RAYMOND P. MOORE, United States District Judge.
Defendant Larry Paul Kunze a/k/a Lorenzo Kunze
To the extent that any conclusions of law are deemed to be findings of fact, they are incorporated herein by reference as findings of fact.
1. ELI is a Colorado corporation with its principal place of business at 651 Garrison St., Suite 200, Lakewood, Colorado. ELI does business as "ROCKY MOUNTAIN LASER COLLEGE" and RMLC, and operates on a fiscal year which runs from February 1st to January 31st.
2. Mr. Kunze is a Colorado citizen who, during the relevant time period, resided at 16545 W. Bayaud Dr., Golden, Colorado, less than 10 miles from ELI. Mr. Kunze operated ELI in its current form since at least the 1990s. Mr. Kunze was the sole shareholder of ELI until he sold it to the Fluken-Riggs. ELI was, essentially, a family business.
3. In addition to owning and operating ELI, Mr. Kunze also did business under the name "American Laser College."
4. Mr. Kunze, Jr. is Mr. Kunze's son and, during the relevant time period, also a Colorado citizen and resident. Mr. Kunze, Jr. worked for ELI under his father's ownership and briefly thereafter.
5. Ray Fluken and Jody Riggs Fluken are husband and wife, and Colorado citizens. Jessica Riggs, also a Colorado citizen, is Mrs. Fluken's daughter and Mr. Fluken's stepdaughter.
6. Under the ownership of Mr. Kunze, ELI earned income primarily from three sources — its occupational school, its clinic, and the sale of laser equipment.
7. ELI's laser education course consisted of 40 hours of training through a curriculum approved and regulated by the Colorado Department of Higher Education, Division of Private Occupational Schools ("DPOS"). ELI's students received RMLC written materials and hands-on training on laser equipment in the course taught by Mr. Kunze.
8. In order to market classes and sell laser equipment, ELI maintained a customer list, identifying students who took the RMLC laser education course. The list changed over time to reflect additional enrollments. The student information was exchanged only between students within class, not to other classes and their students. ELI did maintain some precautions in keeping its student information confidential, such as keeping the files under
9. Sometime in the 1990s, ELI began awarding its students "Certified Laser Specialist" or "CLS" certificates, showing they were trained at ROCKY MOUNTAIN LASER COLLEGE.
10. In connection with its business, ELI has long used the marks "ROCKY MOUNTAIN LASER COLLEGE," "RMLC," "Certified Laser Specialist," and "CLS." ELI advertised ROCKY MOUNTAIN LASER COLLEGE and RMLC extensively through the internet and on its course materials.
11. For a significant period of time, ELI used laserlaser.com to advertise its goods and services, e.g., its clinic and educational course. ELI used this site to promote ROCKY MOUNTAIN LASER COLLEGE and to drive business to ELI.
12. Although laserlaser.com was the primary source of ELI's advertisement, it also used www.laser-college.com, www.no-hair.com, www.yes-hair.com, www.no-vein.com, www.polyfacial.com, www.laser-white.com, www.no-tattoo.com, and www.nowrinkle.com (the eight sites, collectively, the "Websites"). ELI paid for the cost of servicing at least some, if not all, of the Websites and laserlaser.com through December 31, 2008 or 2009, even though Mr. Kunze owned them and registered them in his name individually.
13. Through his many years in the industry and in teaching the RMLC laser education course, Mr. Kunze was well known in the aesthetic laser education industry, and touted his experience on the internet, including laserlaser.com. While Mr. Kunze was a "gifted" teacher, he was not as educated or experienced as he touted. While ELI's business and Certified Laser Specialist were recognized by some in the industry, they were also not as Mr. Kunze represented. Instead, Mr. Kunze intentionally made numerous misrepresentations on the laserlaser.com website, including misrepresentations concerning the extent of his education, experience, and certifications; the number of CLS certifications that ELI had awarded to RMLC students; and that Certified Laser Specialist was a registered trademark when it was not.
14. It was through laserlaser.com that Ms. Riggs found ELI in October 2007 and took the RMLC course taught by Mr. Kunze. Ms. Riggs received course materials but was not restricted in any way as to its use. ELI placed no restrictions on the use of its curriculum by its students, during or after the course was completed.
15. In January 2008, Ms. Riggs began working for ELI.
16. In June 2008, Mr. Kunze submitted a trademark application for the mark "CLS (Certified Laser Specialist)" (Ex. 124), to be registered in the Principal Register, stating the mark was first used as of July 28, 1997. Mr. Kunze had a specimen prepared for a Certified Laser Specialist certificate, with the date July 24, 1997. (Ex. 57.) But, Mr. Kunze never completed the registration process. Nonetheless, Mr. Kunze continued to represent to the public that the mark was in fact registered.
17. Sometime in 2008, Mr. Kunze approached Ms. Riggs and others to see if they were interested in buying ELI. Over the course of 2008 and 2009, the Fluken-Riggs investigated purchasing ELI from Mr. Kunze for $1 Million. During this process, Mr. Kunze made a number of representations to the Fluken-Riggs that were untrue, including, as material to this case:
18. Mr. Fluken was skeptical about paying $1 Million for ELI and believed Mr. Kunze overstated or exaggerated how much money the business made. Mr. Fluken received a schedule of fixed assets and inventory stated to be worth $455,248.00 (Ex. 41), but he did not believe they were worth that much. So, Mr. Kunze asked ELI's accountant for financial information and asked Ms. Riggs for backup documentation to check the accuracy of ELI's financials.
19. Mr. Fluken also relied on Ms. Riggs to verify what equipment was on the premises and what was owned or on loan, including two working MediDerms on loan from the manufacturer.
20. Meanwhile, in about November 2009, Mr. Kunze met with Arthur Barbera, an owner of a pre-owned laser equipment company, to discuss laser related business opportunities, including selling lasers to former and current students of ELI. Mr. Barbera was introduced to Mr. Kunze by Mike Sparks of Cynosure, a manufacturer of esthetic and medical equipment. Mr. Sparks sold laser equipment to ELI's students.
21. By December 2009, Mr. Kunze and the Fluken-Riggs agreed to a stock purchase of ELI. The purchase price was $1 Million, to be paid with an initial deposit of $10,000.00, a loan from American Bank of Commerce ("ABC Bank") for $650,000.00, a $250,000.00 Promissory Note to Mr. Kunze, and $90,000.00 from the Fluken-Riggs.
22. Although the parties discussed transferring the Websites to ELI, no agreement was ever reached. Instead, Mr. Kunze and the Fluken-Riggs agreed to a transfer of ELI's stock, as memorialized in that certain Purchase and Sale Agreement ("PSA") dated December 22, 2009. (Ex. 2.) As relevant to the issues, the PSA provides as follows:
23. On December 23, 2009, Mr. Kunze and ELI entered into an Independent Contractor Agreement ("ICA") which provides, in relevant part:
24. Mr. Kunze, ELI, and the Fluken-Riggs entered into a Promissory Note for $250,000.00 dated December 22, 2009, which provides, in relevant part:
25. The Promissory Note also provides for an increase in the interest rate to 14% from the date the note is accelerated. No notice of acceleration was ever given.
26. ELI's business is run with the assistance of only a few people, essentially consisting of employees/officers the Fluken-Riggs, employee Mr. Kunze, Jr., an administrator, and independent contractor Mr. Kunze. After their purchase of ELI, the Fluken-Riggs made a number of changes or additions to ELI.
27. They developed a new website for ELI which was up and running by early 2011. Until then, ELI continued to use the laserlaser.com website to direct traffic to its business, which ELI made no payment to maintain.
28. They revised ELI's course materials over time, and ELI now requires students to sign an agreement acknowledging they cannot use the ROCKY MOUNTAIN LASER COLLEGE materials outside of the class.
29. They took a number of measures to protect the business and its data, including changing the passwords, acquiring a password protected third-party accounting system, and putting in a third-party scheduler.
30. They maintain the confidentiality of ELI's customer list/information, which is updated with new clients and new students. ELI does not share the information with outsiders and has password protection on the computer system which contains the list.
31. For about the first nine months of 2010 ELI was making money and increasing its student count under the Fluken-Riggs' ownership. Mr. Kunze was conducting classroom sessions at the Lakewood facility. Nonetheless, when ELI asked Mr. Kunze to conduct offsite classes, he refused. Thus, he did not conduct four classroom sessions each year on behalf of ELI outside of its Lakewood facility.
32. Instead, in or about October 2010, Mr. Kunze began demanding that he be released from the ICA. ELI refused to do so. Unbeknownst to Plaintiffs, Mr. Kunze
33. Thus, in December 2010, Mr. Kunze asked an ELI employee (who also worked for ELI under Mr. Kunze's ownership) to provide him with an updated student information list so that he could sell lasers to ELI's former and current students.
34. Also about this time period, ELI increased its advertised prices for its laser education course from $4,000.00 to $6,000.00. Notwithstanding this advertised price increase, ELI provided discounts to students for a variety of reasons.
