Summary
In Sanderson, the plaintiff alleged that the defendant, a competitor of the plaintiff, had made fraudulent statements regarding the plaintiff's product to customers in an attempt to procure the customers' business.
Summary of this case from Heartland Recreational Vehicles, LLC v. Forest River (N.D.Ind. 4-22-2009)Opinion
Cause No. IP00-0459-C H/K
September 20, 2002
ENTRY ON DEFENDANTS' MOTIONS TO DISMISS THIRD AMENDED COMPLAINT
Plaintiff Charles H. Sanderson sells and promotes the use of magnetic systems to remove lime scale from water without using the chemicals that are used in competing systems. Sanderson contends that he has been the victim of a decades-long conspiracy of persons interested in the chemical systems to spread false information disparaging his magnetic systems.
The court previously dismissed plaintiff's Second Amended Complaint, including his federal Sherman Act antitrust claims, but granted leave to replead his Lanham Act claims so as to specify the allegedly false statements in advertising. Sanderson v. Brugman, 2001 WL 699876 (S.D.Ind. May 29, 2001). Plaintiff sought reconsideration, which was denied, and he eventually filed a Third Amended Complaint. Defendants then filed a new motion to dismiss that complaint, as well, for failure to state a claim upon which relief can be granted. As explained below, the Culligan defendants' motion is granted in part and denied in part, and the motion of defendants Brugman and Surtech is granted in its entirety. At this stage of the case, plaintiff is not entitled to any further opportunity to replead the dismissed claims, so the dismissed claims are dismissed with prejudice.
I. The Culligan Defendants' Motion
In relevant part, Section 43(a) of the Lanham Act provides a civil remedy against a person "who, on or in connection with any goods or services, . . . uses in commerce . . . any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which — (B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities. . . ." 15 U.S.C. § 1125(a)(1)(B). This provision has often been used by companies to challenge competitors' factual assertions in their advertising. See generally Mead Johnson Co. v. Abbott Labs., 201 F.3d 883 (7th Cir. 2000), modified, 209 F.3d 1032 (7th Cir. 2000) (reversing preliminary injunction). In this case, plaintiff Sanderson has attempted to assert such false advertising claims against competitors who manufacture and distribute chemical-based systems for removing lime scale from water.
Defendants Indiana Soft Water Services, Inc. and Culligan International Company (together, "Culligan") are the subjects of more specific allegations in Paragraph 27 of the Third Amended Complaint, in which Sanderson alleges:
1. Improper use of various studies and reports derogatory to magnetic water treatment and devices, including studies commissioned by the Water Quality Association and conducted at Purdue University, and the South Dakota School of Mines, such use including interstate and international publication and sale of these studies, while knowing that the conclusions contained therein was false, or acting with reckless disregard of the truth or accuracy of the conclusions reached in these studies. In particular the following studies and documents have been published by these Defendants and their Co-conspirators:
1. Distribution by Culligan, International, by and through its agent or licensee, Culligan Water Company of San Diego, Cal. on November 1, 1999 of an article from Water Conditioning and Purification dated July, 1998, with the heading "Do Magnetic and Electromagnetic Water Conditioners Work" and containing the following false or misleading statements:
1. The article generally discounts the validity of both magnetic water treatment and its proponents, and in particular attributes to magnetic water conditioning corrosive effects. This is false and misleading, particularly in light of the knowledge of Culligan International of installations and research demonstrating the positive effects of magnetic water treatment.
2. Publication by Matthew M. Brennan, of Culligan International, of a letter to the editor of Water Conditioning and Purification, January, 1996, containing the following false statements:
1. stating that "NSF" has concluded a study of magnetic water treatment, when no such study has been conducted by NSF (The National Sanitation Foundation).
2. stating that ". . . (magnetic) technology is absolutely worthless." This statement is false.
3. stating that magnetic water treatment equipment is ". . . a piece of junk."
4. stating that "For the past 30 years, independent scientific data has failed to validate this technological application or product validity of magnetic water conditioning." This statement is false.
3. Distribution by Culligan, International, by and through its agent or licensee, Jack Boetcher, in Austin Texas on January 7-9, 2000 of a publication with the heading "IS THIS THE TYPE OF STUFF YOU WANT FOR YOUR HOME?" and containing the following false or misleading statements:
1. "Magnets, catalytics prohibited from Future Annual WQA trade show." This statement is false and misleading.
