Court Opinion

ID: 3031612
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:46:16.920534+00
Date Added: 2024-06-11T15:33:02.274913
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

CALIFORNIA SCENTS, aka California      
Scents, Inc.,
        Plaintiff-counter-defendant-
                          Appellant,
                  v.
SURCO PRODUCTS, INC., aka Doe 1;
MAGIC MOUNTAIN PRODUCTS, aka
Doe 2; ODOR CONTROL CENTRAL,
aka Doe 3,                                   No. 03-56116
                       Defendants,
ASSOCIATED PRODUCTS, INC., a                  D.C. No.
                                           CV-99-00009-GLT
Pennslyvania Corporation; RALPH
J. SIMONS,                                    OPINION
                Counter-defendants,
                and
PESTCO, INC., a Pennsylvania
Corporation dba Pacific Coast;
AIR-SCENT INTERNATIONAL, a
Pennslyvania Corporation,
     Defendants-counter-claimants-
                         Appellees.
                                       
        Appeal from the United States District Court
           for the Central District of California
         Gary L. Taylor, District Judge, Presiding

                  Argued and Submitted
          February 8, 2005—Pasadena, California

                     Filed May 6, 2005

                            4987
4988             CALIFORNIA SCENTS v. PESTCO, INC.
      Before: Harry Pregerson, William C. Canby, Jr.,
  Circuit Judges, and Edward C. Reed, Jr.,* District Judge.

                   Opinion by Judge Pregerson

   *Honorable Edward C. Reed, Jr., Senior United States District Judge for
the District of Nevada, sitting by designation.
4990         CALIFORNIA SCENTS v. PESTCO, INC.

                       COUNSEL

Steven Brower (argued) and Robert M. Dato (briefed), Ste-
phan, Oringher, Richman & Theodora, Costa Mesa, Califor-
nia, for the plaintiff-appellant.
               CALIFORNIA SCENTS v. PESTCO, INC.             4991
Richard A. Ejzak, Cohen & Grigsby, Pittsburgh, Pennsylva-
nia, for the defendants-appellees.

                           OPINION

PREGERSON, Circuit Judge:

   When plaintiff California Scents filed its complaint it did
not demand a jury trial. Defendant Pestco answered, filed
counterclaims, and did demand a jury trial “as to all counter-
claims.” In this appeal we consider whether, under Federal
Rule of Civil Procedure 38, California Scents reasonably
relied on Pestco’s jury trial demand “as to all counterclaims”
so as to preserve California Scents’s right to a jury trial on the
claims pled in its complaint.

  We conclude that the district court’s denial of a jury trial
on California Scents’s claims was error that caused California
Scents to suffer prejudice. We reverse and remand for trial.

   FACTUAL AND PROCEDURAL BACKGROUND

 I.   The Complaint, Answer, and Summary Judgment

   California Scents manufactures air fresheners for the retail
market. Its air fresheners are individually packaged “pull top”
aluminum cans carrying brightly colored “scratch and sniff”
labels. The labels produce a fragrance that corresponds to the
name of the air freshener. The names of California Scents’s
air fresheners, for example “Sierra Meadows” and “Pasadena
Rose,” are suggestive of various California regions. Pestco
manufactures a similar air freshener for the retail market.

  California Scents brought suit against Pestco in district
court, alleging trade dress infringement, unfair competition,
and false advertising under the Lanham Act, 15 U.S.C.
4992           CALIFORNIA SCENTS v. PESTCO, INC.
§ 1125(a), and unfair competition under California Business
and Professions Code § 17200. In its complaint, California
Scents alleged that it had developed and marketed an “inher-
ently distinctive and non functional” trade dress for its air
freshener. California Scents further alleged that after it sent
Pestco a cease-and-desist letter, Pestco continued to manufac-
ture a “nearly identical air freshener product, in nearly identi-
cal color-coded cans, with nearly identical color coded
‘scratch and sniff’ labels,” and “exhibited [its] air fresheners
in counter top display boxes which are nearly identical to
[California] Scents’s display box.” Finally, California Scents
claimed that Pestco falsely advertised that it had been in busi-
ness since 1946. California Scents did not demand a jury trial
when it filed its complaint.

