Marvin Levy v. Hans Schmidt

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 12-4051
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MARVIN LEVY;
STAFFORD WORLDWIDE MARKETING, INC.
v.
HANS JURGEN SCHMIDT; JARED SCHMIDT;
JORDAN SCHMIDT; SCHMIDT ALLZWECK, INC.;
REGLINS, INC.; QVC, INC.; JOHN DOES 1-10;
HANS JURGEN SCHMIDT; REGLINS, INC.,
Appellants
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
(D.C. Civ. Action No. 2-08-cv-06260)
District Judge: Honorable Susan D. Wigenton
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Submitted Under Third Circuit LAR 34.1(a)
November 05, 2013
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Before: GREENAWAY, JR., VANASKIE and ROTH, Circuit Judges
(Opinion Filed: July 14, 2014)
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OPINION
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GREENAWAY, JR., Circuit Judge
Defendants-Appellants Hans Jurgen Schmidt (“Schmidt”) and Reglins, Inc.
(“Reglins”) (collectively “Defendants-Appellants”) 1 appeal the judgment of the District
Court denying a motion for a judgment as a matter of law and for a new trial. The
question before us is whether Plaintiffs-Appellees Marvin Levy (“Levy”) and Stafford
Worldwide Marketing, Inc. 2 (“Stafford”) (collectively “Plaintiffs-Appellees”) 3 provided
the jury with a legally sufficient evidentiary basis to calculate net profits. For the reasons
provided below, we will affirm the District Court and find that the Plaintiffs-Appellees
did provide a legally sufficient evidentiary basis for calculating net profits.
I. BACKGROUND
A. Levy and QVC
In 1993, Levy, through his company Stafford, developed a business relationship
with QVC, a television network specializing in home shopping. (App. 96.) QVC is the
predominant television marketing company and sells products in large volume. (Id. at
107-08.) From 1993 through at least 2005, Levy regularly sold products that he
developed on QVC and further, developed certain products at the request of QVC that he
1
Schmidt served as the President of Reglins at all relevant times. Plaintiffs-
Appellees originally named Jared Schmidt, Jordan Schmidt, Schmidt Allzweck, Inc.,
QVC, Inc., and John Does 1-10 as Defendants in the Complaint, but they are not parties
to this appeal. (App. 9-10.)
2
Levy served as the President and sole owner of Stafford at all relevant times.
3
Defendants-Appellants and Plaintiffs-Appellees will be referred to collectively as
the “Parties.”
2
sold directly to QVC. (Id. at 96-97, 100, 103.)
All of the products Levy brought to QVC prior to 2003 were on consignment,
meaning that QVC paid Levy for the products actually sold to the public, and returned
any unsold products. (Id. at 108-10, 263.)
B. The Joint Venture Agreement and Joint Venture Products
In late 2003, Levy and Schmidt, who are brothers-in-law, orally entered into a
joint venture agreement (“JV”), whereby they agreed to design, develop, market, and sell
various joint venture products (“JV products”) together to QVC. (Id. 896.)
Under the JV, the Parties agreed to finance costs of the JV on a 50/50 basis and in
turn, divide net profits between them on a 50/50 basis. (See id. at 896.) The JV owned
the intellectual property of all JV products on a 50/50 basis. (Id. at 153.)
While the JV sold the majority of the products it developed to QVC on
consignment, it sold two products to QVC as QVC private-label products. In 2004, QVC
asked Levy to create the “Japanese style knife set” for QVC’s “Techniques by Cook’s
Essentials” private label and Levy brought Schmidt into the deal. (Id. at 110-11, 120-21.)
Around the same time, the JV also created a “guided knife set” to sell to QVC as a
private label product. Both private label knife sets utilized a patented handle developed
by the JV.
QVC placed multiple purchase orders for the guided knife set, and the Japanese
knife set, which included the Santoku knife. QVC initially used Stafford as its named
3
vendor, 4 but later changed to Reglins. (Id. at 111, 161-68, 819; Supp. App. at 28.)