35. In January 2011, Mr. Kunze taught four students (employees of former ELI student Martha Livermore) in Houston, Texas. Ms. Livermore contacted ELI at its Lakewood facility, looking for Mr. Kunze to teach a class and issue ROCKY MOUNTAIN LASER COLLEGE certificates to her employees. Mr. Kunze offered to teach the class, at Ms. Livermore's location in Texas. For Ms. Livermore, what was important was receiving a certificate from ROCKY MOUNTAIN LASER COLLEGE and being taught by Mr. Kunze. Ms. Livermore thought the Certified Laser Specialist certification was important because it was represented as such by Mr. Kunze.
36. Ms. Livermore's employees thought they were taking a ROCKY MOUNTAIN LASER COLLEGE course, but they were not. Instead, Mr. Kunze taught a shorter class for his own business, American Laser College. Nonetheless, he used ELI's ROCKY MOUNTAIN LASER COLLEGE marks and curriculum as if they were his own. He handed out ROCKY MOUNTAIN LASER COLLEGE business cards, and used ROCKY MOUNTAIN LASER COLLEGE interchangeably with American Laser College such that the students thought the entities were the same. He awarded those students CERTIFIED LASER SPECIALIST certificates, and issued the certificates under ROCKY MOUNTAIN LASER COLLEGE's name. Mr. Kunze backdated the certificates as if they were issued in 2010, when they were not; he put a stamp on those certificates implying the certificate or course was sanctioned by the Texas Department of Education when it was not.
37. Mr. Kunze received $4,000.00 for teaching the class but did not notify ELI or offer to share any of those earnings with ELI, despite the fact that his offer to provide the course was made within 25 miles of ELI's office. And, despite the fact that he used ELI's curriculum and marks and represented he was teaching on behalf of ROCKY MOUNTAIN LASER COLLEGE.
38. In competition with ELI, using ELI's information, Mr. Kunze sold lasers for Quanta to customers of ELI. By February 2011, Mr. Kunze sold his first laser for Quanta, earning about $5,000.00 in commissions. Thereafter, during the 1st quarter of 2011, Mr. Kunze sold lasers earning additional commissions of $15,000.00.
39. Without Plaintiffs' knowledge, in March 2011, Mr. Kunze sought to register "Certified Laser Specialist" as his trademark.
40. In addition, Mr. Kunze disclosed the fact he sold ELI to a number of third-parties and made disparaging remarks about ELI and Mr. Fluken and their running of the business. Due to Mr. Kunze's negative remarks about ELI and Mr. Fluken, Ms. Livermore took her business elsewhere, hiring another instructor to train her students in Houston. Ms. Livermore had four students trained by the new instructor and, at the time of her deposition, one more scheduled, for a total of five
41. Also during this time period, Mr. Kunze continued seeking to terminate his relationship with ELI, including "threatening" to resign. Mr. Kunze wanted to work with Messrs. Sparks and Barbera in selling lasers to ELI's customers and conducting competing laser education classes.
42. With Mr. Kunze unwilling to continue with the parties' current working relationship, on Monday, April 4, 2011, ELI and Mr. Kunze entered into an amendment
43. In effect, by its terms, the Amendment also amended the Promissory Note.
44. Mr. Kunze, however, did not comply with the Amendment.
45. First, Mr. Kunze did not teach classes for ELI throughout the 2011 fiscal year.
46. Mr. Kunze taught laser education courses through ANMM d/b/a The Laser Center for Education, a company formed by Messrs. Barbera, Sparks, and others. Mr. Kunze, however, used ELI's curriculum, marks, pictures, and/or information to do so.
47. Mr. Kunze, through the American Laser College website (laserlaser.com), advertised his services by using ROCKY MOUNTAIN LASER COLLEGE's name interchangeably with American Laser College, as if they were affiliated. He directed
48. On laserlaser.com, using "American Laser College" and the mark ROCKY MOUNTAIN LASER COLLEGE, along with pictures from ELI's facility, Mr. Kunze advertised that he was providing laser training on April 28-30, 2011, in Bellevue, Washington.
49. On April 18, 2011, Mr. Kunze taught two students for $2,000.00, using ELI's curriculum and marks, but later awarded them certificates through ELI's competitor, Rock Creek Laser and Aesthetics Institute ("Rock Creek"). Mr. Kunze, however, did not use Rock Creek's laser education curriculum and, at that time, had no business relationship with Rock Creek.
50. In about late April 2011, after saving the information for his own account, Mr. Kunze deleted about 60 gigabytes of data from ELI's server, which included a list of ELI's customers — its students and clients. Mr. Kunze did so in order to solicit business from ELI's students and clients.
51. Also in about April 2011, ELI discovered that Mr. Kunze had not filed ELI's tax return for the year-ended January 31, 2009. The tax return had been timely prepared, but Mr. Kunze never filed it or paid the taxes owed resulting in the Internal Revenue Service assessing interest and penalties on top of the taxes that were owed. ELI paid the amount owed to the I.R.S. for the 2009 taxes.
52. On April 28-30, 2011, Mr. Kunze taught the Washington class as advertised on the laserlaser.com website, again for his own account. Mr. Kunze taught five students and gave them receipts from American Laser College. However, Mr. Kunze used ELI's ROCKY MOUNTAIN LASER COLLEGE/RMLC marks and course materials. Mr. Kunze used ROCKY MOUNTAIN LASER COLLEGE and American Laser College interchangeably during the course such that students thought they were the same or affiliated. Mr. Kunze represented to the students they would receive Certified Laser Specialists certificates, but they did not. The students were surprised or confused when they received Certified Laser Technician ("CLT") certificates from an entity they had never heard of — Rock Creek. Regardless, those students sought certification for using a laser and it really did not matter much, if at all, whether it was a CLT or a CLS. Unbeknownst to the students, at the time the course was given, Mr. Kunze had no business relationship with Rock Creek and did not use its approved curriculum.
53. How these five students came about to be taught by Mr. Kunze apparently differed. Diane Oakley took the class after she heard from Debbie Caddell, a former ELI student, that Mr. Kunze was coming to teach in Washington. Bradley Jellerichs, another student, was a new employee of Ms. Caddell, an employer who wanted all her employees to take the course from Mr. Kunze.
54. The relative sophistication of these students apparently varied. Mr. Jellerich checked whether the certification he would be receiving from Mr. Kunze's course was in fact required, and concluded it was not. Others, however, apparently blindly believed that it was required.
55. "Rock Creek" is Rock Creek Laser and Esthetics Institute and Rock Creek Medi Spa, a company with a spa and a small laser school which offered a Certified Laser Technician (CLT) certificate upon completion. Rock Creek's educational curriculum
56. ELI would not issue ROCKY MOUNTAIN LASER COLLEGE certificates because Mr. Kunze's offsite students were only to receive certificates of completion. In addition, by the time Mr. Kunze requested ELI to issue the certificates, the parties' relationship had terminated.
57. Specifically, on May 2, 2011, ELI terminated the Amendment for cause after discovering Mr. Kunze was not linking the laserlaser.com website to ELI's website and had downloaded student and client information from ELI's server. In addition, on the laserlaser.com website, Mr. Kunze was representing that he owned the trademark Certified Laser Specialist.
58. ELI asked Mr. Kunze to leave ELI's premises and to cease using its marks. Mr. Kunze believed ELI had terminated the parties' agreements, and the Court so finds.
59. Also on that date, Mr. Kunze taught a student for $1,000.00 and subsequently awarded him a certificate from Rock Creek. Again, this was before Mr. Kunze had any relationship with Rock Creek. As Mr. Kunze had neither his own curriculum nor Rock Creek's to use, the Court finds that he must have used ELI's.
60. On the following day, May 3, 2011, Mr. Kunze, through ANMM, offered ELI a check for $1,575.00 as its 10% commission for the class taught in Washington in exchange for Certified Laser Specialist certificates. ELI did not cash the check as the Amendment provided that only certificates of completion would be given. The Washington students paid $3,150.00 each, for a total of $15,750.00 in tuition for the course.
61. About this time, ELI allowed Mr. Kunze to take two THERMO-Los with the understanding that he would replace them. Despite demand, Mr. Kunze has never done so. The THERMO-Los had a value of $875.00 each.
62. ELI also allowed Mr. Kunze to take two MediDerms, each valued at $15,000.00, which he ultimately returned but in an inoperable condition with no value. The value of all equipment taken was $31,750.00 ($1,750.00 [$875.00 × 2 = THERMO-Los] + $30,000.00 [$15,000.00 × 2 = MediDerms]).
63. After Mr. Kunze was removed from the premises, ELI discovered that Mr. Kunze had been selling THERMO-Los to ELI's students, even after he sold ELI to the Fluken-Riggs. Those sales totaled $174,295.00. (Ex. 85.) Of those sales, three were to students who took classes in April 2011, on or after the April 4, 2011 Amendment which allowed Mr. Kunze to make such sales without restrictions.
