Bernstein Shur Business and Commercial Litigation Newsletter #64

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August 2016 | Issue 64

Our August recap highlights cases concerning Lanham Act claims for conduct outside the United States, the dismissal of a class-action targeting Starbucks, employer liability for retaliatory intent of low-level employees, and other news that will have an impact on business and litigation.

The Ninth Circuit revives Trader Joe’s lawsuit against Pirate Joe’s.

The popular grocery chain Trader Joe’s will be able to pursue trademark infringement and other claims under the Lanham Act against Michael Hallatt after the Ninth Circuit reversed a federal district court’s dismissal of those claims. According to Trader Joe’s, Hallatt buys goods from Trader Joe’s stores in the United States and resells those goods at marked-up prices in Canada at his store, “Pirate Joe’s”, which is designed to resemble a Trader Joe’s store. At the trial court level, the district court ruled that it did not have subject-matter jurisdiction over the Lanham Act claims because Trader Joe’s did not sufficiently allege that Hallatt’s activity affected United States commerce. The Ninth Circuit held that the extraterritorial reach of the Lanham Act was a merits question and not jurisdictional. On the merits, the court held that the Lanham Act applied extraterritorially because Hallatt’s conduct could result in reputational harm and decreased value of Trader Joe’s trademarks in the United States.

A federal judge ices class action against Starbucks over drink volume.

A federal court dismissed a class-action lawsuit against Starbucks alleging that it shortchanged customers by putting too much ice in its cold beverages. According to the complaint, a cold drink that Starbucks advertised as being 24 fluid ounces only contained 14 ounces of beverage, with the rest of the volume taken up by ice. Dismissing the complaint, Judge Percy Anderson of the United States District Court of the Central District of California concluded that no reasonable consumer would be confused by Starbucks’ advertising. Judge Anderson noted that even children would expect to receive ice in a cold drink, and, lest there be any doubt, that Starbucks’ cold drink cups are clear, allowing consumers to see the ice in the drinks.

The Second Circuit Court of Appeals holds that employers may be liable when they are tricked by employees into firing a co-worker.

Andrea Vasquez, an emergency medical technician employed by Empress Ambulance Service (“Empress”), received unsolicited sexual photographs from a co-worker and complained about the conduct to her supervisor. Empress promised to investigate, but before the investigation was complete, the co-worker discovered the complaint and presented false documents to Empress purporting to show Vasquez’s consent to and solicitation of a sexual relationship. Empress, relying on those documents and refusing to consider evidence to the contrary offered by Vasquez, immediately fired Vasquez on the ground that she had engaged in sexual harassment. Vasquez brought suit alleging wrongful retaliation for her complaint of sexual harassment. A New York federal district court dismissed the Complaint, finding that Empress could not be held responsible for the retaliatory animus of Vasquez’s co-worker, a low-level employee with no decision-making authority. The Second Circuit reversed, finding that even a low-level employee’s retaliatory intent may be imputed to an employer where the employer’s own negligence gives effect to the employee’s retaliatory intent and causes the victim to suffer an adverse employment action. The court’s opinion highlights the need for cautious and diligent investigations of employee complaints, preferably conducted by an impartial third party with legal expertise.

A Seventh Circuit overturns a district court’s approval of settlement of a Walgreens class action based on the absence of any apparent benefit of the settlement to the class.

In the underlying case, class members challenged the propriety of Walgreens’ acquisition of a large stake in Swiss pharmacy retailer, Alliance Boots, but settled their lawsuit 18 days after commencement of the action. The proposed settlement was approved by the district court, but a dissatisfied objecting class member appealed the judgment. On appeal, the Seventh Circuit reversed the trial court’s approval of the settlement because the entire benefit for class members was limited to receipt of additional disclosures regarding the proposed business combination, while class counsel was slated to receive $370,000 in legal fees. Judge Richard Posner, who authored the majority opinion, stated the benefit for the class “was not meager; it was nonexistent.” Because class counsel failed to represent class members adequately, the court reversed the district court’s approval of the settlement and remanded to the trial court to consider appointing new class counsel or dismissing the suit in its entirety.