   Pestco asserted several affirmative defenses and counter-
claims in its answer. Pestco admitted to manufacturing air
fresheners such as “Sierra Spruce” and “Rose Parade,” but
alleged that California Scents’s claims were barred by the
doctrine of “unclean hands” because California Scents had
copied Pestco’s distinctive product line. Specifically, in its
third affirmative defense, Pestco alleged that California
Scents copied Pestco’s “Nature Scent” product line, which
consists of “a spill proof wafer impregnated with organic air
fresheners in a variety of fragrances contained in a recyclable
aluminum can with a removable ring-top cover and a multi-
color outer label.” Pestco further alleged that it began manu-
facturing and selling the distinctive air fresheners at least
eight years before California Scents came into existence.

   Pestco counterclaimed alleging (1) business disparagement,
(2) business defamation, (3) conspiracy to disparage and
defame under California law, and (4) false advertising under
federal law. Pestco’s first three counterclaims are based on the
same allegations: that California Scents injured Pestco’s repu-
tation and sales by falsely representing to sales representatives
and competitors in the air freshener industry that Pestco “cop-
ied and/or infringed upon” California Scents’s air freshener
                  CALIFORNIA SCENTS v. PESTCO, INC.                  4993
trade dress. Pestco’s fourth counterclaim is based on the alle-
gation that California Scents falsely advertised that its product
contains one-hundred percent natural fragrance oils and made
contradictory representations about the life-span of its air
fresheners. The factual allegations in Pestco’s third affirma-
tive defense, including the contention that California Scents
copied its trade dress from Pestco, were incorporated by refer-
ence into each of Pestco’s counterclaims. Pestco demanded a
jury trial “as to all counterclaims.” The case was set for a jury
trial in September 2000.

   Pestco moved for summary judgment on California
Scents’s trade dress infringement and unfair competition
claims.1 The district court granted Pestco’s motion for sum-
mary judgment. The district court then granted Pestco’s sub-
sequent motion to dismiss its counterclaims with prejudice.

   California Scents appealed the grant of summary judgment
in favor of Pestco. See Cal. Scents v. Surco Prods., Inc., No.
00-56763, 2002 WL 22346 (9th Cir. Jan. 8, 2002) (unpub-
lished disposition). We reversed and held that a genuine issue
of material fact existed on each of the three factors necessary
to make out a trade dress claim under the Lanham Act. See
id. at *4.

                       II.   The Bench Trial

   On remand, California Scents argued that it was entitled to
a jury trial on its claims for trade dress infringement and
unfair competition even though it never demanded a jury trial.
California Scents contended that many of the factual issues
raised in Pestco’s business defamation and disparagement
counterclaims were similar to the issues raised in its trade
dress infringement and unfair competition claims. In other
words, California Scents believed that Pestco’s jury demand
  1
   The district court dismissed California Scents’s false advertising claim
in a separate order.
4994           CALIFORNIA SCENTS v. PESTCO, INC.
was directed to the same issues raised in California Scents’s
complaint. California Scents claimed that it was therefore
entitled to rely on Pestco’s jury demand to preserve its own
right to a jury trial on its complaint. The district court dis-
agreed, and ordered the case to be tried as a bench trial.

   After a four day bench trial, the district court ruled for
Pestco. The court found that California Scents failed to show
by a preponderance of the evidence that its trade dress was
nonfunctional, distinctive, or that there was a likelihood that
the public would confuse Pestco’s and California Scents’s
trade dress.

   California Scents appeals the district court’s ruling. Califor-
nia Scents argues that the district court erred in denying it a
jury trial on its complaint and that the error was not harmless.

                 STANDARD OF REVIEW

   Entitlement to a jury trial is a question of law reviewed de
novo. See Kulas v. Flores, 255 F.3d 780, 783 (9th Cir. 2001).
This court reviews de novo a district court’s interpretation of
the Federal Rules of Civil Procedure. See Atchison, Topeka &
Santa Fe Ry. Co. v. Hercules Inc., 146 F.3d 1071, 1073 (9th
Cir. 1998).

