IN RE: MCCORMICK & COMPANY, INC., PEPPER PRODUCTS MARKETING AND SALES PRACTICES LITIGATION
Nо. 1:15-cv-2188 (ESH) | MDL Docket No. 2665 | Misc. No. 15-1825 (ESH)
United States District Court, District of Columbia
October 17, 2016
ELLEN SEGAL HUVELLE, United States District Judge
This Document Relates to: Watkins Incorporated v. McCormick & Company, Inc.
III. CONCLUSION
For the foregoing reasons, the court grants Defendant‘s Motion and, pursuant to
ELLEN SEGAL HUVELLE, United States District Judge
Plaintiff Watkins, which produces black pepper, alleges that its largest competitor,
Watkins filed its initial complaint in the District of Minnesota on June 9, 2015. After several consumer class actions against McCormick followed—each alleging decеption by the same “slack-filled” pepper containers—the Judicial Panel on Multi-District Litigation consolidated all of the “slack-fill” lawsuits against McCormick and transferred them to this Court on December 8, 2015. Once plaintiff was before this Court, it filed an amended complaint on March 2, 2016, referencing the allegations in the parallel consumer actions. (See Am. Compl. ¶¶ 50-55.) After the parties had begun briefing the present motion to dismiss, plaintiff filed a second amended complaint on July 10, 2016. (See Second Am. Compl., ECF No. 57.)
The consumer class actions and this lawsuit all rely upon the allegation that consumers were deceived by McCormick‘s pepper packaging and believed they were buying more pepper than they ended up receiving. (See Am. Compl. ¶¶ 52-55.) Watkins claims that the fraudulently induced choices of these duped consumers inflated McCormick‘s sales to the detriment of Watkins’ sales.
Defendant filed its motion to dismiss on March 30, 2016, arguing that: (1) plaintiff enjoys neither constitutional standing under Article III nor statutоry standing under the Lanham Act; (2) plaintiff fails to state a claim under either the Lanham Act, the state statutes, or common law; and (3) Minnesota choice-of-law rules1 preclude plaintiff‘s claims under the California and Florida statutes; and (4) unfair competition is not an independently existing tort under Minnesota law. (See Def.‘s Mem. Supp. Mot. Dismiss (“Def.‘s Mem.“) at 5-7.) Plaintiff filed its opposition on April 27, 2016. (See Pl.‘s Mem. Opp. Def.‘s Mot. Dismiss, ECF No. 42 (“Pl.‘s Opp.“).) Defendant filed its reply on May 18, 2016. (See Def.‘s Reply, ECF No. 46.) Defendant also filed a supplemental memorandum in support of its motion to dismiss on July 10, 2016, and plaintiff filed its response on July 12, 2016. This Court held a hearing on July 20, 2016.
For the reasons stated below, defendant‘s motion to dismiss Watkins’ amended complaint is granted in part and denied in part.
FACTUAL ALLEGATIONS
According to Watkins, McCormick has been the dominant wholesaler of black pepper for decades and is now responsible for approximately 70% of domestic black
Plaintiff alleges that, in early 2015, McCormick reduced the amount of actual pepper in each of its pepper tins by 25% but “misleadingly continued to use the same traditionаl-sized tins” and reduced the quantity of peppercorns in its grinders from 1.24 ounces to 1 ounces, again without changing the size of the containers. (Id. ¶¶ 15, 28.) The photographs included with plaintiff‘s complaint show that McCormick did print the reduced quantity on the containers, even though the size of the containers did not change. (See id. at 7-9 (Photos A, B, and C).) Plaintiff alleges on information and belief that McCormick “maintained the price” of each tin size, although plaintiff does not specify whether “price” refers to the wholesale or retail price. (Id. ¶ 21.) According to plaintiff, this reduction in the product within McCormick‘s well-known and recognizable containers amounts to what regulators have termed “nonfunctional slack-fill.” (Pl.‘s Opp. at 2 (citing
Because McCormick‘s consumers had become accustomed to the size of McCormick‘s containers (and those of its competitors) and relied on them to advertise the amount of pepper being sold, plaintiff alleges that the reduction in pepper quantity and resulting slack-fill has “led to widespread confusion and deception of the consuming public.” (Am. Compl. ¶¶ 13, 26, 50-55.)2 Watkins claims that McCormick‘s decision to change the amount of pepper sold without changing the size of the tins or their price amounted to a willful attempt to mislead consumers. (Id. ¶ 71.)
