Jerry's Famous Deli, Inc. v. Constantino Papanicolaou, D/B/A Roxy's Famous Deli Restaurant, Jerry's Famous Deli, Inc. v. Constantino Papanicolaou, D/B/A Rmt Roxy's Famous Deli Restaurant, Jerry's Famous Deli, Inc. v. Constantino Papanicolaou, D/B/A Rmt Roxy's Famous Deli Restaurant, Jerry's Famous Deli, Inc. v. Constantino Papanicolaou, D/B/A Roxy's Famous Deli Restaurant
Docket: 03-55114
Court: Court of Appeals for the Ninth Circuit; September 9, 2004; Federal Appellate Court
In a trademark dispute between Jerry's Famous Deli, Inc. and Constantino Papanicolaou, the Ninth Circuit Court of Appeals upheld the district court's finding of civil contempt against Papanicolaou for violating a stipulated injunction regarding trademark use. The case originated from Jerry's Deli, established in 1978, which features a distinct New York-style theme and branding, and Papanicolaou's Roxy's Famous Deli, which began operations in 1991. Following initial litigation in 1993, Papanicolaou agreed to modify his logo and menu to avoid infringing on Jerry's Deli's intellectual property. However, Jerry's Deli alleged continued violations, leading to a second lawsuit resulting in a stipulated permanent injunction.
Two years later, after Papanicolaou was accused of violating the injunction, the district court found him in contempt and ordered the disgorgement of profits along with attorney's fees for Jerry's Deli. Although the court initially did not award attorney's fees due to insufficient accounting details from Jerry's Deli, it later granted a significant portion of those fees after further submissions. The appeals court vacated the disgorgement of profits sanction, citing a lack of rationale for rejecting Papanicolaou's objections to the auditor's calculations.
Papanicolaou's profits accounting in response to a disgorgement order was rejected by the district court due to its unaudited nature. The court instructed the parties to agree on an independent auditor, leading to the appointment of one proposed by Jerry's Deli after they could not reach a consensus. The parties eventually agreed on a 'special investigation' of Roxy's Deli's profits instead of a comprehensive audit. The auditor reported a profit of $415,586 for the period from 1997 to 2000. Jerry's Deli sought court adoption of the auditor's findings and requested treble damages and attorney's fees. Papanicolaou objected to the findings and requested a hearing, intending to submit further documentation. Subsequently, Jerry's Deli filed an ex parte application for a court determination based on the auditor's report. The court ordered Papanicolaou to pay $376,920, adjusting the auditor's profit figure to exclude profits before the injunction in 1997. Papanicolaou moved to vacate or amend the orders, citing due process violations, but the court denied his motion, leading to his appeal.
The district court's contempt order found Papanicolaou in violation of three provisions of a stipulated permanent injunction. The court determined he had not complied with elements designed to protect Jerry's Deli's trade dress, including the use of Broadway lettering, specific color schemes, Broadway show posters, and stage lighting in his restaurant. The court concluded that Papanicolaou's actions likely caused consumer confusion, affirming its findings without clear error.
Papanicolaou's claim that the district court's findings were based on "no evidence" is rejected, as appellate review does not allow for substituting factual findings unless there is a "definite and firm conviction" of error. Papanicolaou argues against being held in contempt of an injunction by asserting compliance and that his actions did not constitute a deceptive maneuver. However, he does not refute the use of Broadway lettering in his restaurant's materials or the continued use of restricted colors and posters, arguing instead that these elements were not "predominant." The injunction explicitly limits their use in advertising, promotions, and decor, and the district court found them predominant in Roxy's Deli's advertising and promotions. Thus, Papanicolaou's arguments regarding these features are unpersuasive.
Regarding the lighting fixtures, Papanicolaou claims his overhead studio lighting differs from the "stage or movie style lighting" referenced in the injunction. The court, however, noted that the fixtures appeared theatrical, regardless of their classification, and found no error in the contempt finding.
On the logo issue, the district court determined that Roxy's Deli's logo was sufficiently similar to Jerry's Deli's logo to violate the injunction prohibiting consumer confusion about their association. Despite Papanicolaou's argument that his logo did not breach a prior settlement from 1993, the court focused on the 1997 injunction, affirming that the evidence supported the findings of violation. Finally, the district court concluded there was a violation of a third provision of the injunction, which is not detailed in the provided text.
Using any layout or design for its menus that infringes on JFD's trade dress rights or causes consumer confusion is prohibited. The district court found significant similarities between Roxy's takeout menu before July 2000 and the Jerry's Deli menu, which is protected by an injunction. Papanicolaou acknowledges some similarities but argues that differences in font style prevent consumer confusion. However, the court observed that both menus share structural features and similar phrasing, supporting its finding of substantial similarity.
Papanicolaou challenges the district court's disgorgement order as an improper measure of damages and claims procedural irregularities affected his due process. He also contests the attorney's fees order, linking it to the disgorgement determination. The court reviews the imposition of sanctions for abuse of discretion and factual findings for clear error.
Papanicolaou argues that Roxy's profits should not be considered damages since revenues did not noticeably decrease after the alleged violations were addressed. However, he concedes Roxy's Deli benefited from trademark infringement until the injunction was established, asserting profits should have declined post-injunction. This reasoning is flawed, as it assumes Roxy's ceased infringing, which is contested in the appeal. The district court found continued infringement, affirming the contempt order and validating the disgorgement of profits as a legitimate trademark remedy.
Papanicolaou asserts that he was denied his due process rights concerning adequate notice and the opportunity to be heard regarding the damages determination by the district court. He argues that the court failed to establish a firm briefing schedule or hold a hearing on his objections to the auditor's report, despite having submitted extensive objections and supporting documentation on May 10 and August 1. Although he claims that more objections could have been submitted with proper notice of a hearing date, the court had sufficient information to consider his objections when ruling on contempt sanctions.
Papanicolaou also contends that the swift decision on the contempt sanction—made five days after his last objections—indicates a denial of due process. The court counters that a prompt decision does not imply a lack of consideration, and litigants cannot claim due process violations based solely on the speed of the decision. The court noted that aspects of the disgorgement issue had been under consideration for over six months, and without further evidence, it cannot conclude that the decision lacked full consideration.
While the court finds Papanicolaou's constitutional due process argument unpersuasive, it acknowledges uncertainty regarding his specific factual challenges to the auditor's profits calculation. Papanicolaou has consistently objected to the auditor's figures, submitting substantial documentation. However, the district court’s order that overruled these objections provided little explanation, merely stating that it found the auditor's financial statements reliable.
The court emphasizes that Papanicolaou's objections hold merit and cannot be easily dismissed. The district court accepted the auditor's profits calculations after adjusting for the relevant period. Although it imposed disgorgement as a sanction, this remedy parallels an award of the infringer's profits under trademark law, placing the burden on Papanicolaou to document any legitimate offsets once gross profits are established.
The review focuses on the adequacy of the connection between profits and violations related to a contempt order. The record is insufficient to assess this link or the legitimacy of Papanicolaou's objections, which include alleged mathematical errors in the auditor's calculations and failure to account for income taxes and compensation. The district court dismissed Papanicolaou's objections with a brief statement, lacking detailed rationale. The reviewing court emphasizes its obligation to evaluate the district court's findings for clear error and the decision for abuse of discretion. Due to the unclear basis of the district court's damages determination, the case is remanded for further clarification of the factual and legal grounds for the sanction orders and to address attorney's fees. The court affirms part of the decision, vacates another part, and mandates that each party cover its own costs.
