maintaining outdated article on website about former supplier wasn’t false association

Posted on October 1, 2021 by rtushnet

Archi’s Acres, Inc. v. Whole Foods Market Service, Inc., 2021
WL 424286, No. 19-CV-2478 JLS (MSB) (S.D. Cal. Feb. 8, 2021)

Plaintiffs are farmers and growers of high-quality living
organic basil. Whole Foods began purchasing small quantities of basil from them
and selling the product in Whole Foods Market stores in the San Diego area in
2007. In 2012, they allegedly signed a contract committing to purchase $573,000
in basil from plaintiffs per year, and then Whole Foods gave plaintiffs a
“local producer loan” to buy greenhouse equipment, presenting them with an
oversized check for $100,000 at the opening of a Whole Foods in Del Mar,
California. Whole Foods allegedly used and continued to use a photograph of
this event in its advertising materials “to show Defendants’ purported
commitment to local farms and giving back to the local community.” Yet, after
completing the greenhouse project, they abandoned plaintiffs, ultimately
ceasing orders from plaintiffs.

Lanham Act false association: Whole Foods argued that the
complaint was unrelated to any products. Plaintiffs argued initial interest
confusion: the ads and website allegedly confused consumers into thinking the
parties were associated, and that plaintiffs’ products were available for sale
in Whole Foods stores, luring them to those stores where they would have to buy
something other than plaintiffs’ products.

Honestly that seems more persuasive than most IIC claims,
and yet the court dismissed the claim as not sufficiently pled. Plaintiffs
alleged only a possibility of diversion. The uses were on the Whole Foods
website as an article from 2013 describing “[a] recent Local Producer Loan from
Whole Foods,” a picture of them receiving the oversized loan check, and videos
of plaintiffs/their farm. “These facts do not tend to mislead consumers about
the association between Plaintiffs and Defendants because Plaintiffs and
Defendants were associated at the time of the article; Defendants did issue
Plaintiffs a local producer loan.” And the article didn’t make specific
representations about when or in what quantities plaintiffs’ basil would be
available in Whole Foods stores; it was available for several years.

In addition, plaintiffs didn’t plausibly allege intended
diversion, which is vital to IIC. It was more plausible that Whole Foods was
promoting a specific event—the loan.

False advertising: Plaintiffs didn’t plausibly plead a false
or misleading statement in a commercial advertisement or promotion. The picture
and videos weren’t false or misleading; the article didn’t say that plaintiffs’
products were currently available for purchase in Whole Foods stores, but that
the loan “will help…bring Archi’s Acres basil into all Whole Foods Market
stores in Southern California.”

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“Krab mix” plausibly misleads as to crab content

Posted on October 1, 2021 by rtushnet

Kang v. P.F. Chang’s China Bistro, Inc., 844 Fed.Appx. 969, 2021
WL 463443, No. 20-55138 (9th Cir. Feb. 9, 2021)

Plaintiff plausibly alleged that reasonable consumers “are
likely to be deceived” by defendant’s use of the term “krab mix” on its
restaurant menus, so the court of appeals reversed the district court’s holding
to the contrary. (This is consistent with trademark doctrine, which considers misspellings identical in meaning because consumers can’t necessarily spell.) Likely deception is usually a question of fact.

We certainly agree with defendant
that reasonable consumers confronted with the fanciful spelling of “krab” on
the menu would not assume they were purchasing a sushi roll with 100% real crab
meat. But the menu uses the term “krab mix,” and Kang’s allegation is that
reasonable consumers would understand that term to mean the item contains a
mixture of imitation and real crab. Because the term “krab mix” lacks any
commonly understood contrary meaning, we cannot say, in the absence of evidence
bearing on the issue, that Kang’s allegation is implausible on its face.

Although some other recent cases have relied on price
disparities to disabuse consumers of the notion that they were getting anything
real, the court of appeals also disagreed that “the relative prices of the
sushi rolls at issue would prevent a reasonable consumer from assuming they
contained some real crab.” This just couldn’t be resolved on a motion to
dismiss.

Also, the fact that the fanciful spelling of “krab” appears
in the ingredient list, rather than in the menu item’s name, distinguished this
case from McKinnis v. Kellogg USA, 2007 WL 4766060 (C.D. Cal. Sept. 19, 2007), which
held that the “Froot” in “Froot Loops” was not misleading in part because it
“appear[ed] in the trademarked name of the cereal, not … as a description of
the actual ingredients.” Even if other menu items listed “crab,” reasonable
consumers are not required to read the whole menu to be disabused of a
misleading impression caused by one item, any more than they are required to read
the ingredients list when the front of a package misleads.

