Power Cell LLC v. Springs Window Fashions, LLC, No. 1:2017cv04382 - Document 55 (N.D. Ill. 2018)

Court Description: MEMORANDUM Opinion and Order: For the reasons stated herein, SWF's Partial Motion to Dismiss [ECF No. 5] is denied. ENTER MEMORANDUM Opinion and Order Signed by the Honorable Harry D. Leinenweber on 4/23/2018:Mailed notice(maf)

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Power Cell LLC v. Springs Window Fashions, LLC Doc. 55 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION POWER CELL LLC d/b/a ZEUS BATTERY PRODUCTS, Plaintiff, Case No. v. 17 C 4382 Judge Harry D. Leinenweber SPINGS WINDOW FASHIONS, LLC, Defendant. MEMORANDUM OPINION AND ORDER Before the Court is Defendant’s Partial Motion to Dismiss Counts I, II, and III pursuant to FED. R. CIV. P. 12(b)(6) [ECF No. 5]. For the reasons stated herein, the Motion is denied. I. BACKGROUND The following facts derive from Plaintiff’s Complaint and are, for purposes of this Motion, accepted as true with all inferences drawn in Plaintiff’s favor. See, Adams v. City of Indianapolis, 742 F.3d 720, 728 (7th Cir. 2015). This case concerns a product recall involving the parties’ respective products. Power Cell LLC d/b/a/ Zeus Battery Products (“Zeus”) sells a range of battery products, including the AA battery at issue in this suit (the “Subject Battery”). (Compl. ¶ 6, Ex. A to Dkt. 1.) (“SWF”) sells window shades and Spring Window Fashions, LLC coverings in various retail Dockets.Justia.com stores across the country. (Id. ¶ 7.) 2015, SWF ordered approximately one Starting in the fall of hundred thousand Subject Batteries from Zeus to power its motorized window shades (the “SWF Product”). (Id. ¶¶ 18-23.) Beginning in June 2016, various customers began reporting problems with the SWF Product. (Id. ¶¶ 26-35.) complained that the batteries and/or battery The reports casing burst, caught fire, or melted the surrounding material (hereinafter the “Incidents”). (Id.) Zeus alleges these Incidents were caused by a design defect in the SWF Product; namely, that SWF’s product design allowed Batteries, a for improper condition known polarity. (Id. ¶¶ 37-38.) installation in the of industry the as Subject reverse- Reverse-polarity greatly increases the risk of batteries overheating. (Id.) In light of this risk, manufacturers typically design products to be inoperable if the batteries are installed in the reverse-polarity position. (Id.) According to Zeus, SWF did not heed this known, industry-wide advice, resulting in a design flaw in the SWF Product—the reverse-polarity condition—that directly caused the Incidents. (Id.) Due to the Incidents, SWF initiated a product recall (the “Recall”) in conjunction Commission. (Id. ¶ 48.) with the Consumer Product Safety SWF recalled the SWF Products that were - 2 - sold with the approximately Subject November Batteries 11, from 2016. December (Id.) SWF 14, 2015 to published an Important Safety Notice and a Recall Alert regarding the Recall (the Recall Notices). (Id. ¶¶ 48-49, 53-54.) The Recall Notices are at the heart of this suit. Zeus alleges that the Recall Notices are false and misleading because they blame the Incidents on Zeus’s Subject Battery rather than the design flaw in SWF’s Product. (Id. ¶¶ 50-53.) that the absence ongoing of a publication retraction) of the continue Recall to count Complaint for declaratory Notices harm reputation in the industry. (Id. ¶¶ 68-70.) Zeus alleges and (and the injure its Zeus brings a four- judgment related to: indemnification (Count I); violations of the Illinois Uniform Deceptive (Count Trade II); Practices violations of Act (the the “UDTPA”), Illinois 815 Consumer ILCS Fraud 510/2 and Deceptive Business Practices Act, 815 ILCS 505/2 (Count III); and breach of contract (Count IV). SWF moves to dismiss the two statutory claims and the declaratory judgment claim (Counts I – III). The Court will address these three claims below, but out of turn. - 3 - II. ANALYSIS A. Zeus States a Claim under Illinois’s Uniform Deceptive Trade Practices Act SWF argues that two things are fatal to Zeus’s UDTPA claims: First, the alleged misrepresentations are either true or mere opinion and thus not actionable, and second, Zeus cannot allege a threat of future harm. 1. SWF argues