Even in default, damages must still be shown

NITV Fed. Servs., LLC v. Dektor Corp., 2019 WL 7899731 No. 18-80994-Civ-Brannon (S.D. Fla. Dec. 16, 2019)

This is a default judgment, but it still has interesting bits. The parties compete to sell truth verification technology, which will become ironic. NTIV sued Dektor and its principal Herring for false advertising/product disparagement/defamation/tortious interference. Bankruptcy stayed the proceedings, and later the court ruled that Herring deliberately deprived NITV of discoverable evidence, such that the extraordinary sanction of default was warranted.  In contesting NITV’s multimillion-dollar damage claims, Herring largely contended that NITV’s lie detector was “a fake or fraud” and that NITV was blaming Herring for its own problems.

Facts (based on the allegations): NITV makes a patented Computer Voice Stress Analyzer that is “the most widely used truth verification tool in the United States law enforcement community,” used by approximately 2,000 local, state, federal, and international law enforcement agencies.  An older company, Dektor, patented a “Psychological Stress Evaluator,” but went out of business; defendant Dektor is unrelated. Defendant Dektor reverse-engineered the older product and began selling its own “PSE” voice stress analyzer product while capitalizing on the name and history of the original Dektor, including by claiming that “[s]ince 1969, all PSE models [detect stuff]… Thousands of various PSE models have been sold worldwide for 45 years. For 50 years, PSE has been known worldwide because PSE constantly proves it is the most superior system for truth verification. Only the Dektor system has proven it is the real technology for Voice Stress Analysis.”

Dektor also disparaged NITV on its website, in emails to law enforcement agencies, telephone calls, and professional speaking engagements, including by stating that NITV’s products were proven unreliable/no more reliable than a coin toss and disparaging NITV’s founder. Herring contacted the Dallas Crimes Against Children’s conference and got NITV disinvited (even though it had already paid to attend) by making false claims, such as that an employee scheduled to speak at the conference had been dishonorably fired from his prior position as a sex crimes investigator when in reality that employee retired.

The court found NITV’s witness on damage credible, including a recent incident where one sheriff’s department told the NITV marketing person (not the witness) that, due to information received from Dektor, they were discontinuing purchases of CVSA systems (to avoid hearsay on hearsay, I think the marketing person should’ve been on the stand, but it’s been a long time since civil procedure and maybe you can do that with a default?).

Anyway, the well-pled facts entitled NITV to victory on its Lanham Act and FDUTPA claims, as well as business defamation/disparagement and tortious interference. NITV was entitled to a permanent injunction and damages, the latter of which required a legitimate basis.  NITV sought nearly $6 million in damages, trebled for willfulness. The court declined to go so far. NITV had upped its demands from $1.3 million to $6 million within less than a year, and the numbers were speculative.  NITV suggested that 10-15% of existing/prospective customers would choose not to buy from NITV because of defendants’ conduct, but the court didn’t see a basis for this.

And then a puzzling bit: “Although Mr. Herring and Dektor pointed out alleged defects and disseminated materially false information about Plaintiff’s product to existing and prospective customers who would not have heard of any issues, other customers may have learned of these items by their own searches. In the internet age, it is fair to say that clients buying truth verification technology will check that technology on the internet.” I say puzzling because if customers did their own searches and found false stuff planted by defendants, defendants are still causally responsible.  But if customers also would have found non-false stuff, or even false stuff for which defendants were not responsible, that might also lead them to question their purchases, then the court’s hesitance makes more sense.

The court found the testimony about that one sheriff’s office to be “reliable hearsay,” as well as the lost conference attendance, totalling about $50 thousand. The court didn’t agree that Herring was the only reason that the state of Texas didn’t change its polygraph-only laws to allow the use of NITV’s technology. The court accepted that at least ten customers had been lost, for base damages of nearly $425,000 total. It then doubled the damages, based on the intentional false advertising, to nearly $850,000.

Giving some sense of what’s been going on, the permanent injunction prohibited any false or disparaging statement including “any statement comparing or equating Plaintiff, its product, or its employees to the German Nazi party or Joseph Goebbels specifically.”  Although the court didn’t make specific findings about how this harmed NITV, the court also enjoined representations or suggestions that Dektor had any relationship or affiliation to old Dektor/had been in business since 1969/sold a product related to old Dektor’s product, etc.