burger case involves unclean hands (ew) and literal falsity about beef amounts

In-N-Out Burgers v. Smashburger IP Holder LLC, 2018 WL 7891028, No. SACV 17-1474 JVS(DFMx) (C.D. Cal. Dec. 21, 2018)

As relevant here, In-N-Out alleged that Smashburger falsely advertised its Triple Double hamburger as containing “Double the Beef” because the burger’s two patties together contain the same amount of beef as the single patty in Smashburger’s regular burgers. The court here addressed Smashburger’s unclean hands defense based on INO’s claims that its meat has “No Additives, Fillers or Preservatives,” even though its meat contains antibiotics. INO’s claims regarding its meat, as well as its claims regarding “freshness,” also allegedly falsely suggested to prospective customers that its food was healthy, or at least a healthier alternative to other fast food restaurants. 

Does Twiqbal apply to affirmative defenses? The court here thought no: under Rule 8(a), factual plausibility is necessary to state a claim because the pleader must “show” entitlement to relief, but under Rule 8(c), a party pleading an affirmative defense only needs to “state” — not show entitlement to — its defense. Also, “strong policy reasons exist for a different standard. A plaintiff has unlimited time to compose a complaint, but a defendant only has 21 days to respond and assert affirmative defenses.”  Thus, the court applied the fair notice standard instead, and under that standard, the affirmative defense of unclean hands was sufficiently pled in part and deficiently pled in part.

First, even if it was literally true that In-N-Out’s meat is free from “additives, fillers, or preservatives,” “such a claim could be misleading to consumers who treat is as a claim that the meat is free from any added substances (such as antibiotics) or byproducts of those substances.”  The identification of specific statements in INO advertising, and of reasons that was allegedly misleading, satisfied Rule 9(b).

“Freshness” challenges were insufficiently pled because consumers couldn’t plausibly equate “freshness” with “healthfulness” “in the context of a quick-service restaurant serving burgers and fries.”

Unclean hands requires clear and convincing evidence (1) “that the [non-asserting party’s] conduct is inequitable;” and (2) “that the conduct relates to the subject matter of [the non-asserting party’s] claims.” On relatedness, the court found that the defense was “premised on allegations that In-N-Out misrepresents the nutritional characteristics and composition of its burgers, while In-N-Out’s false advertising claim is premised on allegations that Smashburger misrepresents the quantity of beef in its burgers. Therefore, the unclean hands defense pertains to the same conduct, false advertising, as related to the same competing products, the parties’ burgers.”   In addition, it was wrongful enough to qualify for unclean hands. “Neither Supreme Court nor Ninth Circuit precedent requires that defendants prove that a plaintiff’s conduct was ‘egregious,’ ” and “a defendant can succeed on an unclean hands defense if it proves that a plaintiff engaged in a ‘willful act concerning the cause of action which rightfully can be said to transgress equitable standards of conduct.’ ”

In-N-Out Burgers v. Smashburger IP Holder LLC, 2019 WL 1431904, No. SACV 17-1474 JVS(DFMx) (C.D. Cal. Feb. 6, 2019)

Smashburger added the “Triple Double” burger to its national menu. Its Triple Double, Bacon Triple Double, and Pub Triple Double each have two beef patties that are supposed to weigh 2.5-ounces each prior to cooking, using the patties also used for the “Kid Burger” and “Small Burger.” Smashburger’s Classic Smash burger is made with a single patty that is supposed to weighs 5.0 ounces prior to cooking. The Triple Double burger costs $0.30 more than the Classic Smash. INO’s counsel bought a Triple Double and a Classic Smash in Culver City; the Triple Double’s two cooked patties weighed 1.5 ounces each, while the Classic Smash had a single cooked patty weighing 2.8 ounces.

