Passport Health, Inc. v. Travel Med Inc. et al

Filing 81

FINDINGS of FACT and CONCLUSIONS of LAW signed by Judge Garland E. Burrell, Jr., on 9/6/11. Travel Medand Flaharty are jointly and severally required to pay Passport Health $279,798.56 in damages for breach of the Franchise Agreement and for breach of the Guarantee. Passport Health is awarded $157,110.18 from Travel Med for the Trademark Infringement claim. Judgment shall be entered in favor of Plaintiff Passport Health, Inc. CASE CLOSED (Kastilahn, A)

1
2
3
4
5
6
7
8
IN THE UNITED STATES DISTRICT COURT
9
FOR THE EASTERN DISTRICT OF CALIFORNIA
10
11
12

PASSPORT HEALTH, INC., a
Maryland corporation,

13

Plaintiff,
v.

14
15
16
17
18

TRAVEL MED, INC., a California
corporation and GINA FLAHARTY,
an individual and citizen of the
State of California
Defendants.*
________________________________

)
)
)
)
)
)
)
)
)
)
)
)
)
)

2:09-cv-01753-GEB-JFM
FINDINGS OF FACT AND
CONCLUSIONS OF LAW

19

This decision decides the bench trial held on April 20, 2011,

20

solely on the damages portion of Plaintiff Passport Health, Inc.’s

21

(“Passport Health”) claims.

22

moved for and was granted partial summary judgment on the liability

23

portion of its following claims: breach of the Franchise Agreement,

24

breach of the Guaranty, and Trademark Infringement alleged under 15

25

U.S.C. § 1114(1)(a).

26

///

Before the bench trial, Passport Health

27
28

*

The caption is amended since Defendants’ counterclaims were
dismissed. (ECF Nos. 69, 73.)
1

1

I. FINDINGS OF FACT

2

A. BACKGROUND

3

1. The February 10, 2011 Order granting Passport Health

4

partial summary judgment contains the following uncontroverted facts:

5

7

Plaintiff owns the trademark “PASSPORT
HEALTH” and has registered this “trademark with the
U.S. Patent and Trademark Office for travel-and
health-care-related
services[.]”
(Plaintiff’s
Statement of Undisputed Facts (“SUF”) ¶ 2.)

8

A. Franchise Agreement

9

Passport Health and Travel Med entered
into a Franchise Agreement in August 2007. Id. ¶ 3.
Under the Franchise Agreement, Passport Health
granted Travel Med the right, and Travel Med
assumed the obligation, to operate a Passport
Health franchise in a designated area for ten
years. Id. The Franchise Agreement’s ten year term
commenced in September 2007, upon the opening of
Travel Med’s franchise. Id. Travel Med made its
last royalty payment to Passport Health in March
2009. Id. ¶ 11. “After Travel Med breached the
Franchise Agreement by failing to make royalty
payments
to
Passport
Health,
Travel
Med
unilaterally terminated the Franchise Agreement
effective June 12, 2009.” Id. ¶ 13. Passport Health
“fully
performed
its
obligations
under
the
Franchise Agreement.” Id. ¶ 17.

6

10
11
12
13
14
15
16
17
18

25

In exchange for the right to own and
operate a Passport Health franchise and use the
Passport Health trademark, Travel Med promised to
pay royalties to Plaintiff for the ten year term of
the Franchise Agreement. Id. ¶ 4. The Franchise
Agreement does not provide Travel Med a right of
early termination. Id. Travel Med agreed in the
Franchise Agreement that Plaintiff owns the
Passport Health trademark. Id. ¶ 5. The Franchise
Agreement includes provisions concerning Travel
Med’s post-termination obligations; specifically,
upon termination of the Franchise Agreement, Travel
Med was required to stop representing to the public
that it is or was affiliated with Plaintiff and to
stop using the Passport Health trademark. Id. ¶ 6.

26

B. Guaranty

27

When Travel Med executed the Franchise
Agreement, Flaharty personally executed a Guaranty,
guaranteeing that in the event Travel Med defaulted

19
20
21
22
23
24

28

2

1

3

on its obligations, Flaharty would personally
perform
Travel
Med’s
obligations
under
the
Franchise Agreement. (SUF ¶ 7.) Flaharty has not
performed Travel Med’s obligations under the
Franchise Agreement. Id. ¶ 18.

4

C. Website

5

In September 2007, Defendants created a
website for Travel Med at “www.passporthealthnca.
com”. (SUF ¶ 8.) “When Travel Med agreed to become
a Passport Health Franchise, Travel Med was not
provided with a URL to register by Passport Health.
Instead, Travel Med was instructed to find
something that was close to ‘Passport Health’ to
register and to use as Travel Med’s own website.”
(Separate Statement in Supp. of Defs.’ Opposition
(“SSS”) ¶ 12.) “Pursuant to that instruction,
Travel Med registered www.passporthealthnca.com as
its own website on August 12 2007 and pre-paid for
the registration for 4 years, ending in September
2011.” Id.
“Even though Travel Med stopped making
royalty payments to Passport Health in March 2009,
Defendants admit that they used the PASSPORT HEALTH
Trademarks through at least June 12, 2009.” (SUF ¶
12; SSS ¶ 15.) “[I]n preparation of ceasing to use
Passport Health’s name[,]” Defendants created a
website for Travel Med at “www.travelmedinc.com”.
(SUF ¶ 9; SSS ¶ 12.) “Until at least July 20, 2010,
Defendants’
www.passporthealthnca.com
website
automatically redirected visitors to Defendants’
www.travelmedinc.com website.” (SUF ¶ 15.)

2

6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24

After
Passport
Health’s
attorneys
expressed concern regarding Travel Med’s
URL www.passporthealth.com in the summer
of 2010, Travel Med added the statement:
“Due to ongoing litigation with Passport
Health, the owner of this URL and
website, Travel Med Inc., is unable to
redirect you at this time. We regret any
inconvenience this may cause you.[”] Both
“Passport Health” and “Travel Med. Inc.”
are hyper links that take any visitor to
the respective websites of Passport
Health and Travel Med.
(SSS ¶ 13.)

25
2. Flaharty testified at trial that the only reason she
26
terminated the Franchise Agreement was because of an event in the spring
27
of 2009, which caused her to believe the CEO of Passport Health acted
28
3

1

unethically when changing Travel Med’s pharmaceutical account without

2

Travel Med’s approval. Flaharty also testified that this issue was

3

ultimately rectified and Travel Med did not lose any money as a result

4

of the matter.

5

B. GROSS REVENUES OF TRAVEL MED

6

3. Under the Franchise Agreement, Travel Med agreed to pay

7

Passport Health monthly royalties in the amount of seven percent of

8

Travel Med’s gross revenues for the ten year term of the agreement. The

9

ten year term would have concluded in August 2017. (Ex. 12.)

10
11

4. Travel Med’s gross revenues from January 2008 through
January 2011 are as follows:

12

MONTH

GROSS REVENUES

MONTH

GROSS REVENUES

13

September 2007

$ 5,865.80

June 2009

$ 61,292.35

14

October 2007

$ 37,366.32

July 2009

$ 53,755.67

15

November 2007

$ 41,350.14

August 2009

$ 43,776.16

16

December 2007

$ 19,014.89

September 2009

$ 54,934.75

January 2008

$ 40,010.77

October 2009

$ 86,878.56

February 2008

$ 41,687.68

November 2009

$ 62,102.45

March 2008

$ 36,447.30

December 2009

$ 35,067.81

19

April 2008

$ 52,431.85

January 2010

$ 84,752.77

20

May 2008

$ 46,363.00

February 2010

$ 45,592.63

21

June 2008

$ 44,347.05

March 2010

$ 58,607.89

22

July 2008

$ 34,901.80

April 2010

$ 42,862.63

23

August 2008

$ 34,857.80

May 2010

$ 66,655.03

24

September 2008

$ 22,327.41

June 2010

$ 57,560.05

October 2008

$ 44,540.50

July 2010

$ 48,043.41

November 2008

$ 49,917.26

August 2010

$ 38,475.47

26

December 2008

$ 33,901.97

September 2010

$ 54,823.92

27

January 2009

$ 34,943.24

October 2010

$ 100,813.67

28

February 2009

$ 27,279.30

November 2010

$ 44,663.82

17
18

25

4

1

March 2009

$ 55,639.35

December 2010

$ 44,590.88

2

April 2009

$ 56,845.98

January 2011

$ 49,477.14

3

May 2009

$ 50,797.35

4
5

(Exs. 1-5.)
5. Travel Med did not produce records of its gross revenues

6

for February

7

production of this information, and Flaharty testified she did not know

8

and could not testify regarding the gross revenue for those months.

