selling w/in another distributor’s exclusive territory isn’t plausibly false advertising of authorization

Northern Bottling Co. v. Henry’s Foods, Inc., No.
1:19-cv-021, 2020 WL 4208526 (D.N.D. Jul. 22, 2020) 

Northern is a PepsiCo bottler/distributor; it has some Exclusive
Bottling Appointments that appoint Northern as PepsiCo’s “exclusive bottler, to
bottle and distribute” a specific PepsiCo soft drink, such as Pepsi-Cola or
Mountain Dew, in a designated geographic territory. “PepsiCo produces the
concentrate—the flavor base for the beverages—and sells it to independent
bottlers. The independent bottlers, such as Northern, manufacture, sell, and
deliver the finished soft drinks to retailers in their geographic territory,
who, in turn, sell the products directly to the consuming public. The EBAs
provide that PepsiCo is the owner of the beverage trademarks and Northern does
not have ‘any right or interest’ in the trademarks.” 

Henry’s sells food and beverages, including Pepsi products,
to retail sales outlets, including gas and convenience stores. It is allegedly
a “third-party transshipper” of PepsiCo products, to wit, someone who sells in
a bottler’s exclusive territory other than the licensed bottler itself. Henry’s
allegedly transshipped PepsiCo products to six gas stations or convenience
stores located within the geographic territory established in the
Northern-PepsiCo EBAs. 

Henry’s allegedly implicitly (but never explicitly) misrepresented
that: Henry’s was licensed or authorized to manufacture, sell, and distribute
PepsiCo products; Henry’s’ sales were conducted in association with, or with
the approval of, PepsiCo and/or Northern; Henry’s’ products were of the same
quality or freshness as Northern’s; Henry’s’ “pricing was legitimate”; and
Henry’s’ “poor customer service” was caused or condoned by Northern. It
allegedly made these implicit representations by: “calling on [Northern’s]
exclusive customer base,” selling PepsiCo brand soft drinks to Northern’s
customers, “using and handling” PepsiCo trademarks, and listing PepsiCo soft
drinks for sale in promotional brochures. 

Northern sued for tortious interference with business
expectancy, violation of the Lanham Act, and declaratory relief. The court
dismissed the complaint. 

Tortious interference: requires “an independently tortious
or otherwise unlawful act of interference by the interferer.” Northern alleged:
(1) deceit, (2) false advertising, and (3) the consumer sales fraud prevention
statute. Rule 9(b) applied.

Under North Dakota law, deceit means that “[o]ne who
willfully deceives another with intent to induce that person to alter that
person’s position to that person’s injury or risk is liable for any damage
which that person thereby suffers.” Northern didn’t plead fraud with the
requisite specificity, failing to identify by name a single gas station or
convenience store that Henry’s allegedly deceived or any dates. It also didn’t
allege any express representation. Matrix Essentials, Inc. v. Emporium Drug
Mart, Inc., 988 F.2d 587 (5th Cir. 1993), held that a seller’s offering to sell
products and stocking shelves with those products did not amount to a misleading
representation that the seller was “authorized” to sell those products. Scott
Fetzer Co. v. House of Vacuums Inc., 381 F.3d 477 (5th Cir. 2004), held that a
mere truthful reference to selling a marked product didn’t suggest affiliation. 

Here, it wasn’t enough to allege that Henry’s misrepresented
itself as authorized by calling on Northern’s “exclusive customer base.” Thus,
even if there had been more detail, the court was skeptical that Henry’s’
alleged actions—“offering to sell, displaying the product for sale in a
brochure, and selling PepsiCo soft drinks—absent more, amount to a misleading representation.”  Northern didn’t plead any other potential deceit—misrepresentations
that Henry’s was authorized and that its pricing was “legitimate”—with the requisite
specificity. Northern didn’t explain what “legitimate” pricing even was. Alleged
misrepresentations that Henry’s products had the “high-caliber characteristics,
quality controls, and freshness associated with Northern’s products” were also
not specifically identified. 

False advertising/consumer fraud under state law: Same

Lanham Act: Statutory standing was an issue: did Northern
have any interest in asserting harm when PepsiCo owns the relevant trademarks?
Under Lexmark, the answer was yes: Northern alleged “an injury to a
commercial interest in reputation or sales” and proximate causation in that
customers switched. 

The court also considered in detail the split over applying
Rule 9(b) to the Lanham Act claim, since some courts hold that proof of fraud
or mistake isn’t required for §43(a)(1)(B) false advertising liability. But this
court disagreed, based on other Eighth Circuit cases, the language of the
statute, and the allegations here. Given that holding, the same flaws doomed
the federal claim.

from Blogger

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