United States District Court, S.D. Texas, Houston Division
MEMORANDUM & ORDER
S. Hanen United States District Judge
Ulma Forja S. Coop, and Ulma Piping USA Corp. (hereinafter
collectively referred to as "Ulma" or
"Defendants") have filed a Motion for Summary
Judgment (Doc. No. 92). Plaintiffs Boltex Manufacturing
Company, LP and Weldbend Corporation (hereinafter
collectively referred to as "Boltex" or
"Plaintiffs") have filed a Response (Doc. No. 114).
Defendants subsequently filed a reply (Doc. No. 127).
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). Plaintiffs allege that Defendants falsely advertise
their product in violation of § 43(a) of the Lanham Act,
codified at 15 U.S.C. § 1125(a). Specifically, Plaintiffs
contend that Defendants misrepresent that they
"normalize" their flanges.
is a heat treatment process that changes some of the
properties of steel to give it a "more fine-grained
homogenous micro structure and more predictable properties
and machinability." (Id. at 8). In other words,
normalization makes the steel more durable. The process
involves reheating the steel, holding it at that temperature,
and subsequently cooling it at room temperature, and
consequently, involves additional time and resources.
Accordingly, it is more expensive for manufacturers to
produce normalized flanges than unnormalized ones.
American Society of Testing and Materials ("ASTM")
has a published set of standards and specifications
applicable to carbon steel flanges to ensure uniformity in
the industry. Some customers will only purchase certain
flanges if they are normalized according to industry
normalization processes comply with the ASTM standards, which
require manufacturers to apply the heat treatment described
above to certain types of flanges. Plaintiffs stamp
normalized flanges with the code "A105N" to
indicate their compliance with the ASTM standards. The
"N" represents "normalization."
Plaintiffs charge more for these normalized flanges.
Plaintiffs also indicate normalization in a Mill Test Report
("MTR"), an industry-standard report, which
Plaintiffs liken to a birth certificate for a flange because
it indicates certain specifications about the flange.
(Id. at 7). Plaintiffs point out that customers
cannot simply look at a flange to determine whether it has
been normalized; rather, customers rely on the manufacturers
to let them know whether a flange has been normalized or not.
(Doc. No. 1 at 6, 7).
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. Plaintiffs claim that Defendants
misrepresent the normalization-status of their flanges
"in the catalogs, brochures, price lists and websites of
third-party distributors of Ulma flanges," "in the
MTRs that accompany each flange," and "by stamping
A105N" on each flange. (Doc. No. 1 at 11-13).
Specifically, Plaintiffs state:
Defendants advertise and promote the flanges as ASTM
"A105N" indicating that the flanges (a) meet all
the requirements of ASTM A105 and (b) are normalized.
Defendants' purported ASTM "A105N" compliant
flanges are advertised, among other places, in catalogs
Defendants distribute to their customers and potential
customers and make publicly available via their website . .
.[and] in the catalogs, brochures, price lists and websites
of third-party distributors of Ulma flanges . . . Defendants
further promote their flanges as normalized and as compliant
with the requirements of ASTM A105 in the MTRs that accompany
each flange . . . Defendants further advertise and promote
their flanges as normalized and complying with ASTM A105 by
stamping "A105N" on the flanges themselves.
(Doc. No. 1 at 11-13). According to Plaintiffs, Defendants
flanges do not comply with ASTM standards for normalization.
Plaintiffs further contend that since non-normalized flanges
can be manufactured and sold at a lower cost, Defendants'
misrepresentations allow them to unfairly undercut
Plaintiffs' prices and interfere with Plaintiffs'
market share. Plaintiffs have sued Defendants for false
advertising and unfair competition in violation of the Lanham
Act as well as common law unfair competition.
Standards of Review
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
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.
False Advertisement Under the Lanham Act
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'l, Inc., 227 F.3d 489, 495 (5th Cir. 2000).
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.
