failure to show damage from accusation of falsity dooms counterclaims

Cascade Yarns, Inc. v. Knitting Fever, Inc., 2015 WL 3407882, No. C10–861 (W.D. Wash. May 27, 2015)

This five-year odyssey ends with a whimper.  Cascade and KFI sell luxury yarns; Cascade initially sued KFI for mislabeling the fiber content of certain yarns. Ultimately, the case went to a jury solely on KFI’s counterclaims for unfair competition under the Lanham Act and Washington common law, defamation, and tortious interference with business expectancies. Each claim arose out of Cascade’s posting a statement under the headline “Milk Protein Fiber Hype”:

 

There has been a lot of hype recently about a fiber advertised as “Milk Protein Fiber.” Given the substantial price that “milk” yarns command, it made sense to investigate what this “milk” fiber actually is. We were surprised to learn that three “milk” yarns sourced from Knitting Fever were nothing more than common acrylic blends. Acrylic is an inexpensive fiber, which is often added to make yarns soft and affordable. Beyond the lack of milk, two of these yarns did not contain either the cashmere or alpaca, listed on their labels.

We presented this information to KFI, first to their attorneys informally, then later to the Court. KFI raised questions regarding the testing methodology of our expert, but chose not to have these yarns actually tested. So far, KFI asserts that the yarns, listed below, contain milk, alpaca and cashmere, purely because the salesmen who sold it to KFI says [sic] that they do. We attached the documents from Cascade’s fiber expert, as well as the response from KFI’s plastics expert.

1) Ella Rae Milky Soft: advertised as a 50/50 cotton milk protein blend is actually cotton and acrylic.

2) Laines du Nord (KFI) Baby Milk: advertised as 63% wool, 30% milk fiber, and 7% cashmere is actually 68% wool and 32% acrylic.

A. Retails for $6.60 for a 25 gram skein or $26.40 per 100 grams.

B. Cascade Pacific 60% acrylic 40% wool (merino) retails for $6.50 per 100 grams.

3) Ella Rae Latte: advertised as 30% alpaca, 30% milk, and 40% microfiber actually contains neither milk nor alpaca and is 69% acrylic and 31% wool.

A. Retails between $9.00 to $10.00 for 50 gram skein or $18–$20 per 100 grams.

B. Again Cascade Pacific retails for $6.50 and has a third more wool.

 

Cascade removed the posting sometime in 2012.

 

The court granted judgment as a matter of law to Cascade because of KFI’s failure to show damages. Assuming (!) that the statement was commercial comparative advertising, a presumption of injury is only available for deliberately deceptive comparative advertising.  No witnesses testified to Cascade’s mental state.  A Cascade witness testified that he relied on the reports of a fiber analyst, Kenneth Langley, which he consequently believed to contain only true statements.

 

Nor was there direct evidence of injury.  KFI did not link a drop in its business to Cascade’s actions here; Cascade has been posting lots of pleadings from this case wholly unrelated to the milk fiber yarn issue. “The jury would have no way to find that KFI’s damages were attributable to the milk fiber posting and not to the public airing of unrelated grievances throughout the course of this litigation, or to any number of economic or other causes.” Nor did KFI show any Cascade profits were attributable to this posting. “[U]nder these circumstances, any award would constitute an impermissible penalty rather than compensation,” so the court wasn’t going to send it to the jury.  This ended the state common law unfair competition claim too.

 

On defamation, KFI was a private figure, but the milk fiber yarn post involved a matter of “public concern,” “in light of the public’s interest in the accuracy of product labeling as well as in consumer warnings of fraudulent or deceptive business practices.” Under state law, KFI would need to show negligence to recover actual damages, and actual malice to recover presumed damages.  It couldn’t show actual damages, as noted above, and it also couldn’t show actual malice either through knowledge of falsity or reckless disregard for truth. Though KFI had evidence of falsity, neither falsity nor proof of failure to investigate before publishing are sufficient to show malice.

 

Similar difficulties attended the tortious interference claim; KFI failed to show the existence of specific expectancies, Cascade’s knowledge thereof, and resulting damages.  KFI didn’t to identify any of its customers who were deterred by the milk fiber yarn posting.

 

KFI pointed to an email that I can imagine another court finding sufficient, given the difficulty of finding actual evidence of deception—in this email, a customer thanked Cascade “for helping her to avoid $200 of contemplated purchases of milk fiber yarns.” The court found that this one email contained hearsay and was insufficient. “It was admitted to contradict Mr. Dunbabin’s testimony about the extent to which the milk fiber yarn posting was viewed but not for the truth of the matter asserted therein.”  (Couldn’t it also go to the customer’s state of mind, which would show deception?)

 

Cascade’s claims for injunctive relief based on KFI’s past mislabeling also failed.  In order for cessation of unlawful conduct to moot a claim for injunctive relief, the defendant bears the burden to show that its reform is irrefutable and total.  The court found “ample assurances” that KFI had stopped selling the mislabeled yarns at issue in 2012 and wouldn’t sell them in the future.  Cascade’s remaining claims were dismissed.