Alleged Misrepresentations that Zeus’s UDTPA claim fails because alleged misrepresentations are not false or misleading. the The UDTPA states in pertinent part: A person engages in a deceptive trade practice when, in the course of his or her business, vocation, or occupation, the person [. . .] (8) disparages the goods, services, or business of another by false or misleading representation of fact. 815 ILCS 510/2(a)(8). that the that defendant disparaged services. published the for injunctive untrue plaintiff’s or misleading quality of its statements goods or Kole v. Village of Norridge, 941 F. Supp. 2d 933, 963 (N.D. Ill. 2013). action In other words, the plaintiff must allege “The [UDTPA] does not provide a cause of damages, relief and but has it does permit generally been private held to suits apply for to situations where one competitor is harmed or may be harmed by - 4 - the unfair trade practices of another.” Airlines, 563 N.E.2d (citation omitted). 1031, 1036-37 Essentially, Greenberg v. United (Ill. the App. statute common-law tort of commercial disparagement. Ct. codifies 1990) the Republic Tobacco, L.P. v. N. Atl. Trading Co., 254 F. Supp. 2d 985, 997-98 (N.D. Ill. 2002). The legal standard is not at issue here. Both parties agree that false or misleading statements are actionable and truthful or opinion statements are not. The question is in what camp do the Recall Notices fall. Two types of false statements can violate the UDTPA: “(1) commercial claims that are literally false as a factual matter; or (2) claims that may be literally true or ambiguous, but which implicitly convey a false impression, are misleading in context, or likely to deceive consumers.” Right Field Rooftops, LLC v. Chi. Cubs Baseball Club, LLC, 136 F. Supp. 3d 911, 918 (N.D. Ill. 2015) (quoting Hot Wax, Inc. v. Turtle Wax, Inc., 191 F.3d 813, 820 (7th Cir. 1999)), aff’d, 870 F.3d 682 (7th Cir. 2017). Zeus alleges that the statements in the Recall Notices are false and misleading because the subject batteries are safe and did not cause the incidents; rather, the poor design of SWF’s product did. Specifically, Zeus statements were false and/or misleading: - 5 - alleges the following We are writing to inform you about a safety concern regarding the Zeus brand AA lithium batteries. . . . There have been isolated instances with this brand of batteries overheating. Because our number one priority is customer safety, we have completely removed these batteries from our supply chain and have also issues a voluntary recall. . . . Based on this potential safety concern, we are instructing you to immediately remove and dispose of the original Zeus brand batteries. Hazard: The lithium batteries sold with certain motorized window blinds can overheat, leak or discharge, posing a fire or burn hazard. . . . Consumers should immediately remove the batteries from the window blinds. (Important Safety Notice, Feb. 24, 2017, Dkt. 1-1; Recall Alert, Mar. 2017, Dkt. 1-1 (the “Recall Notices”).) Taking all of Zeus’s allegations as true, the Court assumes the SWF Product’s reverse-polarity backdrop, the design Court caused finds the the Incidents. allegations Against plausibly that state a claim that the Recall Notices contain false and/or misleading statements by implying that the batteries caused the Incidents and/or constitute a safety hazard. absence of a blatant falsehood Although SWF points to the in the Recall Notices, a statement may constitute a “misleading representation of fact” without containing an overt falsehood. See, 815 ILCS 510/2; Unique Concepts, Inc. v. Manuel, 669 F. Supp. 185, 191 (N.D. Ill. 1987) (“[Actionable] statements . . . need not actually have been false, but only misleading.”). The Recall Notices plausibly create the impression that the Subject Batteries are - 6 - defective serious and risk may of overheat fire. or explode Although the with an Recall attendant Notices do and not directly state the cause of the malfunction, a lay reader could reasonably conclude Incidents. See, id.; see also Aliano v. WhistlePig, LLC, No. 14 C 10148, (denying 2015 WL that the 2399354, dismissal where at Subject *7 parties Batteries (N.D. Ill. disputed May whether caused 18, the 2015) statements were misleading in context). The case SWF relies