The parties compete in the market for farm chemicals in
Michigan. LidoChem and individual
plaintiff/chemist Frank Dean sued Stoller Enterprises, McKenzie Wright
Laboratories, and various individuals: Jerry Stoller (Stoller’s owner), David
Alexander (sales rep), and Michael Wright (president of McKenzie Wright). The district court rejected plaintiffs’
Lanham Act, tortious interference, injurious falsehood, defamation, and civil
conspiracy claims. The court of appeals affirmed in part and reversed in part.
Frank Dean and sales rep Gerry Gelder worked for Stoller
Enterprises before they joined LidoChem.
LidoChem’s products were blended by The Andersons, a large midwestern
chemical manufacturer, then sold to Michigan distributors, including Zeeland
Farm Services and Green Valley Agriculture.
LidoChem’s owners joined a business venture in 2000 to form
a new corporation, Nutrecology, which employed Dean to develop a liquid
fertilizer, Nutrefol, to compete with Stoller Enterprises' similar product,
FoliZyme. They utilized LidoChem's distribution network in Michigan to market
the product. Gelder and a Zeeland
salesman met with the owners of Boersen Farms, one of Zeeland’s largest
customers. Gelder asked them to try
LidoChem/Neutrecology’s products instead of the Stoller products they’d been
using. Dennis Boersen alleged that Gelder told him that Nutrefol would work
like FoliZyme to enhance the growth of soybeans, but Gelder denied this.
Boersen agreed to try Nutrefol and did so.
But when Boersen sprayed Nutrefol and Roundup on soybeans, the plants “turned
yellow and became stressed.” A Stoller
distributor “recommended the use of Stoller products to encourage plant
recovery.” Stoller then assured Boersen
that Nutrefol contained a substance that was harmful to soybeans.
LidoChem and Dean alleged that Stoller “orchestrated a plan
to ruin their reputations within the farm chemicals industry by making
misrepresentations that Nutrefol contained ‘poison.’” They provided evidence that Stoller advanced a
scheme to represent falsely that Dean added a particular chemical to Nutrefol;
Stoller claimed that this chemical was toxic and caused the reduced soybean
harvest. As a result, Nutrecology pulled
Nutrefol from the market. LidoChem and
Dean also showed that Stoller repeatedly encouraged Boersen Farms and its
attorneys to file a lawsuit against LidoChem, Dean, etc. LidoChem alleged that,
once the lawsuit became public, LidoChem lost business relationships and goodwill.
Stoller sent several communications alleging Nutrefol was
toxic. After one test he commissioned didn’t
find any toxic chemicals, he ordered that a different lab re-test the sample, allegedly
because he knew that the lab would provide the results he wanted because it had
provided favorable results for him in the past when other labs had failed to
satisfy. Stoller also allegedly directed
Wright to issue a false report finding that the Nutrefol sample taken from
Boersen contained the toxic chemical, which Wright did; Stoller then told
several people, including Boerson, about the results. Stoller’s sales rep Alexander met with
Boerson’s attorneys three times and agreed to serve as an expert witness in the
case against LidoChem etc. “It was common knowledge in the very small industry
for farm chemicals that Stoller pushed the lawsuit against LidoChem and the
other defendants.” Stoller sent several
letters to the attorneys claiming that Nutrefol had falsified key safety
documents, that Gelder falsely represented to Boersen that Nutrefol was the
same as Foli–Zyme, that Dean had a history of using “customers as an experimental
laboratory,” that Stoller had worked for months, employing “numerous lab
analyses and specialized equipment,” to isolate the damaging, “cleverly
disguised” ingredient in Nutrefol, agreed to serve as an expert witness, etc.
(and requested compensation based on results, leading him later to concede that
he had a proprietary interest in the lawsuit).
When a distributor, Gerst, started distributing LidoChem
products, Stoller denied him the right to access research samples of Stoller
products because Gerst was doing business with Dean, telling Gerst that Dean
had stolen “private information” from Stoller and calling Dean “a dishonest
person and a thief” and “a known crook who stole from me.”
Stoller ultimately withdrew as an expert witness for
Boerson, and the state trial court barred Wright from testifying as an expert
because he got rid of the Nutrefol samples Stoller gave him to test and then
claimed that his computer “crashed” so that he no longer possessed the
underlying data and testing procedure that formed the basis for his opinion.
Boersen and LidoChem ultimately settled the lawsuit.
Lidochem produced evidence indicating that Stoller’s
statements were false. Side-by-side
tests by Green Valley produced virtually no difference in crop production
between Nutrefol and Foli–Zyme. LidoChem's
insurer had an independent lab test Nutrefol; though the sample contained two
substances not listed on its material safety data sheet, neither was a threat
to soybeans, and additional expert testing failed to detect the allegedly toxic
chemical at the part-per-trillion level.
LidoChem also produced evidence of economic harm, including
the end of its relationship with The Andersons (which had blended its products),
and trouble making sales.
LidoChem alleged that Stoller, Alexander, Stoller
Enterprises, Michael Wright, and McKenzie Wright Laboratories violated the
Lanham Act. But were the statements “commercial
advertising or promotion”? The phrase
goes beyond the classic advertising campaign; most courts follow Gordon & Breach. At a minimum, covered speech has to target a
class or category of customers, not merely particular individuals, though the
required level of dissemination varies according to the industry at issue. In a small enough market, even a single
promotional presentation to an individual purchaser can be enough.
