Monday, November 19, 2018

Pipe down: court awards minimal disgorgement where willful falsity was limited in time

Pipe Restoration Technologies, LLC v. Coast Building & Plumbing, Inc., 2018 WL 6012219, No. 13-cv-00499-JDE (C.D. Cal. Nov. 16, 2018)

The parties (defendant will be called PRPI) compete for pipe restoration work involving the use of epoxy in small diameter, potable plumbing applications in residential properties in Orange County. The idea is that dried epoxy covers the interior of the piping system, avoiding the need for full pipe replacement. Not shockingly, epoxy for drinking water systems has to be certified to the appropriate NSF/ANSI standard.  PRPI advertised that their epoxy was certified to the appropriate standard, but from late 2008 to early 2009, the 3M epoxy they used wasn’t certified for use in half-inch hot water potable pipe, although it did have a certification for use in one-inch cold water pipes. The court found that PRPI’s false advertising in this period was intentional, willful, and material. (There were other difficulties with using properly certified epoxy in later periods, but it seems that the court implicitly found that these were not shown to be willful/PRPI believed they were properly certified.) The court presumed harm to plaintiffs, as PRPI’s competitors. 

However, other challenged representations either weren’t willfully falsified or weren’t falsifiable. For example, PRPI claimed that its restoration would stop future corrosion; PRPI’s owner testified that this was true for the interior of the pipe, and plaintiff argued it was false because of the possibility of exterior corrosion, but (sitting in a bench trial) the court concluded that a reasonable consumer wouldn’t have interpreted the representation that way. PRPI advertised that restoration didn’t generate landfill waste; plaintiffs argued that the empty epoxy cartridges would generate waste, but the court again found that a reasonable interpretation of the claim related to waste from corroded metal pipes, not de minimis waste from epoxy cartridges. Finally, representations regarding PRPI’s service as “the only” company or service providing the specified service were, in context, puffery that would have been reasonably interpreted by consumers as mere general, subjective claims.

As a result of this violation of federal and coordinate state law, plaintiffs were entitled to PRPI’s profits from that time period, which was the only period for which plaintiffs met their burden of showing willfulness. The revenue from epoxy pipe restoration work for the relevant period was $9,560. PRPI didn’t establish allowable costs, but the court relied on principles of equity to allocate some.  At the time, PRPI was just starting business; PRPI’s owner estimated his general margins for his construction business at the time to be approximately 15%. “[I]t would be an unfair windfall to award Plaintiffs the entirety of Defendants’ revenue during the relevant period. The Court also notes, without casting blame, that the amount of time this case has taken to prosecute to trial, may partly be the reason why Defendants were no longer able to reconstruct costs incurred nearly ten years prior to trial.” Thus, the court awarded an estimated 25% in profit margin, or $2390.

Nor did plaintiffs get a permanent injunction. After 2009, there were no willful misrepresentations, and PRPI  “spent significant time and resources to attempt to ensure proper certifications accompany their services.”  Likewise, this wasn’t an exceptional case for fee-shifting; although the court found willfulness for 2½ months, plaintiffs sought to recover for a period totaling more than seven years and did not obtain injunctive relief. For similar reasons, and taking into account “the closeness and difficulty of the issues in the case, and the economic disparity between the parties,” the court also declined to award costs to plaintiffs.  All told, not a huge win given the likely costs of litigation, unless the costs inflicted on the defendant were enough to justify the lawsuit from the plaintiff’s perspective.

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