Court Opinion

ID: 4564470
Source: CourtListenerOpinion
Date Created: 2020-09-10 20:00:46.217861+00
Date Added: 2024-06-11T12:32:58.486380
License: Public Domain

NOT RECOMMENDED FOR PUBLICATION

                                   File Name: 20a0525n.06

                                          No. 18-2348

                          UNITED STATES COURT OF APPEALS
                              FOR THE SIXTH CIRCUIT

 QUANTUM SAIL DESIGN GROUP, LLC,                        )
                                                        )                     FILED
        Plaintiff-Appellee,                             )               Sep 10, 2020
                                                        )           DEBORAH S. HUNT, Clerk
 v.                                                     )
                                                        )
 JANNIE REUVERS SAILS, LTD.,                            )
                                                        )
        Defendant-Appellant,                            )      ON APPEAL FROM THE
                                                        )      UNITED STATES DISTRICT
 JANNIE REUVERS; BELINDA REUVERS,                       )      COURT FOR THE WESTERN
                                                        )      DISTRICT OF MICHIGAN
        Appellants,                                     )
 and                                                    )
                                                        )
 LEADING EDGE SAILMAKERS, LTD.,                         )
                                                        )
        Defendant.                                      )

BEFORE:       BOGGS, GRIFFIN, and READLER, Circuit Judges.

       BOGGS, Circuit Judge. This case is the swan song in an epic saga of unending war over

trade secrets and the unlawful sales of sails. Unlike the model of the Iliad, it was ended not by

men in a horse but by men in robes: This appeal arises out of a district-court summary judgment

awarding damages, sanctions, and pre-judgment interest in the amount of $2,521,754.88 to

plaintiff Quantum Sail Design Group, LLC (“Quantum”) against Jannie Reuvers Sails, Ltd.

(“JRS”) and Leading Edge Sailmakers, Ltd. (“LES”) in an action brought by Quantum for breach
No. 18-2348, Quantum Sail Design v. Jannie Reuvers Sails

of contract and for breach of the parties’ Trade Secret License Agreement. The summary judgment

followed five years of litigation that involved appointment of a Master.

       The appeal raises three questions: (1) whether the district court failed to perform a de novo

review of the Master’s findings of fact; (2) whether the district court erred by accepting or adopting

findings and recommendations that exceeded the scope of the Master’s mandate; and (3) whether

the district court committed clear error in its own findings of fact. We affirm the district court’s

judgment.

                                       I. BACKGROUND

       Quantum, a sailmaker company formed in 1996 that conducts business from Traverse City,

Michigan, began a year later its cooperation with JRS, another sailmaking company located in

Cape Town, South Africa. LES is an affiliate of JRS and is also located in Cape Town, South

Africa. In 2004, Quantum started to develop manufacturing technology for the production of

advanced membrane sails that are used in sailing competitions.

       Quantum licensed JRS to manufacture and sell membrane sails pursuant to an International

Affiliate Licensing Agreement (“IALA”) and a Trade Secret License Agreement signed in 2005

and 2006, respectively. After JRS had allegedly conducted unreported and unauthorized sales to

Quantum’s affiliates and customers, the two companies signed a new IALA and Trade Secret

License Agreement in 2009. The new agreements resulted in JRS being the only company licensed

to both manufacture and sell Quantum sails.

       Quantum alleged that unauthorized sales of sails by JRS persisted even after those new

licensing and trade secrets agreements were signed. JRS was alleged to have sold Quantum sails

outside its licensed territory of South Africa. For example, Quantum alleged that JRS had underbid

a Quantum affiliate who had an exclusive license to sell in Italy, that it had sold sails to existing

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Quantum customers in the Netherlands, Philippines, and Portugal, and that JRS had also sold

Quantum membrane sails to Quantum competitors in the United States and in Australia. Some of

the alleged unauthorized sales were conducted by LES.

       However, JRS contended that all of its transactions structured under the 2009 agreements

turned out to be impermissible under South African law and, specifically, that they violated South

African exchange-control regulations. JRS further alleged that it could not comply with the 2009

agreements because other affiliates of Quantum were not informed of or bound by the new terms,

including a new price structure, and that Quantum did not have the operational ability and

infrastructure in place to implement the terms of the 2009 agreements.

       The parties attempted to negotiate an amendment to the 2009 agreements, but no

amendment was ever signed. The 2009 agreements expired in February 2011. They were not

formally extended or renewed, but Quantum and JRS continued their cooperation regardless, while

disagreeing on the terms by which they were bound.

       In February 2012, Quantum considered the acquisition of a manufacturing facility in Sri

Lanka from Dimension Polyant (“DP”). In October 2012, the owner of JRS approached Quantum

with an offer to sell JRS. Three months later, in January 2013, Quantum notified JRS that it would

go forward with the purchase of the Sri Lanka manufacturing facility but that it also intended to

continue to use the JRS Cape Town facility. In March 2013, JRS terminated its relationship with

Quantum, giving 90 days’ notice in accordance with the 2009 Trade Secrets License Agreement.

Three months later, JRS announced the purchase of an American licensing company, Ullman Sails

International (“USI”), a transaction that added new facilities in Cape Town, Durban, and

Johannesburg to the business of JRS. JRS then began trading as Ullman Sails.

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       Quantum alleged that JRS continued to use Quantum’s trade secrets in violation of the

Trade Secret License Agreement, that it manufactured membrane sails unlawfully under the trade

name of Ullman Sails, and that USI had been unable to produce membrane sails prior to joining

forces with JRS. Quantum further alleged that, over time, JRS had downloaded from Quantum’s

servers more than a thousand sail designs, many of which were for sails never built in South Africa,

which was JRS’s licensing region.

       On August 14, 2013, Quantum filed suit in the Western District of Michigan. It sued JRS,

LES, Sail Design Company (“SDC”), an alleged affiliate of JRS in Cape Town, South Africa, USI,

a California corporation, and Jannie Reuvers, the alleged owner of JRS and USI. The action

alleged the following counts: (I) breach of the 2009 International Affiliates Licensee Agreement

by JRS; (II) breach of the 2009 Trade Secret License Agreement by JRS; (III) violation of the

Michigan Uniform Trade Secrets Act by all defendants; (IV) trademark infringement, unfair

competition, and/or false designation of origin against JRS and USI; and (V) statutory theft,

embezzlement, and/or conversion against JRS, Reuvers, and USI.

       On October 15, 2013, JRS filed its answer and counter-complaint alleging claims for:

(I) account stated; (II) common-law conversion; (III) statutory conversion; (IV) declaratory relief;

(V) breach of contract; (VI) action for the price pursuant to U.C.C. § 2-709; and (VII) tortious

interference with contracts and commercial expectancies.

       Defendants USI, SDC, and Reuvers were dismissed for lack of personal jurisdiction. A

stipulation and order dismissed Complaint Counts IV and V with prejudice. The district court

dismissed Count III of the Complaint with prejudice by granting a motion to narrow the issues,

which the court treated as a motion for summary judgment. After the dismissals, two counts of

the Complaint remained: Counts I and II (breach of the International Affiliates Licensee

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No. 18-2348, Quantum Sail Design v. Jannie Reuvers Sails

Agreement and breach of the Trade Secret License Agreement). The district court eventually

granted Quantum’s motion for summary judgment as to those two counts on April 10, 2018.

        As for JRS’s counterclaims, count III was dismissed with prejudice by stipulation and

order. The district court dismissed counts II and VI on motion on April 10, 2018. Counts IV, V

and VII were dismissed by stipulation only after JRS was granted on April 10, 2018 summary

judgment on count I, account stated, which was the subject of further proceedings detailed below.

        On September 1, 2015, the district court entered a stipulated order authorizing appointment

of a Master pursuant to Federal Rule of Civil Procedure 53. A stipulated order appointing a Master

followed three days later. The Master was authorized to perform an accounting and prepare a

written report with recommended findings of fact on two issues: (1) royalties owed by JRS to

Quantum under the license agreement, if any (Count I of the Complaint), and (2) the amount

Quantum owed JRS on account stated, if any (count I of JRS’s counterclaims).

        On October 27, 2015, Quantum filed under seal a motion for sanctions, alleging that Jannie

and Belinda Reuvers had engaged in discovery violations and that they had submitted a false

affidavit and false documents to the Master. The motion was triggered by Quantum’s discovery

of certain unreported or underreported transactions between LES and Quantum’s Norwegian

affiliate.

        The district court entered on January 29, 2016 an order amending the stipulated order

appointing and authorizing the Master, instructing the Master “to determine whether Defendant

JRS: (a) properly produced all records pertaining to royalties owed Plaintiff under the 2009

License Agreement; and (b) submitted false invoices to the Master for purposes of the accounting”

and, if the Master determined that JRS had engaged in such violations, to “presume that JRS

engaged in a similar pattern or practice with regard to all of its other customers without requiring

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No. 18-2348, Quantum Sail Design v. Jannie Reuvers Sails

supporting proof from Plaintiff.” The order offered JRS an opportunity to “rebut such presumption

by producing evidence that its records for any given customer are true and accurate and reflect

legitimate transactions not subject to royalties.” Absent such rebuttal, the district court authorized

the Master to “adopt any reasonable formula for calculating underreported and unreported

transactions subject to royalties based on the evidence presented to the Master.” The district court

also dismissed Quantum’s motion for sanctions as moot.

       The Master subsequently conducted proceedings and, on January 30, 2017, issued the

Master’s Report, which was filed under seal on March 8, 2017. A year later, on April 10, 2018,

the district court issued an order with respect to the two remaining counts of the Complaint, Counts

I and II (breach of the International Affiliates Licensee Agreement and breach of the Trade Secret

License Agreement), which were the subjects of cross-motions for summary judgment. The

district court entered judgment for Quantum on both counts. However, the district court reserved

its ruling on damages pending findings by the Master. The district court also conditionally granted

Quantum’s renewed motion with respect to monetary sanctions pending receipt of additional

information from Quantum as to the requested amount. In addition, the district court granted

summary judgment on count I of JRS’s counterclaim, account stated, in the amount of

$580,228.55.