64. With the termination of the parties' agreements, any prohibition against equipment sales also terminated. The non-compete (non-solicitation of prospective, current, and former clients for laser education and services), confidentiality, and indemnification provisions, however, survived. Thus, Mr. Kunze was still bound by the two-year non-compete, which applied until May 2013. Mr. Kunze, however, competed.
65. On laserlaser.com and other websites (such as no-hair.com and no-tattoo.com), Mr. Kunze made numerous false and misleading advertisements to the public. For example, Mr. Kunze represented one site was sponsored by ROCKY MOUNTAIN LASER COLLEGE or RMLC, when it was not; that CLS or Certified Laser Specialist was trademarked in 1997, when it was not; that there are 4,500 CLS specialists worldwide, when there was and is not; and that ROCKY MOUNTAIN LASER COLLEGE is associated with ALC and International Laser College, when it was and is not. Mr. Kunze, without authorization, used ELI's pictures and video, address, marks, policy, and curriculum. Mr. Kunze even displayed pictures of celebrities Mike Tyson or Beyoncé on two of these sites.
66. On May 7, 2011, Mr. Kunze approached Rock Creek about a potential buyer for its laser school, but no sale ever materialized. Instead, on or about May 17, 2011, ANMM and Rock Creek agreed that Mr. Kunze would train students under the auspices of Rock Creek and its curriculum, and certified laser technician certificates would be issued to students in exchange for 5% of the tuition fees. Mr. Kunze, however, asked Rock Creek to change its certificates to "Certified Laser Specialists" or to include "CLS."
67. In connection with his association with Rock Creek, Mr. Kunze used the laserlaser.com website to drive business to him. His false advertisements to consumers included misrepresenting that CLS was trademarked; using testimonials of ELI's students for that of Rock Creek or "The Laser College"; and using pictures and curriculum from ELI.
68. Between May 2, 2011 and August 19, 2011, Mr. Kunze trained 12 students, 11 of whom who paid a total of $37,500.00. Mr. Kunze used Rock Creek's license to issue these students certificates, but three of the students were trained before May 17, 2011, when Mr. Kunze had no agreement with Rock Creek. Moreover, Mr. Kunze issued certificates under Rock Creek's name but used, at least in part, ELI's curriculum and marks.
69. Mr. Kunze, Jr. continued to work for ELI after Mr. Kunze's removal, but not for long. On or about May 26, 2011, ELI terminated Mr. Kunze, Jr. after discovering that he was "rebranding" ELI's ROCKY MOUNTAIN LASER COLLEGE course materials as American Laser College materials for use by Mr. Kunze in teaching classes in competition with ELI. Mr. Kunze, Jr. had apparently done so for the Washington class.
70. On June 24, 2011, Mr. Kunze — again — sought to register Certified Laser Specialist as a trademark on the Principal Register, representing that he owned the mark, and that the mark had been used in commerce as early as July 1996.
71. On July 21, 2011, ELI filed suit. Mr. Kunze continued to compete.
72. Mr. Kunze continued to offer laser education courses, and to use ELI's pictures on the laserlaser.com website. One of Mr. Kunze's LinkedIn profiles stated he is the owner of Rocky Mountain Laser College.
73. After the parties' relationship terminated, Mr. Kunze not only competed against ELI but also made disparaging remarks about ELI and Mr. Fluken in order to do so.
74. On May 6, 2011, Mr. Kunze wrote to a Cynosure representative disparaging Mr. Fluken and his operation of ROCKY MOUNTAIN LASER COLLEGE, along with the services they provided. At that time ELI had Cynosure equipment on loan.
75. In February 2012, Mr. Kunze spread rumors that ELI was shutting down, so that he could reacquire the business. Mr. Kunze spread these rumors to ABC Bank and to ELI's landlord, and advised them that he — Mr. Kunze — could make a go of the business. Mr. Fluken had to convince the bank and landlord otherwise.
76. On November 4, 2014, ELI registered Certified Laser Specialist as a service mark on the U.S. Patent and Trademark Office's Supplemental Register. (Ex. 175) ELI's application to register the mark on the Principal Register was declined. (Ex. G.)
77. At the time of trial, Mr. Kunze owned two websites laserlaser.com and no-hair.com, but only the former was active.
78. Plaintiffs have made no payments on the Promissory Note.
79. Before and after the sale of ELI to the Fluken-Riggs, Mr. Kunze made numerous false and/or misleading advertisements in order to influence consumers to purchase his goods (e.g., lasers) and services. For example, in his advertising, Mr. Kunze said he is an M.E., implying he has a medical background when he does not; implied he has a degree in electrical engineering from Red Rocks Community College when he does not; stated he had "professional experience" with the American Heart Association when all he did was take a CPR course; said he was associated with numerous laser associations, including international associations, when he was not; implied he had written for a number of "laser publications" when he supposedly was only "quoted" "in quite a few of them"; and represented that 2,500 or 4,500 Certified Laser Specialist certificates were awarded, which were not. In addition, he advertised that he held a number of patents, including "laracaine" (purportedly a skin desensitizer), laser googles, a thermo-paper template, and THERMO-Lo, when he did not. Mr. Kunze's misrepresentations know no bounds.
80. ELI's class revenues were as follows: $455,548 (FYE
81. Paul Cadorette, Plaintiffs' expert ("Plaintiffs' Expert"), issued two opinions concerning ELI's losses. The first opinion was issued on August 8, 2012, opining ELI suffered damages in the amount of $779,073.00. (Ex. 155.) The second opinion was issued on November 19, 2014, opining ELI suffered damages in the amount of $493,832.00 (for fiscal years ending January 31, 2011 through January 31, 2017). (Ex. 144.) The difference in the amounts resulted primarily from the fact that, in the latter report, Plaintiffs' Expert had
82. Plaintiffs' Expert's methodologies, and resulting calculations, are unreliable and/or speculative in a number of respects, as addressed below:
83. Plaintiffs' Expert's calculations were based on the ICA running five years, with a two-year non-compete thereafter. Damages were therefore calculated for a total of seven years (fiscal year ended January 31, 2011 through January 31, 2017), with no class revenue loss for FYE 2013. The ICA, as amended, however, was terminated by May 2011 and the two-year non-compete ran by May 2013. Thus, for example, Mr. Kunze would be entitled to compete on or about May 2, 2013, just not improperly by, for example, stating he is affiliated with Rocky Mountain Laser College.
84. Plaintiffs' Expert's methodology for determining, and its determination of, certain losses or earnings are reasonable and reliable:
85. Plaintiffs' Expert's methodology for determining lost equipment sales for year-ended January 31, 2011 is reasonable and reliable. The figure calculated for lost equipment sales for year-ended January 31, 2011, however, is not; therefore, all
86. Plaintiffs' Expert assumed that all projected losses were caused by Mr. Kunze's actions, and recoverable on all claims. His methodology did not consider other factors in projecting future losses, such as ELI's increase in pricing. Moreover, his methodology should have — but failed to — distinguish between losses recoverable on the different claims. For example, ELI seeks to recover lost laser sales from Mr. Kunze's use for ELI's customer list — a claim that clearly would not support all the general lost profits projected.
87. Mr. Kunze's expert, Lisa Meer ("Defendants' Expert"), critiqued Plaintiffs' Expert and opined on Mr. Kunze's damages arising from the non-payment of the Promissory Note. Defendants' Expert offered criticisms, but could not say ELI suffered no damages. Her opinions too suffered from some of the flaws she assigned to Plaintiffs' Expert, e.g., the erroneous reliance on an assumption not supported by the evidence.
88. Defendants' Expert's opinion regarding Mr. Kunze's damages is based on the assumption that the entire amount ($250,000.00) was due under the Promissory Note. This opinion is based on facts contrary to those found by the Court; therefore, they will not be considered.
To the extent that any findings of fact are deemed to be conclusions of law, they
This Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1338 and 15 U.S.C. § 1121 over ELI's Lanham Act claims, and pursuant to 28 U.S.C. § 1367 over the remaining claims, counterclaims, third-party claims, and third-party counterclaims.
The PSA, ICA, and Promissory Note are not one contract but, rather, three related contracts that should be read together. The PSA provides that $250,000.00 of the purchase price is to be paid by "means" of a promissory note "in the form and in accordance with the terms reflected in Exhibit A ... incorporated herein by reference." Similarly, the PSA requires the Fluken-Riggs to "cause" ELI to sign the ICA "in the form attached hereto and incorporated herein by this reference." These provisions, and the agreements as a whole, do not support the finding that these three documents constitute one contract, or that all parties were parties to all three agreements.
Contrary to Mr. Kunze's contention, Plaintiffs' remedy in this case is not limited to termination of the PSA. Section 9 of the PSA provides that "time is of the essence," and if Mr. Kunze defaults or refuses to perform "within the time required" in the PSA, the Fluken-Riggs may terminate the PSA and have their monies paid returned. "All other remedies" are expressly waived. When the paragraph (and the agreement) is read as a whole, this limitation relates to Mr. Kunze's performance in closing on the stock purchase contemplated under the PSA, such as executing a "Stock Power." This limitation is inapplicable to the performance under the ICA or Amendment. Moreover, this agreement is between the Fluken-Riggs and Mr. Kunze; ELI is not a party. Accordingly, Section 9 does not bar the remedies Plaintiffs seek.