Applying Gordon &
Breach, the court of appeals concluded that Wright and McKenzie Wright
Laboratories didn’t engage in commercial advertising or promotion by providing
Stoller with a false laboratory report “because Wright was not engaged in
promotion to influence consumers to purchase goods or services from McKenzie
Wright Laboratories.” The same was true when Wright participated as an expert
witness in Boersen’s lawsuit. But
Stoller Enterprises was in commercial competition with LidoChem, and could be
vicariously liable for the conduct of its owner Stoller and employee Alexander. A reasonable factfinder could conclude that
Stoller was engaged in “commercial speech for the purpose of influencing
consumers—not just the end-use farmer, but also the farm-chemical
distributor—to buy Stoller Enterprises products and that Stoller's statements
were disseminated widely enough to the relevant purchasing public to constitute
promotion within the relatively small western-Michigan farm-chemical industry,”
based in particular on the statements to Boersen and Gerst.
Because the claim that Nutrefol contained a toxin was false,
actual deception could be presumed. “Further,
Stoller disparaged LidoChem in another way by casting doubt on Dean's honesty
and on the validity of his patents.”
LidoChem produced evidence of materiality in its subsequent difficulty
making sales. Whether the causation
analysis with respect to the amount of damages was affected by Nutrefol’s
removal from the market was a factual question for the jury.
Defendants argued that many of Stoller’s statements went to
Boerson’s attorney and therefore weren’t commercial speech, but here the attorney
was Boerson’s agent for dealing with Stoller, “and the evidence suggests that
Stoller fully expected his statements to the attorney to reach farmer Dennis
Boersen and the farm-chemical industry in western Michigan.” A reasonable jury could believe what Stoller
said: “that he intended to instigate litigation to inflict severe competitive
injury on LidoChem and disrupt its business relationships,” especially given
his admission that he had a financial interest in the litigation’s
success. “The district court's belief
that Stoller made the false statements to the attorney simply to promote
himself as a consultant and expert may be one reasonable interpretation of the
evidence, but it is not the only one.”
Plus, there was evidence that Alexander directly gave false
information to Boerson and other Michigan growers. Alexander “admitted that he
discussed the facts underlying the Boersens' lawsuit with Michigan growers to
whom he sold Stoller products.” Thus,
summary judgment against Stoller, Alexander, and Stoller Enterprises was
improperly granted. (The partial dissent thought
that Alexander should be out of the case because counsel didn’t mention some of
these facts to the district court, but the majority said that it was legitimate
to consider the entire summary judgment record given the de novo standard that
applied.)
On tortious interference, the court of appeals also
reversed; a reasonable jury could find that any/all of the defendants
tortiously interfered with LidoChem’s business relationships with Boersen
Farms, Zeeland Farm Services, Gerst, and The Andersons by falsely stating that
Nutrefol contained a toxic chemical. However, there wasn’t enough evidence to
warrant trial on any separate claim by Dean.
Likewise, while the district court ruled that LidoChem’s injurious-falsehood
claim failed for want of proof of causation—inducing others not to deal with
LidoChem—the court of appeals thought that there was enough evidence to go to
trial, except on the argument that Stoller and Wright committed perjury during
their depositions, because of immunity for testimony given during a legal
proceeding.
Defamation: Dean alleged that Alexander defamed him during a
meeting with Gelder by telling Gelder that, if he would work for Alexander,
then Alexander would reveal to him what “really” happened in the Boersen litigation
and Gelder would be shocked. Gelder didn’t accept the invitation. This wasn’t enough to show a false and
defamatory statement concerning Dean, nor did Dean show damages.
As noted above, there was a partial dissent on the
procedural issue. The majority, the
dissent thought, had improperly searched the record for contrary evidence against
Alexander, even though it wasn’t mentioned in the briefs or argument to either
court. The legal question is an important
one for procedure-loving types and the dissent is impassioned; I commend it to interested
readers.
2 comments:
Claims for "instigating litigation" and for giving a false opinion as an expert strike me as unsupportable, at least when brought by a third party. Initially, I can see there being big issues of privilege: for the moment, it seems like the client duped into the litigation is supportive of the third-party claims against the instigator, but what if they're not? More to the point, I think this just hits way too close to a third-party fraud claim, and those claims are routinely dismissed because the plaintiff is unable to prove reliance.
Coupled with the procedural issue, I'm really inclined to see this as an example of court straining to manufacture liability against a party that engaged in a lot of dishonest conduct. Part of me agrees with that, but that sort of rough justice isn’t available to all plaintiffs, so why do it here?
I'm not sure I'd read the opinion as one allowing false advertising claims to be based on instigation--the court seems to be saying that a jury could accept that Stoller was just trying to get hired as an expert (which wouldn't satisfy Gordon & Breach), but they could also find that he was using the opportunity to disseminate misinformation to the relevant industry players, which would make his communications advertising or promotion.
It's interesting that all the dissent is about is the evidence against one of the employees--clearly the majority thought that there was evidence that the alleged rot at the top had spread.
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