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Boltex Manufacturing Company, L.P. v. Ulma Piping USA Corp.

United States District Court, S.D. Texas, Houston Division

June 28, 2019

BOLTEX MANUFACTURING COMPANY, L.P., et al, Plaintiffs,
v.
ULMA PIPING USA CORP., et al., Defendants.

          MEMORANDUM & ORDER

          ANDREW S. HANEN UNITED STATES DISTRICT JUDGE

         Plaintiffs Boltex Manufacturing Company, LP and Weldbend Corporation (hereinafter referred to respectively as "Boltex" and "Weldbend" or collectively as "Plaintiffs") have filed a Motion for Summary Judgment (Doc. Nos. 97 [redacted version]; 98 [sealed version]; 106 [corrected redacted version]). Defendants Ulma Forja S. Coop, and Ulma Piping USA Corp. (hereinafter referred to as "Ulma" or "Defendants") have filed a Response (Doc. No. 110). Plaintiffs subsequently filed a Reply in support (Doc. Nos. 128 [redacted version]; 129 [sealed version]).[1]

         I. Factual Background

         This dispute arises between carbon steel flange manufacturers. A flange is a "disc collar or ring that attaches to a pipe, providing a method of connecting pipes, valves, pumps and other equipment to form a piping system." (Doc. No. 1 at 4). Flanges are formed from steel forgings. Rough forgings must be heat treated, machined, and finished in order to become a flange. Weldbend buys forgings from domestic and foreign suppliers and manufactures the forgings into flanges in its Illinois facility. (Doc. No. 98 at 3). Boltex makes most of its own forgings domestically and performs its heat treating in one of its two plants located in Houston. (Id. at 4). In its second Houston plant, Boltex machines, finishes, and warehouses its flanges. (Id.). Defendants produce their flanges in Spain.

         Plaintiffs and Defendants sell their flanges to distributors who in turn sell the flanges to customers. Some of these distributors include: DNOW, L.P., Industrial Valco, and Wolseley Industrial Group/Ferguson.[2] Defendants allege that Plaintiffs falsely advertise their product and falsely designate their products' origin in violation of § 43(a) of the Lanham Act, codified at 15 U.S.C. § 1125(a).[3] Specifically, Defendants contend that Boltex and Weldbend falsely stamp or otherwise advertise that their flanges are "Made in the USA" or "American Made" when at least some of the steel in the flanges is internationally sourced. (Doc. Nos. 68 at 16; 98 at 4, 9). Similarly, Defendants allege that Weldbend's packaging contains pictures of Uncle Sam and the American flag and that its social media accounts display representations such as, "This product [sic] Made in the USA with USA Steel." (Id. at 18). Defendants also allege that Weldbend falsely advertises that its goods are made with "unquestionable traceablility." (Doc. No. 68 at 30). After Plaintiffs initiated this suit, alleging that Defendants violated the Lanham Act as well as common laws against unfair competition, Defendants countersued based upon the representations cited above.

         II. Standards of Review

         A. Summary Judgment

         Summary judgment is warranted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). "The movant bears the burden of identifying those portions of the record it believes demonstrate the absence of a genuine issue of material fact." Triple Tee Golf, Inc. v. Nike, Inc., 485 F.3d 253, 261 (5th Cir. 2007) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-25 (1986)). Once a movant submits a properly supported motion, the burden shifts to the non-movant to show that the Court should not grant the motion. Celotex, 477 U.S. at 321-25.

         The non-movant then must provide specific facts showing that there is a genuine dispute. Id. at 324; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). A dispute about a material fact is genuine if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The Court must draw all reasonable inferences in the light most favorable to the nonmoving party in deciding a summary judgment motion. Id. at 255. The key question on summary judgment is whether a hypothetical, reasonable factfinder could find in favor of the nonmoving party. Id. at 248.

