General Steel Domestic Sales, LLC v. Chumley et al
ORDER denying 363 Defendants' Motion to Amend Judgment. By Judge Philip A. Brimmer on 2/27/2014.(klyon, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 10-cv-01398-PAB-KLM
GENERAL STEEL DOMESTIC SALES, LLC,
d/b/a General Steel Corporation, a Colorado limited liability company,
ETHAN DANIEL CHUMLEY, individually, and
ATLANTIC BUILDING SYSTEMS, LLC, a Delaware corporation,
doing business as Armstrong Steel Corporation,
This matter is before the Court on Defendants’ Motion to Amend Judgment
[Docket No. 363] filed by defendants Ethan Daniel Chumley and Atlantic Building
Systems, LLC, doing business as Armstrong Steel Corporation (“Armstrong”).
Defendants filed this motion pursuant to Federal Rule of Civil Procedure 59(e), under
which a court may alter or amend its judgment upon filing of a motion within twentyeight days of the entry of judgment.
A party is entitled to relief under Rule 59(e) on the basis of “(1) an intervening
change in the controlling law, (2) new evidence previously unavailable, and (3) the need
to correct clear error or prevent manifest injustice.” Devon Energy Production Co., L.P.
v. Mosaic Potash Carlsbad, Inc., 693 F.3d 1195, 1212 (10th Cir. 2012) (quoting
Servants of the Paraclete v. Does, 204 F.3d 1005, 1012 (10th Cir. 2000); see also
Sithon Maritime Co. v. Holiday Mansion, 177 F.R.D. 504, 505 (D. Kan. 1998)
(“Appropriate circumstances for a motion to reconsider are where the court has
obviously misapprehended a party’s position on the facts or the law, or the court has
mistakenly decided issues outside of those the parties presented for determination.”).
“Clear error is established if, after reviewing all the evidence, [the reviewing court is] left
with a definite and firm conviction that a mistake has been made.” In re Williams Sec.
Litig.-WCG Subclass, 558 F.3d 1144, 1149 (10th Cir. 2009) (internal citation omitted).
Defendants argue that the Court clearly erred in (1) finding that Armstrong made
false statements in its comparative advertising regarding the availability of
pregalvanized steel and stainless steel fasteners; (2) describing Mr. Chumley’s
responsibility for generalsteelscam.com; (3) finding that Armstrong’s comparative
advertising included statements that it fabricated steel and that it sold “general steel”
buildings; and (4) awarding disgorgement of Armstrong’s profits to plaintiff General
Steel Domestic Sales, LLC, doing business as General Steel Corporation (“General
Steel”). The Court considers each of these arguments in turn.
A. Pregalvanized Secondary Framing and Stainless Steel Fasteners
Defendants argue that the Court erred in finding that Armstrong’s advertisements
were literally false insofar as they compared Armstrong and General Steel on the basis
of the availability of pregalvanized secondary framing and stainless steel fasteners.1
Docket No. 363 at 8. Defendants argue that their comparative advertising on this point
The Court notes that these are the terms used in the advertisements in Exs. 10
and 11. All citations to exhibits refer to the exhibits introduced at trial.
was literally true because Armstrong includes these features unless customers decline
them while General Steel does not include these features unless they are requested.
The advertisements at issue do not draw the fine distinction upon which
Armstrong relies. Rather, they simply list “Pre Galvanized Secondary Framing” and
“Stainless Steel Fasteners” beneath Armstrong’s logo and do not list these features
beneath General Steel’s logo. Ex. 10 and 11. The clear import of the advertisement is
that these features are available in Armstrong buildings, but not available in General
Steel buildings. The evidence at trial established that this implication is false because
both companies provide these features at additional cost. See Docket No. 363 at 6-8.
That these features may be accounted for in Armstrong’s–but not in General
Steel’s–initial price quotation does not render the advertisement true, nor does it
undermine the Court’s conclusion that both companies provide these features if
customers are willing to pay more for them. The advertisement does not use the term
“standard” or explain that General Steel customers may also obtain these features.
Accordingly, defendants have not shown clear error on this basis.
Defendants argue that the Court erred in stating in its Conclusions of Law that it
had found that “Mr. Chumley was responsible for creating a website entitled
generalsteelscam.com” because this finding is not clearly set forth in its Findings of
Fact. Docket No. 363 at 8-9.