Smashburger used a number of slogans, including, but not limited to: “Double the Beef,” “Triple the Cheese, Double the Beef,” “Triple the Cheese, Double the Beef in Every Bite,” “Triple the Cheese, Double the Beef, Triple the Options,” and “Classic Smash™ Beef Build with triple the cheese & double the beef in every bite,” along with slogans that denote two times the beef, including “2x Fresh Never-Frozen Beef.”  (Some locations seem to have changed sizing—and increased pricing for the Triple Double—so that the Triple Double Smashburger has twice the quantity of beef as the regular Classic Smash, and INO didn’t argue falsity as to those locations with changed serving sizes.)

The court found that “Classic Smash™ Beef build with triple the cheese & double the beef in every bite” was literally false.  Smashburger made some bad arguments about why it wasn’t: double the beef in every bite doesn’t mean “two layers of beef in every bite” but rather “unambiguously refers to the amount of beef in the burger.” And it’s a direct reference to the Classic Smash, so Smashburger’s attempt to create FUD using survey data regarding industry standards or consumer expectations, such data was insufficient to create a genuine dispute of fact as to literal falsity. Nor was it literally true because the Triple Double had two times the amount of beef contained in a Classic Small Smashburger, an option that was removed six months before the Triple Double launched; the only single 2.5-ounce patty on the menu was the Kids Smash, which the slogan at issue didn’t reference.

Similarly, Smashburger’s argument that its “double the beef” claim was literally true because the Triple Double contains double, or more than double, the beef of many other competing fast food single burgers, including INO’s, failed because the slogan had no reference to competitors’ burgers, but unambiguously a comparison to Smashburger’s own. And its argument that the Triple Double was smaller in diameter and taller than the Classic Smash, making it possible that it would contain more beef per bite even with an equal beef content, was “unpersuasive” in context. 

There was a genuine dispute of fact as to the falsity of the other slogans that didn’t explicitly refer to the Classic Smash: “the remaining slogans could plausibly be interpreted by consumers as a reference to products offered by Smashburger’s competitors.” INO didn’t submit evidence on implicit falsity at this stage.

“Statements that are literally or deliberately false create a presumption of deception and reliance.”

Smashburger argued that it rebutted the presumption of deception because the Triple Double and the Classic Smash were close in price, and therefore no reasonable consumer could be deceived into believing they were getting twice the amount of beef. The court didn’t agree that “a defendant can rebut the presumption of deception by arguing that its false advertising is too egregious to be believed.”

Materiality was also shown as a matter of law. Smashburger’s false advertising pertained “to the very nature” of its product. “Consumers rely on perceived value in deciding which products to purchase; therefore, consumers are more likely to buy a product if they believe they are getting twice as much of that product than they actually receive.”  No consumer surveys or testimonials were required to find materiality as a matter of law.  Nor did it matter that “millions of people” bought the Triple Double: “Smashburger does not present any evidence that there were no returns or customer complaints regarding the Triple Double, and the fact that millions of people purchased the Triple Double does not in and of itself create a genuine dispute of fact for the jury.”

INO also moved for summary judgment on injury, but the court found a genuine issue of material fact because of a dispute about how competitive the parties were. A 2014 customer survey conducted by Smashburger showed that 48% of Smashburger customers were extremely or very likely to go to In-N-Out in the next month, and that 72% of Smashburger customers had visited In-N-Out within the past three months. There was also evidence of geographic overlap and a 2017 Marketing Update identifying In-N-Out as one of Smashburger’s six competitors in the “U.S. Better Burger Landscape.”

But depositions from INO marketing folks suggested that INO didn’t consider Smashburger a direct competitor or think its marketing mattered to INO. And there were “significant” differences between the parties’ offerings. For example, INO only offers beef, while Smashburger offers four types of protein; Smashburger offers varying patty sizes, while INO doesn’t; Smashburger offers build-your-own burgers, pre-set burgers, and regional “special” burgers, while INO only offers a hamburger and a cheeseburger.  (Hey, wasn’t there a whole thing about the secret menu?)  And over four years elapsed since Smashburger’s customer survey, weakening its evidentiary weight.