Opinion
2:13-cv-06611 RSWL (JEM)
05-27-2015
CALTEX PLASTICS, INC., Plaintiff, v. SHANNON PACKAGING CO., Defendant.
ORDER re: Defendant's Motion for Summary Judgment [27]
Currently before the Court is Defendant Shannon Packaging Co.'s ("Defendant" or "Shannon") Motion for Summary Judgment [27] ("Motion"), in which Defendant requests summary judgment in its favor on all three claims asserted against it by Plaintiff Caltex Plastics Inc. ("Plaintiff" or "Caltex"). Notice of Def.'s Mot. Summ. J. 1:21-2:4, ECF No. 27.
The Court, having reviewed all papers submitted and pertaining to Defendant's Motion [27], NOW FINDS AND RULES AS FOLLOWS: The Court GRANTS Defendant's Motion for Summary Judgment [27].
I. FINDINGS OF FACT
1. Plaintiff Caltex, a California corporation with a principal place of business in California, manufactures, markets, and distributes polyethylene bags and laminated products for military and electronics. Pl.'s Resp. to Def.'s Statement of Uncontroverted Facts ("Pl.'s Facts") ¶ 11, ECF No. 35 (undisputed). 2. Defendant Shannon, also a California corporation with a principal place of business in California, is a leading supplier of custom pouches, tubing, and sheeting products that protect, unitize, and market products for a variety of industries. Id. ¶ 9 (undisputed). 3. The U.S. Department of Defense ("DOD") has a Qualified Products List ("QPL"), which lists products that the DOD has approved to be used in Defense Department contracts that require a "qualified" product. Id. ¶¶ 14-15, 24 (undisputed). 4. The QPL does not apply to non-military contractors or applications, nor does it apply to military contracts that do not call for a qualified product. Id. (undisputed). 5. Caltex's packaging products include flexible military packaging material that is qualified by the Department of the Navy ("DON") as meeting the DOD's MIL-PRF-81705 Type III specification for "flexible barrier materials, often supplied as bags." Id. ¶ 12 (undisputed). 6. The MIL-PRF-81705 specification's requirements are used to qualify types of flexible barrier material that is either Type I (moisture barrier) or Type III (static shielding). Id. ¶ 16 (undisputed); Compl. ¶ 15 (undisputed). 7. Caltex's MIL-PRF-81705 Type III products have been approved by the DON and were placed on the DOD's QPL in February 2010. Pl.'s Facts ¶ 13 (undisputed). 8. At present, Plaintiff is the only entity qualified by the DON to provide materials designated MIL-PRF 81705 Type III to U.S. Defense contracts that require "qualified" product for MIL-PRF 81705 Type III material. Id. ¶¶ 12-14 (undisputed). 9. The QPL can be accessed by anyone on the Internet. Id. ¶ 25 (undisputed). 10. Plaintiff did not allege or produce evidence to support that Shannon ever stated that its products appear on the QPL or that Shannon's products have been qualified by the DOD. Id. ¶ 4 (undisputed). 11. Shannon's data sheets for some of Shannon's product, including Shannon's SS103 product, previously stated that the product was "[d]esigned to meet the performance of MIL PRF 81705 T3." Id. ¶ 5 (undisputed); see Williams Decl. Supp'g Def.'s Mot. Summ. J. ("Williams Decl.), Ex. A, ECF No. 29. 12. Shannon ceased to state that its products were "[d]esigned to meet the performance of MIL PRF 81705 T3" prior to the commencement of this lawsuit. Pl.'s Facts ¶ 6 (not disputed by admissible evidence); Walsh Decl. ¶ 8, ECF No. 30; see Williams Decl., Ex. E. 13. Shannon clearly communicates to its customers and potential customers that Shannon is not on the QPL for MIL-PRF 81705 Type III product, that Shannon products are not on the QPL, and that Shannon products are not qualified by the DOD. Pl.'s Facts ¶¶ 7, 23 (not disputed by admissible evidence); Walsh Decl. ¶¶ 12-15, Exs. C-D; see Williams Decl., Ex. D. 14. When accepting an order from a customer for its SS103 bags, Shannon advises the customer that the SS103 bags are not on the QPL. Pl.'s Facts ¶ 29 (not disputed by admissible evidence); Walsh Decl. ¶ 15. 15. Shannon's representation that its bags were "[d]esigned to meet the performance of MIL PRF 81705 T3" was based upon the results of testing Shannon conducted of its material, or which a third party conducted on behalf of Shannon of its material. Pl.'s Facts ¶ 8 (not disputed by admissible evidence); Walsh Decl. ¶ 11. 16. The bags Shannon described as being "[d]esigned to meet the performance of MIL PRF 81705 T3" have not been tested by Caltex, or by any third party on behalf of Caltex, to determine whether the material meets the performance requirements of MIL-PRF-81705 for Type III material. Pl.'s Facts ¶ 19 (undisputed). 17. Caltex tested the bags of some of its competitors, other than Shannon, to determine if those bags met the requirements of MIL-PRF-81705 Type III. Id. ¶ 20 (undisputed). 18. Shannon's data sheets for some of Shannon's product represent that the product has a physical property of "EMI Shielding" that is tested by the "MIL B 81705 C" "Test Method." Williams Decl., Ex. E. 19. No evidence of actual confusion has been offered by Caltex. Pl.'s Facts ¶¶ 21-22 (undisputed).
