Unpublished Disposition, 914 F.2d 261 (9th Cir. 1990)

No. 89-55440.

United States Court of Appeals, Ninth Circuit.

Before JAMES R. BROWNING and PREGERSON, Circuit Judges, and MACBRIDE, District Judge^* 

MEMORANDUM^** 

Alflex Corporation (Alflex) appeals summary judgment for Underwriters Laboratories (UL) on all of Alflex's claims. We affirm.

BACKGROUND

Alflex manufactures flexible aluminum conduit, a building material designed to hold and protect electrical wiring. Because of its flexibility and durability, the product can be used in coils and quickly installed by pulling it through and around obstructions. Alflex's flexible aluminum conduit is UL-approved.

UL is a nonprofit testing and certification organization that assesses products for possible hazards to life and property. UL lists certified products in directories which are consulted and relied upon by consumers and by state and municipal electrical inspectors.

In its assessment and testing procedures, UL customarily refers to the National Electrical Code (NEC) to design performance standards for the products submitted to it. The NEC is sponsored as a model code by the National Fire Protection Association (NFPA) and has been widely adopted by states and municipalities.

The controversy in this case concerns UL's testing and certification of a flexible plastic conduit manufactured by Carlon, an Alflex competitor. Carlon's product is capable of being used like the Alflex product in some applications. Although the plastic product can be used like the aluminum product, UL certified the plastic material without requiring it to meet the same performance standards as the aluminum conduit. In UL's judgment, this was not necessary, because the two products would not be listed under the same section of the NEC nor approved entirely for the same uses. UL argues that it properly certified the flexible plastic conduit in accordance with an article of the NEC covering pliable plastic conduit, rather than flexible metal conduit. UL contends that it has met its obligations to Alflex and has acted within its rights to determine which products merit certification.

Alflex asserts, however, that UL's listing of Carlon's product and the application of the UL label to Carlon's product constitute a false representation and description. Alflex contends that the UL listing has an established meaning that the product is covered by the NEC, that established standards for comparable products have been applied, and that under those established standards, the product is safe. Alflex contends that Carlon's product was not covered by the NEC and that it was not required to meet the same safety requirements as Alflex's flexible aluminum conduit. Thus, Alflex asserts that UL's listing of Carlon's product is a false representation that results in a competitive injury to Alflex.

The district court granted summary judgment for UL on all of Alflex's claims, consisting of: 1) violation of 15 U.S.C. § 1125(a) (false representation under the Lanham Act); 2) breach of contract under California law; 3) breach of the covenant of good faith and fair dealing under California law; 4) negligence under California law; 5) unfair competition under Cal.Bus. & Prof.Code Sec. 17200; 6) false advertising under Cal.Bus. & Prof.Code Sec. 17500; 7) failure of UL to control its mark, giving Alflex a right to have the mark canceled under 15 U.S.C. § 1064(e) (1) (Lanham Act, Sec. 14). Alflex appeals.

STANDARD OF REVIEW

A grant of summary judgment is reviewed de novo. Kruso v. International Telephone & Telegraph Corp., 872 F.2d 1416, 1421 (9th Cir. 1989), cert. denied, 58 U.S.L.W. 3801 (1990); State Farm Fire and Casualty Co. v. Martin, 872 F.2d 319, 320 (9th Cir. 1989). Our review is governed by the same standard used by the trial court under Fed. R. Civ. P. 56(c). Darring v. Kincheloe, 783 F.2d 874, 876 (9th Cir. 1986). We must determine, viewing the evidence in the light most favorable to the nonmoving party, whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. Tzung v. State Farm Fire and Casualty Co., 873 F.2d 1338, 1339-40 (9th Cir. 1989); Judie v. Hamilton, 872 F.2d 919, 920 (9th Cir. 1989).

DISCUSSION

I. Violation of Section 43(a) of the Lanham Act

As stated above, Alflex argues that UL's listing of Carlon's product created a false representation that Carlon's product is covered by the NEC and that it met the same performance requirements as Alflex's product. Alflex asserts that this listing constitutes actionable "false representation" under section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a).¹ 

The District Court granted UL's motion for summary judgment. It found that since "UL is not a competitor [of Alflex] and does not engage in activities designed to give it an unfair advantage vis-a-vis a competitor, Section 43(a) does not reach UL's listing of the Carlon product."

