VP Racing Fuels, Inc. v. General Petroleum Corp.

Full title: VP RACING FUELS, INC, a Texas corporation, Plaintiff, v. GENERAL PETROLEUM…

Court: United States District Court, E.D. California

Date published: Nov 25, 2009

673 F. Supp. 2d 1073 (E.D. Cal. 2009)

Opinion

No. 2:09-cv-02067-MCE-GGH.

November 25, 2009.

Glenn W. Peterson, Millstone Peterson Watts, LLP, Roseville, CA, for Plaintiff.

Stephen S. Walters, Michael Ray Adele, Allen Matkins Leek Gamble Mallory Natsis LLP, San Diego, CA, for Defendants.

MEMORANDUM AND ORDER

MORRISON C. ENGLAND, JR., District Judge.

Plaintiff VP Racing Fuels ("Plaintiff") seeks injunctive and monetary relief from Defendant General Petroleum Corporation ("Defendant") for False Advertising in violation of both the Lanham Act, 15 U.S.C. § 1125(a) and California Business and Professions Code §§ 17500 et seq., and for Unfair Competition in violation of California Business and Professions Code §§ 17200 et seq. Plaintiff's claims against Defendant stem from alleged misrepresentations of the octane rating of racing fuel distributed throughout California by Defendant.

Presently before the Court is Defendant's Motion to Dismiss for failure to state a claim upon which relief can be granted, pursuant to Fed.R.Civ.P. 12(b)(6), on the grounds that Plaintiff's Claims are preempted by the Petroleum Marketing Practices Act, 15 U.S.C. §§ 2801- 2841, or, in the alternative, for failure to plead fraud with particularity under Fed.R.Civ.P. 9(b). For the reasons set forth below, Defendant's Motion to Dismiss is granted in part and denied in part.¹

1 Because oral argument would not be of material assistance, the Court ordered this matter submitted on the briefs. E.D. Cal. Local Rule 78-230(h).

BACKGROUND

Plaintiff, a Texas corporation authorized to do business in California, sells racing fuels in California, including street legal 100 Octane fuel. Defendant, a California corporation with its principal place of business in California, distributes racing fuel in California under the Sunoco brand, including Sunoco's 100 Octane product, known as 260 GT(tm). Plaintiff contends that Defendant "sold or caused to be sold 97 Octane fuel that has been represented and marketed to consumers to be 100 Octane." (Compl. ¶ 13.)

Plaintiff alleges that in June 2009, it collected samples of allegedly 100 Octane fuel from ten fueling stations in California ("Subject Locations"). Plaintiff alleges that Defendant is the distributor responsible for the 100 Octane fuel offered for sale at the Subject Locations.

Plaintiff avers that laboratory testing and analysis showed that "[n]one of the evidentiary samples tested from the Subject Locations were validated as 100 Octane. The evidentiary samples taken at the Subject Locations, despite being portrayed and sold as '100 Octane' tested at 97 Octane or below." (Compl. ¶ 12.)

Plaintiff alleges that Defendant, willfully and intentionally, misrepresented the nature, characteristics and qualities of Defendant's product in its labeling, marketing and product displays. Plaintiff further claims that Defendant "caused these literally false statements to enter interstate commerce and such statements have actually and materially deceived a substantial number of consumers, and have a continuing tendency to further deceive consumers." (Compl. ¶ 18.) Plaintiff also alleges that as a direct competitor of Defendant, Plaintiff "has been harmed by consumer reliance upon such misrepresentations, which has enabled Defendants to price their 100 Octane produce below the true market value of bona fide, 100 Octane fuel . . . [and] has resulted in competitive harm and has unfairly diverted sales to Defendants." (Compl. ¶ 31.)

Plaintiff filed the present action on July 27, 2009, alleging federal and state law claims for false advertising and a state law unfair competition claim. Defendant now moves to dismiss all of Plaintiff's claims for failure to state a claim, on the grounds that such claims are preempted by federal law, or in the alternative, for failure to plead fraud with particularity.

STANDARD

On a motion to dismiss for failure to state a claim under Rule 12(b)(6), all allegations of material fact must be accepted as true and construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). A complaint will not be dismissed for failure to state a claim "'unless it appears beyond doubt that plaintiff can prove no set of facts in support of her claim that would entitle her to relief.'" Yamaguchi v. Dep't of the Air Force, 109 F.3d 1475, 1480 (9th Cir. 1997) (quoting Lewis v. Tel. Employees Credit Union, 87 F.3d 1537, 1545 (9th Cir. 1996).

Federal Rule of Civil Procedure 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief," in order to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests."Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957). One exception to this general policy of liberality in pleading is fraud or mistake, which instead requires a heightened standard. In alleging fraud or mistake, "a party must state with particularity the circumstances constituting fraud or mistake." Fed.R.Civ.P. 9(b) (emphasis added); Desaigoudar v. Meyercord, 223 F.3d 1020, 1022-23 (9th Cir. 2000) (Fraud must be pled "with a high degree of meticulousness.").

