Sunday, May 02, 2010

puffery and protein powder

Cornelius v. DeLuca, 2010 WL 1709928 (D. Idaho)

Derek Cornelius and SI03, Inc. sued in Missouri state court for violations of the Lanham Act, tortious interference, defamation and related torts, naming more than 15 defendants as responsible for postings on the website criticizing Cornelius, SI03, and SI03’s products. The statements at issue here were posted on the Forum Message Board, open to any user. and some other defendants removed and, instead of dismissing the suit for lack of personal jurisdiction, the district court transferred the case. The court upheld a personal jurisdiction challenge for the defendants because they were competitors with SI03, which sold products through the Idaho-based (as did these defendants). Their allegedly defamatory statements would foreseeably cause harm to SI03’s sales to Idaho. Many of the defamation claims turned out to be time-barred by Missouri’s two-year statute of limitations. Tortious interference has a five-year limitations period; can you use that to get around the limits on defamation? When the claim is clearly and solely based on defamatory statements, such that all the alleged wrongdoing depends on whether the statements were true or false, the answer is no, so those claims were also dismissed.

The Lanham Act has no statute of limitations, but courts borrow local periods unless those are inconsistent with the underlying federal policies. Courts have analogized to trademark infringement, fraud (here five years), and defamation. At its heart, this was a defamation claim. SI03 argued that laches was the proper doctrine, though, rather than an absolute bar. A suit filed after the statute of limitations has expired creates a strong presumption that laches bars the claim. Laches means that delay in filing suit was unreasonable and that defendants would suffer prejudice caused by the delay; the length of the delay is measured from when the plaintiff knew or should have known about its cause of action.

The challenged statements were posted in January 2004, May 2005, May 2006, August & September 2006, and April 2007. SI03 filed its initial complaint in October 2008; only one statement would fall within the two-year limitations period. But defendants didn’t move to dismiss based on laches and the court had no information about when SI03 knew or should have known or about prejudice to defendants. So the court refused to dismiss the claim.

One defendant, SAN, argued that the statement attributed it to it was mere puffery: “You are obviously a Syntrax [SI03 predecessor] pimp. Why don't you have Cornholio stand up for himself? I know at least a half a dozen lawyers who want to crucify him for his reckless behavior.” This was a statement in response to another post, using “figurative and hyperbolic language.” “Pimp” disparaged the third person’s objectivity, rather than suggesting criminal activities. “Cornholio” was not a specific and measurable statement of fact, but a disparaging term borrowed from Beavis and Butt-Head to refer to Cornelius. (Here the court cited Wikipedia, explaining that it “does not encourage citations to Wikipedia. However, in rare circumstances, citation to a pop-culture encyclopedia is necessary in order to explain a pop-culture character.”) The final sentence was also “hyperbolic exaggeration.” A reasonable reader wouldn’t believe that 6 or more attorneys actually want to crucify Cornelius. The statement didn’t provide context for its accusation of recklessnes; it was vague and subjective and therefore nonactionable puffery.

Another defendant, ISS, made similar arguments. The statements: “I would stick w/Ergopharm and primaforce because syntrax has had label claim issues” and “Syntrax has some label claim problems.” The court found those to be vague allusions, but they could be interpreted as objective statement of fact—whether or not Syntrax had problems with label claims is falsifiable, and thus not puffery.

However, the court found that the statements were not commercial advertising. The first statement was commercial speech, but the purpose was not to influence consumers to purchase ISS’s products but to convince them not to purchase SI03’s products. That’s not commercial advertising. The second statement didn’t propose a commercial transaction and thus wasn’t commercial speech. (Good to know you can say false things about your competition in chatrooms as long as you don’t rise to the level of defamation, under this ruling. Why don’t we get to aggregate statement one and statement two for determining whether two was commercial speech, at least? Also, tearing down your competitor is an argument for purchasing your product—just like many arguments for purchasing your product may also serve as arguments for others’ products (e.g., “now’s a great time to buy a new home!” seen in real estate ads).) Note: it is unclear from the opinion whether Ergopharm and Primaforce are products from which ISS derives commercial benefit. If they are, then this decision is not just odd and marginal, it is bizarrely wrong.