       The Master’s Report set royalties due Quantum at the rates of 8% for transactions with

affiliates or conducted as fleet sales and 15% for other transactions within JRS’s sales territory.

After considering various rates for damages for transactions conducted by JRS outside of its sales

territory, including 25%, the Master’s Report set damages as a measure of lost profits reflecting

mark-up at the rates of 22.5% for transactions with affiliates and 35% for transactions with non-

affiliates. The district court ultimately adopted 22.5% as the rate for damages.

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No. 18-2348, Quantum Sail Design v. Jannie Reuvers Sails

       Following briefing on the Master’s Supplemental Report, the district court entered

summary judgment against JRS and LES, awarding Quantum damages, sanctions and pre- and

post-judgment interest in the amount of $2,521,754.88 after deducting $580,228 awarded to JRS

on count I of its counterclaim. The judgment amount included $312,439 in monetary sanctions

imposed against JRS and non-defendants Jannie Reuvers and Belinda Reuvers. The sanctions

amount consisted of costs and attorney’s fees related to discovery, including payments made by

Quantum to the Master. The damages consisted of lost profits based on a 22.5% profit margin, or

markup, on sales that had been underreported or not disclosed to Quantum by JRS.

       JRS now timely appeals from the summary judgment as to Counts I and II of the Complaint,

breach of the International Affiliates Licensee Agreement and breach of the Trade Secret License

Agreement. JRS does not appeal the disposition of its counterclaims.

                                        II. ANALYSIS

                                  A.      Standard of Review

       We have jurisdiction pursuant to 28 U.S.C. § 1291 over an appeal from the district court’s

summary judgment. This court reviews de novo the district court’s grant of summary judgment.

Blackmore v. Kalamazoo Cnty., 390 F.3d 890, 894 (6th Cir. 2004). Summary judgment is

appropriate “if the movant shows that there is no genuine dispute as to any material fact and the

movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). In evaluating the

evidence, we draw all reasonable inferences in favor of the non-moving party. Donald v. Sybra,

Inc., 667 F.3d 757, 760 (6th Cir. 2012). But a mere scintilla of evidence in support of JRS’s

position will be insufficient for it to survive summary judgment. Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 252 (1986). There must be enough evidence on which a jury could reasonably find

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No. 18-2348, Quantum Sail Design v. Jannie Reuvers Sails

for JRS. Ibid. The inquiry is therefore whether reasonable jurors could find by a preponderance

of the evidence that JRS is entitled to a verdict in its favor. Ibid.

        The Supreme Court, exercising original jurisdiction over controversies between states,

treats a Master’s findings of fact with “respect and a tacit presumption of correctness” although,

in reviewing objections to such factual findings, the Court “assume[s] ‘the ultimate responsibility

for deciding’ all matters.” Kansas v. Nebraska, 574 U.S. 445, 453 (2015) (quoting Colorado v.

New Mexico, 467 U.S. 310, 317 (1984)). “A master’s findings, to the extent adopted by the court,

must be considered the court’s findings.” Fed. R. Civ. P. 52(a)(4). Further, a district court’s

“[f]indings of fact, whether based on oral or other evidence, must not be set aside unless clearly

erroneous . . . .” Fed. R. Civ. P. 52(a)(6). See also Pullman–Standard v. Swint, 456 U.S. 273, 287

(1982). But this standard does not apply to conclusions of law, and “if a district court’s findings

rest on an erroneous view of the law, they may be set aside on that basis.” Pullman–Standard, 456

U.S. at 287. Therefore, “[w]e review de novo the legal conclusions that underlie a district court’s

evidentiary ruling.” Rockies Exp. Pipeline LLC v. 4.895 Acres of Land, More or Less, 734 F.3d

424, 429 (6th Cir. 2013).

        “A finding is ‘clearly erroneous’ when[,] although there is evidence to support it, the

reviewing court on the entire evidence is left with the definite and firm conviction that a mistake

has been committed.” Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985) (quoting

United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948)). “In applying the clearly erroneous

standard to the findings of a district court sitting without a jury, appellate courts must constantly

have in mind that their function is not to decide factual issues de novo.” Zenith Radio Corp. v.

Hazeltine Research, Inc., 395 U.S. 100, 123 (1969). “The authority of an appellate court, when

reviewing the findings of a judge a well as those of a jury, is circumscribed by the deference it

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No. 18-2348, Quantum Sail Design v. Jannie Reuvers Sails

must give to decisions of the trier of the fact, who is usually in a superior position to appraise and

weigh the evidence.” Ibid.      “Where there are two permissible views of the evidence, the

factfinder’s choice between them cannot be clearly erroneous.” Anderson, 470 U.S. at 574.

           B.      District Court’s De Novo Review of the Master’s Finding of Fact

       JRS alleges that the district court failed to perform a de novo review of the Master’s

findings of facts, and that the judgment should therefore be vacated and the case remanded.

