DIAMOND RESORTS U.S. COLLECTION DEVELOPMENT, LLC, et al., v. WESLEY FINANCIAL GROUP, LLC, et al.,
No. 3:20-CV-00251-DCLC-DCP
UNITED STATES DISTRICT COURT EASTERN DISTRICT OF TENNESSEE AT KNOXVILLE
May 7, 2025
This matter is before the Court on Plaintiffs’ Motion for Bench Trial Pursuant to Rule 39(a)(2) [Doc. 340], Defendants’ Response in Opposition [Doc. 349], and Plaintiffs’ Reply [Doc. 351]. For the reasons herein, the Court will grant Plaintiffs’ motion.
I. BACKGROUND
Diamond Resorts is one of the world‘s largest hospitality companies, with hundreds of resorts that span thirty-five countries. [Second Am. Compl., Doc. 103, ¶ 26]. Plaintiff Diamond Resorts Management, Inc., “manages timeshare resorts” within Diamond Resorts‘s family of companies. [Id. ¶ 27]. Diamond Resorts‘s properties are “allocated into groupings of resorts called Collections,” which include Plaintiff Diamond Resorts U.S. Collection Development, LLC, and Plaintiff Diamond Resorts Hawaii Collection Development, LLC. [Id. ¶ 29]. The U.S. Collection Development is a points-based program that offers their customers resorts throughout the United States, and Hawaii Collection Development is a points-based program that offers resorts in Hawaii, Nevada, and Arizona. [Id. ¶ 30].
Plaintiffs accuse Defendants Wesley Financial Group, LLC, and Charles William McDowell, III of “engag[ing] in a deceptive timeshare cancellation business” that induces
Defendants demanded a jury trial in response to Plaintiffs’ allegations, [Answer, Doc. 105, at 1], but Plaintiffs have since notified the Court that they no longer plan to pursue “legal relief (i.e. a judgment for monetary damages)” and will instead pursue “equitable relief” in the forms of an injunction, disgorgement, attorneys’ fees, and costs. [Pls.’ Notice, Doc. 263, at 2]; see [Pls.’ Mot. at 4 (“The only remedies still being sought in this case are injunctive relief, disgorgement, and an ancillary request for attorneys’ fees and costs.“)]. Plaintiffs now move the Court for a bench trial in pursuit of these forms of relief, and they urge the Court to strike Defendants’ demand for a jury trial, claiming that Plaintiffs’ “withdraw[al] [of] all requests for legal relief against Defendants” means “there is no right to a trial by jury.” [Pls.’ Mot. at 1]. Defendants oppose Plaintiffs’ motion. Having carefully considered the parties’ arguments, the Court is now prepared to rule on Plaintiffs’ motion.
“The right to a jury trial is guaranteed by the Seventh Amendment,” Allied Indus. Workers v. Gen. Elec. Co., 471 F.2d 751, 755 (6th Cir. 1973), which states that “[i]n Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved,”
When determining whether a right to a jury trial exists for a particular cause of action, the Court does not first consult the Seventh Amendment; rather, in deference to the doctrine of constitutional avoidance, it considers whether a statutory source supplies the right to a jury trial. See Tull v. United States, 481 U.S. 412, 417 n.3 (1987) (“Before initiating the inquiry into the applicability of the Seventh Amendment, ‘[w]e recognize, of course, the ‘cardinal principle that this Court will first ascertain whether a construction of the statute is fairly possible by which the [constitutional] question may be avoided.‘” (alterations in original) (quotation omitted)); see generally Gulf Oil Co. v. Bernard, 452 U.S. 89, 99 (1981) (stating that “prior to reaching any constitutional questions, federal courts must consider nonconstitutional grounds for decision” (citation omitted)). If a statute does allow for a trial by jury, then the Court‘s analysis is at an
Again, the Seventh Amendment preserves the right to a jury trial in “Suits at common law,”
First, the Court compares the action to “18th-century actions brought in the courts of England prior to the merger of the courts of law and equity,” with the aim of ascertaining how the courts of England treated the action before the Seventh Amendment‘s ratification. Id. (citations omitted).2 “[A]ctions that are analogous to 18th-century cases tried in courts of equity or admiralty do not require a jury trial.” Id. (citation omitted). “Where history does not provide a clear answer, [courts] look to precedent and functional considerations.” City of Monterey v. Del Monte Dunes at Monterey, Ltd., 526 U.S. 687, 718 (1999) (citation omitted). Second, the Court “examine[s] the remedy sought and determine[s] whether it is equitable in nature.” Tull, 481 U.S. at 417-18 (citations and footnote omitted). “Th[is] second inquiry is the more
After performing this two-part inquiry, the Court has license under
III. ANALYSIS
As an initial matter, the Court notes that Defendants maintain that they are entitled to a jury trial on only one of Plaintiffs’ claims: the claim for false advertising under
A. Statutory Right to a Jury Trial under the Lanham Act
Contending that disgorgement is equitable in nature, Plaintiffs start by pointing to the language in
(a) Profits; damages and costs; and attorney fees
When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, a violation under section 1125(a) or (d) of this title, or a willful violation under section 1125(c) of this title, shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled, subject to the provisions of sections 1111 and 1114 of this title, and subject to the principles of equity, to recover (1) defendant‘s profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action. The court shall assess such profits and damages or cause the same to be assessed under its direction. In assessing profits the plaintiff shall be required to prove defendant‘s sales only; defendant must prove all elements of cost or deduction claimed. In assessing damages the court may enter judgment, according to the circumstances of the case, for any sum above the amount found as actual damages, not exceeding three times such amount. If the court shall find that the amount of the recovery based on profits is either inadequate or excessive the court may in its discretion enter judgment for such sum as the court shall find to be just, according to the circumstances of the case. Such sum in either of the above circumstances shall constitute compensation and not a penalty. The court in exceptional cases may award reasonable attorney fees to the prevailing party.