II. LEGAL STANDARD
Federal Rule of Civil Procedure 56 states that a "court shall grant summary judgment" when the movant "shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Under Rule 56, the party moving for summary judgment has the initial burden to show "no genuine dispute as to any material fact." Fed. R. Civ. P. 56(a); see Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102-03 (9th Cir. 2000). The burden then shifts to the non-moving party to produce admissible evidence showing a triable issue of fact. Nissan Fire & Marine Ins., 210 F.3d at 1102-03; see Fed. R. Civ. P. 56(a). When a defendant moves for summary judgment, summary judgment "is appropriate when the plaintiff fails to make a showing sufficient to establish the existence of an element essential to [her] case, and on which [she] will bear the burden of proof at trial." Cleveland v. Policy Mgmt. Sys. Corp., 526 U.S. 795, 805-06 (1999); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
III. DISCUSSION
A. Evidentiary Objections
Both parties make evidentiary objections, asserting that portions of witness declarations are inadmissible evidence. Pl.'s Objections to Walsh Decl., ECF No. 36; Def.'s Objections to Stein Decl., ECF No. 41; Def.'s Objections to Higgs Decl., ECF No. 42.
When determining a motion for summary judgment, the court may only consider evidence admissible at trial, though the form may be different at the summary judgment stage. Fed. R. Civ. P. 5 6(c)(2)-(4); Colony Holdings, Inc. v. Texaco Refining & Mktg., Inc., No. SACV00217DOC(MLGX), 2001 WL 1398403, at *5 (C.D. Cal. Oct. 29, 2001) (citing Curnow v. Ridgecrest Police, 952 F.2d 321, 324 (9th Cir. 1991)).
1. Plaintiff's Evidentiary Objections
Plaintiff makes objections [36] to portions of the Walsh Declaration in support of Plaintiff's Motion for Summary Judgment. Plaintiff objects [36] on grounds of lack of foundation and relevance, among other arguments. "To the extent that the Court relied on objected-to evidence, [the Court] relied only on admissible evidence" and, therefore, OVERRULES Plaintiff's objections to the Walsh Declaration. Caldwell, 2015 WL 1897806, at *2 n.2; see also Capital Records, LLC v. BlueBeat, Inc., 765 F. Supp. 2d 1198, 1200 n.1 (C.D. Cal. 2010).
2. Defendant's Evidentiary Objections
Defendant objects to the Higgs Declaration and portions of the Stein Declaration.
a. Objections to Stein Declaration
Defendant objects to the Declaration of Steven A. Stein because the Declaration "is misleading as to what occurred during and after the close of discovery in this matter" and raises irrelevant points. Def.'s Objections to Stein Decl. 1:23-2:12. Because the Court need not rely on the Stein Declaration to determine the present matter, Defendant's objections to the Stein Declaration are OVERRULED as moot. See Henson Beverage Co. v. Vital Pharm., Inc., No. 08-CV-1545-IEG (POR), 2010 WL 1734960, at *3 (S.D. Cal. Apr. 27, 2010).
b. Objections to Higgs Declaration
Defendant objects to the Higgs Declaration on the grounds that "(1) it demonstrates Caltex's violation of the Stipulated Protective Order [ECF 24] in this matter; (2) the declarant appears to attempt to offer expert testimony without having been disclosed as an expert witness; and (3) the declarant's testimony is irrelevant." Def.'s Objections to Higgs Decl. 1:23-28. Defendant requests that the Court strike the entirety of the Higgs Declaration as being in violation of the parties' Stipulated Protective Order and the Federal Rules of Civil Procedure governing the disclosure of expert witnesses. Id. at 2:1-7.
i. Violation of Fed . R. Civ. P. 26
Defendant argues that the testimony in the Higgs Declaration goes beyond the scope of a lay witness and that Higgs was never disclosed as an expert witness, in violation of Rule 26(a) of the Federal Rules of Civil Procedure, which, under Rule 37(c)(1), should result in the exclusion of the Higgs Declaration. Id. at 4:5-14, 7:26-8:7.
To determine whether the Higgs Declaration should be excluded under Rule 37(c)(1), the Court must determine three things: (1) whether Higgs's testimony goes beyond the scope of lay witness opinion testimony, and is therefore expert testimony, under Rules 701 and 702 of the Federal Rules of Evidence; (2) whether Plaintiff failed to disclose Higgs as an expert witness, as required by Rule 26 of the Federal Rules of Civil Procedure; and (3) whether Plaintiff's failure to disclose was "substantially justified or harmless." Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1106 (9th Cir. 2001); see Fed. R. Civ. P. 37(c)(1).
Beyond Scope of Lay Witness Opinion Testimony
The Court must first determine whether Higgs's testimony goes beyond the scope of permissible lay witness testimony. Rule 701 of the Federal Rules of Evidence states that "[i]f a witness is not testifying as an expert, testimony in the form of an opinion is limited to one that is . . . (c) not based on scientific, technical, or other specialized knowledge within the scope of Rule 702." Fed. R. Evid. 701.