Finally, Watkins alleges that McCormick‘s practice of slack-filling is disadvantaging Watkins’ sales. As plaintiff explains, “[w]hen McCormick‘s slack-filled tins and grinders are positioned on a grocery store shelf next to competitors, including Watkins, McCormick tried to induce consumers to buy McCormick pepper because it appears—falsely—that the McCormick container is equivalent to, or larger than, the Watkins containers and those of other competitors.” (Id. ¶ 37.) Watkins claims that if consumers had actually known that McCormick‘s various tins contained 25% less pepper than usual, they would have bought pepper produced by McCormick‘s competitors, including Watkins.
ANALYSIS
McCormick argues that this Court should dismiss all five counts of Watkins’
I. ARTICLE III STANDING
“To survive a motion to dismiss for lack of [constitutional] standing, a complaint must state a plausible claim that the plaintiff has suffered an injury in fact fairly traceable to the actions of the defendant that is likely tо be redressed by a favorable decision on the merits.” Humane Soc‘y of the U.S. v. Vilsack, 797 F.3d 4, 8 (D.C. Cir. 2015) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)). On such a motion to dismiss, the Court “must accept as true all material allegations of the complaint, and must construe the complaint in favor of the complaining party.” Warth v. Seldin, 422 U.S. 490, 501 (1975). The Court must “‘presum[e] that general allegations embrace those specific facts that are necessary to support [a contested] claim,‘” and thus “general factual allegations of injury resulting from the defendant‘s conduct may suffice” to survive a motion to dismiss for lack of Article III standing. Lujan, 504 U.S. at 561 (quoting Lujan v. Nat‘l Wildlife Fed‘n, 497 U.S. 871, 889 (1990)).
For Lanham Act claims, Article III standing requires “the familiar trio of injury in fact, causation, and redressability.” TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 825 (9th Cir. 2011). In a false advertising suit, a plaintiff can demonstrate injury by showing that “‘some consumers who bought the defendant‘s product under a mistaken belief fostered by the defendant ‘would have otherwise bought the plaintiff‘s product.‘” Id. (citing Joint Stock Soc‘y v. UDVN Am., Inc., 266 F.3d 164, 177 (3d Cir. 2001)). Defendant cites Joint Stock Soc‘y, 266 F.3d at 176, for the proposition that a plaintiff‘s claimed injury is too speculative if the defendant‘s false advertising would harm other competitors in addition to the plaintiff. (Seе Def.‘s Reply at 3.) That court actually found the plaintiff‘s injury speculative because it had never sold its product in the United States and stated that the plaintiff likely would have established an injury if it had done so. Joint Stock Soc‘y, 266 F.3d at 176-77.
As Judge Bazelon once explained, “all claims of competitive injury are to some extent speculative, since they are predicated on the independent decisions of third parties; i.e., customers. However, ... it is the stuff of the most elementary economic texts that if two firms are offering a similar product for different prices, the firm offering the lower price will draw away customers from its competitor.” Am. Soc‘y of Travel Agents, Inc. v. Blumenthal, 566 F.2d 145, 157 (D.C. Cir. 1977) (Bazelon, C.J., dissenting). Although the majority in that case denied standing because it was concerned about allowing a private business “to contest the tax treatment of a competitor,” id. at 151, the Lanham Act exists precisely “to protect persons engaged in ... commerce against unfair competition,”
That is what plaintiffs have done here. Given that the Court must assume at this stage that Watkins’ allegations of consumer confusion are true, Watkins’ inference that some of the deceived customers would have purchased Watkins’ pepper products instead of McCormick‘s (had they been aware of the slack-fill) is an adequate allegation of injury. (See Am. Compl. ¶¶ 53-55, 80.) In the Court‘s view, Watkins has plainly alleged injuries that are fairly traceable to McCormick‘s conduct. It therefore enjoys Article III standing.
II. STATUTORY STANDING UNDER THE LANHAM ACT
The Supreme Court‘s decision in Lexmark Int‘l v. Static Control Components, Inc., 572 U.S. 118, 134 S.Ct. 1377, 188 L.Ed.2d 392 (2014), created a two-part test tо determine whether a plaintiff can bring a cause of action under the Lanham Act. First, plaintiff‘s interest must be within the zone of interests that the Act is intended to protect, id. at 1388; and second, plaintiff must allege that its injuries were proximately caused by defendant‘s deceptive practices, id. at 1390. Watkins’ claims easily fall within the Act‘s zone of interests because it has “allege[d] an injury to a commercial interest in reputation or sales.” Id. While consumer claims are thus excluded from the scope of the Lаnham Act, see id., injuries to a business competitor are precisely the type of harm Congress intended to protect.