         B. False Advertisement Under the Lanham Act

         "The Lanham Act was enacted to protect persons engaged in such commerce against unfair competition." Seven-Up Co. v. Coca-Cola Co., 86 F.3d 1379, 1382-84 (5th Cir. 1996) (internal quotation marks omitted). To state a prima facie case of false advertising, a plaintiff must establish: (1) a false or misleading statement of fact about a product; (2) such a statement either deceived, or had the capacity to deceive, a substantial segment of potential customers; (3) the deception is material, in that it is likely to influence the consumer's purchasing decision; (4) the product is in interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the statement at issue. Derrick Petrol. Servs. v. PLS, Inc., Civil Action No. H-14-1520, 2017 WL 3456920, at *5 (S.D. Tex. Aug. 11, 2017). "The failure to prove the existence of any element of the prima facie case is fatal to the plaintiffs claim." Pizza Hut, Inc. v. Papa John's Int 7, Inc., 227 F.3d 489, 495 (5th Cir. 2000).

         "To obtain money damages for false advertising under § 43(a) of the Lanham Act, the plaintiff must first demonstrate that the advertisement was (1) literally false; or (2) likely to mislead and confuse customers." IQ Prods. Co. v. PennzoilProds. Co., 305 F.3d 368, 375 (5th Cir. 2002). "For a statement to be literally false, the statement must be 'false on its face.'" Derrick, 2017 WL 3456920, at *5. "If the statement at issue is shown to be literally false, the court must assume that it actually misled consumers, without requiring any evidence of such deception from the plaintiff." IQ Prods., 305 F.3d at 375; see also Pizza Hut, 227 F.3d at 497 ("[P]laintiff need not introduce evidence on the issue of the impact the statements had on customers."). On the other hand, "if the statement is ... misleading or ambiguous ... the plaintiff must demonstrate actual deception." IQ Prods., 305 F.3d at 375. "The statements at issue must be a specific and measurable claim, capable of being proved false or being reasonably interpreted as a statement of objective fact." Pizza Hut, 227 F.3d at 496 (internal quotation omitted).

         III. Analysis

         Before turning to its analysis, the Court would like to point out Defendants' troubling way of responding to Plaintiffs' Motion for Summary Judgment: Defendants chose to lump both Plaintiffs together for a majority of its arguments, occasionally providing argument and evidence against Weldbend separately, but rarely providing argument or evidence against Boltex. This made it difficult for the Court to discern which evidence applied to which Plaintiff.

         That having been said, Defendants make false advertisement claims against both Boltex and Weldbend, arguing that Plaintiffs' representations on or accompanying their products- "Made in the USA" or "American Made"-are literally false. Defendants also claim that both Plaintiffs' use of American iconography confuses consumers into believing that all of Plaintiffs' products are made in the U.S. using only U.S. sourced materials. Defendants make additional false advertisement claims against Weldbend, contending that Weldbend's representations that its products are "unquestionably traceable" are literally false or likely misleading. Finally, Defendants make claims against both Plaintiffs, stating that Plaintiffs' representations violate common law rules against unfair competition. Below, the Court discusses each of these in turn.

         A. False Advertisement & False Designation of Origin Claims - Made in the USA & American Made

         Plaintiffs urge the Court to grant summary judgment in their favor on Defendants' Lanham Act counterclaims. First, Plaintiffs argue that their representations that their products are "Made in the USA," "American Made," or "domestically manufactured" are literally true, and that Defendants lack evidence to the contrary. (Doc. No. 98 at 2). Second, Plaintiffs dispute whether a genuine issue of material fact remains as to whether the representations are misleading or had the capacity to mislead consumers. (Id. at 3). Third, Plaintiffs argue that Defendants have no evidence of materiality. (Id. at 18). Last, Plaintiffs allege that Defendants have no evidence that any of the alleged statements at issue caused harm to Defendants. (Id.).[4]

