Tuesday, August 07, 2018

"designed for increased safety" and similar statements aren't puffery on a motion to dismiss

Universal Electric Corp. v. Baldwin, No. 17-cv-00842, 2018 WL 3707423 (W.D. Pa. Aug. 3, 2018)

UEC “designs and manufactures products for the electrical power distribution industry” and “services the data center, retail, health care, higher education, and industrial markets across the United States,” including the Starline Track Busway and the Starline Plug-In Raceway product lines. The Starline Track Busway includes the T5 Series and plug-in unit options, such as the Starline Tap-Off Box.  UEC and BTI (of which defendant Baldwin was president) allegedly had an exclusive sales agreement for BTI’s territory including an agreement to hold UEC’s confidential business information in confidence and a noncompete.  Then the parties ended their distribution agreement and entered into a settlement prohibiting them from making “disparaging or negative comments regarding the other party...to any person or entity.”

Baldwin allegedly campaigned to impugn the safety of UEC products. For example, PDU Cables announced that it would be the exclusive distributor of BTI’s Busway Solutions tap-off boxes, a “safer and superior tap-off box to the standard OEM6 plug-in’s offered for ‘U’ shaped open channel track busway, like S[TARLINE]’s T5 Series Busway Track System.” The announcement said that its boxes “are designed for increased safety, superior performance, and easier installation.” UEC argued that, because Busway was the only non-UEC manufacturer that made tap-off boxes that were compatible with the T5 Series, the message was that Busway’s tap-off box was a safer alternative to the Starline tap-off box.  Defendants also allegedly made other false and disparaging representations about the relative safety of the parties’ products.

Defendants argued that the challenged statements were puffery, not fact. The court disagreed, at the motion to dismiss stage.  Specificity is the key to the fact/puffery line, and many of the statements made explicit references to specific design features and drew implicit comparisons to/implicitly criticized the sole competitor, e.g, “[t]ap-off box masts have always been a common culprit in busway track system failures,” “[i]f the head is misaligned, it isn’t uncommon to snap off the head during rotation,” and “when older style-tap-off boxes fail it is typically because of the electrical mast,” coupled with the claim that “[t]he Busway Solutions product improvement redesign resolved...these manufacturing weaknesses resulting in a tap-off box that delivers a more robust, safe and secure fault free load delivery.” These were not only specific, but also objectively verifiable and comparatively measurable.

UEC also sufficiently pled likely injury given that it alleged that every sale of a Busway tap-off box would likely have been a UEC sale in the absence of the false advertising.

False designation of origin: This was based on an ad stating that Busway offered a “two-year warranty on both the tap-off box and the section of Starline T5 busbar it is plugged into,” allegedly misrepresenting that Busway was an approved alternative source of Starline products.  The court found this implausible. There was no allegation of any attempt on defendants’ part to substitute their names for UEC’s with respect to Starline. “[T]he mere fact that one party offers to warrant, repair, or replace another’s product[, alone,] is not sufficient as a matter of law to establish a claim of false designation of origin.”

Trade disparagement: This requires (1) falsity; (2) the publisher either intends the publication to cause pecuniary loss or reasonably should recognize that publication will result in pecuniary loss; (3) pecuniary loss does in fact result; and (4) the publisher either knows that the statement is false or acts in reckless disregard of its truth or falsity. “The defining hallmark of a trade disparagement claim is the requirement that a plaintiff plead pecuniary loss with considerable specificity.” Specifically, without specific named lost customers, the plaintiff must allege “facts showing an established business, the amount of sales for a substantial period preceding publication, and amount of sales subsequent to the publication, facts showing that such loss in sales were the natural and probable result of such publication, and facts showing the plaintiff could not allege the names of particular customers who withdrew or withheld their custom.”  The complaint didn’t satisfy those requirements. Even allegations that two customers initially placed purchase orders for Busway, believing them to be Starline products, were insufficient in that UEC effectively conceded that they ultimately bought Starline.

No comments: