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Kars 4 Kids Inc. v. America Can!

United States District Court, D. New Jersey

April 18, 2019

KARS 4 KIDS, INC., Plaintiff,
v.
AMERICA CAN!, Defendant. AMERICA CAN! Cars for Kids, Plaintiff,
v.
KARS 4 KIDS, INC., Defendant.

          MEMORANDUM AND ORDER

          PETER G. SHERIDAN, U.S.D.J.

         This matter comes before the Court on five in limine motions filed by both Plaintiff/Defendant Kars for Kids and Plaintiff/Defendant America Can!. The Court incorporates herein the facts of this case as set forth in the memorandum on summary judgment, ECF No. 142.

         (1) Kars 4 Kids' motion to exclude the opinion of Bryce Cook, America Can!'s expert on damages

         Kars 4 Kids seeks to exclude the opinion of Bryce Cook, America Can!'s expert on damages. "Under the Federal Rules of Evidence, a trial judge acts as a 'gatekeeper' to ensure that 'any and all expert testimony or evidence is not only relevant, but also reliable.'" Pineda v. Ford Motor Co., 520 F.3d 237, 243 (3d Cir. 2008) (quoting Kannankeril v. Terminix Int'l Inc., 128 F.3d 802, 806 (3d Cir. 1997)). When faced with a proffer of expert testimony under Federal Rule of Evidence 702, "the trial judge must determine at the outset . . . whether the expert is proposing to testify to (1) scientific knowledge that (2) will assist the trier of fact to understand or determine a fact in issue." Daubert v. Merrell-Dow Pharms., Inc., 509 U.S. 579, 592 (1993). "Rule 702 has three major requirements: (1) the proffered witness must be an expert, i.e., must be qualified; (2) the expert must testify about matters requiring scientific, technical or specialized knowledge; and (3) the expert's testimony must assist the trier of fact." Pineda, 520 F.3d at 244. The parties have not raised any dispute as to Mr. Cook's qualification to testify as an expert.

         The proffered testimony must be reliable; that is, "the expert's opinion must be based on the 'methods and procedures of science' rather than on 'subjective belief or unsupported speculation'; the expert must have 'good grounds' for his or her belief." Id. at 742 (quoting Daubert, 509 U.S. at 590). "[S]o long as the process or technique the expert used in formulating the opinion is reliable," such testimony will be deemed admissible. Id. The reliability of an expert's testimony is assessed using an eight-factor test set forth by the Third Circuit:

(1) whether a method consists of a testable hypothesis; (2) whether the method has been subject to peer review; (3) the known or potential rate of error; (4) the existence and maintenance of standards controlling the technique's operation; (5) whether the method is generally accepted; (6) the relationship of the technique to methods which have been established to be reliable; (7) the qualifications of the expert witness testifying based on the methodology; and (8) the non-judicial uses to which the method has been put.

United States v. Mitchell, 365 F.3d 215, 235 (3d Cir. 2004).

         "Finally, Rule 702 requires that the expert testimony must fit the issues in the case"; that is, "the expert's testimony must be relevant for the purposes of the case and must assist the trier of fact." Schneider, 320 F.3d at 404. "In assessing whether an expert's proposed testimony 'fits,' we are asking 'whether [the] expert testimony proffered . . . is sufficiently tied to the facts of the case that it will aid the jury in resolving a factual dispute.'" United States v. Schiff, 602 F.3d 152, 173 (3d Cir. 2010) (citing Daubert, 509 U.S. at 591).

