Opinion
CIVIL ACTION NO. 08-4221.
December 18, 2008
MEMORANDUM
Currently pending before the Court is the Motion of Defendants Knitting Fever, Inc., Sion Elalouf, Diane Elalouf, Jeffrey J. Denecke, and Jay Opperman (collectively "Moving Defendants") to Dismiss Plaintiff's Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth below, the Motion is granted in part and denied in part.
I. FACTS AND PROCEDURAL HISTORY
According to the facts set forth in the Complaint, Plaintiff, The Knit With ("The Knit"), is a small, family owned and operated business, established in 1971, that engages in retail sales to consumers of specialty yarns and accessories, from its location at 8226 Germantown Avenue, Philadelphia, Pennsylvania. (Compl. ¶ 3.) Defendant Knitting Fever, Inc. ("KFI") is a New York corporation, existing since 1980, run by Sion Elalouf as the chief executive officer and either the sole or dominant shareholder. (Id. ¶ 4.)
The factual summary is crafted entirely from the Complaint and accepts the allegations of that Complaint as true.
A. History of Plaintiff's Relationship with Defendant KFI
Since the mid-1980's and through late 2005, Plaintiff maintained a commercial relationship with Defendant KFI. (Compl. ¶ 26.) Plaintiff sourced from KFI a number of hand knitting products, including yarns purportedly spun with a cashmere content and marketed by KFI under a variety of brand names, including "Debbie Bliss" and KFI's own house brand name. (Id.) In the mid-1990's, Defendant Jay Opperman joined KFI as a sales representative. (Id. ¶ 17.) Via his relationship with Plaintiff, the percentage of The Knit's inventory represented by KFI-sourced products steadily increased, such that, for several years up to 2002, KFI was Plaintiff's leading vendor. (Id.) KFI negotiated payment of invoices for a variety of entities, including Knitting Fever, Inc., KFI, Inc., KFI, Inc. d/b/a Euro Yarns, and Euro Yarns d/b/a Elizabeth Austen. (Id.)
In the summer of 2002, Plaintiff voiced dissatisfaction with several allegedly commercially unreasonable KFI trade practices, including: incomplete shipments, extensive backorders, shipments arriving long after requested and expected delivery dates, orders being fulfilled through multiple small shipments, and trade rumors that KFI would supply a mass-market retailer the same branded products which had been distributed only to speciality retailers such as Plaintiff. (Id. ¶ 18.) Mr. Opperman acknowledged the complaints, identified KFI's Roosevelt, NY warehouse as the cause of most of the complaints, and represented that the sales of specialty goods to mass market retailers was merely an experimental venture. (Id. ¶ 19.) Plaintiff renewed these objections in mid-summer 2004, and was told that these problems would be rectified when KFI moved to its new warehouse and got new computer systems. (Id. ¶ 20.)
KFI moved its operations to Amityville in early 2005, yet Plaintiff continued to voice its complaints about KFI's practices, and raised new concerns about additional practices including duplicative invoicing for single shipments, shipments arriving after seasonal changes in merchandise offerings, and shipping pre-paid orders "C.O.D." (Id. ¶ 21-22.) Following discussions between Plaintiff and KFI, KFI's warehouseman telephoned Plaintiff to communicate Defendant Sion Elalouf's decision to terminate KFI's commercial relationship with Plaintiff. (Id. ¶ 24.)
B. The Specialty Yarn Trade
Beginning in the 1980's, importer-wholesalers in the U.S. hand knitting yarn trade began offering yarns branded under "designer" names. (Id. ¶ 26.) KFI participated in this trend, and created a "designer" line wholly controlled by the importer-wholesaler. (Id. ¶ 27.) This line of yarns achieved success within a few years following its introduction. (Id. ¶ 27.) In 1999, Defendant Debbie Bliss, then primarily engaged in retailing yarns in London, sought to create a line of "value" yarns branded under her own name for sale to consumers in her London retail business. (Id. ¶ 28.)
Between 1999 and June 9, 2001, Sion Elalouf puportedly entered into an agreement with Defendant Debbie Bliss, whereby Mrs. Bliss would create a fully controlled "designer" product — the "Debbie Bliss" line of yarns — that would be exclusively imported and wholesaled by KFI and Sion Elalouf. (Id. ¶ 30.) Thereafter, Mr. Elalouf and Defendant Jay Opperman formed a company to hold the brand names and distribution rights to designer yarns, incorporated in England as Designer Yarns, Ltd. (Id. ¶ 31.) Designer Yarns entered into agreements whereby KFI would be the sole U.S. importer-wholesaler of products manufactured for Designer Yarns, and Debbie Bliss would license her name to brand yarns marketed as Debbie Bliss yarns. (Id. ¶ 31.) Although Mr. Elalouf is not listed as a shareholder, director, or participant in Designer Yards, Ltd., Plaintiff avers that he is "intimately involved with and entirely controls Designer Yarns and the merchandising of its products." (Id. ¶ 33.)
C. The Introduction of Cashmerino Yarn
Between July 5, 2000 and June 9, 2001, Mr. Elalouf discovered that there were two versions of a yarn called Cashmerino — one spun with a quantity of cashmere, the other with no cashmere at all — which were virtually indistinguishable, even to an experienced person, without an expert fiber analysis. (Id. ¶ 34.) Although KFI had many employees, only Sion and Diane Elalouf had access to documents concerning yarns imported and wholesaled by KFI. (Id. ¶ 35.)
Prior to June 9, 2001, Mr. Elalouf and Designer Yarns entered into an agreement to substitute the zero percent cashmere version of Cashmerino for the Cashmerino version spun of twelve percent cashmere. (Id. ¶ 36.) Thereafter, Alberto Oliaro, the principal officer of Defendant Filatura Pettinata V.V.G. Di Stefano Vaccari C. ("Filatura Pettinanta"), was directed to manufacture the zero percent cashmere yarn through a spinner, but label the finished product as spun of twelve percent cashmere. (Id.) The zero-cashmere version of Cashmerino was included in the new line of Debbie Bliss yarns for marketing by Designer Yarns, and was subsequently imported to the United States for wholesale distribution by KFI under both the Debbie Bliss brand and the K.F.I. brand. (Id. ¶ 36.)
Prior to the formal release of the Cashmerino yarns at the June 9-11, 2001 United States trade show, Jay Opperman introduced Plaintiff to K.F.I. Cashmerinos DK, a type of yarn described as a premium hand knitting yarn spun of 55% merino wool, 33% microfiber and 12% cashmere. (Id. ¶ 37.) Upon Mr. Opperman's representations, Plaintiff purchased the Cashmerinos DK for resale and, in the course of time, added 45.5 kilos of the product to its inventory. (Id.)
The new Debbie Bliss line was debuted by KFI at the June 2001 trade show. (Id. ¶ 38.) Plaintiff committed to purchase the Debbie Bliss line, including Cashmerino Aran, for Autumn, 2001 delivery. (Id. ¶ 38.) At least twice per year, from August 2001 to Autumn 2005, KFI mailed to Plaintiff a price/product list identifying the K.F.I. and Debbie Bliss Cashermino products as spun of a fiber content consisting of 55% merino wool, 33% microfiber and 12% cashmere. (Id. ¶ 39.) In 2003, Plaintiff committed to buy a line extension of Debbie Bliss Cashmerino, called Cashmerino Baby, also purportedly spun of the same content and composition. (Id. ¶ 40.) Between August 2001 and Autumn 2005, Plaintiff purchased from KFI, for resale to hand knitting consumers, an equivalent total of 1,210 balls (approximately 60.5 kilos) of the Debbie Bliss Cashmerino yarns. (Id. ¶ 41.) In the same period, Plaintiff sourced an equivalent of 910 balls (approximately 45.5. kilos) of K.F.I. Cashmerinos DK. (Id.)
D. The Discovery of Mislabeling in Cashmere Yarn
By 2004, Cashermino became the best selling specialty type of yarn in the industry, to the point that KFI's supplier was unable to meet consumer demand. (Id. ¶ 43.) In an effort to satisfy this demand, a competitor sought to "knock off" the Cashmerino product and, by reverse-engineering, discovered that Cashmerino Aran was not spun with any cashmere at all. (Id. ¶ 44.) Subsequent testing by the Cashmere and Camel Hair Manufacturer's Institute ("CCHMI"), showed that another Cashmerino variety, Cashmerino Chunky, contained no cashmere. (Id.)
The cashmere content of the Debbie Bliss Cashmerinos was widely discussed in the yarn trade during the June 10-12, 2006, trade show in Indianapolis, Indiana. (Id. ¶ 45.) A rumor reached Plaintiff's place of business on July 6, 2006, that a hand knitting yarn, identified only as spun of 55% merino wool, 33% microfiber and 12% cashmere, contained no cashmere content. Plaintiff's staff recognized this content fiber to match exactly that of the Debbie Bliss Cashmerino Aran and Cashmerino Baby yarns inventoried by Plaintiff. (Id. ¶ 46.)
