GENERAL STEEL DOMESTIC SALES, LLC, d/b/а General Steel Corporation, a Colorado limited liability company, Plaintiff-Appellant/Cross-Appellee, v. Ethan Daniel CHUMLEY, individually; Atlantic Building Systems, LLC, a Delaware corporation, d/b/a Armstrong Steel Corporation, Defendants-Appellees/Cross-Appellants.
Nos. 14-1119, 14-1121.
United States Court of Appeals, Tenth Circuit.
July 31, 2015.
682
Paul M. Grant, Goodreid Grant & Kuhn, Denver, CO, Karl S. Kronenberger, Jeffrey M. Rosenfeld, Virginia Sanderson, Kronenberger Rosenfeld, San Francisco, CA, Peter C. Lemire, Leyendecker & Lemire, Greenwood Village, CO, for Defendants-Appellees/Cross-Appellants.
ORDER AND JUDGMENT *
NEIL M. GORSUCH, Circuit Judge.
Most everyone expects a little audacity—maybe even a little mendacity—in their advertising. Sometimes it can even prove amusing. Like the local greasy spoon‘s boast that it pours the “world‘s best cup of coffee.” Or the weight loss company‘s promise that its miracle pill will “literally melt the pounds away.” But sometimes advertising crosses the line from harmless hyperbole into underhanded deception with material commercial consequences. That‘s when laws like the federal Lanham Act step in, allowing those harmed by false advertising to recover for their injuries. In the district court‘s judgment that‘s the position General Steel found itself in: entitled to relief under the Act after a campaign of misleading ads by its competitor, Armstrong Steel. Neither by the end of it all can we find any reversible error in that judgment.
*
The trouble began with a disgruntled employee. Ethan Chumley worked as a salesperson for General Steel, a company that sells prefabricated steel buildings directly to consumers. But the relationship eventually soured and, though the parties dispute what led to his termination, everyone agrees the parting was hardly friendly. Before long Mr. Chumley founded Armstrong, a rival in the steel building business, and the company launchеd an aggressive online marketing campaign.
That‘s where the lies began. One Internet posting purported to detail Armstrong‘s community service efforts in the Middle East, offering quotations from the company‘s Vice President of International Affairs, J.P. Remington, III. The problem? The charity didn‘t exist. Neither did Mr. Remington. And the false claims didn‘t stop with phony philanthropy: soon General Steel was in the crosshairs. Ads on Google, for example, claimed that Armstrong sold “General Steеl” buildings. It didn‘t. The company‘s website claimed that Armstrong fabricates the steel it uses to assemble its buildings. It doesn‘t. And one ad on Armstrong‘s website entitled “May the Best Building Win“—offered a side-by-side comparison of Armstrong‘s and General Steel‘s products and claimed that General Steel provided consumers with fewer options than, in truth, it did.
So it is that General Steel sued, pursuing claims under both the Lanham Act and the Colorado Consumer Protection Act. While the district court granted summary judgment to Armstrong and Mr. Chumley on the Colorado statutory claims, the federal Lanham Act claims survived to a bench trial. There the court found for General Steel and awarded monetary and injunctive relief for three false statements—that Armstrong fabricated its own steel; that Armstrong offered “general steel” buildings for sale; and that General Steel failed to offer pregalvanized steel or stainless fasteners for its buildings. Both sides now appeal. Armstrong and Mr. Chumley challеnge the district court‘s award of relief under the Lanham Act, while General Steel argues that summary judgment was inappropriate on its Colorado statutory claims.
*
We start with Armstrong‘s appeal. To win a false advertising claim under the* Lanham Act, a plaintiff generally must establish among other things that the defendant‘s commercial advertising contained a false or misleading representation of fact that was likely to cause confusion about the defendant‘s products or services and that injured the plaintiff.
Take Armstrong‘s representation that it fabricated its own steel. The district court held this suggestion literally false because the evidence at trial showed that Armstrong isn‘t a steel manufacturer but purchases steel from others and then assembles it into buildings. Armstrong contends that its statements were at least ambiguous because, when discussing “each piece of steel we fabricate,” a reader could‘ve tаken the company to mean that it merely supplies buildings made of steel that others fabricate. But we agree with the district court: that‘s just not a plausible reading. In referring to “each piece of steel we fabricate,” Armstrong‘s ads conveyed not only that the company supplies steel buildings or assembles pieces of steel made by others, but that it fabricates the steel pieces itself. And that much is just not true.
