Monday, February 29, 2016

When are lost sales consequential damages?

BPI Sports, LLC v. Labdoor, Inc., 2016 WL 739652, No. 15-62212 (S.D. Fla. Feb. 25, 2016)
BPI makes supplements, including “Best BCAA,” which contains branched chain amino acids (BCAAs) in multi-chain peptide form, rather than isolated, free-form BCAAs. LabDoor’s website purports to rank and grade supplements after detailed chemical analysis by an “FDA-registered” lab, including Best BCAA.  The lab apparently is Avomeen Analytical Services, co-founded by LabDoor’s CEO in 2010. BPI alleged that research, clinical trials, or human studies “are more appropriate methods of testing the safety and efficacy of the supplements being tested and compared.” Nonetheless, LabDoor created a list of the best BCAA supplements, and Best BCAA got a grade of “D.” BPI alleged that LabDoor’s analysis failed to account for the nutritional value of the multi-chain peptides, compared to the individual BCAAs in other supplements.  “In an interesting twist, LabDoor sells the product it ranks and grades as number one.”
BPI sued for false advertising under the Lanham Act, violation of Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA), and tortious interference.  In a demonstration of the value of Lanham Act claims in overcoming traditional barriers, the court grants LabDoor’s motion to dismiss the FDUTPA and tortious interference, with leave to amend.
Claims of tortious interference with BPI’s relations with its “targeted consumer base” were speculative and insufficient.  Existing customers would be readily identifiable, but any reference to them in the complaint was vague and really about “hypothetical consumers generally.”
FDUTPA: Florida amended its law in 2001, changing references to “consumer[s]” to “persons” who suffered losses as a result of a violation of the law.  Federal courts are split on whether non-consumers can now sue; the court agreed with the majority (and one state court that considered the issue).  Given the statutory requirement that FDUTPA be construed liberally, the shift in language allowed non-consumer plaintiffs.  BPI also sufficiently alleged causation, since the Eleventh Circuit has held that FDUTPA doesn’t require proof of actual reliance but only likely consumer deception.
However, BPI failed to plead actual damages sufficiently.  Generally, actual damages are the difference in market value between what was promised and what was delivered.  Of course that doesn’t make sense here.  BPI alleged diverted sales and lost goodwill, which the court deemed to be consequential damages, which don’t count as actual damages.  That … really doesn’t make much sense.  If you’re going to expand FDUTPA to cover competitors, then actual damage to them must by definition be measured differently than the damage suffered by a deceived consumer.  Otherwise, there’s no point.  They’re both harmed by false advertising, but their harms are different, as Lexmark made clear in the Lanham Act context.  “Consequential” is a way of expressing a limit on tracing harm, so that if I was defrauded when I bought a car, the lost profits from my inability to make work appointments in my unreliable car would not ordinarily be recoverable damages. By contrast, the honest dealer’s direct damage is the sale she would have made to me but for the fraud. That lost sale should not be excluded as “consequential” even if my own lost sales should be. But, because BPI didn’t plead that LabDoor’s conduct “affected the market value of BPI’s product,” (which would, given the causal mechanism, still be “consequential” by the court’s reasoning) the court dismissed the FDUTPA claim.

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