FILED

NOT FOR PUBLICATION

FEB 29 2016

UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK

U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

COCHRAN FIRM, P.C., The, an Alabama No. 15-55816 corporation, D.C. No. 2:12-CV-05868-PSG- Plaintiff-counter-defendant - MRW Appellant,

And MEMORANDUM*

SAMUEL A. CHERRY; et al.,

Counter-defendants - Appellants,

v.

COCHRAN FIRM LOS ANGELES LLP,

The, a California Limited Liability Partnership,

Defendant,

And

RANDY H. MCMURRAY, P.C., a California professional corporation; et al.,

Defendants-counter-claimants - Appellees,

* This disposition is not appropriate for publication and is not precedent except as provided by 9th Cir. R. 36-3. DUNN LAW APC; et al.,

Counter-defendants - Appellees.

Appeal from the United States District Court for the Central District of California Philip S. Gutierrez, District Judge, Presiding

Argued and Submitted December 7, 2015 Pasadena, California

Before: PREGERSON, D.W. NELSON, and CALLAHAN, Circuit Judges.

Judges PREGERSION and D.W. NELSON writing:

The Cochran Firm, P.C. (Firm) and counter-defendants Samuel A. Cherry, J.

Keith Givens, and Barvie Koplaw appeal the district court’s order dissolving the

preliminary injunction obtained against Randy H. McMurray, P.C. and Randy H.

McMurray (McMurray). We have jurisdiction under 28 U.S.C. § 1292(a)(1), and

we affirm.

1. The district court did not err in dissolving the preliminary injunction based

on the Firm’s unclean hands. Though the district court’s order never explicitly

states a specific finding on bad intent, the court did not ignore this element. Before

launching into its analysis of the unclean hands defense, the district court

acknowledged that part of its burden as the trier of fact was to assess whether the

2 Firm had acted in bad faith. It quoted Japan Telecom, Inc. v. Japan Telecom Am.

Inc., 287 F.3d 866, 870 (9th Cir. 2002)), writing that “[t]o succeed on an unclean

hands defense, a trademark defendant ‘must show that [the] plaintiff used the

trademark to deceive customers’ and did so with bad intent,” and “‘[b]ad intent is

the essence of the defense of unclean hands.’” The court later wrote that

McMurray had satisfied its burden, thus clearly implying that McMurray had

indeed demonstrated that the Firm acted with bad intent. The district court also

considered evidence of actual deception of consumers, such as when a former

client attempted to obtain a judgment against the Firm. See TrafficSchool.com, Inc.

v. Edriver Inc., 653 F.3d 820, 834 (9th Cir. 2011).

Nor did the district court ignore the assessment of whether the Firm’s

misconduct had an “immediate and necessary relation to the equity [it] seeks.” See

S. Cal. Darts Ass’n v. Zaffina, 762 F.3d 921, 932 (9th Cir. 2014) (quoting Keystone

Driller Co. v. Gen. Excavator Co., 290 U.S. 240, 245 (1933)). Previously, this

Court remanded this case to the district court with instructions stating:

The structure of [the Firm’s] business is important in assessing whether [the Firm] has unclean hands. Specifically, [the Firm] may be misusing the trademark to deceive the public into believing it is a single, national firm, when in fact it is a network of separate partnerships. Because the record before us does not provide sufficient information about the relationships both between [the Firm] and the local offices, or between [the Firm] and the

3 public, we remand to the district court to determine whether [the Firm] has unclean hands in its use of the Cochran Firm trademark.

Read as a whole, this instruction implies that the issue of unclean hands is

immediately and necessarily related to the equity the Firm seeks. It was not

unreasonable for the district court to rely on this Court’s instruction as reflecting

that the “immediate and necessary relation” element as having already been

satisfied, and this reliance was not reversible error.

Finally, the district court did not abuse its discretion in using as an

informative guide California’s Rules of Professional Conduct’s definition of a law

firm, or finding expert testimony regarding the definition to be relevant. This

definition was merely helpful to the district court and use of it as a guide was not

reversible error.

2. Appellants argue that McMurray’s own unclean hands bar McMurray from

raising an unclean hands defense. The district court, however, did not err in

finding otherwise. The court did not abuse its discretion in finding that there was

insufficient evidence to support Appellants’ argument, and even if there were

sufficient evidence, that the Firm has been more culpable than McMurray.