Within hours of hearing the rumor, and upon advice of legal counsel, Plaintiff removed from sale the two Debbie Bliss Cashmerino yarns suspected of being mislabeled. (Id. ¶ 48.) Although KFI had previously terminated its relationship with Plaintiff, substantial quantities of both products remained in Plaintiff's inventory and were available for sale to consumers. (Id.) Concurrently, one of Plaintiff's principals inquired of CCHMI to substantiate the rumor. (Id. ¶ 49.) Karl Spilhaus, President of CCHMI, confirmed the authenticity of the analysis and ensuing report, and opined that all yarns labeled with the exact proportionate fiber content were suspect, but he would not identify the yarn tested. (Id.) Following this discussion, Plaintiff identified seven inventoried yarns labeled as spun of cashmere, with five sourced from KFI, and removed from sale a stock of 194 balls of Cashmerinos DK. (Id. ¶ 50.) Before the close of business on July 6, 2006, Plaintiff removed from sale another two yarns, and later a third yarn, supplied by KFI, spun with a cashmere content. (Id. ¶ 51.)
The next business day, Plaintiff estimated the retail value of the five KFI-sourced yarns removed from sale as approaching $20,000, and decided that the yarns would remain off-sale until Plaintiff could verify the fiber content. (Id. ¶ 52.) Also on July 7, Plaintiff contacted Cascade Yarns, which initiated CCHMI's testing, to determine which Debbie Bliss Cashmerino was analyzed by CCHMI. (Id. ¶ 53). Plaintiff learned that it was Debbie Bliss Cashmerino Chunky, a yarn not inventoried by Plaintiff. (Id.)
On July 9, 2006, Plaintiff requested that KFI and all vendors of wool products furnish a Guaranty of Compliance that wool yarns sourced from each vendor did in fact comply with labeling laws. (Id. ¶ 54.) KFI was the sole vendor who neither acknowledged nor fulfilled this request. (Id.) Three days later, Plaintiff submitted the five suspect yarns sourced from KFI to K.D. Langley Fiber Services for analysis of fiber content. (Id. ¶ 55.) Qualitative testing of the three Cashmerino yarns at issue revealed that "no cashmere fibers were observed" and each had no more than a zero percentage of cashmere. (Id. ¶ 56.) Indeed, Cashmerino Aran was actually spun with a fiber content of 57% wool and 43% acrylic. (Id.)
On July 18, 2006, Cascade Yarns electronically released a general letter to its customers regarding the testing of the cashmere content of the Debbie Bliss Cashmerinos. (Id. ¶ 57.) The following day, Cascade Yarns fulfilled Plaintiff's request that it provide copies of all correspondence on the Cashmerino labeling issue between Cascade Yarns and KFI. (Id. ¶ 58.)
E. The Purported Cover-Up
Defendant Mr. Elalouf, allegedly aware of potential problems resulting from the fiber analysis, entered into an agreement with Designer Yarns to publicly claim that the Cashmerinos, since their introduction in 2001, always contained the requisite quantity of cashmere. (Id. ¶¶ 59-60.) KFI thus provided Cascade Yarns with copies of reports of four fiber analyses purportedly performed on the Cashmerino Aran and suggested that the competitors "put this unfortunate episode" to rest "for the good of the industry." (Id. ¶ 61.) According to the Complaint, Mr. Elalouf and Designer Yarns enlisted Filatura Pettinata's assistance in this alleged scheme, whereby Filatura Pettinata would produce in Italy three small wraps of semi-finished yarn purposely spun with cashmere, which it would send to Designer Yarns specifically for testing by others. (Id. ¶ 62.) In addition, Filatura Pettinata would manufacture, specifically for testing purposes, small quantities of a fully finished yarn of an indeterminate cashmere content, to be sent to Designer Yarns, knowing that such small quantities would be subjected to expert fiber analyses that would then be disseminated within the industry. (Id.)
On approximately June 20, 2006, after Designer Yarns received from Filatura Pettinata the three small wraps of yarn, it enlisted Wharfdale Fibres, Ltd., a Keighley, England rag merchant, to secure an expert opinion about the cashmere content of the wraps. (Id. ¶ 63.) Perry Pucher, Wharfdale's principal, thereafter presented the wraps to David Lee, a principal of Cashmere Fibres, International, located in Bradford, England. (Id. ¶ 63.) Lee introduced Poucher to Julie Smith, who learned that a determination of the wraps' cashmere content was needed in the United States, where a question had recently arisen about the cashmere content in hand knitting yarns. (Id. ¶ 64.) She also understood that K.D. Langley Fibre Services in the United States had determined that there was no cashmere in the tested samples, but that finished balls of yarn were not available in England for Ms. Smith's testing. (Id. ¶ 64.)
As a favor to a friend of a friend, Ms. Smith performed an informal, private analysis of the three small wraps. The following day, she faxed her findings to Wharfdale Fibres, which re-faxed the Smith report to Designer Yarns. (Id. ¶ 65.) On June 26, 2006, Designer Yarns sent Mr. Elalouf a version of Miss Smith's June 20 report, which Designer Yarns either knew or should have known would be published to others by Mr. Elalouf in his efforts to support his claim of cashmere in the Cashmerinos. (Id.)
More than two weeks later, Designer Yarns furnished sample balls of the Bliss Cashmerino Aran to another testing company, TFT. TFT's report of a qualitative fiber analysis indicated the presence of a "quantity of cashmere" in that yarn. (Id. ¶ 66.) That same day, July 7, Designer Yarns faxed the TFT report to Mr. Elalouf.
On July 20, 2006, Defendant Jeffrey Denecke of KFI mailed to hundreds of speciality yarn stores "KFI's official response to the Cascade mailing," e-mailed the letter to retail yarn shops for which KFI possessed e-mail addresses, and electronically published his letter and the Elalouf attachment in Knitter's Review." (Id. ¶ 67.) Attached to Denecke's correspondence was a letter authored by Sion Elalouf, assuring "that Debbie Bliss's Cashmerino yarn contains cashmere," questioning the reliability of the Langley analysis, questioning the cashmere content of as many as twenty-five cashmere yarns distributed by KFI's competitors, and stating that KFI was "anxious to furnish" retailers "whatever information you need to put your mind at ease." (Id. ¶¶ 68-69.)
In response, Plaintiff again requested that KFI provide a Wool Products Guaranty of Compliance. (Id. ¶ 69.) KFI instead offered to furnish a general letter at some uncertain, future point. (Id.) Because of KFI's allegation that the Langley report was unreliable, Plaintiff undertook secondary testing by another independent fiber analysis of the three Cashmerino products. (Id.) A duplicate sample of the same three yarns drawn from identical dyelots used by Mr. Langley was provided to Specialized Technology Resources, Inc., which, on August 31, 2006, reported substantially identical results to those achieved by Mr. Langley. (Id. ¶ 70.) Under the advice of counsel, Plaintiff removed from sale two previously non-suspect yarns precisely matching yarns rumored to be not being spun of cashmere, and submitted samples of the same for fiber analysis. (Id. ¶ 71.)
F. The Recall of the Defective Yarns
On September 26, 2006, KFI distributed a letter to specialty yarn retailers, purportedly authored by Debbie Bliss, expressing her sadness and distress from rumors that Cashmerinos are spun with no cashmere, and indicating her "complete confidence" that the yarns do indeed contain the labeled cashmere content. (Id. ¶ 72.) Likewise, Jay Opperman traveled to retailers in New York to assure them that there is cashmere in the Cashmerinos, as indicated by the KFI-issued test reports. (Id. ¶ 73.)
Nonetheless, at least five separate and independent analyses of Cashmerino yarns from KFI revealed that the yarns were not spun with any cashmere. (Id. ¶ 74.) On October 16, 2006, Plaintiff publicly announced the recall of the three Cashmerino yarns, and the recall of another three allegedly improperly labeled cashmere content yarns — all sourced from KFI. (Id. ¶ 75.) On October 19, 2006, Mr. Denecke electronically published an open letter to Knitter's Review, calling the recall a publicity stunt and a "smear campaign targeting KFI's products." (Id. ¶ 76.)
On September 2, 2008, Plaintiff initiated the current litigation claiming that, as a consequence of the false labeling of the three Cashmerino yarns at issue, its business and commercial interests were harmed. (Id. ¶ 82.) Its Complaint sets forth several causes of action, including: (1) breach of the express warranty of merchantability (id. ¶¶ 83-91); (2) breach of the implied warranty of merchantability (id. ¶¶ 92-98); (2) false advertising under the Lanham Act, 15 U.S.C. § 1125(a)(1)(B) (id. ¶¶ 99-108); (4) injury to business and property pursuant to the Racketeer Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. § 1962 (id. ¶¶ 109-120); (5) conspiracy to cause injury to business and property pursuant to RICO (id. ¶¶ 121-135); (6) perfidious trade practices (deceit) under the common law of unfair competition (id. ¶¶ 136-142); and (7) piercing the corporate veil. (Id. ¶¶ 143-150.) In response, Moving Defendants filed this Motion to Dismiss on September 24, 2008.
The other recalled cashmere-blend yarns are the subject of another federal complaint filed by Plaintiff against both the Moving Defendants in this case and the Japanese manufacturer of those yarns. See The Knit With v. Eisaku Noru Co., Ltd., Civ. A. No. 08-4775 (E.D. Pa. 2008).
