Monday, September 20, 2021

ordinary recalls aren't commercial advertising or promotion

Pictsweet Co. v. R.D. Offutt Farms Co., 2021 WL 4034222, No. 3:19-cv-00722 (M.D. Tenn. Sept. 3, 2021)

Defendant RDO has a subsidiary, CRF, which was in the business of “producing, preparing, processing and selling frozen vegetables to frozen vegetable producers, processers, repackers, distributors and wholesale and retail re-sellers, including Pictsweet, for human consumption.” Pictsweet packages frozen vegetables for various wholesale and resale customers, including Kroger.

CRF assumed responsibility for Pictsweet’s previous supplier’s facility and obligations, which Pictsweet allegedly consented to in reliance on representations that CRF would fully perform those obligations and that Pictsweet—through CRF— “effectively would be doing business with RDO Farms, which was well known in the industry.”

However, shortly after CRF took over, defendants allegedly became aware that products processed at CRF’s facility had tested positive for Listeria or “exceeded an IEH2 Process Control Test (‘PCT’) value of 9,” meaning that they knew the products were “adulterated,” and they affirmatively chose not to notify Pictsweet of the Listeria-positive test results, despite purchase orders containing express warranties by CRF regarding the products’ wholesomeness and fitness for human consumption, language regarding the seller’s obligation to notify Pictsweet of any “significant issues” relating to the products, and indemnification provisions requiring CRF to indemnify Pictsweet for any claims against it relating to injury caused by the products.

In 2016, the CDC and the FDA began investigating reported instances of illnesses related to Listeria and soon determined that the strains were “closely related to strains” of Listeria detected in vegetables processed at CRF’s facility. CRF thereafter issued two voluntary nationwide recalls of its frozen vegetable products. The second recall “impacted 432 products and included Pictsweet products.” However, Pictsweet alleged, the “second recall,” for undisclosed reasons, also included products that were not contaminated. “Because of CRF’s recall, Pictsweet, as required by law, issued its own recall of products that either contained or could contain CRF green beans and green peas. Pictsweet’s customers, including Kroger, were then required to issue their own recalls.”

As a result of a consumer class action against Kroger, Pictsweet allegedly obtained an FDA inspection report for CRF’s facility, from which it learned for the first time that CRF had concealed positive Listeria test results and PCT scores above 9 and that it had engaged in a protocol pursuant to which it redirected and shipped product that it knew was contaminated to Pictsweet and other customers that did not require finished-product pathogen testing. Pictsweet allegedly also learned through discovery that “CRF’s representations about [Listeria] contaminated products was [sic] inaccurate, and that a large portion of the frozen green peas and beans CRF had supplied to Pictsweet were not contaminated by [Listeria].”

Most of the decision is about alter ego liability, but the court spends some time on the various business tort claims. Some fraudulent concealment claims weren’t challenged in the motion to dismiss, but libel claims failed because the complaint didn’t allege that CRF made any statements about Pictsweet’s product. CRF allegedly knew that, “once it issued its recall, Pictsweet would be obligated to issue its own recall, which would communicate to Pictsweet’s customers that the product Pictsweet had delivered was contaminated and not merchantable.” But that meant that “it was Pictsweet’s own recall that communicated to its consumers false and disparaging information about Pictsweet’s products, not CRF’s recall. CRF’s recall, necessary or not, was only about its own product.”

Lanham Act claim: The recall was not “commercial advertising or promotion.”  Innovation Ventures, LLC v. N.V.E., Inc., 694 F.3d 723 (6th Cir. 2012), was not to the contrary. That case involved a recall order based on a trademark/trade dress claim. The plaintiff had sued two different manufacturers of competing energy shots and gotten a preliminary injunction based on trade dress, but not trademark. It then sent a “recall notice” to 110,000 convenience stores and truck stops, without specifying which “6 Hour Shot” was covered or mentioning that there were multiple such products on the market. There was no dispute in that case about whether the notice was commercial advertising or promotion.

Here, the plaintiff didn’t sufficiently allege what in the recall notice was false or misleading. But more important, the recall here “clearly did not constitute commercial advertising or promotion of CRF’s product but instead recalled it. Even if the court assumes that the recall was ‘misleading,’ insofar as it allegedly extended to products of its own that CRF actually knew were not contaminated, this is simply “not the kind of misrepresentation prohibited by the [Lanham] Act.’”

Tennessee Consumer Protection Act claims based on the same conduct also failed, though there was other stuff going on (alleged misrepresentation of the CRF/RDO relationship, and allegedly knowing provision of contaminated/adulterated products to Pictsweet while representing their wholesomeness/fitness for human consumption). The economic loss doctrine didn’t bar recovery under the TCPA.

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