on, QVC, Inc. v. MJC America, Ltd., is distinguishable. No. 08 CV 3830, 2011 U.S. Dist. LEXIS 78063, at *1-2 (E.D. Pa. July 18), reconsideration granted in part on other grounds, No. 08 CV 3830, 2011 U.S. Dist. LEXIS 95640 (E.D. Pa. Aug. 24, 2011). In QVC, a distributor brought a claim for commercial disparagement against a retailer. The retailer had issued a voluntary recall of the distributor’s space heaters after several reports of the space heaters emitting smoke, overheating, and/or catching fire. Id. at *2. The district court granted the commercial retailer’s disparagement motion claim, for summary finding judgment that the on the distributor failed to establish that the statements in the recall notices were false. Id. at *16-18. First, QVC involves a common law commercial disparagement, not UDTPA, claim. Second, there were no allegations in QVC that the recall notices blamed the product - 7 - malfunctions on the wrong company or product, as here. the QVC court found that the recall notices As such, could construed as false when read as a whole. Id. at *16. opposite is true. not be Here, the When the Recall Notices are read in context, they plausibly could create the impression that the recall was caused by the Subject Batteries. World Kitchen is analogous. In World Kitchen, LLC v. America Ceramic Soc., No. 12 CV 8626, 2013 WL 5346424 (N.D. Ill. Sept. 19, 2013), the plaintiff alleged trade disparagement based on the allegedly false and misleading publication of an article titled “Shattering Glass Cookware” that stated that Pyrex is more likely to shatter than kitchen use. Id. at *1-2. other glassware during regular The district court denied defendants’ motion to dismiss, emphasizing that the plaintiff alleged false and misleading shatter which statements was of sufficient stage. Id. at *10-11. fact to about pass Pyrex’s muster at tendency the to pleading Here, Zeus similarly alleged that the Recall Notices contain false and misleading statements of fact regarding the cause of the Incidents. 67, 73.) Given the (Compl. ¶¶ 50, 53, 63-65, motion-to-dismiss standard and World Kitchen, the Complaint supports a reasonable inference that the Recall Notices were false and/or misleading by causing a reasonable consumer to think that Zeus’s Subject Batteries were - 8 - responsible for the Incidents, rather than SWF’s alleged design flaw. See, id.; World Kitchen, 2013 WL 5346424, at *4-5. At this stage, the pleading is sufficient. 2. Future Harm Next, SWF argues that Zeus still fails to state a claim under the UDTPA because it failed to allege a threat of future harm. “To be eligible for injunctive relief under the Deceptive Practices Act, a plaintiff must show that the defendant’s conduct will likely cause it to suffer damages in the future.” Kensington’s Wine Auctioneers & Brokers, Inc. v. John Hart Fine Wine, Ltd., 909 N.E.2d 848, 857 (Ill. App. 1st Dist. 2009). SWF relies proposition that on a when line a of consumer cases that is already stand for aware the of the misleading nature of an advertisement or a defect in a product, the consumer can avoid all future harm by refusing to purchase the product again. See, e.g., Reid v. Unilever U.S., Inc., 964 F. Supp. 2d 893, 918 (N.D. Ill. 2013) (“[Consumer plaintiff] has already made her purchase and is aware of the alleged defect in the Hair Treatment that poses a risk of hair loss. Armed with that knowledge, she can avoid using the Hair Treatment in the future.”). However, the same logic does not apply here. Zeus cannot avoid the continuing harm to its reputation by refusing to do business with SWF. See, Unichem Corp. v. Gurtler, 498 - 9 - N.E.2d 724, 730 (Ill. App. Ct. 1986) (noting distinction between consumer “unlike action the suffered versus customers and will competitor in action [consumer suffer future and actions],” economic finding that plaintiff “has injury” unless defendant is enjoined); accord, Brennan v. AT & T Corp., No. 04 CV 433, 2006 WL 306755, at *5 (S.D. Ill. Feb. 8, 2006) (denying dismissal of UDTPA claim where plaintiff could not avoid future harm even with knowledge of the problem). Zeus alleged: “Without a full retraction of the foregoing false, misleading and otherwise disparaging statements, Zeus will continue to suffer damage to its