Thanks for visiting! Welcome to a new way to research case law. You are viewing a free summary from Descrybe.ai. For citation and good law / bad law checking, legal issue analysis, and other advanced tools, explore our Legal Research Toolkit — not free, but close.
Los Defensores, Inc. v. Gomez
Citations: 223 Cal. App. 4th 377; 166 Cal. Rptr. 3d 899; 2014 WL 265523; 2014 Cal. App. LEXIS 65Docket: B240725
Court: California Court of Appeal; January 24, 2014; California; State Appellate Court
Original Court Document: View Document
The Court of Appeal of California affirmed a judgment from the Superior Court of Los Angeles, which sanctioned defendants Rosa Gomez and Armando Vera for discovery abuse by entering a default against them. The default judgment awarded plaintiff Los Defensores, Inc. damages and injunctive relief. Defendants challenged the sanctions, claimed the complaint lacked a valid cause of action, argued they were not properly notified of the damages sought, and contended that the damages awarded were excessive. The court dismissed these arguments. The underlying action stemmed from Los Defensores, Inc., an attorney joint advertising group targeting the Spanish-speaking market, which had used specific phone numbers in its advertising since 1984, including a toll-free number it acquired in 1988. In 2009, the plaintiff filed a lawsuit against Vera and Gomez for unfair business competition and passing off, alleging that the defendants owned similar phone numbers and misdirected callers to unrelated attorneys. In 2010, the plaintiff filed motions to compel discovery after Vera and Gomez refused to participate in depositions, citing a bankruptcy discharge. The court ordered the defendants to produce documents and attend depositions, later granting the motions with no sanctions imposed. The second amended complaint, filed in 2011, maintained claims for unfair competition and passing off, asserting that the defendants failed to notify the plaintiff about their bankruptcy proceedings. The complaint emphasized the significant investment in advertising by the plaintiff, resulting in widespread recognition of its toll-free number. Respondent conducted focus group inquiries to assess the effectiveness of their advertising, revealing that many participants recognized the number '636-3636.' The Second Amended Complaint (SAC) alleges that Vera, Gomez, and attorney Amamgbo conspired to exploit this recognition by acquiring similar telephone numbers across various area codes. This led to confusion, as appellants received calls intended for respondent without disclosing their lack of affiliation, instead providing misleading responses to callers. The SAC claims that this conduct was intended to harm respondent’s business and misappropriate its goodwill, resulting in damages and public confusion. Respondent is seeking both punitive damages and an injunction against the use of any '636-3636' numbers. In March 2011, respondent filed motions to compel discovery from Vera, Gomez, and Amamgbo Associates, citing their failure to respond adequately to previous discovery requests. During depositions, Vera and Gomez mentioned a 'status book' and call log recording calls to their '636-3636' numbers but did not produce these documents as requested. Respondent sought sanctions against them for noncompliance. Additionally, Amamgbo Associates failed to respond adequately to multiple discovery requests, prompting respondent to request that certain admissions be deemed admitted and to impose sanctions. Appellants acknowledged overdue discovery and errors in their responses but contested the amount of sanctions sought, which amounted to $15,000. On May 19, 2011, the court granted motions against Gomez and Vera, ordered Amamgbo Associates to comply with discovery requests, but denied the request to deem admissions. Sanctions totaling $6,380 were awarded against all appellants and their counsel. In November 2011, the respondent filed motions for a preliminary injunction and discovery sanctions against the appellants. The preliminary injunction sought to prevent the appellants from using the telephone numbers '636-3636.' The respondent alleged significant discovery misconduct by the appellants, including spoliation of evidence, and requested monetary, issue, or terminating sanctions. To support the motion for the preliminary injunction, the respondent presented evidence, including deposition excerpts, outlining the background of Vera, who, after emigrating from Peru, operated a car rental business and acquired the '636-3636' numbers. Vera transitioned to providing services for law firms, believing these numbers had greater value in that context. After being employed by attorney Les Sherman, who later sold his practice to Amamgbo, Vera and Gomez continued to manage calls from these numbers, primarily from Spanish-speaking individuals seeking legal services. Complaints were received indicating that callers believed they had reached the respondent's office when using the '636-3636' numbers. Following the litigation's onset, Vera and Gomez transferred their accounts for these numbers to Amamgbo. In September 2011, a state bar court found Amamgbo had engaged in unethical practices, recommending disciplinary action against him. The appellants opposed the injunction, asserting that the respondent had not demonstrated valid claims for injunctive relief. Regarding the motion for discovery sanctions, the respondent claimed the appellants violated discovery orders issued by the trial court in May 2011. The respondent sought various forms of sanctions, including a ruling on damages estimated at over $1 million and a calculation indicating that appellants benefitted from the respondent's advertising efforts to the extent of approximately $2.6 million. Respondent presented evidence