Rule 702 of the Federal Rules of Evidence states that "[a] witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if: (a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; (b) the testimony is based on sufficient facts or data; (c) the testimony is the product of reliable principles and methods; and (d) the expert has reliably applied the principles and methods to the facts of the case." Fed. R. Evid. 702.
While a lay witness may testify based on their own experience, lay witness observations and opinions must be "common," i.e., based on common observations or experience, and must not require expertise. Humboldt Baykeeper v. Union Pacific R.R. Co., No. C 06-02560 JSW, 2010 WL 2179900, at *1 (N.D. Cal. May 27, 2010); see Fed. R. Evid. 701; United States v. Figueroa-Lopez, 125 F.3d 1241, 1246 (9th Cir. 1997) (holding that opinion by lay witness on observations that were not "common," but required demonstrable expertise, was improper lay witness testimony). "The mere percipience of a witness to the facts on which he wishes to tender an opinion does not trump Rule 702." Humboldt Baykeeper, 2010 WL 2179900, at *1 (citing Figueroa-Lopez, 125 F.3d at 1246) (internal quotation marks and alterations omitted)).
Upon review of the Higgs Declaration, the Court finds that substantial portions of the Higgs Declaration go beyond the scope of permissible lay witness opinion testimony, as Higgs testifies to matters of expertise beyond "common" observations or experience. See id. at *1; Higgs Decl. ¶¶ 11-20.
Higgs testifies regarding MIL-PRF-81705 qualification specifications promulgated by the Department of the Navy, which include "designations as to the particular materials that must be used, the qualifications they must meet, their applications, and related specifications." Higgs Decl. ¶ 3. Higgs testifies about MIL-PRF-81705 "Performance Requirements," which, according to Higgs, include, among other requirements, "Seam fabrication," "Blocking resistance," "Contact corrosovity," "Static decay," "Surface resistivity," and "Electromagnetic interference (EMI) attenuation." Id. ¶ 13. Higgs also testifies about "ASTM INTERNATIONAL standards that can be utilized to test MIL-PRF-81705 Type III products." Id. ¶ 14. Higgs states that, in connection with this litigation, he reviewed the advertising and other documents produced by Shannon that relate to Shannon's static shielding bags. Id. ¶ 12. Upon review of Shannon's "Static Control Film Data Sheet" for Shannon's SS103 product, Higgs asserts the opinion and conclusion that Shannon's SS103 product "is not 'designed to meet the performance' of MIL-PRF-81705 Type III as claimed because there is no showing that the product in question has the mandatory characteristics required by the Performance Requirements." Id. ¶ 13.
Such an opinion unquestionably requires a high level of expertise and "scientific, technical, or other specialized knowledge." Fed. R. Evid. 701. Higgs's opinions and conclusions are not based on common observations or experience but, instead, require "demonstrable expertise." Figueroa-Lopez, 125 F.3d at 1246. It is not "common" experience to know the meaning of the term, "Electromagnetic interference (EMI) attenuation," or to know whether certain product testing is "comparable" to "the ASTM INTERNATIONAL standards." See Higgs Decl. ¶¶ 13-14.
See also United States v. Skeet, 665 F.2d 983, 985 (9th Cir. 1982)(explaining that lay witnesses opinion testimony is sometimes permitted "[b]ecause it is sometimes difficult to describe the mental or physical condition of a person, his character or reputation, the emotions manifest by his acts; speed of a moving object or other things that arise in a day to day observation of lay witnesses; things that are of common occurrence and observation, such as size, heights, odors, flavors, color, heat, and so on"); Fed. R. Civ. P. 701, 2000 Amend. Advisory Committee Notes (stating that Rule 701 makes the following kind of distinction between lay and expert opinion testimony: "lay testimony 'results from a process of reasoning familiar in everyday life,' while expert testimony 'results from a process of reasoning which can be mastered only by specialists in the field'").
As such, the Court finds that portions of Higgs's testimony go beyond the scope of lay witness opinion testimony under Federal Rules of Evidence 701 and 702 and thus constitute expert witness testimony. See Figueroa-Lopez, 125 F.3d at 1246.
Even if Higgs is "extremely familiar with the tests that are performed and the requirements that must be met to obtain MIL SPEC approval from the DON" due to his years of experience with such matters, this does not change the fact that Higgs's testimony is undoubtedly beyond the scope of lay witness opinion testimony. See Humboldt Baykeeper, 2010 WL 2179900, at *1.
Failure to Disclose Under Fed. R. Civ. P. 26
Second, the Court must determine whether Plaintiff complied with the disclosure requirements of Fed. R. Civ. P. 26(a)(2).
Rule 26 of the Federal Rules of Civil Procedure requires that parties make mandatory initial disclosures, including "the identify of any witness [the party] may use at trial to present evidence under Federal Rule of Evidence 702." Fed. R. Civ. P. 26(a)(2)(A). Rule 26 requires parties to not only disclose the identify of an expert witness, but to supply the opposing party with either a written report for "retained or specially employed" experts, or a statement of "the subject matter on which the witness is expected to present [Rule 702] evidence" and "a summary of the facts and opinions to which the witness is expected to testify" for all other experts. Fed. R. Civ. P. 26(a)(2)(C). Rule 26 states that such initial disclosures related to expert witnesses must be made "at least 90 days before the date set for trial" unless another date is stipulated to or ordered by the court. Fed. R. Civ. P. 26(a)(2)(D). Rule 26 requires the parties to "supplement these disclosures when required under Rule 26(e)." Fed. R. Civ. P. 26(a)(2)(E).
