Buetow v. A.L.S. Enterprises Inc.

• Decision Date: 18 August 2011
• Docket Number: No. 10–2415.,10–2415.
• Citation: 650 F.3d 1178
• Parties: Michael BUETOW, et al., individually and on behalf of all other Minnesota residents and entities similarly situated, Plaintiffs–Appellees,v.A.L.S. ENTERPRISES, INC.; Cabela's, Inc.; Cabela's Wholesale, Inc.; Gander Mountain Company, Defendants–Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

650 F.3d 1178

Michael BUETOW, et al., individually and on behalf of all other Minnesota residents and entities similarly situated, Plaintiffs–Appellees,

v.A.L.S. ENTERPRISES, INC.; Cabela's, Inc.; Cabela's Wholesale, Inc.; Gander Mountain Company, Defendants–Appellants.

No. 10–2415.

United States Court of Appeals, Eighth Circuit.

Submitted: Feb. 17, 2011.Filed: Aug. 18, 2011.

Naikang Tsao, argued, Madison, WI, Theresa A. Andre, Madison, WI, John D. Sear, Minneapolis, MN, on the brief, for appellant.Renae D. Steiner, argued, Ernest W. Grumbles, III, Rachel C. Hughey, Thomas J. Leach, on the brief, Minneapolis, MN, for appellee.Before LOKEN, MELLOY, and SHEPHERD, Circuit Judges.LOKEN, Circuit Judge.

There is a substantial market for products that will prevent game animals, with their keen sense of smell, from detecting the presence of hunters. Activated carbon, when embedded in clothing, adsorbs ¹ and retains human scent. In 1992, A.L.S. Enterprises began manufacturing and selling hunting garments incorporating activated carbon by a patented process that A.L.S. advertised under the brand name “Scent–Lok®” as “odor eliminating technology.” Fifteen years later, five hunters commenced this purported class action against A.L.S. and three of its licensees who sell odor adsorbing clothing under various brand names in Cabela's and Gander Mountain retail stores and mail order catalogs. Plaintiffs' Second Amended Class Action Complaint alleged that A.L.S. “has uniformly misrepresented to consumers that its odor eliminating clothing would not only eliminate 100% of human odors, but could also be reactivated or regenerated in a household dryer after the clothing has become saturated with odors,” thereby violating three Minnesota consumer protection statutes, the Minnesota Consumer Fraud Act (MCFA), Minn.Stat. § 325F.69, subd. 1; the Minnesota Unlawful Trade Practices Act (MUTPA), Minn.Stat. § 325D.13; and the Minnesota Uniform Deceptive Trade Practices Act (MDTPA), Minn.Stat. § 325D.44, subd. 1.

After the district court denied Plaintiffs' motion for class certification because reliance and damages issues lack the commonality required by Federal Rule of Civil Procedure 23(b)(3), Plaintiffs filed a motion for partial summary judgment, seeking to permanently enjoin Defendants' advertisements because they are literally false.² Defendants filed cross motions for summary judgment dismissing all claims. In the core ruling at issue on appeal, the court held that all advertisements claiming that Defendants' garments are “odor eliminating,” without a qualification that the clothing can only reduce odor, are literally false as a matter of law and that proof of literal falsity entitles Plaintiffs to a permanent injunction under the MCFA and the MUTPA without proof of the other elements of a federal false advertising claim under the Lanham Act, 15 U.S.C. § 1125(a)(1)(B). The court further ruled that ads claiming that clothing that contains activated carbon can be “reactivated” are not literally false, but it permanently enjoined as literally false ads claiming that reactivation will make the clothing “like new” or “pristine.” Finally, the court ruled that the sole remedy under the MDTPA is prospective injunctive relief and granted Defendants summary judgment dismissing those claims because Plaintiffs presented no evidence they are exposed to a risk of future harm. (Plaintiffs do not cross appeal that ruling.) Buetow v. A.L.S. Enters., Inc., 713 F.Supp.2d 832 (D.Minn.2010).

Defendants appeal the grant of a permanent injunction, arguing the district court erred in its literal falsity determinations and in granting an injunction based solely on those determinations. Although other claims remain pending, we have jurisdiction to review an interlocutory order granting an injunction. See 28 U.S.C. § 1292(a)(1). Agreeing with Defendants that the permanent injunction was based upon those errors of law, we vacate the injunction and remand.

I. The Governing Law Error

A. The Error. Plaintiffs led the district court into error by arguing, as they do on appeal, (i) that the Minnesota statutes in question are coextensive with the federal false advertising standards under the Lanham Act, and (ii) that Lanham Act cases establish the proposition that, “When an advertisement is literally false, the Court need not consider the remaining Lanham Act elements in order to grant Plaintiffs injunctive relief.” Buetow, 713 F.Supp.2d at 838 (quotation omitted).

