In re Honey Transshipping Litigation, No. 13–cv–2905, 2015 WL 1539034 (N.D. Ill. Mar. 31, 2015)
The class plaintiffs sued for violations of the Lanham Act and RICO; I’m just discussing claims against defendant Honey Solutions. The claims came from an alleged conspiracy by importers and suppliers to “transship” Chinese honey with false labels through intermediate countries into the United States. “The falsified labels enabled the importers to deceive U.S. Customs officials into believing that the honey did not originate from China. As a result, the importers were able to circumvent the anti-dumping duties that the United States government had imposed on Chinese-produced honey.” The Chinese honey allegedly contained prohibited antibiotics and other harmful contaminants. The mislabeled, cheaper Chinese honey could be sold at lower prices than competitors’ honey. The scheme allegedly drove the prices of US honey lower, undermining the plaintiffs’ competitiveness and causing lost sales and market share.
Honey Solutions was an industrial honey supplier. In June 2011, an undercover law enforcement agent became director of procurement at Honey Solutions as part of an ongoing investigation into the illicit importation of Chinese honey, resulting in criminal charges. Honey Solutions entered into a deferred prosecution agreement with the United States government and admitted to (a) purchasing Chinese-origin honey, (b) processing and selling adulterated honey, and (c) defrauding its downstream customers.
Plaintiffs’ RICO claims were dismissed because they were RICO claims.
Honey Solutions argued that the Lanham Act claims didn’t meet Rule 9(b)’s pleading standards. But plaintiffs “more than adequately pled the Honey Solutions defendants’ role in the fraudulent transshipping scheme.” They identified the Chinese shell companies from whom the Honey Solutions defendants purchased the illicit honey, and incorporate the admissions that Honey Solutions and Murphy–the Director of Sales at Honey Solutions–made in their agreements with U.S. prosecutors.The Honey Solutions defendants benefitted from the importing defendants’ deception of U.S. Customs officials and repeated the origin misrepresentations to potential buyers.
Honey Solutions also alleged that a Lanham Act claim couldn’t be predicated on avoidance of customs duties, but that wasn’t the source of the claim. It was the misleading labels and ads directed at purchasers that constituted the violation, not the also-deceptive customs forms.
Next, Honey Solutions argued that the claims were untimely, based on a laches period (erroneously shorthanded as a limitations period here) of 3 years that plaintiffs didn’t contest. Plaintiffs alleged that the conspiracy caused them harm since 2001, but filed in 2013. Honey Solutions argued that plaintiffs knew or should have known of their injury when their sales began to decline as the price of honey fell, which undisputedly occurred more than three years ago. Plaintiffs responded that fraudulent concealment tolled the limitations period, and the court at this point credited their allegations of deliberate steps taken to hide the fraud by using falsified documents, including “bills of lading, invoices, packing lists, country of origin certificates, and other papers.” “The class plaintiffs did not have access to any of these documents and could not have known of the Honey Solutions defendants’ involvement in the transshipping operation until February 2013, when the U.S. government brought charges against Honey Solutions and Murphy.” Those charges triggered the laches period, and plaintiffs sued a month later.