Power Cell LLC v. Spings Window Fashions, LLC

• Decision Date: 23 April 2018
• Docket Number: Case No. 17 C 4382
• Parties: POWER CELL LLC d/b/a ZEUS BATTERY PRODUCTS, Plaintiff, v. SPINGS WINDOW FASHIONS, LLC, Defendant.
• Court: U.S. District Court — Northern District of Illinois

POWER CELL LLC d/b/a ZEUS BATTERY PRODUCTS, Plaintiff, v. SPINGS WINDOW FASHIONS, LLC, Defendant.

Case No. 17 C 4382

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

April 23, 2018

Judge Harry D. Leinenweber

MEMORANDUM OPINION AND ORDER

Before the Court is Defendant's Partial Motion to Dismiss Counts I, II, and III pursuant to FED. R. CIV. P. 12(b)(6) [ECF No. 5]. For the reasons stated herein, the Motion is denied.

I. BACKGROUND

The following facts derive from Plaintiff's Complaint and are, for purposes of this Motion, accepted as true with all inferences drawn in Plaintiff's favor. See, Adams v. City of Indianapolis, 742 F.3d 720, 728 (7th Cir. 2015).

This case concerns a product recall involving the parties' respective products. Power Cell LLC d/b/a/ Zeus Battery Products ("Zeus") sells a range of battery products, including the AA battery at issue in this suit (the "Subject Battery"). (Compl. ¶ 6, Ex. A to Dkt. 1.) Spring Window Fashions, LLC ("SWF") sells window shades and coverings in various retail stores across the country. (Id. ¶ 7.) Starting in the fall of 2015, SWF ordered approximately one hundred thousand Subject Batteries from Zeus to power its motorized window shades (the "SWF Product"). (Id. ¶¶ 18-23.)

Beginning in June 2016, various customers began reporting problems with the SWF Product. (Id. ¶¶ 26-35.) The reports complained that the batteries and/or battery casing burst, caught fire, or melted the surrounding material (hereinafter the "Incidents"). (Id.) Zeus alleges these Incidents were caused by a design defect in the SWF Product; namely, that SWF's product design allowed for improper installation of the Subject Batteries, a condition known in the industry as reverse-polarity. (Id. ¶¶ 37-38.) Reverse-polarity greatly increases the risk of batteries overheating. (Id.) In light of this risk, manufacturers typically design products to be inoperable if the batteries are installed in the reverse-polarity position. (Id.) According to Zeus, SWF did not heed this known, industry-wide advice, resulting in a design flaw in the SWF Product—the reverse-polarity condition—that directly caused the Incidents. (Id.)

Due to the Incidents, SWF initiated a product recall (the "Recall") in conjunction with the Consumer Product Safety Commission. (Id. ¶ 48.) SWF recalled the SWF Products that weresold with the Subject Batteries from December 14, 2015 to approximately November 11, 2016. (Id.) SWF published an Important Safety Notice and a Recall Alert regarding the Recall (the Recall Notices). (Id. ¶¶ 48-49, 53-54.)

The Recall Notices are at the heart of this suit. Zeus alleges that the Recall Notices are false and misleading because they blame the Incidents on Zeus's Subject Battery rather than the design flaw in SWF's Product. (Id. ¶¶ 50-53.) Zeus alleges that the ongoing publication of the Recall Notices (and the absence of a retraction) continue to harm and injure its reputation in the industry. (Id. ¶¶ 68-70.) Zeus brings a four-count Complaint for declaratory judgment related to: indemnification (Count I); violations of the Illinois Uniform Deceptive Trade Practices Act (the "UDTPA"), 815 ILCS 510/2 (Count II); violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2 (Count III); and breach of contract (Count IV). SWF moves to dismiss the two statutory claims and the declaratory judgment claim (Counts I - III). The Court will address these three claims below, but out of turn.

II. ANALYSIS

A. Zeus States a Claim under Illinois'sUniform Deceptive Trade Practices Act

SWF argues that two things are fatal to Zeus's UDTPA claims: First, the alleged misrepresentations are either true or mere opinion and thus not actionable, and second, Zeus cannot allege a threat of future harm.

1. Alleged Misrepresentations

SWF argues that Zeus's UDTPA claim fails because the alleged misrepresentations are not false or misleading. The UDTPA states in pertinent part:

A person engages in a deceptive trade practice when, in the course of his or her business, vocation, or occupation, the person

[. . .]

(8) disparages the goods, services, or business of another by false or misleading representation of fact.

815 ILCS 510/2(a)(8). In other words, the plaintiff must allege that the defendant published untrue or misleading statements that disparaged the plaintiff's quality of its goods or services. Kole v. Village of Norridge, 941 F. Supp. 2d 933, 963 (N.D. Ill. 2013). "The [UDTPA] does not provide a cause of action for damages, but it does permit private suits for injunctive relief and has generally been held to apply to situations where one competitor is harmed or may be harmed bythe unfair trade practices of another." Greenberg v. United Airlines, 563 N.E.2d 1031, 1036-37 (Ill. App. Ct. 1990) (citation omitted). Essentially, the statute codifies the common-law tort of commercial disparagement. Republic Tobacco, L.P. v. N. Atl. Trading Co., 254 F. Supp. 2d 985, 997-98 (N.D. Ill. 2002).

The legal standard is not at issue here. Both parties agree that false or misleading statements are actionable and truthful or opinion statements are not. The question is in what camp do the Recall Notices fall.

Two types of false statements can violate the UDTPA: "(1) commercial claims that are literally false as a factual matter; or (2) claims that may be literally true or ambiguous, but which implicitly convey a false impression, are misleading in context, or likely to deceive consumers." Right Field Rooftops, LLC v. Chi. Cubs Baseball Club, LLC, 136 F. Supp. 3d 911, 918 (N.D. Ill. 2015) (quoting Hot Wax, Inc. v. Turtle Wax, Inc., 191 F.3d 813, 820 (7th Cir. 1999)), aff'd, 870 F.3d 682 (7th Cir. 2017).

Zeus alleges that the statements in the Recall Notices are false and misleading because the subject batteries are safe and did not cause the incidents; rather, the poor design of SWF's product did. Specifically, Zeus alleges the following statements were false and/or misleading:

We are writing to inform you about a safety concern regarding the Zeus brand AA lithium batteries. . . . There have been isolated instances with this brand of batteries overheating. Because our number one priority is customer safety, we have completely removed these batteries from our supply chain and have also issues a voluntary recall. . . . Based on this potential safety concern, we are instructing you to immediately remove and dispose of the original Zeus brand batteries.

Hazard: The lithium batteries sold with certain motorized window blinds can overheat, leak or discharge, posing a fire or burn hazard. . . . Consumers should immediately remove the batteries from the window blinds.

(Important Safety Notice, Feb. 24, 2017, Dkt. 1-1; Recall Alert, Mar. 2017, Dkt. 1-1 (the "Recall Notices").) Taking all of Zeus's allegations as true, the Court assumes the SWF Product's reverse-polarity design caused the Incidents. Against that backdrop, the Court finds the allegations plausibly state a claim that the Recall Notices contain false and/or misleading statements by implying that the batteries caused the Incidents and/or constitute a safety hazard. Although SWF points to the absence of a blatant falsehood in the Recall Notices, a statement may constitute a "misleading representation of fact" without containing an overt falsehood. See, 815 ILCS 510/2; Unique Concepts, Inc. v. Manuel, 669 F. Supp. 185, 191 (N.D. Ill. 1987) ("[Actionable] statements . . . need not actually have been false, but only misleading."). The Recall Notices plausibly create the impression that the Subject Batteries aredefective and may overheat or explode with an attendant and serious risk of fire. Although the Recall Notices do not directly state the cause of the malfunction, a lay reader could reasonably conclude that the Subject Batteries caused the Incidents. See, id.; see also Aliano v. WhistlePig, LLC, No. 14 C 10148, 2015 WL 2399354, at *7 (N.D. Ill. May 18, 2015) (denying dismissal where parties disputed whether statements were misleading in context).

The case SWF relies on, QVC, Inc. v. MJC America, Ltd., is distinguishable. No. 08 CV 3830, 2011 U.S. Dist. LEXIS 78063, at *1-2 (E.D. Pa. July 18), reconsideration granted in part on other grounds, No. 08 CV 3830, 2011 U.S. Dist. LEXIS 95640 (E.D. Pa. Aug. 24, 2011). In QVC, a distributor brought a claim for commercial disparagement against a retailer. The retailer had issued a voluntary recall of the distributor's space heaters after several reports of the space heaters emitting smoke, overheating, and/or catching fire. Id. at *2. The district court granted the retailer's motion for summary judgment on the commercial disparagement claim, finding that the distributor failed to establish that the statements in the recall notices were false. Id. at *16-18. First, QVC involves a common law commercial disparagement, not UDTPA, claim. Second, there were no allegations in QVC that the recall notices blamed the productmalfunctions on the wrong company or product, as here. As such, the QVC court found that the recall notices could not be construed as false when read as a whole. Id. at *16. Here, the opposite is true. When the Recall Notices are read in context, they plausibly could create the impression that the recall was caused by the Subject Batteries.

World Kitchen is analogous. In World Kitchen, LLC v. America Ceramic Soc., No. 12 CV 8626, 2013 WL 5346424 (N.D. Ill. Sept. 19, 2013), the plaintiff alleged trade disparagement based on the allegedly false and misleading publication of an article titled "Shattering Glass Cookware" that stated that Pyrex is more likely to shatter than other glassware during regular kitchen use. Id. at *1-2. The district court denied defendants' motion to dismiss, emphasizing that the plaintiff alleged false and misleading statements of fact about Pyrex's tendency to shatter which was sufficient to pass muster at the pleading stage. Id. at *10-11. Here, Zeus...