United States Court of Appeals
For the First Circuit
No. 00-2341
CASHMERE & CAMEL HAIR MANUFACTURERS INSTITUTE,
F/K/A CAMEL HAIR & CASHMERE INSTITUTE OF AMERICA, INC.,
AND L.W. PACKARD & CO., INC.,
Plaintiffs, Appellants,
v.
SAKS FIFTH AVENUE,
HARVE BENARD, LTD. AND FILENES BASEMENT,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Reginald C. Lindsay, U.S. District Judge]
Before
Torruella, Circuit Judge,
Rosenn,* Senior Circuit Judge,
and Stahl, Senior Circuit Judge.
Robert J. Kaler, with whom Gadsby Hannah, LLP, was on brief,
for appellants.
David B. Bassett, with whom William F. Lee, Michael J.
Summersgill, Colleen E. Dunham, Hale and Dorr, LLP, Robert P. Lynn,
Jr. and Robert P. Lynn, Jr. LLC, were on brief, for appellees.
April 1, 2002
*
Of the Third Circuit, sitting by designation.
TORRUELLA, Circuit Judge. Plaintiffs-appellants L.W.
Packard & Co. ("Packard") and Cashmere & Camel Hair Manufacturers
Institute (the "Institute") appeal from the district court's entry
of partial summary judgment dismissing their false advertising
claims under the Lanham Act, 15 U.S.C. § 1125(a), and Massachusetts
state law. In particular, Packard challenges the dismissal of its
claims for money damages, while the Institute argues that the
district court erred in dismissing one of its claims for injunctive
relief. Because we conclude that the district court relied on
impermissible inferences in favor of the moving party in reaching
its conclusions, we reverse and remand the case for action
consistent with this opinion.
Background1
The Institute is a trade association of cashmere
manufacturers dedicated to preserving the name and reputation of
cashmere as a speciality fiber. Packard is a member of the
Institute and a manufacturer of cashmere and cashmere-blend fabric.
In 1993, defendant-appellee Harve Benard, Ltd. ("Harve
Benard") began manufacturing a line of women's blazers that were
labeled as containing 70 percent wool, 20 percent nylon, and 10
percent cashmere. Its labels also portrayed the blazers as "A
Luxurious Blend of Cashmere and Wool," "Cashmere and Wool," or
"Wool and Cashmere." Harve Benard sold large quantities of these
1
We recite the facts in the light most favorable to plaintiffs,
the nonmoving party. See Champagne v. Servistar Corp., 138 F.3d 7,
8 (1st Cir. 1998).
-2-
cashmere-blend garments to retail customers, including defendants
Saks Fifth Avenue ("Saks") and Filene's Basement.
In 1995, plaintiffs began purchasing random samples of
the Harve Benard garments and giving them to Professor Kenneth
Langley and Dr. Franz-Josef Wortmann, experts in the field of
cashmere identification and textile analysis. After conducting
separate tests on the samples, the experts independently concluded
that, despite Harve Benard's labels to the contrary, the garments
contained no cashmere.2 In addition, Dr. Wortmann found that
approximately 10 to 20% of the fibers in the Harve Benard garments
were recycled -- that is, reconstituted from the deconstructed and
chemically-stripped remnants of previously used or woven garments.
Relying on their experts' findings, plaintiffs filed this
suit in district court claiming that defendants falsely advertised
their garments in violation of § 43(a) of the Lanham Act, 15 U.S.C.
§ 1125(a), the Massachusetts Unfair and Deceptive Trade Practices
Act, Mass. Gen. Laws ch. 93A, and the common law of unfair
competition. More specifically, plaintiffs claim that the garments
were mislabeled in two material respects: (1) the Harve Benard
blazers contained significantly less than the 10% cashmere they
were represented as having ("cashmere content claim"); and (2) any
cashmere that the blazers did contain was not virgin, as the
unqualified word "cashmere" on the label suggests, but recycled
2
The experts found that, at most, the garments contained only
trace levels (less than 0.1%) of cashmere.
-3-
("recycled cashmere claim").3 Each plaintiff seeks a different
form of relief for these alleged misrepresentations: whereas the
Institute seeks a permanent injunction against any future
mislabeling, Packard seeks monetary damages on the theory that it
lost sales as a result of the manufacture and sale of the
mislabeled garments.
The district court granted partial summary judgment in
favor of defendants, dismissing both of Packard's claims for money
damages and seemingly dismissing the Institute's request for
injunctive relief on its recycled cashmere claim.4 The only ruling
in plaintiffs' favor -- and thus the only ruling that they do not
appeal -- was the district court's denial of defendants' summary
judgment motion on the Institute's cashmere content claim for
injunctive relief.
After the district court's summary judgment ruling,
however, the Institute chose to voluntarily dismiss this remaining
claim so that it could expedite the appeal of its recycled cashmere
claim for injunctive relief.
Standard of Review
Plaintiffs appeal the district court's summary judgment
dismissing Packard's cashmere content claim for money damages;
3
After this suit was filed, Harve Benard agreed to label its 1996
and subsequent line of blazers as being made from recycled
cashmere.
4
As discussed further below, it is not entirely clear from the
summary judgment order whether the district court intended to
dismiss the Institute's request for injunctive relief on its
recycled cashmere claim.
-4-
Packard's recycled cashmere claim for money damages; and the
Institute's recycled cashmere claim for injunctive relief. We
review de novo the district court's summary judgment dismissing
plaintiffs' claims. See Straughn v. Delta Air Lines, Inc., 250
F.3d 23, 33 (1st Cir. 2001).
