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Design Resources, Inc. v. Leather Industries of America

United States District Court, M.D. North Carolina

August 19, 2014

DESIGN RESOURCES, INC., Plaintiff,
v.
LEATHER INDUSTRIES OF AMERICA, DR. NICHOLAS J. CORY, ASHLEY FURNITURE INDUSTRIES, INC., and TODD WANEK, Defendants.

MEMORANDUM OPINION AND ORDER

WILLIAM L. OSTEEN, Jr., District Judge.

I. PROCEDURAL POSTURE

Plaintiff Design Resources, Inc. ("Plaintiff" or "DRI") has filed a motion for partial summary judgment against Defendant Leather Industries of America ("LIA") on DRI's claims under the Lanham Act (Count I) and the North Carolina Unfair and Deceptive Trade Practices Act (Count II). (Doc. 102.) LIA has responded (Doc. 129), and Plaintiff has replied (Doc. 141).

DRI also filed a motion for partial summary judgment against Defendant Ashley Furniture Industries, Inc. ("Ashley") on DRI's claims under the Lanham Act (Count I) and the North Carolina Unfair and Deceptive Trade Practices Act (Count II). (Doc. 104.) Ashley has responded (Doc. 127), and Plaintiff has replied (Doc. 140).

Defendant LIA has filed a motion for summary judgment on all counts. (Doc. 123.) Plaintiff has responded (Doc. 132), and LIA has replied (Doc. 147).

Defendant Ashley Furniture Industries has filed a motion for summary judgment. (Doc. 119.) Plaintiff has responded (Doc. 133), and Ashley has replied (Doc. 143). Plaintiff has also filed a surreply to Ashley's summary judgment motion (Doc. 148), which Ashley has moved to strike (Doc. 150). The motion to strike has been fully briefed.

Also before this court is LIA's motion for leave to file a supplemental brief in support of its motion for summary judgment. (Doc. 154.) Plaintiff DRI has filed a statement of non-opposition to LIA's motion (Doc. 159), and LIA filed a reply (Doc. 164). That supplemental memorandum will be considered by this court.

Also before the court is DRI's motion for relief from Ashley's Spoliation of Evidence (Doc. 86), Ashley's consent motion for extension of time (Doc. 95) to file a response to DRI's motion for relief, the parties' joint motion to modify limitations on length of summary judgment briefs (Doc. 116), the parties' agreed motion to extend deadline (Doc. 161), Ashley's motion to exclude the expert testimony of Mann, Armistead, and Epperson (Doc. 170), Ashley's motion to strike untimely expert reports of Mann, Armistead, and Epperson (Doc. 172), LIA's motion to exclude the testimony of DRI's proposed experts (Doc. 175), and Ashley's motion to strike surreply and declaration of Jerry Epperson (Doc. 205).

These motions are now ripe for adjudication. For the reasons that follow, the motions for summary judgment filed by Defendants LIA and Ashley will be granted, DRI's motions for summary judgment will be denied, and the remaining motions will be granted or denied as moot.

II. BACKGROUND

At all times relevant for the present action, Dr. Nicholas Cory was a research scientist and the director of LIA. (DRI's Mem. in Supp. of Mot. for Partial Summ. J. against LIA (Doc. 103) at 2.)[1] LIA operated as a trade association representing leather sellers in the United States, and Dr. Cory headed LIA's research laboratory.[2] (Id.) The action against LIA centers around statements made by Dr. Cory to a trade magazine entitled Furniture Today concerning the marketing and labeling of bonded leather. Traditionally, "leather" is understood as upholstery derived entirely from the hide of an animal. (See Decl. of Brent F. Powell ("Powell Decl."), Ex. 9, Dep. of Sonny Chris Ross (Doc. 121-9) at 17.) Some companies market and sell a product called bycast (alternatively spelled "bicast"), which is generally lower quality leather coated with polyurethane and printed with a pattern to appear as it is genuine leather. (Id., Ex. 1, Dep. of Alan Naness (Doc. 121-1) at 4-5.) Originally, bonded leather was a synthetic material with leather fibers glued together to form a complete layer. DRI innovated a new version of bonded leather by attaching leather fibers (not forming a complete layer) to the base, back, or underside of a synthetic furniture covering consisting of a polyurethane face. (Decl. of Alan Naness (Doc. 106) at 1.) DRI banded this new bonded leather product under the name NextLeather®. (Id.)