                          ANALYSIS

  I.   The Scope of Reasonable Reliance Under Rule 38

   [1] Federal Rule of Civil Procedure 38(b) provides that a
party seeking to have a disputed issue tried before a jury must
serve a jury demand upon the other parties “at any time after
the commencement of the action and not later than 10 days
after the service of the last pleading directed to such issue.”
Fed. R. Civ. P. 38(b). A party may “specify the issues which
the party wishes so tried; otherwise the party shall be deemed
to have demanded trial by jury for all the issues so triable.”
               CALIFORNIA SCENTS v. PESTCO, INC.             4995
Fed. R. Civ. P. 38(c). Once a demand has been made, it “may
not be withdrawn without the consent of the parties.” Fed. R.
Civ. P. 38(d).

   [2] Rule 38 “has been interpreted as incorporating a right
of reasonable reliance on the jury demand of another party.”
In re N-500L Cases, 691 F.2d 15, 22 (1st Cir. 1982); see also
Rosen v. Dick, 639 F.2d 82, 87 (2d Cir. 1980) (“Undoubtedly,
Rule 38 embodies the equitable principles of reasonable reli-
ance (for a party seeking to invoke the jury trial right) and
adequate notice (for the other parties in an action).”). Thus,
“once one party files such a [jury] demand other parties are
entitled to rely on that demand for the issues it covers, and
need not file their own demands.” Fuller v. City of Oakland,
47 F.3d 1522, 1531 (9th Cir. 1995); see also Rosen, 639 F.2d
at 91 (“[C]ourts will not require the formal making of a super-
fluous second demand, nor will they penalize a party who has
reasonably relied on an existing demand.”).

   [3] The question presented in this appeal is whether the “is-
sues” raised in California Scents’s complaint were embraced
by Pestco’s jury demand. See Rosen, 639 F.2d at 92 (“If the
first demand does not cover issues pertinent to a second party,
the second party cannot rely reasonably on the first demand,
and the second demand would be far from superfluous since,
without it, the right to a jury trial will have been waived as
to those additional issues.”). If so, California Scents reason-
ably relied on Pestco’s jury demand to preserve its own right
to a jury trial on the claims in its complaint. If not, California
Scents waived its right to a jury trial on its claims by failing
to request a jury trial within ten days of the last pleading
directed to the issues raised in its complaint. See Fed. R. Civ.
P. 38(b), 38(d).

   [4] In deciding this question, we draw on those cases ana-
lyzing whether a plaintiff that has waived its right to a jury
trial on the claims in its complaint may nonetheless be entitled
to a jury trial on the claims in its amended complaint. See Lutz
4996            CALIFORNIA SCENTS v. PESTCO, INC.
v. Glendale Union High Sch., No. 03-15745, 2005 WL
797409 (9th Cir. April 8, 2005); Las Vegas Sun, Inc. v.
Summa Corp., 610 F.2d 614 (9th Cir. 1979); Trixler Broker-
age Co. v. Ralston Purina Co., 505 F.2d 1045 (9th Cir. 1974).
Specifically, these cases focus on whether the amended com-
plaint raises an “issue” for the purpose of Rule 38(b), not pre-
viously raised in the original complaint. See, e.g., Lutz, 2005
WL 797409, at *4 (“If these additional claims were new
‘issue[s]’ under Rule 38(b), then [the plaintiff’s] jury trial
demand . . . was timely as to them.”). And, as these cases
illustrate, “Rule 38(b) is concerned with issues of fact.” Id.
(emphasis in original); Trixler Brokerage, 505 F.2d at 1050
(“Manifestly, the issue contemplated by [Rule 38(b)] is one of
fact.”).

   Most recently, we considered whether a plaintiff who had
waived her right to a jury trial on the question of liability in
her original complaint could nonetheless request a jury trial
on liability in her amended complaint. See Lutz, 2005 WL
797409. The plaintiff’s original complaint alleged violations
of the Americans with Disabilities Act (“ADA”), while her
amended complaint raised new claims under the Rehabilita-
tion Act and under Arizona law. Id. at *1, *4. We found that
“there [was] no significant difference in the facts necessary to
support [the plaintiff’s] original ADA claim and those sup-
porting her new claims.” Id. at *4. Because “ ‘the issues in the
original complaint and the amended complaint turn[ed] on the
same matrix of facts,’ ” we concluded that the amended com-
plaint did not revive the plaintiff’s right to request a jury trial
on the question of liability. Id. (quoting Las Vegas Sun, 610
F.2d at 620).