The Fluken-Riggs allege they were fraudulently induced into entering into the PSA and, accordingly, seek damages and the cancellation of the Promissory Note as to all promisors — including ELI. The Court finds the Fluken-Riggs failed to establish this claim.
In order to establish fraudulent representation, the Fluken-Riggs must establish: (1) Mr. Kunze made a false representation of a past or present fact; (2) the fact was material; (3) at the time the representation was made, Mr. Kunze knew the representation was false or was aware that he did not know whether the representation was true or false; (4) Mr. Kunze made the representation with the intent that the Fluken-Riggs would rely on the representation; (5) the Fluken-Riggs relied on the representation; (6) the Fluken-Riggs' reliance was justified; and (7) the reliance caused the Fluken-Riggs damages. C.J.I.-Civ. 4th 19:1 (2015); see Student Marketing Group, Inc. v. College P'ship, Inc., 247 Fed.Appx. 90, 100 (10th Cir.2007) (unpublished) (discussing fraudulent concealment). The Fluken-Riggs have
First, the Court finds Mr. Kunze knowingly made false representations concerning his educational and professional background, the number of CLS certificates that had been awarded, the necessity of having a CLS certificate, and other matters related to the CLS certifications with the intent that the Fluken-Riggs rely on such representations. Nonetheless, even assuming they were material to the Fluken-Riggs' decision to enter into the PSA and reliance was justifiable, the Fluken-Riggs have shown no damages. Here, the damages sought arise from Mr. Kunze's failure to perform in accordance with the terms of the ICA and Amendment, and other misconduct.
Next, as for any financial information provided by or on behalf of Mr. Kunze, such as the collectability of the Body Laser Solution receivable and the value of ELI's equipment and inventory, the Court finds there was no reliance on the part of the Fluken-Riggs as to such information. Instead, the Fluken-Riggs were skeptical and distrusted financial information that was received, so Mr. Fluken, on behalf of the Fluken-Riggs, conducted his own due diligence and independent investigation into ELI's financials reports/statements.
Third, the Court finds Mr. Kunze knowingly falsely represented to the Fluken-Riggs that Certified Laser Specialist and CLS were registered trademarks, only available for issuance from and for use by ELI. Such facts were material and upon which the Fluken-Riggs justifiably relied. The question is whether the Fluken-Riggs have been damaged by this misrepresentation, as they have presented insufficient evidence on this issue. While there is evidence that ELI has suffered damages, as evidenced by Mr. Kunze's attempt — after the sale of ELI to the Fluken-Riggs — to register the marks for himself, and by ELI's diminished ability to protect its interest in the marks in this very lawsuit against Mr. Kunze, such injury does not support a claim for damages as to the Fluken-Riggs. See Nicholson v. Ash, 800 P.2d 1352, 1356 (Colo.App.1990) (shareholder without standing to complain for injury to corporation, as any injury to them was indirect)
Fourth, the Court finds Mr. Kunze knowingly concealed that he did not file ELI's tax returns or pay ELI's tax liabilities for the tax year ended January 31, 2009. The Fluken-Riggs could not have discovered the information with reasonable diligence in light of the fact the tax return was prepared, but Mr. Kunze failed to file. Nonetheless, the Court finds the information was not material to the Fluken-Riggs, e.g., that they would have requested a reduction of the purchase price in light of the tax liability. To the extent the Fluken-Riggs contend they would have escrowed the amount owed until paid, they ignore the liability was that of ELI, not Mr. Kunze. Moreover, it was ELI that paid for not only the taxes owed but also the associated interest and penalties. And, regardless of when the taxes were paid, the tax itself would have been owed by ELI. Thus, even assuming, arguendo, the information was material to their decision to purchase ELI, the Fluken-Riggs failed to show they have been damaged. See Nicholson v. Ash, supra.
Finally, as for ELI's course curricula and student/customer list, the evidence presented was insufficient for the Court to find Mr. Kunze made fraudulent representations concerning their confidentiality or otherwise upon which the Fluken-Riggs justifiably relied.
In summary, while the evidence shows Mr. Kunze made fraudulent representations
The Fluken-Riggs also seek cancellation of the Promissory Note as to all Plaintiffs as a remedy for Mr. Kunze's actions, but the Court finds a lack of factual evidence and legal authority to support such relief. First, as stated, the Fluken-Riggs have failed to establish their claim; therefore, they are entitled to no damages. Further, generally, a party who has been fraudulently induced into entering into an agreement may either sue to rescind the contract, or affirm the contract and sue in tort. W. Cities Broad. Inc. v. Schueller, 849 P.2d 44, 48 (Colo.1993); Robinson v. Colo. State Lottery Div., 179 P.3d 998, 1004 (Colo.2008). A party cannot do both. Joyce v. Davis, 539 F.2d 1262, 1266 (10th Cir.1976) (citing Kelley v. Silver State Sav. & Loan Ass'n, 534 P.2d 326 (Colo.App. 1975). Here, the Fluken-Riggs did not seek to rescind the contract but, instead, sued in tort; therefore, rescission of the Promissory Note is not permitted, even assuming they otherwise established their claim. Accordingly, the Court finds in favor of Mr. Kunze on this claim. In light of the Court's determination, it need not decide whether the claim would otherwise be barred by the economic loss rule or the integration clause.
The Fluken-Riggs contend that Mr. Kunze breached the PSA in three respects: (1) failing to treat the customer/student information as trade secrets and proprietary information and using that information for his own benefit, in violation of paragraph 4; (2) advertising and otherwise disclosing the sale of ELI to third-parties, in violation of paragraph 13; and (3) failing to convey to ELI the Websites. Upon consideration of the evidence, the Court finds there has been a breach of the PSA (though not to the extent claimed), but no damages have been shown or the relief sought may not be awarded.
First, paragraph 4 provides that information shared by ELI with the Fluken-Riggs "shall be deemed [ELI's] confidential trade secrets and proprietary information," such information shall be returned if the sale of ELI's stock is not completed, and if the Fluken-Riggs breach or threaten to breach paragraph 4, ELI and Mr. Kunze would be entitled to injunctive and other relief against the Fluken-Riggs. Read as a whole, in order to protect ELI and Mr. Kunze, this paragraph obligates the Fluken-Riggs to keep information disclosed in connection with the stock purchase confidential and affords ELI and Mr. Kunze a remedy in the event of a breach by the Fluken-Riggs. This paragraph does not obligate Mr. Kunze to keep such information confidential in favor of the Fluken-Riggs. As such, Mr. Kunze did not breach paragraph 4.
Next, paragraph 13 of the PSA precludes Mr. Kunze from issuing "any statement, announcement or press release regarding this Agreement...or otherwise disclose the existence or contents of this Agreement," with exceptions not applicable here. Mr. Kunze, however, repeatedly breached this provision by informing third-parties of the PSA. As the remedy for Mr. Kunze's breach, the Fluken-Riggs seek rescission of the Promissory Note — not the PSA on which the Promissory Note is based. The Fluken-Riggs have presented no persuasive legal authority or evidence to support that they may keep the company, but cancel the Promissory Note in its entirety. The Court finds they may not.
Based on the foregoing, the Court finds in favor of Mr. Kunze on the Fluken-Riggs' First Third-Party Counterclaim for breach of the PSA.
ELI seeks to void the Amendment on the basis of economic duress.
Here, the Court finds the evidence does not support ELI's claim for economic duress. First, the Court is not persuaded by the testimony that ELI felt it had no choice when Mr. Kunze threatened to quit. Next, Mr. Kunze's threat occurred over a period of time, allowing ELI an opportunity to reflect on its options and to consult with an attorney, if it had wished to do so. Finally, the parties negotiated new terms which were not one sided as the Amendment modified all parties' rights and obligations, and benefitted the Fluken-Riggs individually as well through the modification of the Promissory Note. Based on the evidence, the Court finds no duress and, accordingly, the Amendment may not be voided. The Court finds in favor of Mr. Kunze on this claim.
The first issue for resolution is whether the Amendment was an accord and satisfaction of the ICA. The Court finds it is not.
An accord and satisfaction requires the following: after the defendant and plaintiff had entered into a contract (here, the ICA), they entered into a later contract (here, the Amendment); the plaintiff and defendant knew or reasonably
Here, neither the Amendment nor the evidence presented shows an accord and satisfaction. The Amendment was entered into to address Mr. Kunze's desire to engage in other activities and to modify the parties' rights and obligations going forward, but only as to certain terms. It was neither offered as full satisfaction of Mr. Kunze's obligations under the ICA, nor an agreement which contemplated or accounted for the damages arising from Mr. Kunze's breaches of duties under the ICA. For example, at the time the parties entered into the Amendment, ELI was not aware that Mr. Kunze had taught the Texas class or made equipment sales to ELI's students/customers. Accordingly, ELI is not precluded from seeking relief for breach of the ICA and Amendment.