         Kars 4 Kids seeks to bar America Can!'s damages expert from testifying, claiming that he "offers nothing more than his subjective belief that, absent Kars 4 Kids' use of the KARS 4 KIDS marks, every single donation Kars 4 Kids received over a nine-year period would have gone to America Can." (Memo. of Law in Support of Pl. Motion In Limine No. 1 to Exclude the Entirety of Bryce R. Cook's Opinions ("Memo in Support of Motion In Limine No. 1"), ECF No. 150-1 at 1). Mr. Cook's report purports to set forth three different types of claims for damages that total America Can!'s claim for damages; they are: a claim for Kars 4 Kids' profits; the royalty that Kars 4 Kids "would have had to pay if [America Can!] had agreed to license the [m]ark"; and the cost of corrective advertising. (Cook Report at 8-10).

         Under the Lanham Act, the non-infringing party may recover as damages "(1) [the infringer's] profits, (2) any damages sustained by the [non-infringer], and (3) the costs of the action." 15 U.S.C. § 1117(a). “In assessing profits the plaintiff 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).

         First, America Can! seeks to recover the profits of Kars 4 Kids. Cook determined that the revenues of Kars 4 Kids would be determined by adding up the revenues reported on Kars 4 Kids' annual Form 990's. In order to confirm the revenues on the Form 990 was correct, he compared those revenues to the auction sales revenue from America Can!'s database. Cook also examined auction sales revenue from Kars 4 Kids' database and its 2010 audited financial statement. The 2010 statement indicated that “substantially all” of Kars 4 Kids' revenue are from donations. (Cook Report, ECF No. 150-2 at 8). Once he was assured that the revenues on the Form 990s was reasonable, he then calculated the total of Kars 4 Kids' revenues as reported on Form 990 for the years 2008 through 2017. Relying on that sum, Cook concluded, "[America Can!'s] claim for [Kars 4 Kids'] profits on sales made using the infringing mark total $328, 175, 784." (Id. at 9).

         Although this calculation is a relatively simple use of addition, it is Kars 4 Kids' burden to prove that the total revenues should be discounted by expenses based on the statute. 15 U.S.C. § 1117(a). In short, the jury may be unaware that the use of the revenues as reported on the Form 990 is an acceptable method to determine damages. Cook's presentation as to his method of finding the gross revenues by adding revenues from the Form 990s is of assistance to the jury.

         Moreover, Kars 4 Kids has an expert who will testify as to the expenses that may be deducted from the total revenues to determine the profit. Mr. Cook intends to discredit Kars 4 Kids' expert by arguing certain costs should not be deducted. More specifically, Cook's rebuttal report offers several theories, but most notably, he asserts that the use of the term “profit” is of a different nature when applied to not-for-profit corporations as opposed to a corporation's profit. As such, Cook concludes that “any expenses that do not contribute to fundraising, or revenue generation, should not be deducted from revenue.” (Cook Rebuttal Report, ECF No. 150-2 at 6).

         In determining what revenues to discount, Cook examined a table, which was derived from the Form 990s:

         (Image Omitted.)

         (Id. at 5). Cook provided a detailed analysis of this table and how the expenses it presents should be discounted:

Per the Form 990 instructions, Column (B)-Program Services “are mainly those activities that further the organization's exempt purposes, ” which K4K reported in Part III of Form 990 as: “educational, developmental, and recreational programs for Jewish youth and their families.” Based on this description, these expenses did not contribute to K4K's generation of car donation revenue and should therefore not be deducted. Certainly, Domestic and Foreign Grants totaling $18.5 million are wholly unrelated to K4K's vehicle-donation fundraising function and should be excluded from deductions. Mr. Hall acknowledged this very fact in his apportionment calculation wherein he excluded grants from total expenses “to determine what portion of Kars 4 Kids operational expenditures represents advertising in a fundraising capacity.” The same treatment should apply to the more than $600, 000 in compensation/salary/payroll tax expenses K4K spends in running and managing its charitable programs, which is distinct from running and managing its vehicle-donation arm, the expenses of which are shown in Column (D) Fundraising. Likewise, the $2.8 million in advertising expense relating to its charitable programs (e.g., brochures for summer camps, ads for educational programs, etc.) are irrelevant to and do not support K4K's vehicle donation operations and should not be deducted from revenues. Indeed, all Program Services expenses in Column (B) are required by the IRS to be specifically segregated into that category because they support K4K's charitable programs and not its vehicle-donation fundraising activities. Therefore, none of the Column (B) expenses should be deducted from vehicle-donation fundraising revenues.