We agree with the district court. In Halicki v. United Artists Communications, Inc., 812 F.2d 1213 (9th Cir. 1987), we recently limited the scope of actionable conduct under the Lanham Act. There, the plaintiff, a movie producer, contended that the defendants, several movie theater owners, wrongly attached an "R" rating to plaintiff's "PG" movie, thereby adversely affecting plaintiff's profits. We affirmed summary judgment against the plaintiff stating: "The statute is directed against unfair competition. To be actionable, conduct must not only be unfair but must in some discernable way be competitive." Id. at 1214. See also Lamothe v. Atlantic Recording Corp., 847 F.2d 1403 (9th Cir. 1988) (quoting Halicki for the proposition that actionable conduct must be competitive)

Here, UL's conduct is not competitive. UL is a non-profit organization set up to promulgate safety requirements for thousands of electrical products. UL is not in competition with Alflex. Under Halicki, UL's conduct in listing Carlon's product was not competitive and, therefore, not actionable under the Lanham Act. Thus, summary judgment was proper on the Lanham Act claim.

Alflex argues that its Listing Agreement with UL has an implied term obliging UL to list and certify only products meeting appropriate requirements. Alflex contends that the Agreement's references to "listing requirements" imply that the requirements for the evaluated product are the same as the requirements for other products used in the same manner. Alflex believes that UL breached the implied term of its agreement by listing Carlon's product, which is used for some of the same purposes as Alflex's product, but was not required to meet the same safety standards. Alflex contends that it was denied the opportunity to present extrinsic evidence of applicable industry custom and practice to demonstrate what the parties intended with respect to listing requirements. It therefore insists that summary judgment was improper, because the intent of the parties concerning one of the contract's key terms is a genuine issue of material fact. We disagree.

The district court correctly found the Listing Agreement was "not reasonably susceptible to the additional terms proposed by Alflex."

Alflex relies on Midwest Television, Inc. v. Scott, Lancaster, Mills & Atha, Inc., 205 Cal. App. 3d 442, 252 Cal. Rptr. 573, 579 (1988). In Midwest the court stated that industry custom and practice evidence is admissible to supply a missing term or aid in interpreting ambiguous contract terms, but may not "alter or vary the terms of the contract." 205 Cal. App. at 451, 252 Cal. Rptr. at 579. Here, however, Alflex does not contend that the terms of the listing agreement are ambiguous in any respect, rather, it seeks to imply a new term controlling UL's listing of other manufacturer's products.

The Listing Agreement between Alflex and UL outlines each party's rights and obligations with respect to UL listing Alflex's products. The contract's references to listing requirements do not suggest in any way that UL's obligations to Alflex are conditioned by its relationship with third parties. As stated above, Alflex is seeking to use custom and practice evidence to imply a term that would control UL's listing of other manufacturer's products. We agree with the district court that " [i]mplied in fact contract terms cannot be used to so radically alter and expand the underlying agreement." Summary judgment was appropriate on Alflex's claim of breach of implied contractual term.

III. Breach of Implied-in-Law Covenant of Good Faith and Fair Dealing

Alflex asserts that UL breached an implied covenant of good faith and fair dealing in the listing agreement between Alflex and UL by denying Alflex the benefits it reasonably expected from the agreement. Alflex expected that, by obtaining UL certification, it would gain access to a market restricted to competitors with products that comply with UL's standards for flexible metal conduit. Alflex contends that UL's certification of Carlon's product constitutes breach of the covenant because it forces Alflex to compete against a UL-certified manufacturer that has not met the standard for flexible metal conduit.

"Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement." (Rest.2d Contracts, Sec. 205). The obligation imposed is that neither party "do anything to injure the right of [the other party] to receive the benefits of the agreement." Ohashi v. Verit Industries, 536 F.2d 849, 853 (9th Cir.), cert. denied, 429 U.S. 1004 (1976). However, this implied covenant may not be used to vary or modify the express terms of an unambiguous contract, Ford v. Manufacturer's Hanover Mortgage Corp., 831 F.2d 1520, 1524 (9th Cir. 1987), but rather "is read into contracts in order to protect the express covenants or promises of the contract." (emphasis added). Foley v. Interactive Data Corp., 47 Cal. 3d 654, 690, 765 P.2d 373, 394, 254 Cal. Rptr. 211, 232 (1988).

