In re Honey Transshipping Litigation, No. 13–cv–2905, 2015
WL 1539034 (N.D. Ill. Mar. 31, 2015)
The class plaintiffs sued for violations of the Lanham Act
and RICO; I’m just discussing claims against defendant Honey Solutions. The
claims came from an alleged conspiracy by importers and suppliers to
“transship” Chinese honey with false labels through intermediate countries into
the United States. “The falsified labels enabled the importers to deceive U.S.
Customs officials into believing that the honey did not originate from China.
As a result, the importers were able to circumvent the anti-dumping duties that
the United States government had imposed on Chinese-produced honey.” The Chinese honey allegedly contained
prohibited antibiotics and other harmful contaminants. The mislabeled, cheaper Chinese honey could
be sold at lower prices than competitors’ honey. The scheme allegedly drove the prices of US
honey lower, undermining the plaintiffs’ competitiveness and causing lost sales
and market share.
Honey Solutions was an industrial honey supplier. In June
2011, an undercover law enforcement agent became director of procurement at
Honey Solutions as part of an ongoing investigation into the illicit
importation of Chinese honey, resulting in criminal charges. Honey Solutions
entered into a deferred prosecution agreement with the United States government
and admitted to (a) purchasing Chinese-origin honey, (b) processing and selling
adulterated honey, and (c) defrauding its downstream customers.
Plaintiffs’ RICO claims were dismissed because they were
RICO claims.
Honey Solutions argued that the Lanham Act claims didn’t
meet Rule 9(b)’s pleading standards. But
plaintiffs “more than adequately pled the Honey Solutions defendants’ role in
the fraudulent transshipping scheme.” They identified the Chinese shell
companies from whom the Honey Solutions defendants purchased the illicit honey,
and incorporate the admissions that Honey Solutions and Murphy–the Director of
Sales at Honey Solutions–made in their agreements with U.S. prosecutors.The
Honey Solutions defendants benefitted from the importing defendants’ deception
of U.S. Customs officials and repeated the origin misrepresentations to
potential buyers.
Honey Solutions also alleged that a Lanham Act claim couldn’t
be predicated on avoidance of customs duties, but that wasn’t the source of the
claim. It was the misleading labels and
ads directed at purchasers that constituted the violation, not the
also-deceptive customs forms.
Next, Honey Solutions argued that the claims were untimely,
based on a laches period (erroneously shorthanded as a limitations period here)
of 3 years that plaintiffs didn’t contest.
Plaintiffs alleged that the conspiracy caused them harm since 2001, but
filed in 2013. Honey Solutions argued that plaintiffs knew or should have known
of their injury when their sales began to decline as the price of honey fell, which
undisputedly occurred more than three years ago. Plaintiffs responded that fraudulent
concealment tolled the limitations period, and the court at this point credited
their allegations of deliberate steps taken to hide the fraud by using
falsified documents, including “bills of lading, invoices, packing lists,
country of origin certificates, and other papers.” “The class plaintiffs did
not have access to any of these documents and could not have known of the Honey
Solutions defendants’ involvement in the transshipping operation until February
2013, when the U.S. government brought charges against Honey Solutions and
Murphy.” Those charges triggered the laches period, and plaintiffs sued a month
later.
1 comment:
"Plaintiffs’ RICO claims were dismissed because they were RICO claims."
Outstanding.
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