Summary judgment is appropriate when "the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled
to judgment as a matter of law." Fed. R. Civ. P. 56(c). "[T]o
defeat a properly supported motion for summary judgment, the
nonmoving party must establish a trial-worthy issue by presenting
enough competent evidence to enable a finding favorable to the
nonmoving party." LeBlanc v. Great Am. Ins. Co., 6 F.3d 836, 842
(1st Cir. 1993) (internal quotation marks omitted). In exercising
our review, we construe the record evidence "in the light most
favorable to, and drawing all reasonable inferences in favor of,
the nonmoving party." Feliciano de la Cruz v. El Conquistador
Resort & Country Club, 218 F.3d 1, 5 (1st Cir. 2000).
For the purposes of this appeal, defendants concede that
the issue of whether the garments were mislabeled is both material
and genuinely in dispute. They argue, however, that there is no
evidence that their mislabeling deceived any members of the
consuming public or caused plaintiffs any harm. Defendants thus
seek summary judgment on the grounds that plaintiffs cannot adduce
-5-
sufficient evidence of consumer deception or causation to satisfy
the requirements of the applicable law.
Discussion
I.
Before delving into the merits of plaintiffs' appeal, we
pause to address a jurisdictional challenge. Defendants argue that
the Institute has no legal standing to seek appellate review
because the Institute is impermissibly attempting to appeal from
its own voluntary dismissal. After the district court's grant of
summary judgment, the Institute had at least one remaining claim
against defendants. Rather than pursuing that claim to trial,
however, the Institute voluntarily moved to dismiss its claim with
prejudice. Shortly thereafter, the Institute timely filed the
instant appeal. Since it is well known that generally "a plaintiff
may not appeal a voluntary dismissal because there is no
involuntary or adverse judgment against him," Bell v. City of
Kellogg, 922 F.2d 1418, 1421 (9th Cir. 1991), defendants contend
that this Court lacks jurisdiction over the Institute's improper
appeal.
Defendants acknowledge in their brief, however, that
there is a narrow exception which permits appeals from voluntary
dismissals where the dismissal was sought to expedite review of a
prejudicial interlocutory ruling. See John's Insulation, Inc. v.
L. Addison & Assocs. Inc., 156 F.3d 101, 107 (1st Cir. 1998)
(noting that "most circuits hold that voluntary dismissals, and
especially those with prejudice, are appealable final orders," and
-6-
holding that "a plaintiff that deems an interlocutory ruling to be
so prejudicial as to deserve immediate review . . . has the
alternative of dismissing the complaint voluntarily"); Martin v.
Franklin Capital Corp., 251 F.3d 1284, 1288 (10th Cir. 2001) (same
holding). Nevertheless, defendants assert that the Institute does
not fall within this exception because its voluntary dismissal was
not sought for the purposes of obtaining immediate appellate review
of a prior order, but rather because the Institute realized that
its remaining claim was without merit.
Defendants' argument is undermined, however, by that
portion of the record establishing that the Institute voluntarily
dismissed its remaining claim, in part, so that it could appeal
adverse rulings in the summary judgment order. In its motion to
dismiss, the Institute unequivocally stated:
"[The Institute] has determined that the most
appropriate course of action is to dismiss
[its remaining claim] with prejudice to avoid
an unnecessary trial on that issue, without
prejudice to the plaintiffs' right to appeal
the broader rulings dismissing the bulk of
their claims."
The Institute's motion thus demonstrates that (1) it believed that
the summary judgment order significantly prejudiced its case by
dismissing "the bulk of [its] claims," and (2) the Institute sought
the voluntary dismissal to expedite appellate review of the prior
order. Because the Institute has satisfied the prerequisites for
appealing a voluntary dismissal, see John's Insulation, 156 F.3d at
107 (noting that "the proper course of action is to file a motion
for voluntary dismissal with prejudice, stating explicitly that the
-7-
purpose is to seek immediate review of the interlocutory order in
question"), we conclude that the Institute is properly before this
Court.
At oral argument, defendants unveiled a new contention:
they claimed that the Institute could not avail itself of the
exception because the summary judgment order did not substantially
prejudice the Institute, as is required by existing caselaw. See
id. In particular, defendants argued that since the summary
judgment order did not dismiss any of the Institute's claims for
injunctive relief, there is insufficient prejudice to allow the
Institute to appeal its voluntary dismissal.
Defendants' argument fails for two reasons. First,
defendants waived this argument by failing to raise it in their
brief. See Frazier v. Bailey, 957 F.2d 920, 932 (1st Cir. 1992)
(ruling that arguments not fully presented in appellate brief are
waived). Defendants cannot utilize oral argument as a forum for
unveiling new arguments of which plaintiffs did not have proper
notice or opportunity to challenge.
Second, it appears that the district court actually
dismissed the Institute's recycled cashmere claim for injunctive
relief, thereby giving the Institute sufficient prejudice to appeal
its voluntary dismissal. As discussed in more detail below, for a
plaintiff to succeed on a false advertising claim under the Lanham
Act, he must demonstrate, among other things, that the alleged
misrepresentation deceived the public or had a tendency to deceive
the public. See Clorox Co. P.R. v. Proctor & Gamble Commercial
-8-
Co., 228 F.3d 24, 33 n.6 (1st Cir. 2000). In some limited
circumstances, however, the law absolves the Lanham Act plaintiff
of this burden and allows him to benefit from a presumption of
consumer deception. See id. at 33 (noting that a court "may grant
relief without considering evidence of consumer reaction"). In
assessing whether the Institute demonstrated consumer deception,
the district court determined that the Institute was entitled to a
presumption of consumer deception on its claim that defendants
overstated the cashmere content, but was not entitled to such a
presumption on its recycled cashmere claim.5 The district court
then concluded that "[b]ased on the presumption alone, Defendants'
motion for summary judgment should be denied . . . " It is clear,
then, that the district court explicitly denied summary judgment
only on the Institute's cashmere content claim, as that is the only
claim to which the district court applied "the presumption."