       Federal Rule of Civil Procedure 53(f)(1) allows the district court, after giving the parties

notice and opportunity to be heard, to “adopt or affirm, modify, wholly or partly reject or reverse,

or resubmit to the [M]aster with instructions” a Master’s report. If the parties object to the Master’s

findings, “[t]he court must decide de novo all objections to findings of fact made or recommended

by a [M]aster, unless the parties, with the court’s approval, stipulate” either that “the findings will

be reviewed for clear error,” or that the findings of a Master will be final. Fed. R. Civ. P. 53(f)(3)

(emphasis added). The court must also “decide de novo all objections to conclusions of law made

or recommended by a [M]aster.” Fed. R. Civ. P. 53(f)(4). In reviewing objections to a Master’s

findings of fact, the court extends to the Master’s factual findings “respect and a tacit presumption

of correctness,” but it “conduct[s] an ‘independent review of the record,’ and assume[s] ‘the

ultimate responsibility for deciding’ all matters.” Kansas v. Nebraska, 574 U.S. at 453 (quoting

Colorado v. New Mexico, 467 U.S. at 317) (overruling all objections and adopting the Master’s

recommendations).

       Contrary to the allegations made by JRS on appeal, the district court was not required to

perform de novo review of the entire Master’s Report. Rather, Federal Rule of Civil Procedure

53(f)(3) requires de novo review only of objections to the findings of fact included in the Master’s

Report. JRS and Quantum also did not stipulate to apply the clear error standard of review of the

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Master’s findings, and they did not stipulate to treat the findings of the Master as final. See Fed.

R. Civ. P. 53(f)(3)(A) and (3)(B). Thus, in reviewing the objections de novo, the district court was

entitled to rely on the Report’s “presumption of correctness.” Kansas, 574 U.S. at 453.

           After the initial Master’s Report of January 30, 2017 was issued, JRS filed a brief regarding

the Master’s Report. But instead of proposing specific amendments to the Report and stating its

reasons for them, JRS’s brief merely described the instances where it disagreed with the Report,

at most proposing to strike or correct certain numerical figures contained in the Report. See, e.g.:

                   At the behest of the Plaintiff’s counsel the report went on to calculate the
           LE invoices1 at not just 8% or 15%, but at a “damages” level of 22.5%, totaling
           $2,287,128.92 (Master’s Report, ¶3.1.3). This figure is calculated by applying
           22.5% as the royalty rate of the LE invoices referenced above. That number is
           $2,545,690.00. To arrive at the final 22.5% figure of $2,287,128.92 the Master
           subtracted the TUI adjustment of $258,562.00. This calculation has no correlation
           to the express terms of the IALA. The Master, at the insistence of Plaintiff’s counsel,
           simply upped the royalty percentage as it relates to the LE invoices. The Master
           goes on to calculate the figure again at 35% ($3,701,402.92). These calculations
           are called “loss of profit/damages” in the report. It is unclear why this calculation
           was even made. This Court’s orders did not direct the Master to apply these figures,
           and the Master himself admits that the calculations were done only after speaking
           with Plaintiff’s counsel.
                   The table on page 131 of the Report adds these “lost profits/damages” to
           the “royalties.” (Master’s Report, ¶ 5.17.5.) This is incorrect. The 22.5% and 35%
           figures are just an extension of the 8% and 15% calculations. . . .
                   This Court can cut through all of this confusion by referring back to the
           IALA itself and striking the top row of the chart with the 22.5% and 25% figures.2
           The IALA simply does not provide for royalties at these rates and there is certainly
           no justification for adding these figures to the 8% and 15% figures to arrive at the
           distorted totals displayed across the bottom row of the table. Under no
           circumstances should the Court use any of the higher “royalty” rates (22.5%, or
           35%). . . . The IALA does not contain royalty rates above 15%. Further, the sales
           at issue were OEM/fleet sales that provide for a royalty rate of 8%, not a higher
           figure of 15% that was intended for individual orders.

(alterations in original) (footnotes added).

1
 “LE invoices” refer to invoices associated with transactions conducted through LES bank accounts in various
currencies.
2
    The initial Master’s Report considered a range of rates for calculating damages.

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No. 18-2348, Quantum Sail Design v. Jannie Reuvers Sails

       Regarding the high-end assessment of royalty damages in the Master’s Report, JRS argued

that “[t]his figure is based on the Master’s November 16 forensic numbers for the LE invoices at

the IALA’s royalty rate of eight percent . . . . It’s Defendants[’] position that there are still

outstanding issues that will ultimately lead to the reduction of this figure.”

       Finally, JRS proposed the following corrections:

       The Master’s Report found that the current balance on the open trade account owed
       to JRS by [Quantum] is $580,228.55. (Master’s Report, ¶ 5.7.3). In addition to the
       unpaid invoices there are Trade Secret fees that [Quantum] improperly deducted
       from the trade account that total $215,000.00. (Master’s Report, ¶ 5.7.6). The fees
       were taken by [Quantum] for “trade secrets” that JRS never received. Finally, there
       is an additional $119,000 in fees that [Quantum had] deducted from the amounts
       due to JRS and paid to [itself]. (Master’s Report, ¶ 5.7.7). . . . This figure must be
       deducted from the high end royalty figure of $1,119,815.25. After the set[-]off the
       amount owed by JRS to [Quantum] would be $205,586.70.