Five breaches are claimed, and the Court so finds.
Next, Mr. Kunze taught a Houston, Texas class in January 2011 for his own account, without the knowledge of ELI, in breach of the ICA. Mr. Kunze was required to conduct four (4) classroom sessions outside the Denver facility each year, but on behalf of ELI.
Third, Mr. Kunze used ROCKY MOUNTAIN LASER COLLEGE on laserlaser.com without linking to ELI's website, in breach of the Amendment. The Court finds that ELI was damaged by Mr. Kunze's breach, but the difficulty lies in determining the amount of damages. Plaintiffs' damages expert provided a "global" calculation of damages, without differentiating — or even attempting to differentiate or to otherwise account for — losses which were caused by Mr. Kunze's various misconduct. The evidence, however, provides some basis for determining what business was lost to Mr. Kunze due to his failure to comply with the Amendment. Here, after the Amendment was entered into, but before it was terminated, Mr. Kunze taught several classes, for which $17,750.00 in gross sales were generated. This consists of the $2,000.00 in tuition for the April 18, 2011 class and $15,750.00 tuition for the April 28, 2011 Washington class. These classes were driven by the commercial internet advertisements using ELI's RMLC mark and pictures, and taught using ELI's curriculum, without linking to ELI's website. Under the Amendment, ELI is entitled to a 10% commission of tuition received from students from off-site classes. According, ELI is awarded damages in the amount of $1,775.00.
Fourth, Mr. Kunze advertised classes for which a CLS designation would be awarded, in violation of the Amendment. There is some evidence that some students took the course to receive the CLS designation (either because they believed so or because they were so advised). Seven students (two on April 18
Finally, ELI claims Mr. Kunze breached the post-termination non-compete provision. The Court agrees, but finds any breach would have occurred after the parties' relationship terminated on May 2, 2011.
In summary, Mr. Kunze has breached the ICA and Amendment for which $127,608.00
Mr. Kunze is entitled to relief on his counterclaims/third-party claims for breach of the Promissory Note. The Promissory Note states it is "subordinate" to the note payable to the ABC Bank. When the note is read as a whole, this provision does not "stay" or otherwise hold in abeyance Plaintiffs' obligation to make payments under the Promissory Note until the Fluken-Riggs repay the ABC Bank all that is owed. First, Black's Law Dictionary defines "subordinate" as "[p]laced in or belonging to a lower rank, class, or position," to place in such a station, or "to assign a lower priority to." Black's Law Dictionary 1653 (10th ed. 2014). Examples are to subordinate a lien or to subordinate a debt to a different class of claims. Next, paragraph 3 of the Promissory Note provides that "notwithstanding any other language contained in this Note, the balance of all unpaid principal and interest shall be due and payable in full" by January 1, 2015. Thus, notwithstanding any "subordinat[ion]," at the latest, the obligation to repay Mr. Kunze in full was due by January 1, 2015, and the first payment was due by January 1, 2012. To the extent there is an ambiguity, the parties' conduct and Amendment reflect no intent that payment is deferred until the ABC Bank is paid in full.
Plaintiffs' obligation as to principal under the Promissory Note is $50,000.00. Here, under the terms of the Promissory Note, the first payment of P & I in the amount of $35,000.00 was due by January 1, 2012, subject to a reduction of $50,000.00 per year of the $250,000.00 original principal amount for each year that Mr. Kunze did not complete his obligations under the ICA due to its termination. The Amendment, entered on April 4, 2011, before the first payment was due, changed the Promissory Note's terms, allowing Mr. Kunze the second $50,000.00 earned buyout only if he complied with the Amendment. Of course, he did not do so. Instead, the Amendment was terminated on or about May 2, 2011, due to Mr. Kunze's willful breach. Accordingly, only $50,000.00 in principal is owed on the Promissory Note; no proration or apportionment is required for any services performed during the 2011 fiscal year.
Mr. Kunze is also entitled to 7% interest on the $50,000.00 until it is fully paid. He is not entitled to 14% interest as the required notice of acceleration was not given. Mr. Kunze is also entitled to the receipt of a 10% late charge as payment was not received within five (5) days after the date any of the payments were due, starting with the first payment of $35,000.00 that was due on January 1, 2012.
Finally, Mr. Kunze is entitled to recover reasonable attorney's fees and costs incurred to collect on the Promissory Note.
The Court also finds declaratory relief is warranted, in light of the parties' dispute. The Court declares: (1) the principal amount due on the Promissory Note was — and is — $50,000.00; (2) no proration of the incremental earned buyouts is required; (3) 7% interest began to accrue on December
Defendants contend the economic loss rule bars all of Plaintiffs' claims except for those based on breach of contract. Under the Colorado economic loss rule, "a party suffering only economic loss from the breach of an express or implied contractual duty may not asset a tort claim for such a breach absent an independent duty of care under tort law." Town of Alma v. AZCO Const., Inc., 10 P.3d 1256, 1264 (Colo.2000). A court's duty, at the outset, is to determine the type — or source — of duty that has allegedly been breached. Town of Alma, 10 P.3d at 1263. The source of the duty may be determined by considering three factors: (1) whether the relief sought is the same; (2) whether there is a recognized common law duty in tort; and (3) whether the tort duty differs from the contractual duty. See BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66, 74 (Colo.2004). Certain common law claims that sound in tort which are designed to remedy economic loss may exist independently of a breach of contract claim. Town of Alma, 10 P.3d at 1263. Thus, a breach of a duty arising independently of any contract duties between the parties may support a tort action. Id.; Hamon Contractors, Inc. v. Carter & Burgess, Inc., 229 P.3d 282, 290 (Colo.App.2009).
Although stated to preclude "tort" actions, depending on the facts and circumstances of a case, the economic loss rule may be applied to bar statutory claims as well. Rees v. Unleaded Software, Inc., ___ P.3d ___, ___, 2013 WL 6354532, at *6 (Colo.App.2013) (civil theft claim barred where it arose from alleged breaches of contract) (citing Makoto USA, Inc. v. Russell, 250 P.3d 625, 628 (Colo.App.2009)); Christenson v. CitiMortgage, Inc., No. 12-cv-02600-CMA-KLM, 2015 WL 1757076, at *5 (D.Colo. April 14, 2015) (CCPA claim not barred by economic loss rule); Nero v. Am. Fam. Mut. Ins. Co., No. 11-cv-02717-PAB-MJW, 2013 WL 5323147, at *6 (D.Colo. Sept. 23, 2013) (CCPA claim barred by economic loss rule). Nonetheless, in Makoto, the Colorado Court of Appeals explained that "if the legislature intended to provide a remedy in addition to a contractual one, the statutory remedy would trump the economic loss rule." 250 P.3d at 629; see also Boehme v. U.S. Postal Serv., 343 F.3d 1260, 1266 (10th Cir.2003) (economic loss rule no bar to claim under Colorado's Forcible Entry and Detainer statute as Colorado legislature provided a remedy independent of a breach of contract claim).
The Court finds the rule does not apply as sweepingly as Defendants have argued. First, Defendants' arguments rely on the premise that the contracts — the PSA, ICA, Promissory Note, and Amendment — are one agreement, a premise which the Court has rejected.
ELI's curriculum (or curricula) is not a trade secret, but its customer list is a trade secret which Mr. Kunze misappropriated. Under Colorado's Uniform Trade Secrets Act ("UTSA"), a "trade secret" is:
C.R.S. § 7-74-102(4). Factors to consider in determining whether a trade secret exists include: "(1) the extent to which the information is known outside the business; (2) the extent to which it is known to those inside the business, i.e., by the employees; (3) the precautions taken by the holder of the trade secret to guard the secrecy of the information; (4) the savings effected and the value to the holder in having the information as against competitors; (5) the amount of effort or money expended in obtaining and developing the information; and (6) the amount of time and expense it would take for others to acquire and duplicate the information." Harvey Barnett, Inc. v. Shidler, 338 F.3d 1125, 1129 (10th Cir.2003) (quoting Colo. Supply Co. v. Stewart, 797 P.2d 1303, 1306 (Colo.App.1990)). Trade secrets can consist of a combination of elements which are in the public domain, but their "unified process, design and operation ... in unique combination, affords a competitive advantage" to the claimant. Rivendell Forest Prods., Ltd. v. Georgia-Pacific Corp., 28 F.3d 1042, 1045 (10th Cir.1994) (quotation marks and citation omitted); Harvey Barnett, Inc., 338 F.3d at 1129.