2. "WQA knows of no generally recognized scientific or technical evidence which proves that magnetic, electromagnetic, or catalytic devices [solely] to treat water have any measurable physical or chemical effect of water quality. In fact, such evidence as WQA is aware of supports the position that these devices have no measurable physical or chemical effect on water quality." This statement is false and misleading." This statement is false and misleading. [sic]
3. In addition to the written statements, the aforesaid Culligan dealer made the following false statements verbally:
1. "You'll be very sorry if you buy those magnets, because they never work."
2. "Right now, magnetic water treatments systems are under investigation and will soon be taken off the market."
3. "Those magnet companies are "fly-by-night" operations that don't honor their guarantees or warranties."
The January 1996 allegations in Paragraph 27(1)(2) must be dismissed based on the statute of limitations. The Lanham Act does not have its own statute of limitations but borrows the most analogous state law limitation. Culligan argues that in Indiana the closest analog is the two-year limit for injury to persons or character or property, or for statutory penalties in Ind. Code § 34-11-2-4. Sanderson v. Spectrum Labs, Inc., No. 1:99CV371, slip op. at 15 (N.D.Ind. Jan. 12, 2000), aff'd mem., 248 F.3d 1159 (7th Cir. 2000); see also Ashland Oil, Inc. v. Arnett, 656 F. Supp. 950 (N.D.Ind. 1987) (stating principle and applying two-year limit for statutory penalties to federal civil RICO claims). Sanderson has not disputed the point. The court agrees that the Lanham Act claim based on the 1996 allegations is barred. Sanderson's Lanham Act claim is most similar to a claim for defamation (commercial slander), which would be subject to the two-year Indiana statute of limitations. E.g., Burks v. Rushmore, 534 N.E.2d 1101, 1102-04 (Ind. 1989) (two-year statute of limitations on defamation claims generally begins to run when harm could have reasonably been ascertained with due diligence).
The allegations in Paragraphs 27(1)(1) and 27(1)(3) concerning allegedly false statements in November 1999 and January 2000 deal with matters within the two-year statute of limitations. In addition, Sanderson has responded to the court's earlier ruling by complying with Rule 9(b): he has stated who said what, when, and where that was allegedly false. See Hemenway v. Peabody Coal Co., 159 F.3d 255, 261 (7th Cir. 1998).
Culligan argues that claims based on these allegations should be dismissed because Sanderson has failed to allege that the statements amounted to "commercial advertising or promotion" within the meaning of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a)(1)(B). See, e.g., Garland Co. v. Ecology Roof Systems Corp., 895 F. Supp. 274, 276 (D.Kan. 1995) ("advertising and promotion" is limited to "broad, public dissemination of information," beyond isolated communication "to a single potential customer"). The court believes that dismissal on that basis would slice too finely the more general and liberal pleading requirements of Rule 8. In modern civil pleading, it is not necessary to plead every element of a cause of action to avoid dismissal. See Hemenway v. Peabody Coal Co., 159 F.3d at 261 (district erred by dismissing fraud claim for failure to plead reliance; complaints "need not spell out every element of a legal theory"). In addition, the broad allegations of Paragraphs 64 and 65 of the Third Amended Complaint about false statements in advertising and promotion apply to these specific allegations and thus fill in the gap argued by Culligan.
The court expresses no views on whether the oral statements alleged in Paragraph 27(1)(3) are actionable in themselves. See Medical Graphics Corp. v. SensorMedics Corp., 872 F. Supp. 643, 650 (D.Minn. 1994) (plaintiff unlikely to prevail on claims based on alleged oral statements to one customer); American Needle Novelty, Inc. v. Drew Pearson Mktg., Inc., 820 F. Supp. 1072, 1077-78 (N.D.Ill. 1993) (dismissing claim based on single letter).
Culligan also questions whether it can be held responsible for statements attributed to its agents or licensees. The short answer is yes, at least at the pleading stage. Sanderson ultimately will need to come forward with evidence that would allow a reasonable jury to find that Culligan was legally responsible for the statements, if they are otherwise actionable. The pleading is adequate on this point.
Accordingly, Culligan's motion to dismiss is denied with respect to the Lanham Act claims based on the alleged statements in November 1999 and January 2000 set forth in Paragraphs 27(1)(1) and 27(1)(3) of the Third Amended Complaint. Sanderson's other federal claims against Culligan, however, are dismissed with prejudice for reasons the court has set forth above and in its previous decision.
