Hounen Solar, Inc. v. UL LLC
| Docket Number | 22 CV 3240 |
| Decision Date | 03 August 2023 |
| Parties | HOUNEN SOLAR, INC., Plaintiff, v. UL LLC, RENESOLA YIXING CO., LTD. Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
For the reasons set forth in the Order and Statement below, Defendant UL LLC's motion to dismiss the Third Amended Complaint [36] is denied. Answer due 8/18/23. This case is referred to the assigned Magistrate Judge for all discovery scheduling and supervision, and for any settlement conference the parties may seek.
In its Second Amended Complaint, plaintiff Hounen Solar, Inc. (“Hounen”), a solarmodule distributor, alleged that defendant UL LLC (“UL”), a safety-certification company, committed fraud and negligence.[1] Hounen pursued UL as a third-party certifier of solar modules that it was manufacturing overseas and shipping to the United States. UL guaranteed that it would provide confirmation to U.S. Customs and Border Patrol (“CBP”) that Hounen was authorized to use its trademark. According to Hounen, this guarantee was a knowing falsehood: instead of consenting to Hounen's use of its trademark when CBP seized Hounen's modules, UL represented that the modules were counterfeit.
UL moved to dismiss the Second Amended Complaint; this Court granted the motion without prejudice. Hounen alleged that its injury stemmed from breach of a contract with a U.S. end buyer. Its own allegations established, however, that UL did not cause the delay in shipment that led to the breach. This Court held that Hounen did not state a claim for fraud or negligence because the allegations failed to establish a crucial element of both legal theories proximate cause.
Hounen's Third Amended Complaint (“TAC”) is now before the Court. The TAC clarifies that Hounen's injury stems from CBP's prolonged and indefinite seizure of the modules rather than a delay in shipment. Satisfied that Hounen's allegations now establish a plausible causal connection, the Court denies UL's motion to dismiss the TAC.
In October 2019, Hounen contracted with an American company called Endepo to facilitate the sale of solar modules to various end-buyers in the United States.[3] To assure the end-buyers of their products' reliability, Hounen and Endepo sought out a third-party safety certification company. Third-party certification companies test products against certain internal standards and affix their marks on products that meet those standards. Based on UL's reputation in the certification industry, Hounen and Endepo sought out UL-CICC, an affiliate of UL's,[4] to discuss UL as a potential third-party certifier. Around the same time, Hounen and Endepo arranged for Da Chuan, a Cambodian company, to manufacture the modules. Defendant ReneSola, a Chinese company internationally recognized for its brand of solar modules, agreed to license its brand to Da Chuan's manufacturing facility.
Hounen and Endepo's baseline agreement was contingent upon Hounen's identification of a suitable third-party certifier for the solar modules. Pursuant to that agreement the modules would be delivered to the United States between March 10, 2020, and April 15, 2020 (what the parties call the “Delivery Timeline”). Although Hounen and Endepo's agreement was contingent upon the modules' arrival in the United States in a manner consistent with the Delivery Timeline, the parties agreed that a failure to meet the Delivery Timeline would trigger discretionary penalties, rather than termination.
To initiate discussions about certification, a representative from Hounen contacted a UL representative identified as “Yongbin.”[5] The TAC does not explain how Hounen came to contact Yongbin. In November 2019, parties interested in the potential deal, including Hounen and Da Chuan representatives, met with Yongbin. The Hounen representative explained the terms of its baseline agreement with Endepo and advised that meeting the Delivery Timeline was paramount. Hounen and Endepo would only issue purchase agreements with end customers if UL could authorize use of the UL mark by the Delivery Timeline. Hounen alleges that it asked UL to agree to meet the Delivery Timeline to obtain a reasonably certain estimate as to when the modules would arrive in the United States. Hounen sought UL's commitment to the Delivery Timeline so that Endepo could determine whether it could meet the end buyer's anticipated timeline. Although it was important to Hounen that UL certify the marks in a manner consistent with the Delivery Timeline to reduce the risk of impact to third parties, Hounen and Endepo did not intend to terminate the baseline agreement if certain shipments arrived in the United States after the Delivery Timeline.