The district court, however, neglected to determine
whether the Institute demonstrated consumer deception, absent a
presumption, on its recycled cashmere claim. The parties draw
opposite conclusions from the district court's ambiguous resolution
of this matter: ironically, plaintiffs argue that the claim was
dismissed for failure to demonstrate consumer deception, while
defendants assert that it was not.
5
The district court mistakenly referred to this presumption as a
"presumption of materiality." For the sake of clarity, we refer to
materiality only as that element which requires a plaintiff to show
that the alleged misrepresentations "influence[d] the purchasing
decision." Clorox, 228 F.3d at 33 n.6. Whether a
misrepresentation is material is thus a separate inquiry from
whether a misrepresentation deceived the consuming public. See id.
-9-
Though both arguments are equally plausible given the
district court's silence on the issue, we conclude that plaintiffs'
assertion that the claim was dismissed more persuasive in light of
the circumstances. Immediately after skipping over the issue of
whether the Institute demonstrated consumer deception on its
recycled cashmere claim, the court assessed whether Packard had
proved consumer deception on its claims for money damages. After
analyzing the proffered evidence, the district court found that
Packard's proof of consumer deception was insufficient. Since the
district court dismissed Packard's claims, in part, because Packard
was unable to demonstrate consumer deception, it is reasonable to
assume that the district court intended to dismiss the Institute's
remaining claim for the same reason, especially because plaintiffs
were relying on the same evidence to prove both.6
Considering the ambiguity surrounding the district
court's order on this issue, the apparent intention of the district
court to dismiss the Institute's recycled cashmere claim, and the
6
Furthermore, the district court ruled that plaintiffs' recycled
cashmere claim was one of implied falsity. Absent a presumption,
an implied falsity claim can be established only by actual evidence
of deception, "usually in the form of market research or consumer
surveys, showing exactly what message ordinary customers received
from the ad." J. Thomas McCarthy, McCarthy on Trademarks and
Unfair Competition § 27:55 (4th ed. 2001); see also Camel Hair &
Cashmere Inst. of Am., Inc. v. Associated Dry Goods Corp., 799 F.2d
6, 15 (1st Cir. 1986) (noting that "consumers' reaction is the
starting point when the allegation is based merely on the tendency
of the defendant's representation to deceive"). Plaintiffs failed
to offer any evidence of surveys or market research to demonstrate
consumer deception. Given this lack of evidence, it is reasonable
to assume that the district court intended to rule -- if it did not
actually -- that the Institute could not meet its burden of
demonstrating consumer deception on its recycled cashmere claim.
-10-
Institute's dismissal of its remaining claim to seek immediate
appellate review of the summary judgment order, we find that the
Institute has satisfied the prerequisites to appeal its voluntary
dismissal.
II.
The Lanham Act prohibits false and misleading
descriptions of products and services in interstate commerce. See
15 U.S.C. § 1125(a). The statute was designed to protect consumers
and competitors from any duplicitous advertising or packaging which
results in unfair competition. See id.7
To prove a false advertising claim under the Lanham Act,
a plaintiff must demonstrate that (1) the defendant 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
7
The false advertising provisions of the Lanham Act provide:
Any person who, on or in connection with any goods or
services, or any container for goods, uses in commerce
any word, term, name, symbol, or device, or any
combination thereof, or any false designation of origin,
false or misleading description of fact, or false or
misleading representation of fact, which . . . in
commercial advertising or promotion, misrepresents the
nature, characteristics, qualities, or geographic origin
of his or her or another person's goods, services, or
commercial activities, shall be liable in a civil action
by any person who believes that he or she is or is likely
to be damaged by such act.
15 U.S.C. § 1125(a)(1).
-11-
segment of its audience; (4) the defendant 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. See Clorox,
228 F.3d at 33 n.6.
A plaintiff can succeed on a false advertising claim by
proving either that the defendant's advertisement is literally
false or implicitly false -- that is, the advertisement is true or
ambiguous yet misleading. See id. Where the advertisement is
literally false, a violation may be established without evidence of
consumer deception. See id.; Balance Dynamics Corp. v. Schmitt
Indus., 204 F.3d 683, 693 (6th Cir. 2000) (noting that when a
statement is literally false, "a plaintiff need not demonstrate
actual customer deception in order to obtain relief "). Where the
advertisement is implicitly false, however, "an additional burden
is placed upon the plaintiff to show that the advertisement . . .
conveys a misleading message to the viewing public." Clorox, 228
F.3d at 33.8
8
As discussed below, a plaintiff alleging an implied falsity
claim, however, is relieved of the burden of demonstrating consumer
deception when there is evidence that defendants intentionally
deceived the consuming public. See Resource Developers, Inc. v.
Statue of Liberty-Ellis Island Found., Inc., 926 F.2d 134, 140 (2d
Cir. 1991) (ruling, with respect to an implied falsity claim, that
"[o]nce it is shown that a defendant deliberately engaged in a
deceptive commercial practice, we agree that a powerful inference
may be drawn that the defendant has succeeded in confusing the
public").
-12-
In addition, this Court has recognized a difference in
the burdens of proof between injunctive relief claims and monetary
damages claims under the Lanham Act. In Quabaug Rubber Co. v.
Fabiano Shoe Co., Inc., 567 F.2d 154 (1st Cir. 1977), we held that
whereas a showing that the defendant's activities are likely to
cause confusion or to deceive customers is sufficient to warrant
injunctive relief, a plaintiff seeking damages must show actual
harm to its business. See id. at 160-61.9
With these elaborate and intricate statutory requirements
in mind, we assess plaintiffs' claims to determine if there is
enough competent evidence for a reasonable factfinder to conclude
that they have satisfied their burdens of proof under the Lanham
Act.
A. Concessions
For the purposes of this appeal, defendants concede that
they have made a false or misleading statement of fact in
describing their blazers. Defendants also concede that they placed
these misrepresentations in interstate commerce.
B. Materiality
The materiality component of a false advertising claim
requires a plaintiff to prove that the defendant's deception is
9
Furthermore, unlike a plaintiff seeking injunctive relief who
only has to show that the misrepresentation had the tendency to
deceive, a plaintiff seeking monetary damages must show that
consumers were actually deceived by the misrepresentation, PPX
Enter., Inc. v. Audiofidelity Enter., Inc., 818 F.2d 266, 271 (2d
Cir. 1987), unless he can avail himself of a presumption to that
effect.
-13-
"likely to influence the purchasing decision." Clorox, 228 F.3d at
33 n.6. One method of establishing materiality involves showing
that the false or misleading statement relates to an "inherent
quality or characteristic" of the product. Nat'l Basketball Ass'n
v. Motorola, Inc., 105 F.3d 841, 855 (2d Cir. 1997).10
On their first claim, plaintiffs argue that overstating
the cashmere content of cashmere-blend blazers is material because
the misrepresentation relates to an inherent characteristic of the
product sold. Indeed, it seems obvious that cashmere is a basic
ingredient of a cashmere-blend garment; without it, the product
could not be deemed a cashmere-blend garment or compete in the
cashmere-blend market. Thus, it seems reasonable to conclude that
defendants' misrepresentation of the blazers' cashmere content is
material because it relates to a characteristic that defines the
product at issue, as well as the market in which it is sold.
Moreover, defendants prominently labeled their garments
as "Cashmere and Wool," "A Luxurious Blend of Cashmere and Wool,"
"Cashmere Blend," or "Wool and Cashmere," and their garments were
conspicuously advertised in stores and catalogues as "Cashmere
Blazers." It seems reasonable to infer from defendants' aggressive
marketing strategy highlighting the "cashmere" nature of the
10
Whether a misrepresentation is material has nothing to do with
the nature of the relief sought or the defendant's intent. Rather,
materiality focuses on whether the false or misleading statement is
likely to make a difference to purchasers. See J. Thomas McCarthy,
McCarthy on Trademarks and Unfair Competition § 27:35 (4th ed.
2001). Thus, even when a statement is literally false or has been
made with the intent to deceive, materiality must be demonstrated
in order to show that the misrepresentation had some influence on
consumers.
-14-
blazers that defendants themselves believed cashmere to be an
inherent and important characteristic of the blazers.
With respect to their second claim, plaintiffs argue that
defendants' misrepresentation of the recycled nature of their
cashmere also relates to an inherent characteristic of the
garments. To substantiate this point, plaintiffs offer the
affidavit of Karl Spilhaus, the Institute's president, in which he
explains:
The process of recycling . . . involves the
use of machinery to tear apart existing
garments, during or after which they are
subjected to a wet processing with the
resulting wool fibers dried out, frequently
carbonized (subjected to heat and sulphuric
acid), and then re-used in the manufacture of
other fabric.
In the process of tearing apart existing
garments, considerable damage is inevitably
done to the fibers in those garments, and
additional damage is also done by the acid or
other chemical treatments applied to them
during the recycling process. The result is
that recycled fibers frequently have
substantial surface damage to their scale
structure which effects [sic] their ability to
felt, or bind together, thereby effecting
[sic] the ability of a recycled fiber fabric
to hold together as well or as long as fibers
which are being used in the fabric for the
first time. Such fabric will be rougher to
the touch and lack "handle," plushness or
softness normally associated with quality
woolen or cashmere products.
Given the degree to which recycled fibers affect the
quality and characteristics of a garment, a rational factfinder
could conclude that consumers, especially experienced ones like
retail stores, would likely be influenced in their purchasing
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decisions by labeling that gave the false impression that the
garments contained virgin cashmere.11
In fact, plaintiffs offer anecdotal evidence as
corroboration for this very assertion. In January 1996, Saks, one
of Harve Benard's largest customers, learned that the cashmere
blazers it had purchased from Harve Benard might contain recycled
cashmere. Shortly thereafter, Lynne Ronon, the merchandise manager
at Saks, met with representatives of Harve Benard to inform them
that Saks did not wish to sell garments containing recycled
cashmere. After the meeting, Carole Sadler, the associate counsel
for Saks, sent Harve Benard a letter restating Saks' position as
set forth by Ronon: "Saks does not wish to sell jackets containing
recycled cashmere."
Rather than viewing this anecdote as evidence of how an
actual consumer's purchasing decision was influenced by the
misrepresentation, defendants draw the opposite conclusion by
focusing on Saks' ultimate purchasing decision. Notwithstanding
its earlier position, Saks eventually decided to sell Harve Benard
garments containing recycled cashmere. Moreover, Sadler testified
that Saks' initial refusal to sell recycled cashmere garments was
11
The relevant "consumers" are those groups of people to whom the
advertisement was addressed. See Johnson & Johnson Merck Consumer
Pharm. Co. v. Smithkline Beecham Corp., 960 F.2d 294, 297 (2d Cir.
1992) (noting that "[t]he question in such cases is -- what does
the person to whom the advertisement is addressed find to be the
message?") (internal quotations and citations omitted). In this
case, the relevant consumers include, but are not limited to, the
retail stores that purchased Harve Benard garments instead of
buying from Packard's garment manufacturer customers and individual
purchasers.
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merely a strategic move on an issue "that could ripen into a
negotiation or a renegotiation" between the parties.
