Court Opinion

ID: 1006282
Source: CourtListenerOpinion
Date Created: 2013-07-04 19:09:08.592897+00
Date Added: 2024-06-11T15:24:17.571309
License: Public Domain

UNPUBLISHED

UNITED STATES COURT OF APPEALS
                FOR THE FOURTH CIRCUIT

JTH TAX, INCORPORATED; THOMAS           
BENNETT; JAMA CORLETO; CHARLES
DAWSON; LANDSTOWN PRESCHOOL,
INCORPORATED; JAMES FORGUSON;
ANN MARIE FORGUSON; A&J TAX
SERVICE; ANNETTE HOBBS; DONNIE
HOBBS; DANDA, INCORPORATED;
VINCENT JACKSON; DANIEL
LEPKOWSKI; FREEDOM TAX,
INCORPORATED; CHARLES LOVELACE;
CREATIVE MANAGEMENT SYSTEMS,
INCORPORATED; KATHLEEN PONTE;
JOHN SEAL; MARCIA SEAL; JMS TAX,
INCORPORATED; SYED SHERAZI; B&L            No. 01-1353
INVESTMENT, INCORPORATED; RICHARD
SIMON; DENNIS STUVER; DCM & B,
LLC, d/b/a Liberty Tax Service,
                Plaintiffs-Appellees,
                 v.
H & R BLOCK EASTERN TAX
SERVICES, INCORPORATED; H&R
BLOCK TAX SERVICES, INCORPORATED,
              Defendants-Appellants.
FRANK GRIM,
                            Movant.
                                        
2             JTH TAX v. H & R BLOCK EASTERN TAX

JTH TAX, INCORPORATED; THOMAS           
BENNETT; JAMA CORLETO; CHARLES
DAWSON; LANDSTOWN PRESCHOOL,
INCORPORATED; JAMES FORGUSON;
ANN MARIE FORGUSON; A&J TAX
SERVICE; ANNETTE HOBBS; DONNIE
HOBBS; DANDA, INCORPORATED;
VINCENT JACKSON; DANIEL
LEPKOWSKI; FREEDOM TAX,
INCORPORATED; CHARLES LOVELACE;
CREATIVE MANAGEMENT SYSTEMS,
INCORPORATED; KATHLEEN PONTE;
JOHN SEAL; MARCIA SEAL; JMS TAX,
INCORPORATED; SYED SHERAZI; B&L                  No. 01-1843
INVESTMENT, INCORPORATED; RICHARD
SIMON; DENNIS STUVER; DCM & B,
LLC, d/b/a Liberty Tax Service,
                Plaintiffs-Appellees,
                 v.
H & R BLOCK EASTERN TAX
SERVICES, INCORPORATED; H&R
BLOCK TAX SERVICES, INCORPORATED,
              Defendants-Appellants.
FRANK GRIM,
                             Movant.
                                        
           Appeals from the United States District Court
          for the Eastern District of Virginia, at Norfolk.
                Raymond A. Jackson, District Judge.
                            (CA-00-51)

                      Argued: November 1, 2001

                      Decided: January 10, 2002

Before NIEMEYER, WILLIAMS, and GREGORY, Circuit Judges.
               JTH TAX v. H & R BLOCK EASTERN TAX                     3
Affirmed in part, vacated in part, and remanded by unpublished per
curiam opinion.

                             COUNSEL

ARGUED: Gregory Neil Stillman, HUNTON & WILLIAMS, Nor-
folk, Virginia, for Appellants. Carl Jay Khalil, Corporate Counsel,
JTH TAX, INC., Virginia Beach, Virginia, for Appellees. ON
BRIEF: Benita W. Ellen, HUNTON & WILLIAMS, Norfolk, Vir-
ginia; N. Louise Ellingsworth, Mark W. Brennan, BRYAN CAVE,
L.L.P., Kansas City, Missouri, for Appellants.

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

                              OPINION

PER CURIAM:

   JTH Tax, Inc. d/b/a Liberty Tax Service and thirteen of its fran-
chisees (collectively, "Liberty") brought this suit against H & R Block
Tax Services, Inc. and H & R Block Eastern Tax Services, Inc. (col-
lectively, "Block"), a competing tax preparation service provider,
alleging that Block had engaged in false and deceptive advertising in
connection with its offering of a new loan product during the 2000 tax
season in the Hampton Roads area of Virginia, in violation of the
Lanham Act, 15 U.S.C. § 1111-1127 (West 1998 & Supp. 2000) (the
"Act"). Following a bench trial, the district court awarded Liberty
$506,477 in Block’s profits, plus $314,898.69 in attorneys’ fees and
costs. The court additionally enjoined Block from engaging in certain
advertising practices. In this consolidated appeal, Block challenges (a)
the court’s finding that Block acted willfully; (b) the court’s finding
of materiality; (c) the court’s award of profits; (d) a portion of the
court’s injunctive relief; and (e) a portion of the court’s award of
4               JTH TAX v. H & R BLOCK EASTERN TAX
attorneys’ fees and costs. We affirm in part, vacate in part, and
remand in part.

