The opinion of the court was delivered by: Norma L. Shapiro, J.
This action was brought by World Entertainment, Inc., ("World
Entertainment") and its CEO/President Carmen Tomassetti ("Tomassetti")
against former employees Jim Di Renzo ("Di Renzo") and Andrea Brown
("Brown"), and her company, Grand Entertainment Productions, LLC
("Grand Entertainment"). Plaintiffs' 13-count complaint*fn1
alleged trademark infringement and unfair competition under
the Lanham Act, as well as tortious interference, defamation, unjust
enrichment and breach of contract arising from defendants' departure
from plaintiffs' employ.
Jurisdiction over the Lanham Act claims is conferred by 28 U.S.C. § 1331;*fn2 there is jurisdiction over the pendent state law claims under 28 U.S.C. § 1367(a).*fn3
Defendants failed to appear, plead or otherwise defend against plaintiffs' validly served complaint; default judgment was entered against them under Fed. R. Civ. Pro. 55(a) on April 7, 2010. The court held a hearing on damages attended by both parties. Judgment will be entered in favor of plaintiffs for $429,997.30, and an injunction will issue enjoining defendants from use of CTO, plaintiffs' federally registered mark.
Plaintiff World Entertainment, based in Radnor, Pennsylvania, is a
production company providing music for weddings, Bar/Bat Mitzvahs and
corporate events. CEO/President Tomassetti signs musicians to play
with bands managed by World Entertainment. All bands managed by World
Entertainment have the federally-registered mark CTO in their names,
and many contain references to New York City locales.*fn4
Defendants Brown and Di Renzo, each having entered into a
contract with World Entertainment and Tomassetti, were assigned to a
band named CTO Tribeca. Brown's contract contained a limited
non-compete clause on termination,
as well as a non-solicitation clause and a clause prohibiting use of
the mark CTO or reference to her association with World Entertainment
without the company's express written consent.*fn5
On January 20, 2008, Brown and Di Renzo entered into their own contract with an existing World Entertainment client. On September 28, 2008, World Entertainment and Brown agreed to terminate their contractual relationship after Brown performed with CTO Tribeca at events then under contract. In an email dated September 28, 2008, sent to Tomassetti as well as to several World Entertainment employees, Brown accused Tomassetti of committing a federal crime by accessing and using her personal email account. Brown then founded Grand Entertainment and a new band featuring former members of CTO Tribeca. To promote her new venture, Brown released a video featuring CTO Tribeca and the CTO mark over which she superimposed Tribeca Grand - the name of her new band.
Two weeks later, Brown sent a letter to 25 clients under contract with World Entertainment soliciting contracts with her new band. Plaintiffs' complaint alleges Brown's efforts resulted in the loss of seven clients. Tomassetti made several written demands on Brown to cease using the names CTO and Tribeca in performing, advertising and directing internet searches to Grand Entertainment's website. These demands had been ignored at the time of the evidentiary hearing to assess damages and equitable relief. Brown was then unable to produce Grand Entertainment's certificate of incorporation or articles of incorporation. Despite the court's request, Brown never produced any documentary evidence that Grand Entertainment was a duly incorporated limited liability company. It appears that Grand Entertainment is a sham corporation, with Brown as its owner. Under Pennsylvania law, an individual is responsible "forany liability-creating act performed behind the veil of a sham corporation. Where the court pierces the corporate veil, the owner is liable because the corporation is not a bona fide independent entity, therefore its acts are truly h[ers]." Wicks v. Milzoco Builders, Inc., 470 A.2d 86, 90 (Pa. 1983). Brown is liable for damages arising from the actions of Grand Entertainment.
II. Assessment of Damages
The Federal Rules of Civil Procedure allow the court clerk to enter the default of a defendant who fails to plead or otherwise defend. Fed. R. Civ. Pro. 55(a), (b)(2). If there is a default, "the factual allegations of the complaint, except those relating to damages, will be taken as true." Comdyne I, Inc. v. Corbin, Jr., 908 F.2d 1142, 1149 (3d Cir. 1999) (citing 10 C. Wright, A. Miller & M. Kane, FEDERAL PRACTICE AND PROCEDURE § 2688 at 444 (2d ed. 1983)). In the event of a default, plaintiff "may still be required to prove that he or she is entitled to the damages sought." Comdyne I, 908 F.2d at 1149. If the claim is not made for a sum certain, the court, in its discretion, may conduct a hearing in connection with the application for default judgment to determine the amount of damages or to establish the truth of any averment by evidence. Fed. R. Civ. Pro. 55(b)(2); Durant v. Husband, 28 F.3d 12, 14 (3d Cir. 1994). Proof "in support of damage claims need not conform to a standard of mathematical exactness, but must be reasonably sufficient [that] there is a fair basis for calculation." Masch v. Chouvalov, 1997 WL 438473, at * 1 (E.D. Pa. July 24, 1997).