II. STANDARD OF REVIEW ON MOTION TO DISMISS
The purpose of a Fed.R.Civ.P. 12(b)(6) motion is to test the legal sufficiency of a complaint. Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993). Under Rule 12(b)(6), a defendant bears the burden of demonstrating that the plaintiff has not stated a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(6);see also Hedges v. U.S., 404 F.3d 744, 750 (3d Cir. 2005). The question before the court is not whether the plaintiff will ultimately prevail. Hishon v. King Spalding, 467 U.S. 69, 73, 104 S. Ct. 2229, 2232 (1984). Rather, the court should only grant a 12(b)(6) motion if "it appears beyond a reasonable doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Id. (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102 (1957)). When considering a motion to dismiss, the court must "accept as true allegations in the complaint and all reasonable inferences that can be drawn therefrom, and view them in the light most favorable to the nonmoving party." Rocks v. City of Philadelphia, 868 F.2d 644, 645 (3d Cir. 1989). The court, however, will not accept unsupported conclusions, unwarranted inferences, or sweeping legal conclusions cast in the form of factual allegations. Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997).
III. DISCUSSION
In their Motion, Moving Defendants argue that the Complaint must be dismissed in its entirety on several grounds. First, they contend that Plaintiff has failed to establish standing sufficient to pursue its Lanham Act claim. Second, they assert that Plaintiff's RICO claims are time barred under the applicable statute of limitations and, alternatively, fail to allege a causal nexus. Finally, they argue that, with the dismissal of all of Plaintiff's federal claims, no basis remains for the Court to assert federal subject matter jurisdiction over the remaining state law claims. The Court addresses each argument individually.
A. The Lanham Act Claims
Count III of Plaintiff's Complaint alleges that Defendant KFI falsely advertised the fiber content of the three Cashmerino yarns at issue, which were supplied to Plaintiff for resale to consumers in the ordinary course of Plaintiff's business. (Compl. ¶ 101.) It asserts that this false advertising has caused confusion and deception of both retailers and consumers and has injured Plaintiff's commercial interests, in violation of the Lanham Act, 15 U.S.C. § 1125(a)(1)(B). (Id. ¶¶ 99, 103, 105.) Moving Defendants do not, at this juncture, challenge the underlying merits of this claim. Rather, they argue that Plaintiff fails to possess the "reasonable interest" necessary to meet the requirements for standing under the Lanham Act.
Under section 43(a) of the Lanham Act:
1) 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 —
(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or
(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,
shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.
* * *15 U.S.C. § 1125(a). To state a false advertising claim pursuant to this section, a plaintiff must allege: (1) the advertisements of the opposing party were false or misleading; (2) the advertisements 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 plaintiff has been, or is likely to be, injured as a result of the false advertising. Hickson Corp. v. N. Crossarm Co., Inc., 357 F.3d 1256, 1260 (11th Cir. 2004) (citations omitted).
The question of standing "involves both constitutional limitations on federal court jurisdiction and prudential limitations on its exercise." Bennett v. Spear, 520 U.S. 154, 162, 117 S. Ct. 1154, 1161 (1997) (quoting Warth v. Seldin, 422 U.S. 490, 498, 95 S. Ct. 2197, 2205 (1975). The constitutional component of standing, which stems from Article III of the United States Constitution, requires that a plaintiff demonstrate (1) that he or she suffered an "injury in fact;" (2) that the injury is "fairly traceable" to the actions of the defendant; and (3) that the injury "will likely be redressed by a favorable decision." Id. (citingLujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S. Ct. 2130, 2136-37 (1992) and Valley Forge Christian Coll. v. Ams. United for Separation of Church and State. Inc., 454 U.S. 464, 471-72, 102 S. Ct. 752, 757-59 (1982)).
Prudential standing, on the other hand, consists of "a set of judge-made rules forming an integral part of `judicial self-government.'" Gen. Instrument Corp. of Del. v. Nu-Tek Elecs. Mfg., Inc., 197 F.3d 83, 87 (3d Cir. 1999) (quoting Conte Bros. Auto., Inc. v. Quaker State-Slick 50, Inc., 165 F.3d 221, 225 (3d Cir. 1988) (internal quotations omitted)). Prudential standing embraces the following principles:
(1) the plaintiff generally must assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties; (2) even when the plaintiff has alleged redressable injury sufficient to meet the requirements of Article III, the federal courts will not adjudicate abstract questions of wide public significance which amount to generalized grievances pervasively shared and most appropriately addressed in the representative branches; and (3) the plaintiff's complaint must fall within the zone of interests to be protected or regulated by the statute or constitutional guarantee in question.Trump Hotels Casino Resorts, Inc. v. Mirage Resorts, 140 F.3d 478, 485 (3d Cir. 1998) (internal quotation marks and citations omitted). "These requirements are designed to `limit access to the federal courts to those litigants best suited to assert a particular claim.'" Gen. Instrument Corp., 197 F.3d at 87 (quoting Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 804, 105 S. Ct. 2965, 2970 (1985)).
Congress may expressly confer standing via statutory enactment, thus superseding prudential standing concerns. Id. In passing the Lanham Act, however, "Congress did not expressly negate [the] prudential standing doctrine." Conte Bros, 165 F.3d at 227. Accordingly, "as a matter of statutory interpretation," the background prudential standing principles are presumed to apply to a case brought under Section 43(a) of the Lanham Act. Gen. Instrument Corp., 197 F.3d at 87.
The Third Circuit initially addressed Section 43(a)'s prudential standing requirement in Thorn v. Reliance Van Co., Inc., 736 F.2d 929 (3d Cir. 1984). It held that a party has prudential standing to bring a claim under Section 43(a) if the "`party has a reasonable interest to be protected against false advertising.'" Id. at 933 (quoting Smith v. Montoro, 648 F.2d 602, 608 (9th Cir. 1981)). Although the court declined to precisely define the term "reasonable interest," it determined that, on its face, section 43(a) permits two classes of people to sue: (1) direct competitors doing business in the locality and (2) non-competitors who "believe they are somehow damaged by the [defendant's] false representations." Id. at 931. The allegations by the plaintiff — a forty-five percent shareholder in the defendant company — that his investment was impaired due to the defendant's false advertising campaign, were "sufficient[ly] direct" to satisfy prudential standing. Id. As the court explained, plaintiff was effectively a "surrogate" for a direct competitor, and thus possessed the "reasonable interest" necessary to satisfy prudential standing concerns. Conte Bros., 165 F.3d at 231 (discussing Thorn).
Thereafter, in Serbin v. Ziebart Int'l. Corp., Inc., 11 F.3d 1163 (3d Cir. 1993), the Third Circuit clarified which parties are proper plaintiff's under section 43(a). In that case, a group of consumers who purchased rust protection coverage for their automobiles, in reliance on the defendant company's allegedly false advertising, brought suit against the company under the Lanham Act. Id. at 1165. The court considered the question of whether consumers possess a reasonable interest to be protected against false advertising.Id. at 1177. Finding in the negative, the court held that "`[t]he Lanham Act is primarily intended to protect commercial interests,' and that `section 43(a) of the statute provides a private remedy to a commercial plaintiff who meets the burden of proving that its commercial interests have been harmed by a competitor's false advertising.'" Id. (quoting Sandoz Pharms. Corp. v. Richardson-Vicks, Inc., 902 F.2d 222, 230 (3d Cir. 1990)). Although the court reaffirmed that it was not limiting section 43(a) to direct competitors, id., it excluded consumers from the class of plaintiffs with prudential standing under the Lanham Act. Id. at 1178-79.
Finally, in Conte Bros. Auto., Inc. v. Quaker-State Slick 50, Inc., 165 F.3d 221 (3d Cir. 1988), the Third Circuit created a workable judicial test for deciding whether a party has prudential standing under Section 43(a). In that case, "a putative nationwide class of retail sellers of motor oil and other engine lubricants that purportedly compete[d] with Slick 50, a Teflon-based engine lubricant manufactured by [defendants]" brought suit alleging that the defendants "falsely advertised that the addition of Slick 50 would reduce the friction of moving parts, decrease engine wear, and improve engine performance efficiency." Id. at 223-24. The question before the court was "whether retailers have standing under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a) (1994) to bring false advertising claims against manufacturers of products that compete with those the retailers sell." Id. at 223. In an effort to determine whether the plaintiffs had a "reasonable interest," giving them prudential standing under the Lanham Act, the Third Circuit considered the following five factors:
(1) The nature of the plaintiff's alleged injury: Is the injury "of a type that Congress sought to redress in providing a private remedy for violations of the [Lanham Act]"?
(2) The directness or indirectness of the asserted injury.
(3) The proximity or remoteness of the party to the alleged injurious conduct.
(4) The speculativeness of the damages claim.
(5) The risk of duplicative damages or complexity in apportioning damages.Id. at 233 (citations omitted).
Applying these factors, the Conte Bros. court determined that the plaintiffs lacked standing since (1) the type of injury — consisting of loss of retail sales from false advertising-was remote and not the type the Lanham Act sought to redress; (2) the damages were speculative and avoidable; and (3) recognition of the right of every potentially injured party in the distribution chain to bring a Lanham Act claim would subject the defendant company to multiple liability for the same conduct. Id. at 234-35. Ultimately, the court concluded that "while there may be circumstances in which a non-competitor may have standing to sue . . ., the focus of the Lanham Act is on 'commercial interests [that] have been harmed by a competitor's false advertising,' . . . and in `secur[ing] to the business community the advantages of reputation and good will by preventing their diversion from those who have created them to those who have not.'" Id. at 234 (internal quotations omitted). Although the plaintiffs had identified a commercial interest, they had neither alleged competitive harm nor shown that their good will or reputation had been directly injured. Id.