                                    I.

                                    A.

   For a fee, Block, a leading tax preparation service provider, enables
taxpayers to file their tax returns electronically, and thus to receive
their actual tax refunds from the Internal Revenue Service ("IRS")
within approximately two weeks. Block also offers a product termed
a "refund anticipation loan" ("RAL"), which enables taxpayers to
obtain, through Block’s partnered lending institutions, short-term
loans against the anticipated amounts of their tax refunds within
approximately two days.1 RALs require the fulfillment of certain con-
ditions and subject borrowers to certain obligations that tax refunds
do not. Taxpayers seeking RALs, for example, must endure a loan
application process requiring extensive certifications and declarations,
including those regarding past bankruptcies and current outstanding
debts. RAL borrowers also may be subjected to collection costs and
attorneys’ fees where their actual tax refunds are insufficient to cover
the amounts of their corresponding loans. In addition, RAL borrowers
must agree to "cross-collection" of delinquent loans from other banks.

   Block has experienced difficulties in marketing the RAL product.
Several states sued Block in the 1990s for engaging in deceptive
advertising by concealing the fact that RALs were loans. In July
1993, for instance, Block signed a consent decree with the state of
Connecticut under which it agreed not to misrepresent loans as
refunds or to use the term "rapid refund" to describe RALs. Block
entered into similar agreements with the states of Florida and New
York in January 1994 and January 1997, respectively.

  During the 2000 tax season, Block offered a slightly modified loan
product, a "no additional cost refund anticipation loan" ("NACRAL"),
    1
   An RAL borrower receives a check equivalent to the amount of the
approved loan, less tax preparation fees, interest fees, and other applica-
ble bank fees. The IRS later sends the actual tax refund directly to the
applicable lending institution.
                JTH TAX v. H & R BLOCK EASTERN TAX                      5
in selected areas across the country. Unlike traditional RALs,
NACRALs feature no interest and no fees.2 NACRALs, however, are
identical to RALs in every other respect: they required the submission
of loan applications and the making of significant certifications, and
they expose borrowers to potential collection costs, attorneys’ fees,
and cross-collection efforts.

   Block identified the Hampton Roads area of Virginia, where it
owned and operated approximately thirty-one offices, as a primary
target market for the rollout of the NACRAL product during the 2000
tax season. Liberty, a company theretofore operating approximately
thirty-five offices in the United States, had no offices in the Hampton
Roads area as of the 1999 tax season, but launched twenty-five new
offices there in a heavily publicized effort prior to the 2000 tax sea-
son.

   Notwithstanding its earlier legal troubles arising from the market-
ing of RALs as "refunds," Block advertised the NACRAL in Hamp-
ton Roads through posters, newspapers, radio and television
commercials, and direct mailings as a "refund," "refund amount," and
"a check in the amount of your refund." Block undertook these efforts
in the face of an IRS Revenue Procedure ("Publication 1345") requir-
ing tax preparation service providers, in advertising RALs, to make
"clear in the advertising that the taxpayer is borrowing against the
anticipated refund and not obtaining the refund itself from the finan-
cial institution." IRS Pub. 1345, § 12.09, Rev. Proc. 98-50, 1998 WL
638827. None of Block’s Hampton Roads NACRAL advertisements
complied with Publication 1345.

   Block’s Hampton Roads NACRAL marketing campaign was a
resounding success. The number of returns Block processed in that
area jumped 24.8% from 1999 to the year 2000, whereas the number
of returns Block processed in other areas of Virginia increased only
0.8% during the same period. The evidence shows that Liberty, mean-
while, struggled to keep pace with Block, at times offering free tax
preparation services in an effort to compete.
  2
   Block pays the interest and other lending fees directly to the applica-
ble bank.
6              JTH TAX v. H & R BLOCK EASTERN TAX
                                   B.

   On June 14, 2000, Liberty filed an amended complaint in the East-
ern District of Virginia, alleging that Block had engaged in false and
misleading advertising in violation of the Act, 15 U.S.C. § 1125(a).
Following a bench trial, the district court, Judge Jackson found one
of Block’s advertisements to be literally false, deemed several others
true but misleading, and found still others non-actionable. See JTH
Tax, Inc. v. H & R Block Eastern Tax Services, Inc., 128 F. Supp. 2d
926, 935-37 (E.D. Va. 2001). The court also found that Block had
acted "willfully, maliciously, and in bad faith," reasoning that Block
was aware of the prohibition embodied in Publication 1345 against
advertising loans as refunds when it executed its 2000 Hampton
Roads marketing campaign; Block’s agreements with the states of
Connecticut, Florida, and New York made clear that Block specifi-
cally had been placed on notice that representing loans as refunds was
deceptive and improper; Block deliberately targeted Liberty, a new-
comer to the Hampton Roads market, with its deceptive advertising
campaign; and an internal Block "Rapid Refund Awareness Study,"
favoring the use of the word "refund" over the use of the word "loan,"
indicated an "absence of mistake" on Block’s part regarding the effect
of the use of the term "refund" on consumers. See id. at 933.