and

March 2011,

even

though Plaintiff

requested the

9

6. Flaharty also testified at trial that Travel Med’s future

10

business cannot be determined by its past gross revenue since many

11

factors can impact the travel medicine business involved in this case,

12

including the economic climate, the public’s desire for immunizations in

13

a given year, and world events which could reduce travel.

14

C. MITIGATION

15

7. Passport Health found a replacement franchisee for the

16

territory covered by its Franchise Agreement with Travel Med (the

17

“Sacramento area franchise”). Passport Health sold the Sacramento area

18

franchise to Dr. Rajwani for a reduced franchise fee of $12,000. Dr.

19

Rajwani opened his Passport Health clinic in Sacramento in December of

20

2010. In the four months since opening his clinic, Dr. Rajwani paid

21

$2,712.94 in royalties.

22

8. Frances Lessans, the CEO and President of Passport Health,

23

testified that prior to Travel Med’s termination of the Franchise

24

Agreement, Passport Health had received inquiries from individuals

25

interested in opening a franchise in the Sacramento area. Ms. Lessans

26

testified that she filed that contact information and when Travel Med

27

terminated its Franchise Agreement, she had someone contact those

28

individuals to see if any were interested in purchasing the Sacramento
5

1

area franchise. However, no one was interested. She also testified

2

Passport Health had difficulty selling the Sacramento area franchise

3

given the competition from Travel Med and its previous connection to

4

Passport Health. Passport Health subsequently reduced the franchise fee

5

from $35,000 to $12,000 for the purpose of getting Dr. Rajwani Dr.

6

Rajwani to purchase the Sacramento area franchise.

7

9. Martin Lessans testified regarding the efforts made to find

8

a replacement franchisee; he testified that he called everyone who had

9

previously expressed an interest in a franchise in the area, he then

10

sent out a mailing to advertise, but both mediums used were unfruitful.

11

He also testified that late in 2009 he called Dr. Rajwani, who owns a

12

franchise

13

interested. Mr. Lessans testified that Dr. Rajwani signed a Franchise

14

Agreement for the Sacramento area franchise in 2010 but it took time for

15

Dr. Rajwani to open his office in Sacramento.

in the

16

San Francisco

Bay

Area,

to

see

if

he

might be

D. TRADEMARK INFRINGEMENT

17

10.

Flaharty

testified

that

Travel

Med

did not

get any

18

business from July 2009 through July 2010 from the automatic redirect of

19

the “www.passporthealthnca.com” website to the “www.travelmedinc.com”

20

website. She also testified that once the hyperlinks were added in July

21

2010, she was able to see how much traffic was redirected to the

22

“www.travelmedinc.com” website and she thought there were only eight

23

instances

24

“www.travelmedinc.com” website.

25

where

11.

someone

was

Flaharty

redirected

also

via

testified

the

at

hyperlink

trial

to

that

the

the

26

“www.passporthealthnca.com”

27

“www.travelmedinc.com” website until the Court’s Order was filed on

website

28
6

continued

to

hyperlink

to

the

1

February 10, 2011 in which Travel Med was enjoined from using the

2

Passport Health trademark.

3

12. Ms. Lessans testified that after the Franchise Agreement

4

was terminated, Flaharty continued sending emails which identified

5

Flaharty as a Passport Health franchisee in the signature line.

6

13. Flaharty testified she was attempting to disassociate

7

Travel Med from Passport Health. Flaharty also testified that she had to

8

make multiple requests to get Travel Med’s information changed on the

9

internet search engines and she was eventually successful.