There was a dissenter who thought this was dumb. “Consumers
understand that fanciful spellings materially change the meaning of a word.”
Interesting how the dissent knows this; the PTO isn’t so sure.  

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Reading list: The Powerpoint Channel

Posted on October 1, 2021 by rtushnet

Lynn
M. Lopucki, The Powerpoint Channel

From
the intro: This article seeks to contribute to the development of the
PowerPoint channel by describing a theory and style for PowerPoint teaching of
law. By “style” I mean a particular combination of techniques for slide design
and content. I developed the style principally by experimentation in using
PowerPoint to teach secured transactions and business associ-ations over a
period of about twenty years. By “theory,” I mean a system of ideas as to how
PowerPoint can improve learning.

I really
enjoyed this article about maximizing the effectiveness of Powerpoint in law
teaching; extra bonus points for the sentence “Because the offending lights are
usually high on an inaccessible ceiling and on the same switch as essential
lights, I recommend that teachers bring a pellet gun whenever they must teach
in a new room.”

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contributory liability possible for lawyers in timeshare exit cases

Posted on September 30, 2021 by rtushnet

Diamond
Resorts U.S. Collection Development, LLC v. Pandora Marketing, LLC, 2021 WL
1573073, CV 20-5486 DSF (ADSx) (C.D. Cal. Apr. 12, 2021)

Another
timeshare company v. timeshare exit company case. Here, Diamond sued both the
marketers who seek exit clients and also the lawyers who worked with them. The
marketers allegedly referred Diamond owners to the lawyer defendants, who
allegedly instructed owners to refrain from paying anything owed under their timeshare
contracts, and to change their address on file with Diamond to the address of a
lawyer, but had “no legal or viable method to assist the Diamond Owners in
exiting the Timeshare Contracts.”

The
lawyer defendants allegedly interfered with the timeshare contracts by (1)
participating in the marketing defendants’ false and misleading advertising;
(2) encouraging or directing the nonpayment of fees owed to Diamond; and (3)
keeping the owners in the dark regarding the adverse financial consequences
resulting from the nonpayment of fees. The lawyers allegedly added legitimacy
and effectiveness to the scheme because the marketing defendants advertise that
they work with a “team of professionals” and “attorney[s],” which helps “close
the deal” with new customers. The lawyers were allegedly aware of the false and
misleading nature of the advertisements before accepting referrals, and
allegedly encouraged the ads by corroborating their involvement on their own
websites. Diamond alleged that early discovery showed that owners wouldn’t have
engaged the exit company but for the assurances made about the lawyer
defendants’ involvement.

Contributory
false advertising under the Lanham Act: The Ninth Circuit has held that for
contributory liability, “a defendant must have (1) ‘intentionally induced’ the
primary infringer to infringe, or (2) continued to supply an infringing product
to an infringer with knowledge that the infringer is mislabeling the particular
product supplied.” The Eleventh Circuit has a slightly different standard: “[f]irst,
the plaintiff must show that a third party in fact directly engaged in false
advertising that injured the plaintiff,” and “[s]econd, the plaintiff must
allege that the defendant contributed to that conduct either by knowingly
inducing or causing the conduct, or by materially participating in it.” This
requires a culpable state of mind, either intent to participate or actual
knowledge. A court may consider: (1) “the nature and extent of the
communication between the third party and the defendant regarding the false
advertising;” (2) “whether or not the defendant explicitly or implicitly
encouraged the false advertising;” (3) “whether the false advertising is
serious and widespread, making it more likely that the defendant knew about and
condoned the acts;” and (4) “whether the defendant engaged in bad faith refusal
to exercise a clear contractual power to halt the false advertising.”

Regardless
of which standard applied, Diamond successfully alleged contributory false
advertising. The lawyers allegedly knew about the false advertising and “at
least implicitly induced it by including information about their timeshare
services on their websites, knowing the alleged false advertising relied on
promising lawyers, and continuing to accept referrals despite the allegedly
false nature of the advertisements.”

Tortious
interference with contractual relations/prospective economic relations: This
didn’t work as well against the lawyers, who weren’t directly advertising to
consumers. The main elements of the tort occurred after the lawyers had been
engaged, and they were then the owners’ agents when they told the owners to
stop paying; an agent cannot tortiously interfere with the contracts of the
principal simply by acting on the principal’s behalf and being paid by the
principal. It wasn’t enough to allege that they got an additional financial
advantage in the form of a stream of referrals from the scheme. “Undoubtedly
most lawyers hope their services for clients result in an increase in
referrals.” But they still only obtained the fees that the clients paid.