(Id. (footnotes omitted)).

         Although Cook initially opined that profits should be calculated on all revenues generated, in his rebuttal report he discounted total fundraising costs because those “expenses directly relate to the generation of vehicle-donation revenue” which decreased Cook's total to $213, 374, 316. (Cook Rebuttal Report, ECF No. 150-2 at 8). He also states that as an “alternative measure, ” the factfinder could use “the grant funds [Kars 4 Kids] provides to charitable organizations, as this amount is an indication of the funds it has available to donate after paying all its operating expenses required to generate those funds.” (Id.). That reduction amounted to total profits of $161, 294, 383; leading Cook to conclude that these No. constituted the range of Kars 4 Kids' profits. (Id. at 9).

         Cook's findings regarding profits, which derived from his mathematical calculations, were supported by a reliable methodology. Cook explained the standards which governed his use of the Form 990 revenues. His technique was consistent with the Banjo Buddies court's analysis of damages. Accordingly, Cook's calculations sufficiently satisfy the multifactor test set forth in Mitchell, 365 F.3d at 235, and his analysis was tied to the facts of the case and will be of assistance to the jury, in accordance with the mandate of Daubert, 509 U.S. at 591. As such, Kars 4 Kids' motion to bar Cook's testimony on damages as disgorgement of profits is denied.

         Regarding his second theory concerning the amount of royalties that Kars 4 Kids would have had to pay to license the mark, Cook was also unable to render a conclusion. He did not discuss this methodology in his rebuttal report. Cook is therefore barred from testifying as to damages based on hypothetical royalties.

         Finally, with regard to the third methodology - corrective advertising - Cook was unable to conclude what amount of corrective advertising would be necessary to correct confusion but stated "the trier of fact may find the total advertising [spent] useful as a starting point for addressing this method." (Id. at 10). Whereas, “his rebuttal report concluded that the total was $86.3 million. Although the new figure was more precise, there is no methodology supporting how Cook arrived at this opinion. He merely concluded the amount of corrective advertising should be the total advertising spent by Kars 4 Kids. It is speculative to argue, without citation to authority, that the corrective advertising for America Can! should equal the total advertising expenditures by Kars 4 Kids. Further, it is at best unclear how that figure would assist the trier of fact in rendering a decision.

         Cook's finding as to the third methodology was wholly conclusory. The use of total advertising cost does not meet the eight-factor test under Mitchell. It is unclear what method Cook used, if any, or whether it would be subject to peer review. The known or potential rate of error is very high in light of this extremely off-hand imprecise contention. For example, Mr. Cook states that $86.3 million is a good starting point. The use of the words “starting point” infers that there are factors that may add or subtract from that amount. Mr. Cook does not set forth any such factors within his report. As such, his imprecise statement is not reliable. His testimony regarding corrective advertising is barred.

         In sum, Cook's use of the Form 990s as a means to determine revenue may be valuable for assisting the jury in resolving the issues of damages. However, he reached no conclusion as to the hypothetical royalty, rendering him unable to assist the trier of fact on that calculation. Finally, his corrective advertising figure ($86.3 million) was based solely on an imprecise remark, especially when he gives no guidance as to the factors a jury would be required to assess if they worked from the “starting point.”

         (2) Kars 4 Kids' Motion in Limine No. 2: Attorneys General Investigations

         Kars 4 Kids seeks to exclude evidence of three investigations conducted by state attorneys general in Minnesota, Oregon, and Pennsylvania because they are irrelevant and prejudicial. (Memo. in Support of Motion In Limine No. 2, ECF No. 152). More precisely America Can! seeks to admit into evidence a “Compliance Review of the Charitable Solicitation Activities and Financial Reporting of Kars 4 Kids and its Relationship to Oorah, Inc., ” dated 2017 by Attorney General Lori Swanson of Minnesota (Compliance Review), plus two single-page press releases from Pennsylvania and Oregon. America Can! seeks to admit these documents because they are relevant on three grounds.

