Tuesday, May 29, 2018

Lexmark allows claims against direct competitor, but not against competitor's customers, absent special circumstances

Frompovicz v. Niagara Bottling, LLC, 2018 WL 2363475, No. 18-54 (E.D. Pa. May 24, 2018)

Frompovicz extracts spring water, and alleged that the defendants, who extract, bottle, label, and sell their water as “spring water,” thereby violated the Lanham Act and Pennsylvania’s unfair competition law by mislabeling their water as “spring water.” One of the Defendants extracts water and three of them bottle.

Spring water allegedly typically sells at a premium compared to other bottled water, such as well water or tap water, but spring water sites require substantially more resources to locate, develop, and maintain than other sources.  Defendants’ source comes from a facility whose DEP permit allegedly identifies the site as a “well water” site, and not a “spring water” site; the raw water extracted from the facility allegedly does not satisfy the FDA definition of “spring water”; the equipment or techniques used are allegedly inconsistent with a “spring water” classification; and water from the facility has allegedly tested as containing more particulates or trace elements than are otherwise permissible or recommended under industry standards for spring water.

The court rejected a challenge to the plaintiff’s Article III standing.  Injury in fact is pretty generous at the motion to dismiss stage, and the allegations that defendants’ marketing damaged his reputation and goodwill and hindered his sales sufficed.  DEP suspended plaintiff’s license to extract water in 2015, but the statute of limitations is 6 years, so he adequately alleged an injury within the relevant period.  However, the court dismissed his claim for injunctive relief because he wasn’t currently in business.

Traceability to the challenged conduct: ditto.  “Since consumers prefer spring water, it is reasonable to infer under the analytical rubric of a motion to dismiss that Defendant Land’s sales siphoned sales away from Plaintiff.”

But did he have a right to sue under the Lanham Act? Consumers of falsely advertised products don’t. Alleging that his spring water sales were depressed as a result of defendants’ misleading labels came within Lanham Act’s “zone of interests.” And he alleged proximate cause as to the defendant facility: he was a direct competitor of the defendant facility. There was no “intervening causal agent” between the defendant facility’s conduct – the “deceptive” sale to bottlers – and his diminished sales to bottlers; both were selling what they call “spring water” to bottlers.  [Actually, and relevant to the discussion below, there is an intervening cause—the reactions of bottlers who believe, or believe their consumers will believe, the “spring water” representation—it’s just not a legally relevant cause for Lanham Act purposes, as the Court said in Lexmark.]

As for the bottler defendants, they weren’t in direct competition.  While suits against non-competitors aren’t completely precluded, “in cases alleging liability based on indirect injuries, more particularized allegations are required” and such a claim is only viable in “relatively unique circumstances” such as those in Lexmark.  Plaintiff’s injury from the bottlers was indirect because, as in Lexmark, he was one step removed in the distribution chain. There was an intervening causal agent between the bottler defendants’ actions and plaintiff’s lost sales: consumers’ purchases of the allegedly mislabeled water. But the plaintiff didn’t sell to consumers; he sold to bottlers.  To allege additional facts as necessary here, he’d need something like a one-to-one correspondence between loss to direct competitors and loss to the plaintiff, or like direct disparagement. Those allegations weren’t present, so the claim against the bottlers was dismissed with leave to amend.

The remaining defendant also argued FDCA preclusion, which Pom Wonderful made unfruitful.  The court’s summary of defendant’s argument makes it look like one of the worst attempted distinctions I’ve ever seen: “Defendants assert that POM Wonderful is distinguishable because it dealt with the definition of juice mixtures and the present case involves the definition of spring water.”  However,  a Lanham Act claim might be precluded if it conflicted with “an agency judgment.” There was no allegation of such an affirmative judgment about the facility’s water.

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