Tuesday, April 03, 2012

Rule 9(b) applies to Lanham Act claims; nasty C&D makes request for declaratory relief ripe

TransFresh Corp. v. Ganzerla & Assoc., Inc., 2012 WL 994674 (N.D. Cal.)
TransFresh sued defendant PeakFresh for violations of federal and California false advertising law.  Statements and a video on PeakFresh’s website allegedly compared the parties’ systems for packaging fresh produce to maintain freshness during transport and misleadingly depicted PeakFresh’s as more environmentally friendly than TransFresh’s.
TransFresh’s Tectrol system uses “a relatively small amount of CO 2 in connection with food products” to preserve freshness.  TransFresh alleged that it recovers CO2 from processes that would otherwise release it into the atmosphere, and that CO2 is on the FDA’s Generally Recognized as Safe list for food additives.
Defendant does business as PeakFresh, directly competing with TransFresh.  Its website has a video that “purports to discuss preserving the environment and to explore ‘one promising example’ of working in greater harmony with the environment,” namely, Defendants' PeakFresh system.  TransFresh alleged that the Video “features [its] equipment, [which is] readily recognizable by consumers of each party's goods and services, to illustrate what the Video claims are harmful practices in Plaintiff's use of CO 2 in its fresh produce pallet covers.” 
The video allegedly compared the CO 2 released by TransFresh’s process to car exhaust, even though car exhaust contains far more CO 2, as well as damaging components absent in Plaintiff's process, including ozone, nitrogen oxide, hydrocarbons, carbon monoxide, and particulates.  The video allegedly omitted the fact that a significant amount of the CO2 released was produced by the produce itself, and the net amount of CO2 released from using TransFresh was “only marginally greater” than that released using the PeakFresh method.  The video also used the pejorative term “gassing” when referring to TransFresh’s process.  In addition, the video stated that PeakFresh uses “modified atmosphere packaging,” but it doesn’t; the relevance is that in a MAP system the proportions of carbon dioxide, nitrogen, and oxygen in a sealed container are different from those in the normal (ambient) air to enhance the food's shelf life, while PeakFresh's bag is open at the bottom and does not “significantly modify the ambient air.” 
Further, TransFresh alleged that PeakFresh sent prospective strawberry shipper customers a sealable sample of a PeakFresh consumer bag, “and told them that they can test its pallet cover system by putting some strawberries inside the sealable bag and putting it in the customer's home refrigerator.”  PeakFresh “states or implies” that its unsealed pallet cover system will work as well as the sealed bag on strawberries, but that was unsubstantiated.  PeakFresh also allegedly falsely and without substantiation claimed that strawberries shipped in a PeakFresh pallet bag have a shelf life of at least 20 days, and falsely claimed that TransFresh goods and services were not certified as organic.
The results, TransFresh alleged, were false and unsubstantiated claims that TransFresh’s process introduces an unhealthy amount of CO2 into the atmosphere and that PeakFresh’s process was “green” and more environmentally responsible.  Other allegedly false claims included that a 1999 UC Davis study “validated that PeakFresh works just as effectively as the older gassing methods” when in fact, the study was inconclusive.  Despite TransFresh’s complaints and requests for substantiation, PeakFresh allegedly refused to respond.
In addition, TransFresh sought declaratory relief based on a PeakFresh C&D alleging that TransFresh made false and disparaging statements about PeakFresh’s products and stating that
Unless this matter is immediately resolved to our client's satisfaction, we intend to hold TransFresh responsible and liable for its unlawful and tortious conduct. We demand that TransFresh respond to this letter by no later than December 9, 2011. If you fail or refuse to comply with each of the demands listed above within the period specified, we will take all necessary steps to enforce and protect PeakFresh's rights and remedies. If this matter should proceed to litigation, please note that TransFresh will be required to compensate our client for any and all damages incurred and will be required to disgorge any and all revenues arising from its unlawful conduct. Govern yourself accordingly.
Initially, the court analyzed whether Rule 9(b) applied to the claims.  The court concluded that, except for the declaratory relief claim, it did because all the claims involved allegations of willful and intentional misconduct—even though relief would be available even without that state of mind.
TransFresh had provided enough detail about the video and statements on the website to meet Rule 9(b)’s requirements.  However, the allegations related to the sealable bags promotion weren’t enough: TransFresh didn’t allege “who specifically made these statements, when the statements were made, or to whom they were made.”  (I can’t believe this really means that TransFresh has to provide the name of the person at PeakFresh who sent out the bags and accompanying claims.  But then I don’t agree that Rule 9(b) should apply to statutory claims that don’t require any intent.)  Likewise, the statements about the UC Davis study weren’t identified with sufficient specificity in terms of where and when, nor about why omissions about other studies were misleading, and the shelf life/organic statements also lacked sufficient detail.
PeakFresh also argued that its principle, Gregory Ganzerla, shouldn’t be a defendant.  Principals may be liable if they participate in a wrong or authorize or direct that it be done.  A plaintiff must identify a defendant’s role in an allegedly fraudulent scheme.  Here, TransFresh didn’t plead with sufficient specificity to identify Ganzerla’s role, or plead sufficient facts to support alter-ego liability.
PeakFresh argued that the declaratory relief claim was unripe.  The court disagreed.  The C&D “accused TransFresh of false advertising, listed specific statements and addressed in detail why these statements were false and misleading.”  “Notably,” the statements at issue were mirror images of the ones TransFresh attacked in its own complaint.  Also, PeakFresh threatened to “hold TransFresh responsible and liable for its unlawful and tortious conduct” if TransFresh did not comply with PeakFresh's demands by December 9, 2011.  So the declaratory relief claim was appropriate.

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