NOT FOR PUBLICATION FILED

UNITED STATES COURT OF APPEALS SEP 27 2018

MOLLY C. DWYER, CLERK

U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

STEVE LIGUORI and BRUNO LIGUORI No. 16-16601

TURQUOISE TRADING, INC.,

D.C. No. 2:11-cv-00492-GWF Plaintiffs-Appellees,

v. MEMORANDUM*

BERT HANSEN, DBA High Scaler Cafe, DBA Hoover Dam Snacketeria,

Defendant-Appellant.

VICTORIA NELSON, Chapter 7 Trustee in No. 17-15455 Bankruptcy and BRUNO LIGUORI TURQUOISE TRADING, INC., D.C. No. 2:11-cv-00492-GWF

Plaintiffs-Appellees,

v.

BERT HANSEN, DBA High Scaler Cafe, DBA Hoover Dam Snacketeria,

Defendant-Appellant.

VICTORIA NELSON, Chapter 7 Trustee in No. 17-15506 Bankruptcy and BRUNO LIGUORI TURQUOISE TRADING, INC., D.C. No. 2:11-cv-00492-GWF

Plaintiffs-Appellants,

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. v.

BERT HANSEN, DBA High Scaler Cafe, DBA Hoover Dam Snacketeria,

Defendant-Appellee.

Appeal from the United States District Court for the District of Nevada George W. Foley, Jr., Magistrate Judge, Presiding

Argued and Submitted September 6, 2018 San Francisco, California

Before: BERZON and FRIEDLAND, Circuit Judges, and CARDONE,** District Judge.

These consolidated appeals reach this Court after two jury trials in the

district court. In 2011, Plaintiff-Appellee Steve Liguori filed suit against

Defendant-Appellant Bert Hansen. The dispute centers on Hansen’s use of

Liguori’s creative work under the parties’ licensing agreement, which allowed

Hansen to sell souvenirs featuring Liguori’s work at Hansen’s store near the

Hoover Dam. A jury ultimately found Hansen liable for both breach of contract

and copyright infringement. Hansen appeals four rulings from the district court,

including its decision to award Liguori attorney’s fees. Liguori, in turn, cross

appeals the court’s determination that he was not entitled to his full fee request.

** The Honorable Kathleen Cardone, United States District Judge for the Western District of Texas, sitting by designation.

2 We have jurisdiction pursuant to 28 U.S.C. § 1291. We affirm in part, reverse in

part, and remand this matter for further proceedings.

I.

Hansen first argues that the district court erred by directing a verdict in

Liguori’s favor regarding interpretation of the licensing agreement. The propriety

of a directed verdict is reviewed de novo, and we will reverse if there is

“substantial evidence to support a verdict for the nonmoving party.” Meehan v.

Cty. of Los Angeles, 856 F.2d 102, 106 (9th Cir. 1988). In the proceedings below,

the parties disagreed as to whether certain items sold in Hansen’s store—namely,

books that featured a logo designed by Liguori—were “souvenirs” within the

meaning of the agreement and subject to royalties. Based on the evidence

presented at trial, the district court concluded that the books qualified as souvenirs.

On appeal, Hansen does not adequately explain why the books were not

souvenirs based on the unambiguous language in the licensing agreement, nor does

he point to any evidence before the district court that could have supported a

verdict in his favor. Instead, he primarily argues that he had an implied license to

use the logo in branding his store. Even assuming the existence of an implied

license for other purposes, Hansen is still liable for breach of contract if he sold

items subject to the licensing agreement without paying the agreed-upon royalties.

See Effects Assocs., Inc. v. Cohen, 908 F.2d 555, 559 (9th Cir. 1990). Because

3 Hansen has not adequately argued how the evidence could support a verdict in his

favor, we affirm the directed verdict in Liguori’s favor. See Meehan, 856 F.2d at

106.

II.

Hansen next challenges the district court’s decision allowing Liguori’s

damages expert to testify at the second trial despite the untimely disclosure of her

supplemental report. “We review the district court’s rulings concerning discovery,

including the imposition of discovery sanctions, for abuse of discretion.”

Goodman v. Staples The Office Superstore, LLC, 644 F.3d 817, 822 (9th Cir.

2011). In the event a party fails to make timely disclosures, the information that

should have been disclosed may not be used at trial unless “the failure was

substantially justified or is harmless.” Fed. R. Civ. P. 37(c)(1). Here, the district

court concluded that the untimely disclosure was harmless because the underlying

assumptions and methodology in the supplemental report were unchanged from the

initial report relied on by the expert at the first trial. The court also observed that

the updated damages calculations merely reflected several prior rulings that had

limited the recovery period and removed certain items from the ambit of the

licensing agreement.

Although Hansen argues on appeal that he was prejudiced by Liguori’s

untimely disclosure, he fails to specify how. Hansen deposed the expert prior to

4 the first trial. Given that the changes in the supplemental report were made to

bring the calculations into compliance with the district court’s prior rulings, he had

notice of the substance of the expert’s testimony. Therefore, this untimely

disclosure was harmless. See Fonseca v. Sysco Food Servs of Ariz., Inc., 374 F.3d

840, 846 (9th Cir. 2004). We therefore conclude that the district court did not

abuse its discretion by allowing the expert to testify at the second trial.

III.

In his third challenge, Hansen argues that the district court erred by refusing

to instruct the jury on vicarious copyright infringement. We review the

formulation of jury instructions for abuse of discretion, and “[a] party is entitled to

an instruction about his or her theory of the case if it is supported by law and has

foundation in the evidence.” Jones v. Williams, 297 F.3d 930, 934 (9th Cir. 2002).

To establish liability for vicarious copyright infringement, a plaintiff must show

“that the defendant exercises the requisite control over the direct infringer and that

the defendant derives a direct financial benefit from the direct infringement.”

Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146, 1173 (9th Cir. 2007).

Hansen argues that he was entitled to an instruction on vicarious copyright

infringement because, as he contends, Liguori asked the jury to find Hansen liable

for infringement based on the sale of items featuring Liguori’s work by third

parties. But the court permitted Liguori to argue only that Hansen was liable as a

5 direct infringer, because Hansen distributed copies of Liguori’s work to the third

parties and there was no evidence that Hansen controlled the third parties. See 17

U.S.C. § 106(3). Because Liguori was properly precluded from arguing that

Hansen was liable for vicarious infringement, the district court did not abuse its

discretion by refusing to instruct the jury on vicarious copyright infringement. See

Perfect 10, Inc., 508 F.3d at 1173.

IV.

The court next considers the issue of attorney’s fees.

A.

Hansen argues that the district court incorrectly determined that he was not

the prevailing party on his copyright claim as well as his contract claim. But in

Columbia Pictures Television v. Krypton Broad. of Birmingham, 152 F.3d 1171

(9th Cir. 1998), we held that a party found liable for copyright infringement cannot

be the prevailing party under § 505 as a matter of law. Id. at 1172. Thus, because

the jury found Hansen liable for infringement, he is not a prevailing party under the

Copyright Act. See id. at 1171–72; see also Cadkin v. Loose, 569 F.3d 1142,

1148–49 (9th Cir. 2009) (prevailing-party status under the Copyright Act is

determined by the material alteration test, which is satisfied when one party obtains

a judgment on the merits against another party).

6 Liguori also obtained a judgment that Hansen breached the parties’ licensing

agreement, which is governed by Nevada law. Under Nevada law, a party need not

succeed on every issue to qualify as a prevailing party. MB Am., Inc. v. Alaska

Pac. Leasing, 367 P.3d 1286, 1292-93 (Nev. 2016). Instead, a party that obtains a

judgment in its favor is the prevailing party for the purposes of a fee award. Id.

Thus, the district court correctly determined Liguori was the prevailing party on his

contract claim, as well as his copyright claim.

B.

On his cross-appeal, Liguori argues that the district court erred by refusing

to award all his reasonable attorney’s fees, particularly in relation to the first trial.1

During the first trial, Liguori presented the jury with two theories of

recovery. Under his first theory, all items sold by Hansen were covered by the

licensing agreement, and Liguori was entitled to recover solely on his contract

claim based on Hansen’s failure to pay royalties on every sale. In the alternative,

Liguori argued that certain uses of his work by Hansen went beyond the scope of

the licensing agreement such that Hansen was liable for copyright infringement.

Under this theory, Liguori was entitled to recover on his contract claim based on

Hansen’s failure to pay all royalties owed on items covered by the licensing

agreement, and on his copyright claim based on the use of his work that fell

1 Contrary to what the panel was informed by the parties at argument, the district court did award fees for the period before the start of the first trial.

7 outside the scope of the licensing agreement. The jury ultimately returned a

verdict in favor of Liguori for $1,200,000 on his contract claim and $150,000 in

statutory damages on his copyright claim.

Hansen then moved for a new trial, which the district court granted. The

court noted that, given the size of the contract award, it could be sustained only if

the jury agreed with Liguori’s first theory—that all items sold by Hansen were

subject to the agreement, and that he was entitled to recover contract damages

because Hansen failed to pay royalties on most items. But that conclusion would

be inconsistent with the copyright award because, under Liguori’s first theory, he

was entitled to recover only contract damages. The court further held, as a matter

of law, that Liguori’s first theory was based on an unreasonable interpretation of

the licensing agreement. Later, after Liguori prevailed again at the second trial and

requested attorney’s fees, the district court refused to award fees for work related

to the first trial. The court explained that the second trial was necessary only

because Liguori presented an unreasonable theory of recovery to the jury during

the first trial, and therefore, that he had engaged in “improper conduct.”

We agree with Liguori that refusing to award his full fees in this manner was

an abuse of discretion. The district court had prior notice that Liguori would

present the alternative theories of recovery at the first trial, and based on our

review of the record, at no point did the court make clear that it viewed Liguori’s

8 interpretation of the licensing agreement as unreasonable. In addition, Hansen

neither filed a motion attempting to preclude Liguori from offering his theory, nor

did he seek a directed verdict on the issue. And yet, by the reduction, the district

court essentially treated Liguori’s litigation strategy as sanctionable conduct.

While courts possess the inherent authority to sanction a party for litigation

misconduct, such sanctions are contingent on a finding of bad faith. See, e.g.,

Miller v. City of Los Angeles, 661 F.3d 1024, 1026 (9th Cir. 2011) (ordering

remand for a finding of bad faith where the trial court sanctioned a party for

violating its in limine order during summation); see also Goodyear Tire & Rubber

Co. v. Haeger, 137 S. Ct. 1178, 1186 (2017) (courts possess the inherent authority

to sanction a party that abuses judicial process).

Liguori’s actions did not cross that threshold. Moreover, the district court’s

fee reduction was based on the court’s disagreement with Liguori’s interpretation

of the licensing agreement. Even if the interpretation advanced by Liguori was

questionable, the court required something more than its post hoc disagreement

with Liguori’s litigation strategy at the first trial in order to conclude that such a

reduction was warranted. We therefore hold that the district court abused its

discretion, and remand for further consideration of Liguori’s fee award. See Ryan

v. Editions Ltd. W., Inc., 786 F.3d 754, 759 (9th Cir. 2015). The district court

9 retains its discretion to reduce fees if it believes a reduction is warranted for other

reasons.

AFFIRMED in part, REVERSED in part, and REMANDED for further

proceedings.

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