Laches as to direct liability also precludes contributory liability

Hawaii Foodservice Alliance, LLC v. Meadow Gold Dairies Hawaii, LLC, --- F.Supp.3d ----, 2024 WL 2834159, No. 21-00460 LEK-WRP (D. Hawai’I Jun. 4, 2024)

Interesting contributory liability issue in its interaction with laches. At the core, plaintiff alleged that defendant MGDH’s use of phrasing and imagery suggesting that Meadow Gold brand products are sourced in Hawai’i was misleading and deceptive because Meadow Gold products contain milk and other products, such as whipping cream, imported from the continental United States. The other defendants, Hollandia, Heritage, and Saputo, supplied products to MGDH. The operative claims were false designation of origin/false advertising in violation of the Lanham Act and coordinate state-law claims.

The court previously granted partial summary judgment to MGDH for all claims based on “Hawai’i-Themed Images and Phrases” (e.g., a Hawai’ian themed mascot and the tagline “Hawaii’s Dairy” as well as “Made with Aloha”) on laches grounds, although the court denied summary judgment for claims based on the use of text that represents that Meadow Gold products are manufactured fresh in Hawai’i:

In 1897 seven O‘ahu dairy farms united as the Dairymen’s Association, Ltd., to manufacture fresh milk for the community. Through the support of Hawai‘i families, we grew to become Meadow Gold Dairies in 1959. Today we operate statewide and continue to manufacture fresh milk, dairy, juice and nectar products in Hawai‘i. Generations of loyal Island families enable us to maintain our tradition of giving back to the communities we serve.

The court previously denied the supplier defendants’ request for summary judgment on the grounds that the laches defense was personal to MGDH. Now, it essentially reverses that holding for purposes of contributory liability. The court accepted the suppliers’ argument that they couldn’t have “‘contribute[d]’ to a Lanham Act violation that never occurred.” This Court agrees. [But that’s not what laches means: a violation (may have) occurred, but it is no longer redressable. Had they sued in time, it would have been found to be a violation.]

But the court applied a plaintiff-focused rule:

“The affirmative defense of laches ‘is an equitable time limitation on a party’s right to bring suit, which is derived from the maxim that those who sleep on their rights, lose them.’ ” Plaintiff did not merely lose the ability to obtain a remedy against MGDH for its use of the Hawai’i-Themed Images and Phrases, Plaintiff lost any rights it may have had under the Lanham Act regarding the use of the Hawai’i-Themed Images and Phrases.

Permitting plaintiff to prove contributory liability by establishing a primary violation by MGDH would allow plaintiff to avoid the “effect” of laches.

In addition, Hawai’i-themed images and phrases suggested a connection to the state, but didn’t make a representation about the origin of the milk. Thus, plaintiff couldn’t show falsity for false designation of origin/false advertising. (For the same reasons, it couldn’t show a violation of the state law prohibition on unfair methods of competition from those words/images.)

Remaining claims against suppliers (only two of whom could have been held to make the remaining accused claims): They argued that a defendant has to falsely designate origin of their own goods, contrasting the language of Section 1125(a)(1)(A) (prohibiting false designation of origin that “is likely to cause confusion, or to cause mistake, or to deceive as to ... the origin ... of his or her goods”), with that of Section 1125(a)(1)(B) (covering misrepresentations of “the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods ....”). AvePoint, Inc. v. Power Tools, Inc., 981 F. Supp. 2d 496 (W.D. Va. 2013), held that §1125(a)(1)(A), “by its plain terms, does not extend to misrepresentations regarding the geographic origin of another person’s goods ...,”

Even if that was so, there was at least a genuine issue of material fact as to whether the products that the remaining supplier defendants provided to MGDH were their own goods.

The court described the accused text as “a trademark of MGDH,” which seems dubious (it doesn’t seem like the kind of thing that functions as a mark, coming within a block of text as it does). But the larger point—in preparing the packaging for the dairy products they sold to MDGH, the suppliers engaged in “bona fide” use of the text—seems right regardless of whether it was a trademark use. If the products had been defective, we’d certainly say they were the supplier’s products even if they were also the licensor’s products.

Damage: The supplier defendants argued that the evidence showed that, after MGDH took over, plaintiff “did not lose any customers, and retained its 65% market share” during the period it used the relevant text. But that didn’t prove it couldn’t have had more. Likewise, that its sales didn’t increase after the text was removed didn’t indicate that MGDH didn’t lose potential profits as compared to a world in which the text was never used. Also, plaintiff provided a damages expert; the motion to exclude was the proper forum for dealing with the expert.

Direct liability for § 1125(a)(1)(B) false advertising requires that an entity “made ‘the specific, false statement[ ] at issue in the litigation.” This could be shown if they controlled or were involved in creating the statement on the labels. The suppliers argued that this was all MGDH’s doing, and that they only reviewed for compliance with FDA regulations, correct spelling, etc. Witnesses said things like: “when they give us their graphics with their brand equity on it, we are not checking and validating that because it’s not ours to do anything with.”

But plaintiff submitted evidence that supplier-defendant Saputo suggested to MGDH that the accused text be removed, which suggestion was followed, creating a genuine issue of material fact on control. By contrast, supplier-defendant Heritage approved label proofs that included the accused text, but there was no evidence of control over the use of that text in particular, so the direct liability claim against it failed.

Contributory liability also involved contested factual issues. The court adopted the Eleventh Circuit standard: “[f]irst, the plaintiff must show that a third party in fact directly engaged in false advertising that injured the plaintiff. Second, the plaintiff must allege that the defendant contributed to that conduct either by knowingly inducing or causing the conduct, or by materially participating in it.” The second prong requires a plaintiff to “allege that the defendant actively and materially furthered the unlawful conduct — either by inducing it, causing it, or in some other way working to bring it about.”

The court treated the state law claims similarly.