Yongbin guaranteed that UL would authorize Hounen to use UL's mark in time to meet the Delivery Timeline. He estimated that the certification process would be complete by the time the modules reached the United States. But even if the certification process were not completed in time, UL would allow Hounen to use the mark. Yongbin explained that such preemptive authorization was common practice; as long as the certification process was ongoing and the requisite fees were paid, UL could authorize customers to use its mark to facilitate delivery deadlines. Further assuring Hounen, Yongbin explained that UL could provide a declaration confirming that the certification process was ongoing-which would serve as evidence of UL's permission for Hounen to use the mark-in the event of a problem with CBP. Satisfied with this guarantee, Hounen agreed to work with UL. Having secured a manufacturer, brand licenser, and certifier, Hounen and Endepo entered into purchase contracts specifying terms of delivery in December 2019 and January 2020.
As it happened, UL had not completed testing and certification by the time Da Chuan manufactured the first batch of modules and prepared them for shipment in January 2020. ReneSola coordinated with UL to send Da Chuan and Hounen the UL mark for placement on the modules. Consistent with Yongbin's representations that UL authorized use of its mark whether or not certification was complete, Hounen instructed Da Chuan to append the UL mark to the modules. Da Chuan shipped the first batch of modules to the United States in February 2020. Around the same time, Yongbin sent Hounen (by way of ReneSola) a declaration that bore UL-CCIC's seal and specified that “testing is ongoing.” TAC ¶ 198, ECF No. 42. That declaration purported to serve as evidence that UL authorized Hounen to use the mark.[6] Sure enough, CBP posed a problem for Hounen. CBP targeted the first shipment of the modules for examination on March 25, 2020 and detained the shipment in early April. When CBP asked UL to confirm that the modules were not counterfeit, UL stated that it was “highly suspicious of [their] authenticity.” Id. ¶ 250. Meanwhile, Yongbin provided Da Chuan and Hounen with another “certificate of compliance” that purported to serve as evidence of UL's authorization. The Certificate also stated, however, that it “d[id] not provide authorization to apply the UL mark.” April Certificate of Compliance, Ex. 20 to TAC, ECF No. 42-20.
At the end of April 2020, UL sent CBP a letter stating that the modules were not “authorized” and that UL did “not consent” to the importation of such unauthorized marks. TAC ¶ 260, ECF No. 42. CBP seized this first shipment in May 2020. CBP similarly detained and seized seven more module shipments between April and June 2020.
Hounen alleges that UL and ReneSola told Da Chuan that UL would only consent to the release of the seized modules if Da Chuan admitted it was at fault. Da Chuan allegedly sent UL a statement in which it admitted that it shipped the modules with UL's mark without authorization. Hounen further alleges that UL and ReneSola strongarmed Da Chuan in accepting responsibility by withholding consent to release the modules.
In August 2020, Hounen submitted petitions to CBP, seeking release of the seized modules. Through new counsel, Hounen resubmitted those petitions in January 2021. CBP denied Hounen's petitions in March 2021.
A month later, in April 2021, UL relayed to CBP its consent to release all of the seized modules. CBP eventually approved the release of the modules subject to the removal of the UL mark in August 2021. In its decision allowing remittance of the modules-which Hounen attached to the TAC-CBP cited Hounen's representations that Da Chuan “jumped the gun” in using UL's mark. 8/6/2021 CBP Decision re Petitions, ECF No. 42-22 at 8. According to the CBP petition, Hounen also claimed that it and “Da Chuan were inexperienced regarding UL certification” in seeking the release of the seized modules. Id.
By the time CBP released the modules, about two years had passed, and the modules had depreciated in value. Hounen never delivered the seized modules to Endepo or Solar PV, which in turn, could not deliver the modules to certain third-party buyers. In addition, Hounen paid CBP significant fines and penalties to obtain the release of the modules.
Hounen sued UL and ReneSola for damages resulting from the fines it paid CBP and the damages it owed Endepo for breach of contract. Hounen alleged that UL misled it in promising that it would authorize use of its mark, regardless of whether the mark passed certification, and Hounen relied on that misrepresentation to its detriment.
UL filed a motion to dismiss the Second Amended Complaint, which this Court granted without prejudice. This Court acknowledged that the Second Amended Complaint raised many factual questions that are inappropriate to resolve at this stage of litigation. But it concluded that Hounen pleaded itself out of ...
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