3. Finally, during this appeal, McMurray filed a motion for sanctions against

the Firm. The motion for sanctions is denied.

4

AFFIRMED. MOTION FOR SANCTIONS DENIED.

5

FILED

Cochran Firm P.C. v Cochran Firm Los Angeles LLP et al 15-55816

FEB 29 2016

Callahan, Circuit Judge, dissenting: MOLLY C. DWYER, CLERK

U.S. COURT OF APPEALS

The Cochran Firm, P.C. (the Firm) obtained a preliminary injunction against

Randy McMurray, a former partner of Johnnie Cochran, Jr., barring him from

infringing the Firm’s right to the “The Cochran Firm” trademark. The district

court later dissolved the injunction, however, on the ground that the Firm has

unclean hands in advertising itself as a “single firm” that is “national” in reach.

That McMurray infringed the trademark is no longer at issue. Rather, this case has

lost its way and become mired in the metaphysics of what makes a law firm

“single” and “national.”

I dissent because The Firm’s marketing is not misleading and has little to do

with the trademark at stake. In holding otherwise, the district court misunderstood

the unclean hands defense’s limited breadth. The effects of our failure to correct

this case’s wayward course are alarming. Multi-office businesses will be surprised

to learn that they are misleading the public by advertising themselves as “single”

and “national” in stature, and thus may not protect any right they hold to their

company’s name. The bench and bar will also be surprised to learn that a judge

can federalize one definition of “law firm” in deciding a trademark infringement

case. If the district court does not right its understanding and application of the

1 unclean hands defense, this case may have an interesting future indeed.

I.

The unclean hands defense has an increasingly limited scope in trademark

infringement suits. Although an established defense, it is disfavored, particularly

in suits like this one seeking to enjoin activity that is harmful the public. See

Republic Molding Corp. v. B.W. Photo Utils., 319 F.2d 347, 350 (9th Cir. 1963)

(“In the interests of right and justice the court should not automatically condone

the defendant’s infractions because the plaintiff is also blameworthy, thereby

leaving two wrongs unremedied and increasing the injury to the public.”);

McCarthy on Trademarks & Unfair Competition § 31:53 (hereinafter McCarthy)

(“It is better to remedy one wrong than to leave two wrongs at large.”). To prevail

on the defense in a trademark infringement action, a defendant must demonstrate

by “clear, convincing evidence” that (1) plaintiff’s conduct is inequitable and (2)

the misconduct relates to the subject matter of plaintiff’s trademark infringement

claim. TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 833 (9th Cir. 2011).

For a plaintiff’s false advertising to meet the first, “inequitable” requirement,

a “defendant must show that plaintiff used the trademark to deceive consumers.”

Perfumebay.com Inc., v. eBay Inc., 506 F.3d 1165, 1177 (9th Cir. 2007). This

demands a showing of “bad intent,” which “is the essence of the defense of

2 unclean hands.” Id.; Dollar Sys., Inc. v. Avcar Leasing Sys., Inc., 890 F.2d 165,

173 (9th Cir. 1989). “[T]he extent of actual harm caused by the conduct in

question, either to the defendant or to the public interest, [also] is a highly relevant

consideration” in assessing whether the “inequitable” requirement is met. Republic

Molding, 319 F.2d at 349–50. Thus, even where bad intent is demonstrated, an

appreciable number of consumers must also have actually been deceived for the

defense to succeed. TrafficSchool.com, 653 F.3d at 834 (requiring “evidence of

actual deception caused by plaintiffs’ advertising”). Indeed, some courts have

demanded “clear, convincing evidence of ‘egregious’ misconduct before invoking

the doctrine of unclean hands.” Citizens Fin. Grp., Inc. v. Citizens Nat’l Bank of

Evans City, 383 F.3d 110, 129 (3d Cir. 2004) (emphasis added); see also, e.g., Pom

Wonderful LLC v. Welch Foods, Inc., 737 F. Supp. 2d 1105, 1113–16 (C.D. Cal.

2010) (collecting cases), aff’d, 468 Fed. Appx. 688 (9th Cir. 2012). This standard

makes sense—the showing required for trademark infringement to continue

unchecked due to a plaintiff’s advertising must be more stringent than the showing

required for that plaintiff to be found liable for a false-advertising counterclaim.

To meet the second requirement, a defendant must show that the plaintiff’s

“misdeeds . . . have an immediate and necessary relation to the equity that [the

plaintiff] seeks in respect of the matter in litigation.” S. Cal. Darts Ass’n v.