   [5] Our holding in Lutz followed from our earlier decision
in Las Vegas Sun. There, we concluded that a plaintiff that
had waived its right to a jury trial in its initial complaint was
not entitled to a jury trial for the claims in its amended com-
plaint. 610 F.2d at 620. We reasoned that the claims in both
complaints “share[d] and hinge[d] entirely on the absence of
                CALIFORNIA SCENTS v. PESTCO, INC.              4997
a legitimate business justification” for the defendants’ con-
duct, and that both complaints “turn[ed] on the same matrix
of facts.” Id.; see also Trixler Brokerage, 505 F.2d at 1050
(holding that the plaintiff had waived its right to a jury trial
for the claims in its amended complaint where the substance
of the new claims “[a]t most . . . clarif[ied] the charges
already made” by “elaborating on the charges of bad faith” in
the original complaint).

   [6] In cases examining whether a party may rely on the jury
demand of another party to preserve its own right to a jury
trial, other circuits have taken a similar approach to defining
“issue” for the purposes of Rule 38. See Rosen, 639 F.2d at
93-96; In re N-500L Cases, 691 F.2d at 22-23. In Rosen, the
Second Circuit considered whether a defendant was entitled
to a jury trial based on the jury demand of a co-defendant. 639
F.2d at 83-84. The court recognized that a “ ‘defendant can
rely on the jury demand of a co-defendant to the extent of the
issues embraced by that demand.’ ” Id. at 93 (quoting Collins
v. Gov’t of Virgin Islands, 366 F.2d 279, 284 (3d Cir. 1966)).
The court stressed that “the term ‘issue’ means something
more than the evidence offered and the legal theories pursued,
although these are pertinent factors,” id. at 94, and noted that
“the initial jury demand . . . will put the other parties on notice
that a jury . . . will be trying all issues relating to (the) general
area of dispute,” id. at 96 (internal quotations and citation
omitted).

   Applying these principles, the Second Circuit concluded
that the defendant was not entitled to a jury trial on the plain-
tiff’s claims on the basis of the co-defendant’s jury demand.
See id. The defendant was charged with willful, reckless, and
negligent investigation and preparation of an auditing report
that company directors relied on to their detriment. Id. at 97-
98. The co-defendant, a company director, was charged with
willful and negligent failure to report misrepresentations and
self-dealing of a business partner. Id. at 97. The court found
that there was a “substantial difference in the factual issues
4998           CALIFORNIA SCENTS v. PESTCO, INC.
concerning these defendants,” id., and that corporate misman-
agement and self-dealing were distinct issues from negligent
accountancy, id. at 98.

   The First Circuit used similar reasoning in In re N-500L
Cases. In that case, relatives of victims of a plane crash sued
various defendants for losses associated with the crash and
demanded a jury trial in all cases. 691 F.2d at 18. On the eve
of trial, two defendants, Eastern Airlines and the Federal Avi-
ation Administration (“FAA”), settled with the plaintiffs and
assumed all liability but reserved their right to seek contribu-
tion from the other defendants. Id. Eastern and FAA then
moved for a bench trial on their contribution claims. Id. Two
of the remaining insurer-defendants objected, claiming that
they had justifiably relied on the plaintiff’s jury demands. Id.
The district court held that the insurer-defendants waived their
rights to a jury trial by not raising a demand in their answers.
Id.

   The First Circuit reversed in part. See id. at 23-24. Relying
on the Second Circuit’s decision in Rosen, the court explained
that “since justifiable reliance is based on recurring issues, the
question is, when are issues the same.” Id. at 23. The court
noted that “[t]he definition of an issue for purposes of Rule
38 is not a matter solely of fact or of law” and that “[o]ne
issue is the same as another when it is based on the same con-
duct or concerns the same general area of dispute.” Id. Rely-
ing on our decision in Las Vegas Sun, the court stated that
“[i]f the factual allegations underlying two claims are the
same or if the issues ‘turn on the same matrix of facts’ the
issues are the same.” Id. (quoting Las Vegas Sun, 610 F.2d at
620).