         In support of their arguments, Defendants provide the Federal Trade Commission's Enforcement Policy Statement on U.S. Origin Claims, which they claim enumerates the standards by which the Court should judge the falsity of Plaintiffs' claims. (Doc. No. 110 at 9). In Greater Houston Transp. Co. v. Uber Techs., Inc., the plaintiff sued the defendant for false advertisement under the Lanham Act for, among other things, advertising its service as "ridesharing." 2015 WL 1034254, at *12 (S.D. Tex. Mar. 10, 2015). Plaintiff proffered the definition of "ridesharing" as defined by the Houston Code of Ordinances. Id. The court dismissed this argument stating, "[a] claim based on Plaintiffs' interpretation of [the Houston Code of Ordinances] provision would amount to [an] attempt to enforce a local ordinance." Id. (citing Dial A Car, Inc. v. Transp., Inc., 82 F.3d 484 (D.C. Cir. 1996)). Similarly, here, it seems that Defendants are attempting to enforce the Federal Trade Commission standards using a Lanham Act claim.

         While this Court appreciates Defendants' attempt to provide it with a standard by which to judge the alleged falsity of Plaintiffs' statements, Defendants do not cite controlling case law indicating that the Fifth Circuit has applied the Federal Trade Commission's standards to Lanham Act cases, and the Court could find none in its own search. In fact, courts actually "caution against blur [ring] the distinctions between the FTC and a Lanham Act [claim]" because a Lanham Act claimant must show that the disputed advertisements "are literally false or misleading to the public, not merely that the advertisements violate FTC guidelines." Millennium Imp. Co. v. Sidney Frank Imp. Co., Inc., No. Civ. 03-5145 JRT/FLN, 2004 WL 1447915, at *6 (D. Minn. June 11, 2004) (first citing Surdyk's Liquor, Inc. v. MGM Liquor Stores, Inc., 83 F.Supp.2d 1016, 1022 n.2 (D. Minn. 2000); then citing B. Sanfield, Inc. v. Finlay Fine Jewelry Corp., 168 F.3d 967, 972 n.3 (7th Cir. 1999)).

         1. Literally False

         Defendants argue that Plaintiffs' representations that their products were "Made in the USA" or "American Made" are literally false. Defendants argue that Plaintiffs misrepresent their products in two ways: (1) Plaintiffs misrepresent that their flanges are "Made in the USA" when they are in fact made with imported steel and (2) Plaintiffs' overall advertisement scheme implies that all of their flanges are "Made in the USA," when in fact some are made using imported steel. Below, the Court separately analyzes the summary judgment evidence against Boltex and the summary judgment evidence against Weldbend on each of these points.

         The Court finds that Defendants have not demonstrated that a genuine issue of material fact remains regarding whether Boltex's statements were literally false. That is, Defendants have not demonstrated a fact issue as to whether Boltex stamps or advertises flanges made with imported steel as "Made in the USA." In fact, Defendants provide no evidence in support of these claims. To the contrary, Boltex provides evidence in the form of deposition testimony from Boltex representative, Franco Geremia, who avers that Boltex "verifies the particular mill number belonging to that particular flange, and based on the source of the steel," will mark the flange "Made in the USA." (Doc. No. 98 at 7); (Geremia Depo. Doc. No. 110, Ex. 21 at 116) (stating that Boltex maintains "100 percent traceability of the product[s]" from start to finish). Thus, while Boltex does not dispute that it manufactures some flanges with internationally sourced steel billets, it provides evidence that it does not mark these flanges "Made in the USA." (Doc. No. 98 at 6).

         In a further attempt to prove their counterclaims, Defendants provide interrogatory answers, their expert's report, and lists of materials which Boltex imported during the time period in question. This evidence, such as it is, is insufficient to raise a fact issue. While the evidence demonstrates that Boltex imported steel, it does not demonstrate that this imported steel was used in flanges marked as "Made in the USA." Indeed, Plaintiffs provide evidence that: "[Boltex] only mark[s] 'Made in USA' on flanges that have been produced from domestic steel, forged here, heat treated here and finished here," and that Boltex flanges "will say 'Made in USA' if the raw material was produced or made in the USA-melted in the USA." (F. Bernobich Depo. Doc. No. 103, Ex. 7 at 117); (Geremia Depo. Doc. No. 103, Ex. 11 at 145). Defendants have failed to produce evidence demonstrating a fact issue as to these representations.

