Townsend Farms, Inc. v. United Juice Corp. ( 2019 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS NOV 27 2019
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
TOWNSEND FARMS, INC., No. 18-55067
Plaintiff-counter- D.C. No.
defendant-Appellee, 8:15-cv-00837-DOC-JCG
v.
MEMORANDUM*
UNITED JUICE CORP.,
Defendant-Appellant,
GÖKNUR GIDA MADDELERI ENERJI
IMALAT ITHALAT IHRACAT TICARET
VE SANAYI A.S, DBA Göknur Foodstuffs
Import Export Trading and Production Co., a
Turkish corporation doing business in
California,
Defendant-counter-claimant-
Appellant.
TOWNSEND FARMS, INC., No. 18-55068
Plaintiff-counter- D.C. No.
defendant-Appellant, 8:15-cv-00837-DOC-JCG
v.
UNITED JUICE CORP., a New Jersey
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
corporation doing business in California,
Defendant-Appellee,
GÖKNUR GIDA MADDELERI ENERJI
IMALAT ITHALAT IHRACAT TICARET
VE SANAYI A.S, DBA Göknur Foodstuffs
Import Export Trading and Production Co., a
Turkish corporation doing business in
California,
Defendant-counter-claimant-
Appellee.
Appeal from the United States District Court
for the Central District of California
David O. Carter, District Judge, Presiding
Argued and Submitted November 5, 2019
Pasadena, California
Before: MURGUIA and HURWITZ, Circuit Judges, and GUIROLA,** District
Judge.
Townsend Farms, Inc. (“Townsend”) included pomegranate arils supplied
by Göknur Gida Maddeleri Enerji Imalat Ithalat Ihracat Ticaret ve Sanayi A.Ş. and
United Juice Corp. (collectively, “Göknur”) in its Townsend Farms Organic
Antioxidant Blend (the “Antioxidant Blend”). Some of those arils were
contaminated with hepatitis A. After consumers of the frozen fruit mixture
**
The Honorable Louis Guirola, Jr., United States District Judge for the
Southern District of Mississippi, sitting by designation.
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contracted the virus, Townsend recalled the product in coordination with the Food
and Drug Administration and the Center for Disease control and Prevention. In the
wake of the Outbreak and subsequent recall of the Antioxidant Blend, injured
consumers filed numerous lawsuits against Townsend. Townsend and its
insurance companies defended and settled most of those lawsuits.
Townsend then sued Göknur seeking equitable indemnity for the entire cost
of defending and settling the consumer lawsuits. Göknur raised a counterclaim
arguing that Townsend’s recall press releases constituted false advertising under
the Lanham Act.
Before trial, the parties stipulated that Townsend and its insurers incurred
$13,705,832.43 in litigation and settlement costs as a result of the contaminated
product. In this action, Townsend sought to recover these costs from Göknur, plus
compensatory and punitive damages.
The district court dismissed Göknur’s Lanham Act counterclaim for failure
to state a claim. A jury awarded Townsend $2.7 million for underlying settlements
and associated litigation expenses and $4.8 million in punitive damages. The
district court denied Göknur’s motion for judgment as a matter of law on punitive
damages. The court also denied Townsend’s motion to alter or amend the
judgment or, alternatively, for a new trial on damages, which requested
enforcement of the parties’ damages stipulation. Finally, the district court
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dismissed Townsend’s claims for declaratory relief and violation of the California
Unfair Competition Law (“UCL”), CAL. BUS. & PROF. CODE § 17200. We have
jurisdiction over the parties’ appeals pursuant to 28 U.S.C. § 1291. We affirm in
part, reverse in part, and remand.
1. The district court correctly dismissed Göknur’s claim for false
advertising. The Lanham Act holds liable “[a]ny person who . . . in commercial
advertising or promotion, misrepresents the nature, characteristics, quality, or
geographic origin of his or another person’s goods, services, or commercial
activities.” 15 U.S.C. § 1125(a)(1)(B). Here, Göknur’s false advertising claim
fails as a matter of law because Townsend’s recall press release did not propose a
commercial transaction. Rice v. Fox Broad. Co., 330 F.3d 1170, 1181 (9th Cir.
2003) (quoting City of Cincinnati v. Discovery Network, Inc., 507 U.S. 410, 422
(1993)). Therefore, it was not “commercial advertising” for purposes of the
Lanham Act. Id.
2. The district court did not abuse its discretion in refusing to adjust the
jury’s compensatory damages award. Göknur and Townsend stipulated only that
Townsend and its insurers spent approximately $13.7 million in “settlement” costs,
and that these costs were reasonable. But the damages stipulation failed to discuss
who was responsible for those costs. Therefore, in seeking equitable
indemnification, Townsend bore the burden of proving the degree of Göknur’s
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fault in causing the stipulated damages. See Great W. Drywall, Inc. v. Interstate
Fire & Cas. Co., 74 Cal. Rptr. 3d 657, 663 (Cal. Ct. App. 2008); Gem Developers
v. Hallcraft Homes of San Diego, Inc., 261 Cal. Rptr. 626, 629–30 (Cal. Ct. App.
1989). Thus, it was not an abuse of discretion for the district court to instruct the
jury to consider apportionment of fault. The jury’s award of less than Townsend’s
full stipulated losses was an implicit finding that Göknur was not fully at fault.
3. Under California law, Townsend was required to produce “meaningful
evidence of the defendant’s financial condition” in order to obtain punitive damages.
Adams v. Murakami, 813 P.2d 1348, 1349 (Cal. 1991). Townsend provided
evidence of Göknur’s income and assets, but none about its expenses and liabilities.
“In most cases, evidence of earnings or profit alone are not sufficient ‘without
examining the liabilities side of the balance sheet.’” Baxter v. Peterson, 58 Cal.
Rptr. 3d 686, 691 (Cal. Ct. App. 2007) (quoting Kenly v. Ukegawa, 19 Cal. Rptr. 2d
771, 776 (Cal. Ct. App. 1993)); see also Boyle v. Lorimar Prods., Inc., 13 F.3d 1357,
1361 (9th Cir. 1994) (“The rule established by lower California courts is that only
net, not gross, figures are relevant.”). Because a reasonable jury could not have
relied on evidence of assets and income alone to arrive at a measure of Göknur’s
financial condition or net worth without speculation, the award cannot stand. “When
a punitive damage award is reversed based on the insufficiency of the evidence, no
retrial of the issue is required” if the plaintiff “had ‘a full and fair opportunity to
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present his case for punitive damages.’” Baxter, 58 Cal. Rptr. 3d at 692 (quoting
Kelly v. Haag, 52 Cal. Rptr. 3d 126, 131 (Cal. Ct. App. 2006)). We thus “remand to
the district court with instructions to dismiss the punitive claims.” Kaffaga v. Estate
of Steinbeck, 938 F.3d 1006, 1019 (9th Cir. 2019).
4. Townsend Farms contends that the district court erred in denying relief
under the UCL because of its “mistaken interpretation that the jury did not find
Göknur fully liable for the pomegranate adulteration.” But the district court’s
interpretation was not mistaken. The decision of the district court is affirmed.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
Each party shall bear its own costs.
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