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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 GRANTING IN PART RETAILERS' MOTION TO DISMISS

          Robert S. Lasnik United States District Judge.

         This matter comes before the Court on the “Retailers' Motion to Dismiss Under Fed.R.Civ.P. 12(b)(6).” Dkt. # 106.[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 and supplemental authority 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 that falsely designate the geographic origin of the coffee as “Kona.” All of the retailers are accused of selling deceptively labeled “Kona” coffee produced and packaged by one or more of the supplier defendants. Cost Plus and Kroger are also accused of selling their own private label “Kona” coffee that falsely designate's the coffee's geographic origins. Dkt. # 81 at ¶¶ 9 and 17. Plaintiffs provide examples of the private label and third-party packaging in which the offending products are sold by the retailers and allege that the products carrying the Kona label (and other symbols suggestive of a tropical provenance) actually contain little to no coffee from the Kona District. With regards to the private label products, plaintiffs further allege that the retailer 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 have tested packages of the retailer defendants' private label “Kona” products as well as the third-party “Kona” products sold by the retailers 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 private label and third-party designation of Kona as the origin of the coffee in the “Kona” products they sell is false. Plaintiffs assert that, even if there were some Kona coffee in the products manufactured and/or sold by the retailer defendants, 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 retailer defendants argue that the claims should be dismissed because (1) plaintiffs have failed to plausibly allege a false advertising claim under Section 43(a)(1)(B), (2) plaintiffs have failed to plausibly allege a false association claim under Section 43(a)(1)(A), (3) the claims are grounded in fraud but are not pled with the particularity required under Fed.R.Civ.P. 9(b), and (4) the claims are barred by Section 230 of the Communications Decency Act, 47 U.S.C. § 230.

         (1) False Advertising Claim under Section 43(a)(1)(B)

         In the context of this case, a false advertising claim under Section 43(a)(1)(B) requires plaintiffs to plausibly allege that the retailer defendants “use[]” “in commercial advertising or promotion” a misrepresentation regarding the geographic origin of the retailers' or another person's coffee products. 15 U.S.C. § 1125(a)(1)(B). The first element of the Ninth Circuit's five-element test for false advertising claims requires “a false statement of fact by the defendant in a commercial advertisement about its own or another's product.” Skydive Ariz., Inc. v. Quattrocchi, 673 F.3d 1105, 1110 (9th Cir. 2012). To the extent that the moving defendants are merely retailers of products manufactured, produced, and packaged by third parties, [3] the issue is whether they made a false statement of fact in commercial advertising when they put the third-party vendor's product on their shelves or websites. There is limited case law on this subject, and the Ninth Circuit has not weighed in on this issue. Having surveyed the relevant court authority, however, the Court finds that the answer is “no.” See Baldino's Lock & Key Serv., Inc. v. Google, Inc., 624 Fed.Appx. 81, 82 (4th Cir. 2015) (“[T]he locksmiths who generated the information that appeared on Defendants' websites are solely responsible for making any faulty or misleading representations or descriptions of fact” for purposes of Section 43(a)(1)(B)); Outlaw Lab., LP v. Shenoor Enter., 371 F.Supp.3d 355, 362-68 (N.D. Tex. 2019) (concluding that retailers are not liable for false advertising under the Lanham Act because they do not make a false statement simply be displaying or selling a product that was falsely labeled by another); Lasoff v. Amazon.com, Inc., C16-0151BJR, 2017 WL 372948, at *8 (W.D. Wash. Jan. 26, 2017) (holding that where the misrepresentation of which plaintiff complains originated with a third-party vendor, the liability for the false representations lies with the third-party vendor, not with the retailer who truthfully depicts what is for sale on its shelves or website); Optimum Techs., Inc. v. Home Depot USA, Inc., C04-3260TWT, 2005 WL 3307508, *5-6 (N.D.Ga. Dec. 5, 2005) (noting that, to be actionable under Section 43(a)(1)(B), a misrepresentation must be made “in commercial advertising or promotion, ” which presumes that the defendant be in commercial competition with the plaintiff, not merely a retailer of a third-party's goods). In addition, the policy implications of imposing liability for false advertising on all downstream participants in a retail chain are troubling. As noted by the Outlaw Laboratory court:

Finally and significantly, the policy concerns stemming from a decision that holds retailers liable for false advertisements created and controlled solely by third parties could be severe. Here, Defendants undoubtedly sell many products-should they be responsible for scrutinizing and determining the veracity of every claim on every product label in their stores simply because they sell the product? At least under a false-advertising theory, the Court holds no; instead, to support a false advertising claims against these retailers, Plaintiff must plead in good faith allegations that support a finding that Defendants made false statements in the context of advertising or promotion.

371 F.Supp.3d at 368.

         The Court does not mean to imply that a retailer can never be held liable on a false advertising claim under the Lanham Act. If, for example, a retailer controls or participates in the creation of the offending label or creates additional marketing materials for a product that amplify the manufacturer's misrepresentations, imposition of liability for false advertising may be appropriate. See JST Distr., LLC v. CNV.com, Inc., C17-6264PSG, 2018 WL 6113092 (C.D. Cal. Mar. 7, 2018) (allowing Lanham Act claim to proceed against retailer who marketed and advertised deceptively-labeled products on its website and was alleged to be “at the center of a massive hub-and-spoke conspiracy to sell tainted” product). Plaintiffs have not, however, alleged such activities on the part of the moving defendants to the extent they were simply retailing products produced, manufactured, and packaged by third parties. The false advertising claims against the retailer defendants, acting solely in their roles as retailers, may not proceed.

         (2) False Association Claim under Section 43(a)(1)(A)

         To state a claim under Section 43(a)(1)(A) in the context of this case, plaintiffs must allege that the retailer defendants (1) used in commerce (2) a false designation of origin (3) which is likely to cause confusion as to the origin of the coffee they sell 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 retailer defendants argue 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, their businesses, or their products. 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 retailers conflate the two by omitting the word “or” and arguing that Section ...


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