         Similarly, Defendants have failed to provide evidence of an "overall [Boltex] advertising scheme" in which Boltex represents that all of its flanges are made in the United States.

         Defendants have, however, adduced evidence demonstrating a genuine issue of material fact as to the falsity of Weldbend's representations. Weldbend and Defendants both point to an advertisement in which the following statement is made:

Our American Made line uses only top-quality steel from U.S. mills, forged into fittings and flanges at Weldbend's own plant in Argo, Illinois.

(Doc. No. 110, Ex. 7 at 10) (emphasis added). The parties' arguments focus solely on the phrase "American Made," but the inquiry is not necessarily so limited. The Court must also analyze the context in which the representation at issue appears. See Pizza Hut, 227 F.3d at 501-02 (holding that "Papa John's has given definition to the word 'better'" by placing the word in the context of ads comparing its own sauce and dough to a competitor's).[5] While the parties argue whether "American Made" is an ambiguous phrase, the Court finds that it is not ambiguous because, like Papa John's, Weldbend has "given definition" to the phrase "American Made" by placing the phrase in the above quoted sentence which specifically seeks to define the term.

         Defendants argue that the statement in this advertisement is literally false because, while Weldbend executive James Coulas avers that Weldbend flanges that are described as "American Made" may use steel from a U.S. mill or from an offshore mill, the advertisement clearly states that flanges described as "American Made" use only steel from U.S. mills. (J. Coulas Depo. Doc. No. 103, Ex. 8 at 69-70) (Doc. No. 110, Ex. 7 at 10). The Court agrees that Weldbend's conflicting statements raise a genuine issue of material fact. Additionally, while Weldbend clearly represents in this advertisement that these flanges are "forged" at Weldbend's Illinois plant, Coulas admits in his deposition that Weldbend does not forge any of its own fittings or flanges. (J. Coulas Depo. Doc. No. 103, Ex. 8 at 71). Thus, Defendants have demonstrated that a genuine issue of material fact remains concerning the literal falsity of Weldbend's representations that its American Made line uses "only" U.S. sourced steel and that it forges its own flanges.

         2. Likely to Mislead

         The Court will now analyze whether Boltex or Weldbend made representations that were misleading to consumers or that had the capacity to mislead consumers. See Pizza Hut, 227 F.3d at 503 (finding that where a claimant fails to provide evidence that the representation is literally false, it must submit evidence that the statement was, at the very least, misleading or had the capacity to mislead consumers). First, although the Court has found that there is no genuine issue of material fact as to the literal falsity of Boltex's representations, it must still determine whether a fact issue remains as to whether its representations are likely to mislead consumers. Additionally, since the evidentiary burden changes based on the literal falsity of the statements at issue, the Court will also perform the likely-to-mislead analysis for Weldbend's alleged misrepresentations in order to address Defendants' alternative claims.[6]

         Defendants argue that summary judgment is improper because a fact issue remains "as to whether [Plaintiffs'] use of unqualified and express U.S. origin claims, American iconography, and other statements leave a false and misleading impression that all of their products are manufactured in the U.S. with U.S.-sourced steel." (Doc. No. 110 at 13). In support of its claims against both Plaintiffs, Defendants provide testimony from Plaintiffs' customers and screenshots of certain social media posts. In support of its claims against Weldbend, Defendants provide emails between Weldbend and its customers. The Court will look at each of these in turn.

         First, Defendants argue that both Plaintiffs' representations are misleading because Plaintiffs' customers have varying interpretations of the phrases "Made in the USA" or "American Made" (among others). (Id. at 16). In support, Defendants provide deposition testimony from corporate representatives at DNOW, Ferguson, and Valco, ...


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