In December 2006, DRI first contacted Dr. Cory at the research laboratory to ask Dr. Cory if its NextLeather®[3] product could be labeled as leather in the United States. (Id.) Based on the DRI email and without a physical sample of NextLeather®, Dr. Cory responded it could "ABSOLUTELY NOT!" be labeled as leather and that it would have to be called "Bonded leather, " "Reconstituted leather, " or "Not leather" under the applicable Federal Trade Commission's ("FTC") regulations. (Decl. of Cameron R. Argetsinger ("Argetsinger Decl."), Ex. 7, Email Conversations between Nicholas Cory and Dan Peplinski (Doc. 125-1) at 79.) Dr. Cory further offered to have his research laboratory perform a chemical analysis to determine the percentage of leather fibers used in NextLeather® (a bonded leather labeling requirement under the FTC regulations). (Id.)

In the fall of 2006, Ashley began to run a series of advertisements under the caption "Caveat Emptor." (Powell Decl., Ex. 7, Dep. of Kenneth Lebensberger (Doc. 121-7) at 15.) According to Ashley, "Caveat emptor was one of our responses to the amount of importing that retailers were doing." (Id.) DRI's claims against Ashley stem from one ad in the Caveat Emptor series. Specifically, in March 2007, Ashley ran a Caveat Emptor ad entitled "Is It REALLY LEATHER?" (Powell Decl., Ex. 14, Flyer (Doc. 121-14) at 2.) The ad described the practice of "[s]ome upholstery suppliers" who were "using leather scraps that are mis-represented as leather; adding a denim barrier to this material and using it for bicast, and as corrected grain leather in locations where you would expect top grain." (Id. at 3.) The ad concludes with the warnings "Know What You Are Buying" and "REMEMBER...The Overseas Manufacturer Has NO Liability In The U.S.A. YOU DO!" (Id.) Ashley claims it was not aware that DRI sold bonded leather until May 2007, over two months after the ad first ran. (Powell Decl., Ex. 8, Dep. of Lisa Adair (Doc. 121-8) at 5.) Moreover, Ashley contends that the advertisement refers to a "tricast" product produced in China consisting of "glued-together leather scraps' for backing material" as opposed to NextLeather®'s "ground-up leather shavings.'" (Def. Ashley's Br. in Supp. of Mot. for Summ. J. (Doc. 122) at 12.)

Although the Caveat Emptor ads never mention NextLeather® or DRI by name, DRI contends that "Ashley repeatedly ran ads in Furniture Today which specifically targeted DRI and falsely stated that NextLeather® was being marketed as bonded leather' in violation of federal law." (DRI's Resp. to Def. Ashley's Mot. for Summ. J. (Doc. 133) at 9-10.) DRI further claims that Ashley purposefully ran these ads to coincide with the High Point, North Carolina furniture market, a critical forum where retailers make a large proportion of purchasing decisions. (Id. at 10.)

In June 2007, Ashley specifically asked Dr. Cory if it could market and label a bonded leather product similar to NextLeather® as bonded leather. Dr. Cory responded it would be deceptive to label such a product as bonded leather. (Argetsinger Decl., Ex. 12, Evaluation of Synthetic Leather Material (Doc. 125-2) at 4.) At the request of Ashley, Dr. Cory conducted an interview with Furniture Today to warn of the potential confusion from labeling these new products (consisting of leather scraps glued to the underside of a synthetic cover) as bonded leather. (Id., Ex. 13 at 8-9; Decl. of John R. Neeleman ("Neeleman Decl."), Ex. M-3, Email Conversation (Doc. 107-4) at 19.)

The two statements DRI relies upon as the basis of its claims against LIA are found in two separate Furniture Today articles. The first article, dated July 2, 2007, was written by Joan Gunin (the "Gunin article") and titled "Chemist fears confusion over imitators may hurt category." (Complaint ("Compl."), Ex. E, Gunin article (Doc. 1-6) at 2-3.) DRI relies on the following passage from the Gunin article: "To call it "leather" is outright deception, outright fraud, ' said Cory, director of the Leather Research Laboratory at the University of Cincinnati, of bonded leather. It's not real leather.... It's a synthetic that has leather fibers glued to the underside.'" (Id. at 2.) The second article, dated July 9, 2007, was written by Susan M. Andrews (the "Andrews article") and entitled "For consumers' sake, let's not call it bonded leather.'" (Id., Ex. J, Andrews article (Doc. 1-11) at 2.) In the Andrews article, Dr. Cory is quoted as stating "calling these products bonded leather is deceptive because it does not represent its true nature. It's a vinyl, or a polyurethane laminate or a composite, but it's not leather. If you tar and feather someone, does that make them a chicken?'" (Id.)

Dr. Cory never referred to NextLeather® or DRI by name in either of his interviews. A product unaffiliated with DRI named "Oekopelle" was the only product specifically mentioned in either article. (Id.) During 2007-08, Furniture Today published at least thirteen other articles concerning bonded leather without quoting Dr. Cory. (See Argetsinger Decl., Exs. 20-22 (Doc. 125-2) at 35-40; Exs. 23-32 (Doc. 125-3) at 2-30.) Many of these articles focused on the deceptive nature of the "bonded leather" label. (See id.)