If the court grants a motion to dismiss a complaint, it must then decide whether to grant leave to amend. The court should "freely give" leave to amend when there is no "undue delay, bad faith[,] dilatory motive on the part of the movant . . . undue prejudice to the opposing party by virtue of . . . the amendment, [or] futility of the amendment. . . ." Fed.R.Civ.P. 15(a); Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962). Generally, leave to amend is only denied when it is clear that the deficiencies of the complaint cannot be cured by amendment. DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992).

ANALYSIS

A. Preemption

Defendant contends that Title II of the Petroleum Marketing Practices Act ("PMPA"), 15 U.S.C. §§ 2821- 2824, preempts both the state and federal law claims presented by Plaintiff. Defendant further argues that in the absence of express preemption, conflict and/or obstacle preemption bars those claims. Defendant claims that because the PMPA does not contain a private right of action but rather allegedly gives the Federal Trade Commission exclusive authority to enforce its provisions, Plaintiff cannot rely on the general statutes proscribing unfair business practices to state a private claim not permitted by the PMPA.

The Court will first set forth the principles of preemption before applying such principles to the facts of this case.

1. General Preemption Principles

Under the Supremacy Clause in the Constitution, state laws that conflict with federal law are without effect. Altria Group, Inc. v. Good, 129 S. Ct. 538, 543, 172 L. Ed. 2d 398 (2008) ("Article VI, cl. 2, of the Constitution provides that the laws of the United States 'shall be the supreme Law of the Land; . . . any Thing in the Constitution of Laws of any state to the Contrary notwithstanding.'"). The Federal Government, acting within the authority it possesses under the Constitution, is empowered to preempt state laws to the extent it is believed that such an action is necessary to achieve its purposes. See New York v. FCC, 486 U.S. 57, 63-64, 108 S. Ct. 1637, 100 L. Ed. 2d 48 (1988).

Congress may indicate preemptive intent through a statute's express language or through its structure and purpose. Altria, 129 S. Ct. at 543. However, the presence of an express preemption clause does not immediately end the inquiry; "the question of the substance and scope of Congress' displacement of state law remains." Id. Preemption may also be inferred if the scope of the statute indicates that Congress intended federal law to occupy the legislative field, or if there is an actual conflict between state and federal law. Id. (citation omitted). Irrespective of the variety of preemption at issue, the Court is guided by the rule that "'[t]he purpose of Congress is the ultimate touchstone' in every pre-emption case." Id. (citations omitted); City of Auburn v. United States, 154 F.3d 1025, 1031 (9th Cir. 1998) ("[T]he pivotal question is not the nature of the state regulation, but the language and congressional intent of the specific federal statute." (citations omitted)).

Because the States are independent sovereigns in our federal system, the federal courts have long presumed that Congress does not cavalierly preempt state-law causes of action.Bates v. Dow Agrosciences LLC, 544 U.S. 431, 449, 125 S. Ct. 1788, 161 L. Ed. 2d 687 (2005) (citations and quotations omitted); Altria, 129 S. Ct. at 543 ("When addressing questions of express or implied preemption, we begin our analysis 'with the assumption that the historic police powers of the States [are] not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.'" (citation omitted)). This assumption applies with particular force when Congress has legislated in a field traditionally occupied by the States. Altria, 129 S. Ct. at 543. Therefore, when the text of a preemption clause is susceptible to more than one plausible reading, courts ordinarily "accept the reading that disfavors pre-emption." Bates, 544 U.S. at 449, 125 S.Ct. 1788.

The Court begins by first noting that the States have traditionally occupied the area of regulating petroleum products. In California, the laws relating to petroleum products were first enacted in 1931 and are found in the California Business and Professions Code, Division 5, Chapters 14 and 15. Regulations that further define and implement the laws are found in the California Code of Regulations, Title 4, Division 9, Chapters 6, 7, and 8.

Therefore, there is a strong presumption that state law claims are not to be superseded unless that was the clear and manifest purpose of Congress.

The Court will now examine the language and congressional intent, including the legislative history, of the PMPA before turning to whether the PMPA preempts Plaintiff's claims.

2. Petroleum Marketing Practices Act

In June 1978, Congress enacted the Petroleum Marketing Practices Act ("PMPA"), ² title II of which regulates the testing and disclosure of the octane rating of gasoline, as well as the determination, certification, and display of octane ratings.³ Under the PMPA, every gasoline refiner who distributes fuel in commerce must determine the octane rating of such gasoline, in accordance with FTC guidelines, and certify this rating to any entity to whom the gasoline is distributed. 15 U.S.C. § 2822(a) (2008). Then, each entity in the distribution chain must certify the octane rating to the next recipient, based either on its own determination or on the certification it received from its distributor. 15 U.S.C. § 2822(b).

2 The PMPA was enacted on June 19, 1978. Only Title II of the PMPA is germane to this case; all references to the PMPA pertain only to Title II, unless otherwise noted, which is codified at 15 U.S.C. §§ 2821- 2824.