   Finding the evidence insufficient to support an award of Liberty’s
actual damages, the court instead awarded Liberty $506,477 in
Block’s profits. The court also awarded Liberty $314,898.69 in attor-
neys’ fees and costs, including $38,619.50 in fees and $2,730.20 in
costs that Liberty had paid to a law firm that Block argued had vio-
lated the Virginia Rules of Professional Conduct by representing Lib-
erty in the instant litigation. The court additionally enjoined Block
from advertising in violation of Publication 1345; referring to loan
disbursements as "advances," "refund amounts," or checks "in the
amount of your refund," unless Block makes clear that the product is
a loan; and using the term "rapid refund" in connection with loan
products. Block now challenges several aspects of the district court’s
decision.

                                   II.

   Block first challenges the district court’s factual finding that Block
acted with malice, asserting that none of the court’s subsidiary find-
               JTH TAX v. H & R BLOCK EASTERN TAX                      7
ings properly supports an inference that Block acted willfully. As
noted above, the district court found that (1) the consent decrees are
competent evidence of Block’s prior knowledge that representing a
NACRAL as a refund would be unlawful; (2) Block’s failure to com-
ply with Publication 1345 evidences deliberate misconduct; (3) the
circumstances surrounding Liberty’s heavily publicized entry into the
Hampton Roads market and Block’s targeted NACRAL campaign
demonstrate that Block deliberately targeted Liberty; and (4) the
internal Block report indicates "an absence of mistake" concerning the
effect on consumers of the use of the word "refund" to describe loan
products. We conclude that the former two findings alone sufficiently
support the district court’s finding of malice.

   It is well established that a trial judge’s findings of fact are
reviewed for clear error. Fed. R. Civ. P. 52(a). "[A] finding is ‘clearly
erroneous’ when although there is evidence to support it, the review-
ing court on the entire evidence is left with the definite and firm con-
viction that a mistake has been committed." Anderson v. City of
Bessemer City, North Carolina, 470 U.S. 564, 573 (1985) (internal
quotation omitted). "If the district court’s account of the evidence is
plausible in light of the record reviewed in its entirety, the court of
appeals may not reverse it even though convinced that had it been sit-
ting as the trier of fact, it would have weighed the evidence differ-
ently." Id. at 573-74.

   Block disputes the district court’s use of the consent decrees to
infer that it willfully engaged in false and misleading advertising.
Block first points out that it never suffered an adverse adjudication
concerning its RAL advertising practices. Block additionally argues
that the consent decrees, which were borne of concern regarding
Block’s advertising of interest-bearing RALs, cannot serve as the
basis for the conclusion that Block deliberately engaged in false and
misleading advertising of NACRALs, because by extracting interest
and bank fees from the traditional RAL product in the process of cre-
ating the NACRAL product, Block actually eliminated the concerns
that gave rise to, and are embodied in, the consent decrees. We find
these contentions unpersuasive.

   An attentive reading of each consent decree reveals a shared, sim-
ply described purpose: to halt Block’s practice of misrepresenting
8               JTH TAX v. H & R BLOCK EASTERN TAX
loans as refunds. The foundational provisions of each decree evince
a general concern, not only for protecting consumers from unwittingly
incurring interest and bank fees, but for protecting consumers gener-
ally from unknowingly subjecting themselves to the full complement
of detriments and obligations endemic to loan transactions.3 A num-
ber of the decrees’ more specific provisions likewise reflect a concern
for ensuring that the disclosure of RALs’ loan characteristics other
than the charging of interest and traditional bank fees would occur.4
At bottom, this concern reflects a recognition that insufficient disclo-
sure of these non-interest, non-fee characteristics threatens the wel-
fare of consumers and the marketplace.