Here, it is clear that Plaintiff failed to disclose Higgs as an expert witness, as required by Rule 26(a)(2). Not only did Plaintiff fail to disclose Higgs as an expert, Plaintiff did not even disclose Higgs as a lay witness. See Fed. R. Civ. P. 26(a)(1)(A)(i).
Plaintiff's Initial Disclosure, filed February 14, 2015, which has not been amended or supplemented, discloses only two lay witnesses: Jim Walsh and Eugene Bowan, and no expert witnesses are identified. Pl.'s Initial Disclosure, ECF No. 20.
Because Plaintiff did not properly disclose Higgs as a witness, much less as an expert witness, and because the expert cut-off date in this Action has passed, see Dckt. # 18, Plaintiff clearly failed to comply with Fed. R. Civ. P. 26(a)(2). See Seifert v. United States, No. CIV-S-04-0553DFLGGH, 2005 WL 3439010, at *1 (E.D. Cal. Dec. 14, 2005)(granting a party's motion to exclude expert testimony when the proponent of the expert testimony violated Rule 26(a)(2) and the expert cut-off date had passed).
Substantially Justified or Harmless
"Rule 37(c)(1) gives teeth to [Rule 26(a)(2)'s] requirements by forbidding the use at trial of any information required to be disclosed by Rule 26(a) that is not properly disclosed." Yeti by Molly, 259 F.3d at 1106. Rule 37(c)(1) of the Federal Rules of Civil Procedure states plainly that "[i]f a party fails to provide information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless." Fed. R. Civ. P. 37(c)(1). The Advisory Committee Notes describe Rule 37(c)(1) as a "'self-executing,' 'automatic' sanction to 'provide[] a strong inducement for disclosure of material.'" Yeti by Molly, 259 F.3d at 1106. The burden is on the party facing the sanction to demonstrate that its failure to comply with Rule 26(a) is "substantially justified or harmless." Torres v. City of L.A., 548 F.3d 1197, 1213 (9th Cir. 2008).
The Ninth Circuit has provided factors that may be used to "guide a district court in determining whether a violation of a discovery deadline is justified or harmless": "(1) prejudice or surprise to the party against whom the evidence is offered; (2) the ability of that party to cure the prejudice; (3) the likelihood of disruption of the trial; and (4) bad faith or willfulness involved in not timely disclosing the evidence." Lanard Toys Ltd. v. Novelty, Inc., 375 F. App'x 705, 713 (9th Cir. 2010).
Here, nothing supports a finding that Plaintiff's failure to disclose was "substantially justified." As in Yeti by Molly, Plaintiff could have supplemented its initial disclosure or "could have asked for an extension of the discovery [or expert] deadline[s]," but did not. Yeti by Molly, 259 F.3d at 1106. Under the four factors, Plaintiff's failure to disclose was not substantially justified or harmless.
Regarding prejudice or surprise, it is clear that the Higgs Declaration was a surprise to Defendant, as Defendant's Motion for Summary Judgment does not anticipate the material in the Higgs Declaration. Defendant even argues in its Reply that Plaintiff is trying to "amend its Complaint" by asserting completely new facts and legal theories not asserted in Plaintiff's Complaint. Reply 2:26-3:1, 6:15-7:9. It is also clear that the Higgs Declaration is highly prejudicial to Defendant, as Defendant had no opportunity to conduct discovery related to the content of the Higgs Declaration, no opportunity to depose Higgs about his technical testimony, and no reasonable opportunity to retain an expert who could testify on Defendant's behalf in response to the Higgs Declaration. At this late stage of the Action, within a few weeks of the trial date, Plaintiff does not have the practical "ability to cure the prejudice," and the delays caused by the new expert testimony would likely result in a "disruption of the trial." Lanard Toys, 375 F. App'x at 713; See Seifert, 2005 WL 3439010, at *1 ("The failure to turn over expert reports cannot be described as harmless, particularly when the time for discovery has elapsed.").
Because Plaintiff's failure to disclose Higgs as a witness, as required by Rule 26, was not "substantially justified or harmless," the Court, pursuant to Rule 37(c)(1), SUSTAINS Defendant's objections to the Higgs Declaration and HEREBY EXCLUDES the Higgs Declaration in its entirety, including the attached exhibits. Fed. R. Civ. P. 37(c)(1).