C. Termination of JV and The Kohaishu Knife
After QVC changed its vendor to Reglins, Songson, the Chinese manufacturer,
appointed Reglins as its “exclusive agent for all the products designed and developed by
Reglins [] and Songson [], manufactured by Songson [], and/or any of their associated
companies, factories and/or partners.” (Supp. App. 21.)
On November 8, 2005, QVC officials and Schmidt—without Levy—held a
meeting to discuss the development of a hybrid knife, the Kohaishu knife. E-mails
between those parties containing similar discussions followed. (Id. at 2-6, 13-16.) By
December 05, 2005, the development of the Kohaishu was complete, and QVC approved
the product. (Id. at 6.)
On November 29, 2005, Schmidt notified Levy of his intention to terminate the
JV, effective January 5, 2006, agreeing nevertheless to continue splitting net profits
evenly with Levy for the JV products that continued to be sold, which included, but was
not limited to, the Santoku knife. (Id. at 7.)
Schmidt subsequently applied for a patent for the Kohaishu knife on the effective
date of the JV termination, January 5, 2006. (Id. at 13.) QVC’s first purchase order for
4
The “named vendor” refers to the entity with which QVC placed the purchase
order, and which receives payment from QVC. Because the JV did not have its own
entity, it used either Stafford or Reglins as the named vendor in its sales to QVC, and
after a sale, would do an internal accounting of the monies owed. For example, if
Reglins was the named vendor, after a sale with QVC, Reglins would pay Stafford 50%
of the net profits.
4
the Kohaishu knife was placed on January 4, 2006 and was for 45,204 units. (Id. 819-
21.) QVC began selling the Kohaishu knife as a continuation of the JV’s Japanese style
knife set sold in QVC’s “Technique by Cook’s Essential” line. (Supp. App. 9-11.)
D. Procedural History
On December 22, 2008, Plaintiffs-Appellees filed a complaint against Defendants-
Appellants alleging: (1) breach of contract; (2) breach of fiduciary duty; (3) breach of
implied covenant of good faith and fair dealing and duty of loyalty; (4) tortious
interference with economic advantage; and (5) unjust enrichment. 5 (See Compl. ¶¶ 6-12.)
Levy and Stafford claimed that Schmidt and Reglins breached the JV by failing to split
the net profits of the Kohaishu knife. The Defendants-Appellants claimed that the
Kohaishu knife was not subject to the JV because they were still developing the knife
after the termination of the JV and therefore the Kohaishu was a new and different knife
design. (See App. 749-50.)
Judge Susan D. Wigenton presided over a jury trial in the United States District
Court for the District of New Jersey. After the Plaintiffs-Appellees presented their case,
Defendants-Appellants moved for a judgment as a matter of law, claiming that Plaintiffs-
Appellees failed to make a prima facie case with respect to each of their causes of action.
(Id. at 9.) The District Court reserved ruling on the motion. Defendants-Appellants
5
Plaintiffs-Appellees also brought claims for misappropriation of confidential
information; trade dress infringement, common law passing off, and unprivileged
imitation; and unfair competition. Ultimately, Plaintiffs-Appellees voluntarily dismissed
these claims. (Id. at 9-10.)
5
renewed their motion at the end of the presentation of all of the evidence. The District
Court sent the issues of liability and damages to the jury.
The jury found that the Kohaishu knife was part of the JV and that Defendants-
Appellants breached the JV with Plaintiffs-Appellees. (Id. at 10.) The jury returned a
verdict for Plaintiffs-Appellees, awarding them $1,562,621.50, and the District Court
entered judgment against Defendants-Appellants for that amount. (Id. at 10.)
After the jury verdict was returned, Defendants-Appellants again filed a motion
for judgment as a matter of law, or, alternatively, for a new trial or alteration of judgment,
contending that Plaintiffs-Appellees failed to provide the jury with a legally sufficient
evidentiary basis to calculate net profits. (See id. at 4.) Specifically, Defendants-
Appellants contend that Plaintiffs-Appellees failed to make a prima facie case on
damages because they did not produce evidence that proved costs, an essential element in
the calculation of net profits. (See id. at 5.) Defendants-Appellants assert that as a result,
“the jury award is speculative,” and therefore Defendants are entitled to judgment as a
matter of law or a new trial. (Id.)