II. Defendants Brugman and Surtech's Motion to Dismiss
In response to the court's insistence on specifics, Sanderson has identified one statement by defendant Brugman in a report entitled "Non-Chemical Water Treatment Devices: State of the Non-Art," published in October 24, 1998. The allegedly false statement was that "independent investigations of these devices have found them to produce no significant effect in preventing or correcting corrosion and scale formation." Third Am. Cplt. ¶ 38. Brugman cited an "ASHRAE" policy statement. Sanderson alleges the statement is false in two respects: "First, there are independent investigations which have demonstrated that magnetics can produce positive effects, known to this Defendant. Second, Defendant cites the 1995 ASHRAE Handbook in a 1998 publication. ASHRAE amended this language in subsequent versions." Id.
Sanderson is not saying that Brugman's statement is literally false. He does not contend that no "independent investigations" have reached the conclusion described by Brugman. Instead, Sanderson is saying that independent investigations have produced mixed results. Some have found that magnetic devices have no significant effects and others have found that magnetic devices can produce positive effects. Brugman chose to report the conclusions of those investigations favorable to his business, and to ignore the others, according to the allegations. Similarly, the court sees no significance in the fact that Brugman made a statement that was in fact supported by the ASHRAE Handbook in 1995, though a later edition had modified the report in unspecified ways. The relevant point is that, even according to the complaint, Brugman's supposedly false assertion was in fact supported by the ASHRAE Handbook in 1995. Under those circumstances, Brugman's statement cannot support a Lanham Act claim on the theory that it is false or misleading. See Mead Johnson Co. v. Abbott Labs., 201 F.3d at 886-87; modified, 209 F.3d at 1034.
Compare practices in legal brief-writing, in which an advocate may cite favorable authority and ignore unfavorable authority, at least if the unfavorable authority is not from the applicable controlling jurisdiction. See Indiana Rules of Prof'l Conduct R. 3.3(a)(3) (requiring disclosure of directly adverse and controlling legal authority if known to lawyer and not disclosed by opposing counsel). (Whether it is advisable to cite non-controlling but adverse authority is a matter of professional judgment rather than rule.) And regarding the change from the 1995 ASHRAE Handbook, one might consider the parallel problem with a brief that cites overruled or out-of-date authority. For example, plaintiff's brief cites repealed versions of statutes regarding civil remedies for victims of crimes, though the error was harmless.
III. State Law Claims
Sanderson has attempted to assert claims under numerous tort theories under state law. As explained below, his claims against Brugman and Surtech do not survive dismissal, but a few claims survive against Culligan.Conspiracy: Sanderson's complaint is laced with the label "conspiracy," but his conclusory labels add nothing to his overall case. See, e.g., Ryan v. Immaculate Queen Center, 188 F.3d 857, 859-60 (7th Cir. 1999) (affirming dismissal of conclusory allegation of conspiracy); House v. Belford, 956 F.2d 711, 721 (7th Cir. 1992) ("[m]ere allegations of a conspiracy are insufficient to withstand a motion to dismiss."). Also, under Indiana law there is no independent tort of civil conspiracy. Sims v. Beamer, 757 N.E.2d 1021, 1026 (Ind.App. 2001); Huntington Mortgage Co. v. DeBrota, 703 N.E.2d 160, 168 (Ind.App. 1998). To the extent that Sanderson might be deemed to be asserting claims for conspiracy, such claims are dismissed.
Fraud: Sanderson contends he has alleged fraud, but he has not identified any allegedly false statements of fact that any defendant made to him, and upon which he reasonably relied. He has failed to state a claim for fraud. See Hardee's of Maumelle, Arkansas, Inc. v. Hardee's Food Systems, Inc., 31 F.3d 573, 579-80 (7th Cir. 1994) (claim of fraud in Indiana requires showing that plaintiff relied on misrepresentation to her detriment); Lawyers Title Ins. Corp. v. Pokraka, 595 N.E.2d 244, 249 (Ind. 1992) (elements of fraud include a misrepresentation of fact that was "rightfully relied upon by the complaining party").
As noted above, the Seventh Circuit wrote in Hemenway v. Peabody Coal Co., 159 F.3d 255, 261 (7th Cir. 1998), that the district court had erred by dismissing a fraud claim based on the plaintiff's failure to plead reliance. In Sanderson's case, however, it is clear that he is not claiming that his commercial foes' allegedly false statements fooled him; he is claiming they deceived prospective customers. Indiana's common law of fraud does not reach such claims.
