Watkins Inc. v. McCormick & Co. (In re McCormick & Co., Inc., Pepper Prods. Mktg. & Sales Practices Litig.)

• Decision Date: 17 October 2016
• Docket Number: MDL Docket No. 2665,Misc. No. 15-1825 (ESH)
• Citation: 215 F.Supp.3d 51
• Parties: IN RE: MCCORMICK & COMPANY, INC., PEPPER PRODUCTS MARKETING AND SALES PRACTICES LITIGATION This Document Relates to: Watkins Incorporated v. McCormick & Company, Inc. No. 1:15-cv-2188 (ESH)
• Court: U.S. District Court — District of Columbia

215 F.Supp.3d 51

IN RE: MCCORMICK & COMPANY, INC., PEPPER PRODUCTS MARKETING AND SALES PRACTICES LITIGATION

This Document Relates to:

Watkins Incorporated v. McCormick & Company, Inc.

No. 1:15-cv-2188 (ESH)

MDL Docket No. 2665

Misc. No. 15-1825 (ESH)

United States District Court, District of Columbia.

Signed October 17, 2016

MEMORANDUM OPINION

ELLEN SEGAL HUVELLE, United States District Judge

Plaintiff Watkins, which produces black pepper, alleges that its largest competitor, defendant McCormick, deceptively "slack-filled" its black pepper containers, thereby confusing consumers and proximately causing a loss in Watkins' pepper sales. Watkins asserts five causes of action: violation of the Lanham Act, 15 U.S.C. § 1125(a)(1)(B) (Count One), violations of three state statutes punishing unfair trade practices (Counts Two, Three, and Four); and the common law tort of unfair competition (Count Five). (See Am. Compl., ECF No. 32, ¶¶ 56-89.) Watkins seeks both monetary and injunctive relief.

Watkins filed its initial complaint in the District of Minnesota on June 9, 2015. After several consumer class actions against McCormick followed—each alleging deception by the same "slack-filled" pepper containers—the Judicial Panel on Multi-District Litigation consolidated all of the "slack-fill" lawsuits against McCormick and transferred them to this Court on December 8, 2015. Once plaintiff was before this Court, it filed an amended complaint on March 2, 2016, referencing the allegations in the parallel consumer actions. (See Am. Compl. ¶¶ 50-55.) After the parties had begun briefing the present motion to dismiss, plaintiff filed a second amended complaint on July 10, 2016. (See Second Am. Compl., ECF No. 57.)

The consumer class actions and this lawsuit all rely upon the allegation that consumers were deceived by McCormick's pepper packaging and believed they were buying more pepper than they ended up receiving. (See Am. Compl. ¶¶ 52-55.) Watkins claims that the fraudulently induced choices of these duped consumers inflated McCormick's sales to the detriment of Watkins' sales.

Defendant filed its motion to dismiss on March 30, 2016, arguing that: (1) plaintiff enjoys neither constitutional standing under Article III nor statutory standing under the Lanham Act; (2) plaintiff fails to state a claim under either the Lanham Act, the state statutes, or common law; and (3) Minnesota choice-of-law rules¹ preclude plaintiff's claims under the California and Florida statutes; and (4) unfair competition is not an independently existing tort under Minnesota law. (See Def.'s Mem. Supp. Mot. Dismiss ("Def.'s Mem.") at 5-7.) Plaintiff filed its opposition on April 27, 2016. (See Pl.'s Mem. Opp. Def.'s Mot. Dismiss, ECF No. 42 ("Pl.'s Opp.").) Defendant filed its reply on May 18, 2016. (See Def.'s Reply, ECF No. 46.) Defendant also filed a supplemental memorandum in support of its motion to dismiss on July 10, 2016, and plaintiff filed its response on July 12, 2016. This Court held a hearing on July 20, 2016.

For the reasons stated below, defendant's motion to dismiss Watkins' amended complaint is granted in part and denied in part.

FACTUAL ALLEGATIONS

According to Watkins, McCormick has been the dominant wholesaler of black pepper for decades and is now responsible for approximately 70% of domestic black pepper sales. (Am. Compl. ¶¶ 7-14.) It sells its pepper in distinctively branded red and white metal containers in three sizes: small (full capacity of two ounces of pepper), medium (full capacity of four ounces of pepper), and large (full capacity of eight ounces of pepper). (Id. ¶ 11.) In addition, McCormick sells black peppercorn grinders, which—until recently—contained 1.24 ounces of whole black peppercorns. (Id. ¶¶ 14, 28.) Watkins claims that other pepper manufacturers often model their tins on McCormick's, and pepper manufacturers use the packaging, appearance, size, and shape of their tins to advertise their products. (Id. ¶ 12.) Consumers cannot see the amount of pepper inside McCormick's containers because the tins are not transparent and the grinders are covered on the top and sides by a plastic seal and product label. (Id. ¶¶ 16, 28.)

