Lanham Act false advertising disgorgement is equitable; no jury trial required

Diamond Resorts U.S. Collection Development, LLC v. Wesley Financial Group, LLC, No. 3:20-CV-00251-DCLC-DCP, 2025 WL 1334625 (E.D. Tenn. May 7, 2025)

Another timeshare case! Diamond alleged that defendants engaged in “a deceptive timeshare cancellation business” that induces Diamond’s timeshare owners to breach their contractual agreements with Diamond Resorts. It sued for false advertising in violation of the Lanham Act, the Tennessee Consumer Protection Act, and for the unauthorized practice of law. As trial approached, Diamond told the court that it wouldn’t pursue legal relief, only an injunction, disgorgement, attorneys’ fees, and costs, so that defendants couldn’t get a jury (which, one infers, might be more sympathetic to defendants because timeshares can be such nightmares). The court ruled that there was no statutory or Seventh Amendment right to a jury trial in these circumstances.

“The right to a jury trial is guaranteed by the Seventh Amendment,” 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.” Common law means “suits in which legal rights were to be ascertained and determined,” and not suits in which “equitable rights alone were recognized, and equitable remedies were administered.” Making this distinction requires a court to compare the action at bar to “18th-century actions brought in the courts of England prior to the merger of the courts of law and equity,” because that is an excellent way to run a system. “[A]ctions that are analogous to 18th-century cases tried in courts of equity or admiralty do not require a jury trial.” If history doesn’t provide an answer, courts “look to precedent and functional considerations.” The inquiry also requires the court to “examine the remedy sought and determine whether it is equitable in nature.” “Th[is] second inquiry is the more important” of the two. Because of the value of a jury trial, a court “indulge[s] every reasonable presumption” in favor of finding a right to a jury trial.

Nonetheless, there was no statutory right to a jury trial in a Lanham Act case. “Congress has shown that it knows how to provide litigants with a right to a jury trial when it wants to.”

In Osborn v. Griffin, 865 F.3d 417 (6th Cir. 2017), the Sixth Circuit 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.” Disgorgement, that is, was equitable.

More specifically, how did England’s 18th-century courts treat actions for trademark-related disputes when parties sought disgorgement as a remedy in those actions? The Sixth Circuit has recognized that, “prior to statutory protection for trademarks,” English and American courts “treated the damages portion of such suits as an equitable action in the nature of an accounting.” Consistent with this history, the Lanham Act allows for disgorgement “subject to the principles of equity” for claims of false advertising under § 1125(a).

True, the Sixth Circuit spoke about trademark cases, not false advertising. But Lexmark says that “the Lanham Act treats false advertising as a form of unfair competition,” and, the court here reasoned, “unfair competition is analogous to trademark infringement.” Analogy was good enough here.

Likewise, the disgorgement remedy was equitable in nature, even when the disgorgement was sought to redress false advertising rather than trademark infringement. What about an earlier Sixth Circuit statement 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.” The Sixth Circuit relied on Dairy Queen, Inc. v. Wood, 369 U.S. 469 (1962), which 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.” “In short, Dairy Queen was an action for compensatory damages.”

But plaintiffs here disavowed seeking compensatory damages. “In Dairy Queen, the Supreme Court was itself skeptical of Dairy Queen’s claim because it had shades of a breach-of-contract claim and a trademark-infringement claim all in one, but the Supreme Court declined to resolve the ‘ambiguity’ in this claim because it was certain that Dairy Queen’s request for a ‘money judgment’ was “wholly legal in its nature however the complaint [was] construed.’” Here, disgorgement would only require proof of defendant’s sales, meaning that “evidence of compensatory damages arising from any breach of contract will be off the table at trial.” But, given that the theory here was that defendants induced Diamond Resorts’s timeshare owners to breach their contracts with Diamond Resorts, the court would watch carefully to prevent plaintiffs from using theories of breach of contract to arrive at lost profits; if they did so, defendants would be entitled to a jury trial.