Thursday, October 08, 2009

Unclean hands, covered with cedar chips

Rainbow Play Systems, Inc. v. Backyard Adventure, Inc., 2009 WL 3150984 (D.S.D.)

Rainbow sued Backyard Adventure, a competitor in the market for wooden playsets, for falsely describing Backyard’s products as being made with cedar. Backyard describes lumber from the tree scientifically named Cunninghamia lanceolata as cedar. This tree is also commonly known as China fir, China cedar, or coffin wood; the parties disputed whether it can truthfully be identified as “cedar.”

But the court didn’t resolve that issue, because Rainbow had used both Thuja plicata (western red cedar) and Calocedrus decurrens (incense cedar) lumber in its play sets and marketed both species as cedar. These trees are in the Cupressaceae or cypress family. In addition, Rainbow used Cunninghamia lanceolata in its play sets for a period in 2008, then quit. Cunninghamia lanceolata is also classified in the Cupressaceae family. “True cedars,” by contrast, “are generally grown only in the Middle East and are scientifically classified in the Pinaceae (Pine) family and in the genus cedrus.” The parties presented conflicting expert testimony on whether it was fair to use “cedar” for Cunninghamia lanceolata; Backyard’s expert contended that most of the false cedars are shortened to “cedar” in marketing, just like Thuja plicata and about two dozen others.

The court found that, regardless of whether commercial practice and understanding might support a falsity claim, Rainbow’s unclean hands barred success on federal or state causes of action. This requires a showing that a plaintiff has engaged in inequitable conduct or bad faith with a material relation to the relief sought. Since the alleged falsity here was “referring to lumber from a tree that is not classified as cedar in a scientific or botanical classification” as cedar, Rainbow had engaged in materially related inequitable conduct. Rainbow argued that Backyard should have to show that it had been injured by Rainbow’s conduct in order to sustain an unclean hands defense, but the court disagreed that this was a requirement. Rainbow also argued that Backyard’s conduct was worse, apparently because the China cedar is less cedarlike than the western red or incense cedars, but the court found an insufficient difference in the degree of uncleanliness.

The state-law misrepresentation claim additionally failed because South Dakota’s consumer protection law requires reliance on a false claim to allow recovery, and as a competitor Rainbow couldn’t have relied on Backyard’s ads. (The case the court cited for this, however, involved consumer plaintiffs, where reliance would have been a predicate for damage; given that the law covers any person harmed by falsity, it’s not clear why adding a reliance requirement is consistent with the statute.)

Finally, the court denied summary judgment on Backyard’s state and federal counterclaims based on Rainbow’s statements that some manufacturers use Chinese cedar and call it cedar even though it is a “fir,” something Rainbow now concedes isn’t true. There were material issues of fact on deceptiveness, materiality, and reliance.

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