Next come Armstrong‘s representаtions that it offered “general steel” buildings for sale. The district court found these statements literally false because Armstrong wasn‘t licensed to (and didn‘t) sell its rival‘s products. Again Armstrong claims ambiguity, arguing that its references to “general steel” didn‘t necessarily mean “Armstrong makes ‘General Steel’ (i.e., the plaintiff‘s) buildings” because they could also mean “Armstrong makes ‘general’ (i.e., all-purpose) steel buildings.” Again, we cannot see how. There‘s no credible evidencе in the record that the term “general steel” is used in the industry to describe steel buildings sold by anyone else. Armstrong‘s ads, meanwhile, included side-by-side comparisons between its products and those offered by the General Steel company. They even used General Steel‘s logo and sometimes capitalized “General Steel.” In this light, there‘s just no doubt what Armstrong‘s ads were talking about—or that they were literally false.
Last in line are Armstrong‘s statements about “pre-galvаnized secondary framing” and “stainless steel fasteners.” Armstrong says its advertisements—representing that it provided these accessories where General Steel didn‘t—were literally true because Armstrong includes these items unless the customer declines them
Failing to persuade us of error in the district court‘s falsity analysis, Armstrong next directs our attention tо the question of materiality. Though not explicitly mentioned in the text of the Lanham Act, many courts require plaintiffs to prove that a false or misleading advertisement is “likely to influence the purchasing decision” before permitting recovery based on it. Cashmere & Camel Hair Mfrs. Inst. v. Saks Fifth Avenue, 284 F.3d 302, 311 (1st Cir.2002) (quoting Clorox Co. P.R. v. Proctor & Gamble Commercial Co., 228 F.3d 24, 33 n. 6 (1st Cir.2000)); see also 5 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition §§ 27:24 n.1, 27:35 (2015). Circuits that have imposed a materiality requirement are, however, split over who bears the burden of proof: some keep it with the plaintiff while others are willing to presume that at least some misstatements—usually literally false ones—are material. Compare, e.g., Cashmere & Camel Hair Mfrs. Inst., 284 F.3d at 310-11 (keeping the burden with the plaintiffs), with, e.g., Pizza Hut, Inc. v. Papa John‘s Int‘l, Inc., 227 F.3d 489, 497 (5th Cir.2000) (presuming that a literally false statement is material). This court has yet to decide whether the Lanham Act imposes a materiality inquiry and, if so, the lines that inquiry should follow or the standard we would use to review a district court‘s materiality determination. But here again this case does not require us to answer these questions.
It doesn‘t because, on the record before us, we would find one of Armstrong‘s false statements—that only Armstrong offered pregalvanized steel or stainless fasteners—material under any conceivable standard. That‘s because Armstrong‘s own evidence at trial established that the statement was likely to influence consumer purchasing decisions. Armstrong‘s Chief Operating Officer testified that steel fasteners and pregalvanized framing were important to Armstrong‘s brand, giving the company a сompetitive edge and improving the quality of its buildings.
That leaves the other two statements: Armstrong‘s claim that it fabricated its own steel and sold “general steel” buildings. But here, too, Armstrong fails to provide a basis for reversing the district court‘s judgment. For while the company didn‘t concede at trial that these false statements were material to consumer purchasing decisions, the company does accept on appeal the premise that “stаtements that misrepresent an inherent quality or characteristic of a product” are always material. Appellee/Cross-Appellant‘s Br. 19-20 (citing Sunlight Saunas, Inc. υ. Sundance Sauna, Inc., 427 F.Supp.2d 1032, 1060 (D.Kan.2006)). The district court found these statements misrepresented inherent qualities of Armstrong‘s products and thus qualified for the presumption of materiality. On appeal, Armstrong‘s brief offers no convincing reason why this was error. Maybe such a reason exists, but if it does it hasn‘t been presented to this court.
Moving past materiality to injury, the argument proceeds this way. The district court found that Armstrong‘s false state
We disagree. Every statement complained of was found on a single web page (no clicking through needed). All followed under the heading “May the Best Building Win” and the logos of General Steel and Armstrong. So Armstrong‘s suggestion that we should cleave this single piece in two—treating the columns and the small print as separate ads—seems a bit like suggesting we should find two separate ads in the sales pitch at the front end of a thirty-second radio spot and the fast-talking disclaimers at the end—or in the large print at the top of a newspaper ad and the small print at the bottom. Neither does the case on which Armstrong primarily relies, Pom Wonderful LLC v. Ocean Spray Cranberries, Inc., No. CV 09-00565 DDP (RZx), 2011 WL 4852472 (C.D.Cal. Oct. 12, 2011), suggest such an unlikely conclusion. Indeed, the court there didn‘t attempt to sever a single ad into multiple ones. Instead, it held that the case before it didn‘t involve a comparative advertisement at all because the defendant‘s advertising—however false and misleading—never referred to the plaintiff‘s product by namе. Id. at *2. And that‘s just not a problem we face for, as we‘ve seen, Armstrong‘s “May the Best Building Win” advertisements expressly referenced General Steel‘s products.
Moving beyond liability to the question of remedy, the court ordered disgorgement of profits, a move Armstrong doesn‘t challenge in principle. In calculating the amount of disgorgement, the district court adopted a burden-shifting framework that required General Steel to prove Armstrong‘s gross profits during the periоd in question and Armstrong to prove which portion of those profits wasn‘t attributable to its Lanham Act violations. Armstrong never came forward with the latter type of evidence, and it now argues that the whole burden-shifting endeavor was an improper way to go about figuring the appropriate amount of profits to disgorge.
Once again we cannot agree. The Act‘s remedial provision says that when a plaintiff proves false advertising or trademаrk infringement, he is “entitled, ... subject to the principles of equity, to recover ... defendant‘s profits.”
The cases Armstrong cites in support of its contrary position don‘t address the propriety of a burden-shifting regime for determining the quantum of monetary relief—let alone reject it. Instead, they stand for the proposition that “unless there is some proof that plaintiff lost sales or profits, or that defendant gained them, the principles of equity do not warrant an award of defendant‘s profits.” Balance Dynamics Corp. v. Schmitt Indus., Inc., 204 F.3d 683, 695 (6th Cir.2000); see also Logan v. Burgers Ozark Country Cured Hams Inc., 263 F.3d 447, 464 (5th Cir.2001). We don‘t question the propriety of this principle, only its relevance when it comes to determining not whether monetary relief should bе awarded but whether (as here) to employ the statutorily prescribed burden-shifting procedure to ascertain its amount.
Without an argument based in statutory text or precedent, Armstrong at times seems to suggest that employing a burden-shifting process in false advertising cases might create a policy problem that does not arise in trademark infringement cases. Trademark infringement cases involve discrete product lines, the argument goes, so disgorgement of profits can be easily limited to affected lines. But a product line-by-product line analysis is impossible in false advertising cases, so when ordering disgorgement of profits in those cases there‘s a risk a court will wrongly award disgorgement for product lines unaffected by any wrongdoing.
We just don‘t see this dichotomy. We have no difficulty imagining a trademark case involving the wrongful use of a mark that affects multiple product lines (for example, if Armstrong had stampеd various separate product lines with General Steel‘s logo). Likewise, we can imagine a false advertising case in which the misstatements are limited to one product line and not others (for example, a car company falsely advertising qualities of its luxury sedan but not its other models). Of course, it very well may be that when ordering disgorgement a district court should (if possible) disaggregate affected and unaffected product lines to avoid ovеrcompensation, whether the case involves trademark infringement or false advertising. But Armstrong doesn‘t identify any problem of this sort here for it doesn‘t claim to produce any product line unrelated to its false advertising. To the contrary, its ads all concerned the steel buildings it sells and, as best we can tell from the record, steel buildings are all it sells.
*
Having concluded that none of Armstrong‘s arguments warrants reversal, we turn to General Steel‘s half of this appeal. Here our analysis can be a good deal briefer. The company argues that the district court erred in granting summary judgment to Armstrong on General Steel‘s claims under the Colorado Consumer Protection Act. The district court held that, at least at the time of summary judgment, General Steel had failed to come forward with evidence suggesting that it suffered sufficient harm at the hands of Armstrong‘s deceptive trade practices to give rise to a state law claim. On appeal, General Steel argues that the district court erred by effectively requiring it (as the nonmoving plaintiff) to point to evidence of injury in the record to oppose summary judgment. According to General Steel, Armstrong should have first come forward with affirmative evidence showing a lack оf injury.
But these arguments, like the cases General Steel cites to support them, come from a pre-Celotex world. The Supreme Court long ago established that a defendant may support its motion for summary judgment on an issue on which the plaintiff bears the burden of proof by arguing that the record lacks any evidence in the plaintiff‘s favor. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-25, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
At this point only a couple of odds and ends remain to tie up. First, General Steel would have us overturn the district court‘s finding that its CCPA claim was “groundless.” But General Steel fails to explain how an alternate finding would make any difference. In addressing whether Armstrong is entitled to аttorney fees under state law, the district court held that General Steel‘s CCPA claims were “groundless” but declined to award fees anyway because Armstrong couldn‘t satisfy other statutory prerequisites. Nor does General Steel suggest that the finding is relevant to some other presently live dispute. Second, Armstrong tells us the district court erred in finding that Mr. Chumley was responsible for creating a website that disparaged General Steel. But the court went on to hold—despite this finding—that Mr. Chumley and Armstrong should win on the trademark and unfair competition claims, the only claims for which this factual finding was relevant. And again Mr. Chumley fails to suggest this finding is relevant to any other live question. Without any explanation how these findings affect anyone‘s legal rights in these proceedings, or even collateral interests elsewhere, it appears these are but academic questions and for this reason we decline to tangle with them. Cf. Wyoming v. Dep‘t of Interior, 587 F.3d 1245, 1247 (10th Cir.2009) (“[U]nder Article III of our Constitution federal courts may answer only questions whose resolutions will have an actual effect in the real world.“).
The district court‘s judgment is affirmed.