However,
Diamond did successfully allege that the lawyers aided and abetted tortious
interference before they became agents of the owners. (This seems a relatively
dangerous principle given the ways in which many lawyers find clients.) Given the
allegations, it was plausible that the lawyers knew of the scheme and gave
substantial assistance by agreeing to be the lawyers needed to carry out the
scheme.

UCL
claim: Diamond didn’t have to allege its own reliance if it lost money or
property as a result of the conduct.

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Survey flaws prevent it from saving vanilla false advertising claim

Posted on September 30, 2021 by rtushnet

Clark
v. Westbrae Natural, Inc., 2021 WL 1580827, No. 20-cv-03221-JSC (N.D. Cal. Apr.
22, 2021)

I find
the vanilla class actions fascinating because they are starting to reject
surveys, pushing this area of the law towards a normative vision of what’s
misleading to a reasonable consumer. I don’t have a very strong position on
whether misleadingness should be empirically or normatively assessed, but I do
think courts should be clear on what they’re doing and not bounce unpredictably
between the two concepts. We are definitely not there yet.

Anyway,
Clark alleged that a label describing soy milk as “vanilla” soymilk
misrepresented to reasonable consumers that the product’s vanilla flavor was
derived exclusively from the vanilla bean plant. The court found that not
plausibly misleading despite allegations that a survey showed 403 consumers a
picture of the product and asked “What does the term ‘Vanilla’ on the above
pictured product convey to you about the origin of the vanilla flavor?” Nearly
half, 49.6%, of the consumers surveyed selected the response that they
“believed that the term ‘Vanilla’ on the Product means that that the origin of
the Product’s vanilla flavor ‘comes exclusively from ingredients derived from
the vanilla plant, such as vanilla beans or vanilla extract.’ ”

But so
what? The survey presumes that the label conveys something about the source of
the flavor, and didn’t give participants the option of stating that they
believed that the label conveyed nothing about the origin of the vanilla taste.
“In any event, even without the survey’s flaws, the survey does not shift the
prevailing reasonable understanding of what reasonable consumers understand the
word vanilla to mean or make plausible the allegation that reasonable consumers
are misled by the term vanilla”  (cleaned
up). This is a remarkable statement: how does the court know what the
“prevailing” understanding of reasonable consumers is, without consumer
reaction evidence? Especially on a motion to dismiss? The suggestion is that
the court’s common sense couldn’t be refuted even with an impeccable survey,
because, presumably, the respondents wouldn’t be “reasonable” consumers.

It
just wasn’t plausible that a reasonable consumer would interpret a product
labeled as a “vanilla” product to mean that the vanilla flavor is derived
exclusively from the vanilla bean plant. “Such an inference is just too far a
reach.” This was true even though plaintiff alleged that there is a
competing vanilla soymilk product on the market with a similar price point that
obtains its vanilla flavor exclusively from the vanilla plant. Still, the
complaint didn’t allege that consumers knew that or that, if they did, they’d
make the same assumption about defendant’s product. (What counts as common
sense is quite variable. The truffle/manuka honey cases contrast with this
result in a “heads the marketer wins, tails the consumer loses” way: Here,
products that actually have the characteristics at issue don’t show that it’s
reasonable for consumers to think they would, while the absence of
similar-but-truthfully-advertised products is used against consumers in the
truffle/manuka cases.)

The
plaintiff also didn’t plausibly allege violation of federal regulations on
“characterizing flavors.”

 

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No organizational standing where advocacy campaigns didn’t change

Posted on September 30, 2021 by rtushnet

Friends
of the Earth v. Sanderson Farms, Inc., 992 F.3d 939 (9th Cir. 2021)

Although the animal/farm advocacy
organization plaintiffs won some early skirmishes, they faltered on lack of
organizational standing against a poultry producer to bring consumer protection
claims. The court of appeals affirmed their loss.

The
groups’ activities included informing consumers about the downsides of routine
antibiotic use and pressuring restaurants to stop sourcing meat from producers
that routinely use antibiotics. Sanderson continues to use and defend the use
of antibiotics, but advertised its chicken products as “100% Natural” and ran
advertisements stating that there were “[n]o antibiotics to worry about here.” The
groups sued under the UCL and FAL.”To establish organizational standing, the
Advocacy Groups needed to show that the challenged conduct frustrated their
organizational missions and that they diverted resources to combat that
conduct.” Only the latter was at issue.  Diversion of resources has been found when
organizations “expended additional resources that they would not otherwise have
expended, and in ways that they would not have expended them.” By contrast,
merely continuing ongoing activities does not satisfy this requirement.