II. JURISDICTION
This District Court had jurisdiction over Plaintiffs-Appellees’ claims under 28
U.S.C. § 1331 and under 28 U.S.C. § 1367(a). (See App. 894.) This Court has
jurisdiction under 28 U.S.C. § 1291.
6
III. ANALYSIS
A. Motion for Judgment As Matter of Law
1. Rule 50 Motion for Judgment As Matter of Law
We begin with Defendants-Appellants’ argument that they are entitled to a
judgment as a matter of law under Fed. R. Civ. P. 50 on the basis that Plaintiffs-
Appellees failed to provide a legally sufficient evidentiary basis for the jury to make a
finding on damages.
A grant of a judgment as a matter of law is appropriate where “a party has been
fully heard on an issue during a jury trial and the court finds that a reasonable jury would
not have a legally sufficient evidentiary basis to find for the party on that issue.” Fed. R.
Civ. P. 50(a)(1). If a party’s Rule 50(a) motion is not granted in the first instance, as was
the case here, the movant may file a renewed motion no later than 28 days after the entry
of judgment, and may include an alternative or joint request for a new trial under Rule 59.
Fed. R. Civ. P. 50(b). Here, Defendants-Appellants filed a renewed motion, which the
District Court again denied. The District Court’s denial of Defendants-Appellants’
renewed motion for judgment as a matter of law and motion seeking a new trial under
Rule 59 are now before us. Each will be addressed in turn.
2. Standard of Review
We exercise plenary review over the District Court’s denial of Defendants-
Appellants’ motion for judgment as a matter of law, applying the same standard as the
District Court and viewing the evidence in the light most favorable to Plaintiffs-
7
Appellees, the prevailing parties. Acumed LLC v. Advanced Surgical Servs., Inc., 561
F.3d 199, 211 (3d Cir. 2009). We must also be careful to avoid making make credibility
determinations or weighing the evidence, as that is the province of the jury. Id. at 211.
This Court will reverse only if the record is “critically deficient of the minimum
quantum of evidence” upon which a jury could reasonably base its verdict. Id. But “[t]he
question is not whether there is literally no evidence supporting the party against whom
the motion is directed but whether there is evidence upon which the jury could properly
find a verdict for that party.” Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1166 (3d
Cir. 1993) (internal citations and quotation marks omitted).
For the jury to have “a legally sufficient evidentiary basis” to find for Plaintiffs-
Appellees on the issue of damages, we must determine that the record contains evidence
regarding each factor in the calculation of Defendants-Appellants’ net profits from the
sale of the Kohaishu knives. The factors constituting net profits are (1) gross income,
and (2) costs and expenses. See Tunis Brothers Co., Inc. v. Ford Motor Co., 952 F.2d
715 (3d Cir. 1991). Indeed, “net profits” is defined as “gross revenue less fixed costs,
and less variable costs . . . . ” Id. at 735 (internal quotation marks omitted). 6 Moreover,
while the jury must have a legally sufficient basis to support its finding, mere uncertainty
to the amount of damages does not require us to enter a judgment as a matter of law in
favor of Defendants-Appellees. Totaro, Duffy, Cannova and Company, L.L.C. v. Lane,
6
The Parties agreed to define net profits in the jury instructions as “gross income
minus costs and expenses.” (App. 755.)
8
Middleton & Company, L.L.C., 191 N.J. 1 (2007); Tessmar v. Grosner, 128 A.2d 467,
472 (N.J. 1957).
3. Record Evidence Supporting the Jury’s Finding of Damages
The jury found that Defendants-Appellants breached the JV by unilaterally selling
the Kohaishu knife, and Plaintiffs-Appellees were entitled to damages. (App. 764.)
