"local" can be literally false when a company is foreign

El Paso Disposal, LV. v. Ecube Labs Co., 2025 WL 1766310, No. EP-24-CV-97-KC (W.D. Tex. Jun. 26, 2025)

Plaintiffs operate waste collection companies that collect trash from customers in Texas, New Mexico, and Oklahoma. Defendant Haulla, a “waste broker” that acts as an intermediary between waste haulers and their customers, allegedly fraudulently obtained their confidential customer information by posing as customers, accessing plaintiffs’ customer portal in violation of its terms of use. Using that information, Haulla allegedly contacted customers to entice them to break their contracts and switch to another, Haulla-affiliated waste pickup company. The false advertising part is that Haulla’s agents allegedly falsely claim to be calling from a “local pickup” or “local [waste] collection company” when they contact plaintiffs’ customers. (Common law fraud and tortious interference claims were preempted by Texas’s trade secret law to the extent that the relevant information was a trade secret, but not if they weren’t; plaintiffs could  plead in the alternative.)

This motion addressed state and federal false advertising claims as well as negligent misrepresentation.

Was “local” plausibly false here, where Haulla operates in Texas but is a South Korean company that operates out of the Philippines? Bimbo Bakeries USA, Inc. v. Sycamore, 29 F.4th 630 (10th Cir. 2022), found that “local” was puffery in the tagline, “Fresh. Local. Quality,” for bread baked in multiple out-of-state locations. “Local” could take on multiple different meanings, including that the company merely hired local workers.  But there have to be limits, for example “if somebody says they support the ‘local’ NFL team” but instead support a team “more than two thousand miles from here,” “then they have undoubtedly deceived you.” Thus, the phrases “local pickup company” or “local collection company” provided more specificity than the slogan in Bimbo and could be falsified—they could imply “that the company maintains an office in close enough physical proximity to collect the customer’s trash.” And Haulla’s offices were allegedly located “halfway around the world, much too far away to drive to businesses in Texas and pick up their trash,” so that was plausibly false.

Commercial advertising or promotion: Like almost all courts (and correctly), the court decides that Lexmark means that “by a competitor” is not part of the current test, only the other three elements of Gordon & Breach. So, what constitutes sufficient public dissemination to be commercial advertising or promotion in the context of this industry? Plaintiffs offered only one specific allegation where a customer was contacted by Haulla and it referred to itself as a local trash pickup company. It was unclear exactly how large the customer group was, though Haulla allegedly created more than “2,500 fake customer profiles.” But, given that plaintiffs alleged a “sophisticated and wide-ranging fraudulent scheme that turns on Haulla’s attemptsto secure confidential information, which it then uses to systematically target Plaintiffs’ customers and entice them to switch waste collection providers,” there was “a reasonable inference that these statements were made a substantial number of times to Plaintiffs’ customers, and as part of broader efforts to encourage customers to switch to a Haulla-represented company.” [This is a classic example of the manipulability of Twiqbal. A hostile court could easily have said exactly the opposite.] The court noted that evidence on this point would be required to avoid summary judgment. The rest of the elements of the commercial advertising test weren’t disputed.

Materiality: Taking what is the increasingly minority view, the court found that literal falsity (which it characterized as being allegedly present here) allowed a presumption of deception without need for materiality. Even though plaintiffs conceded that Haulla was “registered to do business in Texas” and that it acts as a middleman for Texas-based waste collection companies, “this does not take away from the literal falsity of Haulla’s alleged statements that it is a local trash collection company even though it does not actually collect trash and is not local under any reasonable reading of that term in this context.”

Plaintiffs also plausibly pled injury, so the Lanham Act claim survived.

Texas common-law false advertising: claim dismissed because it doesn’t exist in Texas, per two Texas appellate decisions.

Negligent misrepresentation (based on the alleged statements to plaintiffs): not barred by the economic loss doctrine. Plaintiffs allegedly relied on Haulla’s representation of “being a customer or acting with a customer’s authorization” to supply “Haulla with information that enabled Haulla to access [Plaintiffs’] confidential and proprietary information and steal [Plaintiffs’] customers through use of the information.”

Under Texas law, courts analyze the economic loss doctrine by first determining the extent to which a legal duty exists between the parties independent of the contract, then examining the extent to which a party suffered an independent injury, or is merely seeking to recover benefit-of-the-bargain damages under the terms of the contract.

But the allegations supported the theory that there was no valid contract, thus no economic loss doctrine involved, because plaintiffs’ website terms of use prohibited uses by third parties, only allowing “customers and their respective employees” who are limited to using the site “solely for purposes relating to their own respective account(s).” Under Texas law, “if a contract is fraudulently induced, ‘there is in reality no contract’ because there was no assent to the agreement.”

Even if there were a valid contract, Haulla allegedly breached an independent duty, causing Plaintiffs an independent injury. First, “a party has a legal duty to use reasonable care when supplying information in the course of its business for the guidance of others in their business,” which “exists independent of any contractual obligation.” Haulla’s agents had a “duty imposed by law” to use reasonable care in communicating information to plaintiffs, which they allegedly breached when misrepresenting themselves as customers or customers’ agents.

Second, an independent injury is one that goes beyond the “economic loss” that is the “subject matter of a contract.” Plaintiffs alleged reputational damage due to Haulla’s actions: a non-economic loss.

Fraud claims also survived.