In addition, and more importantly, the Lanham Act contains no mention of a right to a jury trial, and several district courts have recognized its silence on the subject. See, e.g., AstraZeneca LP v. Tap Pharm. Prods., Inc., 444 F. Supp. 2d 278, 287-88 (D. Del. 2006) (“[T]he Lanham Act is silent on whether a cause of action for false advertising . . . requires trial by a jury.” (citations omitted)); Castrol, Inc. v. Pennzoil Quaker State Co., 169 F. Supp. 2d 332, 344 (D.N.J. 2001) (“[T]he language of [the Lanham Act] makes no mention of a trial by jury.“); Daisy Grp., Ltd. v. Newport News, Inc., 999 F. Supp. 548, 550 (S.D.N.Y. 1998) (“It is undisputed that the [Lanham Act] is silent on the issue of jury trial.“). Congress has shown that it knows how to provide litigants with a right to a jury trial when it wants to, see
B. The Seventh Amendment
The Court now shifts its analysis to the Seventh Amendment, under which the parties strenuously dispute whether a jury must consider Plaintiffs’ entitlement to disgorgement under the Lanham Act. Again, the Court‘s analysis is twofold, and it asks (1) whether claims for disgorgement under the Lanham Act “are analogous to 18th-century cases tried in courts of
1. Comparison to 18th Century Actions
In attempting to satisfy the first prong of the analysis, Plaintiffs acknowledge that “the right to [a] jury trial ultimately hinges on whether the remedy sought is considered legal or equitable based on how it was treated historically,” [Pls.’ Mot. at 4], and they cite Osborn v. Griffin, 865 F.3d 417 (6th Cir. 2017), [id. at 6]. In Osborn, the Sixth Circuit considered the “historical treatment of” disgorgement as a “remedy prior to the enactment of the Seventh Amendment,” and it observed that “in 18th century chancery courts, what [modern-day courts] now call disgorgement was embodied in the remedies of ‘accounting, constructive trust, and restitution,‘” which “were almost universally recognized as being within the ambit of courts of equity.” Osborn, 865 F.3d at 462 (quotation omitted). In short, the Sixth Circuit, through its historical analysis, confirmed that England‘s 18th-century courts treated claims of disgorgement, or their remedial analogs, as equitable in nature, and it held that “a jury trial was not required for Plaintiff‘s . . . claims” because “actions seeking disgorgement of ill-gotten gains are equitable in nature.” Id. at 461 (citing Chauffeurs, 494 U.S. at 570).
In Defendants’ view, though, any insight into how English courts treated trademark-infringement actions is meaningless because Plaintiffs’ claim is not for trademark infringement but false advertising. [Defs.’ Resp. at 7, 11]. Defendants argue, without citing case law, that false-advertising claims “are analogous to common law actions against injurious falsehoods,” [id. at 7], and relying on a state-court case, they maintain that “equity had no jurisdiction to hear” these types of claims, [id. (quoting Preston Hollow Cap. LLC v. Nuveen LLC, No. CV 2019-0169-SG, 2019 WL 3801471, at *9 (Del. Ch. Aug. 13, 2019))].