Plaintiff sought compensatory damages for its breach of contract claim, which it asserted
to be 50% of the net profits earned on the sale of the Kohaishu knives sold by the
Defendants-Appellants. 7 (See id. at 753, 755, 899.) Defendants-Appellants do not
contest that this is the proper measure of damages, but rather assert that Plaintiffs-
Appellees failed to produce legally sufficient evidence proving such damages.
Defendant-Appellants’ argument falters based on a close examination of this trial record.
The documentary and testimonial evidence support the jury’s finding here.
i. Purchase Orders
The record contains purchase orders for the Kohaishu knives from QVC (see id. at
819), which is uncontested and a sufficient basis for the jury to determine Defendants-
Appellants’ gross income from the sale of the knives with “reasonable certainty.” V.A.L.
Floors, 810 A.2d at 631.
7
The jury was only instructed on the law governing damages for Plaintiffs-
Appellees cause of action for breach of contract. (App. 753, 758-59.) Thus, we focus
our analysis on damages for a breach of contract claim, and not on the other tort-based
theories included in the Complaint. Furthermore, the Complaint also sought punitive
damages, but the District Court did not submit this issue to the jury. (See id. at 671-72.)
9
There is also evidence in the record demonstrating that in the JV’s past sales of Santoku
knives 8 to QVC, its net profits equaled the total sales price appearing on the QVC
purchase orders. These QVC purchase orders are relevant to the costs and expenses of
the Kohaishu knives because “[p]ast experience of an ongoing, successful business
provides a reasonable basis for the computation of lost profits with a satisfactory degree
of definiteness.” 9 V.A.L. Floors v. Westminster, 810 A.2d 625, 631 (N.J. Super. Ct. App.
Div. 2002) (subcontractor showed reasonably accurate estimate of lost profits, based on
subcontractor’s past profit experience, to calculate damages). See also Restatement
(Second) of Contracts, § 352 cmt. b (1981) (“Evidence of past performance will form the
basis for a reasonable prediction as to the future.”). It is uncontested that the Santoku
knives are part of the JV, and the jury found that the Kohaishu knives are also JV
products. (App. 764.)
Looking at the QVC purchase orders for the Santoku knives, in conjunction with
internal accounting documents of the JV, it is reasonable to conclude that the Parties split
50/50 the total sale price on the QVC purchase order. (See App. 808, 810, 815-16.) For
example, QVC Purchase Order #471429 indicates that QVC paid the JV, with Reglins as
its vendor of record, $312,510.00 for an order of Santoku knives. (Id. at 810.) In a later
8
It is uncontested that the Santoku knives are a JV product developed in 2004,
which the JV sold to QVC as QVC private-label products. The Kohaishu knives are
alleged to be similarly designed to the Santoku knives.
9
Parenthetically, under New Jersey law, the term “lost profits” refers to a measure
of gross income or revenue, less the costs and expenses. See V.A.L. Floors, 810 A.2d at
629. This is the same calculation as “net profits” applicable here.
10
dated invoice sent from Stafford to Reglins, Stafford requested 50% of the sales from
Purchase Order #471429, i.e., 50% of $312,510.00, less $139.17 in bank fees for the
letter of credit, which came out to $156,115.83. (Id. 810, 808.) An accounting
reconciliation between the Parties, submitted in evidence by Defendants-Appellants,
shows that Reglins owed Stafford $156,115.83 for the letter of credit for the Santoku
knives, for Purchase Order #471429. (App. 815-16.)
This documentation, taken together, and in light of the other evidence discussed
herein, demonstrates that with regards to the Santoku knives, the sale price on the QVC
purchase orders represented the JV’s net profits.