indicating that appellants concealed or destroyed records related to their '636-3636' telephone lines, despite court orders issued in May 2011. In depositions from November 2010, Vera and Gomez admitted to recording caller information in a status book and using a voicemail system. After these depositions, respondent requested discovery of the status book, call logs, voicemail records, and the identity of the voicemail system's central operator. Appellants initially objected to these requests and failed to provide any written documents or call logs post-orders, offering only a privilege log for a single item labeled 'statute book' claimed to be protected by attorney-client and work product privileges. They produced no voicemail recordings and denied the existence of a central operator. Respondent argued that the lack of production indicated potential evidence destruction, as appellants continued using the lines after acknowledging the logs and messages. Appellants provided only an untranslated Spanish voicemail message in response to a request for outgoing messages. Furthermore, appellants did not produce any financial records related to the '636-3636' lines, despite a 2010 demand for inspection of documents from Amamgbo Associates. Although Amamgbo testified about possessing relevant business records, none were provided following the May 2011 orders, with Amamgbo claiming no documents existed in a supplemental response. Additionally, when asked to identify attorneys benefiting from the '636-3636' lines, Amamgbo initially objected and later admitted to collaborating with other attorneys but refused to disclose their identities or the terms of fee-sharing agreements, stating relevant clients were not obtained through '636' calls. In response to discovery sanctions, appellants claimed they had complied with all requests and denied any spoliation, arguing respondent misinterpreted deposition transcripts regarding the existence of documents. Appellants acknowledged payment of discovery sanctions from May 2011 and provided declarations from Vera and defense counsel Moest as part of their opposition. Vera confirmed the production of all documents in his possession except for those listed in the privilege log, while Moest asserted that appellants fully complied with the discovery requests and court orders, claiming the requested written materials did not exist. On November 29, 2011, the trial court ruled in favor of the respondent, granting a preliminary injunction and imposing terminating sanctions on appellants for violating previous orders, stating their noncompliance was severe and unaddressed by previous sanctions. In January 2012, the respondent filed a packet to support a default judgment, seeking damages of $11,638,920, later adjusting the claim to at least $689,520 based on supplemental calculations. On April 9, 2012, the court entered a default judgment against appellants for $691,280 in damages and issued a permanent injunction preventing the use of specific telephone numbers. Appellants subsequently appealed, contesting the validity of the terminating sanctions, the sufficiency of the second amended complaint, the adequacy of notice regarding damages, and the amount of damages awarded. The court rejected these contentions, noting that California law permits various penalties for misuse of the discovery process, including terminating sanctions, and that the imposition of such sanctions is within the court's broad discretion. Appellants argued they did not willfully disobey court orders but were unable to produce non-existent documents and refused to fabricate evidence, claiming they were unfairly penalized. The trial court is authorized to impose terminating sanctions for discovery abuse after evaluating the totality of circumstances, including the willfulness of the party's actions, the detriment to the propounding party, and the efforts made to obtain the discovery. A decision for such sanctions should not be taken lightly; however, willful violations, especially when there is a history of abuse and less severe sanctions are ineffective, justify the imposition of the ultimate penalty. Courts have appropriately enacted terminating sanctions in instances of willful disobedience of discovery orders. Appellate review of the trial court's factual determinations relies on substantial evidence within the record. In this case, there is ample evidence demonstrating that the appellants willfully failed to comply with court orders from May 2011. Specifically, they concealed or destroyed pertinent documents related to calls on their phone lines. Despite being aware of a call log associated with the phone, the appellants did not provide access to it and failed to produce other requested records. Their defense, claiming the documents "never existed," was insufficient against the trial court's findings of willful noncompliance. The court's decision to reject the witnesses' testimonies was supported by sufficient evidence, affirming the conclusion that the appellants willfully violated the May 2011 orders, including failing to provide voicemail records related to missed calls. Appellants failed to provide financial records for their '636-3636' telephone lines, with Amamgbo claiming to have obtained them in the normal course of business. It was admitted that Amamgbo Associates was responsible for the payment of these lines. Furthermore, appellants did not disclose the attorneys involved in their fee-sharing agreements or the terms of those agreements after Amamgbo Associates began receiving calls. The trial court found sufficient evidence of willful violations of the May 2011 orders by appellants, justifying the imposition of terminating sanctions. Appellants argued that the default judgment was invalid due to the Second Amended Complaint (SAC) failing