brand and lose business and profits as long as its products and name are tarnished.” pleading stage, this is sufficient. (Compl. ¶ 69.) At the Cf. Am. Hosp. Supply Corp. v. Hosp. Prod. Ltd., 780 F.2d 589, 595 (7th Cir. 1986) (noting that a mailed statement may continue to impair goodwill unless retracted); Logan Graphic Prod., Inc. v. Textus USA, Inc., No. 02 C 1823, 2002 WL 31507174, at *5 (N.D. Ill. Nov. 8, 2002) (finding a valid UDTPA claim in action between competitors where defendant made plaintiff’s statements products to were retailers and “knock-offs” distributers and inferior that in production and operation). None of the authority cited by SWF leads to a different result. Consumer actions are not analogous to the case at bar - 10 - for the reasons discussed above. See, Kljajich v. Whirlpool Corp., No. 15 C 5980, 2015 U.S. Dist. LEXIS 165885 (N.D. Ill. Dec. 10, 2015) (consumer suit); Lake v. Unilever U.S., Inc., 964 F. Supp. 2d 893 (N.D. Ill. 2013) (same); Robinson v. Toyota Motor Credit Corp., 735 N.E.2d 724 (Ill. App. Ct. 2000) (same), rev’d in part, aff’d in part, 775 N.E.2d 951266 (Ill. 2002); Smith v. Prime Cable, 658 N.E.2d 1325 (Ill. App. Ct. 1995) (same); Greenberg v. United Airlines, 563 N.E.2d 1031 (Ill. App. Ct. 1990) (same). The other two cases cited by SWF—Tarin and American Pet Models—concern whether the plaintiff demonstrated sufficient evidence of future harm, not whether the plaintiff adequately pled as much. See, Tarin v. Pellonari, 625 N.E.2d 739, 747 (Ill. App. Ct. 1993) (appeal after bench trial); Am. Pet Motels, Inc. v. Chicago Veterinary Med. Ass’n, 435 N.E.2d 1297, 1302 (Ill. App. Ct. 1982) (appeal after summary judgment), abrogated on other grounds by Kuwik v. Starmark Star Mktg. & Admin., Inc., 619 N.E.2d 129 (Ill. 1993). Zeus alleges the publication and continued validity of the Recall Notices to its customers and the public at large continue to cause damage. This is sufficient at the pleading stage. Accordingly, the Court denies SWF’s Motion to Dismiss the UDTPA claim. - 11 - B. Zeus States a Claim under the Illinois Consumer Fraud Act SWF moves to dismiss Count III alleging that SWF violated the Illinois Consumer Fraud and Deceptive Business Practices Act (the “Consumer Fraud Act”). First, SWF repeats its argument that Zeus only alleges true or mere opinion statements; this argument was rejected above and need not be addressed again. Next, SWF argues that Zeus fails to allege it relied on the misrepresentations. The Court now turns to this argument. The Consumer Fraud Act prohibits, in relevant part, “unfair or deceptive acts or practices . . . in the conduct of any trade or commerce.” 815 ILCS 505/2. To plead a cause of action under the plaintiff Consumer Fraud Act, a must allege: “(1) a deceptive act or practice by the defendant; (2) the defendant intended that the plaintiff rely on the deception; (3) the deceptive act occurred in a course of conduct involving trade or commerce; and (4) actual damage to proximately caused by the deceptive act.” the plaintiff; (5) Phila. Indem. Ins. Co. v. Chi. Title Ins. Co., 771 F.3d 391, 402 (7th Cir. 2014) (quoting De Bouse v. Bayer AG, 922 N.E.2d 309, 313 (Ill. 2009)). SWF argues that Zeus fails to allege the second element—that Zeus relied on the misrepresentations—because alleging consumers relied on the misrepresentations is insufficient. - 12 - that SWF is incorrect. under the Consumer The elements required to establish fraud Fraud Act are less stringent than elements necessary to establish common-law fraud. Id. the Zeus is not required to allege it relied on SWF’s misrepresentations; rather, Zeus must plead only that SWF intended consumers to rely on those misrepresentations. See, Gold v. Golden G.T., LLC, No. 05 C 288, 2005 WL 2465815, at *4 (N.D. Ill. Oct. 4, 2005) (collecting cases); Pain Prevention Lab, Inc. v. Elec. Waveform Labs, Inc., 657 F. Supp. 1486, 1493 (N.D. Ill. 1987) (finding defendant’s alleged misrepresentations “in the marketplace and to actual and/or prospective customers” sufficient to state a CFA claim). Zeus alleged: “SWF engaged in deceptive acts and practices . . . by making false and misleading representations of fact . . . to the public as a whole. taken with the intent to disparage Zeus, SWF’s