The problem with defendants' rebuttal argument, however,
is that it ignores what a rational juror could find after drawing
all reasonable inferences in plaintiffs' favor. Saks' initial
refusal to sell the recycled cashmere garments; Saks' belief that
the matter could lead to a negotiation; and the actual negotiations
that took place before Saks agreed to continue selling the garments
are competent evidence from which a reasonable juror could conclude
that the issue related to an inherent quality or characteristic of
the garment. Indeed, it makes little sense that Saks and Harve
Benard would spend so much time and effort resolving a matter they
deemed immaterial.
Furthermore, it is important to reiterate, as the caselaw
explicitly states, that plaintiffs are not required to present
evidence that defendants' misrepresentation actually influenced
consumers' purchasing decisions, but that it was likely to
influence them. See Clorox, 228 F.3d at 33 n.6. Given the
significant degree to which using recycled fibers adversely impacts
the quality, texture, and characteristics of cashmere, and
considering Saks' erratic behavior upon learning of the
mislabeling, we find that plaintiffs have presented sufficient
evidence to demonstrate that defendants' recycled cashmere
misrepresentation was material.
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C. Consumer Deception
The next element of a false advertising claim under the
Lanham Act requires plaintiffs to demonstrate that the alleged
misrepresentation deceived a substantial portion of the consuming
public. See Clorox, 228 F.3d at 33 n.6.12 Usually consumer
deception is demonstrated through surveys, which establish that
consumers were misled by the alleged misrepresentations. See
Johnson & Johnson Merck, 960 F.2d at 298. Plaintiff-appellant
Packard argues, however, that it does not have to shoulder the
burden of presenting this evidence because existing caselaw allows
plaintiffs like it who allege claims that are literally false to
avail themselves of a presumption of consumer deception. See
Castrol Inc. v. Pennzoil Co., 987 F.2d 939, 943 (3d Cir. 1993)
(ruling that "a plaintiff must prove either literal falsity or
consumer confusion, but not both"); Johnson & Johnson v. GAC Int'l,
Inc., 862 F.2d 975, 977 (2d Cir. 1988) ("When a . . .
representation is literally or explicitly false, the court may
grant relief without reference to the advertisement's impact on the
buying public.").
In response, defendants recognize that a presumption of
consumer deception is available to plaintiffs seeking injunctive
relief for literal falsity claims; however, they argue that the
12
Since Packard is seeking monetary damages, it must demonstrate
that consumers were actually deceived by the misrepresentations.
Only plaintiffs seeking injunctive relief face the lesser burden of
demonstrating a tendency to deceive. See supra note 9.
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presumption does not apply, without more, to plaintiffs seeking
money damages for literal falsity claims.
Though there was once support for the assertion that
consumer deception cannot be presumed simply because a plaintiff
alleges a literal falsity claim for money damages, see PPX, 818
F.2d at 272 (noting that as of 1987 the presumption had only been
applied to literal falsity claims for injunctive relief), it has
become the practice of most circuits to apply the presumption to
all literal falsity claims. See Pizza Hut, Inc. v. Papa John's
Int'l, Inc., 227 F.3d 489, 497 (5th Cir. 2000) (holding, on a claim
for damages and injunctive relief, that "when the statements of
fact at issue are shown to be literally false, the plaintiff need
not introduce evidence on the issue of the impact the statements
had on consumers. . . . [However] [p]laintiffs looking to recover
monetary damages for false or misleading advertising that is not
literally false must prove actual deception"); EFCO Corp. v. Symons
Corp., 219 F.3d 734, 740 (8th Cir. 2000) (ruling, on a claim for
damages, that "when an advertisement is literally false . . . the
plaintiff need not prove that any of its customers were actually
persuaded by the advertising"); Balance, 204 F.3d at 693 (noting
that a presumption of consumer deception applies to a literal
falsity claim for damages so long as there is other proof of
marketplace damages); B. Sanfield, Inc. v. Finlay Fine Jewelry
Corp., 168 F.3d 967, 971 (7th Cir. 1999) (ruling, on a damages
claim, that "[w]here the statement in question is actually false,
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then the plaintiff need not show that the statement either actually
deceived consumers or was likely to do so").
In fact, defendants' argument contradicts this Court's
explicit pronouncements on the issue. In assessing whether a
Lanham Act claim for injunctive relief and money damages had been
properly dismissed, we stated, "If the advertisement is literally
false, the court may grant relief without considering evidence of
consumer reaction. In the absence of such literal falsity, an
additional burden is placed upon plaintiff to show that the
advertisement . . . conveys a misleading message to the viewing
public." Clorox, 228 F.3d at 33 (internal citations omitted).
Moreover, applying a presumption of consumer deception to
all literal falsity claims, irrespective of the type of relief
sought, makes sense. When a plaintiff demonstrates that a
defendant has made a material misrepresentation that is literally
false, there is no need to burden the plaintiff with the onerous
task of demonstrating how consumers perceive the advertising. See
Balance Dynamics, 204 F.3d at 693 (noting that "[b]ecause proof of
'actual confusion' may be difficult to obtain, most of the circuits
have ruled that when a statement is literally false, a plaintiff
need not demonstrate actual customer deception in order to obtain
relief under the Lanham Act"). Common sense and practical
experience tell us that we can presume, without reservation, that
consumers have been deceived when a defendant has explicitly
misrepresented a fact that relates to an inherent quality or
characteristic of the article sold. To presume as much requires
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neither a leap of faith nor the creation of any new legal
principle.13
Because defendants do not dispute that overstating
cashmere content is a literal falsity claim, we apply a presumption
of consumer deception in plaintiffs' favor on this claim. Based on
this presumption, and defendants' failure to present evidence to
rebut it, Packard has satisfied its burden of demonstrating
consumer deception on its cashmere content claim.