to state a claim. Although a defendant in default admits the material allegations of a complaint, a default judgment cannot be entered if the complaint does not state a cause of action. The inquiry into the complaint's adequacy resembles that of a general demurrer, focusing on whether it lacks essential factual allegations. The court must consider reasonable inferences supporting the complaint's factual assertions, but essential factual omissions are detrimental to the judgment. The SAC claims common law unfair competition and 'passing off,' along with a statutory claim under the Unfair Competition Law (UCL). While the UCL does not allow for damages, the focus here is on common law claims, particularly the tort of unfair competition characterized by 'passing off' goods. This tort serves as an equitable remedy against the unauthorized exploitation of trade names and common law trademarks. Injunctive relief and damages are available for common law unfair competition when fraud or intent to mislead consumers is present. An action for common law unfair competition can be based on the use of business telephone numbers, as indicated by the case Cytanovich Reading Center v. The Reading Game. In this case, both parties offered reading services in the same area, with the plaintiff using '321-READ' and the defendant using '494-READ.' The trial court initially granted a preliminary injunction but ultimately ruled in favor of the defendant. On appeal, the court acknowledged that the use of telephone numbers might support an unfair competition claim, especially when specific factual considerations are met. These include whether there is imitation of the number, distinctiveness of its use, significant prior use, competition in the same service area, potential public deception, and whether a generic or descriptive number has obtained secondary meaning. Despite the appellate court's recognition of these factors, it did not reverse the trial court's judgment due to insufficient evidence of error in its findings. Further references indicate that unfair competition claims often hinge on the concept of secondary meaning, which links the mark to a single source. Damages and injunctive relief are appropriate if there is fraud or intent to mislead. The Second Amended Complaint (SAC) contends that since 1984, the respondent's toll-free number '636-3636' became well-known and associated with them, while the appellants misused this number to falsely suggest affiliation with the respondent and engaged in misleading practices to obscure their lack of affiliation. The SAC claims that the similarity between the respondent’s toll-free number and the appellants’ numbers, despite being merely numerical, has acquired secondary meaning and that the appellants engaged in deceptive practices to exploit this recognition. Although the SAC does not allege that appellants represented themselves as the respondent, it argues that their concealment of material facts constitutes fraud due to a duty to disclose arising from their relationship with callers. This relationship is sufficient to support a claim of fraudulent conduct, thus establishing a basis for unfair competition claims for damages and injunctive relief. The appellants argue that the claim is flawed because it assumes the respondent has ownership rights over the appellants’ phone numbers. However, the respondent's claim is based not on ownership but on the right to prevent deceptive practices that exploit a numerical string that has gained secondary meaning. The court clarifies that unfair competition claims are not contingent on trademark ownership but on the fraudulent actions of the defendant that cause harm to the plaintiff's business. The appellants’ references to cases such as Holiday Inns and Dranoff-Perlstein are deemed inappropriate; in Holiday Inns, the court found no consumer confusion due to the reservation service's efforts to clarify the situation, while the SAC alleges that appellants intentionally perpetuated confusion for profit. In Dranoff-Perlstein, the claim was dismissed due to lack of evidence of confusion, contrasting with the allegations against the appellants. The Third Circuit reversed the summary judgment, identifying triable issues regarding whether the alphanumerical string 'INJURY-1' had acquired a secondary meaning necessary for Lanham Act claims. The court found 'INJURY' to be generic and descriptive of the legal services provided, while the numerical string '636-3636' lacked a common descriptive meaning and was argued to have acquired a secondary meaning through advertising. The respondent's unfair competition claim was thus deemed valid. Regarding damages, the appellants argued that the trial court erred by issuing a default judgment without alleging the amount of damages in the second amended complaint (SAC). This argument was rejected, as the respondent had served a predefault notice specifying the damages amount. According to Code of Civil Procedure section 580(a), a plaintiff's relief in a default scenario cannot exceed what is demanded in the complaint, ensuring defendants receive adequate notice of potential judgments. Exceptions exist for cases where the complaint cannot state the amount of damages, such as personal injury or wrongful death claims, allowing for notices to be served to establish the maximum default judgment. The court referenced precedents that affirm this notice requirement, particularly in actions seeking accounting, highlighting that plaintiffs in such cases face challenges when specifying amounts due can undermine their accounting requests. The court examined the statutory framework related to the notice requirement for accounting actions, concluding that a plaintiff must provide notice of the amount sought after filing a complaint but before a default judgment