The first legal error is that the proposition is a misstatement of federal law. To establish a Lanham Act false advertising claim, a plaintiff must prove “(1) a false statement of fact by the defendant in a commercial advertisement about its own or another's product; (2) the statement actually deceived or has the tendency to deceive a substantial segment of its audience; (3) the deception is material, in that it is likely to influence the purchasing decision; (4) the defendant caused its false statement to enter interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the false statement, either by direct diversion of sales from itself to defendant or by a loss of goodwill associated with its products.” United Indus. Corp. v. Clorox Co., 140 F.3d 1175, 1180 (8th Cir.1998).

Though the proposition has been repeated in numerous District of Minnesota opinions, it is not correct. Rather, it is a careless expansion of a sound principle adopted many years ago by the Second Circuit—when a competitor's advertisement, particularly a comparative ad, is proved to be literally false, the court may presume that consumers were misled and grant an irreparably injured competitor injunctive relief without requiring consumer surveys or other evidence of the ad's impact on the buying public. See Johnson & Johnson–Merck Consumer Pharm. Co. v. Rhone–Poulenc Rorer Pharm., Inc., 19 F.3d 125, 129 (3d Cir.1994); Coca–Cola Co. v. Tropicana Prods., Inc., 690 F.2d 312, 317 (2d Cir.1982), and cases cited. We endorsed this principle in United Industries, 140 F.3d at 1180. But even when the principle applies in a Lanham Act dispute between competitors, the plaintiff “must show that it will suffer irreparable harm absent the injunction.” McNeil–P.C.C., Inc. v. Bristol–Myers Squibb Co., 938 F.2d 1544, 1549 (2d Cir.1991); accord Porous Media Corp. v. Pall Corp., 110 F.3d 1329, 1334–35 (8th Cir.1997). Plaintiffs and the district court, like prior District of Minnesota opinions, ignored this qualifier, which is an essential and universal predicate to the grant of equitable relief. The result was what Judge Posner has characterized as “an unfortunately common example of a litigant misled by general language in judicial opinions.” Schering–Plough Healthcare Prods., Inc. v. Schwarz Pharma, Inc., 586 F.3d 500, 512 (7th Cir.2009).³ The district court erred in granting Plaintiffs a permanent injunction without proof of irreparable injury.

The second error was in equating the standards for relief under the Lanham Act and the Minnesota consumer protection statutes at issue. Plaintiffs are retail purchasers seeking relief under those statutes. Lanham Act false advertising cases invariably involve claims asserted by “competitors of the wrongdoer” or by plaintiffs protecting other commercial interests. See Am. Ass'n of Orthodontists v. Yellow Book USA, Inc., 434 F.3d 1100, 1103–04 (8th Cir.2006). When a commercial plaintiff asserted pendent state law claims under these Minnesota statutes in a Lanham Act trademark dispute, we noted that the pendent claims “are coextensive with the federal claims.” DaimlerChrysler AG v. Bloom, 315 F.3d 932, 935 n. 3 (8th Cir.2003). But here Plaintiffs are consumers, and only state law claims are asserted. Automatically equating the standards of these state statutory claims to the standards that apply to Lanham Act cases between commercial parties is wrong. When the plaintiffs are consumers who have proved no future harm, as in this case, it is an error of law to assume that a false statement materially deceived and injured the plaintiffs.

Plaintiffs seek a permanent injunction for alleged violations of two Minnesota statutes. Accordingly, the proper starting point is to determine the statutory standards for obtaining that relief. In general, under Minnesota law, “where injunctive relief is explicitly authorized by statute ... proper exercise of discretion requires the issuance of an injunction if the prerequisites for the remedy have been demonstrated and the injunction would fulfill the legislative purposes behind the statute's enactment.” Wadena Implement Co. v. Deere & Co., Inc., 480 N.W.2d 383, 389 (Minn.App.1992). So we must take a close look at the statutes in question. Once the statutory standards are established, Lanham Act decisions provide useful guidance in determining the proof required to establish consumer confusion under the MCFA and the MUTPA. Group Health Plan, Inc. v. Philip Morris Inc., 621 N.W.2d 2, 15 n. 11 (Minn.2001).

B. The MCFA Claims. The MCFA expressly authorizes injunctive relief in certain circumstances:

The ... use ... of any fraud, ... misrepresentation, misleading statement or deceptive practice, with the intent that others rely thereon in connection with the sale of any merchandise, whether or not any person has in fact been misled, deceived, or damaged thereby, is enjoinable as provided in section 325F.70.

Minn.Stat. § 325F.69, subd. 1. Relying on dicta in LeSage v. Nw. Bank Calhoun–Isles, N.A., 409 N.W.2d 536, 539 (Minn.App.1987), Plaintiffs argue this statute authorizes an injunction in an action by private plaintiffs without a showing of irreparable injury or any injury whatsoever. However, a 2004 amendment adding the cross reference to § 325F.70 ⁴ made it clear that the statute's broad remedial authority was granted only in actions brought by the Minnesota Attorney General:

The attorney general ... may institute a civil...