Antitrust Law Daily Wrap Up, ADVERTISING—W.D. Pa.: Carpet-cleaning company allegedly offered false testimony to eliminate competing business, (May 28, 2014)

By Greg Hammond, J.D.

A Pennsylvania carpet-cleaning company faces allegations that it engaged in false advertising under the Lanham Act and common law unfair competition. In reaching its decision to deny the company’s motion to dismiss its competitor’s Lanham Act and unfair competition claims, the federal district court in Pittsburgh determined that the competitor sufficiently alleged that the carpet-cleaning company received a preliminary injunction through false testimony and misrepresentations, and that it forwarded the preliminary injunction order to its customers and third party businesses (Peek v Whittaker, May 22, 2014, Hornak, M).

Background. R.E. Whittaker Company (Whittaker Co.) is a business in Pennsylvania that sells commercial carpet-cleaning machines and fluids. Similarly, Clear Floor Care, LLC (Clear Floor), a company that was organized and is owned by Paul Offut, a former Whittaker Co. employee, and Stephen Peek, was also established to sell commercial carpet-cleaning machines and fluids. However, prior to forming Clear Floor, Mr. Offutt also discussed the idea of establishing a competing company to Whittaker Co. with another previously terminated employee, Paul Stephenson.

Prior litigation. Whittaker Co. filed two suits against Peek, Offut, Stephenson, and Clear Floor, alleging they stole trade secret information from Whittaker Co. to start a competing business and for violations of previous employment agreements. In addition, Whittaker Co. was granted a preliminary injunction against Clear Floor, Peek, Offut, and Stephenson, after Whittaker Co. presented allegedly false evidence that Stephenson stole a confidential customer list and note pads containing trade secret information, and that Peek and Offut were attempting to use trade secret chemical formulas from Whittaker Co.’s carpet-cleaning fluids. However, the state court later granted summary judgment in favor of Clear Floor, Peek, Offut, and Stephenson, finding that there was no evidence that any of them received Whittaker Co.’s customer data; that Stephenson’s note pads contained any trade secret information; or that Whittaker’s Co.’s cleaning fluid was a trade secret.

Consequently, Peek, Offut, and Clear Floor filed suit in the district court, alleging Whittaker Co.: (1) violated the Lanham Act for false advertising; (2) violated the Dragonetti Act for starting civil proceedings without have a proper purpose or probable cause; (3) violating the Pennsylvania Uniform Trade Secrets Act (PUTSA) for filing a bad faith trade secret misappropriation action for an improper purpose; and (4) engaged in unfair competition, abuse of process, and fraud.

Lanham act and unfair competition. Peek, Offut, and Clear Floor alleged that Whittaker Co. violated section 1125(a) of the Lanham Act by sending copies of the state court’s preliminary injunction to Whittaker Co.’s customers and to third party businesses. Specifically, it was alleged that because the preliminary injunction was based on knowingly false evidence and testimony, Whittaker Co. distributed false and misleading information into commerce regarding Clear Floor’s commercial activities and dealings. The court determined that, although this was not a textbook Lanham Act false advertising cause of action, Clear Floor plausibly stated a claim for the kind of unfair trade practice contemplated by the statute. Consequently, it denied the Lanham Act count of Whittaker Co.’s motion to dismiss. Because section 1125(a) of the Lanham Act is nearly analogous to the Third Restatement’s definition of deceptive marketing, the court also concluded that Clear Floor stated a plausible claim for unfair competition. Thus, it denied Whittaker Co.’s motion to dismiss that count of Clear Floor’s complaint.

Remaining claims. Clear Floor’s remaining claims were partially denied and partially granted. Specifically, the court granted Whittaker Co.’s motion to dismiss with regard to the Dragonetti Act claim against Mr. Offutt, as Whittaker Co.’s state breach of contract claim was not grossly negligent or lacking in probable cause. However, the motion to dismiss the Dragonetti claim with regard to Clear Floor and Peek was denied, as they stated a plausible basis for a violation of the statute. In addition, the district court found that Clear Floor stated a sufficient claim for abuse of process, as Clear Floor properly alleged that Whittaker Co. received its preliminary injunction with knowingly false evidence, for the purpose of obstructing Clear Floor’s ability to compete in the industry, and causing harm to Clear Floor’s, Offutt’s, and Peek’s reputation and future business prospects. However, the court granted Whittaker Co.’s motion to dismiss Clear Floor’s claim for fraud, as Clear Floor failed to allege it received Whittaker Co.’s misrepresentation and that it reasonably relied on that misrepresentation.

The case number is 2:13-cv-01188.

Attorneys: Stanley M. Stein (Stanley M. Stein, PC) for Stephen M. Peek, Paul C. Offutt, and Clear Floor Care, LLC. Michael K. Parrish, John J. Richardson, and Matthew Fergus (Goehring, Rutter & Boehm) for Thomas Whittaker and R.E. Whittaker Company.

Companies: Clear Floor Care, LLC; R.E. Whittaker Company

Cases: Advertising StateUnfairTradePractices PennsylvaniaNews