Opinion
Case No. 09-60812-CIV.
August 31, 2009.
Gregory Adam Haile, Leonard Keith Samuels, Berger Singerman, P.A., Fort Lauderdale, FL, for Plaintiff.
Robert Elmer Ferencik, Jr., Lisa Kalinsky North, Ferencik Libanoff Brandt Bustamante Williams, Fort Lauderdale, FL, for Defendant.
FINDINGS OF FACT AND CONCLUSIONS OF LAW ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION
THIS CAUSE is before the Court upon Plaintiff's Amended Motion for a Preliminary Injunction [DE 11]. The Court has carefully considered the motion, Defendant's Response [DE 16], Plaintiff's Reply thereto [DE 19], the credibility of witnesses testifying at a two-day hearing held on July 23, 2009 and August 10, 2009, and the written final arguments of counsel [DE's 46 and 48].
The Court notes that the Defendant's Motion to Dismiss, filed July 27, 2009, concerns issues of the types of damages sought in Plaintiff's Amended Complaint, and need not be resolved before consideration of the Amended Motion for Preliminary Injunction.
I. BACKGROUND
The parties are competitors in the marine fuel improvement market, selling ethanol gasoline additives to boat owners and marinas for use to improve marine fuel performance in boats. Plaintiff Star-Brite Distributing's product is called StarTron, while Defendant Kop-Coat's Valvtect product is called VEGA, which stands for Valvtect Ethanol Gasoline Treatment. On June 30, 2009, Plaintiff Star-Brite Distributing, Inc. ("Plaintiff") filed an Amended Complaint against Kop-Coat, Inc. [DE 10] (hereinafter, "Defendant" or "Valvtect" or "Kop-Coat"), as well as an Amended Motion for Preliminary Injunction. Star-Brite asserts claims for false advertising under the federal Lanham Act (Count I), for violation of Florida's Deceptive and Unfair Trade Practices Act (Count II), for violation of Florida's false advertising statute, Fla. Stat. § 817.41 (Count III), and a claim for common law unfair competition. Plaintiff seeks a preliminary injunction to stop Kop-Coat from running print advertisements stating that certain lab tests show VEGA outperforms StarTron.II. FINDINGS OF FACT
The Court has received proposed findings of fact from each party. These documents have been filed in the docket of this case and served on all opposing parties [DE's 45 and 47]. Due to the technical nature of the evidence in support of the preliminary injunction motion, the Court does incorporate verbatim a small portion of Plaintiff's Proposed Findings, though this Court has made an independent judgment that these findings are correct. Cf. Bright v. Westmoreland County, 380 F.3d 729 (3rd Cir. 2004).
See A. Fuel Stability B. Corrosion Control C. Water Control D. Carbon Deposit Control E. Consumer Deception and Materiality Id.
The Court hereinafter when referring to the ads as a whole will refer to them as "Comparison Ads." This term includes what the parties have called the "Rebate Ad."
"ASTM" is an acronym for the American Society for Testing and Materials.
"NACE" stands for National Association of Corrosion Engineers.
The original comparison ad which ran referred to ASTM D1094 and ASTM D1064. Valvtect acknowledged that ASTM D1064 was not applicable and changed the ad to read ASTM E1064. Plaintiff's Exhibit 6.
III. CONCLUSIONS OF LAW A. Preliminary Injunction Standard
In order to obtain a preliminary injunction, Star-Brite must establish the following four elements: (1) a substantial likelihood that it will prevail on the merits; (2) a substantial threat that it will suffer irreparable injury if the injunction is not granted; (3) the threatened injury to plaintiff outweighs the threatened harm the injunction may do to the defendants; and (4) granting the preliminary injunction will not disserve the public interest. Church v. City of Huntsville, 30 F.3d 1332, 1342 (11th Cir. 1994). Because a "preliminary injunction is an extraordinary and drastic remedy," it is "not to be granted until the movant clearly carries the burden of persuasion as to the four prerequisites." Id. (quoting Northeastern Fl. Chapter of the Ass'n of Gen. Contractors of Am. v. City of Jacksonville, 896 F.2d 1283, 1285 (11th Cir. 1990)); see also McDonald's Corp. v. Roberts, 147 F.3d 1301, 1306 (11th Cir. 1998).B. Substantial Likelihood of Success
To establish a likelihood of success on the merits of a false advertising claim under the Lanham Act:
the movant must demonstrate the following: "(1) the ads of the opposing party were false or misleading, (2) the ads deceived, or had the capacity to deceive, consumers, (3) the deception had a material effect on purchasing decisions, (4) the misrepresented product or service affects interstate commerce, and (5) the movant has been-or is likely to be-injured as a result of the false advertising." Johnson Johnson, 299 F.3d at 1247.North American Medical Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211, 1224 (11th Cir. 2008).