A. Damages Under the Lanham Act
Plaintiffs' common-law and state statutory trademark claims against defendants Brown and Grand Entertainment are subsumed within their Lanham Act claims. See Tillery v. Leonard & Sciolla LLP, 521 F. Supp. 2d 346, 348 n. 1 (E.D. Pa. 2007) ("The test for common law trademark infringement and unfair competition is essentially the same as the test for infringement and unfair competition under the Lanham Act.") (citation omitted); Mercury Foam Corp. v. L & N Sales & Marketing, 625 F. Supp. 87, 91 n. 1 (E.D. Pa. 1985) ("Pennsylvania common law [of unfair competition] is identical to the Lanham Act, 15 U.S.C. § 1125, except the Lanham Act requires interstate commerce."). Under the Lanham Act, "when . . . a violation under . . . this title, shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled . . . subject to the principles of equity, to recover (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action." See 15 U.S.C. § 1117(a).
The court's "determination of a damage award is based on considerations of 'equity, reason, and pragmatism.'" Sweetzel, Inc. v. Hawk Hill Cookies, Inc., 1996 WL 355357, at *3 (E.D. Pa. June 19, 1996) (citations omitted). At the damages hearing, plaintiffs offered documentary evidence of a $215,538.08 loss in average annual profits from the four years preceding defendants' departure to the three years following it.*fn6 Total claimed lost profit for the three year period was $646,614.24. Plaintiffs showed Brown's use of their protected trademarks in advertising and diverting internet traffic to Grand Entertainment's website through search engine phrase matching using Google Adwords and meta tags, but they did not offer any evidence suggesting the percentage of their business downturn caused by such infringement. Plaintiffs' reversal of fortunes coincided with a national recession, so their shrinking profit margins cannot be attributed solely to defendants' trademark infringement. Plaintiffs claim the infringement cost them over $200,000 in net profits annually, but, over the same three-year time period, Grand Entertainment's net profits were only $176,496.04.
Our Court of Appeals has endorsed a five-factor test to determine whether disgorgement of the defendant's profits is appropriate. Banjo Buddies, Inc. v. Renofsky, 399 F.3d 168, 175 (3d Cir. 2005). These factors "include, but are not limited to (1) whether the defendant had the intent to confuse or deceive, (2) whether sales have been diverted, (3) the adequacy of other remedies, (4) any unreasonable delay by the plaintiff in asserting his rights, (5) the public interest in making the misconduct unprofitable, and (6) whether it is a case of palming off." Id.
Here, disgorgement is appropriate because of the difficulty of calculating compensation based on plaintiffs' asserted damages. It is unclear what percentage of plaintiffs' lost profits is attributable to defendant's Lanham Act violations; any damages award based on plaintiffs' lost profits would be speculative. It is reasonable and equitable to assume the losses caused by Grand Entertainment did not exceed Grand Entertainment's profits. The court will award plaintiffs disgorgement of defendants' profits in the amount of $176,496.04, for violation of the Lanham Act by Brown and Grand Entertainment.
When the parties' products are in direct competition and the defendant's profits are derived from sales of the same products that account for the plaintiffs' lost profits, the plaintiffs cannot recover both the defendant's profits and their own lost profits. Darius Int'l, Inc. v. Young, 2008 WL 1820945, at *53 (E.D. Pa. Apr. 23, 2008)(citing Century Distilling Co. v. Continental Distilling Corp., 205 F.2d 140, 149 (3d Cir. 1953)).
In addition to disgorgement of defendant's profits, plaintiffs are entitled under Section 1117(a) to recover the costs of their action. Plaintiffs will be awarded their documented costs of $18,540.96.
The Lanham Act authorizes an award of attorney's fees to a prevailing party in "exceptional" cases. See 15 U.S.C. § 1117(a). Exceptional cases involve culpable conduct on the part of the losing party, "such as bad faith, fraud, malice, or knowing infringement." Securacomm Consulting, Inc. v. Securacom, Inc., 224 F.3d 273, 280 (3d Cir. 2000). Plaintiffs' complaint, the factual allegations of which must be accepted as true, alleged defendant Brown was aware plaintiffs owned the trademark "CTO."*fn7 See Comdyne I, 908 F.2d at1149. Brown continued to infringe plaintiffs' trademark after receiving numerous cease and desist letters and the summons in this action. Brown's infringement continued even after the entry of default judgment against her; she was still violating the mark at the time of the damages hearing. This is an "exceptional" case of knowing infringement; plaintiffs will be awarded attorney's fees in the documented amount of $183,959.30. Judgment of disgorgement of profits, costs and attorney's fees will be entered against Brown and Grand Entertainment.
Plaintiffs' common law claims can be divided into four categories: (1) unjust enrichment; 2) tortious interference; (3) libel; and (4) breach of contract. Since disgorgement of defendant's profits under the Lanham Act will be awarded, any recovery for unjust enrichment would be duplicative. See Meyer-Chatfield v. Century Bus. Servicing, Inc., 732 F. Supp. 2d 514, 523 (E.D. Pa. 2010) ("A party is not permitted to recover twice under multiple theories of law for the same injury.").
(ii) Tortious Interference
Plaintiffs' three counts alleging liability*fn8 for tortious interference claim damages of $200,000 arising from the loss of seven signed clients as a result of Brown's October 14, 2008 letter. Plaintiffs' complaint states the seven lost clients signed new contracts for performances by Tribeca Grand through Grand Entertainment.*fn9 The profits from those contracts are included in Grand Entertainment's 2008 profits disgorged to plaintiffs for violation of the Lanham Act. Any recovery by plaintiffs for ...