15 U.S.C. § 1114, et seq . ; (2) federal unfair competition under the Lanham Act; (3) trade dress infringement under the Lanham Act; (4) copyright infringement under the Copyright Act, 17 U.S.C. § 301 et seq . ; trademark dilution under the Lanham Act; (6) false advertising under the Lanham Act; (7) false advertising under Cal. Bus. and Prof.Code § 17500 ; (8) contributory trademark infringement under the Lanham Act; (9) contributory trade dress infringement under the Lanham Act; (10) contributory copyright infringement under the Copyright Act; (11) contributory trademark dilution under the Lanham Act; (12) contributory false advertising under the Lanham Act; and (13) unfair competition under Cal. Bus and Prof.Code § 17200. (See generally FAC.) After Nutrivita served its complaint, Mr. Nguyen filed a motion to dismiss the case as to him on the ground that Nutrivita had inadequately alleged that he was an alter ego of VBS Distribution Inc. (Dkt.10.) That motion was granted with leave to amend, and Nutrivita filed a First Amended Complaint that adequately alleged alter ego liability. (Dkt.17.) Litigation then proceeded slowly. Counsel for VBS, Henry Friesen, fell seriously ill, and the parties stipulated to advance deadlines a number of times to accommodate his illness and recovery. (See Dkt. 29; Dkt. 31; Dkt. 33; Dkt. 36.) Some discovery apparently was also exchanged, and eventually it came to light in 2015 that VBS had changed the box and bottle label for JN–7 Best and informed Nutrivita of the amount of infringing labels and packaging it had originally created. (Dkt. 45–1 ¶ 20–21.) VBS also made changes to the health claims on the labels. (Id. ¶ 22.) Satisfied with the changes, Nutrivita agreed to dismiss its lawsuit with prejudice.

Roughly two weeks before the dismissal, with its original counsel still ailing, VBS retained another lawyer, William Levin. (Dkt. 45–1 ¶ 12.) Unsatisfied with the subsequent dismissal with prejudice, Mr. Levin filed this motion for attorneys' fees and sanctions, arguing that as a prevailing party, VBS is eligible for a fee award under the Copyright Act and Lanham Act, and that Nutrivita should be sanctioned under Rule 11. The motion alleges that Nutrivita's claims were meritless from the start and that Nutrivita subjected VBS to protracted litigation in order to disadvantage a competitor. Mr. Levin requests approximately $150,000 in attorneys' fees, although he concedes that he has not seen Mr. Friesen's bills, and he does not know how long Mr. Friesen spent working on the case. Accordingly, Mr. Levin declares, the actual amount of fees he would ultimately like to request may be “significantly more or less” than his $150,000 estimate, but that in any event, he considers the estimate to be “a relatively small amount” given the “complex, combined intellectual property law” issues in this case. (Dkt. 41–2 at 10.) He does not submit any bills or invoices, and instead suggests that the Court determine liability for fees first, and then refer the calculation of fees to a magistrate judge or a special master.²

Nutrivita, for its part, expresses shock at the estimated amount of requested fees, given the very limited litigation activity in this lawsuit (consisting, in its telling, of “one set of written discovery from each side, two depositions, two motions, and $5,623.76 in costs”). (Pl.'s Opp'n. at 1.) It also complains that Mr. Levin has not submitted bills or invoices, or even a declaration from Mr. Friesen, and points out that the protracted nature of this litigation is mostly attributable to its willingness to stipulate to continuances for Mr. Friesen's sake. Nutrivita adds that it was surprised by the fee motion because it—not VBS—got what it wanted in this lawsuit (a change in VBS's packaging), and that in any event, fees and sanctions are unwarranted.

III. DISCUSSION

VBS requests attorneys' fees under two statutes—the Lanham Act and the Copyright Act—and argues in addition that the Court should sanction Nutrivita under Federal Rule of Civil Procedure 11. Under the Lanham Act and the Copyright Act, only a prevailing party may recover fees. As a result, the Court will first consider whether VBS is in fact a prevailing party before turning to whether it is actually entitled to fees and whether Nutrivita should be sanctioned under Rule 11.

A. Prevailing Party Status

Attorneys' fees under the Lanham and Copyright Acts are only available to prevailing parties. See 17 U.S.C. § 505 (“[T]he court may ... award a reasonable attorney's fee to the prevailing party.”); 15 U.S.C. § 1117 (“The court in exceptional cases may award reasonable attorney fees to the prevailing party.”). Here, neither party secured a judgment from the Court, but Nutrivita did stipulate to the dismissal of its claims with prejudice. The parties disagree as to whether a plaintiff's voluntary dismissal with prejudice confers prevailing party status on a defendant.

That question is one of some dispute in the federal courts. The dispute stems from the Supreme Court's decision in Buckhannon Bd. and Care Home, Inc. v. W.Va. Dept. of Health and Human Resources, 532 U.S. 598, 121 S.Ct. 1835, 149 L.Ed.2d 855 (2001), which interpreted prevailing party provisions in the Americans with Disabilities Act of 1990 and Fair Housing Amendment Act of 1988. In Buckhannon, a West Virginia statute required that residents at assisted living facilities be capable of “self-preservation,” or in other words, be “capable of moving themselves from situations involving imminent danger, such as fire.” Id. at 600, 121 S.Ct. 1835. After an assisted living facility failed an inspection because some of its residents did not meet the requirements of the state statute, the facility sued West Virginia, arguing that the state law self-preservation requirement violated the FHAA and ADA. Partway through the litigation, West Virginia repealed the requirement, and the district court dismissed the case as moot. The assisted living facility moved for fees, but the Supreme Court ultimately determined that prevailing party status required a “judicially...