State Antitrust Law: Sanderson contends he has alleged violations of Indiana antitrust law. The court has already dismissed his federal antitrust claims. Indiana courts have not identified any difference between federal and state antitrust law that would support different treatment of the state claims. See Bi-Rite Oil v. Indiana Farm Bureau Co-op. Ass'n, 720 F. Supp. 1363, 1378 (S.D. Ind. 1989), aff'd, 908 F.2d 200 (7th Cir. 1990) (granting defendant summary judgment on federal and state antitrust claims on the same grounds); Agmax, Inc. v. Countrymark Co-op., Inc., 795 F. Supp. 888, 892 (S.D.Ind. 1992) (denying preliminary injunction); Perry v. Hartz Mountain Corp., 537 F. Supp. 1387, 1390 (S.D.Ind. 1982) (because Indiana antitrust statute was modeled after Sherman Act, plaintiff who lacked standing under federal law also lacked standing under state law); City of Auburn v. Mavis, 468 N.E.2d 584, 585 (Ind.App. 1984) (Indiana courts use federal decisions to interpret state antitrust statutes; federal "antitrust injury" requirement applied to state law claim). Sanderson has failed to state a claim for an Indiana antitrust violation.
Tortious Interference with Contract: Sanderson contends he has alleged tortious interference with contract, but he has not identified any actual contract allegedly interfered with by the defendants. A valid and enforceable contract is an essential element of such a claim. E.g., Levee v. Beeching, 729 N.E.2d 215, 221 (Ind.App. 2000). Although the details of the contract need not be pled, see Cook v. Winfrey, 141 F.3d 322, 327-28 (7th Cir. 1998) (citing Federal Civil Form 5), a contract must at least be identified. Sanderson has failed to state a claim for tortious interference with contract.
Tortious Interference with Prospective Business Relationships: Sanderson also contends he has alleged tortious interference with prospective business relationships. Defendants contend that there is no viable allegation that they took unlawful action, which is an essential element of the tort under Indiana law. See, e.g., Levee v. Beeching, 729 N.E.2d at 222; Economation, Inc. v. Automated Conveyer Systems, Inc., 694 F. Supp. 553, 556-57 (S.D.Ind. 1988). This claim survives dismissal against Culligan. Sanderson has alleged unlawful conduct by Culligan, though the claim is limited to the same allegations of false statements in November 1999 and January 2000 that survived dismissal on the Lanham Act claims. The claim does not survive against Brugman and Surtech because there is no viable allegation that they took any unlawful action.
Defamation: Sanderson also claims that he has stated claims for libel, slander, and product defamation. It is simpler and no less accurate to refer to all three as defamation. Sanderson's defamation claim survives dismissal against Culligan, again limited to the allegations of false statements in November 1999 and January 2000 that survived dismissal on the Lanham Act claims. The claim does not survive dismissal against Brugman and Surtech because Sanderson has not identified any false defamatory statement by them.
Criminal Fraud: Sanderson also claims he has alleged criminal mischief and deception in violation of Ind. Code § 35-43-5-3, which prohibits various types of fraud and deception in commercial transactions. Sanderson seeks treble damage under Ind. Code § 34-24-3-1 (replacing Ind. Code § 34-4-30-1), which provides a civil remedy for a person who "suffers a pecuniary loss as a result of a violation" of numerous criminal statutes, including Ind. Code § 35-43-5-3.
Sanderson was not the target of any alleged fraud, however. He has not identified any instance in which the Indiana courts have allowed a company to sue a commercial competitor sue for treble damages under this statute on the theory that the competitor used deception to secure a sale from a customer.
Recognizing such a claim would seem to stretch the civil remedy statute well beyond its purpose and to open the door to a broad vista of new commercial litigation between competitors. Without much clearer signals that the Indiana legislature intended such results, the court finds that Sanderson has failed to state a claim for relief under Ind. Code § 34-24-3-1.
Conclusion
Accordingly, all claims against defendants Brugman and Surtech Corporation are hereby dismissed with prejudice. Sanderson's claims against defendants Indiana Soft Water Services, Inc. and Culligan International Company are dismissed with prejudice, except for his claims for violations of the Lanham Act based on the allegations in Paragraphs 27(1)(1) and 27(1)(3) of the Third Amended Complaint, and claims of defamation and tortious interference with prospective business relationships arising from the same instances. The stay of discovery previously entered is hereby vacated, and discovery may proceed with respect to the surviving claims. No separate judgment on the dismissed claims shall be entered at this time.
So ordered.