Given that QVC bought the Santoku knives and the Kohaishu knives as private-
label items, the purchase orders and associated documentation in the record regarding the
sales of the Santoku knives support a reasonable inference that Defendants-Appellants’
costs and expenses for the Kohaishu knives were likewise reflected in the purchase order
sales price. See V.A.L. Floors, 810 A.2d at 631.
ii. Testimonial Evidence
The record also contains testimony from Levy and his accountant, Daniel Purisch
(“Purisch”), supporting the inference that the costs and expenses associated with selling
the Kohaishu knives were paid upfront or reimbursed by QVC—not Defendants-
Appellants—and thus, for purposes of calculating net profits, costs and expenses were
zero.
11
Levy and Purisch testified that when QVC sells a product under its private label,
rather than entering a consignment relationship, QVC’s practice is to place purchase
orders with the vendor, for which QVC pays the vendor through a letter of credit,
regardless of QVC’s realized sales of the product. (App. 148-49, 448.) Purisch testified
that he was familiar with how QVC paid its vendors for private label items, and usually
“the vendor gets the full value [of the purchase order] with very little expenses” because
QVC is marketing the product under their own brand name, and thus, bears most of the
risks associated with launching the product. (Id. at 448.)
Levy also testified, generally, and with specific regards to his past experience
selling the Santoku knives, that with QVC private label items, any costs and expenses
“were subtracted from the sale price to QVC,” i.e., the costs and expenses would “come
off the top” of the sales price. (Id. at 219-20.) Levy testified that QVC paid the costs
associated with shipping, manufacturing, and marketing of the Santoku knives directly to
its creditors. (App. 148-49) Levy’s past experience selling private label products with
QVC “provides a reasonable basis for the computation of [net] profits with a satisfactory
degree of definiteness.” V.A.L. Floors, 810 A.2d at 631.
Levy testified that with respect to the Santoku knives, the following costs and
expenses were taken off the top of the sales price in the purchase orders from QVC: a
small charge for the cost of the letter of credit, various administrative fees, the cost of the
factory, two percent for QVC, the on-air person, and then three percent to Tony Chen, the
manufacturer. Furthermore, Levy testified that under the JV, the Parties individually paid
12
for all administrative expenses, office expenses, salaries, etc., and they did not allocate
such costs and expenses to the products. (App. 219-20.) Lastly, while the Parties split
the cost of tooling 10 50/50, QVC later reimbursed them for those costs. (Id. at 818.)
Levy’s testimony, when taken with Purisch’s testimony, support the inference that
the sales price on the QVC purchase order for the Santoku knives reflected the JV’s costs
and expenses. When looked at in light of the other evidence of record discussed herein,
and drawing all reasonable inferences in favor of Plaintiffs-Appellees, this testimony also
supports a logical inference that Defendants-Appellants received the full value of the
sales price on the QVC purchase orders for the Kohaishu knives because they did not
incur significant costs or expenses themselves. Lightning Lube, 4 F.3d at 1166.
iii. DVD of QVC Advertisement
The record also contains a DVD of a QVC advertisement for the Kohaishu knives
where a QVC television personality states that QVC dealt directly with the factory that
manufactured the Kohaishu knives, and furthermore, that QVC “eliminates the middle
man” to pass on savings to the customer. (Supp. App. 1.) The Defendants-Appellants
did not offer contrary evidence, nor did they object to Plaintiffs-Appellees entering the
DVD into evidence. Plaintiffs-Appellees argue that the DVD allows the jury to infer that
QVC dealt directly with the manufacturer and further that QVC paid the manufacturer
directly. (Appellee Br. 30.) Taken together with the other proofs regarding costs and
10
“Tooling” refers to the process of making molds that can mass-produce a
product. (App. 144.)
13
expenses, drawing all reasonable inferences in favor of Plaintiffs-Appellees, and keeping
in mind that it is not the province of this Court to make credibility determinations or
weigh the evidence, the DVD provides further support for the jury’s calculation of net
profits. Lightning Lube, 4 F.3d at 1166. The jury could logically infer from the video
that QVC paid the manufacturing costs directly, and that other costs and expenses were
zero or minimal.
iv. Letter From Songson to QVC
A letter from Songson, the Chinese manufacturer of the Kohaishu knives, to QVC
dated July 6, 2005, is also in the record. In the letter, Songson lists the JV products,
which may demonstrate that Songson had a direct relationship with QVC and the jury
could infer that QVC paid Songson directly. This further lends support to the proposition
that Defendant-Appellants’ costs and expenses were minimal or zero.
