Handsome Brook Farm, LLC. v. Humane Farm Animal Care, Inc. ( 2017 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 16-1813
HANDSOME BROOK FARM, LLC,
Plaintiff – Appellee,
v.
HUMANE FARM ANIMAL CARE, INC.,
Defendant - Appellant.
Appeal from the United States District Court for the Eastern District of Virginia, at
Alexandria. James C. Cacheris, Senior District Judge. (1:16-cv-00592-JCC-MSN)
Argued: May 11, 2017 Decided: August 22, 2017
Before GREGORY, Chief Judge, and DUNCAN and DIAZ, Circuit Judges.
Affirmed by unpublished opinion. Chief Judge Gregory wrote the opinion, in which
Judge Duncan and Judge Diaz joined.
ARGUED: Lana Marie Manitta, RICH ROSENTHAL BRINCEFIELD MANITTA
DZUBIN & KROEGER, LLP, Alexandria, Virginia, for Appellant. Sanjay Satish Karnik,
AMIN TALATI UPADHYE, LLP, Chicago, Illinois, for Appellee. ON BRIEF:
Ryan M. Kaiser, AMIN TALATI UPADHYE, LLP, Chicago, Illinois, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
GREGORY, Chief Judge:
Humane Farm Animal Care (“HFAC”), a non-profit organization that certifies
certain egg producers for humane treatment of their laying hens, sent an email to thirty-
six grocery retailers, including some of the largest grocery chains in the nation. The
email reported that Handsome Brook Farm, an egg producer HFAC does not certify,
lacked up-to-date certifications to support its representations that its eggs are organic and
pasture raised. The email continued, “I hope you reconsider changing suppliers.” Egg
producers with HFAC’s certification, the email concluded, are audited to ensure that
every egg labeled pasture raised is, in fact, pasture raised.
Because of this email, Handsome Brook lost existing and potential retailers. And
contrary to the email’s statements, the record reflects that Handsome Brook’s organic
certifications were up-to-date and its pasture-raised certification had been recently
audited. As a result, Handsome Brook brought a false advertising claim against HFAC
under the Lanham Act. The district court issued a preliminary injunction prohibiting
HFAC from circulating the email and requiring HFAC to publish a retraction email.
HFAC now appeals the entry of the preliminary injunction. For the reasons below, we
affirm.
I.
Founded by Adele Douglass, HFAC is a 501(c)(3) non-profit entity dedicated to
promoting the humane treatment of animals in the farming and food industry. To further
its goal, HFAC has enacted a voluntary certification process that informs consumers
2
about whether a particular producer’s products pass HFAC’s ethical standards. A
producer that chooses to get certified by HFAC and successfully passes HFAC’s
standards is permitted to use HFAC’s registered certification, “Certified Humane,” on its
products. It must submit to a yearly audit in order to continue using this certification.
HFAC’s “Certified Humane” certification process is one of several that producers
can choose from, and producers need not choose only one to the exclusion of others. For
example, a producer may choose to meet the USDA’s standards for an “organic”
certification. It may also choose the American Humane Association’s “Free Farmed” or
“American Humane Certified” certifications or another non-profit entity’s certifications.
HFAC receives revenue for “Certified Humane” applications, inspections, and
certifications. It charges between $75 and $300 for an application, $600 per day per
inspector for any farm inspection, and five cents for every thirty dozen eggs the producer
sells with the Certified Humane label. But this revenue does not fully cover HFAC’s
yearly costs and expenditures, so HFAC also solicits donations.
Douglass was contacted on April 11, 2016, by an individual named Nicholas
Hanson. Hanson, an employee of another egg producer, claimed that “he knew people
who worked at Phil’s Fresh Eggs who packed eggs that were for Handsome Brook
Farms. Those eggs, he claimed[,] were not pasture raised but [were] going into cartons
that claimed that they were pasture raised.” J.A. 127. Douglass told Hanson that HFAC
could not do anything because Handsome Brook was not an HFAC licensee. Within a
month, Phil’s Fresh Eggs requested an audit from HFAC to renew its certification, and
HFAC sent an auditor to Phil’s Fresh Eggs’s packing facility.