         America Can! argues the Compliance Review and the two press releases are relevant to the validity of the assignment of trademark rights, to damages calculations (15 U.S.C. § 1117(a)), and to its injury in the context of its trademark dilution claim. Although America Can! claims the Compliance Review and the two press releases should be admitted, each will be addressed separately with the press releases being addressed first.

         Generally, under the Public Records exception to the hearsay rule (Fed. R. Evid. 803(8)), a public record will be admitted if it is a "record or statement of a public office" if it sets out, "in a civil case . . . factual findings from a legally authorized investigation" and "neither the source of information nor other circumstances indicate a lack of trustworthiness." Fed.R.Evid. 803(8)(A)(iii), (8)(B). The trial court has discretion concerning admissibility of such evidence. Wilson v. Attaway, 757 F.2d 1227, 1245 (11th Cir. 1985). Here, the press releases do not set forth “findings from a legally authorized investigation” in that both press releases discuss a settlement without support or substance behind the content. As such, the motion In Limine to bar admission of the Pennsylvania and Oregon press releases is granted.

         Returning to the Compliance Review, a different analysis applies. The Compliance review is a twenty-seven page report. It describes: (1) Kars 4 Kids and its affiliates; (2) how it failed to disclose the revenue spent on fundraising and overhead costs; (3) it failed to monitor the charities to which it contributed; and (4) it failed to disclose that the charity program was substantially more limited in focus than represented in its advertisements. In another section, it noted a misstatement on the Kars 4 Kids federal tax reporting averring that Kars 4 Kids reported “net, not gross, revenues on its IRS Form 990." (Doc, 161-1, p. 10). Most of those topics may impact the value of the mark.

         America Can! sets forth three grounds for admitting the evidence as relevant to: "(1) K4K's purported date of initial use of its claimed marks; (2) damages; and (3) the injury caused America Can! By Kars 4 Kid's trademark infringement." (Def.'s Br. in Opp. to Pl.'s Motion In Limine No. 2 to Exclude Evidence, Testimony, and Argument Regarding Attorneys General Investigations ("Def.'s Opp. to Pl.'s Motion in Limine No. 2"), ECF No. 160 at 5).

         The Compliance Review is relevant to damages. Specifically, the Compliance Review found that Kars 4 Kids misled the government and the public about the amount of revenue that was spent on advertising v. charitable purposes, and it made findings about Kars 4 Kids' actual amount of advertising expenditures.

         In addition, the Compliance Review has a tendency to support America Can!'s trademark dilution claim. Assuming America Can! can establish the other elements of the dilution claim, the report has a tendency to show that Kars 4 Kids' “use causes dilution by lessening the capacity of [America Can!'s] mark to identify and distinguish goods or services.” 800-JR Cigar, 437 F.Supp.2d at 293.

         The Court finds that the probative value of the Compliance Review is relevant and substantially outweighed by the risk of unfair prejudice, confusing the issues, or misleading the jury. As such, the motion in limine to bar admission of the Compliance Review is denied.

         In sum, the Court tentatively finds the Compliance Review to be admissible under the public records exception to the hearsay rule and declines to exclude the evidence under Rule 403. Additionally, Kars 4 Kids may propose reasonable redactions to the report, which the Court shall consider.