3 The stated purpose of the PMPA is "to require the testing, certification and posting of the octane rating of gasoline sold at retail and the display on any new automobile of the proper octane rating for that automobile." S. Rep. No. 95-731, at 1 ("[T]he Act . . . [is] to encourage conservation of automotive gasoline and competition in the marketing of such gasoline by requiring that information regarding the octane rating of automotive gasoline be disclosed to consumers. . . .").

And finally, each gasoline retailer must then display, in a clear and conspicuous manner, at the point of sale to the ultimate purchaser, the octane rating of the gasoline, based either on its own determination or on that certified to it by the distributor. 15 U.S.C. § 2822(c).

As initially codified, Section 204 of the PMPA set forth a broad express preemption clause:

To the extent that any provision of this subchapter applies to any act or omission, no State or any political subdivision thereof may adopt, enforce, or continue in effect any provision of any law or regulation (including any remedy or penalty applicable to any violation thereof) with respect to such act or omission, unless such provision of such law or regulation is the same as the applicable provision of this subchapter.

15 U.S.C. § 2824 (1988), amended by 15 U.S.C. § 2824 (1992) (emphasis added). Thus, state law dealing with any act or omission to which the provisions of the title also apply was preempted unless the provision of state law was "the same as" the applicable provision of the title. S. Rep. No. 95-731, at 45 (1978),as reprinted in 1978 U.S.C.C.A.N. 873, 903. Furthermore, Section 203 delegates to the Federal Trade Commission ("FTC") the procedural, investigative, and enforcement powers and does not provide for a private right of action, unlike Title I of the PMPA.⁴ 15 U.S.C. § 2823. Therefore, the PMPA preempted most state law and precluded enforcement action by the state.

4 Title I of the PMPA provides: "If a franchisor fails to comply with the requirements of section 2802, 2803, or 2807 of this title, the franchisee may maintain a civil action against such franchisor." 15 U.S.C. § 2805.

In 1992, Congress amended the PMPA. As amended, the current preemption clause reads:

(a) To the extent that any provision of this subchapter applies to any act or omission, no State or any political subdivision thereof may adopt or continue in effect, except as provided in subsection (b) of this section, any provision of law or regulation with respect to such act or omission, unless such provision of such law or regulation is the same as the applicable provision of this subchapter.

(b) A State or political subdivision thereof may provide for any investigative or enforcement action, remedy, or penalty (including procedural actions necessary to carry out such investigative or enforcement actions, remedies or penalties) with respect to any provision of law or regulation permitted by subsection (a) of this section.

15 U.S.C. § 2824 (2008) (as amended by H.R. 776, 102d Cong. (1992)) (emphasis added).

Congress' intent in amending the PMPA was to provide "the states more authority to enforce octane posting requirements." H.R. Rep. No. 102-474(I), at 151 (1992), as reprinted in 1992 U.S.C.C.A.N. 1954, 1974. H.R. 776 was introduced after a two-year investigation by the General Accounting Office (GAO) estimated that "nine percent of a nationwide sample of gasoline sold in 1988 was mislabeled by at least half an octane point, the amount considered a significant violation." Id. Further, Congress found that although vested with the authority, the Federal government had failed to test or enforce gasoline octane compliance since 1981. Id. Congress recognized that "states' attempts to prosecute octane labeling violations are hampered because the Petroleum Marketing Practices Act (PMPA) preempts many effective state enforcement procedures." Id.

Ultimately, H.R. 776 "allow[ed] states broader authority to enforce octane mislabeling and posting on their own. . . ." Id. ("In short, this legislation . . . recognizes that motorists have a right to know that they are getting what they pay for, and that dealers have a right to know that their competitors are not cheating. The Federal government has not enforced the law; the legislation gets them out of the way and allows the states to do the job."). Congress further explained, "[u]nder this section, certain existing restrictions in the PMPA on state enforcement would be repealed. States would be allowed broader authority to enforce octane mislabeling and posting. States could provide for any investigative or enforcement act necessary to enforce octane posting requirements under [the PMPA]." Id. at 220.

Therefore, currently under the PMPA, for any act or omission covered by the PMPA, so long as the state law is not different from or in addition to the requirements under the PMPA, the state law can be used to enforce the PMPA and is not preempted by such.

The Court now turns to Plaintiff's state law claims to assess whether or not they are "the same as" PMPA's requirements.

3. Unfair Competition Claim

Plaintiff's Second Claim is for violation of California's Unfair Competition Law ("UCL"), Cal. Bus. Prof. Code §§ 17200et seq. This statutory scheme prohibits any "unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by [Cal. Bus. Prof. Code §§ 17500 et seq.]." Cal. Bus. Prof. Code § 17200. "By proscribing 'any unlawful' business practices, section 17200 'borrows' violations of other laws and treats them as unlawful practices that the unfair competition law makes independently actionable." Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal.4th 163, 180 (1999) (internal quotations and citations omitted). The "unlawful" prong of the UCL, thus, effectively turns a violation of the underlying law into a per se violation of the UCL. See Kasky v. Nike, Inc., 27 Cal.4th 939, 950 (2002); Cel-Tech Communications, 20 Cal.4th at 180.

