Wednesday, August 14, 2013

Limitations period bars Lanham Act claim even without laches

Baby Trend, Inc. v. Playtex Products, LLC, 2013 WL 4039451 (C.D. Cal. Aug. 7, 2013)

The parties compete in the diaper pail market.  Starting as early as September 2008, Playtex nationally advertised that its Diaper Genie II Elite diaper-pail system was “Proven # 1 in Odor Control.”  Baby Trend sued, alleging literal falsity causing it to suffer steady sales declines since 2008, in April 2013.  The court dismissed without leave to amend.

The court first ruled that California’s statute of limitations for fraud applied.  Because the Lanham Act has no limitations period of its own, courts borrow from the analogous state law cause of action, here fraud claims.  The Ninth Circuit hasn’t completely resolved the interplay between laches and the statute of limitations, but held that “if a § 43(a) claim is filed within the analogous state limitations period, the strong presumption is that laches is inapplicable; if the claim is filed after the analogous limitations period has expired, the presumption is that laches is a bar to the suit.”  Later cases at least suggested a statute of limitations defense, so the court held that California’s limitations period, which is three years.  (This seems like overreading to me and deprives laches of any independent force after the limitations period has run, contrary to the language of “presumption”; anything that would serve to toll the statute would also prevent laches.)

On these facts, Baby Trend’s Lanham Act claim was time-barred.  The period runs from when the plaintiff knew or should have known about its cause of action.  Fraudulent concealment to toll the statute requires that the defendant affirmatively engaged in conduct that would lead a prospective plaintiff to reasonably believe that he had no claim.. Silence or passive conduct is not fraudulent.  On the face of the complaint, April 2010 (three years before filing) was more than a year and a half after Playtex allegedly began its campaign, and more than a year after Baby Trend first realized “steady and substantial sales declines.”  Baby Trend also alleged direct competition, and that the parties products were “commonly sold on the same store shelves.”  Reasonable diligence should have discovered the falsity of Playtex’s statements shortly after the ad campaign or sales declines began.  Baby Trend’s argument that it didn’t question the truth of the “Proven #1” claim until it became aware of the verdict in a related case “flies in the face of the purpose of having statutes of limitations.”

The discovery rule also didn’t apply.  The discovery rule requires (a) lack of actual or constructive knowledge; (b) lack of means of obtaining knowledge earlier through reasonable diligence; and (c) evidence of how and when the plaintiff actually discovered the fraud. Baby Trend failed to allege that it took steps to investigate the validity of Playtex’s claim, nor how it lacked means for discovering the truth.

Because the court saw no additional set of facts that could cure the statute of limitations bar, it dismissed the case with prejudice.

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