is entered, allowing the defendant time to respond. In the case at hand, the appellate court reversed a judgment because the plaintiff had failed to give the necessary notice to the defendant. This decision led to a split in opinions regarding whether predefault notice is required in accounting cases. In *Cassel v. Sullivan*, an attorney sued a partnership for an accounting and valuation of his interest, alleging the partnership had the financial records to determine this amount. After the partnership defaulted, a judgment was issued in favor of the attorney. The partnership contested the judgment due to the absence of required notice, but the trial court allowed a second notice to be served, leading to a reinstated judgment. On appeal, the court dismissed the partnership's claims, stating that the Ely ruling requiring predefault notice was not sound, as the complaint needed only to request relief without specifying an amount. Conversely, in *Van Sickle*, the appellate court favored Ely over *Cassel*, where a former client sued her attorney for breach of fiduciary duty without specifying a monetary demand. The court reversed the default judgment due to the lack of notice, emphasizing that the attorney had not been placed in a position to assess potential liabilities, unlike in *Cassel* where the defendant had access to necessary records. The appellate court upheld Ely's approach as correctly decided. The default judgment against the appellant was deemed appropriate based on both the Ely and Cassel precedents. The Second Amended Complaint (SAC) sufficiently requested an accounting, supported by a pre-default notice of the amount owed. An action for an accounting, which is equitable, can arise under two circumstances: (1) when a fiduciary relationship exists between parties, or (2) when the accounts are complex enough that a straightforward legal action is impractical. The SAC met the necessary pleading requirements by demonstrating the existence of a relationship that necessitates an accounting and stating that a balance is due to the plaintiff. It was noted that appellate cases cited by the appellants were factually distinct, as none involved an accounting action. The SAC also included a common law claim for unfair competition through "passing off," alongside a request for damages and an accounting of the appellants' unjust profits. Under common law, an accounting for wrongful profits is available in cases of unfair competition where consumer confusion is intended. The Supreme Court in Modesto Creamery established that a plaintiff could seek an accounting for lost profits under similar factual circumstances. Prior to the default, the respondent notified the appellants of the sought damages. The respondent's motion for discovery sanctions indicated that the appellants had used specific telephone numbers since 2007 and sought financial records to ascertain the damages owed, estimating at least $1,051,596.00 per year due to the appellants' refusal to provide requested documentation. The respondent calculated that the benefits derived from the appellants' activities amounted to approximately $2,631,443.72 annually. Respondent's request met the predefault notice requirements outlined in Ely and Code of Civil Procedure section 425.11, subdivision (b), by detailing the damages sought, specifically wrongful profits estimated at $1,051,596.00 annually since 2007. The motion for sanctions was served 27 days prior to the default judgment, providing appellants with reasonable notice of the damages, which aligns with precedent established in Schwab v. Southern California Gas Co. Appellants argued the default judgment's awarded damages of $691,280 were excessive and unrelated to their profits, but this claim was rejected. The court noted that while respondent's estimate of wrongful profits was initially deemed excessive, subdivision (b) does not require a detailed explanation for the damages sought, rendering any concerns about the estimate superfluous. In cases of unfair competition, the profits realized by the wrongdoer constitute appropriate damages, and the defendant bears the burden of proving any deductions from gross income. Respondent’s initial damages claim was $11,638,920, based on advertising benefits received, but later revised the claim to at least $689,520, reflecting payments made to individuals Vera and Gomez over 4.42 years. This amount was supported by evidence of their earnings and the assertion that the payments indicated the defendants were profiting significantly from their wrongful conduct. Appellants demonstrated through their actions that the use of the 636-3636 numbers generated over $156,000 annually. The trial court rejected the respondent's claim for $11,638,920 in damages, awarding $691,280 instead, based on the payments made to Vera and Gomez, which were deemed a valid basis for determining the appellants’ net profits. Gomez received $700 weekly, totaling $36,400 per year, while Vera earned $120,000 annually, amounting to $156,400 together. Over 4.42 years, their combined payments totaled $691,288, aligning closely with the awarded damages. The court determined that funds received by defendants for engaging in unfair competition are part of net profits, and salaries paid to those involved in the misconduct are not typically deductible from gross income. The court concluded that Vera and Gomez were compensated for their roles in the tortious conduct, specifically providing the 636-3636 lines and handling calls, making the damages awarded a conservative estimate of the appellants' net profits. Appellants' argument regarding the limitation of liability due to Vera and Gomez's bankruptcy discharge was forfeited due to lack of supporting legal authority. The judgment was affirmed, and respondent was awarded costs on appeal.