ISK Biocides, Inc. v. Pallet Mach. Grp.

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ISK BIOCIDES, INC., Plaintiff, v. PALLET MACHINERY GROUP INC. & J&G MANUFACTURING LLC, Defendants.

Civil Action No. 3:21-cv-386

United States District Court, E.D. Virginia, Richmond Division

January 12, 2022

OPINION

John A. Gibney, Jr., Senior United States District Judge.

The plaintiff ISK Biocides, Inc. (“ISK”), and the defendants Pallet Machinery Group Inc. (“PMG”) and J&G Manufacturing LLC (“J&G”) manufacture and sell wood protection products. ISK, a competitor of PMG and J&G (collectively, “the defendants”), accuses the defendants of making false representations about WoodLock Bio-Shield Mold Inhibitor, the defendants line of wood protection products. Specifically ISK alleges that the defendants have misrepresented the safety, environmental impact, and regulatory status of WoodLock Bio-Shield products in violation of the Lanham Act, 15 U.S.C. §§ 1051-1 Mln, which protects businesses against unfair competition (Counts I-III), the Virginia Consumer Protection Act (“VCPA”), Va. Code §§ 59.1-196 through 59.1-207 (Count IV), and Virginia common law (Count V).

The defendants move to dismiss ISK's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). (ECF No. 17.) The Court will grant in part and deny in part this motion. Because ISK sufficiently alleges that it has suffered an injury caused by material, false statements the defendants either made or caused each other to make in publicly disseminated advertisements, the Court will deny the motion as to ISK's false advertising claim (Count I) and contributory false advertising claim (Count II). The Court will also deny the motion as to ISK's false association^[1]claim (Count III); the defendants' advertisements falsely indicated authorization and approval by the United States Environmental Protection Agency (“EPA”). Finally, the Court will dismiss both of ISK's state law claims (Counts IV & V) because ISK lacks standing to sue under the VCPA, and Virginia common law does not protect against false advertising.

I. FACTS ALLEGED IN THE COMPLAINT

Wood pallets “are widely used throughout” our country's supply chain. (ECF No. 1 ¶ 12.) Without adequate protection, these pallets risk growing mold, mildew, and fungus, jeopardizing the materials that the pallets transport and posing health risks to those handling the pallets. To prevent this sort of growth, many who use pallets treat them with chemicals called fungicides.

The defendants market, promote, distribute, and sell these sorts of fungicides. J&G manufactures the WoodLock Bio-Shield products that PMG sells. WoodLock Bio-Shield products include Bio-Shield I, Bio-Shield II, and Bio-Shield H.^[2]

Both the United States Food & Drug Administration (“FDA”) and the EPA regulate fungicides applied to wood pallets. The FDA regulates the fungicides “[b]ecause wood pallets are also used for transportation of food products.” (ECF No. 1 ¶ 24.)

The EPA, however, assumes the bulk of the regulatory duties of this area through its administration of the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”). FIFRA requires that before selling or distributing any fungicide, the “fungicide[] must be registered by [the] EPA, which requires submission of an application and approval by [the] EPA.” (Id. ¶ 19); 7 U.S.C. §§ 136, 136a (explaining that a fungicide qualifies as a pesticide, which FIFRA defines as “any substance . . . intended for preventing, destroying, repelling, or mitigating any pest, ” including fungus). The EPA maintains a list of all approved pesticides.

WoodLock Bio-Shield I includes one hazardous ingredient: 3-iodo-2-propyl-butyl carbamate (“IPBC”).^[3] (ECF No. 1-2.) Even at a concentration of 0.5%, IPBC “has been found to have certain adverse effects” on humans, “including irritation, sensitivity, and toxicity to various systems.” (ECF No. 1 ¶ 44.) Thus, the EPA advises that those who handle products containing IPBC wear personal protective equipment such as “long-sleeve shirt[s] and long pants, chemical-resistant gloves, [and] shoes plus socks.” (Id. ¶ 49 (quoting EPA R.E.D. Facts: IPBC, https://www3 .epa.gov/pesticides/chemsearch/regactions/reregistration/fsPC-1078014-Mar-99.pdf) (last visited on Dec. 21, 2021).) In addition, IPBC “is not listed on EPA's Safer Chemical Ingredients List, ” a list “of chemical ingredients” that the EPA “has evaluated and determined to be safer than traditional chemical ingredients.” (Id. ¶¶ 51-52.)

