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Corker v. Costco Wholesale Corp.

United States District Court, W.D. Washington, Seattle

November 12, 2019

BRUCE CORKER, et al., Plaintiffs,
v.
COSTCO WHOLESALE CORPORATION, et al., Defendants.

          ORDER DENYING SUPPLIERS' MOTION TO DISMISS

          Robert S. Lasnik United States District Judge.

         This matter comes before the Court on the “Suppliers' Motion to Dismiss Under Fed.R.Civ.P. 12(b)(6).” Dkt. # 107.[1] The question for the Court on a motion to dismiss is whether the facts alleged in the complaint sufficiently state a “plausible” ground for relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).

A claim is facially plausible when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Plausibility requires pleading facts, as opposed to conclusory allegations or the formulaic recitation of elements of a cause of action, and must rise above the mere conceivability or possibility of unlawful conduct that entitles the pleader to relief. Factual allegations must be enough to raise a right to relief above the speculative level. Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief. Nor is it enough that the complaint is factually neutral; rather, it must be factually suggestive.

Somers v. Apple, Inc., 729 F.3d 953, 959-60 (9th Cir. 2013) (internal quotation marks and citations omitted). All well-pleaded factual allegations are presumed to be true, with all reasonable inferences drawn in favor of the non-moving party. In re Fitness Holdings Int'l, Inc., 714 F.3d 1141, 1144-45 (9th Cir. 2013). If the complaint fails to state a cognizable legal theory or fails to provide sufficient facts to support a claim, dismissal is appropriate. Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010).

         Having reviewed the First Amended Complaint and the memoranda submitted by the parties, [2] the Court finds as follows:

         Plaintiffs are coffee farmers in the Kona District of the Big Island of Hawaii. They allege that moving defendants sell coffee products throughout the United States and that they falsely designate the geographic origin of their coffee as “Kona, ” placing the word Kona prominently on their packaging and/or promotional materials. Plaintiffs provide examples of the packaging -and in some instances promotional materials - used by each of the moving defendants and allege that the products carrying the Kona label actually contain little to no coffee from the Kona District. Plaintiffs further allege that the supplier defendants deliberately and intentionally mislead consumers into believing their products contain an appreciable amount of Kona coffee beans in order to use the reputation and goodwill of the Kona name to justify higher prices for what is actually ordinary commodity coffee. Plaintiffs complain that the suppliers' use of the word Kona not only constitutes false designation of geographic origin, it damages the geographic designation itself and the designation's value to the farmers of authentic Kona coffee from the Kona District. Plaintiffs have tested packages of the supplier defendants' coffee products, all of which are marked with the word Kona, and found that their ratios of various metal (strontium to zinc, barium to nickel, cobalt to zinc, and manganese to nickel) are well outside the range of that which is found in authentic Kona coffee. Plaintiffs expressly allege that the supplier defendants' designation of Kona as the origin of the coffee in their “Kona” products is false. Plaintiffs assert that, even if there were some Kona coffee in defendants' products, it is not the meaningful percentage that a consumer would expect based on the packaging.

         Based on these allegations, plaintiffs assert claims of false designation of origin, false advertising, and unfair competition under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). The supplier defendants argue that the claims should be dismissed because they (1) are grounded in fraud but are not pled with the particularity required under Fed.R.Civ.P. 9(b) and (2) fail to plausibly allege a false association claim under Section 43(a)(1)(A).[3]

         To state a claim under Section 43(a)(1)(A) of the Lanham Act, plaintiffs must allege that the supplier defendants (1) used in commerce (2) a word, false designation of origin, and/or false or misleading representation of fact (3) which is likely to cause confusion as to the origin of their coffee and (4) that such use has or is likely to damage plaintiffs. 15 U.S.C. § 1125(a)(1)(A). See Freecycle Network, Inc. v. Oey, 505 F.3d 898, 902 (9th Cir. 2007). The supplier defendants' first argument is that plaintiffs have failed to plead with particularity the what, when, and where of the intentional falsehoods on which their false designation of origin claims are based. In the suppliers' view, plaintiffs merely allege that “unidentified Defendants sold unidentified coffee products at unknown locations and times.” Dkt. # 107 at 9. The Court disagrees. Taking the allegations against L&K Coffee Co., LLC, as an example, plaintiffs allege that L&K does business under the name of Magnum Coffee Roastery and sells its products throughout the United States using an on-line store at www.javaboulevard.com and various retail outlets, including defendants Costco, Amazon, Walmart, T.J. Maxx, and Marshalls. Dkt. # 81 at ¶ 11. Plaintiffs allege that L&K prominently marks certain products in its Magnum Exotics line with the word Kona on the front of the packaging, but that the designation of origin is false. Id. at ¶ 11 and ¶ 99. Plaintiffs also allege that L&K uses deceptive taglines, slogans, and imagery in its marketing and packaging that imply, falsely, that the coffee in its “Kona” products originated in the Kona District: examples of the offending text and imagery are provided. Id. at ¶ 99. Plaintiffs provide an image of the front of one of L&K's products, Magnum Exotics Kona Blend Coffee, as an example showing the use of the word Kona and associated tropical imagery. Id. at ¶ 100.