3 Zaffina, 762 F.3d 921, 932 (9th Cir. 2014); see also Seller Agency Council, Inc. v.

Kennedy Ctr. for Real Estate Educ., Inc., 621 F.3d 981, 986 (9th Cir. 2010)

(requiring that “the alleged misconduct . . . relate directly to the transaction

concerning which the complaint is made”). This requirement generally is met

where the trademark sought to be protected is itself misleading. For example, the

Supreme Court held that the laxative name “Syrup of Figs” was unprotectable

where the product contained no figs or fig juice. Worden v. Cal. Fig Syrup Co.,

187 U.S. 516, 539–40.1 Where the trademark does not itself make a misleading

assertion but is used as part of misleading advertising, the requisite relation is

much less likely to be found. “In such cases, almost all courts have narrowly

drawn the limits of the scope of the ‘subject matter’ of the case so as to rule out

unclean hands.” 6 McCarthy § 31:51.2 The requisite relation also exists where “a

1 See also Morton Salt Co. v. G. S. Suppiger Co., 314 U.S. 488, 494 (1942) (“[E]quity will deny relief for infringement of a trademark where the plaintiff is misrepresenting to the public the nature of his product either by the trademark itself or by his label.”); Holzapfel’s Compositions Co. v. Rahtjen’s Am. Composition Co., 183 U.S. 1, at 8 (1901) (“A symbol or label claimed as a trademark, so constituted or worded as to make or contain a distinct assertion which is false, will not be recognized, nor can any right to its exclusive use be maintained.”); 6 McCarthy at § 31:50. 2 See Fuddruckers, Inc. v. Doc’s B.R. Others, Inc., 826 F.2d 837, 847 (9th Cir. 1987) (plaintiff’s deceptive marketing of its hamburger meat as “ground steak” did not bar trade dress infringement suit); Tveter v. AB Turn-O-Matic, 633 F.2d 831, 839 (9th Cir. 1980) (plaintiff’s use of “patent pending” in connection

4 plaintiff . . . has dirtied his hands in acquiring the right presently asserted.” Seller

Agency Council, 621 F.3d at 986.

In sum, unclean hands rarely forecloses injunctive relief in an otherwise

meritorious trademark infringement action. In essence, our case law holds: Where

a plaintiff’s alleged misconduct involves false advertising, the defense succeeds

only if the defendant shows by clear, convincing evidence that (1) the trademark

itself makes a false or misleading statement that the plaintiff knows to be

misleading and that has actually deceived consumers; or (2) the plaintiff uses the

trademark as a central part of egregiously misleading marketing that the plaintiff

knows to be misleading and that has actually misled consumers.

II.

The district court dissolved the injunction against McMurray’s infringement

of The Cochran Firm trademark because it found that the Firm had dirtied its hands

by making two advertising statements: (1) that it is “national” and (2) that its

offices are part of a “single” law firm. As explained below, the district court erred.

A.

The district court failed to make findings regarding two central requirements

with the trademark when no patent application was on file did not bar claims for trademark infringement and unfair competition).

5 of the unclean hands defense. First, the court failed to make findings necessary to

establish the “inequitable” requirement. While the court noted that bad intent is an

element of the unclean hands defense, it did not find that the Firm acted in bad

faith in advertising itself as a single, national law firm. Moreover, the court did not

find any actual deception or even acknowledge that such a showing is required.

Second, the district court did not find that the Firm’s marketing has an

“immediate and necessary relation” to the equity that the Firm seeks—that being to

stop McMurray from trading on the Firm’s goodwill and deceiving the public into

believing that he is still a part of The Cochran Firm. Invoking the “abuse of

discretion” standard of review, the majority excuses this absence by finding that

our previous decision remanding “for the district court to augment the record and

to reconsider [McMurray’s] unclean hands argument,” somehow, sub silentio and

without the record deemed required, found the requirement met. See Cochran

Firm, P.C. v. Cochran Firm Los Angeles, LLP, 572 F. App’x 491, 493 (9th Cir.

2014). Even assuming that the district court so understood our decision, which it

did not indicate, whether “the issue has already been decided explicitly or by

necessary implication” is a question of law that is reviewed de novo, not for abuse

of discretion. United States v. Lummi Nation, 763 F.3d 1180, 1185 (9th Cir. 2014).

