Tuesday, June 26, 2012

Audience expectations affect literal falsity determinations

Thermal Design, Inc. v. Guardian Building Products, Inc., 2012 WL 2254195 (E.D. Wis.)

The parties compete in the sale of ceiling and wall insulation systems for large non-residential metal buildings.  They sued each other for false advertising.

Thermal Design sells the Simple Saver System, “an insulation system that can be installed in roofs and walls of non-residential buildings” and that “mimics a suspended ceiling, which serves aesthetic and interior lighting distribution functions.”  It added alternative fall protection to the Simple Saver System as a standard worker protection feature, consulting with OSHA on test and safety requirements.  OSHA ultimately sent a letter stating that, though it didn’t endorse products, it had concluded that, if the Simple Saver were installed as described, the product would put users in compliance with OSHA fall protection requirements.

For 15 years, Thermal Design bought nearly its entire supply of fiberglass insulation from Guardian.  About a decade ago, Thermal Design’s then-largest competitor, CGI, began selling a fabric liner system, the Energy Saver System.  Six years ago, Guardian bought CGI and began selling the Energy Saver FB.  The Energy Saver used components similar to those of the Simple Saver.

For a while, Guardian sold both the Simple Saver and the Energy Saver, but Guardian’s distribution relationship with Thermal Design ended shortly after Guardian added fall protection to the Energy Saver.  In 2007, Guardian issued a press release announcing that Energy Saver had been “enhanced to include OSHA-compliant leading edge fall protection.”  Its ads made similar claims, as well as claims such as “your safest bet” and “To meet OSHA guidelines an insulation support and fall protection system must restrain and support 400 pounds dropped from at least 42" above the system. The Energy Saver FP™ System passes this rigorous test!”

Thermal Design challenged Guardian’s fall protection claims for the Energy Saver.  Its expert evaluated earlier drop tests and conducted some of his own, and concluded that the Energy Saver didn’t meet OSHA standards.  Further, he concluded that Guardian’s expert’s test was invalid because of flaws in test methodology.  This created a genuine issue of fact on literal falsity.

However, Thermal Design didn’t get summary judgment in its favor on its claim that Guardian failed to disclose that the Energy Saver does not pass the drop test within six feet of the perimeter/edges of the building.  Kudos to the lawyer behind this explanation of the claim: “if this piece of paper were a roof, the space between the outer edges of the paper and the typed portion (the margin) has no OSHA compliant fall protection …. Any person working in ‘the margin’ will fall, hard and fast, to the ground or floor level below.”  But the meaning of a claim must be considered in context and with reference to its audience.  Guardian produced evidence suggesting that the six foot margin is excluded when using the phrase “leading edge fall protection,” including deposition testimony from a Thermal Design salesman about the relevant consumers’ understanding.  Thus, there was a factual dispute over literal falsity with respect to the six foot perimeter.

Thermal Design also challenged Guardian’s claim, by email to potential customers, that the Energy Saver was “considered an equal” to the Super Saver.  The plainly erroneous 7th Circuit rule that person to person communications can never be advertising or promotion kicked this claim out (though presumably a well-pleaded state law claim could have survived).

Guardian also offered the Purlin Glide insulation system, which like the other two could be used in metal buildings.  Insulation’s thermal performance can be measured using what’s known as U-value and R-value: the higher the installed R-value the better or more efficient a building is to heat and cool.  Guardian lowered its advertised U- and R-values for the Purlin Glide starting in 2009.  Thermal Design alleged that Guardian falsely advertised the thermal performance of the Purlin Glide; its evidence that Guardian’s underlying tests were flawed was sufficient to create a material issue because this was an establishment claim.

Thermal Design also argued that it was entitled to summary judgment because Guardian changed the reported R-values in 2009; the old values were based on a mean temperature of 35.1°F, but its new brochure reported R-values on upon a mean temperature of 75%°F.  The old ads didn’t state a mean temperature, so the R-values might have been literally false, “but only if the audience to which the statement is addressed would assume 75%°F or anything other than 35.1°F as a mean temperature.”  The parties’ experts disagreed on whether there was a standard in the industry (and what it was), creating a genuine issue of material fact.

Thermal Design also challenged a brochure distributed by the North American Insulation Manufacturers Association as having incorrect thermal performance values for various insulation systems.  Though Guardian's name is listed on the last page of the brochure as a “NAIMA Metal Building Committee Member,” the evidence showed that Guardian had nothing to do with the publication of the brochure. Thus, Guardian did not cause the NAIMA publication to enter interstate commerce and this claim was dismissed.

Similarly, Thermal Design alleged that an article linked on Guardian’s website provided incorrect U-values and an incorrect formula for calculating certain insulation values.  But the article said nothing about any particular Guardian or Thermal Design product.  “Therefore, even if the article includes false or misleading information, it cannot form the basis of a false advertising claim.”

The court turned to damages, and found that Thermal Design failed to produce any evidence that it was damaged by actual consumer reliance on the allegedly false statements (herein, about source).  Guardian did produce evidence that consumers weren’t confused, in the form of statements from consumers who said they understood that Guardian was selling the Energy Saver system and not the Simple Saver and that the two were separate.  Thus, Guardian was entitled to summary judgment on the damages claim, though other relief might remain available.

Thermal Design also claimed tortious interference based on 128 incidents in which the Simple Saver was specified by a design professional as “appropriate” for a project, but the ultimate bidder used the Energy Saver instead, without revised specifications.  However, an architect on one of the projects testifed that, while the original specifications used the Simple Saver as the basis for design, it wasn’t a requirement as long as the product ultimately met the minimum specifications.  Other architects said “more or less the same thing”: substitutions were ok if they accomplished the same purpose in basically the same manner as the originally listed product.  The architects thought that competition for substitution was good for consumers.  Thus, Thermal Design failed to create an issue of fact as to sufficiently certain prospective contractual relationships.

Guardian brought a number of counterclaims, including defamation.  Among the claims it identified as defamatory: Guardian is “putting innocent workers at risk of serious injury and death;” Guardian adopted a “market whoring scheme;” Guardian “counterfeited our system;” and Guardian's “motive is to confuse purchasers and prey off the good will, reputation and value of the highly promoted and specified simple saver system, its trademarks and service marks.”  Since there was a genuine issue of material fact on fall protection, Thermal Design might have a truth defense on the worker safety claim.

Thermal Design argued that some of these statements fell outside the two-year limitations period based on when Guardian counterclaimed, but the statute of limitations was tolled when Thermal Design sued.  Thermal Design argued that Guardian’s counterclaims were permissive, and the limitations period should only be tolled for compulsory counterclaims, but Wisconsin apparently made no such distinction (and the court found that the defamation claim was compulsory anyway).  Even if the court was wrong, there were still statements within the two-year period before the counterclaims were filed, and also the discovery rule might aid Guardian, so the court refused to dismiss the counterclaims.  The only instance excluded on statute of limitations grounds related to an April 2006 article in Metal Construction News,“Counterfeit System Creates Confusion, Endangers Lives,” since it was undisputed that Guardian knew about the article in the same month.  But the same article was “essentially republished” under a slightly different title in the October 2006 Metal Architecture Magazine, “Performance Claims of Some Insulation systems Manufacturers Creating Confusion, Endangering Lives,” within the period.  (I just love that there are at least two different industry publications for this industry!  We live in complex times.)

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