Defendants’ underlying assumption appears to be that the only findings of fact
supporting the Court’s conclusion regarding Mr. Chumley’s responsibility for creating
generalsteelscam.com is paragraph 22 of the Court’s Order. That assumption is
incorrect. Paragraphs 6, 9, and 23 consist of findings that Mr. Chumley used false
emails, press releases, and articles to disparage General Steel or its employees. The
Court found Mr. Chumley’s testimony incredible as to two of these incidents. See
Docket No. 346 at 3-4, 5, ¶¶ 6, 11. The Court’s conclusion that Mr. Chumley is
responsible for creating generalsteelscam.com was not only based on his admitted use
of the website and his intent for using the website (to damage the reputation of General
Steel), but on the fact that his responsibility for the website’s creation is strongly
consistent with his past behavior in using deceptive or misleading mechanisms to
undermine General Steel’s reputation. His denial of having created the website is also
consistent with similar denials, which lack credibility.
Thus, the challenged conclusion does not constitute clear error sufficient to
support relief under Rule 59.
C. Comparative Advertising
Defendants argue that the Court erred in finding that Armstrong’s comparative
advertising stated that it fabricates steel buildings and that it provides “general steel
buildings” and “general steel construction.” Docket No. 363 at 9. Comparative
advertising is “[a]dvertising that specifically compares the advertised brand with another
brand of the same product.” Black’s Law Dictionary 59 (8th ed. 2004). Courts may
presume that a plaintiff has been harmed by false comparative advertising that
specifically targets its company or brand, but may not presume injury with respect to
non-comparative advertising. See Porous Media Corp. v. Pall Corp., 110 F.3d 1329,
1336 (8th Cir. 1997) (“We find that in comparative advertising cases where money
damages are sought and where there exists proof of willful deception, as here, the
reasoning of the injunction cases set forth primarily in the Second Circuit cases is
applicable. What little case law exists supports the district court’s use of the
presumption of causation and harm to the plaintiff.”).
All of the statements identified by the Court as supporting a disgorgement award
appeared on the “May the Best Building Win” webpage, whose Internet address
included the phrase “maythebestbuildingwin.” Exs. 10 and 11. The phrase “May the
Best Building Win” appears as a title at the top center of the webpage, above all other
content, in bright red capital letters outlined in bright yellow and in the largest font on
the webpage. Id. The first full paragraph of text on the webpage explains that “[t]here’s
really only 2 companies to consider–Armstrong & General Steel. . . . How do the two
finest buildings on the market stack up against one another? Take a look and decide
for yourself.” Ex. 10 at 1; Ex. 11 at 1. Beneath this opening section, the webpage
contains multiple paragraphs discussing Armstrong’s offerings in which Armstrong
states repeatedly that it provides “general steel buildings” and “general steel
construction.” Ex. 10 at 1-3; Ex. 11 at 1-3.
Defendants argue that the Court should consider statements appearing in latter
portions of the “May the Best Building Win” webpage to be different advertisements.
See Docket No. 363 at 10. This argument is unavailing. All of the statements
contained in Exhibits 10 and 11 appear as part of the same comparative advertisement.
They are located on the same webpage at the same Internet address, appear beneath
the “May the Best Building Win” title and introductory paragraph, and are replete with
references to “general steel” buildings and construction.2
Thus, the Court did not clearly err in treating this webpage as a single
D. Allocation of Profits
Defendants argue that the Court erred in ordering disgorgement of a portion of
Armstrong’s profits to General Steel. Docket No. 363 at 11-13.
Under Section 1117 of Title 15, a plaintiff that proves a violation of the Lanham
Act “shall be required to prove defendant’s sales only; defendant must prove all
elements of cost or deduction claimed.” 15 U.S.C. § 1117(a). “If the court shall find
that the amount of the recovery based on profits is either inadequate or excessive the
court may in its discretion enter judgment for such sum as the court shall find to be just,
according to the circumstances of the case.” Id. Interpreting this language, a number
of courts have held that a plaintiff need only establish the defendant’s gross sales of an
infringing product, or a product that was falsely advertised, in order to shift the burden
onto the defendant to show appropriate deductions from those profits. See, e.g., WMS
Gaming Inc. v. WPC Prods. Ltd., 542 F.3d 601, 608 (7th Cir. 2008); Venture Tape
Corp. v. McGills Glass Warehouse, 540 F.3d 56, 64 (1st Cir. 2008) (“once the plaintiff
has shown direct competition and infringement, the statute places the burden on the
infringer to show the limits of the direct competition”) (internal citations omitted);
The Court found that Armstrong’s use of the term “general steel” was part of an
attempt to “embed search terms in website text” that “merely emphasize[d] the point
that Armstrong was targeting General Steel.” Docket No. 346 at 15 n.8. Given that the
term “general steel” refers to plaintiff General Steel, Armstrong’s claims to provide
“general steel” buildings can be understood as a false comparative advertisement in
which Armstrong is offering itself as an alternative source of its competitor’s products.
