Thursday, January 07, 2010

POM Wonderful ruling affirmed

POM Wonderful LLC v. Purely Juice, Inc., 2009 WL 5184233 (9th Cir.)

The court of appeals affirmed the district court’s findings of false advertising under the Lanham Act and California law. Damages were nearly $1.2 million, profits disgorged $300,000, and fees and costs over $620,000. The brief opinion affirming noted that intent is not an element of a Lanham Act false advertising claim. Nor did the district court clearly err in finding the requisite knowledge of falsity under California law, even though the court adopted POM’s proposed findings of fact “uncritically,” and thus those findings are reviewed with “particularly close scrutiny.” Under California law, a seller has a duty to investigate and verify facts that would put a reasonable person on notice of possible misrepresentations; it can’t blindly rely on others’ representations. In other words, negligent false advertising creates liability.

Here, Purely Juice knew a batch of its product was not 100% pure, without sugar added, from testing results it received in early 2007. Further testing revealed further evidence that its product was not 100% pure, and Purely Juice left that product on the shelves. “Despite knowing certain industry brokers had ‘credibility issues’ and there were ‘suitability questions’ about some concentrate, Purely Juice did little to vet its broker or suppliers. Purely Juice understood (1) a limited global supply of pomegranates led some concentrate juice manufacturers to blend pomegranate with other juices; and (2) difficult harvesting conditions and lack of refrigeration at processing plants led concentrate manufacturers to add sugar. Nevertheless, Hachigian testified he selected Perma Pom, Purely Juice's broker, by simply ‘talk[ing] to them and ask[ing] them how long they had been doing pomegranate juice concentrate and so forth.’ The Perma Pom representative testified suppliers are not subject to any verification process; Perma Pom ‘take[s] the word of the supplier’ and relies on certificates of quality.” Purely Juice did instruct its broker to switch suppliers immediately, but its practice was still to rely blindly on the underlying representations.

The court of appeals found error in the district court’s conclusions that Purely Juice was on notice from an internal memorandum, which referenced an article not admitted in evidence (evidence isn’t my thing, but isn’t there some hearsay exception about knowledge that would cover this?), and that Purely Juice was on notice based on “general knowledge of foreign and domestic pricing structures from a prior year,” but the error was harmless given the rest of the record.

The court also upheld the district court’s calculation of damages, as well as individual liability for Purely Juice’s president and founder, who knowingly controlled, authorized and directed the false advertising.

There was also no intrusion on the FDA’s authority; POM wasn’t suing to enforce the FDCA.

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