In light of this jurisprudence, and in response to Moving Defendants' challenge to its standing, Plaintiff effectively proffers two bases on which it asks the Court to recognize its prudential standing. First, Plaintiff contends that where, as here, the Complaint, on its face, readily indicates a plaintiff's discernible reasonable commercial interest in protection against false advertising, the Conte Bros. Test does not apply. (Pls.' Sur-reply Br. 2.) Second, Plaintiff avers that, even applying the five Conte Bros. factors, it is vested with prudential standing to pursue its Lanham Act claim. (Id.) The Court addresses each argument individually.
1. Whether the Complaint Alone Establishes Plaintiff's Prudential Standing
Plaintiff claims that it possesses standing because the Complaint states facts which disclose or from which a Court can infer Plaintiff's "reasonable interest." It rests this purported "reasonable interest" on two theories. First, it asserts that due to its "direct proximate relationship" with Defendant KFI, the Complaint "facially discloses a commercial plaintiff [that] has suffered harm to its commercial interests by another having falsely advertised . . . its own products through the false claim of a significant presence of cashmere in the fiber content of the three Cashmerino products at issue." (Id. at 8.) Second, while effectively conceding that no direct horizontal competitor relationship exists, Plaintiff claims to maintain a "reverse vertical competition" relationship with Defendant KFI. (Pl's Sur-reply Br. 5-8.) According to Plaintiff, such relationships alone confer standing on it to pursue a false advertising Lanham Act claim against Defendant KFI, negating any need for application of the Conte Bros. five factor analysis. (Id.)
Plaintiff's arguments, however, find no support in the prevailing jurisprudence. As a principal matter, Plaintiff cites to — and this Court finds — no cases within the Third Circuit that even remotely substantiate its contention that the Conte Bros. analysis has no bearing in the face of a complaint that adequately discloses standing. Indeed, in Conte Bros., the Third Circuit expressly rejected any type of categorical approach to prudential standing. Id. at 235. The plaintiff retailers, in that case, alleged that they were in direct vertical competition with the defendant manufacturer, who sold its competing products directly to end users, and, thus, they had standing. Id. The court dismissed this contention, reasoning that "standing under the Lanham Act does not turn on the label placed on the relationship between the parties," whether it be a directly competitive relationship or a more attenuated relationship. Id. at 235. In doing so, it explicitly reiterated that the five-factor analysis must be to determine prudential standing under the Lanham Act.
To date, only the Third, Fifth and Eleventh Circuits apply theConte Bros. test. See Conte Bros., 165 F.3d at 233-34; Proctor and Gamble Co. v. Amway Corp., 242 F.3d 539, 562-64 (5th Cir. 2001); Phoenix of Broward, Inc. v. McDonald's Corp., 489 F.3d 1156, 1163 (11th Cir. 2007). Other circuits have applied a more categorical approach. See Am. Ass'n of Orthodontists v. Yellow Book U.S.A., Inc., 434 F.3d 1100, 1104 (11th Cir. 2006) (noting circuit conflict and citing cases applying categorical approach).
Since Conte Bros., the Third Circuit has reaffirmed the validity of the five factor test, giving no one factor determinative weight. See Joint Stock Soc'y v. UDV North Am., Inc., 266 F.3d 164, 180 (3d Cir. 2001). District courts within this Circuit, faced with a Lanham Act claim in a variety of commercial relationships, have repeatedly engaged in the Conte Bros. analysis. See, e.g., Nevyas v. Morgan, 309 F. Supp. 2d 673, 677-80 (E.D. Pa. 2004) (Lanham Act claim by doctor against former patient for allegedly defamatory remarks transmitted via an internet website by the patient; Cook Drilling Corp. v. Halco Am., Inc., Civ. A. No. 01-2940, 2002 WL 84532, at *2 (E.D. Pa. Jan. 22, 2002) (Lanham Act claim by commercial rock drilling company against manufacturer of air hammer, alleging false advertising of hammer); Schmidt, Long Assoc., Inc. v. Aetna U.S. Healthcare, Inc., Civ. A. No. 00-3683, 2001 WL 856946, at * 10 (E.D. Pa. Jul. 26, 2001) (Lanham Act claim by health benefit pan against auditor of health plans for disseminating false representations of fact about health plans operations to potential clients of auditor). Indeed, even in cases clearly disclosing a plainly "competitive harm," courts, both within and outside the Third Circuit, have nonetheless applied the Conte Bros. factors to analyze a prudential standing challenge. See, e.g., Phoenix of Broward, Inc. v. McDonald's Corp., 489 F.3d 1156, 1163 (11th Cir. 2007) (expressly rejecting the categorical approach and adopting Conte Bros. analysis in Lanham Act claim by fast food restaurant franchisee against franchisor's competitor); Pernod Ricard USA LLC v. Bacardi USA. Inc., 505 F. Supp. 2d 245, 253 (D. Del. 2007) (using Conte Bros. analysis to find standing between competing alcoholic beverage distributors, one of whom alleged competitive injury in rum sales due to other competitor's false marketing of its "Havana Club" brand rum); Alphamed Pharms. Corp. v. Arriva Pharms., 391 F. Supp. 2d 1148 (S.D. Fl. 2005) (applying Conte Bros. approach where biopharmaceutical company sued competitor for dissemination of false reports to investors regarding particular drug).
Even assuming arguendo that a categorical approach could or should apply, the Court cannot find any "reasonable interest" or competitive relationship on the face of the Complaint clearly conferring prudential standing on Plaintiff. Plaintiff theorizes that its "direct proximate relationship" with Defendant KFI plainly discloses its "openly discernible reasonable interest in the false advertising of the products at issue." (Pl.'s Resp. Mot. Dismiss 5.) In making this claim, it relies on the Third Circuit's dicta inSerbin that parties who are not in direct competition because they are "doing business on different economic levels," may nonetheless have standing to sue if they have a "reasonable interest to be protected against false advertising." 11 F.3d at 1177.
As noted by Moving Defendants, Serbin only discussed "different economic levels" one time, in the context of quoting from a treatise on the general scope of the Lanham Act.
This assertion is misplaced. While the Third Circuit did not foreclose prudential standing by a party doing business on a different economic level from the defendant party, it never held that such a relationship automatically conferred standing. See Id. (holding only that consumers fall outside the range of "reasonable interests" contemplated as being protected by the false advertising prong of the Lanham Act.) Subsequently, inConte Bros., the Third Circuit explained that the "reasonable interest" standard focused on giving standing to those alleging "anti-competitive conduct in a commercial context." 165 F.3d at 229. A blanket proposition that every retailer could sue its supplying manufacturer/distributor for false advertising under the Lanham Act, simply by virtue of its "direct proximate relationship," would be in direct contradiction to the Third Circuit's concern that "recognizing the right of every potentially injured party in the distribution chain to bring a private damages action would subject defendant firms to multiple liability for the same conduct." Conte Bros., 165 F.3d at 235.
Likewise, the Court finds no merit to Plaintiff's allegation that the Complaint facially discloses a vertically competitive relationship with Defendant KFI, thereby conferring standing. Plaintiff cites several cases for the proposition that courts have addressed false advertising actions between vertical competitors. (Pl's Sur-reply Br. 6.) Aside from the fact that none of these cases dealt with issues of standing, however, each case involved a manufacturer's claim against a retailer who was acting in direct competition with the manufacturer. See, e.g.,Gucci Am., Inc. v. Daffy's, Inc., 354 F.3d 228 (3d Cir. 2003) (denying handbag manufacturer's Lanham Act claim to require retailer of handbags, who had inadvertently infringed designer's trademark through sale of high-quality counterfeit bags using manufacturer's trademark); L'Aiglon Apparel v. Lana Lobell, Inc., 214 F.2d 649 (3d Cir. 1954) (complaint by manufacturer of distinctive dress against defendant retailer that used picture of manufacturer's dress to advertise a cheaper and inferior in quality dress was sufficient to state claim under Section 43(a) of Lanham Act in that the misrepresentation caused some trade to be diverted from plaintiff to defendant and caused other trade to be lost by plaintiff); Kennedy Indus, Inc. v. Aparo. et al., 416 F. Supp. 2d 311 (E.D. Pa. 2005) (seller of a skin protection product and skin cream was entitled to injunctive relief against a competitor and competitor's distributors on a false advertising claim under the Lanham Act, despite the fact that the seller was no longer a competitor). Plaintiff does not allege any facts that show any competitive relationship with Defendant KFI. It neither claims to have sold its own version of cashmere-blend yarns that competed with KFI's Cashmerino line, nor asserts that Defendant KFI sold some of its products directly to consumers, such that it was a competitive retailer.
In short, Plaintiff's request for a categorical approach to standing has been rejected by the Third Circuit. Nothing in Conte Bros. or its progeny limits the five-factor test to the facts of that case or eschews it in a case where "reasonable interest" exists by virtue of a "direct and proximate relationship" or "vertical competitive relationship." Accordingly, this case falls precisely within the contours of theConte Bros. analysis and must be considered under the five enumerated factors.
Plaintiff berates Moving Defendants for allegedly advocating the false proposition that the wholesale-supplier relationship always precludes a retailer's action for false advertising against its wholesale supplier because the parties are not competitors. (Pl.'s Opp. Mot. Dismiss 7.) Interestingly, however, Plaintiff appears to put forth its own categorical approach to prudential standing based on its "direct proximate" and "vertical competitive" relationships with Defendant KFI.