But the Supreme Court has acknowledged that “the Lanham Act treats false advertising as a form of unfair competition,” Lexmark Int‘l, Inc. v. Static Control Components, Inc., 572
2. The Nature of the Remedy Sought
Next, under the second prong of the two-part inquiry, the Court examines whether claims for disgorgement under the Lanham Act are “equitable in nature.” Id. at 418. Again this part of the inquiry is “the more important” of the two, Chauffeurs, 494 U.S. at 565 (citation and footnote omitted), and under it, the parties’ central dispute is whether Ferrari is dispositive. In Ferrari, the Sixth Circuit determined that a defendant was “not entitled to a jury trial” in a trademark-infringement action under the Lanham Act because the plaintiff had “requested only
Ferrari is dispositive. Again, false advertising and trademark infringement are both variants of unfair competition, Lexmark Int‘l, 572 U.S. at 136; Audi AG, 469 F.3d at 542; AstraZeneca, 444 F. Supp. 2d at 288, so they are analogous in substance. They are also analogous in the redress they offer-meaning that the remedies available under
The Court therefore is loath to accept Defendants’ restrictive reading of Ferrari, and other courts, too, have not taken a provincial reading of Ferrari. See, e.g., Hard Candy, LLC v. Anastasia Beverly Hills, Inc., 921 F.3d 1343, 1358 (11th Cir. 2019) (“The two Courts of Appeals that have addressed this precise question-the Sixth and Ninth Circuits-have agreed with our conclusion that a claim for an accounting and disgorgement of profits under the Lanham Act is equitable in nature and, therefore, that the Seventh Amendment‘s guarantee of a jury trial does not apply.” (citing Ferrari, 944 F.2d at 1248)); Lucky‘s Detroit, LLC v. Double L Inc., No. 09-14622, 2014 WL 4854982, at *3 (E.D. Mich. Sept. 30, 2014) (“Defendant has asked for a jury trial, but it appears that the remaining damages sought by Defendant are the
In any case, Defendants’ argument fails for another reason. Unlike the first prong of the two-part inquiry, the second prong requires the Court to focus on the remedy sought, not the underlying cause of action-i.e., false advertising versus trademark infringement-that serves as the catalyst for the remedy. Compare Tull, 481 U.S. at 417 (“First, we compare the statutory action to 18th-century actions brought in the courts of England prior to the merger of the courts of law and equity.” (emphasis added) (citations omitted)), with id. at 417-18 (“Second, we examine the remedy sought and determine whether it is legal or equitable in nature.” (emphasis added) (citations omitted)). The Supreme Court, the Sixth Circuit, and a chorus of other courts have stated, without qualification, that disgorgement is an equitable remedy. See Liu v. SEC, 591 U.S. 71, 80 (2020) (“[D]isgorgement . . . simply ‘restor[es] the status quo,’ thus situating the remedy squarely within the heartland of equity.” (second alteration in original) (footnote and quotation omitted)); Chauffeurs, 494 U.S. at 570 (“[W]e have characterized damages as equitable where they are restitutionary, such as in ‘action[s] for disgorgement of improper profits.‘” (second alteration in original) (quotation omitted)); Osborn, 865 F.3d at 461 (“The weight of authority holds that actions seeking disgorgement of ill-gotten gains are equitable in nature.” (citations omitted)); Laukus v. Rio Brands, Inc., 391 F. App‘x 416, 423 (6th Cir. 2010)
Even so, Defendants argue that disgorgement is not always an equitable remedy. They cite language from the Sixth Circuit‘s opinion in Tandy, in which the Sixth Circuit stated that “[d]espite this pervasive equity background [in trademark actions], the damages or accounting aspect of trademark infringement actions are considered legal actions for purposes of the jury trial clause of the Seventh Amendment.” Tandy, 769 F.2d at 364. In making this statement, the Sixth Circuit relied on the Supreme Court‘s decision in Dairy Queen, Inc. v. Wood, 369 U.S. 469 (1962). Tandy, 769 F.2d at 364; see [Defs.’ Resp. at 8 (noting that the Sixth Circuit in Tandy was “[r]elying on Dairy Queen“)]. In Dairy Queen, the Supreme Court held that “a plaintiff, by asking in his complaint for an equitable accounting for trademark infringement, could not deprive the defendant of a jury trial on contract claims subsumed within the accounting.” Chauffeurs, 494 U.S. at 589 (Kennedy, J., dissenting). In short, Dairy Queen was an action for compensatory damages. See Feltner, 523 U.S. at 346 (describing Dairy Queen as an “action for damages for trademark infringement“); Curtis, 415 U.S. at 198 (referring to Dairy Queen as a “damages action[]“).
Plaintiffs, however, assert that they are no longer pursuing compensatory damages, so Defendants, by invoking Dairy Queen, appear to be skeptical of this assertion-and to call on the Court to be just as skeptical. See [Defs.’ Resp. at 10 (arguing that “Plaintiffs’ disgorgement claim is functionally equivalent to a claim for legal damages” and “is a proxy for [Plaintiffs‘]
Like the Supreme Court in Dairy Queen, this Court, at this time, declines to resolve whatever ambiguity, if any, resides in Plaintiffs’ claims for false advertising and disgorgement because the Lanham Act confines Plaintiffs’ proof to “sales.” See
Finally, Defendants raise various supplemental arguments to counter Plaintiffs’ request for a bench trial, but none of them is persuasive. First, Defendants question Plaintiffs’ decision to suddenly “drop[] their damages claims after nearly four years of litigation,” asserting that it is an underhanded tactic and that Defendants want to avoid a jury “because of the difficulties of proving those damages” and because “they know how much they are disdained by the public.”
IV. CONCLUSION
As the movants under
SO ORDERED:
s/ Clifton L. Corker
United States District Judge