Battle of the Pitbulls ends in damages

Slip-N-Slide Records, Inc. v. TVT Records, LLC, 2007 WL 3232274 (S.D. Fla.) (magistrate judge)

Earlier proceedings reported here. SNS sued TVT for interfering with its sale of Welcome to the 305, an album containing early recordings by rap artist Armando Perez, aka Pitbull. TVT counterclaimed for trademark infringement and false advertising under the Lanham Act.

The jury rejected TVT’s false advertising and trademark infringement counterclaims. The evidence supported the conclusion that TVT lacked rights in the stylized version of Pitbull’s mark. Pitbull’s lawyer and other witnesses testified that, in the music industry, artists and not record companies control their performing names. Also, TVT had no evidence of consumer confusion.

SNS prevailed, winning an award of compensatory damages of almost $2.3 million and punitive damages of over $6.8 million. Specifically, the jury found tortious interference with SNS’s relationship with ADA, the intended distributor of the album. The elements are that the defendant (1) knew (2) of an existing business relationship, (3) with which it intentionally and unjustifiably interfered, (4) causing damage.

TVT’s main argument was that it didn’t act with malice or through improper methods when its executive VP sent C&Ds to ADA and its retailers, threatening litigation against them if they distributed 305. Rather, it had a reasonable belief that SNS was interfering with its exclusive contract with Pitbull. TVT’s president testified that TVT investigated SNS’s plans and concluded that SNS had no right to release at least 6 of the 16 tracks and that Pitbull said in a private meeting that he didn’t want 305 released.

But the jury rejected that evidence, and the court thought the jurors were “quite justified.” Pitbull’s lawyer and manager testified that Pitbull never opposed the release of 305, and there was evidence that TVT acquired its rights from a third party that had only present and future rights to Pitbull recordings, not rights in any earlier recordings. Moreover, before sending the C&Ds, TVT had a copy of the contract that granted SNS rights to Pitbull’s recordings, and TVT was told by Pitbull’s lawyer and other witnesses that SNS had a right to release the album. Further, the jury heard evidence that sending C&D letters to the distribution chain was not the industry norm. And Pitbull was not pleased with his label; he hired a trademark lawyer to send a C&D to TVT, telling the company that he owned all trademark rights to his name and that TVT shouldn’t claim any such rights.

TVT had a qualified privilege to interfere with SNS’s relationship with ADA to safeguard its own interests, if it didn’t employ improper methods. An improper method could include misrepresentations or unfounded threats. The jury heard evidence sufficient to find improper methods. The “most compelling” fact was TVT’s recklessness – it would have been fine to send a C&D to SNS and SNS’s representatives, but sending nearly a hundred C&Ds through the distribution chain was unprivileged. TVT knew how to litigate – it had done so in the past, and was known in the industry for its litigiousness – and should have sued SNS. (That well-known litigiousness, as testified to by witnesses, also helped SNS prove causation – the C&Ds destroyed SNS’s ability to sell the album by making almost everyone unwilling to carry it, even though some accounts had placed more than 100,000 preorders.)

The court upheld $2,227,200 in compensatory damages. Though anticipated profits are often too speculative, plaintiffs may receive them by showing them with a reasonable degree of certainty, which requires some standard or “yardstick.” Once a plaintiff has shown the fact of damage, there is more flexibility in showing amount. Here, the fact of damage was well-established. SNS was an experienced marketer with a record of hits, and had paid only a small sum to acquire the Pitbull recordings. There was simply no evidence that it would have lost money on the album; the only question was how much money it would have made. SNS’s expert witness compared 305 to Pitbull’s debut album, which had appeared less than a year before, and to successful SNS albums in the same genre. This provided a sufficient yardstick (and the jury’s award reflects a discount from the expert’s “worst case scenario,” suggesting that it accepted some of TVT’s criticisms of his methodology).

The court further agreed that SNS was entitled to punitive damages. The jury heard evidence that TVT knew what would happen when it sent 90 C&Ds out. In fact, at the same time, it was suing a larger record company for tortious interference. TVT’s disregard for the opinions of Pitbull’s lawyer and others, assertion of rights based on unsigned contracts, and threats made knowing its own reputation for litigiousness supported the jury’s conclusion that TVT acted willfully and egregiously.

This must have been some trial: the court noted that TVT’s principal witness, Steve Gottlieb, “testified in a manner that, ironically, recreated for the jury the way in which he may have conducted himself prior to the cease and desist letters being distributed. His testimony personified the very type of ‘intentional’ and ‘wanton’ and ‘reckless’ conduct that the jury was asked to find from the evidence. It came as no surprise to the Court, after Mr. Gottlieb testified, that the jury was prepared to find that his and his company's actions warranted punitive damages.” Trying to turn this lemon into lemonade, TVT argued gamely that the award was based on dislike of Gottlieb and thus based on passion. The court concluded that dislike wasn’t the problem; the jury rejected Gottlieb’s incredible testimony, which gave it plenty of reason to disbelieve his claims of good faith.

The punitive damages award of $6.8 million did not, however, survive unscathed. Since the harm here was merely economic, and since the compensatory damages were already so large, the court remitted the punitive damages, on state law (not constitutional) grounds. Compared to other damage awards for tortious interference, this was a very high amount. The economic damages were already high, and TVT is a small enough company that the award would be a big hit; Florida law discourages punitive awards that result in “economic castigation” (this is a quote from an earlier case, but I can’t help thinking that “castigation” is just not the right word). Despite its rejection of the jury’s award, the court stressed its “respect for and deference” to the jury’s decision; it was a reasoned decision and a multi-million dollar punitive award was justified. But “by its very nature a jury sees only the trees. The jury would, indeed, violate the Court’s instructions if it did otherwise. The Court, however, pursuant to Florida law, is required to see the trees as well as the forest.”

I’m not an expert on damages, but that is insane troll logic – not the court’s fault, but the background precedents. Why make the jury go through a useless tree-counting exercise if, in the end, all it can really decide is whether punitive damages are available and not what their amount should be? Relatedly, the court pointed to precedent that big economic damages disfavor big punitive damages – but of course the Supreme Court has announced that large “multipliers” are also disfavored if economic damages are small. Florida has a three-to-one ratio cap on punitives; combined with the rule requiring comparison with other awards, this means that the average punitive award will systematically be driven down (as this one was despite being only three times the compensatory award), though one assumes that inflation can be taken into account.

SNS ends up with a punitive award matching the compensatory one: $2.3 million, or, if it “chooses,” a new trial. (Again, insane troll logic: the Seventh Amendment bars the judge substituting for the jury on a fact issue without SNS’s consent. Except that no matter what a jury finds here, SNS can’t get more than $2.3 million because the judge is required to override the jury on the punitives issue. Why not just admit that we are not applying the Seventh Amendment to punitive damages awards?) But fortunately, the modified 1:1 ratio is not unconstitutional under the due process clause, so TVT’s objections there are unfounded!

General comment: The federal courts, by design, have been getting more hostile to lawsuits against businesses. This disproportionately affects consumers, but it also affects business plaintiffs. Hostility to punitive damages is only one part of this overall shift towards the law of the jungle. The strong do as they will; the weak do as they must; the lawyers collect the fees.