Pennzoil Prods. 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."). However, "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
Seven-Up, the Fifth Circuit held that in order to be
actionable, the alleged misrepresentations must be within the
meaning of "commercial advertising or promotion under
the [Lanham] Act." Seven-Up, 86 F.3d at 1382-83. The
Lanham Act does not explicitly define "advertising or
promotion." Thus, the Circuit adopted the following
In order for representations to constitute "commercial
advertising or promotion" under Section 43(a)(1)(B),
they must be: (1) commercial speech; (2) by a defendant who
is in commercial competition with plaintiff; (3) for the
purpose of influencing consumers to buy defendant's goods
or services. While the representations need not be made in a
"classical advertising campaign," but may consist
instead of more informal types of "promotion," the
representations (4) must be disseminated sufficiently to the
relevant purchasing public to constitute
"advertising" or "promotion" within that
Id. at 1384 (holding that the requisite level of
circulation and consumption may "vary according to the
specifics of the industry").
initial matter, Defendants argue that Plaintiffs lack Article
III and prudential standing because Plaintiffs have not
proven that Plaintiffs and Defendants are competitors, nor
have they proven causation. (Doc. No. 92 at 33).
III of the United States Constitution requires that parties
seeking to resolve disputes before a federal court present
actual cases or controversies. U.S. Const, art. Ill. §
2, cl. 1. This requirement limits "the business of
federal courts to questions presented in an adversary context
and in a form historically viewed as capable of resolution
through the judicial process." Flast v. Cohen,
392 U.S. 83, 95 (1968). Plaintiff, as the party invoking the
Court's jurisdiction, bears the burden of satisfying the
Article III requirement by demonstrating that it has standing
to adjudicate its claims in federal court. See Lujan v.
Defenders of Wildlife, 504 U.S. 555, 561 (1992). The
"irreducible constitutional minimum of standing contains
three elements." Id. at 560. First, a plaintiff
must demonstrate that they have "suffered a concrete and
particularized injury that is either actual or
imminent." Massachusetts v. E.P.A., 549 U.S.
497, 517 (2007). Second, a plaintiff must show that there is
a causal connection between the alleged injury and the
complained-of conduct-essentially, that "the injury is
fairly traceable to the defendant." Id.
Finally, standing requires that it "be likely, as
opposed to merely speculative, that the injury will be
redressed by a favorable decision." Lujan, 504 U.S. at
560 (internal quotation marks omitted).
addition to the constitutional requirements for standing,
"the federal judiciary has also adhered to a set of
'prudential' principles that bear on the question of
standing." Valley Forge Christian Coll. v. Americans
United for Separation of Church & State, Inc., 454
U.S. 464, 474 (1982). Many opinions refer to these principles
as being under the banner of "prudential" standing.
See, e.g., Bennett v. Spear, 520 U.S. 154, 164
Lexmark Int'l, Inc. v. Static Control Components,
Inc., 572 U.S. 118 (2014), the Supreme Court laid out a
two-part test for prudential under the Lanham Act. "To
invoke the Lanham Act's cause of action for false
advertising, a plaintiff must plead (and ultimately prove) an
injury to a commercial interest in sales or business
reputation proximately caused by the defendant's
misrepresentations." Id. at 140. The Court held
that "a direct application of the zone-of-interest test
and the proximate-cause requirement supplies the relevant
limits on who may sue." Id. at 134.
first part of this test concerns "the question whether
the interest sought to be protected by the complainant is
arguably within the zone of interests to be protected or
regulated by the statute or constitutional guarantee in
question." Ass 'n of Data Processing Serv.
Orgs., Inc. v. Camp, 397 U.S. 150, 153 (1970). Relying
on the text of the Lanham Act, the Supreme Court concluded
that "to come within the zone of interests in a suit for
false advertising under § 1125(a), a plaintiff must
allege an injury to a commercial interest in reputation or
sales." Lexmark, 572 U.S. at 131.
second part of this test requires that injuries be
proximately caused by violations of the statute. The question
presented in a proximate cause analysis "is whether the
harm alleged has a sufficiently close connection to the
conduct the statute prohibits." Id. at 1390. A
plaintiff "must assert his own legal rights and
interests, and cannot rest his claim to relief on the legal
rights or interests of third parties." Valley Forge, 454
U.S. at 474 (quoting Warth v. Seldin, 422 U.S. 490,
499 (1975)). Since "the Lanham Act authorizes suit only
for commercial injuries, the intervening step of consumer
deception is not fatal to the showing of proximate causation
required by the statute." Lexmark, 572 U.S. at 133.