See Yeti by Molly, 259 F.3d at 1006 ("[E]xclusion is an appropriate remedy for failing to fulfill the required disclosure requirements of Rule 26(a)."); Carson Harbor Village, Ltd. v. Unocal Corp., No. CV 96-3281 MMM (RCX), 2003 WL 22038700, at *2 (C.D. Cal. 2003) ("Excluding expert evidence as a sanction for failure to disclose expert witnesses in a timely fashion is automatic and mandatory unless the party can show the violation is either justified or harmless." (internal quotation marks omitted)); Colony Holdings, Inc. v. Texaco Refining & Mktg., Inc., No. SACV0 0217DOC(MLGX), 2001 WL 1398403, at *6 (C.D. Cal. Oct. 29, 2001) (in the context of summary judgment, excluding a witness's declaration asserting technical opinions and conclusions because it was beyond the scope of lay witness opinion testimony and the witness had not been disclosed as an expert witness, as required by Fed. R. Civ. P. 26(a)(2)).
ii. Violation of Protective Order
Regarding the Protective Order, Defendant states that the material in Exhibits 6 and 7 is designated "ATTORNEY'S EYES ONLY," which, under the Protective Order in this Action, cannot be disclosed to the receiving party due to the competitive harm that could result from such disclosure. Def.'s Objections to Higgs Decl. 2:17-3:19. Defendant states that Caltex's counsel allowed Caltex's Vice President, James Higgs, to review documents, including Exhibits 6 and 7, that were designated by Shannon as ATTORNEY'S EYES ONLY, even though Higgs did not fall within the category of persons allowed to review such material, as Higgs's company is Shannon's competitor. Id. Defendant also notes that, even if Caltex could have shown the ATTORNEY'S EYES ONLY material to Higgs, Caltex was required to first have Higgs sign Exhibit A of the Protective Order, agreeing to be bound by its terms, which Caltex did not do. Id. (citing Protective Order ¶ 8). Defendant requests that the Court sanction Plaintiff for its violation of the Protective Order by excluding the entire Higgs Declaration or, in the alternative, the portions of the Higgs Declaration related to Exhibits 6 and 7. Id. at 5:4-6:1. Defendant argues that "Caltex should not be allowed to derive benefit" from its violation of the Protective Order. Id. at 3:1-3.
The Court finds that Plaintiff violated the Protective Order [24] in this Action by disclosing Exhibits 6 and 7, properly marked "ATTORNEY'S EYES ONLY," to Mr. Higgs, who is Vice President of Plaintiff Caltex, a competitor of Defendant Shannon. See Protective Order ¶¶ 4, 7, 12. Rule 37(b) authorizes the Court to sanction Plaintiff for its violation of a Court order. The Court finds that Defendant's requested sanction, to exclude the Higgs Declaration in its entirety, is an appropriate sanction for Plaintiff's violation of the Protective Order.
See Pl.'s Renewed Appl. to File Under Seal Exs. 6 & 7, ECF No. 46 (stating that Exhibits 6 and 7 consist of information that "constitute[s] trade secrets").
Fed. R. Civ. P. 37(b); see See Ajaxo, Inc. v. Bank of Am. Tech. & Operations, Inc., No. 2:07-cv-00945-GEB-GGH, 2008 WL 4933652, at *1 (E.D. Cal. Nov. 18, 2008); United States v. Nat'l Med. Enters., Inc., 792 F.2d 906, 910-11 (9th Cir. 1986).
B. False Advertising Claims
1. False Advertising under 15 U.S.C. § 1125(a)
To prove a prima facie case for false advertising in violation of 15 U.S.C. § 1125(a), a plaintiff must show, among other elements, that "the defendant made a false statement either about the plaintiff's or its own product." Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d 829, 835 n.4 (9th Cir. 2002) (citing Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir. 1997)). "Falsity" can be proved by showing that the advertisement is "literally false, either on its face or by necessary implication"; or, if not literally false, that the representation is "likely to mislead or confuse consumers," which requires proof "by extrinsic evidence" that the advertisements "tend to mislead or confuse consumers." Southland Sod Farms, 108 F.3d at 1139; In re Century 21-RE/MAX Real Estate Adver. Claims Litig., 882 F. Supp. 915, 922-23 (C.D. Cal. 1994).
a. Literal Falsity
Plaintiff alleges in its Complaint that "Shannon has misrepresented the nature, characteristics, qualities, and other material aspects of certain of its products" by representing in a film data sheet that Shannon's product is "[d]esigned to meet the performance of MIL PRF 81705 Type III." Compl. ¶¶ 18-19; see Williams Decl., Ex. B. Though not alleged in the Complaint, Plaintiff's Opposition adds that Shannon also falsely represented in data sheets that Shannon's product was subjected to the MIL B 81705 C Test Method. Opp'n 1:14-16; see Williams Decl., Exs. B, E.
To prove that Shannon's representations are literally false, Plaintiff bears the burden of proving by affirmative evidence that Shannon's SS103 bags are not "[d]esigned to meet the performance of MIL PRF 81705 Type III" or that Shannon did not subject to the MIL B 81705 C test method the products for which Shannon made that representation. Though Plaintiff asserts that Shannon's representations are "literally false," Opp'n 10:21-23, Plaintiff does not provide any admissible evidence showing literal falsity.