         Minnesota Discovery Requests

         In the course of conducting the investigation that resulted in the Compliance Review, the Minnesota Attorney General issued discovery requests to Kars 4 Kids.[1] One such request was for copies of “all documents that memorialize or describe any agreement, affiliation, or relationship, or other arrangement, whether formal or informal, between [Kars 4 Kids] and Oorah.” (Confoy Decl., Ex. 7, ECF No. 161-5). In response, Kars 4 Kids stated, “Subsequent to 2009, Oorah and Kars [4 Kids] ceased to have a formal grant application process. Rather, Kars [4 Kids] made grants to Oorah on a discretionary basis. We do not have any other documents pertaining to agreements between Kars [4 Kids] and Oorah.” (Id.) (hereinafter “Response).

         America Can! seeks to admit this Response as a statement of opposing party exception to the hearsay rule. Fed.R.Evid. 801(d)(2). This Response, however, is not relevant evidence of an absence of an assignment for several reasons. First, the Response references agreements subsequent to 2009. Second, the statement discusses agreements between Oorah and Kars 4 Kids. And third, the statement references documents pertaining to agreements. The alleged assignment occurred in 2000, was made from OKR to Joy for Our Youth, Inc. (which later became Kars 4 Kids), [2] and was undisputedly an oral assignment. (ECF No. 184, T62:3-8).

         Kars 4 Kids' Response is not probative of the date of any alleged assignment. To introduce such evidence to refute Kars 4 Kids' claim of an assignment would do nothing but confuse the issues, mislead the jury, and pose a risk of unfair prejudice. The Response is inadmissible under Federal Rule of Evidence 403.

         (3) Kars 4 Kids' Motion in Limine No. 3: Business Registrations

         Kars 4 Kids seeks to exclude evidence of America Can!'s business registrations from being introduced at trial, arguing that "[t]he jury is not likely to appreciate the legal distinction between registering to do business under a designation and public use of a designation in advertising sufficient to acquire trademark rights." (Memo. of Law in Support of Pl.'s Motion In Limine No. 3 to Exclude Evidence, Testimony, and Argument Regarding America Can's Business Registrations ("Memo. in Support of Motion In Limine No. 3"), ECF No. 153 at 4). Kars 4 Kids cites Three Rivers Confections, LLC v. Warman, 660 Fed.Appx. 103, 105 (3d Cir. 2016), which held that "a copy of the Pennsylvania Department of State listing" for a mark, alone, was insufficient, stating, "[a]bsent further evidence of ownership, such as market penetration, from which a reasonable jury could conclude that [defendant] owned the [mark] as a senior user, summary judgment for [plaintiff] was warranted." However, in Three Rivers, the court did not hold that business registration evidence is not admissible, merely that business registration evidence, alone, is insufficient to establish a claim for infringement. The business registration is certainly admissible as probative of priority of use.

         There does not appear to be any risk of prejudice or of confusing or misleading the jury. Kars 4 Kids is free to argue to the jury that the business registration alone is not sufficient, but America Can! is also permitted to present the evidence to the jury. Kars 4 Kids' motion to exclude evidence of America Can!'s business registrations is denied.

         (4) Cars for Kids' Motion in Limine: Opinion of Alex Simonson

         America Can! seeks to exclude a survey conducted by Kars 4 Kids' expert, and corresponding opinion testimony that purports to show secondary meaning. The objective of the survey was to assess the secondary meaning of the term “Kars 4 Kids.” Kars 4 Kids counters that the survey is reliable under Evidence Rule 702. The survey at issue, created by Dr. Alex Simonson, [3] was conducted online and aurally (without any text appearing) on a nationwide group of United States consumers who are over eighteen years of age. (Confoy Decl., Ex. 1, Simonson Report at 2). Participants were divided into a test cell and a control cell. (Id.).

         Prior to commencing, participants read the following:

In this survey, there are no right or wrong answers, but there are questions that ask for your beliefs and understanding. Please do your best to answer each question to the best of your beliefs and understanding. If there's any question that you cannot answer, please don't guess. Just indicate “Don't Know/Not Sure, ” and proceed to the next question.

(Id. at 10). Simonson then describes in detail how the ...


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