Tuesday, August 04, 2020

selling w/in another distributor's exclusive territory isn't plausibly false advertising of authorization

Northern Bottling Co. v. Henry’s Foods, Inc., No. 1:19-cv-021, 2020 WL 4208526 (D.N.D. Jul. 22, 2020) 

Northern is a PepsiCo bottler/distributor; it has some Exclusive Bottling Appointments that appoint Northern as PepsiCo’s “exclusive bottler, to bottle and distribute” a specific PepsiCo soft drink, such as Pepsi-Cola or Mountain Dew, in a designated geographic territory. “PepsiCo produces the concentrate—the flavor base for the beverages—and sells it to independent bottlers. The independent bottlers, such as Northern, manufacture, sell, and deliver the finished soft drinks to retailers in their geographic territory, who, in turn, sell the products directly to the consuming public. The EBAs provide that PepsiCo is the owner of the beverage trademarks and Northern does not have ‘any right or interest’ in the trademarks.” 

Henry’s sells food and beverages, including Pepsi products, to retail sales outlets, including gas and convenience stores. It is allegedly a “third-party transshipper” of PepsiCo products, to wit, someone who sells in a bottler’s exclusive territory other than the licensed bottler itself. Henry’s allegedly transshipped PepsiCo products to six gas stations or convenience stores located within the geographic territory established in the Northern-PepsiCo EBAs. 

Henry’s allegedly implicitly (but never explicitly) misrepresented that: Henry’s was licensed or authorized to manufacture, sell, and distribute PepsiCo products; Henry’s’ sales were conducted in association with, or with the approval of, PepsiCo and/or Northern; Henry’s’ products were of the same quality or freshness as Northern’s; Henry’s’ “pricing was legitimate”; and Henry’s’ “poor customer service” was caused or condoned by Northern. It allegedly made these implicit representations by: “calling on [Northern’s] exclusive customer base,” selling PepsiCo brand soft drinks to Northern’s customers, “using and handling” PepsiCo trademarks, and listing PepsiCo soft drinks for sale in promotional brochures. 

Northern sued for tortious interference with business expectancy, violation of the Lanham Act, and declaratory relief. The court dismissed the complaint. 

Tortious interference: requires “an independently tortious or otherwise unlawful act of interference by the interferer.” Northern alleged: (1) deceit, (2) false advertising, and (3) the consumer sales fraud prevention statute. Rule 9(b) applied.

Under North Dakota law, deceit means that “[o]ne who willfully deceives another with intent to induce that person to alter that person’s position to that person’s injury or risk is liable for any damage which that person thereby suffers.” Northern didn’t plead fraud with the requisite specificity, failing to identify by name a single gas station or convenience store that Henry’s allegedly deceived or any dates. It also didn’t allege any express representation. Matrix Essentials, Inc. v. Emporium Drug Mart, Inc., 988 F.2d 587 (5th Cir. 1993), held that a seller’s offering to sell products and stocking shelves with those products did not amount to a misleading representation that the seller was “authorized” to sell those products. Scott Fetzer Co. v. House of Vacuums Inc., 381 F.3d 477 (5th Cir. 2004), held that a mere truthful reference to selling a marked product didn’t suggest affiliation. 

Here, it wasn’t enough to allege that Henry’s misrepresented itself as authorized by calling on Northern’s “exclusive customer base.” Thus, even if there had been more detail, the court was skeptical that Henry’s’ alleged actions—“offering to sell, displaying the product for sale in a brochure, and selling PepsiCo soft drinks—absent more, amount to a misleading representation.”  Northern didn’t plead any other potential deceit—misrepresentations that Henry’s was authorized and that its pricing was “legitimate”—with the requisite specificity. Northern didn’t explain what “legitimate” pricing even was. Alleged misrepresentations that Henry’s products had the “high-caliber characteristics, quality controls, and freshness associated with Northern’s products” were also not specifically identified. 

False advertising/consumer fraud under state law: Same problems. 

Lanham Act: Statutory standing was an issue: did Northern have any interest in asserting harm when PepsiCo owns the relevant trademarks? Under Lexmark, the answer was yes: Northern alleged “an injury to a commercial interest in reputation or sales” and proximate causation in that customers switched. 

The court also considered in detail the split over applying Rule 9(b) to the Lanham Act claim, since some courts hold that proof of fraud or mistake isn’t required for §43(a)(1)(B) false advertising liability. But this court disagreed, based on other Eighth Circuit cases, the language of the statute, and the allegations here. Given that holding, the same flaws doomed the federal claim.

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