See Hansen Beverage Co. v. Vital Pharm., Inc., No. 08-cv-1545-IEG, 2010 WL 1734960, at *4-*5 (S.D. Cal. Apr. 27, 2010) (stating that "[b]ecause [the defendant] does not expressly represent" that its advertising claim "is based on product testing, or implicitly make that claim through visual representations, [the plaintiff] must affirmatively prove that the claim is false"). In this case, Elkay did not "expressly represent" that it tested its Elkay bags or implicitly make a claim of testing based on graphs or any sort of visual representation; thus, Elkay's advertisement is less like an "establishment claim" and more like a statement that "lacks substantiation." See Fraker v. Bayer Corp., No. 08-1564, 2009 WL 5865687, at *7-*9 (E.D. Cal. Oct. 6, 2009) (noting that in a case for false advertising under the Lanham Act, the burden of proof does not shift to the defendant to prove substantiation of advertising claims because otherwise, a plaintiff could use a false advertising claims to "shoehorn an allegation of violation of the Federal Trade Commission Act," which does not allow private causes of action).
Plaintiff offers the following allegations to support its claim of "literal falsity": 1) Shannon's products "have not been tested by the DON nor have they successfully passed the DOD qualifying activity," Compl. ¶ 20; 2) Shannon's products are not listed on the Qualified Products List under the Defense Standardization Program," id.; 3) Shannon's products "are not military grade products," id.; 4) Shannon's representations are "without the substantiation required under applicable laws," id. ¶ 27; and 5) Shannon's discovery material does not establish that Shannon's products were subjected to the MIL B 81705 C test method or to the performance requirements of MIL-PRF-81705 Type III, Opp'n 1:14-2:6.
i. Qualification Argument
Plaintiff's factual allegations related to the testing or qualification of Shannon's products by the Department of Defense ("DOD") or the Department of the Navy ("DON"), even if true, do not establish literal falsity.
As discussed in Caltex Plastics, Inc. v. Elkay Plastics Co., Inc., Case No. 2:12-cv-10033 RSWL (JEMx) (C.D. Cal. Feb. 4, 2015), ECF No. 62, the facts that Shannon's products "have not been tested by the DON nor have they successfully passed the DOD qualifying activity" and "are not listed on the Qualified Products List under the Defense Standardization Program" do not establish the falsity of Shannon's representations that its product is "[d]esigned to meet the performance of MIL PRF81705 T3" or was subjected to the MIL B 81705 C test method. See Ruling & Order re: Bench Trial, Caltex Plastics, Case No. 2:12-cv-10033 RSWL, ECF No. 62, at 10:10-12:18. Shannon has not represented that its products are qualified or on the QPL. Pl.'s Resp. to Def.'s Statement of Uncontroverted Facts ¶ 4 (undisputed fact). Plaintiff has not proved its allegation that "[a] manufacturer may only reference [a mil spec] number in its product advertisements if the product has been tested and qualified by the DON." Compl. ¶ 16; see Ruling & Order re: Bench Trial, Caltex Plastics, Case No. 2:12-cv-10033 RSWL, ECF No. 62, at 10:10-12:18. Defendant asserts that regardless of the DOD's or DON's involvement, a product can be subjected to MIL B 81705 C test method and can meet the performance requirements of MIL PRF 81705 Type III. Def.'s Mot. 8:10-10:6. Plaintiff has not proved otherwise, and it is Plaintiff's burden to prove.
Plaintiff argues, via the Stein Declaration, that it was unable to obtain the evidence required to support the falsity element of its false advertising claims because Defendant did not supply Plaintiff with samples of the SS103 material. Stein Decl. ¶¶ 3-5. This argument is meritless because Plaintiff did not request samples of Shannon's product until after the discovery cut-off date. See id.; Dckt. ## 18, 26. Plaintiff cannot blame Defendant for not responding to discovery requests made after the discovery cut-off date when Plaintiff had ample time to make discovery requests and did not file any motions to compel or motions to further extend the discovery cut-off date. Plaintiff's late-filed Stipulation for a Protective Order, giving Defendant only two months to provide the requested discovery material, also counsels against sympathy for Plaintiff. See Stein Decl., Exs. A-C.
Furthermore, Plaintiff requested samples of product that Shannon sold as "'meets the electrostatic requirements' of MIL-B-81705 Type III," but there is no evidence that Shannon ever sold any products under that representation. As such, Shannon's failure to respond to that late discovery request is justified even if the request was not late. Stein Decl., Ex. C, at 3, ¶ 8.
Plaintiff's argument that Shannon's representations are literally false because Shannon's products "are not military grade products" also fails, if not for the above reasons, then for lack of proof. Plaintiff does not define the term, "military grade products," but if the term includes non-qualified products, then Plaintiff has failed to provide any admissible evidence showing that Shannon's products fail to meet military specification requirements. See Fraker v. Bayer Corp., No. 08-1564, 2009 WL 5865687, at *7-*9 (E.D. Cal. Oct. 6, 2009) (noting that, in a case for false advertising under the Lanham Act, the burden of proof does not shift to the defendant to prove substantiation of advertising claims; otherwise, a plaintiff could use a false advertising claim to "shoehorn an allegation of violation of the Federal Trade Commission Act," which does not allow private causes of action).
ii. Lack of Substantiation
Plaintiff's Complaint asserts that Shannon's representations are literally false because they are "without the substantiation required under applicable laws." Compl. ¶ 20. Plaintiff fails to identify any of the "applicable laws" to which Plaintiff refers and fails to provide any "applicable laws" that require Defendant to substantiate its advertising claims.
Plaintiff's allegation also misstates the law: in an action for false advertising, the burden of proof does not shift to the defendant to prove substantiation of advertising claims.