Our previous memorandum disposition remanding for the district court to augment

6 the record and assess the unclean hands defense did not make any law of the case.

Rodriguez v. Robbins, 804 F.3d 1060, 1080–81 (9th Cir. 2015) (conclusions made

at the preliminary injunction stage are not law of the case if they do not implicate

“pure issues of law” or were “made hastily and on less than a full record”).

The absence of these findings and the district court’s apparent

misunderstanding of the applicable legal standard merit a remand. However,

because the record and the findings of the district court are “sufficiently

comprehensive and pertinent to the issues to provide a basis for decision,” FTC v.

Enforma Natural Products, Inc., 362 F.3d 1204, 1212 (9th Cir. 2004), I would

reach the merits and vacate dissolution of the preliminary injunction.

B.

The preliminary injunction should not have been dissolved because

McMurray has not demonstrated a likelihood of success on the merits of his

unclean hands defense with respect to either of the Firm’s allegedly misleading

advertising statements. Each advertising statement is addressed in turn below.

1.

With respect to the Firm’s “single firm” advertising, even if the “immediate

and necessary relation” requirement were met, the advertising is not sufficiently

7 “inequitable” to bar relief.3

The record does not support a finding that McMurray can demonstrate by

clear, convincing evidence that the Firm’s “single firm” branding is misleading,

much less egregiously so and undertaken with bad intent. “Reactions of the public

[to allegedly misleading advertisements] are typically tested through the use of

consumer surveys.” Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1140

(9th Cir. 1997); see 5 McCarthy § 27:55. While “full-blown consumer surveys to

prove actual consumer confusion” may not be “required at the preliminary

injunction stage,” Abbott Labs. v. Mead Johnson & Co., 971 F.2d 6, 15 (7th Cir.

1992), where a trademark is not itself clearly misleading, courts should demand at

least some comparable evidence of consumer deception.4 See TrafficSchool.com,

653 F.3d at 834. No such evidence has been presented. McMurray has not, for

example, offered a declaration showing that one consumer, let alone an appreciable

3 The Firm’s marketing of itself and its regional offices as a “single” law firm is likely to bear an “immediate and necessary relation” to the equity the Firm seeks. Given the singular form of the noun “firm,” “The Cochran Firm” trademark suggests that all practices bearing that mark are part of a single firm. 4 This is not to say that consumer surveys should be required by district courts evaluating an unclean hands defense. To the contrary, consumer surveys should rarely, if ever, be necessary. This is because only egregiously misleading marketing featuring the trademark or trademarks that themselves make misleading statements may support an unclean hands defense.

8 number of them, has been misled.5 This is fatal to the defense. TrafficSchool.com,

653 F.3d at 834.

In finding otherwise, the district court relied exclusively on California’s

Rules of Professional Conduct for lawyers to inform its understanding of how the

public understands the term “law firm.” This was error for two reasons.

First, the fact that a particular State’s rules of professional conduct are

intended to protect the public in no way establishes that the public’s understanding

of “law firm” comports with the definition set forth in that State’s rules. Indeed,

the definitions of “law firm” set forth in California’s Rule and the ABA’s Model

Rules are not prohibitions. Rather, they are relevant to determining the existence

of conflicts of interest and the applicability of other professional responsibilities.

Second, even if rules of professional conduct for lawyers were relevant,

McMurray has not shown that the Firm’s hub-and-spoke structure is contrary to

any rule. The Firm’s structure is consistent with Rule 1.0(c) of the ABA Model

Rules, which broadly states that “firm” or “law firm” “denotes a lawyer or lawyers

5 The majority apparently believes that the fact that a lawyer for a former client’s conservator named the Firm as a defendant in a lawsuit seeking to recover a judgment is evidence that the former client was misled by the firm’s advertising. The litigation tactic of the former client’s conservator’s lawyer plainly does not show that the former client herself was misled by any aspect of the Firm’s advertising. In any case, the district court mentioned this judgment in connection with the Firm’s “national” branding, not its “single firm” branding.

