Antitrust Law Daily Wrap Up, ADVERTISING—S.D. N.Y.: False advertising claims by importer against Burlington Coat Factory fail, (Aug 18, 2014)

By Linda O’Brien, J.D., LL.M.

In an action by a dry home goods importer and one of its executives against Burlington Coat Factory, the federal district court in New York City dismissed claims by the executive for false advertising and deceptive business practices for the alleged sale of bed sheets that did not conform to label specifications with respect to thread count and fiber (Beautiful Home Textiles (USA), Inc. v. Burlington Coat Factory Warehouse Corporation, August 15, 2014, Schofield, L.).

Beautiful Home Textiles (BHT) is an importer and reseller of dry home goods that are manufactured by an affiliated company in China. In 2012, BHT entered into an agreement with Burlington Coat Factory, an off-price apparel and home product retailer, to do business. The agreement contained a provision that the vendor warranted, among other items, that the merchandise ordered would be properly marked as to weight, measure, and contents. Burlington issued various purchase orders under which BHT agreed to sell approximately 73,000 units of bed sheets. The purchase orders specified that the sheets be 100 percent cotton and contain a certain thread count.

After Burlington received notification that labels of certain BHT bed sheets were inaccurate, Burlington sent samples of sheets for testing. The testing determined that the sheets contained a lower threat count than indicated on the label and were made from a different fiber. Burlington, after notifying BHT that the merchandise delivered was a breach of contract, cancelled delivery of units not yet delivered and partially paid for any sold units. Alan Wang, a BHT executive, purchased a set of sheets at a Burlington retail store in California. He claimed that the sheets were sent for testing and did not conform to the specifications on the label. BHT and Wang filed suit against Burlington. BHT asserted claims for breach of contract, among other claims. Wang alleged claims for false advertising under the Lanham Act and Magnuson-Moss Warranty Act, and deceptive business practices under the New York General Business Law. Burlington filed counterclaims for breach of contract and moved for summary judgment on the plaintiffs’ claims.

False advertising. The court found that Wang lacked standing to bring a claim under the Lanham Act. Standing under the Lanham Act requires the potential for a commercial or competitive injury. In rejecting Wang’s argument that there was a commercial injury was the risk of diminution of his salary as an executive of BHT, the court noted that Wang purchased the sheets and brought the claim as an individual consumer and not as a commercial party. Wang’s claim under the New York General Business Law was also facially defective, the court noted. Section 350 of the statute prohibits false advertising in the conduct of any business, trade, or commerce or furnishing of any service within the state and it was undisputed that Wang purchased the sheets at issue in California.

Wang’s false advertising claim under the Magnuson-Moss Warranty Act also failed as a matter of law. The Magnuson-Moss Warranty Act applies to breach of warranties and not to false advertising claims, the court noted.

Deceptive business practices. Burlington was entitled to summary judgment on Wang’s deceptive business practices claims. New York General Business Law Section 349 prohibits deceptive acts or practices in the conduct of any business, trade or commerce or furnishing of any service within the state. Since the statute applies only to commercial misconduct occurring within New York and the transaction at issue occurred in California, the court concluded that the claim failed.

The case is No. 13 Civ. 1725.

Attorneys: Richard Pu (Richard Pu, PC) for Beautiful Home Textiles USA, Inc. Harlan Mitchell Lazarus (Lazarus & Lazarus, PC) for Burlington Coat Factory Warehouse Corporation.

Companies: Beautiful Home Textiles USA, Inc.; Burlington Coat Factory Warehouse Corporation

Cases: Advertising StateUnfairTradePractices NewYorkNews