Whether literal falsity is involved in plaintiffs' claim
that defendants improperly labeled their goods as cashmere rather
than recycled cashmere, however, is a contentious issue.
Defendants argue that this claim is, by definition, one of implied
falsity -- that is, a representation that is literally true but in
context becomes likely to mislead. See Clorox, 228 F.3d at 33
(defining an implied falsity claim as one in which the
"advertisement, though explicitly true, nonetheless conveys a
misleading message to the viewing public"). As further support for
their argument, defendants offer a simple syllogism: all suits
based on implied messages are implied falsity claims; since
13
Defendants also argue that before the presumption of consumer
deception can apply to a literal falsity claim for damages, the
plaintiff must demonstrate that the defendant intentionally
deceived the consuming public. None of the five circuit cases
cited supra, however, speaks of the intent to deceive as a
prerequisite to applying a presumption of consumer deception on a
literal falsity claim. As discussed in more detail below, the
intent to deceive is an independent basis for triggering a
presumption of consumer deception. See William H. Morris Co. v.
Group W, Inc., 66 F.3d 255, 258 (9th Cir. 1995) (ruling, on an
implied falsity claim, that "[i]f [defendant] intentionally misled
consumers, we would presume consumers were in fact deceived and
[defendant] would have the burden of demonstrating otherwise").
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plaintiffs assert that the term "cashmere" on the garments' labels
implicitly conveys the false message that the garments contain
virgin cashmere, their claim must be one of implicit falsity.
We agree with defendants that normally a claim like
plaintiffs', in which the representation at issue is literally true
(the garments do contain cashmere as the label states) but is
misleading in context (defendants failed to disclose that the
cashmere is recycled), is evaluated as an implied falsity claim.
See id. However, we disagree with defendants' assertion that all
claims that rely on implied messages are necessarily implied
falsity claims. In Clorox, this Court noted that "[a]lthough
factfinders usually base literal falsity claims upon the explicit
claims made by an advertisement, they may also consider any claims
the advertisement conveys by 'necessary implication.'" Id. at 34-
35. We explained that "[a] claim is 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 35.
After drawing all reasonable inferences in favor of the
nonmoving party, a rational factfinder could conclude that
plaintiffs' recycled cashmere claim is one of literal falsity. The
Wool Products Labeling Act, 15 U.S.C. § 68 et seq., requires
recycled garments and fabrics, including cashmere, to be labeled as
such. As a result, whenever a label represents that a garment
contains the unqualified term "cashmere," the law requires that the
garment contain only virgin cashmere. The Act, then, is
-22-
essentially telling consumers that garments labeled "cashmere" can
be presumed to be virgin cashmere "as if it had been explicitly
stated." Clorox, 228 F.3d at 35. Plaintiffs also presented
evidence demonstrating that experienced retailers, like Saks, were
aware of the Act's requirements. Based on this evidence, we
conclude that plaintiffs have presented sufficient evidence to
demonstrate that consumers would view the term "virgin" as
necessarily implicated when a garment was labeled "cashmere."
The district court rejected this argument because "[i]t
is at least equally plausible to infer that Congress [in enacting
the Wool Product Labeling Act] was concerned that it would be
misleading for a seller to fail to distinguish between virgin and
recycled cashmere, even though it would not be literally false to
do so." The district court's argument, however, substitutes an
irrelevant inquiry for the required analysis. Rather than
assessing what consumers would necessarily infer from the
unqualified term "cashmere" in light of the Act's requirements, the
district court delved into issues of congressional intent and
statutory interpretation. See Johnson & Johnson Merck, 960 F.2d at
297 ("The question in such cases is -- what does the person to whom
the advertisement is addressed find to be the message?"). Because
the Act necessarily implies the term "virgin" anytime the
unmodified word "cashmere" appears on a garment's label and
experienced retailers, like Saks, were aware of the Act's
requirements, we rule that plaintiffs' recycled cashmere claim can
be reasonably seen as one of literal falsity. Therefore,
-23-
plaintiffs may benefit from a presumption of consumer deception on
this claim.
Even if plaintiffs' recycled cashmere claim did not
involve literal falsity, plaintiffs would still be able to avail
themselves of a presumption of consumer deception on alternative
grounds. It is well established that if there is proof that a
defendant intentionally set out to deceive or mislead consumers, a
presumption arises that customers in fact have been deceived. See
Porous Media Corp. v. Pall Corp., 110 F.3d 1329, 1333 (8th Cir.
1997) (approving of a presumption of consumer deception upon a
finding that defendant acted deliberately to deceive); see also U-
Haul Int'l, Inc. v. Jartran, Inc., 793 F.2d 1034, 1041 (9th Cir.
1986) (same).
As evidence of defendants' intentional mislabeling of the
blazers' recycled cashmere, plaintiffs introduced a letter dated
January 13, 1995, addressed to Harve Benard's president, Bernard
Holtzman, from one of Harve Benard's testing laboratories. On the
top of the letter, there is a handwritten note from "L. Pedell," an
agent for Harve Benard, which states, "Also see note from mill
below. This is an on-going saga." The note that Pedell is
referring to reads, in pertinent part, "FOR YOUR INFO PLS NOTE MILL
IS USING RECICLED CHASMERE [sic]."14 Despite receiving notice that
14
Defendants argue that since Holtzman testified that "it is very
possible that I didn't get [the letter]," and because there is no
evidence to contradict his assertion, it cannot be inferred that he
received it. The evidence to cast doubt on Holtzman's testimony,
however, comes from his own tongue. He also stated that "I
couldn't be sure either way [whether I received the letter]."