Considering all relevant factors, neither ELI's written materials nor the curriculum as a whole are trade secrets. After the Fluken-Riggs purchased ELI, some of the existing written materials used in the curriculum were modified and ELI required the students to maintain their confidentiality. ELI's materials were generally readily available and publicly known, but it packaged the materials differently from their competitors, e.g., it put a logo on materials and put them into a notebook. This fact does not preclude a finding that such materials may be trade secrets. When such fact is considered with the other evidence, however, no trade secret has been shown. For example, there is little or no evidence about the effort or money expended in obtaining and developing the information, or the time and expense that would be necessary for a competitor to acquire and duplicate the information. The Court's review of the evidence offered finds any effort, money, time, or expense was relatively minimal. More importantly, the evidence fails to show any "unified process, design and operation of which, in unique combination," gave ELI a competitive advantage. Harvey Barnett, 338 F.3d at 1129 (quotation marks and citation omitted). Instead, the evidence shows what ELI seeks to protect and to preclude Mr. Kunze from using are his skills and experience as a teacher — his interactive or engaging teaching style acquired over years of teaching the course. This is what was of great value to ELI. Such "glue" — as denominated
The student/customer list, however, is a different matter. Such lists can be a trade secret, Hertz v. Luzenac Group, 576 F.3d 1103, 1113 (10th Cir.2009) (citing Network Telecomms., Inc. v. Boor-Crepeau, 790 P.2d 901, 902 (Colo.App.1990)), and the Court finds ELI's customer list qualifies as such. For example, after acquiring ELI, the Fluken-Riggs maintained the confidentiality of the dynamic lists which were updated with student/customer information. Saturn Systems, Inc. v. Militare, 252 P.3d 516, 522 (Colo.App.2011) ("[T]he alleged secret must be the subject of efforts that are reasonable under the circumstances to maintain its secrecy.") (citation omitted). ELI's list under the Fluken-Riggs' ownership is not the same as that which existed at the time of Mr. Kunze's ownership. The information was not known to others outside the business, contained information acquired over many years, would be very difficult for a competitor to acquire and duplicate, and was of great value to ELI. While the actual effort to create the list may not be great, it took years of training students and providing services to build the list. And, it was through the use of such list that Mr. Kunze was able to sell laser equipment to ELI's students. Under the facts and circumstances of this case, the Court finds the time, money, effort, and expense expended on the list sufficient to be afforded protection. Therefore, Mr. Kunze misappropriated ELI's trade secrets when he improperly acquired copies of the list in order to solicit ELI's customers.
ELI is entitled to injunctive relief and an award of damages against Mr. Kunze.
ELI also seeks exemplary damages. Pursuant to C.R.S. § 7-74-104(2), "[i]f the misappropriation is attended by circumstances of fraud, malice, or a willful and wanton disregard of the injured party's right and feelings, the court ... may award exemplary damages in an amount not exceeding the [compensatory/actual damages] award." In light of the evidence presented, the Court finds Mr. Kunze's conduct was attended by circumstances of fraud, malice, and willful and wanton disregard of ELI's rights. Accordingly, an award of exemplary damages in the amount of $87,147.00 is appropriate.
The award, and ELI's claim, is not precluded by the economic loss rule. Here, neither the ICA nor Amendment governs the use of ELI's customer list. The UTSA creates a duty on the part of Mr. Kunze, independent of his duties under the ICA and Amendment. And, further, although a violation of the duty under the UTSA results in some of the same — not all — damages, it is because of the nature of the use by Mr. Kunze of the trade secrets, not because the UTSA claim is a breach of contract claim in disguise. Accordingly, the Court finds in favor of ELI on this claim and awards $174,294.00 in damages ($87,147.00 (actual) + $87,147.00 (punitive)).
Mr. Kunze asserts liability under the Lanham Act is precluded based on the economic loss rule; the Court finds otherwise.
In evaluating whether the economic loss rule applies to ELI's Lanham Act claims, only the ICA and Amendment need be considered. The PSA's provisions concerning "trade secrets" and otherwise are inapplicable for a number of reasons, including the fact that ELI is not a party to that agreement. Starting with the ICA, the Court finds ELI's claims do not arise from any contractual duty owed by Mr. Kunze. Section 3.2, covering "quality assurance" and "quality control," applies to Mr. Kunze's actions taken while acting on behalf of RMLC, not while acting otherwise. As for the Amendment, Section 3(a) allows Mr. Kunze to provide independent training and use the ELI's approved curriculum and to issue a certificate of completion, but those are not the bases for ELI's Lanham Act claims. Further, the relief sought is not only lost profits but also statutory damages and injunctive relief specifically afforded under the Lanham Act. Thus, the duty complained of is not a contractual one arising from the agreements.
Moreover, even assuming, arguendo, the Lanham Act claims are within the scope of the ICA and Amendment, the Court finds Congress enacted specific statutory rights and remedies which exist independent of a breach of contract claim. In light of the Lanham Act's comprehensive statutory federal scheme, the Court finds that a litigant's ability to pursue rights and remedies under the Lanham Act is not dependent on the scope of a state-adopted rule, the application of which varies from state to state. Cf. Nero v. Am. Fam. Mut. Ins. Co., 2013 WL 5323147, at *6 (CCPA claim barred by economic loss rule) with KDH Elect. Systems, Inc. v. Curtis Tech. Ltd., 826 F.Supp.2d 782, 802 (E.D.Pa.2011) (declining to apply the economic loss rule to preclude statutory claims; therefore, finding Pennsylvania Uniform Trade Secrets Act not precluded). Accordingly, ELI's claims are not barred.
Section 1125(a)(1)(A) provides that:
15 U.S.C. § 1125(a)(1)(A). Under the facts and circumstances of this case, Mr. Kunze's actions in using ROCKY MOUNTAIN LASER COLLEGE and RMLC in connection with offering and providing laser education — in competition with ELI — violated § 1125(a)(1)(A), but his actions in using Certified Laser Specialist and CLS did not.
"Section 43(a) of the Lanham Act, prohibiting the use of false designations of origin, protects against service mark infringement even if the mark has not been federally registered." Donchez v. Coors Brewing Co., 392 F.3d 1211, 1215 (10th Cir.2004) (quotation marks and citation omitted). In order to prevail on an action under § 43(a), a plaintiff must establish (1) the mark is protectable; and (2) "the defendant's use of an identical or similar mark is likely to cause confusion among consumers." Id. at 1215 (brackets, quotation marks, and citation omitted). "To be protectable, a mark must be capable of distinguishing the products or services it marks from those of others." Id. at 1216 (brackets, quotation marks, and citation omitted).
There are five categories of terms with respect to the protection of a mark: generic, descriptive, suggestive, arbitrary, and fanciful. Id. at 1216. "A mark is descriptive if it describes the product's or service's features, qualities, or ingredients in ordinary language or describes the use to which the product or service is put." Id. (quoting Lane Capital Mgmt., Inc. v. Lane Capital Mgmt., Inc., 192 F.3d 337, 344 (2d Cir.1999)) (brackets omitted). "A descriptive mark may be eligible for protection, but only if it has acquired a secondary meaning in the minds of the public." Id. at 1216 (quotation marks and citation omitted); see Beer Nuts, Inc. v. Clover Club Foods Co., 711 F.2d 934, 940 (10th Cir.1983) (trademark that is descriptive may only be registered if it has acquired a secondary meaning). "Secondary meaning exists only if most consumers have come to think of the word as not descriptive at all but as the name of the product or service." Donchez, 392 F.3d at 1218 (brackets, quotation marks, and citation omitted). It is not the fact-finder's perception of the mark that is at issue but, rather, that of the purchasing public. Id. at 1216.
A plaintiff may establish secondary meaning of its mark through the use of direct evidence, such as consumer surveys and consumers' testimony. Id. at 1218. Secondary meaning may also be established though circumstantial evidence regarding: (1) the length and manner of its use; (2) the nature and extent of advertising and promotion of the mark; and (3) the efforts made to promote a conscious connection, in the public's mind, between the mark and a particular product or service. Id.
The Certified Laser Specialist and CLS, however, are not protectable marks based on the record before the Court. Any evidence that Certified Laser Specialist is associated with ELI (or RMLC) is de minimis and insufficient to support a finding that it has acquired a secondary meaning, especially in light of its use by others of similar, if not identical, marks.
In order to succeed on its false advertising claim under 15 U.S.C. § 1125(a)(1)(B), ELI must show:
See World Wide Ass'n of Specialty Programs v. Pure, Inc., 450 F.3d 1132, 1140 (10th Cir.2006)(quoting Sally Beauty Co., Inc. v. Beautyco, Inc., 304 F.3d 964, 980 (10th Cir.2002)); Zoller Labs., LLC v. NBTY, Inc., 111 Fed.Appx. 978, 982 (10th Cir.2004) (unpublished).