   Thus, the First Circuit held that the insurer-defendants were
entitled to a jury trial on the issue of their insureds’ liability
to the plaintiffs for negligence. See id. But because the court
found that the issue of contribution among the defendants
raised “issues with which plaintiffs were not concerned,” the
                  CALIFORNIA SCENTS v. PESTCO, INC.                    4999
court held that the plaintiffs’ “complaints . . . [could not] rea-
sonably be read as embracing these other contribution issues
and reliance on [the plaintiffs’] jury demand for these issues
[was] not reasonable.” Id. at 24.

   Here, both parties believe that “[t]he test for determining
whether a request for a jury on a counterclaim entitles a party
to a jury trial on the complaint is whether the counterclaim is
compulsory, that is, whether it arises out of the subject matter
of the plaintiff’s legal claim.” 8 James Wm. Moore et al.,
Moore’s Federal Practice ¶ 38.50[9][c] (3d ed. 1999); Park
Club, Inc. v. Resolution Trust Corp., 967 F.2d 1053, 1057
(5th Cir. 1992). We do not need to decide, however, whether
Pestco’s counterclaims were compulsory to resolve the pres-
ent dispute.2

   [7] Rather, we decide only whether Pestco’s counterclaims
embraced the same “issues” within the meaning of Rule 38 as
the claims in California Scents’s complaint. If so, California
Scents’s reliance on Pestco’s jury demand was reasonable and
  2
    We recognize that the tests to determine whether an “issue” is the same
for Rule 38 purposes discussed in Las Vegas Sun, Rosen, and In re N-500L
Cases, are similar to this court’s test for determining whether a counter-
claim is compulsory. Compare, e.g., Las Vegas Sun, 610 F.2d at 620 (con-
cluding that issues are the same for purposes of Rule 38 when they “turn
on the same matrix of facts”), with Pochiro v. Prudential Ins. Co. of Am.,
827 F.2d 1246, 1249 (9th Cir. 1987) (noting that a claim is considered
compulsory where “the essential facts of the various claims are so logi-
cally connected that considerations of judicial economy and fairness dic-
tate that all the issues be resolved in one lawsuit”) (internal quotation and
citation omitted). Nevertheless, we express no view as to whether Pestco’s
counterclaims were compulsory.
   Accordingly, we need not decide whether we agree with the reasoning
in the line of cases cited by Pestco that hold that “a counterclaim which
stems from the filing of the main action and subsequent alleged defama-
tions is not a compulsory counterclaim covered by Rule 13(a).” Harris v.
Steinem, 571 F.2d 119, 124 (2d Cir. 1978); see also Computer Assocs.
Int’l, Inc. v. Altai, Inc., 893 F.2d 26, 29 (2d Cir. 1990); Pochiro, 827 F.2d
at 1251 n.9 (discussing cases).
5000            CALIFORNIA SCENTS v. PESTCO, INC.
it was not required to make its own jury demand to preserve
its right to a jury trial on the issues raised in its complaint. See
Rosen, 639 F.2d at 92; In re N-500L Cases, 691 F.2d at 24.
In examining this question, we “indulge every reasonable pre-
sumption against waiver” of the jury trial right. Aetna Ins. Co.
v. Kennedy ex rel. Bogash, 301 U.S. 389, 393 (1937).

