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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