Plaintiff alleges that, in early 2015, McCormick reduced the amount of actual pepper in each of its pepper tins by 25% but "misleadingly continued to use the same traditional-sized tins" and reduced the quantity of peppercorns in its grinders from 1.24 ounces to 1 ounces, again without changing the size of the containers. (Id. ¶¶ 15, 28.) The photographs included with plaintiff's complaint show that McCormick did print the reduced quantity on the containers, even though the size of the containers did not change. (Seeid. at 7–9 (Photos A, B, and C).) Plaintiff alleges on information and belief that McCormick "maintained the price" of each tin size, although plaintiff does not specify whether "price" refers to the wholesale or retail price. (Id. ¶ 21.) According to plaintiff, this reduction in the product within McCormick's well-known and recognizable containers amounts to what regulators have termed "nonfunctional slack-fill." (Pl.'s Opp. at 2 (citing 21 C.F.R. § 100.100 ("A container that does not allow the consumer to fully view its contents shall be considered to be filled as to be misleading if it contains nonfunctional slack-fill. Slack-fill is the difference between the actual capacity of a container and the volume of product contained therein.")).)

Because McCormick's consumers had become accustomed to the size of McCormick's containers (and those of its competitors) and relied on them to advertise the amount of pepper being sold, plaintiff alleges that the reduction in pepper quantity and resulting slack-fill has "led to widespread confusion and deception of the consuming public." (Am. Compl. ¶¶ 13, 26, 50-55.)² Watkins claims that McCormick's decision to change the amount of pepper sold without changing the size of the tins or their price amounted to a willful attempt to mislead consumers. (Id. ¶ 71.)

Finally, Watkins alleges that McCormick's practice of slack-filling is disadvantaging Watkins' sales. As plaintiff explains, "[w]hen McCormick's slack-filled tins and grinders are positioned on a grocery store shelf next to competitors, including Watkins, McCormick tried to induce consumers to buy McCormick pepper because it appears—falsely—that the McCormick container is equivalent to, or larger than, the Watkins containers and those of other competitors." (Id. ¶ 37.) Watkins claims that if consumers had actually known that McCormick's various tins contained 25% less pepper than usual, they would have bought pepper produced by McCormick's competitors, including Watkins.

ANALYSIS

McCormick argues that this Court should dismiss all five counts of Watkins' amended complaint. First, it challenges Watkins' standing to bring a claim for injuries which McCormick believes to be speculative. Second, it maintains that Watkins has not alleged all elements of a Lanham Act claim. Third, it argues that Watkins' state statutory claims should be dismissed for failure to state a claim or on the basis of choice-of-law analysis. And finally, McCormick maintains that, under Minnesota law, unfair competition is not an independently existing tort. The Court considers each of these arguments seriatim.

I. ARTICLE III STANDING

"To survive a motion to dismiss for lack of [constitutional] standing, a complaint must state a plausible claim that the plaintiff has suffered an injury in fact fairly traceable to the actions of the defendant that is likely to be redressed by a favorable decision on the merits." Humane Soc'y of the U.S. v. Vilsack , 797 F.3d 4, 8 (D.C. Cir. 2015) (citing Lujan v. Defenders of Wildlife , 504 U.S. 555, 560–61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) ). On such a motion to dismiss, the Court "must accept as true all material allegations of the complaint, and must construe the complaint in favor of the complaining party." Warth v. Seldin , 422 U.S. 490, 501, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975). The Court must " ‘presum[e] that general allegations embrace those specific facts that are necessary to support [a contested] claim,’ " and thus "general factual allegations of injury resulting from the defendant's conduct may suffice" to survive a motion to dismiss for lack of Article III standing. Lujan , 504 U.S. at 561, 112 S.Ct. 2130 (quoting Lujan v. Nat'l Wildlife Fed'n , 497 U.S. 871, 889, 110 S.Ct. 3177, 111 L.Ed.2d 695 (1990) ).

For Lanham Act claims, Article III standing requires "the familiar trio of injury in fact, causation, and redressability." TrafficSchool.com, Inc. v. Edriver Inc. , 653 F.3d 820, 825 (9th Cir. 2011). In a false advertising suit, a plaintiff can demonstrate injury by showing that " ‘some consumers who bought the defendant's product under a mistaken belief’ fostered by the defendant ‘would have otherwise bought the plaintiff's product.’ " Id. (citing Joint Stock Soc'y v. UDVN Am., Inc. , 266 F.3d 164, 177 (3d Cir. 2001) ). Defendant cites Joint Stock Soc'y , 266 F.3d at 176, for the proposition that a plaintiff's claimed injury is too speculative if the defendant's false advertising would harm other competitors in addition to the plaintiff. (See Def.'s Reply at 3.) That court actually found the plaintiff's injury speculative because it had never sold its product in the United States and stated that the plaintiff likely would have established an injury if it had done so. Joint Stock Soc'y , 266 F.3d at 176–77.

As Judge Bazelon once explained, "all claims of competitive injury are to some extent speculative, since they are predicated on the independent decisions of third parties; i.e. , customers. However, ... it is the stuff of the most elementary economic texts that if two firms are offering a similar product for different prices, the firm offering the lower price will draw away customers from its competitor." Am. Soc'y of Travel Agents, Inc. v. Blumenthal , 566 F.2d 145, 157 (D.C. Cir. 1...