To prevail on an implied falsity claim, a plaintiff must show "`actual consumer deception.'" Vincent v. Utah Plastic Surgery Soc., 621 Fed.Appx. 546, 550 (10th Cir.2015) (unpublished) (quoting Abbott Labs. v. Mead Johnson & Co., 971 F.2d 6, 14 (7th Cir.1992)). A plaintiff may make this showing with evidence "that demonstrates `a statistically significant part of the commercial audience holds the false belief allegedly communicated by the challenged advertisement.'" Vincent, 621 Fed.Appx. at 550 (quoting Johnson & Johnson Merck Consumer Pharm. Co. v. Smithkline Beecham Corp., 960 F.2d 294, 297-98, 298 (2d Cir.1992)); see Zoller Labs., 111 Fed.Appx. at 982.
With literal falsity, however, a plaintiff need not present evidence of consumer deception. Zoller Labs., 111 Fed. Appx. at 982. Similarly, where a plaintiff demonstrates the defendant intended to deceive customers, there is a presumption of consumer confusion which relieves a plaintiff of any obligation to present evidence of likely confusion. Netquote, Inc. v. Byrd, No. 07-cv-00630-DME-MEH, 2008 WL 5225880, at *3 (D.Colo. Dec. 15, 2008). "Whether an advertisement is literally false is an issue of fact." Zoller Labs., 111 Fed.Appx. at 983 (quotation marks and citation omitted).
In his advertising, in commerce, Mr. Kunze — intentionally and willfully — made numerous false and/or misleading statements concerning the nature, characteristics, or qualities of his goods and services. Such statements included his credentials to support his skills/abilities to perform laser education services (some false, others misleading); his affiliation with ROCKY MOUNTAIN LASER COLLEGE and ability to issue CERTIFIED LASER SPECIALIST certificates (false); that ROCKY MOUNTAIN LASER COLLEGE and American Laser College are affiliated or the same (false); and that CERTIFIED LASER SPECIALIST is a registered trademark (false). Thus, the first and second elements are satisfied.
Materiality, however, is a different issue. The Court finds the misrepresentations concerning Mr. Kunze's affiliation with ROCKY MOUNTAIN LASER COLLEGE material, but — as to the remaining misrepresentations — insufficient evidence has been shown to support such a finding. For example, from the limited evidence presented, while the evidence supports that receiving some certification was important to the consumers, for many consumers it mattered not whether it was a CLS or a CLT.
The Court finds the misrepresentations as to affiliation with ROCKY MOUNTAIN LASER COLLEGE are literally false; therefore, ELI need not present evidence of consumer confusion. Moreover, such evidence
Finally, ELI has been damaged from Mr. Kunze's false advertising concerning his and American Laser College's affiliation with ROCKY MOUNTAIN LASER COLLEGE. Students signed up for Mr. Kunze's courses believing they were taking a ROCKY MOUNTAIN LASER COLLEGE course and would be receiving ROCKY MOUNTAIN LASER COLLEGE certificates, but they did not.
As for damages, ELI relies on Mr. Cadorette's report of general lost profits as its damages, and seeks to have them trebled. As previously discussed, however, Mr. Cadorette's report is not a reliable measurement of the total lost profits sustained. Moreover, ELI has not shown that loss from equipment sales resulted from a violation of the Lanham Act. Nonetheless, ELI has shown damages in the form of harm to its goodwill and reputation. In addition, ELI has shown damages in the form of lost class revenues in the amount of $41,731.00 ($2,456.00 [Houston, Texas] + $200.00 [10% × $2,000.00 (April 18, 2011 class)] + $1,575.00 [10% × $15,750.00 (Bellevue, Washington)] + $37,500.00 [Rock Creek]). Again, the Court will account for any duplicative damages in its determination of total damages to be awarded.
The Court's assessment of damages is "subject to the principles of equity," and the trebling of damages may be made "according to the circumstances of the case." 15 U.S.C. § 1117. In "weighing the equities" of the case, the Court finds that trebling of actual damages is appropriate. Here, ELI lost class revenues and commissions, the extent of its damages are difficult to ascertain, Mr. Kunze benefitted from ELI's goodwill and reputation, and Mr. Kunze's actions were willful, i.e., Mr. Kunze intended to benefit from the goodwill and reputation of ROCKY MOUNTAIN LASER COLLEGE, owned by ELI. Under the circumstances of this case, the Court finds that awarding treble damages of the actual damages is not precluded by the Act. See Western Diversified, supra at 1273 (recognizing a court has discretion to reduce or eliminate a profit award in fashioning an equitable remedy to meet the needs of each case); Klein-Becker, supra (same). Accordingly, ELI is awarded $125,193.00 (3 × $41,731.00).
In the exercise of its discretion, the Court finds that an award of prejudgment interest is appropriate. In this case, the prejudgment interest would serve to compensate ELI for its loss, especially in light of the prolonged proceedings, caused in part by Mr. Kunze's bankruptcy, which preceded the resolution of these claims in ELI's favor. There is no evidence that equity would preclude the award of prejudgment interest in this case. On the contrary, the award would serve to make ELI whole. Caldwell, 287 F.3d at 1286 ("[P]rejudgment interest is generally available to compensate the wronged party for being deprived of the monetary value of his loss from the time of the loss to the payment of the judgment.") (quotation marks and citation omitted). Accordingly, the Court awards ELI prejudgment interest to run from May 2, 2011, the date ELI requested.
The calculation of prejudgment interest is also within the district court's sound discretion. Caldwell, 287 F.3d at 1287-88; Kleier Ad., Inc. v. Premier Pontiac, Inc., 921 F.2d 1036, 1042 n. 4 (10th Cir.1990). ELI requests interest at the "statutory rate" but did not identify which statutory rate it seeks, or the basis therefore, as to its Lanham Act claims. For other claims, ELI seeks interest pursuant to C.R.S. § 5-12-102(b) at the statutory rate of eight percent (8%) per annum for money/property wrongfully withheld or, in the alternative, "prejudgment interest" under 28 U.S.C. § 1961, the post-judgment interest statute. The Court finds the post-judgment interest rate under § 1961 would reasonably compensate ELI for the loss of
Mr. Kunze is liable for civil theft but Mr. Kunze, Jr. is not. Civil theft is established where (1) defendant knowingly obtained control over plaintiff's property without authorization, or by threat or deception; and (2) with the specific intent to permanently deprive plaintiff of the benefit of the property. See West v. Roberts, 143 P.3d 1037, 1040 (Colo.2006); Itin v. Ungar, 17 P.3d 129, 134 (Colo.2000); Huffman v. Westmoreland Coal Co., 205 P.3d 501, 509 (Colo.App.2009); C.R.S. § 18-4-401(1)(a). The requisite intent may be inferred from the defendant's conduct and the circumstances of the case, but requires proof of defendant's knowing use of the property inconsistent with the plaintiff's permanent use and benefit. Huffman, 205 P.3d at 509. The return of the stolen property does not necessarily defeat the claim. People v. American Health Care, Inc., 42 Colo.App. 209, 211, 591 P.2d 1343, 1345 (1979) (return of the property does not necessarily negate the existence of a wrongful intent); Ziegler v. Inabata of Amer., Inc., 316 F.Supp.2d 908, 916 (D.Colo.2004). And, "where initial control of the property is authorized, `the intent to deprive ... may arise at a later time when control is no longer authorized.'" American Health, 591 P.2d at 1345 (citation omitted, ellipses in original).
Mr. Kunze is liable for civil theft of the two THERMO-Los which are ELI's property. They cost ELI $875.00 each. Mr. Kunze is also liable for civil theft of the two MediDerms valued at $15,000.00 each as, although on loan, ELI had the right to — and has been deprived of — the use and possession of the MediDerms. Further, it is ELI who would be responsible to the title owner for any loss or damage to this equipment. See C.R.S. § 18-4-401(1) ("A person commits theft when he or she knowingly obtains, retains, or exercises control over anything of value of another without authorization or by threat or deception....") (emphasis supplied); see Rhino Fund, LLLP v. Hutchins, 215 P.3d 1186, 1195-96 (Colo.App.2008) (lender, with security interest in the proceeds of the collateral used to secure lender's loan, had an ownership interest in such proceeds sufficient to support its claim for civil theft); McFeters v. Pierson, 15 Colo. 201, 203, 24 P. 1076 (1890) ("`[O]wner,' when used alone, imports an absolute owner...; but the meaning of a word is often varied according to the connection in which it is used, and is to be understood accordin[g] to the subject-matter to which it relates."). As the immediate prior owner of ELI, Mr. Kunze knew the equipment was ELI's property. Any possession or control of the THERMO-Los authorized was revoked when replacement THERMO-Los promised were not provided. And, Mr. Kunze returned the MediDerms, but in nonworking conditions, and only after ELI demanded their return.
As for the Pro-scope microscope camera, the evidence is insufficient to show civil theft by Mr. Kunze of this equipment.