The
groups didn’t learn of Sanderson’s alleged misrepresentations until August 1,
2016, so resources expended before that date weren’t pertinent. Nor were
activities after suit was filed in June 2017, such as expending resources on
the litigation and litigation publicity. The district court correctly found
that the groups’ activities were “business as usual” during the period, not a
diversion of resources. They were already fighting routine antibiotic use in
animal agriculture. During the relevant period, they didn’t “publish action
alerts or other advice to their members targeting the advertising; did not
address Sanderson’s advertising in any campaign, press release, blog post, or
other communication; did not petition Sanderson; and did not protest
Sanderson’s advertising.”  Internal
discussions about whether something should be done didn’t suffice.

 

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wrong images aren’t false if differences from actual product aren’t material

Posted on September 30, 2021 by rtushnet

Strong
Current Enters. Ltd. v. Affiliati Network, Inc. 2021 WL 1383368, No.
20-cv-23692-UU (S.D. Fla. Mar. 26, 2021)

The
parties compete to sell novelty consumer goods; defendant allegedly copied
plaintiff’s business model including its product launches, providing its
affiliates with Strong Current’s “marketing methods and materials, which
include, among other things, product depictions and graphics.” Affiliati’s
product offerings are allegedly “similar, but different” than those marketed by
Strong Current, and therefore the products sold to consumers “differ from those
depicted in the marketing materials.”

However,
the false advertising claims failed because they didn’t identify material
differences in the products. For example, Strong Current alleged that when
consumers purchase a portable air conditioner from defendants, “they do not
receive the air conditioners depicted in the misappropriated marketing materials,
rather, they receive an inferior portable air conditioner that is different
from the one depicted.” The ads allegedly lead consumers to expect to receive
units containing “(a) handles; (b) single-colored (gray) fronts; (c) fronts
with two gray sections; (d) round edges; and (e) bases and tops that are the
same size.” But “the delivered units do not have handles and have a different
overall look and feel from the advertised units.” However, the complaint didn’t
explain why consumers would care.

Similarly,
Strong Current alleged that consumer confusion existed where “[o]n multiple
occasions, consumers have purchased products from Profit Point, where the
products had been marketed using the misappropriated Strong Current methods and
materials …, and then contacted Strong Current (or its Marketing Affiliates)
about problems or issues with the orders, incorrectly believing that they (the
consumers) had purchased the products from Strong Current (or its Marketing
Affiliates).” It alleged that “when the consumers have issues or problems with
their orders and need to contact the seller and cannot recall where they
purchased the products, a generic internet search … leads them to Strong
Current’s (or its Marketing Affiliates’) websites.” But this was pure speculation;
it didn’t allow the reasonable inference that defendants’ use of allegedly
misappropriated marketing materials was likely to cause consumer confusion. There
were no allegations that defendants’ marketing materials referred to Strong
Current in any way. Indeed, the complaint explicitly alleged that defendants
market and advertise their products under a different brand.

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pandemic refund claim plausibly alleged

Posted on September 29, 2021 by rtushnet

Rothman
v. Equinox Holdings, Inc., 2021 WL 1627490, No. 2:20-cv-09760-CAS-MRWx (C.D.
Cal. Apr. 27, 2021)

Another
pandemic refund case. This one found a misrepresentation adequately pled with
respect to the refund provision of plaintiff’s membership contract with the
defendant, a gym company. The Membership Agreement allegedly said that: “Buyer
should be aware that if the Club closes, although the Club will remain legally
liable to Buyer for a refund, Buyer may risk losing his or her money if the
Club is unable to meet its financial obligations to Members.” This could have
misled a reasonable consumer to believe that the club would “provide a monetary
refund for any period during which their clubs are closed.” Equinox argued that
he hadn’t pled any representation that refunds would be automatic, and that the
contract statement was “a non-actionable statement of legal opinion.”

But
the statement was plausibly misleading and the agreement didn’t contain any
language requiring members to affirmatively request a refund. It plausibly
suggested that Equinox was required to issue a refund in the event of a club
closure, and it wasn’t a “mere prediction or opinion regarding uncertain future
events” but “a promise regarding the import of particular factual
circumstances, namely that when a club closes—as plaintiff alleges his
has—consumers will be entitled to receive a refund.”