The district court correctly held that the Listing agreement was unambiguous in its purpose to set forth the terms and conditions governing the Listing of Alflex's products. There is no provision in the contract that addresses any product other than the product submitted by Alflex and there is no term allowing Alflex to question or challenge the Listing of any third party's products. Thus, Alflex was not attempting to use the covenant to protect the express terms of the contract but rather to imply new terms to control UL's Listing of other manufacturer's products. Because the implied covenant is not relevant here, summary judgment was proper.

Alflex argues that UL breached a duty of care owed to Alflex by improperly certifying flexible plastic conduit and proximately causing damage to Alflex in the form of unfair competition and lost sales.

For support Alflex relies on J'aire Corp. v. Gregory, 24 Cal. 3d 799, 598 P.2d 60, 157 Cal. Rptr. 407 (1979). Alflex believes that the application of the six factor analysis set forth in J'aire establishes a duty of care for UL to protect Alflex from competition arising from UL's alleged failure to exercise due care in Listing Carlon's product. The six factors are: 1) the extent to which the transaction was intended to affect the plaintiff; 2) the foreseeability of harm to the plaintiff; 3) the degree of certainty that the plaintiff suffered injury; 4) the closeness of the connection between the defendant's conduct and the injury suffered, 5) the moral blame attached to defendant's conduct; and 6) the policy of preventing future harm. J'aire, 24 Cal. 3d at 804, 598 P.2d at 63, 157 Cal. Rptr. at 410.

Although it may have been foreseeable that listing Carlon's product might increase competition in the conduit market, our analysis of all these factors compels us to conclude that the district court properly granted summary judgment for UL on this claim. First, Alflex showed no evidence that UL intended to affect Alflex by listing flexible plastic conduit. UL's purpose is to provide products with safety certification, not to regulate competition between manufacturers of electrical conduits. Additionally, while Alflex alleged $100,000,000 in damages, it has shown no evidence of its purported lost market share or lost profits, thus it is clearly not "certain" that Alflex has suffered injury. Furthermore, Alflex has presented no convincing evidence that UL's conduct was morally blameworthy or that creating such a duty would prevent future harm. In fact, the district court perceptively noted that creating a duty could potentially cause future harm:

To impose a duty on UL would mean that every time that UL listed a new product, it would be subject to suit. This would impair the ability of UL to test new products and changing technology in an impartial manner, unbiased by the fear of lawsuits by disgruntled competitors.

Therefore, summary judgment was properly granted.

Alflex contends that UL engaged in unfair business practices under section 17200 and false advertising under section 17500 of the California Business and Professional Code.²  Alflex contends that UL was unfair in its business practice by applying less stringent standards for certification of flexible plastic conduit, creating undue competitive hardship for Alflex. Further, Alflex contends, UL's certification, when attached to Carlon's product, created a false or misleading impression among consumers.

The district court properly held that under Blatty v. New York Times Company, 42, Cal.3d 1033, 728 P.2d 1177, 232 Cal. Rptr. 542 (1986), cert. denied, 485 U.S. 934 (1988), Alflex's claims under sections 17200 and 17500 should be dismissed.

In Blatty, the California Supreme Court held that where "the alleged injurious falsehood of a statement is the gravamen of the plaintiff's claim ... the statement ... must be 'of and concerning' the plaintiff in some way." Id. at 547. Based on this holding the Court affirmed the dismissal of Blatty's claims under Cal.Bus. & Prof.Code Secs. 17200 and 17500. Id. at 552.

We find Blatty controlling in this case because the holding was based on the California Supreme Court's interpretation of article I, section 2, of the California Constitution.³ 

Here, Alflex does not dispute that the gravamen of its unfair competition and unfair business practice claims is the alleged injurious falsehood implied in the UL Listing of Carlon's product. And, we agree with the district court that UL's "speech is not 'of and concerning' Alflex." Thus, we hold that the district court's grant of summary judgment on these claims was appropriate.

VI. Cancellation of Mark under Sec. 14(e) of the Lanham Act

Alflex seeks to cancel registration of UL's certification mark under 15 U.S.C. § 1064(e) (1) (1982)⁴  on the grounds that UL has failed to control the mark. However, we agree with the district court that Alflex produced insufficient evidence of UL's failure to control its mark to warrant cancellation.

AFFIRMED.