2. Whether Plaintiff Satisfies the Conte Bros. Analysis a. The Nature of Plaintiff's Alleged Injury
Under the first factor, the Court must consider whether Plaintiff's alleged injury is of a type that Congress sought to redress when providing a private remedy for violations of the Lanham Act. The Third Circuit has emphasized that the focus of the Lanham Act is on "commercial interests [that] have been harmed by a competitors false advertising," and in "secur[ing] to the business community the advantages of reputation and good will by preventing their diversion from those who have created them to those who have not." Conte Bros., 165 F.3d at 234 (quotations omitted). Thus, a plaintiff must allege both a commercial interest and either a competitive harm or injury to good will or reputation. Id. In Conte Bros., the Third Circuit found that the plaintiffs had not satisfied this factor since they claimed only loss of sales at the retail level due to alleged false advertising. Id. The plaintiffs never contended that such losses resulted from any representations that impugned their reputation as retailers of engine additives or, alternatively, touted the virtues of a competing retailer. Id. Accordingly, the harm alleged neither impacted the plaintiffs' ability to compete nor detracted from plaintiffs' reputation or good will. Id.
Similarly, in Cook Drilling Corp. v. Halco Am., Inc., Civ. A. No. 01-2940, 2002 WL 84532 (E.D. Pa. Jan. 22, 2002), the plaintiff, a commercial rock drilling company, purchased an air hammer from the defendant manufacturer, based on representations from the manufacturer about the durability of the hammer. Id. at *1. During a major project, the hammer broke, forcing the plaintiff's operations to cease work. Id. Upon inspecting the hammer, the plaintiff's engineers found designations indicating that the hammer had been manufactured by Holte Manufacturing, an unrelated manufacturer, and that the hammer's design diverged from the specifications provided by defendant Halco America. Id. The plaintiff brought a complaint against the defendant alleging, among other claims, false advertising under the Lanham Act. Id. at *2. The crux of the claim was that "[s]ince the hammer was painted in the industry-recognized Halco colors, [the plaintiff] believed it was a Halco hammer and was confused when it discovered the Holte name stamped on the hammer. Such a practice is likely to confuse others in the industry." Id. at *6. The court found, however, that "the object of defendants' alleged misrepresentation had nothing to do with any drilling company, but rather with the source of the hammer. As such, any injury suffered by [the plaintiff] as a consequence of this deception was noncompetitive." Id.
Finally, in Renaissance Leasing v. Vermeer, Civ. A. No. 05-445, 2006 WL 1447032 (W.D. Mo. May 23, 2006), the defendant was a heavy equipment manufacturing company, and the plaintiff was an excavation company, who purchased one of defendant's machines based on allegedly false representations by defendant. Id. at *2. Plaintiff conceded that it was not in the business of making or conceiving these types of machines, but rather purchased the machine solely for its own commercial use. Id. at *4. The court declined to find that the first Conte Bros. factor weighed in favor of standing, holding that "[p]laintiffs are asserting reliance damages arising from the purchase of a machine which they claim did not perform as advertised. This is not the same as damages a competitor might suffer when false advertising diverted sales away from his product." Id.
Plaintiff, in this case, argues that it suffered multiple vertical competitive harms, giving it standing under the Lanham Act: (1) it purchased for resale goods which were not received but for which Plaintiff expended time, effort, and money in creating consumer demand; (2) it is holding in inventory a considerable quantity of paid-for goods which are prohibited from retail because defendant mis-labeled/mis-manufactured the items; (3) it has been required to test the Cashmerino yarns at issue for the fiber content of each to ascertain the salesworthiness of the products; (4) it created a consumer demand, which, due to Moving Defendants' actions, it can no longer meet; (5) it is deprived of the profit anticipated to be realized upon its investment in the goods at issue, while KFI derived profits from the sale of these same goods to Plaintiff; and (6) a retailer's horizontal competitive injuries can be imputed to a vertically related defendant when the defendant succeeds in lulling other retailers into believing that falsely advertised goods are not falsely advertised. (Pl. Opp. Mot. Dismiss 11-12.)
Plaintiff's argument misunderstands the types of injuries at which the Lanham Act is directed and, thus, is misplaced on several levels. First, while Plaintiff undoubtedly suffered a commercial harm resulting from its purchase of goods that did not meet the specifications represented by the manufacturer, Plaintiff neglects to suggest any competitive harm — be it direct or indirect. Like in Conte Bros., Plaintiff alleges only a loss of sales at the retail level because of the purportedly false advertising, without an accompanying claim that Moving Defendants either impugned its reputation or touted that of a competing retailer. Second, Plaintiff's reference to "vertical competition" is unavailing, since, as noted above, it fails to explain exactly how it and Defendant KFI were in competition, and how its injury affected its ability to compete in the retail sale of yarn. Third, Plaintiff's claimed injury to its ability to meet the consumer demand for this product disregards the fact that Plaintiff's own direct competitors — every retailer of Cashmerino yarn purchased from Defendant KFI — suffered the same injury. Fourth, the mere fact that Moving Defendants may have profited from the sale of its falsely advertised products to Plaintiff's detriment does not convert the harm into a competitive injury. Finally, Plaintiff has failed to allege any specific injury to its good will or reputation from which another competitor gained. See Cook Drilling, 2002 WL 84532, at *7 (noting that the Lanham Act is not intended to extend to "remedying reputational harms per se," but rather to "addressing the deliberate transference by means of misrepresentation of the good will and reputation earned by a party."); MCW, Inc. v. Badbusinessbureau.com, LLC, Civ. A. No. 02-2727, 2004 WL 833595
Plaintiff argues that allegation of a competitive injury is not an essential element of a false advertising cause of action under the Lanham Act. (Pl.'s Sur-reply Br. 3.) This argument, however, confuses the statutory elements of the underlying cause of action with the judicially imposed elements of standing to bring that cause of action.
Plaintiff attempts to distinguish Conte Bros, on the grounds that the retailers in Conte Bros. never sold the products that were allegedly falsely advertised by the products' manufacturer. This distinction, however, actually weighs against Plaintiff. InConte Bros., the plaintiffs at least alleged an attenuated competitive harm — that the defendant manufacturer falsely touted its products, enticing consumers to purchase them over the products sold by the plaintiff retailers. 165 F.3d at 224. In this case, Plaintiff has not alleged any competitive harm, as it was selling the precise products which were falsely advertised by Defendant KFI.
In the Complaint, Plaintiff noted that between August, 2001 and Autumn, 2005, at least two times each year, Defendant KFI issued to as many as 2,000 other speciality yarn retailers the price/product lists for the KFI and Debbie Bliss Cashmerino products. (Compl. ¶ 39.)
(N.D. Tex. Apr. 19, 2004) (holding that plaintiff's mere allegation that its reputation suffered as a consequence of defendants' false advertising, without an accompanying allegation that it was harmed by a competitor's false advertising touting the virtues of a competing product or service, weighed heavily against finding prudential standing). Simply put, Plaintiff has not alleged the type of harm that Congress sought to redress when allowing for a private cause of action under the Lanham Act. Thus, this factor weighs significantly against a finding of prudential standing.
b. The Directness or Indirectness of the Asserted Injury
The second factor considers the directness or indirectness of Plaintiff's asserted injury from the Moving Defendants' conduct. The issue under this factor is "whether the defendants' conduct has had a direct effect on either the plaintiffs or the market in which they participate." Joint Stock Soc'y v. UDV N. Am., Inc., 266 F.3d 164, 181 (3d Cir. 2001).
In Cook Drilling, the plaintiff, who had purchased an air hammer based on the defendant manufacturer's allegedly false representations, claimed both financial damages resulting from the hammer's breakage and reputational harm resulting from its inability to adequately and timely complete its project. 2002 WL 84532, at *7. As to the pecuniary damages, the court found that "[w]hile not perfectly direct, this is a fairly direct injury and as such it weighs moderately in favor of finding standing under § 43(a)." Id. (footnote omitted). With respect to the reputational harm, however, the court noted the link was significantly more attenuated. Id. at *8. It concluded that "[w]hen this indirect causal relationship is amalgamated with the moderately direct causal link between defendants' alleged misrepresentation and the pecuniary harm asserted by Cook, it becomes apparent that the second Conte Bros. factor weighs weakly in favor of prudential standing." Id.
Similarly, in Alexander Mill Svcs., LLC v. Bearing Distribs., Inc., Civ. A. No. 06-1116, 2007 WL 2907174 (W.D. Pa. Sep. 28, 2007), the plaintiff entered into a contract with the defendant for the processing of industrial sludge at an industrial site, and purchased from defendant a centrifuge system that, based on defendant's advertised expert advice, would be able to most efficiently address the specific situation. Id. at *1. The system failed to operate as defendant advertised and plaintiff brought suit under the Lanham Act alleging damages, including the purchase price of each complete-package solution, downtime, overtime, lost revenues and profits, costs of chemical additives, reputational damage, and equipment removal costs. Id. at *2. The court found, under the second factor of the Conte Bros. analysis, that:
[P]laintiff has not suffered an injury from the impact of such advertising in the market beyond its position as a single consumer. Plaintiff complains that defendants' false advertising leads consumers to purchase products and services based on defendants' proclaimed expertise and indication that their formulated solutions will be competitively priced and tailored to satisfy the consumer's individual needs. While such assertedly false advertising could well detract from the reputation or good will of those competitors in the market that actually have such expertise and can provide goods and services at such a level, plaintiff is not one of them. Plaintiff essentially has suffered injury as a commercial consumer. Thus, its injury is more indirect than the commercial interests of a market competitor. The lack of a direct injury diminishes the weight to be given to this factor in ascertaining whether plaintiff has prudential standing under the Lanham Act.Id. at *6.