10

14. Travel Med and Flaharty did not return Passport Health’s

11

manuals and supplies when the Franchise Agreement was terminated, as

12

required by the Franchise Agreement. Flaharty testified that she sold

13

the supplies to other Passport Health franchisees.

14

II. DISCUSSION

15

A. BREACH OF THE FRANCHISE AGREEMENT AND THE GUARANTY

16

1. Past-Due Royalties

17

Travel Med failed to pay royalties in April and May, 2009,

18

prior to Travel Med’s termination of the Franchise Agreement on June 12,

19

2009. Therefore, Travel Med, and Flaharty as guarantor, owe seven

20

percent of Travel Med’s gross revenues for these months, $3,979.22 for

21

April 2009 and $3,555.81 for May 2009, totaling $7,535.03 in past-due

22

royalties.

23

2. Royalties Since Breach

24

Travel Med, and Flaherty as guarantor, also owe royalties on

25

Travel Med’s gross revenues since the breach in June 2009. However, the

26

evidence presented only concerned Travel Med’s gross revenues from June

27

2009 through January 2011, during which period Defendants owe Passport

28

Health $79,430.89 in royalties.
7

1

///

2

///

3

3. Future Royalties

4

Passport Health also presented evidence of Travel Med’s past

5

volume of business on the proposition of Travel Med’s probable future

6

sales and the future royalties that Defendants owe Passport Health based

7

on such sales. Defendants argue this evidence is entirely speculative

8

since there are many variables that could impact Travel Med’s business

9

in the future. However, “[s]ince defendant[s’ breach of the Franchise

10

Agreement] made it impossible for plaintiff to realize any profits, it

11

cannot complain if the probable profits are of necessity estimated.”

12

Natural Soda Products Co. v. City of Los Angeles, 23 Cal. 2d 193, 200

13

(1943).

14

“It is well-established under California law that while the

15

fact of damages must be clearly shown, the amount need not be proved

16

with the same degree of certainty, so long as the court makes a

17

reasonable approximation.” Robi v. Five Platters, Inc., 918 F.2d 1439,

18

1443 (9th Cir. 1990).

19

23

Lost profits to an established business may be
recovered if their extent and occurrence can be
ascertained with reasonable certainty; once their
existence has been so established, recovery will
not be denied because the amount cannot be shown
with mathematical precision. The extent of such
damages may be measured by the past volume of
business and other provable data relevant to the
probable future sales.

24

Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc., 78

25

Cal. App. 4th 847, 889-90 (2000) (internal citation and quotation marks

26

omitted).

20
21
22

27

Passport Health’s evidence shows Travel Med’s gross revenues

28

from September 2007 through January 2011. This evidence is sufficient
8

1

for ascertainment of a reasonable approximation of Travel Med’s gross

2

revenues, and the seven percent of that amount which Travel Med would

3

have paid to Passport Health

4

Franchise Agreement. Travel Med’s average monthly gross revenues from

5

September 2007 through January 2011 was $47,452.78; seven percent of

6

that average is $3,321.69 in royalties per month. Since Defendants owe

7

Passport Health future royalties from February 2011 through August 2017,

8

Defendants owe $259,091.82 in future royalties.

9

if Travel Med had not breached the

4. Mitigation

10

The doctrine of mitigation of damages holds that a
plaintiff who suffers damage as a result of . . . a
breach of contract . . . has a duty to take
reasonable steps to mitigate those damages and will
not be able to recover for any losses which could
have been thus avoided. A plaintiff may not recover
for damages avoidable through ordinary care and
reasonable exertion. The duty to mitigate damages
does not require an injured party to do what is
unreasonable or impracticable.

11
12
13
14
15
16

Valle de Oro Bank v. Gamboa, 26 Cal. App. 4th 1686, 1691 (1994)

17

(citations and internal quotation marks omitted). “The burden of proving

18

that losses could have been avoided by reasonable effort and expense

19

must always be bourne by the party who has broken the contract.” Brandon

20

& Tibbs v. George Kevorkian Accountancy Corp., 226 Cal. App. 3d 442, 460

21

(1990).