3
On May 13, 2016, when the auditor inspected the facility, Phil’s Fresh Eggs’s
packing plant was packing eggs for both Phil’s Fresh Eggs and Handsome Brook.
Douglass received an audit report stating that Handsome Brook’s egg cartons had both
the “American Humane Certified” and USDA “organic” seals. According to the report,
the verified USDA organic certificate on file for Handsome Brook “was issued 10-15-
2013; no annual update was on file.” The “American Humane Certified” certificate was
dated November 13, 2015. And “[i]t was noted that there has been no inspection of this
facility by [American Humane Association], so the veracity of the label claim on the egg
cartons could not be substantiated.” J.A. 274.
The audit report also stated that Handsome Brook received its eggs from three
producers. When the auditor examined a sample of egg pallets from the three producers,
it found that the labels on the sampled pallets did not match the labels on the cartons the
eggs were packed in. Specifically, one of the pallets was labeled “Certified Humane,”
and none of the audited pallets were labeled “American Humane Certified.” All of the
eggs in those pallets went into “American Humane Certified” cartons. But none of the
eggs in the audited pallets, including those labeled “Certified Humane,” entered
“Certified Humane” cartons.
On May 20, 2016, Douglass sent the following email to thirty-six retailers,
including Costco, Fairway, The Fresh Market, Harris Teeter, Kroger, Lowes Foods,
Publix, Safeway, Target, Wegman’s, and Whole Foods:
I am writing you to share some potentially troubling news about one of
your egg suppliers, Handsome Brook Farm. Based upon a whistleblower
complaint we recently conducted a traceability inspection of a packing
4
plant that packs Certified Humane® eggs and also packs Handsome Brook
Farm’s (HBF) eggs. It came to our attention that the “Pasture Raised”
claims on the Handsome Brook Cartons could not be verified. In fact, of
the three producers whose eggs were being packed into HBF cartons, none
were pasture raised. These eggs had tags that stated, “Certified Organic”
but our auditors found that the organic certification was not current.
American Humane Certified (AHC) is Handsome Brook Farm[’s] humane
certifier. Our auditor found that there was no validation that the eggs going
into the HBF cartons were from AHC certified farms, noting that, “None of
the eggs were identified as AHC, though they go into AHC labeled
cartons.” Our auditor also stated, “Handsome Brook Farm eggs include the
American Humane Certified logo and the USDA organic seal. The eggs
are certified organic by NOFA-NY. NOFA-NY certificate verified on file
was issued 10-15-2013; no annual update was on file. The AHC certificate
on file was dated November 13, 2015 and was issued to Handsome Brook
Farm. It was noted that there has been no inspection of this facility by
AHC so the veracity of the label claim on the egg cartons could not be
substantiated.
I hope you will reconsider changing suppliers. Producers who are Certified
Humane® undergo traceability audits to verify that every egg that goes into
every carton that has claims such as “free range” or “pasture raised” are
verified by our inspectors to be exactly that. This in turn protects you.
J.A. 50.
Douglass stated that she sent the email to retailers with whom she had a
relationship and who were considering switching to Handsome Brook eggs. 1 Douglass
never called Handsome Brook’s certifier or took any steps to verify what the audit report
had recounted. Based on this email, some stores pulled Handsome Brook’s eggs, either
temporarily or indefinitely, from their shelves. And a prospective retailer indefinitely
delayed plans to launch Handsome Brook’s eggs in their stores.
1
Given that some of the recipients had been carrying Handsome Brook’s eggs, it
is fair to assume that Douglass meant that she sent the email to retailers who were
considering or who were already carrying Handsome Brook’s eggs.
5
Handsome Brook sued HFAC on May 27, 2016, alleging a false advertising claim
under the Lanham Act. As part of the record, Handsome Brook included up-to-date
organic certifications for each of their three suppliers, and affidavits from the American
Humane Association asserting that both Handsome Brook and its suppliers had been
audited.