actions were its products and services . . . and to fool the public into believing that SWF’s own products alleged that are SWF safe.” (Compl. directed the ¶ 73.) Additionally, dissemination of the Zeus Recall Notices, which contained “false and misleading information,” to “retailers and consumers.” (Id. ¶ 54.) state a claim. This is sufficient to SWF’s Motion to Dismiss Count III is denied. - 13 - C. Declaratory Judgment (Count I) Finally, SWF argues inappropriate here because that the declaratory conduct compensatory damages are adequate. already judgment is occurred and The Complaint requests a declaratory judgment declaring: (1) “the Subject Battery is a safe product and was not the cause of the incidents that led to the Recall,” (2) “the SWF Product contains serious defects and poses an unreasonable risk of harm to consumers and that the warnings provided by SWF to consumers regarding the SWF Product are insufficient and inadequate,” and (3) “SWF is not entitled to be defended and/or indemnified by Zeus in connection with any and all costs or expenses incurred in the Recall.” (Compl. at 13.) The Declaratory Judgment Act provides that in a “case of actual controversy within its jurisdiction” a federal court may “declare the rights and other legal relations” of a party. 28 U.S.C. § 2201. The “actual controversy” provision of the Declaratory Judgment Act incorporates the “case or controversy” requirement of Article III of the Constitution. art. III, § 2, cl. 1. the efficient U.S. Const. The Declaratory Judgment Act allows for resolution of disputes adjudication of the rights of the parties. through an early Med. Assur. Co. v. Hellman, 610 F.3d 371, 377 (7th Cir. 2010) (citations omitted). - 14 - “Essentially, two related but distinct fact situations are contemplated: (1) The controversy has ripened to a point where one of the parties could invoke a coercive remedy (i.e., a suit for damages or an injunction) but has not done so; and (2) although the controversy is real and immediate, it has not ripened to such a point, and it would be unfair or inefficient to require the parties to wait for a decision.” Tempco Elec. Heater Corp. v. Omega Eng’g, Inc., 819 F.2d 746, 749 (7th Cir. 1987). This suit falls among the former. Zeus requests a declaration that SWF is not entitled to indemnification for the costs of the Recall. The Complaint alleges an actual controversy in that SWF has demanded indemnification and Zeus refuses that converse demand. ruling indemnification. point. (Compl. in In ¶ its doing 59.) Indeed, counterclaim so, SWF SWF for practically seeks the contractual concedes the Cf. Med. Assur. Co. v. Hellman, 610 F.3d 371, 377 (7th Cir. 2010) (citing 10B Wright & Miller, Fed. Prac. & Proc. § 2751 (3d ed. 1998) (“The remedy made available by the Declaratory Judgment Act . . . relieves potential defendants from the Damoclean threat of impending litigation which a harassing adversary might brandish, while initiating suit at his leisure—or never.”). Thus, an actual controversy exists between - 15 - the parties regarding indemnification, declaratory judgment is appropriate. and resolution via SWF’s Motion to Dismiss the declaratory judgment claim is denied. However, Zeus requests several declarations in its prayer for relief to Count I that are inappropriate. Specifically, it requests that this Court declare that “the Subject Battery is a safe product” and that “the SWF Product contains serious defects and poses an unreasonable risk of harm.” (Compl. at 13.) Whether a product is generally “safe” is the prerogative of the U.S. Consumer Product Safety Commission. This Court may determine the cause of the Incidents that led to the Recall if that factual determination is required to resolve the dispute between the parties, but it will not make general proclamations beyond what is required; the Court does not decide factual questions on a whim. The declaratory judgment count stands, but Zeus on cannot proceed the safety-declaration discussed. - 16 - theories just III. For the reasons CONCLUSION stated herein, SWF’s Partial Motion Dismiss [ECF No. 5] is denied. IT IS SO ORDERED. Harry D. Leinenweber, Judge United States District Court Dated: 4/23/2018 - 17 - to

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