Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_10-cv-01045/USCOURTS-azd-2_10-cv-01045-1/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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NOT FOR PUBLICATION

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Cosmetic Alchemy, LLC, 

Plaintiff, 

vs.

Loving Lotus, 

Defendant. 

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No. CV10-1045-PHX-SRB

ORDER

Plaintiff filed an action for breach of contract against Defendant on May 13, 2010.

After Defendant failed to answer, Plaintiff moved for entry of default. The Clerk entered

default on August 6, 2010. Thereafter, Plaintiff filed a Motion for Entry of Default Judgment

seeking a declaration that Defendant breached its contract with Plaintiff, permanently

enjoining Defendant from further sales of Plaintiff's product, attorneys' fees and

compensatory damages. This Court referred the evidentiary hearing on the issue of

compensatory damages to the Magistrate Judge. An evidentiary hearing was held on October

27, 2010. At the conclusion of the hearing the Magistrate Judge requested a post-hearing

brief regarding Plaintiff's damages calculations. The brief was filed November 24, 2010.

Thereafter, the Magistrate Judge issued his Report and Recommendation. The Magistrate

Judge concluded that the Plaintiff had failed to demonstrate its entitlement to recover

Defendant's profits as compensatory damages for Defendant's breach of contract and had

Case 2:10-cv-01045-SRB Document 25 Filed 01/27/11 Page 1 of 3
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presented no other claim for damages other than for Defendant's profits. The Magistrate

Judge also concluded that if he accepted Plaintiff's argument that it was entitled to recover

Defendant's profits as its damages the calculation used by the Plaintiff was too speculative.

The Magistrate Judge recommended that Plaintiff's request for compensatory damages of

$78,981.53 be denied. 

Plaintiff filed objections to the Report and Recommendation of the Magistrate Judge

and continues to assert that it should recover as compensatory damages for Defendant's

breach of contract a total net revenue of $78,981.53 that Defendant realized from its

unauthorized internet sales of the products it purchased from Plaintiff. 

The Court has conducted a de novo review of the record in this case. The Court has

read the hearing transcript of October 27, 2010, has reviewed the seven exhibits admitted

into evidence, has considered Plaintiff's post-hearing brief regarding Plaintiff's damages

calculations and Plaintiff's objections to the Magistrate Judge's Report and Recommendation.

Plaintiff's objections will be overruled. The Court agrees with the Magistrate Judge that

Plaintiff has failed to prove an amount of damages for Defendant's breach of contract, that

the use of an estimation of net revenue from Defendant's sales of Plaintiff's product does not

represent an estimate of Plaintiff's financial loss, if any, as a result of these internet sales and

that Plaintiff's assumptions that all sales were made on the internet and for an average price

of $103.99 per unit are purely speculative. 

As the Magistrate Judge noted, there is no authority for ordering disgorgement of

profits or of net revenue as a penalty for breach of contract. While cases cited by Plaintiff

may hold that the breaching parties' lost profits may be a fair estimation of a Plaintiff's lost

profits, there is no claim here that Plaintiff has lost profits as a result of Defendant's

unauthorized internet sales. Plaintiff's managing member, Scott Wasserman, explained the

legitimate reasons why Plaintiff prohibited its resellers and distributors from internet sales.

However, he did not provide any methodology for the Court to determine whether Plaintiff

sustained monetary damage by Defendant's unauthorized internet sales. Arguably, there

could have been losses or expenses incurred in connection with this breach of contract

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beyond Plaintiff's attorneys' fees. But no such evidence was presented. Plaintiff rested

exclusively on its claim that the appropriate remedy for Defendant's breach of contract should

be the recovery by Plaintiff of Defendant's net revenue. The Court agrees with the Magistrate

Judge that this is not a proper measure of damages for breach of contract. Moreover, the

assumptions upon which the calculations are based are speculative. Plaintiff assumed that

each and every product was sold over the internet when there is no evidence to support such

a claim, used an average sales figure, and assumed that there were no legitimate retail sales

of the product. Therefore;

IT IS ORDERED overruling the objections to the Magistrate Judge's Report and

Recommendations.

IT IS FURTHER ORDERED adopting the Report and Recommendation of the

Magistrate Judge as the Order of this Court with respect compensatory damages.

IT IS FURTHER ORDERED directing the Clerk to enter judgment as follows:

In favor of Plaintiff Cosmetic Alchemy, LLC and against Defendant Loving Lotus as

follows:

 1. Declaring that Loving Lotus breached it contract with Plaintiff Cosmetic Alchemy,

LLC;

2. Permanently enjoining Loving Lotus including its officers, directors, employees

and agents from any further sales of LiLash or LiBrow, including specifically any further

sales on E-Bay; and

3. Awarding Plaintiff Cosmetic Alchemy, LLC its attorneys' fees incurred in the

prosecution of this matter pursuant to A.R.S. § 12-341.01 together with costs of suit.

DATED this 27th day of January, 2011.

Case 2:10-cv-01045-SRB Document 25 Filed 01/27/11 Page 3 of 3