        However, JRS also stated in its brief addressing the Master’s Report that it intended to file

a motion to dismiss based on the determinations in that Master’s Report, which implies an

acceptance of its findings.

       Quantum, on the other hand, clearly noted its objections to the Master’s Report in its brief

in support of its motion for summary judgment and formally requested six specific modifications

to the Master’s Report. For example, Quantum addressed the issue of the 22.5% damage rate as

follows in its fifth request for modification of the Master’s Report:

               However, the Master Exceeded his mandate by recommending which
       scenario is the correct one. In that regard, Quantum notes that the Master has not
       articulated why 8% is the appropriate royalty rate rather than 15%. As noted by the
       Master throughout the report, the 8% rate was only available on OEM transactions
       and on transactions with TUI Marine.
               If the Court concludes, as a legal matter, that 15% rate is the appropriate
       rate, Quantum will forego its claim that its lost profits should be measured at its net
       profit (30.3%) rather than the 22.5% rate. In that scenario (Column 3 in paragraph
       5.17.5), the Master’s calculations yield a combined royalty/damage figure of
       $3,056,787 ($2,287,129 plus $1,685,566 minus $915,908).

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       Quantum then proceeded to list specifically which paragraphs of the Master’s report should

be stricken or amended.

       In its ruling on cross-motions for summary judgment and on plaintiff’s motion for

sanctions, the district court reviewed the pending requests for modifications. It noted that JRS had

failed to provide specific responses to Quantum’s requested modifications and amendments.

However, the district court stated that it had nevertheless reviewed the parts of the Master’s Report

to which Quantum requested modifications or amendments, and concluded that Quantum’s

requests had been proper. The district court then modified the Report accordingly. The district

court proceeded to grant Quantum’s motion for summary judgment but referred the matter back to

the Master for clarification, deferring a ruling on damages pending a response from the Master.

The court sought clarification on a number of issues, including some that had been raised by JRS

(e.g., “[t]he 22.5% and 35% figures are just an extension of the 8% and 15% calculations. . . .”).

The questions resubmitted to the Master by the ensuing district-court order were, in particular:

       (1) whether the calculations in paragraph 5.17.5 of the Report for royalties and
       damages are based on the same transactions and LE series invoices, i.e., whether
       the royalty rates (8%, 15%) and the damage rates (22.5% and 35%) are applied to
       the same or different transactions; and (2) whether the $915,908 identified in
       paragraph 5.18.1.9 as mark-up that Defendant JRS collected on behalf of Plaintiff
       was previously credited to Plaintiff or whether such amount must still be deducted
       to reduce the amount owing to Plaintiff.

       In the same opinion, the district court partly granted Quantum’s renewed motion for

sanctions against JRS and its owners for discovery fraud, including for providing the Master with

fabricated invoices and for submitting false affidavits and false information in several filings with

the court. The district court denied injunctive relief but granted monetary sanctions in the amount

later set at $312,439 in costs and attorney’s fees; it also ordered the release to Quantum of

$343,636.74 held in escrow in the court’s registry. Quantum was required to deposit $339,000 in

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escrow as security for payment to JRS of the amount claimed in count I of JRS’s countercomplaint,

pursuant to an agreement between the parties and an order of the district court granting JRS’s

motion for entry of a protective order to limit discovery.

          JRS now alleges that the district court failed to perform de novo review of the Master’s

finding of facts. But the district court was only required to review de novo any objections to the

Master’s Report. JRS’s allegation as to the initial Master’s Report fails on procedural grounds,

because JRS had not objected to Quantum’s proposed amendments to the Report. The district

court noted the following regarding JRS’s stance on referring disputed matters back to the Master:

          The Court notes that Defendants suggest that the Court refer the Report back to the
          Master to resolve Quantum’s objections. Because it is the Court’s responsibility to
          address objections in the first instance, Defendants’ failure to provide specific
          responses to Quantum’s requested modifications provides the Court no basis to
          conclude that further analysis by the Master on these issues is necessary.

          Regardless, the district court proceeded to review Quantum’s objections, adopted them,

and referred some of the court’s other questions to the Master for further clarification. The district

court also specified the standard under which it reviewed Quantum’s requests for modification:

          Pursuant to Federal Rule of Civil Procedure 53(f), a court must decide de novo all
          objections to a master’s findings of fact, unless the parties stipulate for clear error
          review or that the master’s findings will be final. Fed. R. Civ. P. 53(f)(3). Here, the
          Stipulated Order says that “the Master’s findings shall not be final and this Court
          shall only apply a de novo standard of review.” (ECF No. 169 at PageID.3080.).

          The district court therefore did not fail to review de novo objections to the initial Master’s

Report.

          Pursuant to the district court’s order, the Master issued its Supplemental Report on May 2,

2018. Both parties filed briefs regarding the Master’s Supplemental Report, and neither objected

to its findings. Based on the Master’s findings on the question submitted to it by the district court,

“(1) whether the calculations in paragraph 5.17.5 of the Report for royalties and damages are based

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on the same transactions as LE series invoices, i.e., whether the royalty rates (8%, 15%) and the

damage rates (22.5% and 35%) are applied to the same or different transactions,” the district court

concluded that the calculations in ¶ 5.17.5 of the initial Master’s Report had amounted to double-

counting of LE invoices, and it reduced Quantum’s damages accordingly.