Mishawaka Rubber & Woolen Mfg. Co. v. S.S. Kresge Co., 316 U.S. 203, 206-07
(1942) (“The burden is the infringer’s to prove that his infringement had no cash value
in sales made by him. If he does not do so, the profits made on sales of goods bearing
the infringing mark properly belong to the owner of the mark. There may well be a
windfall to the trade-mark owner where it is impossible to isolate the profits which are
attributable to the use of the infringing mark. But to hold otherwise would give the
windfall to the wrongdoer.”); Aviva Sports, Inc. v. Fingerhut Direct Marketing, Inc., 829
F. Supp. 2d 802, 819 (D. Minn. 2011) (“To be entitled to recover profits, Aviva must only
prove Manley's sales of the allegedly falsely advertised products. If Manley fails to
prove the sales not due to the allegedly violative conduct, Aviva may be entitled to all of
Manley's profits from the allegedly falsely advertised products—subject only to the
principles of equity.”); Rexall Sundown, Inc. v. Perrigo Co., 707 F. Supp. 2d 357, 363
(E.D.N.Y. 2010) (“the Court finds that, in a Lanham Act false advertising case, where
the plaintiff proves all elements on the issue of liability (including causation) and
establishes that it is entitled to disgorgement of the defendant’s profits, the plaintiff
bears the burden of showing only the sales of the violative products. The defendant
must establish any deductions, including costs and any apportionment for sales that
were not due to the allegedly false or misleading statements.”); but see Logan v.
Burgers Ozark Country Cured Hams Inc., 263 F.3d 447, 464-65 (5th Cir. 2001) (“we
hold that where a plaintiff who has brought a Lanham Act claim for false advertising has
failed to present evidence that the defendant benefitted from the alleged false
advertising, the plaintiff will not be permitted to recover any of the defendant’s profits
under 15 U.S.C. § 1117(a)”). The Court finds the reasoning of Aviva Sports and Rexall
Defendants rely on the statement in Lindy Pen Co., Inc. v. Bic Pen Corp., 982
F.2d 1400, 1408 (9th Cir. 1993), that the “plaintiff has only the burden of establishing
the defendant’s gross profits from the infringing activity with reasonable certainty” to
support the proposition that General Steel was required to show “with reasonable
certainty” that defendants’ profits flowed directly from its false comparative advertising.
Docket No. 363 at 11-12. Defendants do not, however, cite the sentences that
immediately follow their Lindy Pen citation: “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.” Id. Rolex Watch, U.S.A., Inc. v. Michel Co., 179 F.3d 704, 712 (9th Cir.
1999) (internal citation omitted), is not persuasive since, in that case, the court was
confronted with undisputed evidence that the profits sought by the plaintiff derived from
both permissible and impermissible conduct.3
At trial, there was evidence from both parties that Armstrong’s internet
Nor is the Court persuaded by defendants’ citations to Mahroom v. Best
Western Int’l, Inc., 2009 WL 2216578, at *10 (N.D. Cal. July 22, 2009) (denying an
award of actual damages in part based on plaintiff’s inequitable conduct); Hansen
Beverage Co. v. Vital Pharma., Inc., 2010 WL 3069690, at *9 (S.D. Cal. Aug. 3, 2010)
(denying disgorgement award because of lack of evidence that profits were a proxy for
lost sales, that infringement was willful, and that award would serve goal of deterrence);
McClaran v. Plastic Indus., Inc., 97 F.3d 347, 361-62 (9th Cir. 1996) (overturning jury’s
compensatory damages award because plaintiff failed to show he was injured by
advertising has been highly effective and has generated tens of thousands of leads for
Armstrong; that Armstrong invested ninety percent of its advertising budget in internet
advertising; that “general steel” is the third most common search term in the industry,
supporting an inference that the May the Best Building Win webpage would frequently
appear in the list of organic search results of consumers searching for information
regarding General Steel; that Armstrong’s profits rose during the time it disseminated its
false advertising; and that Armstrong persisted in making false statements, even after
litigation had begun. This evidence, taken together, is sufficient to show a link between
Armstrong’s false advertising and its profits derived from selling falsely advertised
Defendants argue that the expert report of Chris Kidwell, Ex. A-1, constitutes
evidence that its comparative advertising generated only 7.5% of its leads. Docket No.
363 at 12-13. However, Mr. Kidwell concluded that 7.5% of Armstrong Steel’s traffic
was “a result of paid search advertising directed towards searchers using queries
related to the General Steel brand.” Ex. A-1 at 3. The comparative advertising at issue
here was not part of Armstrong’s paid search advertising, but was instead displayed on
Armstrong’s own website. Thus, Mr. Kidwell’s report does not support defendants’
For the foregoing reasons, it is
ORDERED that Defendants’ Motion to Amend Judgment [Docket No. 363] is
DATED February 27, 2014.
BY THE COURT:
s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge
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