Plaintiff must meet an additional burden in this case because Defendant relied upon scientific testing. When an advertisement cites testing such as in this case:
the advertisement is labeled as an "establishment" claim. BASF Corp., v. Old World Trading Co., 41 F.3d 1081, 1090 (7th Cir. 1994). To prove an establishment claim literally false, the movant must "prove that these tests did not establish the proposition for which they were cited." Quaker State Corp., 977 F.2d at 63. We find this method of evaluating such advertisements to be analytically sound, and adopt the reasoning for use in the Eleventh Circuit.Johnson Johnson Vision Care, Inc. v. 1-800 Contacts, Inc., 299 F.3d 1242, 1248 (11th Cir. 2002). Plaintiff has met its burden to show that the tests relied upon by Defendant did not establish the propositions for which they were cited in comparing these marine fuel additives. The fuel stability test is not applicable to an enzyme-based E10 fuel additive for the marine environment. The fact that Defendant relied upon tests approved for use in the petroleum industry does not insulate Defendant from its misleading attempt to cite to such tests to compare a product sufficiently different in its chemical makeup to take it outside the universe for which the standard test was designed. Although Defendant argues that because Plaintiff's enzyme product is outside the mainstream of the petroleum industry and therefore it should be Plaintiff who has to conform to standard testing, in this case it is Defendant who has created a misleading comparison ad by relying on tests that do not establish that StarTron only shows a 4% fuel stability improvement. Moreover, when these standardized tests, such as ASTM D525 are modified for the E10 fuel, Defendant's claims are proven wrong.
Similarly, the corrosion and water control tests do not stand for the proposition that StarTron is less effective in the marine fuel additive market. Again, while these tests have their role in the petroleum industry, applying them in the context of the Comparison Ads to Star-Brite's enzyme based product is misleading.
The Court concludes that the claims in the ads in this case were not literally false, though they were misleading. The distinction between a "false" and "misleading" claim is important, because "once a court deems an advertisement to be literally false, the movant need not present evidence of consumer deception." North American Medical, 522 F.3d at 1224, n. 11, quoting Johnson Johnson, 299 F.3d at 1247. Although the Court finds the ads misleading and not false, as noted above, Plaintiff was able to put forth evidence through the testimony of Peter Dornau that its customers, both individual and large retailers have called him personally to ask about the ads and test results, reporting to him that they were questioning whether to continue purchasing StarTron or switch to Valvtect. Such evidence not only shows deception, but also the materiality of the ads, countering Defendant's argument that Plaintiff must still establish materiality. Johnson Johnson, 299 F.3d at 1250.
This testimony by Peter Dornau was received without objection by Defendant, despite the fact that arguably statements made by retailers regarding statements made to them by customers, presents a double hearsay issue. Air Turbine Technology, Inc. v. Atlas Copco AB, 295 F.Supp.2d 1334, 1344 (S.D.Fla. 2003) (J. Marra), aff'd, 410 F.3d 701, 708 (Fed. Cir. 2005). The Court presumes that no objection was made because in this case, the statements by retailers to Peter Dornau regarding their own bulk purchases of StarTron are likely present sense impressions of their confusion caused by the advertising.
Plaintiff has also shown that it has been and is likely to be injured as a result of the false advertising. The testimony of both Plaintiff's executives and that of Valvtect's President, Gerald Nessenson, shows that the intent of the Comparison Ads was to cause consumers to switch products. Finally, there is not question that the misrepresented product or service affects interstate commerce as the compared products are sold nationwide.
C. Irreparable Harm
Defendant argues that Plaintiff has a legal remedy for damages even if a violation of the Lanham Act is proven, as Plaintiff cannot show irreparable harm. However, irreparable harm is presumed when a false advertisement that is literally false compares the two products, such as in this case. North American Medical, 522 F.3d at 1227. It is clear that the Comparison Ads are likely to cause direct changes in consumer's purchasing habits from Plaintiff's product to Defendant's product.
D. Balance of the Harm to the Parties and Public Interest
In this case the continuing and potential damage to Plaintiff of consumer product switches because of the Comparison Ads far outweighs the delay of advertising Defendant's product during the pendency of this action. The Court has allowed the Defendant's ads that have already been placed prior to the completion of the injunction hearing to remain in circulation. Therefore, stopping any further Comparison Ads puts a minimal burden upon Defendants.
As to the public interest, the Court has a duty to enforce the law to stop misleading advertising within the marketplace. Although vigorous competition is a public interest by itself, the public is better served when misleading information is curtailed.
IV. CONCLUSION
Based upon the foregoing factual findings and legal analysis, it is ORDERED AND ADJUDGED as follows: GRANTED
1. Plaintiff's Amended Motion for a Preliminary Injunction [DE 11] is hereby ; 2. Defendant, together with its respective officers, agents, servants, employees, attorneys, subsidiaries, and all persons acting in concert with them or under their inducement, encouragement or persuasion, are enjoined and restrained from performing any of the following acts, directly or indirectly, on their own behalf or on behalf of any third party: advertising or marketing of any comparison ads based upon any testing regarding fuel stability, corrosion control or water control as depicted in the Comparison Ads, or as to any endorsement of its product's carbon deposit control benefits by any automobile manufacturer, unless that manufacturer has specifically consented to the endorsement. 3. This preliminary injunction is effective immediately, though Plaintiff shall post a bond in the amount of $10,000 by September 8, 2009; 4. Defendant is further directed to immediately take the necessary action to prevent further publishing of any of the Comparison Ads in any form of media. DONE AND ORDERED in Chambers at Fort Lauderdale, Broward County, Florida.ORDER DENYING MOTIONS
THIS CAUSE is before the Court on Kop-Coat's Emergency Motion for Modification of Court's August 31, 2009 Order Granting Preliminary Injunction and for Sanctions [DE 56], Plaintiff's Motion for Order to Show Cause [DE 60], Plaintiff's Third Amended Complaint [DE 65], Defendant's Motion to Dismiss Count III of Second Amended Complaint [DE 58] and Defendant's Motion for Extension of Time [DE 59]. The Court has carefully considered the motions and relevant responses and supplement to those motions [DE's 57, 61 and 64], and is otherwise advised in the premises.
I. BACKGROUND
On June 30, 2009, Plaintiff Star-Brite Distributing, Inc. ("Plaintiff") filed an Amended Motion for Preliminary Injunction against naming Kop-Coat, Inc. Star-Brite asserts claims for false advertising under the federal Lanham Act (Count I), for violation of Florida's Deceptive and Unfair Trade Practices Act (Count II), for violation of Florida's false advertising statute, Fla. Stat. § 817.41 (Count III), and a claim for common law unfair competition. Plaintiff sought a preliminary injunction to stop Kop-Coat from running print advertisements stating that certain lab tests show Valvtect Ethanol Gasoline Treatment ("VEGA") outperforms StarTron, the competing Star-Brite product. The Court held a two-day hearing on the motion for preliminary injunction on July 23, 2009 and August 10, 2009. Prior to completion of the hearing, on July 31, 2009, the Court granted in part an agreed order to control the placement of ads during the time the Court would finish the hearing and issue a ruling. After receiving written closing arguments on August 18 and 19, the Court issued a preliminary injunction against Valvtect's comparison ads on August 31, 2009. The injunction included a directive to Valvtect to "immediately take the necessary action to prevent further publishing of the Comparison Ads in any form of media." Order Granting Preliminary Injunction at pp. 15-16 [DE 51].
The next day, Valvtect issued a press release entitled "Court Finds Valvtect's Comparison Ad Was Not False." The press release did not mention the issuance of an injunction against the comparison ads, but included the statement "nor did the court order prevent Valvtect from placing future ads comparing the performance of Valvtect Ethanol Gasoline Treatment and StarTron." Exhibit A to Star-Brite's Opposition to Motion [DE 57]. Shortly after that press release, Star-Brite issued its own press release entitled "Starbrite Granted Injunction Against Valvtect." Exhibit B to Valvtect's Emergency Motion [DE 56]. This release described the Court as finding that the ads were "false or misleading" in two sentences, and "false and misleading" in one instance and "false and deceptive" in another instance.
In early October or late September, the October issue of Soundings magazine was published, which included an advertisement touting Valvtect's winterizing qualities against "the competition," and noting that Valvtect's product has been laboratory tested, specifically mentioning some of the same tests that were the subject of the injunction proceeding. See Exhibit A to Motion for Order to Show Cause [DE 60-1]. This advertisement was placed on August 18, 2009, after the Agreed Order but prior to the Preliminary Injunction Order. See Exhibit B to Motion [DE 60-2].