       The parties disagreed on which rates to choose. The district court rejected JRS’s request

to return the question to the Master for further inquiry, because JRS had not used prior

opportunities to clarify the issues regarding LE invoices, and had, in fact, failed to rebut allegations

of discovery fraud as delineated in the Order Amending Stipulated Order Appointing and

Authorizing Master Pursuant to Federal Rule 53, triggering the provision of the Order stating that

“the Master may adopt any reasonable formula for calculating underreported and unreported

transactions subject to royalties based on the evidence presented to the Master.” The district court

then applied to the disputed amounts the 22.5% damage rate proposed by Quantum. In so doing,

the district court did not err by adopting Quantum’s proposed rate: “even when the trial judge

adopts proposed findings [prepared by a prevailing party] verbatim, the findings are those of the

court and may be reversed only if clearly erroneous.” Anderson, 470 U.S. at 572. See also Kilburn

v. United States, 938 F.2d 666, 672 (6th Cir. 1991) (“[Plaintiff] next argues that, because the

district court adopted the defendant’s findings of facts and conclusions of law, we should more

closely scrutinize its factual findings. We disagree.”); Wooldridge v. Marlene Indus. Corp., 875

F.2d 540, 544 (6th Cir. 1989) (finding support for special master’s verbatim adoption of a

defendant’s proposed Findings and Conclusions because “all parties had equal opportunity to

submit proposed reports for the special master’s consideration and did so”).

       Consequently, the district court did not fail to review de novo any objections to the Master’s

Supplemental Report either, because neither party had filed such objections.

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                          C.     The Scope of the Master’s Mandate

       JRS alleges that the district court improperly accepted or adopted findings and

recommendations that exceeded the scope of the Master’s mandate. Specifically, JRS argues that

the Order Amending Stipulated Order Appointing and Authorizing Master Pursuant to Federal

Rule 53 resulted in an impermissible expansion of the Master’s powers, because that order had not

been stipulated to by the parties, which violates Federal Rule of Civil Procedure 53.

       JRS now appears to argue that, because the order was not stipulated to by the parties, it

was also not consented to by the parties, in violation of Federal Rule of Civil Procedure

53(a)(1)(A). But JRS overlooks the fact that the consent part is merely one of several statutory

provisions that define the scope of a Master’s appointment. A court may also appoint a Master to

       hold trial proceedings and make or recommend findings of fact on issues to be
       decided without a jury if appointment is warranted by:
               (i) some exceptional condition; or
               (ii) the need to perform an accounting or resolve a difficult computation of
               damages . . . .

Fed. R. Civ. P. 53(a)(1)(B). Here, the appointment of the Master was warranted by the need to

perform an accounting and a difficult computation of damages. For that reason alone, JRS’s

argument fails.

       But JRS further alleges that the scope of the Master’s duties was impermissibly expanded

by the Order Amending Stipulated Order Appointing and Authorizing Master Pursuant to Federal

Rule 53 by directing the Master to investigate charges related to Quantum’s allegations of

discovery violations by JRS, to wit, “to determine whether Defendant JRS: (a) properly produced

all records pertaining to royalties owed Plaintiff under the 2009 License Agreement; and (b)

submitted false invoices to the Master for purposes of the accounting” and, if these findings were

not rebutted, to “adopt any reasonable formula for calculating underreported and unreported

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No. 18-2348, Quantum Sail Design v. Jannie Reuvers Sails

transactions subject to royalties based on the evidence presented to the Master,” which resulted in

a calculation of damages.

       JRS takes exception to delegating to the Master what JRS considers sanctions-related

investigations, even though the factual accounting determinations regarding unreported

transactions were, by logical extension, unquestionably within the scope of the Master’s stipulated

mandate. The stipulated order had directed the Master to conduct findings of fact on two issues:

(1) royalties owed by JRS to Quantum under the license agreement, if any (Count I of the

Complaint), and (2) the amount Quantum owed JRS on account stated, if any (count I of JRS’s

counterclaims).

       However, the discovery of invoices fabricated by JRS and provided by JRS to the Master,

as was submitted in Quantum’s repeat motions for sanctions, changed the picture. Consequently,

the first stipulated task of the Master, i.e., calculating royalties owed by JRS to Quantum, would

not have been feasible without ascertaining which transactions—and in what amounts—were

subject to such royalties in the first place. See Perry Drug Stores v. NP Holding Corp., 243 F.

App’x 989, 998 (6th Cir. 2007) (per curiam) (holding that the Special Master had the authority to

determine defendant’s liability for attorney’s fees where a stipulated order appointed the Special

Master to determine “the issue of [defendant’s] liability and damages” and the issue of liability for

attorney’s fees “clearly pertain[ed] to [defendant’s] liability and damages”).