To allege proximate causation, a plaintiff must allege that defendant‘s “deception of consumers cause[d] them to withhold trade from the plaintiff.” Id. at 1391. Even though proving causation and damages at trial can be difficult, the Lexmark Court noted that “potential difficulty in ascertaining and apportioning damages is not ... an independent basis for denying standing where it is adequately alleged that a defendant‘s conduct has proximately injured an interest of the plaintiff‘s that the statute protects.” Id. at 1392.
Defendant proposes an irrational reading of Lexmark when it suggests that, because plaintiff cannot provide evidence that McCormick‘s deceptive packaging impacted Watkins with a “direct injury“—rather, it involved a chain of actions by third parties—Lexmark denies them standing. (See Def.‘s Mem. at 9-11.) On the contrary, a deceptive act will virtually always first influence consumers, whose resulting actions affect a competitor‘s business interests. That is not rеmote and speculative; it is the intended scope of the statute. Indeed, the Lexmark Court‘s test for proximate cause—that “deception of consumers causes them to withhold trade from the plaintiff“—explicitly assumes that deception will injure a competitor because of the intermediate actions of consumers. See Lexmark, 134 S.Ct. at 1391. Although Lexmark does caution that indirect injuries may not support a finding of probable cause, “diversion of sales to a direct competitor [is] the paradigmatic dirеct injury from false advertising.” Id. at 1393-94. Such diversion of sales is what Watkins claims here.
Watkins has alleged a logical causal connection between its lost sales and McCormick‘s slack-filling. Watkins’ pepper was
III. THE LANHAM ACT
Defendant alternatively argues that Watkins has not adequately stated a claim for false advertising under the Lanham Act. The Court disagrees. The Lanham Act states:
Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which ... in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person‘s goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.
A. Advertising
McCormick‘s insistence that the size of its containers does not constitute advertising or promotion defies common sense and the law. Courts have defined “commercial advertising or promotion” under the Lanham Act as “(1) commercial speech; (2) made by a defendant who is in commercial competition with the plaintiff; (3) for the purpose of influencing consumers to buy the defendant‘s goods or services[; and] (4) ... disseminated sufficiently to the relevant purchasing public to constitute ‘advertising’ or ‘promotion’ within that industry.” Coastal Abstract Serv., Inc. v. First Am. Title Ins. Co., 173 F.3d 725, 734-35 (9th Cir. 1999) (quoting Gordon & Breach Science Publishers v. Am. Inst. of Physics, 859 F.Supp. 1521, 1535-36 (S.D.N.Y. 1994)); Seven-Up Co. v. Coca-Cola Co., 86 F.3d 1379, 1384 (5th Cir. 1996); see also Fashion Boutique of Short Hills, Inc. v. Fendi USA, Inc., 314 F.3d 48, 56-58 (2d Cir. 2002) (adopting the first, third, and fourth elements of the quoted test while reserving judgment on the second element). Without addressing the full four-part test, the D.C. Circuit has agreed that the Lanham Act applies only to commercial speech. Farah v. Esquire Magazine, 736 F.3d 528, 541 (D.C. Cir. 2013).
Because the D.C. Circuit has stated that the core of commercial speech is speech that does “no more than propose a commercial transaction,” Nat‘l Assoc. of Mfrs. v. S.E.C., 800 F.3d 518, 523 n.12 (D.C. Cir. 2015) (quoting Pittsburgh Press Co. v. Pittsburgh Comm‘n on Human Relations, 413 U.S. 376, 385 (1973)), defendant claims that the size of McCormick‘s containers does not propose a commercial transaction and therefore is not commercial speech. (See Def.‘s Mem. at 12-13.) In making this ar
Federal courts do not аppear to have considered whether a slack-filled container constitutes a false statement under the Lanham Act, but one court did hold that “the limited authority on point suggests that excessive slack fill states a claim for false advertising” under New York‘s consumer protection statute. See Waldman v. New Chapter, Inc., 714 F.Supp.2d 398, 406 (E.D.N.Y. 2010) (analyzing
McCormick argues that size of its pepper tins is not commercial speech, but it is difficult to understand how the size of a package or container could possibly not be considered a form of “advertising or promotion.”