In this case, Plaintiff has alleged that, as a result of Moving Defendants' misrepresentations, it has purchased a substantial amount of Cashmerino yarn, marketed the product to its consumers, expended money to test the yarn based on rumors of the misrepresentation, and is now deprived of both the potential profit from selling that yarn and the goodwill resulting from its inability to meet customer demand. The pecuniary injuries of profit loss, cost of the yarn and testing expenditures, while not "perfectly direct," are somewhat direct to the alleged misconduct. Nonetheless, these injuries were suffered by Plaintiff as merely a single commercial consumer and, thus, the causal link is more attenuated than that of a competing manufacturer/distributor of cashmere-based yarns. Moreover, the reputational harms bear, at best, a remote connection to the alleged false advertising. Collectively considering these circumstances, the second factor weighs weakly, if at all, in favor of prudential standing.
c. The Proximity or Remoteness of the Party to the Alleged Injurious Conduct
The third factor considers the plaintiff's proximity or remoteness from the allegedly harmful conduct. Where there is an "identifiable class of persons — manufacturers of competing products whose self-interests would normally motivate them to vindicate the public interest" — the justification of allowing a more remote party "to perform the office of a private attorney general" is diminished. Conte Bros., 165 F.3d at 234 (internal quotations omitted). In Conte Bros., the Third Circuit found that manufacturers of competing engine additives constituted such a class, making the retailers of the competing engine additives too remote. Id. at 234-35. In Cook Drilling, the court deemed the manufacturers of competing air hammers to be a more appropriate class than the purchaser of such a hammer. 2002 WL 84532, at *9. Likewise, in Alexander Mills, the court found a more proximate class in those who competed in the market of de-liquefying industrial sludge. 2007 WL 2907174, at *6-7.
This case similarly offers an identifiable class of persons whose self-interests would motivate them to vindicate the public interest — manufacturers/distributors of competing designer yarns. This group necessarily suffered a competitive harm — i.e. loss of sales of their own designer yarns — as a result of the falsely advertised Cashmerino brand. Although Plaintiff contends that the falsely advertised products at issue are branded goods exclusively imported by the Moving Defendants, Plaintiff's Complaint concedes that there were multiple importer-wholesalers in the United States offering speciality yarns branded under designer names. (Compl. ¶ 26.) Indeed, Plaintiff specifically references Cascade Yarns, who was a competing manufacturer of cashmere blend yarns. (Compl. ¶¶ 44, 53.) The existence of such a class of direct competitors weighs against prudential standing because the direct competitors were better suited, under the Lanham Act, to initiate the litigation.
Alternatively, Plaintiff argues that Cascade Yarns, one of the competing manufacturers, has demonstrated no interest in litigating such a claim. (Pl. Opp. Mot Dismiss. 15.) Plaintiff goes on to argue that "[w]here as here a justiciable claim is present, application of the court's equity powers demands that the claim proceed. A bird in hand is better than any two who have yet to emerge from the bush." (Id.)
This argument finds no jurisprudential support. The third Conte Bros. factor, and the cases applying it, ask not whether any other class has actually commenced litigation, but whether there exists a class whose self-interest would "normally motivate them" to vindicate the public interest. The Court thus finds this factor to lean against a finding of prudential standing. d. The Speculativeness of the Damages Claim
The fourth factor considers both the speculativeness of the claimed damages and the avoidability of the claimed damages. Cook Drilling, 2002 WL 84532, at *9. Unlike the previous factor, this factor actually supports a finding of prudential standing. The damages alleged by Plaintiff are not speculative; "[t]hey are concrete, quantifiable pecuniary losses stemming in a sufficiently direct manner . . . from defendants' asserted misrepresentation." Id. Plaintiff stocked the Cashmerino yarns in reliance on Moving Defendants' representation that they contained cashmere. Plaintiff is now unable to recoup its losses by selling those yarns to its own customers.
Moving Defendants respond that all of these claimed damages were clearly avoidable, as Plaintiff was under an affirmative obligation, imposed by the Wool Products Labeling Act of 1939 ("WPLA"), 15 U.S.C. § 68, et seq., to ensure that the yarn products it sold were properly labeled as to fiber content. (Def. Mem. Supp. Mot. Dismiss 16.) They contend that "[h]ad The Knit With actually taken steps to discharge this duty back in 2001, as it was obligated to do, the pecuniary loss it now alleges would have been avoided." (Id. at 16-17.)
As set forth below, however, Moving Defendants' argument is entirely unfounded. Although the WPLA imposes a duty on retailers to not sell knowingly misbranded items or affirmatively misbrand a yarn, nothing in the statute requires a retailer to test products already labeled by the manufacturer or importer. 15 U.S.C. at §§ 68a, 68c. To accept Moving Defendants' argument would impose an undue burden upon yarn retailers, regardless of the size of the business, to test every yarn that enters their store, while allowing a manufacturer to escape the obligation of accurately reporting the fiber content of its own products. Taking the Complaint as true, the Court finds that Plaintiff clearly acted promptly to minimize damages when first given reason to doubt the fiber content of the Cashmerinos. Any damages suffered were not avoidable.
As the duties imposed by the WPLA are crucial to this Court's discussion of Plaintiff's RICO claim, we reserve much of the detailed analysis of the parties' arguments until that section of this opinion. See infra section III.B.1.
e. The Risk of Duplicative Damages or Complexity in Apportioning Damages
The final Conte Bros. factor focuses on the risk of duplicative damages or complexity in apportioning damages. Alexander Mills, 2007 WL 2907174, at *7. As explained by the Third Circuit, "[i]f remote plaintiffs . . . were permitted to sue for damages, `potential plaintiffs at each level in the distribution chain would be in a position to assert conflicting claims to a common fund . . . thereby creating the danger of multiple liability' on the one hand or a `massive and complex' damages litigation on the other." Conte Bros. 165 F.3d at 234 (quoting Assoc. Gen. Contractors. Inc. v. California State Council of Carpenters, 459 U.S. 519, 544-45, 103 S. Ct. 897, 912 (1983)).
Again, this factor weighs against prudential standing. As noted above, Defendant KFI's direct competitors are manufacturers/importers of designer blended yarns. These competitors have the right, under the Lanham Act, to sue for their injuries. Moreover, there are potentially thousands of retailers that purchased the Cashmerino yarns from Defendant KFI. To add Plaintiff to the list of legitimate plaintiffs would increase the potential for duplicative damages. As recognized by the Third Circuit, "[i]f every retailer had a cause of action for false advertising regardless of the amount in controversy, regardless of any impact on the retailer's ability to compete, regardless of any impact on the retailer's good will or reputation, and regardless of the remote nature of the injury suffered, the impact on the federal courts could be significant." Conte Bros., 165 F.3d at 235. Given the presence of multiple parties with greater proximity to the allegedly false advertising in this case, this factor advocates against a finding of prudential standing.
3. Conclusion as to Prudential Standing
In sum, all but one factor counsels this Court to dismiss Plaintiff's Lanham Act claim against Moving Defendants. Plaintiff has asserted a noncompetitive, and relatively indirect injury. Further, it is a remote party to the alleged injurious conduct in light of the existence of direct competitors who have a more proximate relationship to the false advertising. Finally, although Plaintiff's damages are neither speculative nor avoidable, allowing Plaintiff to pursue this claim would risk duplicative damages and complexity of federal litigation. "[T]he Lanham Act is intended as an instrument for remedying concrete, competitive injuries suffered directly by parties who are proximate to a commercial misrepresentation; for a plaintiff asserting prudential standing under § 43(a), it is insufficient merely to have been concretely and directly injured, without more." Cook Drilling, 2002 WL 84532, at *10. Accordingly, the Court finds that Plaintiff lacks prudential standing to maintain a cause of action against Moving Defendants under § 43(a) of the Lanham Act, and dismisses the claim with prejudice.
B. Claims under the Racketeering Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962
In the second portion of its Motion to Dismiss, Moving Defendants present a twofold challenge to Plaintiff's claim under the Racketeering Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962. Primarily, they contend that Plaintiff's RICO claims are time-barred. Moreover, they assert that there is no causal nexus between some of the alleged predicate acts under RICO and Plaintiff's injuries.
1. Whether the RICO Claim is Time-Barred
RICO does not provide an express statute of limitations for actions brought under its civil enforcement provision. Agency Holding Corp. v. Malley-Duff and Assocs., Inc., 483 U.S. 143, 146, 107 S. Ct. 2759, 2762 (1987). In Agency Holding Corp., the United States Supreme Court concluded "that there [is] a need for a uniform statute of limitations for civil RICO, that the Clayton Act clearly provides a far closer analogy than any available state statute, and that the federal policies that lie behind RICO and the practicalities of RICO litigation make the selection of the 4-year statute of limitations for Clayton Act actions, 15 U.S.C. § 15b, the most appropriate limitations period for RICO actions." Id. at 156. Accordingly, it is well-settled that a civil action under RICO is subject to a four-year limitations period. Prudential Ins. Co. of Am. v. U.S. Gypsum Co., 359 F.3d 226, 232-33 (3d Cir. 2004).