   It is plain that NACRALs, identical as they are to RALs in all
respects save the charging of interest and other traditional bank fees,
pose the same threat to consumers and the marketplace, at least inso-
far as the RALs’ and NACRALs’ shared characteristics are con-
cerned. It is equally plain that Block, in modifying its RAL product
to create the NACRAL product, failed to eliminate all of the concerns
animating the consent decrees. Thus, the fact that Block advertised
NACRALs as "refunds," "refund amounts," and checks "in the
amount of your refund" on the heels of its repeated representations by
way of the consent decrees that it would no longer misrepresent loan
    3
     The main provision of the Florida decree, for example, provides that
whenever Block advertises a RAL, it "may not directly or indirectly rep-
resent such loan as a refund," and that Block "will disclose to taxpayers
that [RALs] in fact are loans and not a substitute for or a quicker way
of receiving an income tax refund." (J.A. at 690.) The Connecticut decree
similarly provides that Block "shall disclose to taxpayers that [RALs]
are, in fact, loans and not a substitute for or a quicker way of receiving
an income tax refund," and that whenever Block advertises a RAL, "it
may not directly or indirectly represent such loan as a refund." Id. at 766-
67.
   4
     Thus, the Florida decree requires Block to "prominently display . . .
a sign disclosing to consumers . . . withholding procedures, [and]
expected time frames for payment of loans." Id. at 691. The New York
decree similarly requires Block to disclose any features of an RAL that
"could cause the consumer to be approved for a [RAL] for an amount
less than the consumer’s full anticipated refund . . . [and] the expected
time delay for the receipt by the consumer of the balance of the consum-
er’s actual refund." (J.A. at 701.).
               JTH TAX v. H & R BLOCK EASTERN TAX                    9
products as refunds amply supports the district court’s conclusion that
Block conducted its NACRAL advertising campaign in bad faith. The
fact that no prior judgment was entered against Block is simply irrele-
vant.

   Block’s contention that the district court erroneously relied on
Block’s failure to comply with Publication 1345 fails for strikingly
similar reasons. Block’s primary contention is that Publication 1345
aims solely at prohibiting e-file providers from misrepresenting
interest-bearing loans as refunds. Because, according to Block, it
believed that NACRALs, which do not bear interest, did not consti-
tute RALs for purposes of the requirements of Publication 1345, that
regulation cannot possibly serve as a basis for a finding that Block
intentionally misled potential NACRAL consumers by advertising
them as "refunds," "refund amounts," and the like.

  Publication 1345 in relevant part provides:

    A Refund Anticipation Loan (RAL) is money borrowed by
    the taxpayer from a lender based on the taxpayer’s antici-
    pated refund amount. . . . All parties to RAL agreements,
    including [providers such as Block], must ensure that tax-
    payers understand that RALs are interest bearing loans and
    not substitutes for a faster way of receiving refunds.

    ....

    In advertising the availability of a RAL, an Authorized e-file
    Provider and a financial institution must clearly (and, if
    applicable in easily readable print) refer to or describe the
    funds being advanced as a loan, not a refund; that is, it must
    be made clear in the advertising that the taxpayer is borrow-
    ing against the anticipated refund and not obtaining the
    refund itself from the financial institution.

IRS Pub. 1345, Ch. 3 & § 12.09, Rev. Proc. 98-50, 1998 WL 638827.
(emphases added).

  Although Publication 1345 at one point refers to RALs as "interest
bearing loans," the first portion of the regulation clearly provides a
10             JTH TAX v. H & R BLOCK EASTERN TAX
baseline definition under which the charging of interest is neither a
necessary nor a sufficient component. In defining RALS as "money
borrowed by the taxpayer from a lender based on the taxpayer’s antic-
ipated refund amount," the IRS clearly brought NACRALs and other
similar products within the regulation’s ambit. Moreover, by making
no mention of interest in the more affirmative provisions concerning
the manner in which e-file providers must advertise RALs, Publica-
tion 1345 evinces a broad purpose to prohibit e-file providers from
blurring the lines between loans and refunds, irrespective of whether
the loans at issue require the payment of interest. Because the reach
of Publication 1345 extends beyond mere interest-bearing loans to
those, such as NACRALs, involving short-term borrowing against
taxpayers’ anticipated refunds but no interest charges, it was more
than reasonable for the district court to find that Block’s NACRAL
advertisements, which were disseminated in violation of the strictures
of Publication 1345, revealed a deliberate intent to mislead consumers
and unfairly compete in the marketplace.

   In view of Block’s history of affirmatively representing in multiple
state consent decrees that it would refrain from advertising RAL prod-
ucts in a misleading manner; the public nature of the provisions set
forth in Publication 1345, requiring Block to do the same; the largely
identical character of the RAL and NACRAL products; and the nature
of Block’s 2000 Hampton Roads NACRAL advertising campaign, we
have little trouble concluding that the district court’s conclusion that
Block acted maliciously, willfully, deliberately, and in bad faith in
conducting that advertising campaign was more than reasonable. In so
concluding, we are ever mindful that the district court’s conclusion
need only be "plausible in light of the record reviewed in its entirety."
Anderson, supra, 470 U.S. at 573. Upon a thorough review of the
record before us, we cannot fairly say that the court’s conclusion was
clearly erroneous.

                                  III.