B. Falsity
Watkins has properly alleged falsity under the Lanham Act. “Statements that are literally true or ambiguous but which nevertheless have a tendency to mislead or deceive the consumer are actionable under the Lanham Act.” United Indus. Corp. v. Clorox Co., 140 F.3d 1175, 1182 (8th Cir. 1998). As a matter of federal law, “[a] container that does not allow the consumer to fully view its contents shall be considered to be filled as to be misleading if it contains nonfunctional slack-fill.” See
C. Consumer Confusion
Watkins has also adequately alleged consumer confusion. Defendant argues that Watkins has not pleaded “facts showing that identifiable consumers were actually confused,” and “as a matter of law, such confusion cannot be presumed.” (Def.‘s Mem. at 14.) But Watkins has referred to various consumer allegations in
D. Injury
The Court has discussed the adequacy of Watkins’ allegations of injury in the context of analyzing standing. (See supra Sections I & II.) As explained above, Watkins has made sufficient allegations to establish that McCormick‘s slack-fill packaging caused Watkins to lose sales. Plaintiffs are not required to allege specific losses. See Johnson & Johnson, 631 F.2d at 190-91.
IV. STATE LAW CLAIMS
Watkins has made claims under the Minnesota Deceptive Trade Practices Act,
Defendant makes other arguments about why Watkins has failed to state claims under the state statutes, but none of those other arguments has merit. First, defendant cites a federal case for the proposition that a business entity does not have standing to sue under FDUTPA. (Def.‘s Mem. at 19 n.9 (citing Kertesz v. Net Transactions, Ltd., 635 F.Supp.2d 1339, 1349-50 (S.D. Fla. 2009))). Howеver, a more recent opinion from a Florida state court held that non-consumers do have standing. See Caribbean Cruise Line, Inc. v. Better Bus. Bureau of Palm Beach Cnty., 169 So.3d 164, 169 (Fla. Ct. App. 2015). Second, defendant argues that Watkins’ claim under the MDTPA fails because it does not involve mistaking one product for another. (See Def.‘s Mem. at 20-21.) Contrary to defendant‘s claim, the plain language of the statute covers deception about the “characteristics” or “quantities” of a product.
Finally, the Court declines to dismiss any of the state statutory claims on the basis of choice-of-law analysis at this stage, because it does not have a complete factual record or adequate briefing. When there is a conflict between different states’ laws, Minnesota selects the applicable law by considering five factors: “(1) predictability of result; (2) maintenance of interstate and international order; (3) simplification of the judicial task; (4) advancement of the forum‘s governmental interest; and (5) application of the better rule of law.” Jepson v. Gen. Cas. Co. of Wisc., 513 N.W.2d 467, 470 (Minn. 1994). The Minnesota Supreme Court has explained that “[t]hese factors were not intended to spawn the evolution of set mechanical rules but instead to prompt courts to carefully and critically consider each
Defendant argues for the apрlication of Minnesota law (and dismissal of claims under California and Florida law) by presenting a rule that a corporation is deemed to have suffered an economic injury at its principal place of business, but it derives that rule from opinions that did not apply Minnesota‘s choice-of-law analysis. (See Def.‘s Mem. at 17-18.) Furthermore, defendant ignores the fact that this is an unfair competition case, and so one might argue that the injury occurred where the plaintiff lost sales. See, e.g., Dole Food Co., Inc. v. Watts, 303 F.3d 1104, 1113 (9th Cir. 2002) (noting thаt “a corporation can suffer economic harm both where the bad acts occurred and where the corporation has its principal place of business“). Indeed, because of this ambiguity, the most recent Restatement explains that “the place of injury does not play so important a role for choice-of-law purposes in the case of false advertising ... as in the case of other kinds of torts. Instead, the principal location of the defendant‘s conduct is the cоntact that will usually be given the greatest weight ....” Restatement (Second) of Conflict of Laws § 145 cmt. f (1971). Since the parties have failed to offer an adequate discussion of the applicable choice-of-law rules, how they apply to the facts of this case, or whether factual development is necessary for the analysis, the Court will not dismiss plaintiff‘s claims under California and Florida law at this time.
V. UNFAIR COMPETITION
Because plaintiff failed to contest defendant‘s motion to dismiss its common law claim of unfair competition, it has conceded defendant‘s argument. See Rosenblatt v. Fenty, 734 F.Supp.2d 21, 22 (D.D.C. 2010). The Court will therefore dismiss Count Five of the amended complaint.
CONCLUSION
For the reasons discussed above, defendant‘s motion to dismiss is granted in part and denied in part. A separate Order accompanies this Memorandum Opinion.
Date: October 17, 2016.
Jane DOE, Plaintiff, v. DISTRICT OF COLUMBIA, et al., Defendants.
Civil Action No. 13-878 (RDM)
United States District Court, District of Columbia.
Signed October 18, 2016
ELLEN SEGAL HUVELLE
UNITED STATES DISTRICT JUDGE