4. Conclusion
In light of the foregoing, the record is not “critically deficient of the minimum
quantum of evidence” upon which a jury could reasonably base its verdict. Acumed LLC
v. Advanced Surgical Servs., Inc., 561 F.3d 199, 211 (3d Cir. 2009). Indeed the opposite
is true. The record contains documentary and testimonial evidence of the JV’s
experience selling private-label goods to QVC that demonstrate that with the sale of the
Santoku knives, the sales price on QVC’s purchase order reflected the JV’s costs and
expenses, and thus the sale price represented the JV’s gross income and net profits.
There is also tangible evidence (i.e., the DVD and letter) that demonstrate a direct
14
relationship between QVC and the Chinese manufacturer of the Kohaishu knives, from
which the jury could reasonably infer that QVC paid the manufacturer directly. That
inference supports the jury’s calculation of net profits because if QVC paid the
manufacturer for the goods directly, then Defendant-Appellants costs and expenses
associated with the Kohaishu knives would be zero and thus the sales price on QVC’s
purchase order for the Kohaishu knives would equal Defendant-Appellants’ net profits.
Therefore, we will affirm the District Court’s denial of Defendants-Appellants’ motion
for a judgment as a matter of law.
B. Motion for New Trial
1. Rule 59 Motion for New Trial
Defendants-Appellants’ motion for a new trial is governed by Rule 59 of the
Federal Rules of Civil Procedure. Rule 59 provides that the court may “grant a new trial
on all or some of the issues—and to any party . . . after a jury trial, for any reason for
which a new trial has heretofore been granted in an action at law in federal court[.]” Fed.
R. Civ. P. 59(a)(1). A district court should grant a new trial on the basis that the verdict
was contrary to the weight of the evidence “only where a miscarriage of justice would
result if the verdict were to stand.” Williamson v. Consol. Rail Corp., 926 F.2d 1344,
1352 (3d Cir. 1991). This Court has explained that this stringent standard is necessary
“to ensure that a district court does not substitute its judgment of the facts and the
credibility of the witnesses for that of the jury. Such an action effects a denigration of the
jury system and to the extent that new trials are granted the judge takes over, if he does
15
not usurp, the prime function of the jury as the trier of facts.” Sheridan v. E.I. Dupont de
Nemours and Co., 100 F.3d 1061, 1076 (3d Cir. 1996) (internal quotation marks
omitted).
2. Standard of Review
We use a deferential abuse of discretion standard to review a district court’s denial
of a motion for a new trial, “unless the court’s denial is based on the application of a legal
precept, in which case the standard of review is plenary.” Lightning Lube, 4 F.3d at
1167.
3. Jury’s Finding of Damages is not Contrary to the Weight of the Evidence
For the reasons discussed above, the jury’s finding was based on a legally
sufficient evidentiary basis, and was thus, not “contrary to the weight of the evidence.”
Williamson, 926 F.2d at 1352. We therefore reject Defendants-Appellants’ argument that
“the jury completely disregarded the District Court’s instructions regarding net profits . .
.” (Defendants-Appellants Br. 31.) Instead, the jury found the evidence presented by
Plaintiffs-Appellees credible. Thus, we do not find the jury’s verdict to be a miscarriage
of justice. Furthermore, the District Court did not abuse its discretion in denying the
Defendants-Appellants’ motion for a new trial. Williamson, 926 F.2d at 1344. We will
affirm the District Court’s denial of Defendants-Appellants’ motion for a new trial.
IV.CONCLUSION
For the reasons set forth above, we will affirm the District Court’s denial of
Defendants-Appellants’ motion for a judgment as a matter of law, and its denial of
16
Defendants-Appellants’ motion in the alternative seeking the grant of a new trial.
17