Fed. Trade Comm'n v. Superior Prods. Int'l II

• Decision Date: 22 September 2022
• Docket Number: 2:20-cv-02366-HLT
• Parties: FEDERAL TRADE COMMISSION, Plaintiff, v. SUPERIOR PRODUCTS INTERNATIONAL II, INC., and JOSEPH E. PRITCHETT, Defendants.
• Court: U.S. District Court — District of Kansas

FEDERAL TRADE COMMISSION, Plaintiff, v. SUPERIOR PRODUCTS INTERNATIONAL II, INC., and JOSEPH E. PRITCHETT, Defendants.

No. 2:20-cv-02366-HLT

United States District Court, D. Kansas

September 22, 2022

MEMORANDUM AND ORDER

HOLLY L. TEETER, UNITED STATES DISTRICT JUDGE

Plaintiff Federal Trade Commission brings this enforcement action against Defendants Superior Product International II, Inc. (“SPI”) and its president and CEO Joseph E Pritchett. Defendants market and sell Super Therm^® and Sunshield. Defendants claim these products provide energy efficiencies when applied like paint to businesses and homes by resisting heat flow and blocking heat gain. Plaintiff alleges Defendants marketed these products with deceptive R-value and energy-saving claims that violate the Federal Trade Commission Act (“FTC Act”).^[1]

Plaintiff seeks summary judgment and contends that injunctive and monetary relief are warranted. Doc. 130. Defendants largely do not contest liability and concede some form of injunctive relief is appropriate. But Defendants challenge the scope of injunctive relief and seek summary judgment in their favor on the unavailability of monetary relief. Doc. 127. The Court finds that Defendants are liable, that Defendants owe $14,182.95 in monetary damages, and that a modified and narrowed injunction will issue.^[2]

I. BACKGROUND^[3]

A. Defendants' Products and Marketing

Pritchett developed the first formulation of Super Therm^® around 1990. Defendants describe Super Therm^® as “a water-borne combination of high-performance aliphatic acrylics, urethanes, and resin additives which produces a tough, yet flexible coating film” and note it “contains 4 unique ceramics to block heat gain into the surface upon which the coating film is applied.” Doc. 90-2 at 1. SPI has at times described Super Therm^® as a “white paint” that is “thicker and heav[ier] than traditional white paint because of the resin system and ceramics.” Doc. 132-28 at 57. But Defendants distinguish Super Therm^® from white paint in its energy-saving performance.

Defendants describe Sunshield as “a water-borne combination of [a] high-performance duo of elastomeric acrylics and resin additives, which produces a tough, yet flexible coating film” and “combines four different ceramics that provide both heat reflectivity and heat-blocking properties.” Id. at 86. A technical data sheet included with product shipments lists Sunshield's first typical use as: “a one-coat roofing insulation system on exteriors to block the migration of Solar Heat gain.” Id. Defendants herald Sunshield as a “[c]ost-efficient alternative with similar performance characteristics to Super Therm.” Doc. 132-26 at 52.

SPI often told customers that Sunshield is primarily for home/residential projects and that Super Therm^® “is primarily designed for use in industrial and harsh environments where maximum performance and durability are critical.”^[4] See, e.g., Doc. 141-22 at 2, 4, 7, 9, 12, and 15. A distributor distinguished Sunshield as a “residential (do it yourself) version of [SPI's] Super Therm (industrial version).” Doc. 132-28 at 90. But if customers asked about a coating for an unclear purpose, SPI offered to sell them either Super Therm^® or Sunshield. And there are many instances where advertising materials showed Super Therm^® applied to homes or where Super Therm^® was used on residences instead of (or in addition to) commercial and industrial properties.

Defendants maintain authority to control marketing of Super Therm^® and Sunshield, including through SPI's distributors. Distributors sign agreements that require them to adhere to SPI's policies, programs, instructions, and directions. SPI markets Super Therm^® in about 40 countries through its network of distributors. SPI makes more than 90% of its sales of Super Therm^® and Sunshield through its authorized distributors.

B. Defendants' False, Misleading, and Unsubstantiated Claims

Plaintiff alleges that Defendants repeatedly misrepresented to distributors and customers the characteristics and efficacy of the Super Therm^® and Sunshield products to increase demand and make sales. Some of these misrepresentations were simply inaccurate or false. Others may contain truth but were presented in a misleading or incomplete way (i.e., without qualification). Others may or may not be true, but Defendants lacked substantiation to prove their accuracy. All three types of misinformation are actionable under the FTC Act.

Plaintiff challenges two categories of Defendants' marketing claims for these products: (1): the products' energy savings claims, and (2) the products' “R-value”^[5] or R-value equivalent claims before and after May 13, 2020.