The Agency Holding case, however, failed to define the accrual date of a RICO civil cause of action. Although the Third Circuit originally adopted an "injury and pattern discovery" rule for accrual, the Supreme Court rejected that rule and declined to commit to a particular standard. Forbes v. Eagleson, 228 F.3d 471, 483 (3d Cir. 2000) (citing Rotella v. Wood, 528 U.S. 549, 120 S. Ct 1075, 1078-80 (2000)). In the wake of this yet unsettled issue, the Third Circuit elected to use an injury discovery rule, which requires the court to determine "when the plaintiffs knew or should have known of their injury" and when the plaintiff knew or should have known of the source of their injury. Id. at 485. "Under an injury discovery rule, nothing more [is] required to trigger the running of the four-year limitations period." Id.;see also Kramer v. Kubicka, 222 Fed. Appx. 184, 185 (3d Cir. 2007) (affirming use of the injury discovery rule in RICO claims); Prudential Ins. Co. of Am. v. U.S. Gypsum Co., 359 F.3d 226, 233 (3d Cir. 2004) (same).
Application of the injury discovery rule involves both an objective inquiry — whether the plaintiffs had "inquiry notice" of their injuries — and a subjective inquiry — whether the plaintiffs had actual knowledge of their alleged injury caused by the defendants. Mathews v. Kidder, Peabody Co., 260 F.3d 239, 250-51 (3d Cir. 2001). The first step requires that the defendants show the existence of "storm warnings," meaning that "any information or accumulation of data would alert a reasonable person to the probability" that the defendant engaged in wrongdoing. Cetel v. Kirwan Fin. Group. Inc., 460 F.3d 494, 507 (3d Cir. 2006) (internal quotation marks omitted). This inquiry "hinges not on a plaintiff's actual awareness of suspicious circumstances or even on the ability of a plaintiff to understand their import. Instead, `[i]t is enough that a reasonable [plaintiff] of ordinary intelligence would have discovered the information and recognized it as a storm warning.'" Id. (quotingMathews, 260 F.3d at 252). Thereafter, the second step "shifts the burden to plaintiffs to show that, heeding the storm warnings, they exercised reasonable diligence but were unable to find and avoid the storm." Id.
Moving Defendants, in this case, contend that the alleged injuries for which Plaintiff seeks relief occurred in 2001, when Plaintiff first began purchasing the Cashmerino yarns. Yet, Plaintiff did not bring suit until September 2, 2008. Defendants go on to argue that "Plaintiff was under a duty of inquiry as to the fiber content of the yarn products they purchased from KFI, not because of `storm warnings' of culpable activity, but because of its obligations under the Wool Products Labeling Act." (Defs.' Mem. Supp. Mot. Dismiss 18.) "In the face of this duty . . . The Knit With failed to take any discernible actions whatsoever from 2001, when it began purchasing the allegedly mislabeled yarn products, until 2006, when it alleges to have submitted yarn samples for testing." (Id.) As the discharge of Plaintiff's duty under the WPLA would have revealed the alleged injury prior to 2004, Moving Defendants aver that Plaintiff cannot now maintain a RICO claim more than four years later. (Id.)
In its Reply Brief, Moving Defendants raise the Textile Products Identification Act, 15 U.S.C. § 70, without any analysis of how it differs from or bolsters Defendant's argument under the WPLA.
Moving Defendants' argument fails on several grounds. First, a plain reading of the statute's language does not support their claim. Section 68a of the statute states, in part:
The introduction, or manufacture for introduction, into commerce, or the sale, transportation, or distribution, in commerce, of any wool product which is misbranded within the meaning of this subchapter or the rules and regulations hereunder, is unlawful and shall be an unfair method of competition, and an unfair and deceptive act or practice, in commerce under the Federal Trade Commission Act [ 15 U.S.C.A. § 41 et seq.]; and any person who shall manufacture or deliver for shipment or ship or sell or offer for sale in commerce, any such wool product which is misbranded within the meaning of this subchapter and the rules and regulations hereunder is guilty of an unfair method of competition, and an unfair and deceptive act or practice, in commerce within the meaning of the Federal Trade Commission Act.15 U.S.C. § 68a. Section 68c goes on to indicate:
Any person manufacturing for introduction, or first introducing into commerce a wool product shall affix thereto the stamp, tag, label, or other means of identification required by this subchapter, and the same, or substitutes therefor containing identical information with respect to content of the wool product or any other products contained therein in an amount of 5 per centum or more by weight and other information required under section 68b of this title, shall be and remain affixed to such wool product, whether it remains in its original state or is contained in garments or other articles made in whole or in part therefrom, until sold to the consumer: Provided, That the name of the manufacturer of the wool product need not appear on the substitute stamp, tag, or label if the name of the person who affixes the substitute appears thereon.15 U.S.C.A. § 68c(a). While the statute clearly has a negative enforcement component prohibiting the manufacture, introduction into commerce, sale, transportation, or distribution of any misbranded wool product, the only affirmative obligation in the statute rests with the parties who "manufactur[e] for introduction, or first introduc[e] into commerce a wool product."Id. Such parties must label the product in accordance with the requirements of the statute. Id. § 68c. Nothing in either the statute, or interpreting jurisprudence, creates any affirmative duty on a retailer to test the products it sells. Thus, although a retailer may choose to risk liability for selling misbranded wool products, the statute will not impose liability for the mere failure to test.
Second, even if the statute could be read to impose a duty on retailers to test the fiber content of their yarns, it explicitly provides that its provisions "shall be enforced by the Federal Trade Commission under rules, regulations, and procedure provided for in the Federal Trade Commission Act." Id. § 68d. There is no private right of action. Moving Defendants have not brought to the Court's attention any finding of misbranding or enforcement action by the Federal Trade Commission against Plaintiff. Thus, they cannot credibly argue that Plaintiff violated its obligations or acted unreasonably in not discovering the misbranding — originally caused by Defendants — when the Federal Trade Commission itself has made no such finding.
Third, as matter of commercial practicability, the Court finds illogical Defendants' suggestion that a reasonable wool products retailer would have ensured that all of its products underwent fiber analysis. This argument would require every retailer, including family-owned businesses like Plaintiff, to adopt an across-the-board policy of testing every yarn sold from their stores, thus resulting in duplicate testing of the same yarns. Such a scheme would shift the burden from the manufacturer, who stands in the best position to know the content of its yarn, to the retailer, which may lack the resources to consistently obtain such testing. All of this would have to occur notwithstanding the existence of a well-established regulatory scheme mandating that manufacturers and importers accurately label the content of their products. Although Moving Defendants argue that the Cashmere and Camel Hair Manufacturers Institute ("CCHMI") makes free fiber content testing available to its members, (Defs.' Reply Br. 13), the mere availability of such free testing does not make it obligatory. Further, as Plaintiff aptly notes ""[w]ere even one retailer required to test every wool product which the retailer could reasonably expect to offer for resale to the consumer, such a regimen would overwhelm available sources for fiber analysis." (Pl.'s Opp. Mot. Dismiss 24-25.) Defendants' "trust but verify" theory simply finds no legal basis in the world of commercial retail, say nothing of yarn retail.
Fourth, the Court similarly finds no merit to Moving Defendants' argument that had Plaintiff, as a reasonable wool products retailer, obtained a Guaranty of Compliance, pursuant to section 68g of the WPLA, it would have been on notice of any misbranded products for purposes of the accrual of the statute of limitations. Section 68g states, in part:
No person shall be guilty under section 68a of this title if he establishes a guaranty received in good faith signed by and containing the name and address of the person residing in the United States by whom the wool product guaranteed was manufactured and/or from whom it was received, that said wool product is not misbranded under the provisions of this subchapter15 U.S.C.A. § 68g. Taking the allegations of the Complaint as true, however, Mr. Elalouf knew that its cashmere version of Cashmerino had no cashmere and that the absence of cashmere was undetectable without expert fiber analysis. (Compl. ¶ 34.) Yet, KFI marketed the Cashmerinos as containing at least twelve percent cashmere. (Id. ¶ 39.) When Plaintiff first heard rumors of the lack of cashmere in the Cashmerinos, it requested that KFI, as well as all Plaintiff's other yarn vendors, furnish a Guaranty of Compliance that the yarns complied with federal labeling laws. (Id. at ¶ 54.) KFI was the sole vendor who neither acknowledged nor fulfilled this request. (Id.) Upon receiving a second request from Plaintiff at the end of July 2006, KFI only offered to furnish a general letter at some uncertain, future point. (Id. ¶ 69.) It is utterly disingenuous for Moving Defendants to now argue that Plaintiff, as a reasonable wool products retailer, could and should have been put on notice of the misbranding by obtaining a Guaranty in 2001. Nothing in the alleged facts suggests that Moving Defendants would have provided such a Guaranty, let alone a Guaranty forthcoming about its misbranding.