    II.   California Scents’s Reliance on Pestco’s Jury
                          Demand

   [8] The legal issues asserted by each party are distinct, as
is evident from a comparison of the elements of the parties’
respective claims. To prevail in its business defamation and
business disparagement counterclaims, Pestco would have
had to prove facts that were unnecessary to California
Scents’s trade dress infringement claims, and vice-versa.
Compare 4 J. Thomas McCarthy, McCarthy on Trademarks
& Unfair Competition § 27:99 (4th ed. 2004) (defining ele-
ments of common law product disparagement as (1) publica-
tion, (2) of a false and disparaging statement of fact about the
product of plaintiff, (3) made with either knowledge of falsity
or with reckless disregard of its truth or falsity, (4) with intent
to harm plaintiff’s interest, and (5) specific damages), with
Disc Golf Ass’n v. Champion Discs, Inc., 158 F.3d 1002, 1005
(9th Cir. 1998) (requiring plaintiff in trade dress infringement
suit to prove that (1) the trade dress is nonfunctional, (2) the
trade dress is inherently distinctive or acquired distinctiveness
through secondary meaning, and (3) there is a likelihood that
the public will confuse the alleged infringer’s trade dress with
that of the plaintiff’s).

   [9] Nonetheless, we conclude that Pestco’s business dispar-
agement and business defamation counterclaims and Califor-
nia Scents’s trade dress claims “turn on the same matrix of
facts,” Las Vegas Sun, 610 F.2d at 620, and “concern[ ] the
same general area of dispute,” In re N-500L Cases, 691 F.2d
at 23. Aside from their false advertising claims, the basic dis-
pute between the parties concerns whether Pestco infringed on
               CALIFORNIA SCENTS v. PESTCO, INC.             5001
California Scents’s trade dress. The facts relevant to that dis-
pute were central not only to California Scent’s claims for
trade dress infringement and unfair competition, but also to
Pestco’s counterclaims for business disparagement and busi-
ness defamation. Indeed, Pestco would have been required to
prove as part of its disparagement and defamation counter-
claims that California Scents’s statements—that Pestco
infringed on or copied California Scents’s trade dress—were
untrue or misleading. See Fin. Programs, Inc. v. Falcon Fin.
Servs., Inc., 371 F. Supp. 770, 776 (D. Or. 1974) (“To support
a claim of commercial disparagement, a plaintiff has the bur-
den of establishing that the defendant has made untrue or mis-
leading statements which disparage the quality of the
plaintiff’s product or services.”); 4 McCarthy on Trademarks
at § 27:103 (“The plaintiff in a commercial disparagement
claim always bears the burden of proving that the alleged dis-
paraging statement is substantially false or misleading.”).

   [10] The substantial factual overlap underpinning the par-
ties’ respective claims compels our conclusion that Pestco’s
jury demand on its counterclaims was directed, at least in part,
to the same “issues” as California Scent’s complaint. On this
basis, we hold that California Scents’s reliance on Pestco’s
jury demand to preserve its own right to a jury trial on its
complaint was reasonable. See Rosen, 639 F.2d at 92; In re N-
500L Cases, 691 F.2d at 24. Therefore, the district court erred
in concluding that California Scents was not entitled a jury
trial on its trade dress and unfair competition claims.

               III.   Harmless Error Analysis

   “The erroneous denial of a jury trial in a civil case is sub-
ject to harmless error analysis.” Fuller, 47 F.3d at 1533. “The
denial will be harmless only if ‘no reasonable jury could have
found for the losing party, and the trial court could have
granted a directed verdict for the prevailing party.’ ” Id. (quot-
ing Davis & Cox v. Summa Corp., 751 F.2d 1507, 1516 (9th
Cir. 1985)).
5002           CALIFORNIA SCENTS v. PESTCO, INC.
   [11] In the earlier appeal of this case, we concluded that
California Scents provided sufficient evidence to raise a genu-
ine issue of material fact for each of the three factors needed
to make a trade dress claim against Pestco under the Lanham
Act. Though the district court concluded at the end of the
bench trial that California Scents had not proved by a prepon-
derance of the evidence that Pestco had infringed on its trade
dress, we cannot say on the record before us that “no reason-
able jury could have found for [California Scents].” Id. (inter-
nal quotation omitted). Accordingly, we conclude that the
erroneous denial of a jury trial to California Scents was not
harmless. See id.

                       CONCLUSION

   We conclude that the district court erred in denying Cali-
fornia Scents a jury trial on its complaint. Furthermore, we
conclude that the error was not harmless.

  The parties will bear their own costs on appeal.

  REVERSED and REMANDED.