Finally, as to Mr. Kunze, Jr., although pled in the Amended Complaint, based on
In summary, Mr. Kunze is liable to ELI for civil theft. Such claim is not barred by the economic loss rule. Unlike Rees, supra, and Makoto, supra, ELI's civil theft claim does not arise from any contractual duty under the ICA or Amendment, and is in no way dependent on a finding that there was a breach of such agreements. Accordingly, Mr. Kunze is liable to ELI for $95,250.00,
ELI's CCPA claim is based on the same facts which support its claim for unfair competition (i.e., using ELI's marks), false advertising (e.g., Mr. Kunze's misrepresentation of his credentials, that his services were approved by the DPOS, and that he was still affiliated with ELI), and defamation. Some, but not all of such facts, support a finding of a violation of the CCPA, for which the economic loss rule is no bar.
In order to recover on a CCPA claim, ELI must show: (1) Mr. Kunze engaged in a deceptive trade practice; (2) the practice occurred in the course of Mr. Kunze's business; (3) the practice significantly impacted the public as actual or potential consumers of Mr. Kunze's services; (4) ELI was an actual or potential consumer of Mr. Kunze's services or was injured in the course of its business as a result of the deceptive trade practice; and (5) the practice caused actual damages or losses to ELI. CJI-Civ. 29:1 (2015); Hall v. Walter, 969 P.2d 224, 234-5 (Colo.1998). Actionable deceptive trade practices include: (1) knowingly passing off services as those of another; (2) knowingly making a false representation as to the source, sponsorship, approval, or certification of services; (3) knowingly making a false representation as to affiliation, connection, or association with or certification by another; and (4) knowingly making a false representation as to the sponsorship, approval, status, affiliation, or connection of a person therewith. C.R.S. § 6-1-105(1)(a)-(c) & (e).
To evaluate the public impact requirement, relevant considerations include: "(1) the number of consumers directly affected by the challenged practice, (2) the relative sophistication and bargaining power of the consumers affected by the challenged practice, and (3) evidence that the challenged practice has previously impacted other consumers or has the significant potential to do so in the future." Rhino Linings USA, Inc. v. Rocky Mtn. Rhino Lining, Inc., 62 P.3d 142, 149 (Colo. 2003). A breach of contract claim — which arises when one contracting party breaks a promise — without more, is not an actionable claim under the CCPA. Id. at 148. A purely private wrong is also not actionable. Id. at 149; see Martinez v. Lewis, 969 P.2d 213, 222 (Colo. 1998).
In this case, Mr. Kunze's action in making defamatory statements about ELI is not a deceptive trade practice. Moreover, it is purely a private wrong. As such,
As for Mr. Kunze's other actions, the Colorado Supreme Court has recognized that widespread advertisement directed to the market generally which implicates the public as consumers can satisfy the "significant public impact" requirement. Hall v. Walter, 969 P.2d at 235. In light of the length of time and the number of websites on which Mr. Kunze posted the false and misleading advertisement on the internet, a significant number of consumers would have been affected by his actions.
As for the relative sophistication and bargaining power of the consumers affected, what little evidence that was presented shows varying degrees of sophistication. Mr. Jellerich showed some sophistication as he knew to check whether the certification he would be receiving from Mr. Kunze's course was in fact required. Others did not. On the whole, the Court finds that students are likely to be unsophisticated consumers with bargaining weaknesses.
Some of the challenged practice previously impacted other consumers, as shown by students who enrolled believing they would be taking a ROCKY MOUNTAIN LASER COLLEGE course and that ROCKY MOUNTAIN LASER COLLEGE was the same as or affiliated with American Laser College. And, this will continue if Mr. Kunze is allowed to carry on such practices. As for Mr. Kunze's false advertisements concerning his affiliations with other organizations, his credentials, and the like, however, insufficient evidence was presented that this practice impacted any consumers. In summary, in consideration of the relevant guidelines, the Court finds the required showing of a significant public impact has been made, but only as to Mr. Kunze's false representations — knowingly made — in passing off his services as those of ROCKY MOUNTAIN LASER COLLEGE, and in representing he and his course were sponsored by, connected with, or affiliated with ROCKY MOUNTAIN LASER COLLEGE.
Finally, the Court finds Mr. Kunze's actions caused ELI damages. Here, for example, the students took the course directly from Mr. Kunze, believing they were taking a ROCKY MOUNTAIN LASER COLLEGE course. Accordingly, damages in the amount of $41,731.00 have been shown.
Contrary to Mr. Kunze's argument, this claim is not barred by the CCPA. Here, the duty to refrain from misusing ROCKY MOUNTAIN LASER COLLEGE arises independent of any contractual duty — it is independent of any duty not to compete. Accordingly, the Court finds in favor of ELI on this claim.
Mr. Kunze concedes the statements he published would be defamatory per se but for the fact that they are true and he was relying on ELI's medical director's opinion. Mr. Kunze's arguments are not supported by the evidence. The statements concerning ELI and Mr. Fluken were not true, and the medical director never made the statement to which Mr. Kunze attributes to him. Accordingly, Mr.
Damages will be awarded, despite Mr. Kunze's contention that Mr. Fluken and ELI have not been damaged. Where the plaintiff is a private person, and a statement is defamatory per se, damage is presumed and the plaintiff need not plead special damages or prove actual damages. Denver Pub. Co. v. Bueno, 54 P.3d 893, 900 (Colo.2002); Han Ye Lee v. Colo. Times, Inc., 222 P.3d 957, 961 (Colo. App.2009). General damages are recoverable as a matter of course and require no evidence. Pagosa Hot Spring, Inc., 493 P.2d at 386. The Court finds Mr. Kunze's publications of the untrue statements concerning ELI and Mr. Fluken were a part of his efforts to compete against and to damage ELI and Mr. Fluken, so that Mr. Kunze could continue to be "Mr. Laser Man." The Court awards Mr. Fluken and ELI each $25,000.00, for a total of $50,000.00.
ELI requests injunctive relief based on its claims for violations under the Lanham Act (Claims One and Two); for violation of the UTSA (Claim Three); and for declaratory relief that the Amendment is void (Claim Four). The Court finds that a permanent injunction should issue on Claims One, Two, and Three, but not on Claim Four.
In order to grant injunctive relief, a plaintiff must show: "(1) actual success on the merits; (2) irreparable harm unless the injunction is issued; (3) the threatened injury outweighs the harm that the injunction may cause the opposing party; and (4) the injunction, if issued, will not adversely affect the public interest." See Klein-Becker USA, LLC v. Englert, 711 F.3d 1153, 1164 (10th Cir.2013) (quoting with approval the factors used by the district court) (internal quotation marks and citation omitted).
As discussed above, ELI has established success on the merits of its Lanham Act and UTSA claims. ELI will suffer irreparable harm to the goodwill and reputation of ROCKY MOUNTAIN LASER COLLEGE if Mr. Kunze is not enjoined from using or referring to ROCKY MOUNTAIN LASER COLLEGE or RMLC in marketing his goods and services, as evidenced by Mr. Kunze's use of such marks to draw students to enroll only to then award them certificates from another facility. In addition, ELI will suffer irreparable harm if Mr. Kunze is allowed to continue to use ELI's customer list in order to solicit clients and sell laser equipment. Such sales erode ELI's customer base and damages will be difficult to determine due to ELI's inability to monitor Mr. Kunze's sales. See Dominion Video Satellite, Inc. v. Echostar Satellite Corp., 356 F.3d 1256, 1263-64 (10th Cir.2004) (factors supporting irreparable harm include the inability or difficulty in calculating damages, loss of a unique product, and existence of intangible harms such as loss of goodwill or competitive market position); Walgreen Co. v. Sara Creek Prop. Co., 775 F.Supp. 1192, 1197 (E.D.Wis.1991) (irreparable harm may be found where plaintiff could not be compensated in money damages for its loss of goodwill, including erosion of customer base and diminution of corporate image), cited with approval in Dominion, supra at
Third, the threatened injury to ELI out-weighs any harm which may cause Mr. Kunze. The Court finds no legal injury would occur in precluding Mr. Kunze's use of ROCKY MOUNTAIN LASER COLLEGE or RMLC, and use of ELI's customer list, as the right to use these marks and list belongs to ELI. Mr. Kunze sold any "right" (as owner, officer, or otherwise) to their use when he sold ELI. Mr. Kunze is not precluded from teaching laser education courses or selling laser equipment; he is simply being precluded from doing so unfairly, through the use of marks and trade secrets belonging to ELI.
Finally, the issuance of the injunction would not adversely affect the public interest. Instead, the injunction would promote the public interest as they would otherwise be misled by Mr. Kunze's unauthorized use of such marks. In addition, the public has an interest in protecting valid trade secrets and preventing unfair competition.
In addition to precluding Mr. Kunze from using ELI's marks, Section 1116 of the Lanham Act provides that the injunction may include a directive that defendant file a written affidavit detailing the manner and form in which a defendant has complied with the injunction. Under the facts and circumstances of this case, the Court finds such a directive to be appropriate, under not only the Lanham Act but also the UTSA.
Based on the foregoing, the Court
In addition, Mr. Kunze cannot have it both ways, arguing, on the one hand, the ICA does not cover equipment sales and arguing, on the other hand, that the economic loss rule bars the UTSA claim because ELI has a contractual remedy.