Therefore a "plaintiff suing under § 1125(a)
ordinarily must show economic or reputational injury flowing
directly from the deception wrought by the defendant's
advertising; and that that occurs when deception of consumers
causes them to withhold trade from the plaintiff."
Id. at 133. "Although the classic false
advertising case involves a party inducing customers to
switch from a competitor by making false statements about its
or the competitor's goods, this is not the only
cognizable injury under Section 1125(a)." Greater
Houston Tramp. Co. v. Uber Tech., Inc., No.
4:14-0941, 2015 WL 1034254, at *7 (S.D. Tex. Mar. 10,
2015) (citing Lexmark, 572 U.S. at 137). Indeed, it is
"a mistake to infer that because the Lanham Act treats
false advertising as a form of unfair competition, it can
protect only the false-advertiser's direct
competitors." Lexmark, 572 U.S. at 136.
argue that Plaintiffs do not have standing because they lack
evidence as to whether: (a) Plaintiffs and Defendants are
competitors, and (b) the alleged deception was the proximate
cause of Plaintiffs' purported losses. With regard to
Defendants' proximate cause argument, Defendants claim
that there are meaningful differences in the prices between
the flanges (beyond normalization), and that Plaintiffs
failed to demonstrate that Boltex has the capacity to
normalize their own flanges.
have demonstrated that they have suffered or are imminently
threatened with a concrete and particularized injury that is
fairly traceable to the challenged action. See Lujan, 504
U.S. at 560. Plaintiffs have provided evidence in the form of
deposition testimony that Ulma's purported
misrepresentations directly affect the market in which the
Plaintiffs participate and that customers compare Ulma and
Boltex prices. (Weldbend Rep. James Coulas Depo. Doc. No.
121, Ex. 7 at 179-80; Varner Depo. Doc. No. 122, Ex. 17 at
153). Plaintiffs have also demonstrated that "the[ir]
injury is fairly traceable to the defendant." Lujan, 504
U.S. at 560. Plaintiffs provide evidence in the form of
deposition testimony, which states that had Ulma not
advertised their flanges as normalized, "a portion of
[the market] definitely would have come to Boltex."
(Bernobich Depo. Doc. No. 122, Ex. 4 at 201). Finally,
Plaintiffs have shown their injury could be redressed by a
favorable decision. See Lujan, 504 U.S. at 560. Plaintiffs
have provided a damages model as evidence of their purported
losses. (See Doc. No. 122, Ex. 5). This is sufficient to
enable a reasonable factfinder to find that Plaintiffs have
standing under Article III. See Lujan, 504 U.S. at 560-61.
also have prudential standing under the Lanham Act.
Defendants argue that because Boltex is a domestic
manufacturer and Ulma is a foreign manufacturer, the two
companies are not competitors. As such, they argue,
Plaintiffs are outside of the zone-of-interest. According to
Defendants, customers usually choose either a foreign or
domestic brand of flange and stick to it. Plaintiffs'
evidence refutes this argument. Plaintiffs provide deposition
testimony from Defendants' expert, Thomas Varner, who
stated that "there are certain segments in which [Boltex
and Ulma] compete." (Varner Depo. Doc. No. 122, Ex. 17
at 153-54, 260). Plaintiffs also provide deposition testimony
from Weldbend Representative James Coulas, agreeing that
Weldbend and Ulma compete in the marketplace for carbon steel
flanges and that "all domestic [flange] manufacturers
compete with all imported [flange] manufacturers"
because they all "sell the same products." (Coulas
Depo. Doc. No. 121, Ex. 7 at 179-80). Thus, Plaintiffs have
demonstrated that a genuine issue of material fact remains
concerning whether Boltex and Ulma are competitors. As
competitors, Plaintiffs would fall squarely within the
zone-of-interest described by the Court in Lexmark. See
Lexmark, 572 U.S. at 136.
Plaintiffs have also demonstrated that a fact issue remains
regarding whether the alleged harm was caused by a violation
of the Lanham Act. As described above, Plaintiffs present
evidence that they lost sales based on Ulma's allegedly
false statements about whether their flanges were normalized
because non-normalized flanges cost less to manufacture and
can be offered at a lower price to customers. This is the
type of harm contemplated by the Lanham Act. See Lexmark, 572
U.S. at 133. Thus, the ...