Plaintiff alleges that Defendant is "competing unfairly by knowingly selling fuel that is misrepresented to consumers as 100 Octane when it is not." (Compl. ¶ 23.) Defendant argues that Plaintiff's claim must fail because the PMPA does not provide for a private right of action for its violation but rather gives the FTC the enforcement authority, and thus the courts have no authority to enforce any violations of the PMPA. Defendant further argues that "any state law version of the PMPA can only be enforced by the state or by state agencies." (Def.'s Mtn 6.)

First, Plaintiff is not attempting to bring an action under the PMPA; therefore, the fact that the PMPA does not provide a private right of action is not determinative. Furthermore, Defendant's interpretation of the preemption clause is too narrow and would have this Court ignore the 1992 amendment to the PMPA's express preemption clause. The statute currently provides that "[a] State or political subdivision thereof may provide for any investigative or enforcement action, remedy, or penalty . . . permitted. . . ." 15 U.S.C. § 2824(b) (emphasis added).

The legislative history set forth above makes it clear that Congress amended Title II of the PMPA to allow States the authority to enforce octane disclosure requirements.

Here, the State of California has provided that any unlawful business practices, including violations of laws for which there is no direct private right of action, may be redressed by private action under the UCL; it is not necessary that the predicate law provide for private civil enforcement. See Summit Technology, Inv. v. High-Line Medical Instruments, Co., 933 F.Supp. 918 (C.D. Cal. 1996) Furthermore, Defendant has not indicated any authority for the proposition that the courts are not a political subdivision of the State.

Defendant further argues that the state law UCL cause of action is not "the same as" the applicable provision of the PMPA, and thus are expressly preempted by such. In Jurman v. Sun Co., 248 A.D.2d 246, 671 N.Y.S.2d 218 (N.Y. App. Div. 1998) the Supreme Court, Appellate Division of New York held that plaintiffs' claims were "preempted by the Petroleum Marketing Practices Act, Octane Disclosure in that the preemption clause bans any State 'provision of any law or regulation' that is not the same as the Federal provisions." Id. (internal citations omitted). The Court further explained: "Were we not to find express preemption, we would find implied preemption, in that State standards setting stricter requirements for the posting of information regarding octane level 'would unavoidably result in serious interference with the "accomplishment and execution of the full purposes and objectives of Congress."'" Id. (citation omitted).

Here, we are not dealing with an attempt to set stricter standards. Instead, the pertinent issue in this case is whether to allow the State to enforce the Federal standard. Because the UCL "adopts" the underlying law for purposes of the action, then the predicate law here, PMPA, would be "the same as" the PMPA.⁵ Plaintiff alleges that Defendant is "competing unfairly by knowingly selling fuel that is misrepresented to consumers as 100 Octane when it is not." (Compl. ¶ 23.) Plaintiff appears to claim then that Defendant knowingly mis-certified the octane rating of the gasoline it distributed to Sunoco retailers. This presumably could have occurred for any number of reasons, including an intentional violation of the PMPA, or simply because the octane rating certified to Defendant by its refiner was inaccurate.

5 Furthermore, violations of the legislative requirements were enforceable by the FTC as unfair or deceptive trade practices under Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 2823(e). Section 5 states: "[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful." 15 U.S.C. § 45.

Defendant also argues that, in the absence of express preemption, Plaintiff's UCL claim should be impliedly preempted. However, there is no conflict in complying with both the PMPA and the UCL; compliance with the PMPA would mean that there is no violation of underlying law. Furthermore, it is evident that Congress did not intend to regulate the entire field as it amended Section 204 of the PMPA to allow states to provide for any enforcement action for violations.

Accordingly, the Court finds that Plaintiff's Second Claim for Unfair Competition, pursuant to Cal. Bus. Prof. Code § 17200, is not preempted by Title II of the PMPA.

4. False Advertising Claim

Plaintiff's Third Claim is for False Advertising under California Business and Professions Code §§ 17500 et seq. ("FAL"). Section 17500 provides:

It is unlawful for any . . . corporation . . . to make or disseminate or cause to be made or disseminated before the public in this state, . . . in any newspaper or other publication, or any advertising device, or by public outcry or proclamation, or in any other manner or means whatever, including over the Internet, any statement, . . . which is untrue or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading. . . .

Cal. Bus. Prof. Code § 17500 (emphasis added).

Defendant again argues that the provisions of section 17500 are not "the same as" the PMPA and thus Plaintiff's claim must fail. However, it is not the act of certifying or displaying the octane level that Plaintiff complains about. Rather, it is the act of intentionally misrepresenting the octane level that Plaintiff takes issue. Plaintiff alleges that Defendant is "making or condoning the posting of signage, placards, displays, and other public outcries or proclamations that misrepresented the true octane level of the products they sold and/or caused to be sold to the public." (Compl. ¶ 28.) A false or misleading advertisement is unlawful only if the advertiser knows, or in the exercise of reasonable care should know, of its false or misleading character.