Fraker, 2009 WL 5865687, at *7-*9; see also In re Clorox Consumer Litig., 894 F. Supp. 2d 1224, 1232 (N.D. Cal. Aug. 24, 2012) (stating that "[c]ourts have been careful to distinguish between allegations that a defendant's advertising claims are actually false and allegations that such claims lack substantiaion" and that "[c]onsumer claims for a lack of substantiation are not cognizable under California law"); Chavez v. Nestle USA, Inc., No. CV 09-9192-GW(CWx), 2011 WL 2150128, at *5 (C.D. Cal. May 19, 2011) (stating that "lack of substantiation" "is not a cognizable theory under the UCL or FAL"), rev'd in part on other grounds, 511 F. App'x 606 (9th Cir. 2013).
iii. Establishment Claim Theory
Though not mentioned in the Complaint, Plaintiff bases nearly all of its Opposition on the argument that Shannon's representations are literally false because Shannon's representations are "establishment claims" that have been shown unreliable and not probative by the Higgs Declaration. Opp'n 1:14-2:6, 11:7-19:2. Plaintiff's last attempt to establish literal falsity fails for lack of evidence.
Because Plaintiff's Complaint does not even hint at an establishment claim theory of false advertising, it is arguable, and Defendant does argue, that Plaintiff is attempting to improperly amend its Complaint through its Opposition to Defendant's Motion for Summary Judgment. Reply 6:15-7:9. New facts or legal theories to support claims asserted in the complaint are not necessarily improper, but they must comply with the pleading standards in Fed. R. Civ. P. 8. See Pickern v. Pier 1 Imps. (U.S.), Inc., 457 F.3d 963, 968-69 (9th Cir. 2006). Rule 8(a)(2) "requires that the allegations in the complaint 'give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests.'" Id. at 968.
Plaintiff asserts that the following vague allegation in its Complaint enables Plaintiff to fairly assert new facts under a new establishment claim theory of liability: "Defendants made express and implied claims about the Shannon products without the substantiation required under applicable laws." Pl.'s Resp. to Def.'s Statement Uncontroverted Facts ¶ 3 (quoting Compl. ¶ 27). Such an allegation does not put Defendant on "fair notice" of an establishment claim theory of liability, and no other allegations in the Complaint do so, either. As in Pickern, Plaintiff's vague allegation lacking any factual "grounds" "is not a substitute for investigating and alleging the grounds for a claim," and, as such, the Court finds that Plaintiff's "complaint gave [Defendant] no notice of the specific factual allegations [or legal theory] presented for the first time in [Plaintiff's] opposition to summary judgment." Pickern, 457 F.3d at 969.
But, as discussed herein, even if Plaintiff's allegations in the Complaint could encompass the new facts and legal theory asserted in Plaintiff's Opposition, Plaintiff's claims still fail for lack of evidence.
An "establishment claim" theory of literal falsity is a "subspecies of the false by necessary implication doctrine" and requires that the defendant's advertising claim be "based on product testing." FLIR Sys., Inc. v. Sierra Media, Inc., 903 F. Supp. 2d 1120, 1129 (D. Or. 2012); see Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir. 1997).
"A false message is conveyed by necessary implication when, 'considering the advertisement in its entirety, the audience would recognize the claim as readily as if it had been explicitly stated.'" Hansen Beverage Co. v. Vital Pharm., Inc., No. 08-CV-1545-IEG (POR), 2010 WL 1734960, at *3 (S.D. Cal. Apr. 27, 2010).
Here, Plaintiff asserts for the first time in its Opposition to summary judgment that Defendant's representations that its product is "[d]esigned to meet the performance of MIL PRF 81705 T3" and was subjected to the MIL B 81705 C test method are advertisements "based on product testing." Opp'n 10:21-19:2.
Even if Shannon's representations qualify as establishment claims, Plaintiff still has the burden of producing evidence that "either attack[s] the validity of the defendant's tests directly or . . . show[s] that the defendant's tests are contradicted or unsupported by other scientific tests." Southland Sod Farms, 108 F.3d at 1139. In other words, an establishment claim theory of literal falsity does not shift the burden of proof to the defendant. See Fraker, 2009 WL 5865687, at *7-*9 (stating that a private plaintiff asserting a false advertising claim cannot "shoehorn an allegation of violation of the Federal Trade Commission Act . . . into a private cause of action" by shifting the burden of proof to the defendant). A plaintiff is not relieved of its burden of proof merely because the defendant made a product testing claim. See id.; Southland Sod Farms, 108 F.3d at 1139.
The Ninth Circuit explained the standard for proving an establishment claim theory of false advertising:
To prove that an advertisement claim based on product testing is literally false, "a plaintiff must do more than show that the tests supporting the challenged claim are unpersuasive." "Rather, the plaintiff must demonstrate that such tests 'are not sufficiently reliable to permit one to conclude with reasonable certainty that they established' the claim made." A plaintiff may meet this burden either by attacking the validity of the defendant's tests directly or by showing that the defendant's tests are contradicted or unsupported by other scientific tests.Southland Sod Farms, 108 F.3d at 1139 (emphasis added).