         Plaintiffs have adequately alleged intentional falsehood on L&K's part. They identify the who, what, when, where, and how of the allegedly false statements. L&K (“the who”) is accused of using the word Kona and other text and imagery that implies that the coffee in the package originated from the Kona District (the “what”) on the packaging of certain Magnum Exotics products (the “where”) that are distributed to consumers as part of L&K's business through specified channels and outlets (the “when” and “how”). The fact that plaintiffs specifically identified one or two products from each supplier as examples of the alleged fraud - providing an image of the packaging and test results confirming the absence of Kona coffee in the packages -does not invalidate or make unclear the allegation that all of L&K's products marked with the word Kona contain a false designation of origin.[4] The allegations adequately “inform each defendant separately of the allegations surrounding [its] alleged participation in the fraud.” Swartz v. KPMG LLP, 476 F.3d 756, 764-65 (9th Cir. 2007). Plaintiffs have met the Rule 9(b) pleading requirement.

         The supplier defendants' second argument is that plaintiffs have failed to allege a plausible claim of false association under Section 43(a)(1)(A) because there is no indication that defendants falsely linked their products with the plaintiff farmers or their businesses. Claims arising under Section 43(a)(1)(A) are generically described as “false association” claims (see Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 122 (2014)), but the plain language of the subsection prohibits more than just a false association with a particular producer or manufacturer. Section 43(a)(1)(A) provides a federal cause of action when a person's use of a word or symbol in commerce is likely to cause confusion “as to the . . . association of such person with another person, or as to the origin . . . of his goods . . . .” 15 U.S.C. § 1125(a)(1)(A) (emphasis added). The suppliers conflate the two by omitting the word “or” and arguing that Section 43(a)(1)(A) requires a showing of confusion regarding the association of their goods with plaintiffs, as opposed to confusion regarding the association of the goods with a particular locality or region. Correcting the error shows, however, that this provision applies where a person's use of a word or symbol would likely cause consumer confusion regarding the origin of the goods. “Origin, ” in this context, has long been understood to include the geographic origin of the good or service. See Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 29-30 (2003).

         The supplier defendants further argue that a trademark infringement claim under Section 43(a)(1)(A) requires a protectable ownership interest in the mark and that plaintiffs concede that “Kona” is not a protectable mark. It is undoubtedly true that, in order to allege infringement of a trademark, a plaintiff must have a protectable interest in the mark. Plaintiffs, however, are using Section 43(a) to challenge what they consider unfair competition, namely the false designation of geographic origin. The Supreme Court has expressly held that Section 43(a) of the Lanham Act goes beyond trademark protection and makes actionable unfair competition claims such as that brought by plaintiffs.

The Lanham Act was intended to make “actionable the deceptive and misleading use of marks, ” and “to protect persons engaged in ... commerce against unfair competition.” 15 U.S.C. § 1127. While much of the Lanham Act addresses the registration, use, and infringement of trademarks and related marks, § 43(a), 15 U.S.C. § 1125(a) is one of the few provisions that goes beyond trademark protection. As originally enacted, § 43(a) created a federal remedy against a person who used in commerce either “a false designation of origin, or any false description or representation” in connection with “any goods or services.” 60 Stat. 441. . . .
Although a case can be made that a proper reading of § 43(a), as originally enacted, would treat the word “origin” as referring only “to the geographic location in which the goods originated, ” Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 777 (1992) (STEVENS, J., concurring in judgment), the Courts of Appeals considering the issue, beginning with the Sixth Circuit, unanimously concluded that it “does not merely refer to geographical origin, but also to origin of source or manufacture, ” Federal-Mogul-Bower Bearings, Inc. v. Azoff, 313 F.2d 405, 408 (6th Cir. 1963), thereby creating a federal cause of action for traditional trademark infringement of unregistered marks. See 4 McCarthy § 27:14; Two Pesos, supra, at 768. . . . The Trademark Law Revision Act of 1988 made clear that § 43(a) covers origin of production as well as geographic origin.

Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 28-30 (2003) (internal footnotes omitted). Thus, Section 43(a) provides a federal remedy for “a false designation of origin” - a phrase that has always been construed as encompassing false statements regarding the geographic origin of the product - without regard to the existence of a protectable trademark. See also Belmora LLC v. Bayer Consumer Care AG, 819 F.3d 697, 706 (4th Cir. 2016) (“Significantly, the plain language of § 43(a) does not ...


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