       JRS further alleges that the Master had acted ultra vires in calculating the damages owed

by JRS to Quantum. When the district court granted summary judgment to Quantum, it reserved

ruling on damages pending findings by the Master. Specifically, the district court ordered:

       [P]ursuant to Fed. R. Civ. P. 53(f)(4), this matter is resubmitted to the Master to
       address the following issues: (1) whether the calculations in paragraph 5.17.5 of the
       Report for royalties and damages are based on the same transactions as LE series
       invoices, i.e., whether the royalty rates (8%, 15%) and the damage rates (22.5% and

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No. 18-2348, Quantum Sail Design v. Jannie Reuvers Sails

       35%) are applied to the same or different transactions; and (2) whether the $915,908
       identified in paragraph 5.18.1.9 as mark-up that Defendant JRS collected on behalf
       of Plaintiff was previously credited to Plaintiff or whether such amount must still
       be deducted to reduce the amount owing to Plaintiff. The Master shall be paid in
       accordance with the September 4, 2015, Order. (ECF No. 169.).

       JRS now alleges that the order defining the scope of Master’s duties was never amended

to provide for a calculation of damages. However, in its order granting summary judgment, the

district court specifically invoked Federal Rule of Civil Procedure 53(f)(4), which states that “[t]he

court must decide de novo all objections to conclusions of law made or recommended by a

[M]aster.” The court therefore did not impose any new duties on the Master, but merely sought

certain clarifications while reviewing the Master’s conclusions of law. The district court also

expressly addressed JRS’s objections in its opinion accompanying the order granting motion for

summary judgment:

       To the extent Defendants object to the Master’s inclusion of calculations of
       damages based on Quantum’s lost mark-ups as beyond the scope of the September
       4, 2015, Stipulated Order appointing the Master, the objection is overruled. While
       it is true that the Stipulated Order confined the Master to determining “royalties”
       that JRS owes to Quantum, subsequent discoveries, as set forth in Quantum’s
       sanctions motion and described in the Report, rendered such analysis proper,
       particularly in light of the existing scope of the Master’s engagement.

       The district court appeared to relate the Master’s findings on damages to the provision of

the Order Amending Stipulated Order Appointing and Authorizing Master Pursuant to Federal

Rule 53, which stated that “the Master may adopt any reasonable formula for calculating

underreported and unreported transactions subject to royalties based on the evidence presented to

the Master” in case JRS failed to rebut allegations of discovery violations. The rebuttable

presumption of discovery violations was phrased as follows:

               2. In the event the Master determines, based on records of or regarding the
       Norwegian affiliate, that JRS failed to produce all records pertaining to royalties or
       submitted false documents or submitted false compilations, such as false sales
       reports, the Master shall presume that JRS engaged in a similar pattern or practice

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No. 18-2348, Quantum Sail Design v. Jannie Reuvers Sails

       with regard to all of its other customers without requiring supporting proof from
       Plaintiff. JRS may rebut such presumption by producing evidence that its records
       for any given customer are true and accurate and reflect legitimate transactions not
       subject to royalties. It is the Master’s authority and responsibility to recommend to
       this Court whether and to what extent the presumption has been rebutted.
              3. In the event the Master concludes that JRS engaged in conduct identified
       in paragraph 1, the Master may adopt any reasonable formula for calculating
       underreported and unreported transactions subject to royalties based on the
       evidence presented to the Master.
       The district court not only found that JRS had failed to rebut the allegations of discovery

violations, but it also sanctioned JRS for these violations. It was therefore not error for the court

to trigger the rebuttable presumption provision of its Order Amending Stipulated Order—“the

Master may adopt any reasonable formula for calculating underreported and unreported

transactions subject to royalties based on the evidence presented to the Master”—and expand it to

allow the Master to also determine the damages owed by JRS to Quantum, i.e., Quantum’s lost

profits, in light of such newly discovered evidence.

       For these reasons, the district court did not commit clear error by adopting the Master’s

findings that were all within the scope of the Master’s mandate.

                            D.      District Court’s Findings of Fact

       Finally, JRS alleges that, even if the district court did perform de novo review of the

Master’s reports, and even if the Master’s findings were within the scope of his mandate, the

district court’s findings of fact themselves were clearly erroneous. However, it bears remembering

that the district court was not required to perform de novo review of the entire Master’s Report. It

only needed to review specific objections raised by a party. Since neither party had objected to

the modified Master’s Report, the district court was not required to conduct such de novo review

of its findings sua sponte. See Part II.B, supra. This is all the more so since the Master’s findings

were well within the scope of the Master’s amended mandate. See Part II.C, supra.

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No. 18-2348, Quantum Sail Design v. Jannie Reuvers Sails

       The main objection of JRS to the district-court findings of fact appears to be a particular

methodology of calculating damages in the original Master’s Report. JRS contends that the district

court erred by incorporating into its ruling a formula proposed by the Master in his original Report

that had effectively double-counted amounts for purposes of computing damages and royalties.