Defendant argues that under the PMPA, a distributor, such as Defendant, need not know the actual octane of the fuel it distributes and may, instead, rely on the refiner's stated octane level. Here, however, Plaintiff is alleging that Defendant did not have knowledge of the actual octane rating. Here, the "act" complained of is the misleading/false advertising, not the certification or display of the octane rating. The PMPA does not regulate the act of advertising petroleum products. Therefore, the PMPA does not expressly preempt Plaintiff's false advertising claim because the express preemption clause only pertains "[t]o the extent that any provision of this subchapter applies to any act or omission." 15 U.S.C. § 2824.

Furthermore, Plaintiff's state law false advertising claim is not impliedly preempted, either through conflict or obstruction. As Congress noted, "This rule of construction is not, however, intended to authorize intentionally deceptive or misleading identification of automotive gasoline. Such would be the case if the trademark to be utilized were '100 Octane' and this trademark were to be utilized to identify automotive gasoline with an octane rating of less than 100 under the statutory definition." S. Rep. No. 95-731, at 30. Therefore, Congress did not intend for the PMPA to regulate the entire field of petroleum marketing.

The Court in Alvarez v. Chevron Corp., No. CV 09-3343-GHK (CWX), 2009 U.S. Dist. LEXIS 94377 (C.D. Cal. Sept. 30, 2009), recently held that the PMPA did preempt the plaintiffs' California false advertising claim.

The Court also dismissed the plaintiffs' California unfair competition claim, but not on the grounds of preemption.

However, Plaintiff's claim here is factually distinguishable from that in Alvarez. In Alvarez, the plaintiff claimed "[d]efendants misled consumers by making untrue statements and failing to disclose. . . . [that] the initial 0.2-0.3 gallons of such motor fuel sold had a lower octane rating due to the residual fuel remaining in the fuel dispensing system from a prior customer who had purchased a lower grade of motor fuel."Alvarez, 2009 U.S. Dist. LEXIS 94377 at *13. The Alvarez court found that plaintiff's false advertising claim was preempted because "we cannot require Defendants to disclose more information than is expressly required by these provisions." Id. at *15. Here, however, Plaintiff is not requesting that Defendant disclose more information than required, only that Defendant's disclosure be accurate and truthful.

Accordingly, Plaintiff's Third Claim for False Advertising, pursuant to Cal. Bus. Prof. Code § 17500, is not preempted by Title II of the PMPA.

The Court will now turn to Plaintiff's federal Lanham Act Claim to determine whether the PMPA preempts that claim.

5. Lanham Act Claim

Plaintiff's First Claim is for false advertising in violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a)(1)(B).

Section 43(a) prohibits the use of false designations of origin, false descriptions, and false representations in the advertising and sale of goods and services.⁶ Waits v. Frito-Lay, Inc., 978 F.2d 1093, 1106.

6 15 U.S.C. § 1125(a): Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which . . . 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, shall be liable in a civil action by any person who believes that he or she is likely to be damaged by such act.

When two federal statutes conflict, federal statutory construction requires that specific statutory frameworks take precedence over more general prohibitions. Accord In re Padilla, 222 F.3d 1184, 1192 (9th Cir. 2000) ("Where both a specific and a general statute address the same subject matter, the specific one takes precedence regardless of the sequence of the enactment, and must be applied first."). It is also well established that, whenever possible, a court should interpret two seemingly inconsistent statutes to avoid a potential conflict. California ex rel. Sacramento Metropolitan Air Quality Management Dist. v. United States, 215 F.3d 1005, 1012 (9th Cir. 2000) ("The courts are not at liberty to pick and choose among congressional enactments, and when two statutes are capable of co-existence, it is the duty of the courts, absent a clearly expressed congressional intention to the contrary, to regard each as effective." (citation omitted)).

For the following reasons, the Court finds that the Lanham Act Section 43(a) and title II of the PMPA are not capable of coexistence and thus the more specific provisions of the PMPA must prevail.

In order to state a claim for false advertising under the Lanham Act, 15 U.S.C. § 1125(a), a plaintiff must plead: (1) in commercial advertisements, defendant made false statements of fact about its own or another's product; (2) those advertisements actually deceived or have the tendency to deceive a substantial segment of their audience; (3) such deception is material, in that it is likely to influence the purchasing decision; (4) the defendant caused its misrepresentation to enter interstate commerce; and (5) plaintiff has been or is likely to be injured as a result of the foregoing either by direct diversion of sales from itself to defendant, or by lessening of the goodwill which its products enjoy with the buying public. Rice v. Fox Broadcasting Co., 330 F.3d 1170 (9th Cir. 2003). To demonstrate falsity within the meaning of the Lanham Act, a plaintiff must show that the statement was literally false, either on its face or by necessary implication, or that the statement was literally true but likely to mislead or confuse consumers. Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir. 1997).