On May 23, 2007, the FTC made public requests for comments on the regulations published by the FTC, including those regulations governing the sale and marketing of leather (the "FTC Leather Guides"). (See Id., Ex. 19, 73 Federal Register 34626 (Doc. 125-2) at 29-33.) Under the FTC Leather Guides, "[a] material in an industry product that contains... bonded leather and thus is not wholly the hide of an animal should not be represented, directly or by implication, as being leather." 16 C.F.R. § 24.2(f).[4] Pursuant to Dr. Cory's advice, LIA submitted comments seeking to clarify whether the practice of adhering leather fibers to the bottom of a synthetic product (as opposed to leather fibers glued together to form a continuous layer) could be marketed as bonded leather. (See Argetsinger Decl., Ex. 19, 73 Federal Register 34626 (Doc. 125-2) at 29-33.) In June 2008, the FTC retained the Leather Guides without change, concluding that the Leather Guides' provision requiring disclosure of the leather fiber content provided adequate information to consumers. (Id. at 32.)

III. LEGAL STANDARD

A motion for summary judgment is appropriately denied when an examination of the pleadings, affidavits, and other proper discovery materials before the court demonstrates a genuine issue of material fact exists. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett , 477 U.S. 317, 322-23 (1986). In considering a motion for summary judgment, the court is not to weigh the evidence, but rather must determine whether there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 250 (1986). The court must view the facts in the light most favorable to the nonmovant, drawing inferences favorable to that party if such inferences are reasonable. Id. at 255. However, there must be more than a factual dispute; the fact in question must be material, and the dispute must be genuine. Id. at 248. A dispute is only "genuine" if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.

"When faced with cross motions for summary judgment, as in this case, the court must consider each motion separately on its own merits to determine whether either of the parties deserves judgment as a matter of law.'" Pediamed Pharm., Inc. v. Breckenridge Pharm., Inc. , 419 F.Supp.2d 715, 723 (D. Md. 2006) (quoting Rossignol v. Voorhaar , 316 F.3d 516, 523 (4th Cir. 2003)). "The court must deny both motions if it finds there is a genuine issue of material fact, but if there is no genuine issue and one or the other party is entitled to prevail as a matter of law, the court will render judgment." Id . (internal quotation marks omitted).

IV. ANALYSIS

DRI has moved for summary judgment on its claims against LIA and Ashley under the Lanham Act and the North Carolina Unfair and Deceptive Trade Practices Act. LIA has moved for summary judgment on all nine counts asserted against it, and Ashley has done the same on all six counts asserted against it.

A. Lanham Act (Count I)

To maintain its claim under the Lanham Act against either Defendant, 15 U.S.C. § 1125(a), DRI must prove that:

[1] the [D]efendant made a false or misleading description of fact or representation of fact in a commercial advertisement about his own or another's product; (2) the misrepresentation is material, in that it is likely to influence the purchasing decision; (3) the misrepresentation actually deceives or has the tendency to deceive a substantial segment of its audience; (4) the [D]efendant placed the false or misleading statement in interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the misrepresentation, either by direct diversion of sales or by a lessening of goodwill associated with its products.

Scotts Co. v. United Indus. Corp. , 315 F.3d 264, 272 (4th Cir. 2002) (citation omitted).

DRI contends it has, at the very least, raised a genuine issue of material fact as to each element of its Lanham Act claim. LIA counters that DRI is unable to carry its burden on any of these elements. Without having to reach each argument raised by LIA, DRI's claim under the Lanham Act must fail because Dr. Cory's statements were not false or misleading statements of fact.

"For liability to arise under the false advertising provisions of the Lanham Act, the contested statement or representation must be either false on its face or, although literally true, likely to mislead and to confuse consumers given the merchandising context.'" Id. at 272-73 (quoting C.B. Fleet Co. v. SmithKline Beecham Consumer Healthcare , 131 F.3d 430, 434 (4th Cir. 1997)). "In analyzing whether an advertisement... is literally false, a court must determine, first, the unambiguous claims made by the advertisement..., and second, whether those claims are false.'" Id. at 274 (quoting Novartis Consumer Health, Inc. v. Johnson & Johnson-Merck Consumer Pharm. Co. , 290 F.3d 578, 586 (3d Cir. 2002)).

"Where the advertisement is literally false, a violation may be established without evidence of consumer deception." Scotts Co. , 315 F.3d at 273 (internal quotation marks omitted). "A literally false message may be either explicit or conveyed by necessary implication when, considering the advertisement in its entirety, the audience would recognize the claim as readily as if it had been explicitly stated." Id. at 274 (internal quotation ...


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