Equinox
urged that it was implausible that a reasonable consumer would have anticipated
a global pandemic and public health orders closing the gym. But “[t]he relevant
question is not whether plaintiff could have anticipated that the club would
close due to a global pandemic. It is whether plaintiff reasonably attached
importance to the existence of a promise to refund his money in the event that
the club closed, for any reason.”

Equinox
sought dismissal of the equitable claims under Sonner. The court found
dismissal premature since there was no pending motion for injunctive relief
that would require the Court to determine the adequacy of plaintiff’s legal
remedies.  Anyway, the plaintiff couldn’t
necessarily “quantify [his] actual damages for future harm” with any certainty;
he cannot currently predict whether, when, or for how long Equinox may be
required to close the Equinox clubs in the future due to the ongoing pandemic. But
punitive damages claims were dismissed for want of an adequate basis.

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“natural” claims still going strong; scientific testing not required in pleading

Posted on September 29, 2021 by rtushnet

Barton
v. Pret A Manger (USA) Ltd., — F.Supp.3d —-, 2021 WL 1664319 1:20-cv-04815
GHW (S.D.N.Y. Apr. 27, 2021)

Plaintiff
plausibly alleged that the references to “natural ingredients” and “natural
food” on defendant’s products’ packaging were likely to lead a reasonable
consumer to wrongly believe that these products contain exclusively natural
(not synthetic) ingredients and that they are free of GMOs. Thus, consumer
protection claims under Sections 349 and 350 of the New York General Business
Law are adequately pleaded though other tort and warranty claims failed.

Of
note: plaintiff wasn’t required to plead the existence of scientific testing
that demonstrates that the products contained GMOs. “Defendant points to no
case law that supports its extraordinary argument that the Court should not
accept as true the pleaded facts unless they are supported by scientific
studies.” Prior cases are distinguishable because they alleged that most of the
X grown in the US was genetically modified, but didn’t allege that the
defendants in those cases used the genetically modified ingredients, as the complaint did here.

Pret
argued that no reasonable consumer could be deceived by Pret’s use of the word
“natural,” as “federal regulations permit foods labeled as ‘organic’ to contain
all but one of Plaintiff’s challenged substances.” But the court couldn’t find,
as a matter of law, that a reasonable consumer couldn’t reasonably “expect that
a product labeled ‘natural’ or ‘all natural’ contains only natural ingredients,”
 even if “foods labeled ‘organic’ may
lawfully contain some synthetic ingredients. There is no rigid hierarchy that
makes ‘natural’ a more permissive label than ‘organic’ in all respects as a
matter of law.”

 

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MLM on MLM action: tortious interference, trade secret, but not false advertising

Posted on September 29, 2021 by rtushnet

It
Works Marketing, Inc. v. Melaleuca, Inc., 2021 WL 1650266, No.
8:20-cv-1743-T-KKM-TGW (M.D. Fla. Apr. 27, 2021)

It
Works is a MLM company that sells health and beauty products that requires
distributors to sign a noncompete agreement and provides for arbitration (which
allows “any party” to sue in court for IP claims, practically meaning that It
Works can choose to sue if it wants). Melaleuca is a MLM competitor; individual
defendants were former It Works distributors, but Melaleuca was never a party
to the agreement.

The
claims are mostly the kind of trade secret/tortious interference claims you’d
expect from this setup, and I won’t say much about them, but there is also a
false advertising claim about alleged misrepresentations of distributors’
income with Melaleuca. “For example, Melaleuca endorses fake, high-amount
checks, which the Distributor Defendants then post on social media and message
to It Works distributors to entice them to leave It Works and join Melaleuca.”

In
Florida, a non-signatory can use equitable estoppel to compel a signatory to
arbitrate claims if (1) the non-signatory shows that the signatory is relying
on the agreement to assert its claims against the non-signatory and (2) the
scope of the arbitration provision covers the dispute. Here, It Works’ dispute
with Melaleuca fell outside the scope of the arbitration clause.

Thus,
the court proceeded to address the motion to dismiss, and found tortious
interference and trade secret claims properly pleaded.

False
advertising under the Lanham Act: Failed because It Works didn’t plead that
distributors were “consumers” under the Lanham Act. Solicitations directed to a
potential distributor or employee aren’t covered because they aren’t
“consumers.” (That isn’t actually an element, but this may be complicated by
the fact that MLM businesses have some special reasons to talk carefully about
whether their “distributors” are ordinary “consumers.”) Second, It Works relied
on allegedly false statements that Melaleuca distributors made, allegedly at
Melaleuca’s direction or encouragement, not on Melaleuca advertising. That was
a contributory false advertising claim, but It Works didn’t actually allege
contributory false advertising by Melaleuca.

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