The specific provisions of the PMPA allow the distributor to rely on the certification it received from the supplier. 15 U.S.C. § 2822.

Because knowledge of falsity is not a prerequisite to a finding of a violation under Section 43(a) of the Lanham Act, a defendant could be in complete compliance with the PMPA, by relying on its refiner's certification of the octane rating, and still be in violation of Section 43(a). A defendant who has relied on an inaccurate certification would necessarily be in violation of Section 43(a) for any advertisements it makes in accordance with such certification because the statements would be literally false. In other words, a defendant could unknowingly make false advertisements in accordance with the PMPA certification chain and unwittingly violate Section 43(a). However, a person cannot be held liable for "performing a duty which the law at that time required him to perform." Accord Hoffman v. Halden, 268 F.2d 280, 300 (9th Cir. 1959) (reversed on unrelated grounds). Allowing a Section 43(a) claim would nullify the safe harbor provision of the PMPA. See California ex rel. Sacramento Metropolitan Air Quality Management Dist., 215 F.3d at 1013 ("It is fundamental that a general statutory provision may not be used to nullify or to trump a specific provision, irrespective of the priority of enactment.").

Accordingly, Plaintiff's Section 43(a) Lanham Act Claim is preempted by the PMPA and as such is dismissed with prejudice.⁷

7 The Court notes that Plaintiff's Complaint asserts federal jurisdiction based on federal question, 28 U.S.C. § 1331, and diversity jurisdiction, 28 U.S.C. § 1332(a)(1). Therefore, while there is no longer a federal question, the Court retains jurisdiction over this matter pursuant to diversity jurisdiction.

The Court now turns to Defendant's argument that even if Plaintiff's state law claims are not preempted by the PMPA, such claims should nevertheless be dismissed for failure to allege the deceptive practices at issue with sufficient particularity.

B. Pleading Fraud with Particularity

Defendant argues that all of Plaintiff's claims essentially sound in fraud and thus must be plead with particularity under Federal Rule of Civil Procedure 9(b) to survive a motion to dismiss. Defendant's main contention is that Plaintiff's allegations do not identify any misrepresentation made by Defendant, much less any basis for inferring that Defendant knowingly made such misrepresentations. Defendant further argues that the time, place, content and parties to any supposed misrepresentation are not alleged by Plaintiff. Plaintiff asserts that its claims are not based in fraud, but even if they are, sufficient facts have been alleged to survive the heightened pleading standard.

The California Supreme Court has held "[t]he requirement that fraud be pleaded with specificity . . . does not apply to causes of action under the consumer protection statutes," specifically referring to Sections 17200 and 17500. Committee on Children's Television, Inc. v. General Foods Corp., 35 Cal.3d 197, 212 n. 11, superseded on other grounds by statute in Gartin v. S M NuTec LLC, 245 F.R.D. 429 (C.D. Cal. 2007). However, the Ninth Circuit recently addressed the subject:

Kearns's first argument — that Rule 9(b) does not apply to California's consumer protection statutes because California courts have not applied rule 9(b) to the Consumer Protection Statutes, which include the CLRA and UCL — is unavailing. It is well-settled that the Federal Rules of Civil Procedure apply in federal court, "irrespective of the source of the subject matter jurisdiction, and irrespective of whether the substantive law at issue is state or federal." Vess [v. Ciba-Geigy Corp. USA], 317 F.3d [1097,] at 1103. . . . The UCL prohibits "unlawful, unfair or fraudulent business act[s] or practice[s]" and "unfair, deceptive, untrue or misleading advertising." Cal. Bus. Prof. Code § 17200. Rule 9(b)'s particularity requirement applies to these state-law causes of action. Vess, 317 F.3d at 1102-05. . . .

While fraud is not a necessary element of a claim under . . . UCL, a plaintiff may nonetheless allege that the defendant engaged in fraudulent conduct. Id. at 1103. A plaintiff may allege a unified course of fraudulent conduct and rely entirely on that course of conduct as the basis of that claim. In that event, the claim is said to be 'grounded in fraud' or to 'sound in fraud,' and the pleading . . . as a whole must satisfy the particularity requirement of Rule 9(b). Id. at 1103-04.

Kearns v. Ford Motor Corp., 567 F.3d 1120, 1125 (9th Cir. 2009).

Reviewing the Complaint, Plaintiff alleges that Defendant engaged in a fraudulent course of conduct (i.e., knowingly misrepresenting the Octane level of the gasoline that it distributed) and such conduct resulted in violations of the UCL and FAL. Under the heading "FACTUAL ALLEGATIONS COMMON TO ALL CLAIMS," Plaintiff alleges that Defendant "has thus defrauded an unknown number of consumers whom have paid for what they believed to be 100 Octane racing fuel, when in fact what they received was 97 Octane or less." (Compl. ¶ 13 (emphasis added).) Plaintiff further alleges under the same heading that Defendant "has defrauded consumers in the manner alleged. . . ." (Compl. ¶ 14 (emphasis added).)

