failure to show damage from accusation of falsity dooms counterclaims

Cascade Yarns, Inc. v. Knitting Fever, Inc., 2015 WL 3407882,
No. C10–861 (W.D. Wash. May 27, 2015)

This five-year odyssey ends with a whimper. 
Cascade and KFI sell luxury yarns; Cascade initially sued KFI for
mislabeling the fiber content of certain yarns. Ultimately, the case went to a
jury solely on KFI’s counterclaims for unfair competition under the Lanham Act
and Washington common law, defamation, and tortious interference with business
expectancies. Each claim arose out of Cascade’s posting a statement under the headline
“Milk Protein Fiber Hype”:
 
There has been a lot of hype
recently about a fiber advertised as “Milk Protein Fiber.” Given the
substantial price that “milk” yarns command, it made sense to investigate what
this “milk” fiber actually is. We were surprised to learn that three “milk”
yarns sourced from Knitting Fever were nothing more than common acrylic blends.
Acrylic is an inexpensive fiber, which is often added to make yarns soft and
affordable. Beyond the lack of milk, two of these yarns did not contain either
the cashmere or alpaca, listed on their labels.
We presented this information to
KFI, first to their attorneys informally, then later to the Court. KFI raised
questions regarding the testing methodology of our expert, but chose not to
have these yarns actually tested. So far, KFI asserts that the yarns, listed
below, contain milk, alpaca and cashmere, purely because the salesmen who sold
it to KFI says [sic] that they do. We attached the documents from Cascade’s
fiber expert, as well as the response from KFI’s plastics expert.
1) Ella Rae Milky Soft: advertised
as a 50/50 cotton milk protein blend is actually cotton and acrylic.
2) Laines du Nord (KFI) Baby Milk:
advertised as 63% wool, 30% milk fiber, and 7% cashmere is actually 68% wool
and 32% acrylic.
A. Retails for $6.60 for a 25 gram
skein or $26.40 per 100 grams.
B. Cascade Pacific 60% acrylic 40%
wool (merino) retails for $6.50 per 100 grams.
3) Ella Rae Latte: advertised as
30% alpaca, 30% milk, and 40% microfiber actually contains neither milk nor
alpaca and is 69% acrylic and 31% wool.
A. Retails between $9.00 to $10.00
for 50 gram skein or $18–$20 per 100 grams.
B. Again Cascade Pacific retails
for $6.50 and has a third more wool.
 
Cascade removed the posting sometime in 2012.
 
The court granted judgment as a matter of law to Cascade
because of KFI’s failure to show damages. Assuming (!) that the statement was
commercial comparative advertising, a presumption of injury is only available
for deliberately deceptive
comparative advertising.  No witnesses
testified to Cascade’s mental state.  A
Cascade witness testified that he relied on the reports of a fiber analyst,
Kenneth Langley, which he consequently believed to contain only true
statements.
 
Nor was there direct evidence of injury.  KFI did not link a drop in its business to
Cascade’s actions here; Cascade has been posting lots of pleadings from this
case wholly unrelated to the milk fiber yarn issue. “The jury would have no way
to find that KFI’s damages were attributable to the milk fiber posting and not
to the public airing of unrelated grievances throughout the course of this
litigation, or to any number of economic or other causes.” Nor did KFI show any
Cascade profits were attributable to this posting. “[U]nder these circumstances,
any award would constitute an impermissible penalty rather than compensation,”
so the court wasn’t going to send it to the jury.  This ended the state common law unfair
competition claim too.
 
On defamation, KFI was a private figure, but the milk fiber
yarn post involved a matter of “public concern,” “in light of the public’s
interest in the accuracy of product labeling as well as in consumer warnings of
fraudulent or deceptive business practices.” Under state law, KFI would need to
show negligence to recover actual damages, and actual malice to recover
presumed damages.  It couldn’t show
actual damages, as noted above, and it also couldn’t show actual malice either
through knowledge of falsity or reckless disregard for truth. Though KFI had
evidence of falsity, neither falsity nor proof of failure to investigate before
publishing are sufficient to show malice.
 
Similar difficulties attended the tortious interference
claim; KFI failed to show the existence of specific expectancies, Cascade’s
knowledge thereof, and resulting damages.  KFI didn’t to identify any of its customers
who were deterred by the milk fiber yarn posting.
 
KFI pointed to an email that I can imagine another court
finding sufficient, given the difficulty of finding actual evidence of deception—in
this email, a customer thanked Cascade “for helping her to avoid $200 of
contemplated purchases of milk fiber yarns.” The court found that this one
email contained hearsay and was insufficient. “It was admitted to contradict
Mr. Dunbabin’s testimony about the extent to which the milk fiber yarn posting
was viewed but not for the truth of the matter asserted therein.”  (Couldn’t it also go to the customer’s state
of mind, which would show deception?)
 
Cascade’s claims for injunctive relief based on KFI’s past
mislabeling also failed.  In order for cessation
of unlawful conduct to moot a claim for injunctive relief, the defendant bears
the burden to show that its reform is irrefutable and total.  The court found “ample assurances” that KFI
had stopped selling the mislabeled yarns at issue in 2012 and wouldn’t sell
them in the future.  Cascade’s remaining
claims were dismissed.

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