Given Holtzman's equivocal responses, we find that plaintiffs are
-24-
its blazers were being made from recycled cashmere, Harve Benard
continued to market its garments without any "recycled"
designation, as required by law, until months after the
commencement of this lawsuit in 1996. Thus, Harve Benard's
unwillingness to comply with the law, despite being on notice of
its violation, can be seen as an attempt deliberately to deceive
the consuming public.
In response, defendants offer several factual and legal
arguments, none of which we find persuasive. First, defendants
argue that a presumption of consumer deception cannot be triggered
on an implied falsity claim, even if there is evidence of an intent
to deceive. Defendants' claim, however, is undermined by several
circuit cases that have explicitly held otherwise. See Porous, 110
F.3d at 1337 (applying presumption of consumer deception to an
implied falsity claim when there is intent to deceive); William H.
Morris, 66 F.3d at 258-59 (stating that a presumption of consumer
deception applies to an implied falsity claim where there is
sufficient evidence of an intent to deceive); Johnson & Johnson
Merck, 960 F.2d at 298-99 (same); Resource Developers, 926 F.2d at
140 (same). The justification for applying the presumption
whenever there is evidence of intentional deception is perspicuous:
"The expenditure by a competitor of substantial funds in an effort
to deceive customers and influence their purchasing decisions
justifies the existence of a presumption that consumers are, in
entitled to the reasonable inference that a facsimile letter
addressed to Holtzman was received by him.
-25-
fact, being deceived." U-Haul, 793 F.2d at 1041. This reasoning
holds true regardless of whether the claim that plaintiffs allege
involves an implied or literal falsity.
Second, defendants argue that the fact that an Italian
mill stated that it was using recycled cashmere has little bearing
on whether the mill was using cashmere that would be considered
recycled under the definitions of the Wool Products Labeling Act.
Defendants seem to misunderstand or underestimate the import of the
letter. One of Harve Benard's mills informed the president of the
company that its cashmere-blend garments contained recycled fabric.
Rather than investigating the matter to determine whether Harve
Benard was violating the law by not properly labeling its cashmere
as "recycled," Harve Benard did nothing. It did not finally change
the garments' labels until more than one year later when plaintiffs
sought a temporary restraining order on the issue. One reasonable
explanation, which a juror may choose to credit, for Harve Benard's
refusal to investigate or act on the letter is that Harve Benard
intended to deceive the consuming public about the recycled nature
of its cashmere. Cf. Amirmokri v. Baltimore Gas & Elec. Co., 60
F.3d 1126, 1133 (4th Cir. 1995) (noting that intent may be inferred
from a failure to act).
Lastly, defendants argue that Harve Benard's failure to
act on the letter for one year does not meet the intent requirement
set forth in applicable precedent. Defendants read Resource
Developers, 926 F.2d at 140, as standing for the proposition that
a defendant's failure to dispel confusion caused by its advertising
-26-
circular for four months is insufficient evidence of intent. Since
Harve Benard's failure to act is comparable to the defendant's in
Resource Developers, defendants conclude that there is insufficient
evidence to support a finding of intent.
Even if we were to adopt defendants' reading of Resource
Developers, we remain unpersuaded by their argument because the
circumstances of this case are far more compelling. First, the
fact that defendants waited for more than a year before changing
the blazers' mislabeling is far more probative of intentional
deceit than waiting for four months. Second, when referring to the
Italian mill's use of recycled cashmere, Pedell noted on the top of
the letter, "This is an on-going saga." Drawing all reasonable
inferences in plaintiffs' favor, a rational juror could conclude
from this sentence that the recycled cashmere issue had been
encountered before and -- as the word "saga" suggests -- on a
continuing basis. Because this "saga" probably began or could have
begun a considerable amount of time before January 1995, we decline
defendants' invitation to place a time constraint on plaintiffs'
evidence of intent.
With respect to the Institute's recycled cashmere claim
for injunctive relief, the district court dismissed the claim
because the Institute failed to demonstrate evidence of consumer
deception. Because the foregoing analysis applies with equal force
to the Institute's recycled cashmere claim, we rule that the
Institute can avail itself of a presumption of consumer deception.
-27-
Thus, the district court erred in granting defendants' motion for
summary judgment on the Institute's recycled cashmere claim.
D. Causation and Damages
Before delving into the merits of plaintiffs' proffered
evidence of causation, we address a threshold evidentiary issue.
Defendants argue that since plaintiffs failed to appeal the
district court's order striking their experts' reports, plaintiffs
have nothing upon which to base a finding of causation. We agree
with defendants that plaintiffs did not properly appeal the
district court's ruling, but this does not signify that plaintiffs'
case on causation necessarily fails.15 Plaintiffs may still rely
on anecdotal statements from prospective customers, evidence of
cost differential between fabrics, and factual testimony of expert
witnesses to demonstrate causation.
In order to prove causation under § 1125(a) of the Lanham
Act, the aggrieved party must demonstrate that the false
advertisement actually harmed its business. "A precise showing is
not required, and a diversion of sales, for example, would
suffice." Quabaug, 567 F.2d at 161 (internal citations omitted).16
15
Whether plaintiffs will be permitted to present new expert
reports on remand is a matter best left for the district court, as
we have not been properly briefed on the issue.
16
Defendants at oral argument suggested that plaintiffs could not
be damaged by Harve Benard's alleged mislabeling because the
parties operate in different markets: whereas Harve Benard sells
finished garments to retailers, Packard sells fabric to
manufacturers. Defendants later conceded, however, that if Packard
were to demonstrate that manufacturers refused to purchase its
fabric because of defendants' false advertising and concomitant low
prices, causation would be proved. Thus, the fact that the two
-28-
To satisfy this requirement, plaintiffs present two
pieces of interrelated evidence. First, plaintiffs point to Harve
Benard's purchase orders which demonstrate that Harve Benard was
paying $5 per yard less for the fabric it was using to make its
garments than Packard’s customers, who were paying for legitimate
10% cashmere fabric. Next, plaintiffs offer uncontradicted
evidence that Packard's customers actually reduced their purchases
of Packard's cashmere-blend fabric because they could not compete
with Harve Benard’s lower-priced garments. Specifically, Peter
Warshaw, a sales agent for Packard, testified that three of
Packard's customers -- Gilmore, RCM, and Perfect Petite -- notified
him that they could no longer purchase Packard's cashmere-blend
fabric because Harve Benard's lower-priced garments were driving
them out of the market. This evidence supports the plaintiffs'
claim that Harve Benard’s low prices caused Packard lost sales.