II. DISCUSSION A. Defendant's Motion for Modification
Defendant moves this Court to modify the injunction to increase the amount of bond required of Plaintiff Star-Brite because of the allegedly misleading press release issued by Star-Brite. Without even reaching a discussion of the legal standard for granting such a modification, the Court is convinced that the Star-Brite press release in question was issued in response to Kop-Coat's own misleading press release. While the parties have some freedom to "spin" in the realm of public opinion what court orders mean to the marketplace, neither side is free to mislead the public about the issuance and substance of an injunction.
Kop-Coat argues that because the Star-Brite press release refers to the Valvtect ad as "false," when the Court concluded that the ad was "not literally false, but misleading," Star-Brite must be sanctioned for such a reference. In fact, Star Brite's press release refers twice to the ruling as finding "false or misleading" advertisements. As to the use of the term "false" when not part of the clause "false or misleading," Star-Brite argues that the Court's finding that something is not "literally false" could mean that the ad is just "false," particularly if also found misleading. In the context of responding to the Kop-Coat ad that misrepresents the Court's injunction, the Court will not grant Kop-Coat relief by modifying the injunction or issuing sanctions against Star-Brite. This decision is by no means condoning "two wrongs equal a right." Rather, in deciding whether to grant equitable relief to Kop-Coat, the Court must place Star-Brite's conduct in context.
The Court must note that the Kop Coat press release that was issued first contains a quotation from Jerry Nessenson, Valvtect's President, that the court did not find the ads false, order a retraction, "nor did the court order prevent Valvtect from placing future ads comparing the performance of Valvtect Ethanol Gasoline Treatment and StarTron." The injunction, however, enjoined Defendant from "advertising or marketing of any comparison ads based upon any testing regarding fuel stability, corrosion control or water control as depicted in the Comparison Ads." Order Granting Preliminary Injunction at p. 15. The press release minimized the actual language of the injunction in such a way as to be misleading. Therefore, the Court will not penalize Plaintiff for attempting to set the record straight with its own release.
B. Plaintiff's Motion for Order to Show Cause
Plaintiff Star-Brite has moved for this Court to issue an order to show cause to Defendant as to why it should not be held in civil contempt for violating the Agreed Order by placing the winterizing comparison ad on August 18, knowing publication would be in late September or early October. The standard for a finding of contempt is clear and convincing evidence. See Reynolds v. McInnes, 338 F.3d 1201, 1211 (11th Cir. 2003). Defendant argues that the ad placed August 18 is not a "Comparison Ad" under the terms of the Agreed Order because it does not mention Star-Brite by name, but rather refers to "the Competition." Defendant also cites to case law stating that irreparable harm is presumed when an ad compares two products, implying that a comparison ad must name the second product to be a "comparison ad." North American Medical Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211, 1227 (11th Cir. 2008). The Court therefore concludes that Plaintiff has not met its burden to show that Defendant should be subject to an order to show cause regarding civil contempt.
Plaintiff did not raise this issue but the Court feels compelled to mention that the injunction did place a duty on Defendant to take necessary action to prevent further publishing of any of the Comparison Ads. Defendant did not argue that it took any steps to call back the ad placed on August 18 and not to be published for one month after the Court's injunction. Presumably, Defendant would make the same argument that the winterizing ad published in the October editions was not a "Comparison Ad" because it did not name Plaintiff's product.
In its response, Defendant seeks sanctions against Plaintiff for failure to fully comply with the Local Rule 7.1.A.3 requirement of conferring with counsel before filing such a motion. Plaintiff did confer with Defendant in the context of an alleged violation of the injunction, wherein Defendant responded with copies of emails showing the ad was placed prior to the injunction being entered. While it is not clear that Plaintiff conferred with Defendant regarding an alleged violation of the earlier Agreed Order, it is clear that such a conference would have been futile, as the parties would not have agreed to resolve the issue of an alleged violation. The Court will not issue sanctions as requested by Defendant.
C. Motions Regarding Pleadings
Defendant has moved to dismiss Count III of the Second Amended Complaint because it seeks injunctive relief which Defendant asserts is not authorized by Florida Statutes § 817.41 (governing false advertising). In its Third Amended Complaint, Plaintiff has removed the demand for this remedy on this Count. Therefore, the Motion to Dismiss can be denied as moot.
Defendant had also moved for an extension of time to respond to Counts I, II and IV until its motion as to Count III was resolved. This motion is now moot as well.