Ultimately, the fact remains that there were no "storm warnings" alerting Plaintiff, or any other reasonable yarn retailers, to the presence of unlawful RICO activity. Plaintiff did business with Defendant KFI since the mid 1980's and was never put on notice of KFI's potential for deception. (Compl. ¶ 26.) In light of its longstanding commercial relationship, Plaintiff reasonably chose to neither test the new Cashmerino yarns or seek a Guaranty of Compliance. When rumors of misbranding first came to light, Plaintiff immediately recognized the information as a "storm warning," promptly removed from sale all of the Cashmerino yarns, sent the five "suspect" yarns for independent fiber analysis, and sought Guaranties from its manufacturers. (Id. ¶¶ 45-56.) Upon verifying the absence of cashmere, it recalled all Cashmerino yarns sourced from KFI. (Id. ¶¶ 70-75.) Neither Plaintiff nor Defendants suggest that any other retailer of Cashmerino yarns, including the larger mass market retailers, sought fiber analyses or Guaranties from KFI prior to this time. As the Court finds no support for the proposition that a reasonable wool retailer, faced with the precise circumstances, would or should have discovered that fiber content of KFI's yarns prior to the initial rumors hitting the market in May 2006, the RICO action, commenced slightly over two years later, must be deemed timely filed. (Id. ¶ 82.)
In its Reply Brief, Moving Defendants attempt to analogize Plaintiff, a specialty yarn store, to a "reasonable investor." (Defs.' Reply Br. 12.) Moving Defendants argue that a reasonable investor is presumed to have "`read prospectuses, quarterly reports and other information relating to their investments,' . . . and has `knowledge of publicly available news articles and analyst's reports.'" (Id. (quoting Mathews v. Kidder, Peabody Co., 260 F.3d 239, 252 (3d Cir. 2001); Cetel v. Kirwan Fin. Group, Inc., 460 F.3d 494, 507 (3d Cir. 2006).) This degree of engagement allows plaintiffs to act as "private attorney generals" (Id.)
This analogy fails. Both Mathews and Cetel charge investors merely with staying apprised of publicly available information.See Cetel, 460 F.3d at 506 (the objective inquiry "saddles the investor with responsibilities like reading prospectuses, reports, and other information related to the investments, . . . and, additionally, assumes knowledge of `publicly available news articles and analyst's reports.'"). It does not require them to go out and seek independent financial analyses of their investments, retain expert advice, or obtain corporate guarantees about company financials. Similarly, while Plaintiff had the responsibility of remaining aware of publicly available information about Defendant KFI, including reports regarding any potential fraudulent activity in which KFI was engaged, Plaintiff, as a reasonable yarn retailer, did not have to obtain independent expert fiber analyses.
As a final point, even though not argued by Plaintiff, the Court would be inclined to find the statute of limitations equitably tolled. The fundamental rule of equity is that "a party should not be permitted to profit from its own wrongdoing."Oshiver v. Levin, Fisbein, Sedran Berman, 38 F.3d 1380, 1388 (3d Cir. 1994). "To allow a defendant to benefit from the statute of limitations defense after intentionally misleading the plaintiff with regard to the cause of action, thereby causing the plaintiff's tardiness, would be `manifestly unjust.'" Id. (quotations omitted). The United States Supreme Court has expressly indicated that equitable tolling of RICO's limitation period may be appropriate "where a pattern remains obscure in the face of a plaintiff's diligence in seeking to identify it." Rotella v. Wood, 528 U.S. 549, 561, 120 S. Ct. 1070, 1085 (2000). Adopting this holding, the Third Circuit found that the plaintiff has the burden of proving the three necessary elements of a fraudulent concealment claim: (1) "active misleading by the defendant, (2) which prevents the plaintiff from recognizing the validity of his or her claim within the limitations period, and (3) where the plaintiff's ignorance is not attributable to his or her lack of reasonable due diligence in attempting to uncover the facts." Mathews, 260 F.3d at 256 (citing Forbes, 228 F.3d at 487). In a motion to dismiss, there need only be a showing of these elements on the face of the complaint.
As noted above, Moving Defendants, actively concealed the fact that the Cashmerino line had no cashmere, yet took affirmative steps to promote it as a cashmere blend. Even after Moving Defendants were confronted with the independent analyses and the complaints of its competitors and retailers, it continued to insist that its Cashmerino yarns contained cashmere, and obtained false analyses vouching for the yarns' cashmere content. (Compl. ¶¶ 59-76.) On the other hand, Plaintiff, when first learning about a possible problem with cashmere yarns, went to great lengths to ascertain the truth of the rumors. (Compl. ¶¶ 48-58.) The face of the Complaint thus establishes both active misleading by Moving Defendants and due diligence by Plaintiff.
In sum, the Court deems the RICO claim timely filed. The accrual date was, at the earliest, the date of the May 2006 qualitative fiber analysis and, at the latest, July 6, 2006, the date Plaintiff first heard a rumor about the misbranding of a cashmere yarn then on the market. As the current Complaint was filed on September 2, 2008, Plaintiff acted well within the applicable four year statute of limitations. Accordingly, the Court denies the Motion to Dismiss on this ground.
2. Whether Plaintiff Alleges a Causal Nexus Between the Claimed Predicate Acts and Its Injury
Moving Defendants' final argument does not pose a general challenge to Plaintiff's RICO cause of action, but simply contends that several of the predicate acts posited as part of Plaintiff's RICO claim have no causal nexus to any of the alleged injuries. Accordingly, they seek dismissal of those particular allegations.
A claim alleging a pattern of racketeering under Section 1962(c) requires proof of four elements: (1) the existence of an enterprise affecting interstate commerce; (2) that the defendant was employed by or associated with the enterprise; (3) that the defendant participated, directly or indirectly, in the conduct or the affairs of the enterprise; and (4) that the defendant participated through a pattern of racketeering activity that must include the allegation of at least two racketeering acts. Baglio v. Baska, 940 F. Supp. 819, 832 (W.D. Pa. 1996), aff'd, 116 F.3d 467 (3d Cir. 1997). "Merely committing the predicate offense does not violate Section 1962(c)." Id. (citing Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S. Ct. 3275, 3285 (1985)). The plaintiff must also show causation between the activity and the injury. Id. at 833. A plaintiff may not maintain a Section 1962(c) claim where he has failed to allege injury to his business or property by the conduct constituting the violation.Id. (citing Sedima, 473 U.S. at 496). Even if the underlying predicate acts formed a pattern of racketeering activity, they must have a direct relationship to, i.e. be the proximate cause of, the plaintiff's injury. Id.
In the case at bar, Plaintiff alleges that Defendant Elalouf conducted Defendant KFI's affairs through a pattern of racketeering activities, consisting of two or more of the following: mail fraud, wire fraud, witness tampering, obstruction of justice, Hobbs Act violations, money laundering, and interstate travel and use of interstate facilities for racketeering purposes. (Compl. ¶¶ 113-114.) Of these allegations, several — including the witness tampering, obstruction of justice, extortion, and blackmail — relate only to the Defendants' conduct in an unrelated litigation between KFI and Coates Holdings, Ltd. (the "Coates litigation"). Plaintiff makes no effort to define any causal nexus between those acts and their injuries, but rather argues that it puts forth these allegations to generally "establish that KFI is operated or managed by Mr. Elalouf as a racketeering enterprise." (Pl.'s Opp. Mot. Dismiss 19.)
Moving Defendants' motion on this claim is more properly characterized as a motion to strike allegations of the Complaint — specifically paragraphs 113(c), 113(d), and 113(e) — rather than a motion to dismiss. Nonetheless, in light of the clear absence of any causal nexus between the Coates litigation acts and Plaintiff's injuries in this case, the Court deems it appropriate to dismiss those paragraphs. Even with such allegations stricken, however, Plaintiff's Complaint adequately pleads sufficient predicate acts and accompanying causal nexus to survive a motion to dismiss the RICO count in its entirety.
In the event that the Court dismissed all the federal causes of action in the Complaint, Moving Defendants argued that the Court should decline to exercise jurisdiction over the remaining pendent state law claims, pursuant to 28 U.S.C. § 1367(c). As the Court retains the RICO count, we need not address this argument.
IV. CONCLUSION
In sum, the Court grants the Motion to Dismiss in part and denies it in part. As set forth in detail above, Plaintiff has failed to establish a competitive injury sufficient to support prudential standing. Therefore, the court dismisses this claim in its entirety. With respect to the RICO claim, on the other hand, the Court finds that it was brought within the applicable statute of limitations. In addition, although some of the predicate acts alleged by Plaintiff have no causal nexus to Plaintiff's injury and should be dismissed, the Court holds that Plaintiff has made a sufficient showing of predicate acts forming a pattern of racketeering activity and a causal nexus between those acts. The Court thus declines to dismiss the RICO court.
An appropriate order follows.
ORDER
AND NOW, this 18th day of December, 2008, upon consideration of the Motion to Dismiss by Defendants Knitting Fever, Inc., Sion Elalouf, Diane Elalouf, Jeffrey J. Denecke, Jr., and Jay Opperman (collectively "Moving Defendants") (Doc. No. 8), the Response thereto of Plaintiff The Knit With (Doc. No. 10), Moving Defendants' Reply Brief (Doc. No. 11) and Plaintiff's Sur-reply Brief (Doc. No. 12), it is hereby ORDERED that the Motion is GRANTED IN PART and DENIED IN PART as follows:1. Moving Defendants' Motion to Dismiss Plaintiff's cause of action under the Lanham Act, 15 U.S.C. § 1125(a)(1)(B) is GRANTED. Count III is DISMISSED as against Moving Defendants.
2. Moving Defendants' Motion to Dismiss Plaintiff's cause of action under the Racketeering Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961, et seq. (Counts IV and V of the Complaint) is DENIED;
3. Paragraphs 113(c), 113(d) and 113(e) are STRICKEN from the Complaint.
It is so ORDERED.