The critical question, then, is what enabled Harve Benard
to lower its prices to the point that prospective competitors
refused to purchase Packard fabric. Based on the evidence
presented, a rational factfinder could reasonably infer that the
substantial cost savings Harve Benard enjoyed from using non-
cashmere or recycled cashmere fabric allowed Harve Benard to lower
the price of its blazers, thereby preventing Packard's customers
from competing in the market. Indeed, using inexpensive materials
that are represented as something more valuable would generally
parties are in different markets does not affect the analysis, so
long as plaintiffs can prove the causal connection between the
misrepresentations and the harm sustained.
-29-
create a substantial competitive advantage by undercutting
competitors who correctly represent their products. See Camel
Hair, 799 F.2d at 13 (approving the district court’s commonsense
"inference that the sale of cashmere-blend coats which overstated
their cashmere content could cause a loss of sales of cashmere-
blend coats which correctly stated their cashmere content"). This
reasonable inference, to which plaintiffs are entitled at summary
judgment, enables plaintiffs to demonstrate the causal link between
the harm they suffered and defendants’ misrepresentations.
In response, defendants argue that it is unreasonable to
infer that Harve Benard’s lower fabric costs translated into lower
garment prices given that evidence in the record suggests
otherwise. In his affidavit, Harve Benard’s vice-president Harvey
Schutzbank stated that Harve Benard’s garment prices would have
remained the same even if it had used the more expensive Packard
fabric to manufacture its garments. Based on this evidence, Harve
Benard claims it would still have enjoyed the same price advantage
that prevented Packard’s customers from competing in the market
even if the garments had been properly labeled and manufactured
with legitimate 10% cashmere fabric. In short, defendants cite
Schutzbank’s affidavit as proof that it was Harve Benard’s low
prices -- not its mislabeling -- that caused Packard’s lost sales.
We agree with defendants that if they were to present
undisputed evidence establishing that their garment prices would
have remained the same even if they had used Packard fabric, it
would be unreasonable to infer that Harve Benard’s lower fabric
-30-
costs translated into lower garment prices. However, plaintiffs
present competent evidence which casts serious doubt on
Schutzbank’s testimony. Packard's president John Glidden testified
to the relationship between fabric cost and garment price:
Because Harve Benard was not putting the
cashmere in the fabric, they had a
tremendously reduced cost. . . . [T]he added
expense of putting cashmere in a garment or in
a fabric increases the garment's cost; and
when [Packard] legitimately labeled [its]
fabrics, [the fabrics] were too expensive for
the marketplace which Harve Benard was selling
to.
Moreover, Warshaw, who has years of experience working with garment
manufacturers, testified that "Harve Benard had an unfair
competitive advantage in fabric that is the major component of a
garment . . . . [B]y far and away the largest component of the
total costs of a garment is the fabric." (emphasis added). He
also testified to Harve Benard's comparative advantage:
[T]he garment manufacturers that are available
to compete with Harve Benard are savvy, smart,
sharp manufacturers who have at their disposal
cheap labor, cheap trim, cheap transportation.
They have available to them the same range of
possibilities for plugging in to a garment,
except that if those sharp competitors use a
Packard product that's $11.25, they're going
to get blown out of the water by Harve
Benard['s use of] inexpensive [] fabric.
After weighing all of this evidence, a rational jury
could choose to discredit Schutzbank’s affidavit, especially
considering (1) the commonsense inference that a lower fabric cost
translates into a price advantage; (2) the fact that Schutzbank
does not provide any quantitative analysis to substantiate his bald
assertion that the garments’ prices would have remained the same
-31-
even if Harve Benard were to have used the more expensive Packard
fabric; (3) several "savvy, smart, sharp" garment manufacturers
could not do what Harve Benard claims it can -- that is, use
Packard fabric and still keep its low prices; and (4) two of
plaintiffs’ witnesses assert that fabric cost has a substantial
impact on garment price.
In the end, the parties present witnesses who hold
inconsistent positions on a crucial issue of fact. Rather than
weighing in on the matter, we conclude that this dispute is one
which a jury is best suited to resolve.
III.
The district court dismissed plaintiffs’ state law claims
because it found that since plaintiffs were unable to satisfy the
requirements of a Lanham Act claim, they would not be able to prove
their state law claims, as the two have overlapping requirements.
Because the district court erred in concluding that plaintiffs’
proof was insufficient to qualify for relief under the Lanham Act,
we reverse its decision to dismiss plaintiffs’ state law claims.
Conclusion
Based on the foregoing analysis, a reasonable factfinder
could conclude that the defendants' material mislabeling of their
garments deceived the consuming public, enabled defendants to lower
their garment prices, and caused Packard to lose sales. For these
reasons, we find summary judgment inappropriate, reverse the
district court’s judgment, and remand the case for action
consistent with this opinion.
-32-
Reversed and remanded.
-33-
Cashmere & Camel Hair Manufacturers Institute v. Saks Fifth Avenue
Court: Court of Appeals for the First Circuit
Date filed: 2002-04-01
Citations: 284 F.3d 302
Copy CitationsCombined Opinion