   Block next challenges the district court’s factual finding of materi-
ality. To recover under the Act, a plaintiff must demonstrate, inter
alia, that the false or misleading advertisements at issue were "mate-
rial" in that they were "likely to influence the purchasing decision."
See United Indus. Corp. v. Clorox Co., 140 F.3d 1175, 1180 (8th Cir.
                JTH TAX v. H & R BLOCK EASTERN TAX                     11
1998); J. Thomas McCarthy, 4 McCarthy on Trademarks and Unfair
Competition § 27:35 (4th Ed. 2001). The district court rejected
Block’s argument that because the NACRAL includes no interest or
fees, the deception involved in advertising a NACRAL as a "refund,"
"refund amount," or a check in "the amount of your refund" is imma-
terial. The court first found that Liberty had presented probative evi-
dence that NACRALs entail several unattractive features associated
with loans. The court then found that Liberty’s marketing expert, Dr.
Myron Glassman ("Dr. Glassman"), offered probative causality evi-
dence by way of a consumer survey. The court pointed out that 21.7%
of those surveyed under Dr. Glassman’s direction indicated that use
of the phrase "refund amount" would be more effective than use of
the term "loan," precisely because the former language communicated
the impression that the product advertised was not a loan. From this
evidence, the court drew the "clear inference" that the deception was
material in that consumers prefer a refund over any type of loan prod-
uct, including a NACRAL.

   Block essentially challenges Dr. Glassman’s survey as being irrele-
vant. The fatal flaw, according to Block, is that the survey failed to
alert its respondents to those characteristics that NACRALs and
RALs do not share, i.e., the fact that no interest or bank fees are
charged in conjunction with a NACRAL. We disagree and conclude
that while Dr. Glassman’s survey could have been designed more pre-
cisely, the survey’s results are sufficient to establish that representing
a loan product as a "refund amount" would affect a reasonable con-
sumer’s purchasing decision.

   The survey tends to show that consumers associate loans with a
bundle of unfavorable conditions and obligations, many of which
have nothing to do with the payment of interest. It thus was reason-
able for the district court to find that using terms such as "refund" or
"refund amount" to advertise a non-interest-bearing loan such as a
NACRAL would affect a reasonable consumer’s decision making
process. Although Block’s view of the evidence on this point is rea-
sonable, where, as here, "there are two permissible views of the evi-
dence, the fact finder’s choice between them cannot be clearly
erroneous." Scrimgeour v. Internal Revenue, 149 F.3d 318, 324 (4th
Cir. 1998). In short, one of at least two permissible views of Dr.
Glassman’s survey supports the conclusion that Block’s misrepresen-
12                JTH TAX v. H & R BLOCK EASTERN TAX
tation of NACRALs is material to consumers’ purchasing decisions.
The court’s reliance on Dr. Glassman’s survey therefore was not
clearly erroneous.

                                      IV.

   Block raises numerous challenges to the district court’s $506,477
award of Block’s profits, two of which merit attention here. First,
Block disputes the court’s use of its gross revenues rather than its net
profits to calculate the award, notwithstanding the introduction of
competent evidence as to Block’s costs. Second, Block maintains that
the court erred in neglecting to reduce future profits to present value.
On both scores, we agree.

     The Act provides that a prevailing plaintiff:

       shall be entitled, subject to the principles of equity, to
       recover (1) defendant’s profits, (2) any damages sustained
       by the plaintiff, and (3) the costs of the action. . . . In assess-
       ing profits the plaintiff shall be required to prove defen-
       dant’s sales only; defendant must prove all elements of cost
       or deduction claimed. . . . If the court shall find that the
       amount of the recovery based on profits is either inadequate
       or excessive the court may in its discretion enter judgment
       for such sum as the court shall find to be just, according to
       the circumstances of the case. Such sum in either of the
       above circumstances shall constitute compensation and not
       a penalty.

15 U.S.C.A. § 1117(a) (West 1998 & Supp. 2000). An award of prof-
its under the Act is committed to the discretion of the district court;
we therefore review for an abuse of discretion. See Pebble Beach Co.
v. Tour 18 I Ltd., 155 F.3d 526, 554 (5th Cir. 1998).

   The district court found that during the 2000 tax season Block
increased by 24.8% the number of returns it processed in Hampton
Roads, in contrast to a 0.8% increase in those areas of Virginia where
Block refrained from running its false and misleading ads. The court
thus found that Block’s NACRAL campaign was a success in that it
               JTH TAX v. H & R BLOCK EASTERN TAX                     13
provided an increased client base for future tax preparation services
and increased cross-marketing opportunities for its mortgage and
financial services.5 Relying on expert testimony, the court concluded
that, excluding the 0.8% increase in customers in non-NACRAL areas
of Virginia, Block serviced an additional 9,446 returns as a result of
its false and misleading ads.