Without the Higgs Declaration, which has been excluded, Plaintiff fails to provide sufficient evidence showing that Shannon's product testing claims are "not sufficiently reliable to permit one to conclude with reasonable certainty that they established the claim made." Southland Sod Farms, 108 F.3d at 1139.
The Court finds that Plaintiff fails to show "literal falsity" by sufficient admissible evidence.
b. Not Literally False, but Misleading
"[I]f a plaintiff cannot show literal falsity . . ., the plaintiff must prove, by extrinsic evidence, [that] the challenged advertisements tend to mislead or confuse consumers." In re Century 21-RE/MAX, 882 F. Supp. at 922-23 (internal quotation marks and alterations omitted). Plaintiff does not offer any "extrinsic evidence" that Shannon's representations "tend to mislead or confuse consumers," and Plaintiff admits as such, stating that "Caltex does not need to show actual confusion because its primary claim is for literal falsity." Pl.'s Facts ¶¶ 21-22.
In conclusion, Plaintiff fails to meet its burden of proof as to the "falsity" element of Plaintiff's state and federal false advertising claims. As such, the Court GRANTS Defendant's Motion for Summary Judgment as to Plaintiff's claims for federal and state false advertising.
To allege a claim for false advertising under California law, a plaintiff must allege that the defendant "publicly disseminated advertising that [was] false or misleading, and which the defendant knew or reasonably should have known was untrue or misleading." New Show Studios LLC v. Needle, at *17 (C.D. Cal. June 30, 2014) (citing Cal. Bus. & Prof. Code § 17500). Here, Plaintiff's California false advertising claim fails for the same reason that its Lanham Act claim fails: Plaintiff fails to meet its burden of proof as to the "false or misleading" requirement of both claims. See, e.g., Appliance Recycling Ctrs. of Am., Inc. v. JACO Envtl., Inc., 37 8 F. App'x 652, 656 (9th Cir. 2010) (agreeing that a California claim for false advertising is "'substantially congruent'" to a false advertising claim under the Lanham Act).
C. California Unfair Competition Claim
"California's Unfair Competition Law ("UCL") prohibits any 'unlawful, unfair or fraudulent business act or practice.'" Williams v. Gerber Prods. Co., 552 F.3d 934, 938 (9th Cir. 2008); Cal. Bus. & Prof. Code § 17200.
1. Unlawful
To claim a UCL violation under the "unlawful" prong, a plaintiff must prove the defendant engaged in a business act or practice "'forbidden by law.'" VP Racing Fuels, Inc. v. Gen. Petroleum Corp., 673 F. Supp. 2d 1073, 1086 (E.D. Cal. 2009). Because Plaintiff's federal and state false advertising claims fail, as discussed above, and because Plaintiff proves no other legal violation to support its UCL claim, Plaintiff cannot prevail under the "unlawful" prong of the UCL.
2. Fraudulent
A "fraudulent act" under the UCL "may include a false statement, or one which, though strictly accurate, nonetheless has the likely effect of misleading or deceiving the public." Zeltiq Aesthetics, Inc. v. BTL Indus., Inc., No. 13-cv-05473-JCS, 2014 WL 1245222, at *9 (N.D. Cal. Mar. 25, 2014) (citing Garcia v. Sony Computer Entm't Am., LLC, 859 F. Supp. 2d 1056, 1062 (N.D. Cal. 2012)). Because Plaintiff has not offered evidence showing that Shannon made a false statement or that Shannon's representations were likely to mislead or deceive, Plaintiff cannot assert a claim under the fraudulent prong of the UCL.
3. Unfair
There is at least a three-way split among California appellate courts as to the proper standard for an "unfair" act under the UCL. Graham v. Bank of Am., N.A., 172 Cal. Rptr. 3d 218, 233 (Cal. Ct. App. 2014). Upon review of the various tests, the Court finds that Plaintiff has not offered sufficient admissible evidence to establish an "unfair" business act under the UCL. See id.
In conclusion, the Court finds that Plaintiff has failed to meet its burden of proof for establishing a claim of unfair competition under California's UCL. As such, the Court GRANTS Defendant's Motion for Summary Judgment as to Plaintiff's unfair competition claim under Cal. Bus. & Prof. Code § 17200.
D. Request for Costs
Defendant requests an award of costs as the prevailing party. Def.'s Mem. P&A Mot. Summ. J. 15:28-16:1, ECF No. 28. Because the Court does not find that Plaintiff's claims against Defendant were "groundless, unreasonable, vexatious, or pursued in bad faith," Defendant's request for costs is DENIED. Gracie v. Gracie, 217 F.3d 1060, 1071 (9th Cir. 2000); see 15 U.S.C. § 1117(a).
IV. CONCLUSION
Based on the foregoing, the Court GRANTS Defendant's Motion for Summary Judgment and DENIES Defendant's request for an award of costs.
As such, it is HEREBY ORDERED that Judgment be entered in favor of Defendant Shannon Packaging Co. as to all claims asserted against it in this Action by Plaintiff Caltex Plastics, Inc., and the parties shall bear their own costs.
IT IS SO ORDERED. DATED: May 27, 2015
RONALD S.W. LEW
HONORABLE RONALD S.W. LEW
Senior U.S. District Judge