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.
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| 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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