1. Energy Savings Claims

One repeated error Defendants made over the years is to claim energy savings without qualification. For example, a Super Therm^® brochure that Defendants used from 2015 to 2021 claimed without qualification that use of Super Therm^® “combat[s] high energy costs,” results in energy “savings,” and brings about “cost-saving” and “long-term energy efficiencies.” Doc. 90-5 at 2-5. The brochure then lists various uses without qualification or discussion. See, e.g., id. at 4.

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Another example for Super Therm^® is that Defendants included technical data sheets with Super Therm^® purchases from 2015 to October 2019 representing that Super Therm^® “resists 95% of Solar heat blocking Visual Light, Ultra Violet (UV) and Infrared (IR).” Doc. 90-2. And NEOTech, one of SPI's distributors, claimed that “Super Therm^® Insulation Coating blocks 95% of heat.” Doc. 132-28 at 329.

An example of the energy saving claims for Sunshield is Sunshield's webpage on the homedepot.com website, which claimed as recently as March 2022 that Sunshield has “4 unique ceramic materials that are designed to block and prevent 95% of solar heat from ever loading” and “[s]hatters high air conditioning/cooling cost when applied to all roofs and exterior walls.” Doc. 132-26 at 32 ¶ 119.

2. R-Value Claims before May 13, 2020

The actual R-value of Super Therm^® when applied at 10 mils thick is approximately R-0.020.^[6] The actual R-value of Sunshield at the same thickness is approximately R-0.016. But Defendants' marketing claims were different.

SPI gave marketing materials to distributors for years showing that Super Therm^® had an R-value equivalent to R-19. Pritchett told SPI employees from the early 2000's through December 2017 to market Super Therm^® as proven in laboratory tests to have an unqualified equivalent R-19 R-value. Defendants consistently gave distributors technical data sheets for Super Therm^® since 2004 and every year from 2011 to 2019 that claimed that independent testing shows Super Therm^®has an unqualified equivalent R-19 R-value. But SPI also claims it began removing references to R-values in marketing materials around 2011. And around 2011 (or 2010) it talked with several United States distributors about “not using the concepts of R-19, R-value, and R-value equivalency to promote and market Super Therm^®.” Doc. 141-5 at 40:11-19.

SPI and its distributors also advertised on their websites that Sunshield has an R-17 equivalent rating in October 2016 and May 2019. And in 2019 two of Defendants' distributors advertised Sunshield as comparable to Super Therm^® in terms of insulation effectiveness and R-rating.

3. R-Value Claims after May 13, 2020

Defendants continued making several R-value claims about Super Therm^® after May 13, 2020.^[7] Those claims are summarized below.

• On multiple occasions between May 2020 and May 2021, Defendants responded to customer questions about R-value by stating that Super Therm^® is an R-19 equivalent product.

• On September 14, 2020, SPI's employee Timothy Cappel sent a 2017 Super Therm^®document to a potential customer and an SPI employee. The document stated Super Therm^® had an R-18.85 equivalent. Cappel did qualify the information by clarifying that: “Energy saving benefits from the use of Super Therm^® will vary depending upon a variety of operational and environmental factors.” Doc. 132-28 at 308. He further advised that “[t]herefore, the best strategy is to discuss the significant reduction in heat load from solar radiation produced by the use of Super Therm^®.” Id.

• Continuing through at least October 2020, Defendants circulated a document created in May 2013 (and revised thereafter) that purports to provide scientific and mathematical support for Defendants' R-18.85 equivalent claim. The document went to SPI employees, distributors, and Super Therm^® customers and potential customers.

• SPI continued making R-19 equivalent claims for Super Therm^® through at least May 2021 “because some of [SPI's] distributors wanted to have this . . . always they want this comparison with standard insulation.” Doc. 132-17 at 137:1-138:6. SPI admitted in May 2021 it never told its employees to stop using Super Therm^® R-19 equivalency claims. SPI believed “we had testing, we had letters, and we had equivalency.” Doc. 132-14 at 224:5-22.

• In 2020, Pritchett commissioned a 3.5-minute Super Therm^® promotional video that included a 2-second clip claiming that Super Therm^® performs “as effectively as fiberglass with a R-19 rating as shown by the Hot Box Test.” Doc. 132-26 at 14-15 ¶¶ 56, 57. Plaintiff captured the video on June 8, 2021.

• Plaintiff made several “website captures” after May 13, 2020, about Super Therm^®being an R-19 equivalent, but many were on the websites of distributors with whom Defendants had previously terminated the distributor relationship.

• SPI did not bar all distributors from claiming Super Therm^® is an R-19 equivalent before May 2021.

C. Defendants' Culpability

Defendants concede they made many claims that were false,...