Saturday, August 19, 2006

Heightened pleading and "advertising or promotion"

MPC Containment Systems, Ltd. v. Moreland, 2006 WL 2331148 (N.D. Ill.)

Plaintiff alleged a potpourri of state and federal claims against defendants, but this opinion addressed only defendants’ motion to dismiss plaintiff’s Lanham Act unfair competition claim.

Plaintiff designs, manufactures and installs containment systems, including storage tanks for water and fuel. Defendant John Moreland and his son, defendant Lawrence Moreland, were plaintiff’s employees/independent contractors for about twenty years, until October 2005. John was an executive VP whose duties included design of tanks as well as sales and bid preparation, including those for tanks made specifically for the U.S. Air Force, plaintiff’s largest customer for the last five years. Lawrence also worked on the manufacture of the Air Force tanks.

Given that this is a lawsuit, you can guess what comes next: working in secret, John and Lawrence established a competing business. Among other things, plaintiff alleges that, while they were still employed by plaintiff, they made false representations while promoting their product, disparaged plaintiff’s tanks, and caused a likelihood of confusion over plaintiff’s sourcing or sponsorship of the Moreland tanks. As a result, plaintiff lost a $7 million contract.

Defendants argued that the complaint alleges misrepresentations to a single customer, which can’t be “commercial advertising or promotion,” to which my reaction is: When the “single customer” is the U.S. Air Force, your claims to it constitute commercial promotion.

But that didn’t matter, because the court sua sponte decided that the complaint fails to meet the heightened pleading requirements of Rule 9(b). The court raised the issue because heightened pleading for fraud is required not only to provide adequate notice, but also to address “the sufficiency of the claims that fall within the context of misrepresentations made ‘in commercial advertising or promotion.’”

I’m highly dubious, since the court doesn’t explain what it needs to know other than that the parties compete and defendants were talking about their products to a big customer. But, according to the court, though plaintiff adequately alleged who, what, and where, it failed to provide the when and the how. It alleged that misrepresentations occurred before John & Lawrence stopped working for it, but since that period was over two decades long, that doesn’t provide adequate notice. (One would hope this can be fixed with an amended complaint; also, it hardly seems to intersect with the concern for whether defendants were engaged in commercial promotion.) Plaintiff also failed to specify the method used to communicate the misrepresentations, which is necessary to figure out whether they’re within the scope of the Lanham Act using the Gordon & Breach multifactor test for “advertising and promotion.”

Again, I’m not clear why this is so. Gordon & Breach determined that even fully First Amendment-protected journal articles could be used as advertising, and thus advertisers using them subjected to the Lanham Act if the articles were presented to potential customers to sway purchasing decisions, so I cannot figure out what the problem could be. Both oral and written materials (not to mention images!) can be false advertising under the Lanham Act; plaintiff is clear that only one customer was targeted; what could come out differently in the test depending on the method used to communicate? There could be potential differences in how one treats oral statements – some courts give oral statements more leeway in a puffery analysis, though I think that’s a mistake when the speaker has sufficient organizational status that s/he can be expected to know the truth – but that doesn’t seem like the appropriate focus of a motion to dismiss.

No comments: