Monday, April 25, 2022

two opinions send "false advertising of certification mark" claim to jury

U.S. Structural Plywood Integrity Coalition v. PFS Corp., 2022 WL 898598, No. 19-62225-CIV-ALTMAN (S.D. Fla. Mar. 28, 2022)

Take it away, Judge Altman:

If you want to build with plywood in the United States, you generally need a certification— called a PS 1-09 stamp. The Plaintiffs are a coalition of ten American structural-plywood mills who manufacture and sell their plywood in the United States. The Defendants are two companies that inspect structural plywood and, if it conforms to the PS 1-09 standard, stamp the wood as PS 1-09-compliant. According to the Plaintiffs, the Defendants have been certifying 36 Brazilian plywood mills with the PS 1-09 stamp—even though the Defendants know (or should know) that the Brazilian wood doesn’t comply with the PS 1-09 standard. In the Plaintiffs’ view, this sham certification process has allowed the Brazilian mills to sell their cheaper, non-compliant wood all over the United States—thus displacing the Plaintiffs’ stronger, better, more expensive products. In their complaint, the Plaintiffs levy negligence and Lanham Act claims, which the Defendants have now moved to dismiss.

The court denied the motion.

The plaintiffs alleged that the stamps themselves were “a powerful form of advertising because they allow the Brazilian plywood companies to market their products as conforming to an important American safety standard.” They alleged that faster-growing Brazilian trees can’t conform to the standards and suffered “shocking” failure rates, but that imports of these lower-priced products pushed down the price of structural plywood across the United States.

pictures of not-good plywood from case

Plaintiffs alleged both direct and contributory false advertising.

Defendants challenged whether plaintiffs identified any false or misleading statements by defendants.  In Baldino’s Lock & Key Serv., Inc. v. Google, Inc., 624 F. App’x 81 (4th Cir. 2015), the court dismissed a false-advertising claim against Google for knowingly publishing the ads of unlicensed locksmiths because “the locksmiths who generated the information that appeared on [Google’s] websites [were] solely responsible for making any faulty or misleading representations or descriptions of fact.” But here, defendants did make representations about the quality of the Brazilian products. They gave the Brazilian mills the authority to certify their plywood with the Defendants’ PS 1-09 stamps, which “serve as a proxy for the Defendants’ view that the Brazilian mills comply with the PS 1-09 standard” and which were required for the plywood to be legal to sell in the US.

Example of stamps at issue

If Google is like an office building that leases space to businesses, including doctors, defendants were like the state medical licensing board. Leasing space doesn’t make any kind of statement about licensure, but the licensing board, by issuing licenses, “is making a powerful statement—some would say, the most important statement—about the doctors’ qualifications.” If Google is like a highway, no one would say that allowing cars onto the highway certifies that they’re licensed drivers—but the DMV does certify that a driver is qualified, just like the defendants’ stamps certify that the Brazilian plywood mills have satisfied the PS 1-09 standard.

Defendants denied making any statements at all, since in their view it was the Brazilian companies that made and stamped the wood, and who were really speaking. “But the Brazilian plywood companies didn’t steal or forge the Defendants’ stamp. The Defendants gave them the stamp and authorized them to use it. Indeed, these stamps bear the Defendants’ names and advertise the plywood as either ‘[defendant] TESTED’ or ‘AUDITED BY [defendant].’ These stamps are thus unquestionably statements of the Defendants.” The medical board’s license is its statement even if the doctor is the one who frames it and displays it on their wall. The argument was also nonsensical outside this litigation: “Imagine the uproar when the Brazilian mills’ clients learn that the certifications they’d come to rely on—for safety, quality, etc.—weren’t the Defendants’ certifications at all.… What value, in other words, would the certification hold if it were just the self-affixed manifestation of any-old mill’s efforts at self-policing?”

Even if the stamps weren’t “statements,” plaintiffs also alleged that defendants made other false statements, such as in responding to a report about the massive failure rates of Brazilian plywood with reassurances in letters to clients. E.g., “Panels certified by Timber Products Inspection are equivalent to those certified by other accredited agencies. This letter can be shared with clients, sales groups, inspectors, or others that are in need of this information.”

Contributory false advertising: Plaintiffs also sufficiently alleged that defendants “contributed to [false advertising] either by knowingly inducing, or causing the conduct, or by materially participating in it.” Because it was undisputed that the Brazilian mills couldn’t sell their structural-plywood in the United States without the defendants’ stamp, the alleged “looking the other way” “easily satisfies” the “material participation” standard, and plaintiffs also alleged knowing conduct.

Commercial advertising or promotion: Defendants argued that because they didn’t stamp the plywood themselves or profit directly from the plywood’s sale, the stamps weren’t commercial advertising.

 But “commercial speech encompasses not merely direct invitations to trade, but also communications designed to advance business interests.” And even if defendants didn’t apply the stamps themselves, the stamps unquestionably “advance” their “business interests,” since their entire certification business depended on the message the stamps conveyed.

The more plywood the mills sell, the more money the Defendants make. Conversely, if the Brazilian mills were to go out of business, the Defendants would make a lot less money (or, perhaps, go out of business themselves). Since the stamps are the principal mechanism by which this whole circle of life flourishes, the Plaintiffs have adequately pled that the stamps constitute the Defendants’ “commercial advertising.”

Nor were the stamps mere statements of opinion. Other cases involving “ratings” deemed opinion didn’t involve “a series of engineering tests susceptible of objective examination,” but rather “subjective assessments by third-party entities that had no control over market entrants.” This was the difference between the medical licensing board and a third-party evaluator using public data to score doctors, whose ratings can only be opinion. (James Grimmelmann has an excellent paper on ratings as facts, opinions, and self-fulfilling prophecies that prefigures the reasoning here.) The licensing board that certifies “isn’t offering an opinion at all: it’s attesting that the aspirant has (objectively) passed its tests, met its standards, or satisfied its prerequisites.” The certifier might be wrong—which is what defendants might have been getting at when they pointed out that certification was inherently based on sampling and was complex—but “the possibility that the certifier might get the tests wrong—or apply the tests improperly—doesn’t somehow render the tests subjective. We can all agree that the answers to questions of math are objective, even if, from time to time, a young student may erroneously believe that two and two is five.”

Plus, plaintiffs weren’t merely alleging that the Brazilian plywood failed to meet the PS 1-09 standards. “They’re also saying that, by stamping the wood, the Defendants certified that they had subjected the mills to certain quality-control processes—even though, the Plaintiffs assert, they did no such thing.” And that’s not opinion: “Either the Defendants tested the wood—or subjected it to quality-control review—or they didn’t.”

Proximate cause: Defendants argued that their certification of the Brazilian mills was not the proximate cause of the plaintiffs’ injuries. But Lexmark allows for proximate cause even without diversion of sales to a direct competitor. As in Lexmark, plaintiffs alleged that deception of consumers caused those consumers to withhold trade from them, given that Brazilian plywood is cheaper to produce—allegedly in large part because of a lack of compliance with PS 1-09. Again, without defendants’ certification, the Brazilian mills couldn’t sell their plywood in the United States, at least not for structural purposes. That’s enough for proximate cause.

Plaintiffs also successfully alleged negligence under Florida law.


U.S. Structural Plywood Integrity Coalition v. PFS Corp., 2022 WL 953150, No. 19-62225-CIV-ALTMAN (S.D. Fla. Mar. 30, 2022)

Summary judgment ruling (I guess the motion to dismiss opinion was in his pocket for a while?).

Some additional info: Defendant PFS-TECO argued that the PS 1 Standard gave it discretion in deciding how to inspect and certify, and allowed the processes attacked by the plaintiffs: granting interim approvals, relying on subcontractors to visit Brazilian mills, and allowing Brazilian mills to select for themselves the small sample of product that will be tested. Even so, some of the plywood it received “seemed plainly non-compliant—to the point where one could, for example, ‘break the veneers off with [a] hand[.]’” The court showed some pictures of plywood that did not look structurally sound.

The parties offered competing experts on whether defendants complied with the standard and whether the certified plywood was any good.

Defendants’ arguments for summary judgment:

Lanham Act standing: The court found sufficient evidence of proximate cause to go to the jury. Plaintiffs’ economic expert “established a close correlation between the influx of Brazilian structural plywood into the U.S. market, the concomitant decrease in the price for structural plywood in the United States, and a concurrent decline in the Plaintiffs’ annual sales.” That, standing alone, was probably enough to withstand summary judgment. The expert’s regression model took other independent variables into account; a jury wouldn’t have to believe him, but could. There was also testimony from structural plywood sellers about declining sales corresponding to Brazilian supplies in the market. Although they couldn’t identify specific consumers who had stopped purchasing U.S. plywood in favor of cheaper Brazilian imports, they had relevant knowledge and understanding of how price influenced market outcomes. “Like most businessmen, they don’t need to sit down with individual customers to uncover their own (frightening) reality. And they certainly don’t have to run consumer surveys before they can tell us—and, one day, a jury—about their observations.” Maybe they were mistaken, or biased, but that was a credibility issue for the jury. To get past summary judgment, plaintiffs didn’t have to provide complaints about the Brazilian plywood’s real-world failure rate (though defendants’ own documents apparently showed some) or identify specific customers who opted not to buy plaintiffs’ product on cost grounds. The court noted that defendants’ emails included open discussion of failure rates of Brazilian plywood and of whether they should talk to the mill owners about that, though they often blamed shoddy construction at least in part for the problems.

There was also a genuine issue of whether the TECO TESTED® stamp communicates something about the plaintiffs’ own product, e.g., defendant PFS-TECO claimed that “Panels with the TECO TESTED® certification mark are interchangeable with panels marked by other certification agencies.” They weren’t required to mention plaintiffs by name.

Plaintiffs also created a fact issue on literal falsity about whether Brazilian licensees’ plywood met the PS 1 standard, based on various studies. And the standard itself could be read to suggest that monitoring was required; there was also evidence that “PFS-TECO may not be monitoring its Brazilian mills properly.” Although plaintiffs’ tests didn’t test every part of the standard, they tested the key feature—bending stiffness/strength—and concluded that the Brazilian plywood couldn’t pass that, so the fact that they didn’t do a full evaluation wasn’t dispositive.As one expert succinctly explained: “When you qualify the product, every test [is] a minimum requirement. If there is one test fail, that whole qualification fail.”

A jury could go either way on whether defendants complied with the relevant standard, which says in relevant part: “Plywood represented as being in conformance with this Standard shall bear the stamp of a qualified inspection and testing agency which … inspects the manufacture (with adequate sampling, testing of the bond line, and examination of quality of all veneers).” Plaintiffs provided sufficient evidence for a jury to find that the inspection was inadequate, and in any event, they provided sufficient evidence that the plywood itself was inadequate. A reasonable jury could certainly decide that the stamps provided assurance of conformity to the standard, even if the stamps don’t and really can’t indicate that every individual panel conformed. There was testimony that 95% of panels should comply, and evidence that Brazilian plywood failed at far higher rates.

Sure, the studies tested plywood from only 7 of 14 Brazilian clients. But their wood expert specifically testified that the deficiencies were endemic to the region and affected the growth of southern yellow pine throughout.

Materiality: Again, more than enough evidence to go to a jury. Among other things, PFS-TECO’s own internal and external communications so indicated, e.g., “when builders, code officials, and others in the building design and construction communities see the PFS Checkmark or TECO TESTED® designations …, they know that the products meet PFS TECO’s performance requirements and those of the particular standard to which they are certified ….” No survey or direct customer testimony is required.

Contributory liability: PFS TECO argued that there was no evidence that it induced or knowingly or intentionally participated in any of the allegedly false statements made by the Brazilian mills, other than having a licensing agreement with them. But there was plenty of evidence that it knew about the allegedly shoddy product, including employee emails. And there was enough evidence for a jury to find that PFS-TECO “materially furthered the unlawful conduct—either by inducing it, causing it, or in some way working to bring it about.” For example, defendant’s own expert testified that PFS-TECO didn’t retain any data on whether (and to what extent) its clients meet the Standard, despite knowing that much of the Brazilian plywood did not meet that Standard. It allowed mills to self-select what would be tested, and apparently allowed them to re-test to improve failure rates and even agreed to “forego the full qualification testing” in one instance. In combination with the “extraordinary” failure rates shown in plaintiffs’ studies, this was “compelling” evidence of three important contributory liability considerations: “the nature and extent of the communication between the third party and the defendant regarding the false advertising; whether or not the defendant explicitly or implicitly encouraged the false advertising; [and] whether the false advertising is serious and widespread, making it more likely that the defendant knew about and condoned the acts[.]”

And plaintiffs’ lost profits claims were backed by evidence sufficient to get to a factfinder. Reasonable probability, not absolute certainty, is the standard. Plaintiffs’ expert’s regression analysis was a well-recognized, valid approach, and concluded that the influx of Brazilian plywood has caused significant declines in the price of U.S. plywood.

Negligence: whether defendants owed a duty to plaintiffs is a question of law, not a jury question. The court previously concluded that defendants’ “alleged failure to perform the core responsibilities of testing, inspecting, and certifying a structural product creates a general and foreseeable risk of harm,” including physical injuries as well as economic injuries to domestic manufacturers. A reasonable jury could find the other elements of negligence present.

Finally the court rejected the argument that a court shouldn’t decide whether the defendant complied with the Standard, because that would make the Standard no longer voluntary. But there’s no standards authority exhaustion requirement in the Lanham Act.

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