   Excluding the presence of other potential injured parties as unsup-
ported by Block’s evidence, the court determined that the relevant
sphere of Block competitors included seventy Jackson-Hewitt offices
and seventeen Liberty offices.6 The court then used its "equitable dis-
cretion" to quantify Liberty’s market share at 18%, resulting in a
determination that Block had improperly obtained 1,700 taxpayer
returns vis-a-vis Liberty. Using an "average fee per client" of $83.22,
the court calculated Block’s immediate gains at $141,474.

   Seizing upon an expert’s report indicating that nearly 43% of
Block’s tax clients showed an interest in additional services, the court
used this figure as an "equitable proxy" for that percentage of the
1,700 clients Block had improperly obtained vis-a-vis Liberty that
would use Block’s services in the future. Thus, the court found that
731 of Block’s unjustly obtained clients would remain Block clients
in future years. Relying again on an expert report indicating that the
"average retention of a client" is six years, the court determined that
Block effectively would be enriched by an amount equal to the prod-
uct of Block’s "average fee per client" and the number of long-term
clients improperly retained, 731, over a period extending six years
beyond the 2000 tax season. The court thus concluded that Block
would pocket an additional $365,003 in profits over that six-year
period. Combining this quantum of profits with the $141,474 in prof-

  5
     The court specifically found that the dramatic increase in returns
related primarily to Block’s false and misleading advertising tactics
rather than its bundled pricing format. See JTH Tax, Inc., 128 F. Supp. 2d
at 945 n.16.
   6
     The court found that only seventeen of the nineteen relevant Liberty
offices were fully operational during the 2000 tax season. See JTH Tax,
Inc., 128 F. Supp. 2d at 945 n.17.
14              JTH TAX v. H & R BLOCK EASTERN TAX
its attributable to the 2000 tax season, the court awarded Liberty
$506,477 in Block’s profits.7

   The plain language of the Act clearly indicates that a defendant’s
"profits" are to be calculated by reducing the amount of the defen-
dant’s "sales" by appropriate "elements of cost or deduction," so long
as the defendant proves those elements. See 15 U.S.C.A. § 1117(a).
One of Block’s experts testified that for the ten month period ending
on February 29, 2000, Block earned average revenues per tax return
in the amount of $95.92; its per return costs came to $67.85; and the
resulting net earnings per return amounted to $28.07. (J.A. at 594-96,
1234.) The district court, while purporting to enter an award of
Block’s "profits," inexplicably neglected to address Block’s evidence
of costs, awarding Block’s gross revenues instead.

   While the district court had the discretion under the Act to enter
judgment for a sum it deemed just if it found under the circumstances
that an award of Block’s profits was "inadequate," there is no indica-
tion that this is what the court did. Rather, it appears that the court
simply erred in applying the terms of the Act and its own formula. We
therefore hold that the court abused its discretion in awarding Block’s
profits insofar as it failed to consider evidence of Block’s costs.

   Block also contends that the district court erred in failing to reduce
to present value the portion of its award attributable to profits the
court projected Block would earn over the six-year period following
the 2000 tax season. It is well established that "damages awards in
suits governed by federal law should be based on present value." St.
Louis Southwestern Railway Co. v. Dickerson, 470 U.S. 409, 412
(1985); see also Jones & Laughlin Steel Corp. v. Pfeifer, 462 U.S.
523, 536-37 (1983) (where interest safely may be earned upon the
amount awarded to an injured party, the ascertained future benefits
should be discounted to their present value). Here, the court failed to
discount that portion of the award attributable to Block’s future prof-
its. Absent a finding that a conventional award of Block’s future prof-
  7
   The court denied, however, Liberty’s request for "damages sustained
by the plaintiff" under the Act on the ground that any such damages were
unreasonably difficult to quantify due to the lack of comparative histori-
cal data. See JTH Tax, Inc., 128 F. Supp. 2d at 945-46.
               JTH TAX v. H & R BLOCK EASTERN TAX                     15
its — i.e., one that reduced such profits to present value — was
inadequate, the award constituted a windfall to Liberty and unneces-
sarily penalized Block. We therefore additionally hold that the court’s
failure to consider the effect of the time value of money on the por-
tion of its award attributable to profits Block was projected to earn in
future years was an abuse of discretion.

  In accordance with the foregoing, we vacate the award of profits
and remand for recalculation.

                                   V.

