Conte Bros. Auto. v. Quaker State-Slick 50, Inc.

• Decision Date: 28 January 1998
• Docket Number: Civil Action No. 97-3796(JBS).
• Citation: 992 F.Supp. 709
• Parties: CONTE BROS. AUTOMOTIVE, INC., and Hi/Tor Automotive, Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. QUAKER STATE-SLICK 50, INC., Slick 50 Management, Inc., Slick 50 Products Corp., Slick 50 Corp., Blue Coral-Slick 50, Inc., Blue Coral, Inc., and Blue Coral-Slick 50, Ltd., Defendants.
• Court: U.S. District Court — District of New Jersey

Page 709

992 F.Supp. 709

CONTE BROS. AUTOMOTIVE, INC., and Hi/Tor Automotive, Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. QUAKER STATE-SLICK 50, INC., Slick 50 Management, Inc., Slick 50 Products Corp., Slick 50 Corp., Blue Coral-Slick 50, Inc., Blue Coral, Inc., and Blue Coral-Slick 50, Ltd., Defendants.

Civil Action No. 97-3796(JBS).

United States District Court, D. New Jersey.

January 28, 1998.

Peter L. Masnik, Kalikman & Masnik, Haddonfield, NJ, Jay Eisenhofer, Megan McIntyre, Grant & Eisenhofer, P.A., Wilmington, DE, for Plaintiffs.

Edward T. Kole, Wilentz, Goldman & Spitzer, Woodbridge, NJ, Bruce Colbath, Gary Berger, Weil Gotshal & Manges L.L.P., New York City, for Defendants.

OPINION

SIMANDLE, District Judge.

In this false advertising and consumer fraud case, plaintiffs have sued on behalf of themselves and others similarly situated, seeking injunctive and monetary relief. The matter presently before the court is defendants' motion to dismiss the complaint or, alternatively, to strike plaintiffs' class action allegations. Defendants argue that the complaint should be dismissed because (a) plaintiffs lack standing to pursue their claims, and (b) plaintiffs cannot establish the damages element essential to a claim under section 43(a) of the Lanham Act, 15 U.S.C. § 1125, et seq., (which is the alleged source of federal question jurisdiction in this case).¹ The issue presented in this case is whether Section 43(a) of the Lanham Act confers standing upon a retailer to sue the manufacturer of a product that competes with products sold by the retailer. As explained below, we find that it does not. Plaintiffs therefore do not have standing to sue under section 43(a) of the Lanham Act, as plaintiffs are not competitors of defendants, and are not acting as surrogates for a competitor alleged to be injured by defendants. We further find that plaintiffs have not stated a claim upon which relief may be granted under the New Jersey Consumer Fraud Act. All plaintiffs' claims shall therefore be dismissed.

BACKGROUND

Slick 50 products are aftermarket motor oil substitute engine additives whose active ingredient is primarily polytetrafluoroethylene ("PTFE") (also known as Teflon), in particulate form. (Compl. at ¶ 1.) The two named plaintiffs, Conte Bros. Automotives Inc. ("Conte Bros.") and Hi/Tor are retailers of engine treatment products that compete with Slick 50.² (Id. at ¶ 4-5.) Defendants are a group of companies that manufacture, market, and distribute Slick 50 products. (Id. at ¶ 6-12.)

Plaintiffs claim that defendants engaged in a systematic nationwide campaign to advertise and promote Slick 50 products in an intentionally misleading manner, and that this misleading advertising has caused a reduction in sales of motor oil and other engine treatment products that compete with Slick 50. (Id. at ¶ 2-3.) In particular, plaintiffs allege that defendants deceptively and falsely claimed that Slick 50, compared to motor oil on its own, reduces engine wear by 50%, reduces engine wear at start-up, lowers engine temperature during peak operation periods, improves horsepower, increases gas mileage, and reduces toxic emissions. Plaintiffs seek to bring this action on behalf of themselves and "[a]ll persons in the United States who, at any time between the time Slick 50 was first marketed to the public and the present, have offered for sale, either as retailers or wholesalers, motor oil products that compete directly with Slick 50."³ (Id. at ¶ 15.) Plaintiffs have brought causes of action under Section 43(a) of the Lanham Act (15 U.S.C. § 1125(a)) and under the New Jersey Consumer Fraud Act (N.J.S.A. 56:8-1 et seq). (Id. at ¶ 35-44, 45-51.) Plaintiffs seek injunctive and monetary relief. (Id. at p. 17.) This court has subject matter jurisdiction over plaintiffs' Lanham Act claim pursuant to 28 U.S.C. §§ 1331 & 1338. Supplemental jurisdiction over plaintiffs' New Jersey Consumer Fraud Act claim arises under 28 U.S.C. § 1367(a).