WoodLock Bio-Shield II and WoodLock Bio-Shield H contain a different hazardous ingredient: 2-octyle-4-isothiazoline-3-one (“OIT”).^[4] (ECF Nos. 1-3; 1-4.) OIT “has [also] been found to have certain adverse effects” on humans. (ECF No. 1 ¶ 65.) For instance, OIT “is harmful if swallowed, toxic in contact with skin, causes severe skin bums and eye damage, may cause allergic skin reactions, and is toxic if inhaled.” (Id.) As a result, people handling products containing OIT should wear gloves, safety goggles, a face shield, and body protection. (Id. ¶ 66 (citing Octhilinone, PubChem: Nat'l Libr. of Med., https://pubchem.ncbi.nlm.nih.gov/compound/33528 (last visited on Dec. 20, 2021)). Although OIT makes it on the Safer Chemical Ingredients List, the EPA notes that OIT “is not associated with a low level of hazard concern for all human health and environmental endpoints.” (Id. ¶¶ 76-77.)

Finally, none of the WoodLock Bio-Shield products are registered as pesticides with the EPA.

The defendants advertise WoodLock Bio-Shield products through “numerous channels, ” including PMG's website and Facebook page as well as various industry publications. (Id. ¶ 79.) These advertisements “inform[] customers to request a[n] [SDS]” for WoodLock Bio-Shield products. (Id. ¶ 83; see ECF Nos. 1-2; 1-3; 1-4.) J&G prepares the SDSs. The plaintiff challenges various advertisements, including:

A, PMG's Website

1. “WoodLock Bio-Shield is the Safest Product on the market. It has no caustic properties. This means everything from your tank to your nailing equipment is safe from harmful corrosion. There are no known health hazards which keeps your operators in good health and minimizes injuries.” (ECF Nos. 1 ¶ 95; 1-6.)

B. PMG's Facebook Page

2. “WoodLock Bio-Shield ‘is a proven EPA registered product.'” (ECF Nos. 1 ¶ 119; 1-1.) C. Advertisement in an Industry Publication

Pallet Central Magazine:^[5]

3. “WoodLock Bio-Shield Mold Inhibitor is safe for employees and machinery.” (ECF Nos. 1 ¶ 156; 1-10.)

E. The SDSsfor WoodLock Bio-Shield Products

The SDSs for Bio-Shield I, II, and H:

4. No personal protection or exposure controls are required. (ECF Nos. 1 ¶¶ 163, 171, 178; 1-2; 1-3; 1-4.)

According to ISK, these “false and misleading representations about WoodLock BioShield and its safety, environmental impact, and regulatory status” will cause consumers to “purchase WoodLock Bio-Shield instead of ISK's pallet treatment products.” (ECF No. 1 ¶ 187.)

IL DISCUSSION^[6]

The defendants move to dismiss all five counts of ISK's complaint: the three Lanham Act claims for false advertising (Count I), contributory false advertising (Count II), and false association (Count III), and the two state law claims for violating the VCPA (Count IV) and Virginia common law (Count V).

A. Lanham Act (Counts I-III)

The Lanham Act governs trademarks, service marks, and unfair competition. See 15 U.S.C. §§ 1051-1141n. “[U]nfair competition under the Lanham Act is a category of claims” created by 15 U.S.C. § 1125(a). Sussman-Automatic Corp. v. Spa World Corp., 15 F.Supp.3d 258, 272 (E.D.N.Y. 2014). Section 1125(a) provides:

(1) 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-

(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or (B) 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.

“Section 1125(a) thus creates two distinct bases of liability: false association, § 1125(a)(1)(A), and false advertising, § 1125(a)(1)(B).” Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 122(2014).

ISK brings three claims under the Lanham Act, citing 15 U.S.C. § 1125(a) for each: false advertising (Count I), contributory false advertising (Count II), and false association (Count III).^[7]

I. False Advertising

To allege a false advertising claim, the plaintiff must show 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 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.

Verisign, Inc. v. XYZ.COM LLC, 848 F.3d 292, 298-99 (4th Cir. 2017) (quoting Design Res., Inc. v. Leather Indus, of Am., 789 F.3d 495, 501 (4th...