   Block also maintains that the injunction entered against it is over-
broad insofar as it enjoins the use of its "rapid refund" mark. We
agree and reverse that portion of the court’s order. The Act vests dis-
trict courts with the "power to grant injunctions, according to the prin-
ciples of equity and upon such terms as the court may deem
reasonable, to . . . prevent a violation under [§ 1125(a)]." 15 U.S.C.A.
§ 1116(a) (West 1998 & Supp. 2000). It is well established, however,
"that the essence of equity jurisdiction has been the power to grant
relief no broader than necessary to cure the effects of the harm caused
by the violation." Forschner Group v. Arrow Trading Co., 124 F.3d
402, 406 (2d Cir. 1997); see also Alpo Petfoods, Inc. v. Ralston
Purina Co., 913 F.2d 958, 972 (D.C. Cir. 1990), costs/fees proceed-
ing, on remand, 778 F. Supp. 555 (D.D.C. 1991), amended, 1991 U.S.
Dist. LEXIS 17326 (D.D.C. Dec. 3, 1991), aff’d in part and rev’d in
part, remanded, 997 F.2d 949 (D.C. Cir. 1993) ("The law requires
that courts closely tailor injunctions to the harm that they address.");
see generally, 4 McCarthy § 30:3 (discussing the tailoring of an
injunction to the specific case).

   We conclude that the injunction against the use of the "rapid
refund" mark exceeds the court’s power to fashion an effective rem-
edy. In enjoining certain of Block’s advertising practices, the district
court ostensibly sought to prohibit it from misleading consumers to
believe that NACRALs are something other than loans. The first two
prongs of the injunctive relief awarded in the district court adequately
address this goal by prohibiting Block from advertising in violation
of Publication 1345, and from using specified phrases, such as "re-
fund amount," without clearly informing the consumer that the adver-
16              JTH TAX v. H & R BLOCK EASTERN TAX
tised product is in fact a loan. In the context of this case, there is
nothing intrinsically harmful about the "rapid refund" mark itself that
is not otherwise addressed in the first two prongs of injunctive relief.
See JTH Tax, Inc., 128 F. Supp. 2d at 952 (granting three forms of
injunctive relief). Consequently, redressing the harm that Block’s
false and misleading advertising has caused does not require a blanket
prohibition on the mark’s use in connection with loan products. We
therefore vacate that portion of the injunctive relief prohibiting Block
from using "the term or mark ‘rapid refund’ in connection with loan
products, whether or not fees or interest are charged," id., and remand
for removal of that element of relief.

                                    VI.

   Block finally disputes a portion of the district court’s award of
attorneys’ fees and costs, arguing that the court erred by ordering
Block to pay to Liberty fees and costs incurred by one of Liberty’s
law firms that eventually withdrew from representation after a dispute
arose concerning whether or not the firm had violated the Virginia
Code of Professional Responsibility.8 For reasons discussed briefly
below, we affirm the district court’s award of attorneys’ fees and
costs.

   Block argues that the representation Willcox & Savage ("Willcox")
provided to Liberty in this case violated the Virginia Rules of Profes-
sional Conduct, thereby making an award of attorneys’ fees and costs
improper. We disagree. In 1994, Willcox represented Block in a mat-
ter involving claims of false advertising of tax preparation services
under the Act. As a result, Block contends, Willcox’s representation
of Liberty in the instant matter violated Rule 1.9(a) of the Virginia
Rules of Professional Conduct.9 During the pendency of the instant
  8
    Block’s separate appeal on this issue has been consolidated with the
underlying case for purposes of our review.
  9
    Rule 1.9(a)provides: "A lawyer who has formerly represented a client
in a matter shall not thereafter represent another person in the same or
substantially related matter in which that person’s interests are materially
adverse to the interests of the former client unless both the present and
former client consent after consultation." Va. R. Prof’l Conduct 1.9(a)
(2000).
                JTH TAX v. H & R BLOCK EASTERN TAX                       17
action, Willcox also was counsel of record for Block in a Virginia
state court matter that remained on the court’s docket despite the fact
that no filing or pleading had been received from the plaintiffs for a
lengthy period. Block thus maintains that Willcox’s representation of
Liberty independently violated Rule 1.7(a) of the Virginia Rules of
Professional Conduct.10 Block therefore argues that the portion of the
district court’s award of attorneys’ fees attributable to Willcox’s ser-
vices is improper and should be reversed.

   The district court found that Block was not an "existing client" of
Willcox within the meaning of Rule 1.7(a), reasoning that the matter
had been sufficiently dormant to make Willcox’s duties to Block
purely "ministerial." (J.A. at 1500-01.) The court also found, how-
ever, that the false advertising matter in which Willcox previously
had represented Block was "substantially related" to the instant litiga-
tion, concluding that Willcox’s current representation of Liberty
therefore violated Rule 1.9(a). Nonetheless, the court concluded that
Block had suffered no prejudice, and thus that no equitable remedy
should be had. Instead, the court held, "the appropriate remedy is for
[Block] to refer [Willcox] to the Virginia State Bar for its violation
of Rule 1.9(a)." (J.A. at 1499.) In the court’s view, this approach "ser-
ve[d] the Lanham Act’s goal of deterrence as well as the disciplinary
goals of Virginia’s Rules of Professional Conduct." Id. at 1500.