9 in a law partnership, professional corporation, sole proprietorship or other

association authorized to practice law.” The comment on this rule demonstrates

that the definition is intended to be expansive and flexible so as to better protect

the public by minimizing conflicts of interest. Indeed, an ABA opinion expressly

condones, “at least from the ethical point of view,” the franchise-like “licensing” of

a law firm’s name “to create a national network of firms, all of which will use the

original firm’s name under a licensing agreement by which the original firm will

provide all marketing for the firms in the network.” ABA Op. 94-388 at 7.6 The

California Practice Guide to Professional Responsibility similarly provides that

franchising of a law firm’s name is permissible where “the franchisor is in a

partnership with each franchisee.” Cal. Prac. Guide Prof. Resp. Ch. 2-B at § 136.2

(citing Los Angeles Bar Ass’n Form. Op. 423 (1983)). The Firm complies with

this guidance. As the district court found, “Plaintiff’s relationship with its regional

offices is composed of a network of several partnerships.”

The Firm’s hub-and-spoke structure also is consistent with California’s Rule

of Professional Conduct 1-100(B)(1), which provides that a “law firm” is, among

6 The ABA rules committee opined that such a structure is permissible for ethics purposes “[i]f all of the lawyers in the participating firms in a ‘network’ of licensed firms using the same name meet all of the ethical requirements that would be applicable to them if they were all lawyers in a single firm.” Id. at 8.

10 other things, “two or more lawyers whose activities constitute the practice of law,

and who share its profits, expenses, and liabilities.” The district court itself found

that the Firm and its regional offices have each of these characteristics to some

degree, as well as characteristics of a “national” firm. The court found that the

Firm has nationwide “prestige”; coordinates across offices on class actions and

multi-district litigation; has numerous nation-wide standardized resources and

procedures; requires regional offices to carry liability insurance;7 vets employees

and ensures “that the regional offices are managed by a managing partner that

Johnnie Cochran knew”; and exerts a degree of “control over the regional offices.”

2.

With respect to the Firm’s “national” branding, neither the “inequitable” nor

the “immediate and necessary relation” requirement of the unclean hands defense

is met. McMurray has not shown that this advertising is misleading. Indeed, as

noted, the district court itself found that the Firm has many characteristics of a

“national” presence. In any case, there is no evidence in the record of actual

7 Operating agreements between the Firm and its regional offices provide for shared liability. The operating agreement for the New York office, for example, states that the “Parties will indemnify each other (and each of such Party’s affiliates, officers, attorneys or agents) from and against all loses, damages or claims . . . incurred in connection” with the practice, except “each Party Attorney will be solely responsible for his or her own malpractice, for which such Party Attorney will be protected by professional liability insurance coverage.”

11 consumer confusion or bad intent.

Even if the “national” branding were inequitable, the Firm’s conduct is not

directly related to the equity the Firm seeks. The Cochran Firm trademark does not

itself state that law offices bearing that mark are “national” in stature. Rather, such

branding is buried in websites and legal magazines. In these circumstances, an

unclean hands defense will not succeed. See 6 McCarthy § 31:51.

In sum, the record and the district court’s own findings show that McMurray

is unlikely to be able to prove by clear, convincing evidence that the Firm’s

advertising is sufficiently inequitable and related to the equity that the Firm seeks

to allow McMurray’s trademark infringement to continue.

III.

The district court’s decision has two alarming effects. First, in finding the

Firm’s advertising to be misleading, the district court implicitly federalizes one

definition of “law firm.” This not only intrudes on the domain of States, which

may define “law firm” as they see fit,8 but harms the public. The public interest is

8 In Washington, D.C., for example, a business owned and controlled by non-lawyers can be a law firm. And in California and four other States, a law firm can be made up of people who did not go to law school. I note that this case does not present the question of whether, under California or any other State’s professional rules, non-lawyers may share in the profits of a law firm by way of payments for a trademark license.

12 better served by an expansive definition of “law firm,” which ensures wider

applicability of conflict-of-interest rules and other professional responsibilities.

Second, if the Firm’s hub-and-spoke structure is not a “single firm,” then the

organizational structures of many prominent, international firms are called into

question. For example, the Firm’s expert states that DLA Piper, Baker &

McKenzie, Dentons, Hogan Lovells, Squire Sanders, and other firms are Swiss

vereins, which are organizations composed of member organizations. The Firm’s

hub-and-spoke structure is also used by other “law firms,” such as Jacoby and

Meyers. The closeness of bonds between the offices that comprise a firm varies

significantly by office and firm. It does not follow that regional offices that

operate more independently mislead the public or violate rules of professional

conduct by holding themselves out as part of a larger, single law firm.

I would vacate the district court’s order dissolving the preliminary injunction

and put this trademark infringement case back on its proper course.

13