22

Passport Health mitigated its damages by making a reasonable

23

effort to get a replacement franchisee. Therefore, Passport Health’s

24

damages are reduced by the $12,000 franchise fee paid by the replacement

25

franchisee, plus the $2,712.94 in royalties paid from December 2010

26

through March 2011.

27
28

Defendants

argue

that

since

the

replacement

franchisee’s

business is not yet established, its future income is likely to increase
9

1

over time. However, estimating an increase in gross revenue, and thereby

2

estimating an increase in the royalty payments, is too speculative. Dr.

3

Rajwani’s Passport Health franchise in the Sacramento area is not yet

4

established and “the determination of . . . profits of a new business

5

presents problems of proof.” Shade Foods, Inc., 78 Cal. App. 4th at 890.

6

Defendants

7

Sacramento area franchise’s future royalties might increase or how this

8

should be calculated. Therefore, an estimate of the future royalties of

9

the replacement Sacramento area franchise is based on the average

10

monthly royalties the replacement franchisee has paid thus far, which is

11

$678.24. Therefore, the future royalties from the replacement franchisee

12

from April 2011 through August 2017 totals $51,546.24.

13

5. Total Damages for These Claims

14

Travel Med and Flaherty, as guarantor, owe $346,057.74 for the

15

breach of the Franchise Agreement and the Guarantee. These damages are

16

reduced by $66,259.18 in mitigation. Therefore, Defendants are ordered

17

to pay Passport Health $279,798.56 for the breach of the Franchise

18

Agreement and

offer

19

no

evidence

regarding

how

much

the

replacement

breach of the Guarantee claims.
B. TRADEMARK INFRINGEMENT

20

Passport Health argues that under 15 U.S.C. § 1117(a) it is

21

entitled to recover Travel Med’s profits for the period Travel Med

22

infringed

23

“www.passporthealthnca.com” website; Passport Health also argues the

24

award of profits should be tripled since Travel Med wilfully infringed

25

on Passport Health’s trademark.

on

Passport

Health’s

trademark

by

using

the

26

Under § 1117(a), “plaintiff shall be entitled, . . . subject

27

to the principles of equity, to recover (1) defendant’s profits, (2) any

28

damages sustained by the plaintiff, and (3) the costs of the action.” 15
10

1

U.S.C. §

2

monetary awards would seem to make it clear that such a remedy should

3

not be granted as a matter of right.” Lindy Pen Co., Inc. v. Bic Pen

4

Corp., 982 F.2d 1400, 1404-05 (9th Cir. 1993) (quoting Maier Brewing Co.

5

v. Fleischmann Distilling Corp., 390 F.2d 117, 120 (9th Cir. 1968)).

6

Further, “[i]f the court shall find that the amount of the recovery

7

based on profits is . . . excessive the court may in its discretion

8

enter judgment for such sum as the court shall find to be just,

9

according to the circumstances of the case. Such sum . . . shall

10

1117(a).

“The

equitable

limitation upon the

granting of

constitute compensation and not a penalty.” 15 U.S.C. § 1117(a).

11

“Because proof of actual damage is often difficult, a court

12

may award damages based on defendant’s profits on the theory of unjust

13

enrichment.” Lindy Pen Co., Inc., 982 F.2d at 1407 (citation omitted).

14

The plaintiff has only the burden of establishing
the defendant’s gross profits from the infringing
activity with reasonable certainty. Once the
plaintiff demonstrates gross profits, they are
presumed to be the result of the infringing
activity. The defendant thereafter bears the burden
of showing which, if any, of its total sales are
not attributable to the infringing activity, and,
additionally,
any
permissible
deductions
for
overhead.

15
16
17
18
19
20

Id. at 1408 (internal citation omitted).

21

Passport Health produced evidence of Travel Med’s gross sales

22

for

23

demonstrated

24

“www.passporthealthnca.com”

25

August 2010 through February 2011, a de minimis number of individuals

26

were redirected to Travel Med’s website from the “www.passporthealthnca.