   Relying on Image Technical Serv., Inc. v. Eastman Kodak Co., 136
F.3d 1354 (9th Cir. 1998), Block argues on appeal that because Will-
cox breached its duty of loyalty to Block in its representation of Lib-
erty, it was reversible error to award Liberty fees and costs
attributable to Willcox’s representation. In Image Technical, the Cou-
dert Brothers law firm represented the plaintiff, Image Technical Ser-
vice, Inc., against Kodak in an antitrust action. Kodak moved to
disqualify Coudert Brothers because the firm had represented a divi-
sion of Kodak in other matters, and the district court granted the
motion. After the plaintiff prevailed at trial, the court awarded it attor-
  10
    Rule 1.7(a) provides: "A lawyer shall not represent a client if the rep-
resentation of that client will be directly adverse to another existing cli-
ent, unless: (1) the lawyer reasonably believes the representation will not
adversely affect the relationship with the other client; and (2) each client
consents after consultation." Va. R. Prof’l Conduct 1.7(a) (2000).
18              JTH TAX v. H & R BLOCK EASTERN TAX
neys’ fees, including $400,000 for Coudert Brothers’ representation.
On appeal, Kodak argued that it should not be required to pay any
amount to Image Technical for Coudert Brothers’ representation. The
Ninth Circuit held that Kodak could not be required to pay the fees
of conflicted counsel for their services to the prevailing party:

     [A] law firm representing the antitrust plaintiffs simulta-
     neously represented the antitrust defendant, a clear violation
     of the applicable ethics rules. Image Technical is under no
     obligation to pay any fees to the law firm, Coudert, for its
     conflicted representation. Absent some representation that
     Image Technical, the party requesting fees, will not retain
     the $400,000, it stands to receive a sizeable windfall. And
     if Image Technical does not retain the $400,000 and pays
     Coudert, Coudert will receive compensation which Califor-
     nia law says it cannot recover.

        If Coudert had breached a duty of loyalty to Image Tech
     only, there would be a better argument for allowing Image
     Tech to recover and retain the fees. The $400,000 would not
     be so much a windfall as recompense for conflicted repre-
     sentation. Here, however, it compounds injustice to allow
     Image Tech to receive $400,000 from Kodak, the party
     injured by the ethical violation. Moreover, it is less of a con-
     cern that Kodak, as the defendant potentially liable for the
     fees, will receive a windfall if it is not ordered to pay Image
     Tech the fees, because Kodak is the client injured by Cou-
     dert’s breach of its duty of loyalty when it simultaneously
     represented Kodak and Image Tech.

Image Technical, 136 F.3d at 1359.

   The primary difference between Image Technical and the case
before us is that Liberty already has paid Willcox’s fees and the costs
incurred in connection with Willcox’s representation. In Image Tech-
nical, the plaintiff had yet to pay offending counsel its fees, and the
court thus was appropriately concerned that a fee award either would
provide compensation to conflicted counsel in violation of California
law or bestow a sizeable windfall on the plaintiff. We face no such
dilemma. Even assuming Willcox has violated one or more of Virgin-
               JTH TAX v. H & R BLOCK EASTERN TAX                   19
ia’s Rules of Professional Conduct, the court’s fee award has no bear-
ing on the question of whether conflicted counsel will be paid for its
services, for Willcox already has been paid. Neither does the fee
award in this case constitute a windfall to the plaintiff, for Liberty
merely seeks compensation for fees it already has parted with.

   Consequently, an award of attorneys’ fees and costs here does
nothing more than fairly compensate a prevailing plaintiff against a
defendant found to have engaged in willful misconduct under federal
law. If Block seeks a remedy for conflicted representation, that rem-
edy is most appropriately sought by filing a complaint with the Vir-
ginia State Bar, or by filing suit against Willcox under the applicable
law. For these reasons, the district court’s award of attorneys’ fees
and costs is hereby affirmed.

                                 VII.

   We affirm the district court’s finding that Block acted willfully in
violating 15 U.S.C. § 1125(a). We also affirm the court’s finding that
Block’s false and misleading advertisements were material to a rea-
sonable consumer’s purchasing decision. In addition, we affirm the
court’s award of attorneys’ fees and costs. We vacate the court’s
award of Block’s profits and remand for the court to redetermine the
damages to which Liberty is entitled under 15 U.S.C. § 1117(a). We
additionally vacate that portion of the injunction prohibiting Block
from using "the term or mark ‘rapid refund’ in connection with loan
products, whether or not fees or interest are charged," and remand for
removal of that element of injunctive relief.

                        AFFIRMED IN PART, VACATED IN PART,
                                            AND REMANDED