CMH makes manufactured homes. GreenFiber sells home
insulation, whose insulating power is represented by an R-value: the higher the
R-value, the greater the insulating power.
Federal regulations require loose-fill insulation sellers to put a chart
on product labels showing how thick the insulation has to be installed to
achieve specified R-values. Homesellers
are required by federal regulations to install insulation according to the insulation
manufacturer’s instructions. CMH alleged that GreenFiber’s product label and
instruction manual misrepresented the necessary thickness to comply with
federal regulations, incorrectly stating that the insulation did not have to be
installed over the entire installation area to the minimum thickness required
for the stated R-value, but rather that the regulations only required that the average thickness of the area meet the
minimum thickness. The manual stated
that “an interpretation [of the FTC rule] might be that the depth can never be
lower than 8.1 inches in an attic [to reach R-30]. That is not what is being
asked of an applicator. Both the insulation industry and FTC recognize that
loose fill materials will never be installed to a perfectly even depth.
Requiring that no area is less than 8.1 inches actually results in an R-value
higher than R-30 and a higher installed cost for the applicator.”
However, in 2000, the FTC clearly stated that no area
covered with insulation could be less than the minimum. In 2008, a group of CMH's home buyers began a
class-action arbitration against CMH, arguing that their insulation didn’t meet
the R-value claimed by CMH because the thickness of the insulation in some
areas was less than the minimum thickness necessary. CMH settled the arbitration action with a
payment and sought to recover those amounts from GreenFiber. The court rejected CMH’s breach of contract,
warranty, and indemnity claims; I will discuss only the Lanham Act false
advertising and state law fraud claims.
While much precedent suggests that customers lack standing
under the Lanham Act, the court focused on two other problems: first, the
alleged misrepresentation was about the federal installation regulations, not
about “the nature, characteristics, qualities, or geographic origin of [a
person's] or another person's goods, services, or commercial activities.” (I’m dubious—how much of a product you
need to use to achieve a certain result seems like a characteristic or quality
of the product, regardless of the reason why you need to use that amount—but
there is also plenty of precedent that a claim about the meaning of a law, at
least if the law is unsettled, is not a factual representation at all. The problem here seems to be that the FTC was unambiguous about what it meant.)
Also, the claim was barred by laches, measured by borrowing the
analogous state statute of limitations and presuming laches after that time has
run. Tennessee’s Consumer Protection Act
has a 1-year statute of limitations.
Under federal law, the period begins to run when a plaintiff knows or has
reason to know of the injury. The latest
date there was when the class plaintiffs filed their action, in 2008. CMH didn’t sue until 2012. CMH argued that the limitations period should
be tolled because GreenFiber kept insisting that its instruction manual was
accurate. Fraudulent concealment of
facts tolls the statute of limitations if the plaintiff couldn’t have
discovered the cause of action despite exercising reasonable diligence, but CMH
could have discovered its cause of action given the explicit statements in the
class action complaint, which referenced the 2000 FTC public letter stating
that averaging insulation depths violated the regulations. “With reasonable care and diligence, CMH
should have been able to determine what the applicable federal regulations
required regardless of what GreenFiber executives were saying.” Thus, there was a strong presumption of
laches, which was not overcome.
The state-law fraud claim, with its three year statute of
limitations, was also time-barred.
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