Another defendant, Molecular, also argued puffery. The relevant statements: “Syntrax has secret operatives? Could it Be? ... I just think everyone should be aware of the dishonest tactics used by this company. And there’s even more stuff you don’t know about”; “IMO [In My Opinion] it’s not so much the HFCS [high fructose corn syrup] that people are worried about but the recent reports of possible use of contaminated / spoiled protein powder. I think most people remember the threads / posts about Creative Compounds [a different company than SI03] attempting to import protein that was unfit for human consumption.”

The first statement, the court ruled, was “vague, subjective, and rhetorical hyperbole,” and even “more stuff you don’t know about” was vague, without specific and measurable claims capable of being proved false or interpreted as statements of objective fact. (By suggesting the presence of further undisclosed facts, I would think it’s at least potentially defamatory, at least when said by a sufficiently credible source.)

Now I’m kind of surprised: the second statement was also puffery because it started with “In My Opinion.” SI03 argued—which I would have thought consistent with the case law—that prefacing a statement with that claim shouldn’t distract from the underlying factual assertions. However, the court ruled that “[t]he author is expressing his opinion that people may be worried, and why they may be worried. The reference to attempted importation of protein unfit for human consumption relates to a different company entirely. The two statements together explain the basis for the author’s opinion that people may be worried.” Anyway, the statement was vague and subjective, not specific and measurable, and thus non-actionable puffery.

I think the court is requiring too much in the way of “specific and measurable” here. Contamination and spoilage seem pretty specific and measurable—and of course the issue is not whether “people” are worried but whether the statement tells readers they ought to be worried about contamination/spoilage in SI03’s product. Stating the basis for one’s opinion can be important in defamation, where readers can then make their own judgments about whether the facts support the opinion, but here it’s the reports of contamination/spoilage that, if false, are the problem.

What about tortious interference based on the same contamination/spoilage quote? The court then subjected it to defamation analysis. And here again, the court found “an opinion about what may be worrying some people regarding one of SI03’s products.” The objective fact was “reports of possible use of contaminated or spoiled protein powder.” “The author is offering his opinion that the reports may have caused fear, he is not asserting that the reports are true or that SI03’s product contains contaminated or spoiled protein powder.” The court refused to attribute claims about spoiled protein power to Molecular, when the statements were [allegedly] “in fact made by an unknown person.”

What is puzzling here is the court doesn’t address whether those reports were false—it’s possible that a defendant who knowingly repeated falsity engaged in defamation. In other words, the alleged falsity here is not centered on whether this was actually the poster's opinion; it's centered on whether there actually was contamination.

The court appears to be allowing a classic whispering campaign: “I’m not saying you’re a cheat and a liar. I’m just saying that people are saying that. And my opinion is that they’re saying that because you’ve been reported to be a cheat and a liar.” This, to me, is a statement whose weasel words should not of themselves excuse the speaker from potential defamation liability, if the elements—falsity of the underlying factual claim, scienter, harm—are present. Especially since we don’t know the source of the reports. Indeed, it is a standard ground for defamation liability that a reporter failed to do fact- and source-checking that would have revealed the unreliability/bias of a source. I would think it would at least meet the Iqbal pleading standard to allege that a competitor engaged in similar knowing/reckless conduct with respect to the key factual basis of its claim. moved to dismiss based on §230. It argued that the person who posted the statements attributed to it was not “working for or on behalf of” the company when the post was made and is thus the statement of “another information content provider.” Most of the statements listed in the complaint were attributed to other defendants. SI03 argued, quite fruitlessly, that was a speaker/publisher for all the statements because it appointed moderators on its forum and allowed them to censor content. These are the standard functions of a publisher.

The only statement attributed to was posted by INGENIUM in May 2007. Higher Balance, LLC v. Quantum Future Group, Inc., No. 08-233-HA (D.Or. Dec. 18, 2008), required a plaintiff to show that online forum moderators were the defendant’s employees; without such a showing, they were each “another information content provider.” But that was decided under an anti-SLAPP statute, not on a motion to dismiss subject to Twombly. SI03 alleged that appoints moderators to act as representatives of the company; that INGENIUM was a moderator; and that s/he was acting within the scope and course of his/her representation when the statement was posted. This states a plausible claim for relief.

Takeaway: (1) Hard to believe this case was, or remains, worth the litigation resources expended. (2) Don’t believe everything you read on message boards.

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