These allegations are specifically incorporated by reference in Plaintiff's state law claims under the UCL and FAL. (Compl. ¶¶ 22, 26.) Furthermore, Plaintiff specifically alleges under its Second Claim (UCL) that "[D]efendants are competing unfairly by knowingly selling fuel that is misrepresented to consumers as 100 Octane when it is not." (Compl. ¶ 23 (emphasis added.) Likewise, Plaintiff's Third Claim (FAL) alleges that Defendant "knew, or by the exercise of reasonable care should have known, that the statements were untrue or misleading." (Compl. ¶ 28.) Therefore, the Court finds that Plaintiff's state law claims are "grounded in fraud" and thus must be pleaded with particularity.

The Court now turns to Plaintiff's state law claims to determine whether Plaintiff has satisfied this heightened pleading standard.

1. Unfair Competition Claim

California's Business and Professions Code § 17200 ("UCL") defines unfair competition as "unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by [Cal. Bus. Prof. Code §§ 17500 et seq.]." Therefore, in order to state a cause of action for unfair competition under the UCL, a plaintiff must allege either: (1) an unlawful act; (2) an unfair act; (3) a fraudulent act; or (4) false advertising.

Plaintiff alleges that Defendant's practices constitute unfair competition because "(1) they are unlawful, unfair or fraudulent, and (2) they involve unfair, deceptive, untrue or misleading advertising. . . ." (Compl. ¶ 24.)

Thus, it appears that Plaintiff is attempting to state a cause of action under each prong. Therefore, the Court will examine each of these in turn, except false advertising, which the Court will discuss separately in Section 2 below.

a. Unlawful Act

"Unlawful" practices are practices "forbidden by law, be it civil or criminal, federal, state, or municipal, statutory, regulation, or court-made." Saunders v. Superior Court, 27 Cal. App. 4th 832, 838-39 (1994) (citing People v. McKale, 25 Cal.3d 626, 632 (1979)). To state a cause of action based on an "unlawful" business act or practice under the UCL, a plaintiff must allege facts sufficient to show a violation of some underlying law. McKale, 25 Cal.3d at 635.

As noted above, Plaintiff's Lanham Act claim is preempted and thus the Lanham Act cannot be the predicate law for Plaintiff's UCL claim. Furthermore, as explained below, Plaintiff's state law false advertising claim fails as well. As Plaintiff has not identified any other predicate law in its complaint whereby Defendant's actions may be found "unlawful," Plaintiff has failed to state a cause of action under the "unlawful" prong of the UCL.

b. Unfair Act

A business act or practice is "unfair" when the conduct "threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to a violation of the law, or that otherwise significantly threatens or harms competition." Cel-Tech Communications, Inc. v. L.A. Cellular Tel. Co., 20 Cal.4th 163, 187, 83 Cal.Rptr.2d 548, 973 P.2d. 527 (1999). To sufficiently plead an action based on an "unfair" business act or practice, a plaintiff must allege facts showing the "unfair" nature of the conduct and that the harm caused by the conduct outweighs any benefits that the conduct may have. Motors, Inc. v. Times Mirror Co., 102 Cal. App. 3d 735, 740 (1980) ("[S]ince the complaint is unlikely to reveal defendant's justification, if th[e] pleading states a prima facie case of harm, . . . the defendant should be made to present its side of the story.").

Plaintiff alleges that Defendant's conduct "has enabled Defendants to price their 100 Octane product below the true market value of bona fide, 100 Octane fuel." (Compl. ¶ 31.) Plaintiff further alleges that such practice "has resulted in competitive harm and has unfairly diverted sales to Defendant[]." (Id.) Therefore, the Court concludes that Plaintiff has sufficiently alleged harm such that Defendant should be made to answer. As such, Plaintiff properly states a cause of action under the "unfair" prong of the UCL.

c. Fraudulent Act

A "fraudulent" business act or practice is one in which members of the public are likely to be deceived. Hall v. Time, Inc., 158 Cal. App. 4th 847, 849 (2008); Olsen v. Breeze, Inc., 48 Cal. App. 4th 608, 618 ("'Fraudulent,' as used in the statute, does not refer to the common law tort of fraud but only requires a showing members of the public 'are likely to be deceived.'" (citation omitted)).

Thus, in order to state a cause of action based on a "fraudulent" business act or practice, the plaintiff must allege that consumers are likely to be deceived by the defendant's conduct. Committee on Children's Television, Inc. v. General Foods Corp., 35 Cal.3d 197, 212 (1983).