JRS alleges that, in its Memorandum Order Addressing Outstanding Issues Set Forth in April 10,

2018 Order, the district court, in determining an item of damages calculation referred to as

“damages for all non-TUI Marine LE invoices at 22.5%” and set at $1,818,486, used a double-

counting formula from the original Master’s Report. Specifically, JRS contends that the district

court adopted a calculation from a spreadsheet on page 131 of the Master’s Report and added the

damages, set at 22.5%, on top of the royalties set at 15% for the amounts of the same invoice. JRS

then proceeds to elaborate why a formula incorporating such a computation was clearly erroneous.

       The problem with that argument is that it lacks a basis in fact: the district court never

adopted this specific formula. The calculation of damages had not only already been corrected in

the May 2, 2018 Master’s Supplemental Report, which was the version of the report adopted by

the district court, but it had also been the subject of additional briefings by both parties and of an

independent determination by the district court. Neither JRS nor Quantum filed objections to the

findings presented in the Master’s Supplemental Report.

       JRS disregards these subsequent developments of the formula for damages that had

occurred since the original Master’s Report. JRS even disregards the district court’s clarifications

on the issue of double-counting in the very order that JRS quotes. When discussing the LE

invoices, the district court explained the following in its Memorandum Order Addressing

Outstanding Issues Set Forth in April 10, 2018 Order:

       In his Supplemental Report, the Master confirmed that the damage calculations and
       royalty calculations in paragraph 5.17.5 of the original Report were based on the

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           same LE invoices, such that an award of damages and royalties based on those
           invoices would amount to double counting. (ECF No. 234 at PageID.M5000–003.)
           To better explain his conclusions, the Master amended the schedule set forth in
           paragraph 5.17.5 of the original Report, which is designated paragraph 2.6 of the
           Supplemental Report. Given this information, Quantum is entitled to either
           damages calculated at 25%3 [sic, should be probably 22.5%] or royalties calculated
           at 15%, but not both.

(footnote added). The district court further clarified in its order that “on May 2, 2018, the Master

issued a Supplemental Report (ECF No. 234) addressing the issues set forth above, and the parties

have filed briefs addressing the Supplemental Report.” The two issues resubmitted to the Master

concerned two questions:

           (1) whether the calculations in paragraph 5.17.5 of the Report for royalties and
           damages are based on the same transactions as LE series invoices, i.e., whether the
           royalty rates (8%, 15%) and the damage rates (22.5% and 35%) are applied to the
           same or different transactions; and (2) whether the $915,908 identified in paragraph
           5.18.1.9 as mark-up that Defendant JRS collected on behalf of Plaintiff was
           previously credited to Plaintiff or whether such amount must still be deducted to
           reduce the amount owing to Plaintiff.

           The resubmitted issues were also helpfully summarized on the very first page of the

Memorandum Order that JRS cites for its proposition that the district court double-counted

amounts for the purposes of royalties and damages.

           Second, the Court found that paragraph 5.17.5 of the Master’s Report was unclear
           as to whether the calculations for royalties and damages were based on the same
           transactions and LE invoices. Finally, the Court found the Master’s Report unclear
           as to whether Defendants had previously credited the $915,908 identified in
           paragraph 5.18.19 as a mark-up or whether that amount should still be deducted to
           reduce the amount owing to Quantum. The Court resubmitted the matter to the
           Master to address the latter two issues.

           On appeal, JRS raises the issue of double-counting of damages regardless of the fact that

the impugned formula for such damages had been subsequently changed by the Master’s

Supplemental Report—to which report JRS did not object—and had later been clarified by the

3
    The district court set the rate of damages at 22.5%.

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No. 18-2348, Quantum Sail Design v. Jannie Reuvers Sails

district court, and then had been subject to additional briefing by both parties before the district

court issued its final summary judgment. Therefore, JRS’s argument is frivolous in alleging that

the district court committed clear error in its determination of damages, claiming that “[t]here is

no justification in any of the Master’s findings of fact under the 2009 IALA for a 15% royalty rate

on LE invoices (many of which were OEM Fleet sales at 8%), plus an additional rate of 22.5% on

the same sales as damages/lost mark-up calculation.” The accuracy of these findings had become

a procedurally moot issue long before JRS filed its opening brief in this court.

       Finally, JRS appears to be singling out on appeal a single line item in the calculation of

damages, to which JRS had also failed to object below. JRS quotes a September 6, 2018

Memorandum Order Addressing Outstanding Issues Set Forth in April 10, 2018 Order to now

apparently dispute the amount of “$1,818,486.00 [in] damages for all non-TUI Marine LE invoices

at 22.5%.” But on October 4, 2018, one month after issuing its Memorandum Order Addressing

Outstanding Issues, the district court entered another order giving the parties seven days to object

to a proposed final judgment. However, only Quantum filed an objection. It objected to the

accounting treatment of the amount released to Quantum from the court’s registry. Absent

objections raised by JRS, the district court entered judgment for Quantum on October 15, 2018 in

the total amount of $2,521,754.88 in damages, monetary sanctions, and pre- and post-judgment

interest at the Michigan statutory rate.

       Therefore, the district court did not commit clear error in any of its findings of fact.

                                       III. CONCLUSION

       For all the foregoing reasons, we AFFIRM the district court’s judgment against JRS.

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