27

com” website. For this period, Travel Med has shown that there were no

28

profits from the infringing activity. Travel Med failed to produce

the

entire

infringing
that

period.

during

the

website

11

However,
time
displayed

Flaharty’s
period
the

testimony

when

hyperlinks,

the
from

1

evidence of its costs and overhead, which would be deducted from the

2

gross sales to determine Travel Med’s profits. However, since Travel Med

3

is required to pay seven percent of its gross revenues in royalties to

4

Passport Health for these months, this amount is deducted from Travel

5

Med’s gross sales to determine Travel Med’s profits during these months.

6

Passport Health is awarded Travel Med’s profits for the months

7

of April, May, and June 2009, the period during which Travel Med

8

continued use of the “www.passporthealthnca.com” website after the

9

Franchise Agreement was terminated. Travel Med’s gross sales for these

10

three months were $168,935.68, seven percent of that is $11,825.50;

11

therefore, Travel Med’s profits for this period were $157,110.18.

12

Requiring Travel Med to pay Passport Health for the period from July

13

2009 through July 2010, when the “www.passporthealthnca.com” website

14

automatically redirected visitors to the “www.travelmedinc.com” website,

15

would be excessive and would constitute a punishment, rather than

16

compensation. The Court finds that a monetary award of $157,110.18, plus

17

the permanent injunction which was previously ordered, fully compensates

18

Passport Health for Travel Med’s trademark infringement.

19

Plaintiff may be awarded treble damages if the defendant’s

20

conduct is willful. 15 U.S.C. § 1117(b). “Willful infringement carries

21

a connotation of deliberate intent to deceive. Courts generally apply

22

forceful

23

‘fraudulent’ to conduct that meets this standard.” Lindy Pen Co., Inc.,

24

982 F.2d at 1406 (citations omitted). The evidence demonstrates Travel

25

Med’s

26

attempting to disassociate Travel Med from Passport Health. Further,

27

when Passport Health notified Travel Med that the automatic redirect was

28

problematic and infringing, Travel Med stopped the automatic redirect.

labels

conduct

such

was

not

as

‘deliberate,’

intentional

12

or

‘false,’

willful

‘misleading,’

since

Flaharty

or

was

1

While the attempts to disassociate Travel Med and Passport Health were

2

not complete until February 2011, Flaharty’s actions with respect to the

3

domain name were not deliberate, false, or misleading. Therefore, an

4

award of treble damages is not appropriate.

5

III. CONCLUSIONS OF LAW

6
7

1. Travel Med and Flaharty owe Passport Health $7,535.03 in
royalties for April and May 2009.

8
9

2. Travel Med and Flaharty owe Passport Health $79,430.89 in
royalties for the months of June 2009 through January 2011.

10
11

3. Travel Med and Flaharty owe Passport Health $259,091.82 in
future royalties for the months of February 2011 through August 2017.

12
13

4.

Passport

Health

mitigated

its

damages

by

making

a

reasonable effort to get a replacement franchisee.

14

5. Through March 2011, the replacement franchise has paid

15

Passport Health $14,712.94 and this mitigation reduces Passport Health’s

16

damages.

17

6. Passport Health’s damages are reduced by $51,546.24, the

18

estimated

19

replacement franchisee.

future

royalties

Passport

Health

will

collect

from

the

20

7. Therefore, taking into account the mitigation, Travel Med

21

and Flaharty are jointly and severally required to pay Passport Health

22

$279,798.56 in damages for breach of the Franchise Agreement and for

23

breach of the Guarantee.

24

8. Travel Med’s profits for April, May, and June 2009 are

25

$157,110.18.

26

9.

A

monetary

award

of

$157,110.18,

plus

the

permanent

27

injunction that was previously ordered, fully compensates Passport

28

Health for Travel Med’s trademark infringement; requiring Travel Med to
13

1

pay a larger monetary award would be excessive and would be punishment,

2

rather than compensation.

3
4

10. Travel Med’s conduct was not willful and treble damages
are not awarded.

5
6

11. Therefore, Passport Health is awarded $157,110.18 from
Travel Med for the Trademark Infringement claim.

7

12.

Accordingly,

judgment

8

Dated:

be

entered

in

Plaintiff Passport Health, Inc.

9

shall

September 6, 2011

10
11
12

GARLAND E. BURRELL, JR.
United States District Judge

13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
14

favor

of