Plaintiff alleges that Defendant is the distributor of 100 Octane fuel at Sunoco retail locations throughout California. (Compl. ¶ 9.) Plaintiff specifically alleges that in June 2009, Plaintiff procured numerous samples of gasoline from 10 of these retail locations allegedly supplied by Defendant. (Compl. ¶ 9.) Furthermore, Plaintiff has expressly identified these 10 retail locations, including the store names and locations. (Id.) Plaintiff further alleges that samples of gasoline portrayed and sold as "100 Octane" taken from the Subject Locations tested as 97 Octane or below. (Compl. ¶ 12.) Plaintiff asserts "GP has thus defrauded an unknown number of consumers whom have paid for what they believed to be 100 Octane racing fuel, when in fact what they received was 97 Octane or less." (Compl. ¶ 13.) By reasonable inference, Plaintiff has alleged that Defendant's certification of the fuel rating as 100 Octane at the Subject Locations likely misled consumers into believing that such fuel was in fact 100 Octane, when in actuality, it was not. The Court finds that Plaintiff's allegations are sufficiently particular to give the Defendant fair notice of what the claim is and the grounds upon which it rests.

As such, Plaintiff sufficiently states a cause of action under the "fraudulent" prong of the UCL.

Accordingly, Plaintiff has stated a cause of action under the "unfair" and "fraudulent" prongs of the UCL, but not under the "unlawful" prong. Therefore, Plaintiff's Second Claim is dismissed with leave to amend to the extent that such claim is based on the "unlawful" prong of the UCL.

The Court now turns to Plaintiff's claims of false advertising under the UCL and California's False Advertising Law.

2. False Advertising Claim

California's False Advertising Law (FAL) prohibits the dissemination in any advertising media of any "statement" concerning real or personal property offered for sale, "which is untrue or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading." Cal. Bus. Prof. Code § 17500.

"[T]o state a claim under either the UCL or the false advertising law, based on false advertising or promotional practices, 'it is necessary only to show that "members of the public are likely to be deceived."'" In re Tobacco II Cases, 46 Cal.4th 298, 312 (2009) (quoting Kasky v. Nike, Inc., 27 Cal.4th 939, 951 (2002)).⁸ Accordingly, a plaintiff must allege: (1) statements in the advertising are untrue or misleading, and (2) defendant knew, or by the exercise of reasonable care should have known, that the statements were untrue or misleading. People v. Lynam, 253 Cal. App. 2d 959, 965 (1967).

8 A violation of the UCL's fraud prong is also a violation of false advertising law (§ 17500 et seq.). Committee on Children's Television, Inc. v. General Foods Corp., 35 Cal.3d 197, 210 (1983).

The underlying element of a false advertising claim is some type of advertising statement. See Tayag, 2009 U.S. Dist. LEXIS 33260, at *5-6 ("The content of the alleged misrepresentation is necessary to state a claim, as is an allegation of what is false or misleading about the statement."). The Complaint is void of any such factual allegation. The only allegation in the Complaint regarding advertisements is "Sunoco 260 GT 100, which has the highest octane rating of any street legal fuel, is now available at selected retail locations." (Compl. 3 n. 1.) This statement, however, was made by Sunoco, Inc., not Defendant, as evidenced by the website address. (Compl. 3 n. 1 ("http://www.sunocoinc.com/Site/Consumer/RaceFuels/260GT100Locati ons/California.htm").) Plaintiff has not alleged any relationship between Sunoco, Inc. and Defendant whereby Defendant could be held liable for the statement made by Sunoco, Inc.

Plaintiff alleges that Defendant, "in its labeling, marketing and product displays, ha[s] misrepresented the nature, characteristics, or qualities of [its] product by falsely informing consumers that they are purchasing 100 Octane fuel, when i[n] fact they are actually purchasing 97 or less Octane." (Compl. ¶ 17.) Plaintiff further alleges that Defendant is "making or condoning the posting of signage, placards, displays, and other public outcries or proclamations that misrepresent[] the true octane level of the products they sold and/or caused to be sold to the public." (Compl. ¶ 28.) No other facts are provided.

As such, Plaintiff has not identified any advertisements by Defendant but has merely asserted conclusory allegations that Defendant made false statements in its advertising. The Court need not accept these conclusory allegations as true. Plaintiff has not alleged any facts as to the substance or even existence of these labeling, marketing and product displays. Therefore, the Court finds that Plaintiff has not satisfied heightened the pleading standard.

Accordingly, Plaintiff's state law false advertising claim, under both the UCL and the FAL, is dismissed with leave to amend.

CONCLUSION

Based on the foregoing, Defendant's Motion to Dismiss is GRANTED with prejudice as to Plaintiff's First Claim for violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a)(1)(B). Defendant's Motion to Dismiss is DENIED as to Plaintiff's Second Claim for unfair competition in violation of Cal. Bus. Prof. Code § 17200 et seq., to the extent such claim is based on "unfair" or "fraudulent" practices, but GRANTED, without prejudice, to the extent such claims are based on "unlawful" practices or false advertising. Defendant's Motion to Dismiss is GRANTED without prejudice as to Plaintiff's Third Claim for false advertising in violation of Cal. Bus. Prof. Code § 17500.

Plaintiff may file a Second Amended Complaint, should it choose to do so, not later than twenty (20) days following the date this Memorandum and Order is electronically filed.

IT IS SO ORDERED.