DISCUSSION

I. Standard for Motion to Dismiss

A motion to dismiss under Rule 12(b)(6) for failure to state a claim upon which relief can be granted does not attack the merits of the case, but merely tests the legal sufficiency of the Complaint. See Nami v. Fauver, 82 F.3d 63, 65 (3d Cir.1996). When considering a Rule 12(b)(6) motion, the reviewing court must accept as true all well-pleaded allegations in the Complaint, and view them in the light most favorable to the plaintiff. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974); Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir.1994); Hakimoglu v. Trump Taj Mahal Assoc., 876 F.Supp. 625, 628-29 (D.N.J.1994), aff'd, 70 F.3d 291 (3d Cir.1995). In considering the motion, a district court must also accept as true any and all reasonable inferences derived from those facts. See Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 (3d Cir. 1994); Schrob v. Catterson, 948 F.2d 1402, 1405 (3d Cir.1991); Glenside West Corp. v. Exxon Co., U.S.A., 761 F.Supp. 1100, 1107 (D.N.J.1991). A court may not dismiss the Complaint "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).

The question before the court is not whether the plaintiffs will ultimately prevail; rather, it is whether they can prove any set of facts in support of their claims that would entitle them to relief. See Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984). However, while the rules do not dictate that a "claimant set forth an intricately detailed description of the asserted basis for relief, they do require that the pleadings give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests." Baldwin County Welcome Center v. Brown, 466 U.S. 147, 149-50 n. 3, 104 S.Ct. 1723, 80 L.Ed.2d 196 (1984) (quoting Conley, 355 U.S. at 47).

II. Plaintiffs' Claims Under the Lanham Act

We will begin by addressing whether plaintiffs have stated a claim under Section 43(a) of the Lanham Trademark Act, 15 U.S.C. § 1125.⁴ As explained below, we find that plaintiffs cannot state a claim for false advertising under the Lanham Act, because plaintiffs do not have standing to sue.

A. Standing to Sue Under the Lanham Act

The parties disagree regarding the requirements for standing to sue under the Lanham Act. Defendants argue that a plaintiff only has standing to sue for false advertising under the Act if they are "a direct competitor, or an entity that is a surrogate for a direct competitor," and that plaintiffs do not meet this requirement. (Def.s' Br. at 7.) Plaintiffs, in contrast, argue that a plaintiff need not be in a relationship of direct competition with the defendant in order to have standing, but rather need only have "some `reasonable interest' to be protected against false advertising," a requirement which can be met by having an indirectly competitive relationship. (Pl.s' Br. at 4-5, 7-8.) Plaintiffs further argue that even assuming, arguendo, that a direct competitor or surrogate direct competitor relationship is required, plaintiffs meet this requirement. (Pl.s' Br. at 9-10.) As explained below, in order to sue under Section 43(a) of the Lanham Act for false advertising, a plaintiff must be a direct commercial competitor of defendant, or be acting as a surrogate for such a competitor, and plaintiffs do not meet this requirement.

The confusion regarding the requirements for standing appears to arise from the Third Circuit's language in Thorn v. Reliance Van Co., Inc., where the court stated that "one need not be a competitor in order to bring a false advertising claim under section 43(a)." 736 F.2d 929, 930 (3d Cir.1984). In that case, the plaintiff ("Thorn") sued defendants ("Reliance"), alleging that Reliance's false advertising had caused the bankruptcy of Florida-Eastern, a company in direct competition with Reliance of which Thorn had been a director and 45% shareholder. The Third Circuit found that even though Thorn was not himself a competitor of defendants, he had standing to sue. Id. at 933. In rejecting a strict requirement of direct competition, the court relied upon the "plain meaning" of the Act, which permits an action by "any person who believes that he or she is or is likely to be damaged by such act." Id. at 932; 15 U.S.C. § 1125. The Third Circuit in Thorn adopted as the dispositive question "whether the party has a reasonable interest to be protected against false advertising." Id. at 933. The court found that Thorn met this requirement, since he had alleged "sufficient direct injury" caused by defendants' false advertising and since his status as a director and a 45% shareholder of Florida-Eastern "place him within a class of persons likely to be injured by the types of false representations alleged in this case." Id.

Subsequent Third Circuit cases have, in interpreting the Thorn opinion, focused upon the "surrogate competitor" status of the plaintiff in that case. See Serbin v. Ziebart Int'l. Corp., Inc., 11 F.3d 1163, 1175 (3d Cir.1993) (holding that consumers do not have standing to bring a false advertising claim under the Lanham Act, and stating that Thorn "permitted a false advertising suit by one who, while not in his own person a competitor of the alleged rogue enterprise, was, nonetheless, so situated that he could reasonably be regarded as a surrogate for such competitor.")⁵ The Third Circuit in Serbin shed further light upon the parameters of the holding in Thorn, explaining that:

[a]s our holding in Thorn demonstrates, we do not construe Section 43(a) as limiting the class of false advertising plaintiffs to those in direct competition. But the Thorn plaintiff, as the major shareholder in a firm allegedly driven into bankruptcy by a principal...