The district court first granted Handsome Brook’s requested temporary restraining
order. It later found that a preliminary injunction was warranted. Specifically, it found
that Handsome Brook’s false advertising claim was likely to succeed: HFAC’s email
was commercial speech because of the inherently commercial structure of HFAC’s
operations and the commercial purpose of its email; applying the Gordon & Breach
factors discussed below, the email was a form of commercial advertising or promotion;
the email was likely false or misleading in stating that (1) Handsome Brook’s eggs were
not pasture-raised, (2) HFAC audited Handsome Brook based on a whistleblower
complaint, and (3) Handsome Brook’s organic certifications were not current; and these
statements likely were material, deceived the consumer, and caused irreparable injury.
As a result, the district court entered a preliminary injunction prohibiting HFAC from
disseminating the email and requiring HFAC to publish a retraction email.
HFAC timely appeals.
II.
We review a district court’s grant of a preliminary injunction for abuse of
discretion. Pashby v. Delia, 709 F.3d 307, 319 (4th Cir. 2013). As a result, we review
6
the district court’s factual findings for clear error and its legal conclusions de novo. Id.
A preliminary injunction is warranted if (1) the plaintiff will likely succeed on the merits,
(2) the plaintiff will likely suffer irreparable harm if the preliminary injunction is denied,
(3) the balance of equities favors granting a preliminary injunction, and (4) the public
interest counsels in favor of granting the preliminary injunction. Winter v. Nat. Res. Def.
Council, Inc., 555 U.S. 7, 20 (2008).
On appeal, HFAC challenges the district court’s determinations that the email was
a commercial advertisement or promotion, that the term “whistleblower” was misleading,
that Handsome Brook was irreparably harmed by the email, that the balance of equities
favors granting the injunction, and that the injunction was in the public interest.
III.
When reviewing a preliminary injunction, the first question is whether Handsome
Brook has shown a likelihood of success on the merits of its false advertising claim. The
Lanham Act prohibits false or misleading facts, or representations of fact, “in commercial
advertising or promotion” that misrepresent the quality of another person’s goods. 15
U.S.C. § 1125(a)(1)(B). To prevail on its false advertising claim, Handsome Brook must
show that HFAC’s email contained false or misleading statements “in a commercial
advertisement about his own or another’s product”; the misrepresentation was material,
likely to influence the purchasing decision, and has the tendency to deceive a substantial
segment of its audience; HFAC placed the misrepresentation in interstate commerce; and
Handsome Brook was injured or likely to be injured by the misrepresentation, either by
7
direct diversion of sales or the lessening of goodwill. PBM Prods., LLC v. Mead Johnson
& Co., 639 F.3d 111, 120 (4th Cir. 2011) (quoting Scotts Co. v. United Indus. Corp., 315
F.3d 264, 272 (2002)).
The most contested question is whether HFAC’s email, which attempted to warn
retailers of the problems with Handsome Brook’s certifications and which named
HFAC’s certification as superior in reliability and trustworthiness, is commercial
advertising or promotion.
A.
The Lanham Act does not define “commercial advertising or promotion.” And
neither the Supreme Court nor this Court has determined how to assess whether a
communicative message is commercial advertising or promotion. A court in the
Southern District of New York has defined commercial advertising or promotion for the
purposes of the Lanham Act as (1) commercial speech (2) by a defendant in commercial
competition with the plaintiff (3) for the purpose of influencing consumers to buy goods
or services. Gordon & Breach Sci. Publishers v. Am. Inst. of Physics, 859 F. Supp. 1521,
1536 (S.D.N.Y. 1994). And while the representation need not be a classic advertising
campaign, but may include more informal types of promotion, the representations
(4) must be sufficiently disseminated to the relevant purchasing public to constitute
advertising or promotion within that industry. Id.
Many of our sister circuits have adopted these factors in full. See Suntree Techs.,
Inc. v. Ecosense Int’l, Inc., 693 F.3d 1338 (11th Cir. 2012); Podiatrist Ass’n, Inc. v. La
Cruz Azul de Puerto Rico, Inc., 332 F.3d 6 (1st Cir. 2003); Proctor & Gamble Co. v.
8
Haugen, 222 F.3d 1262 (10th Cir. 2000); Coastal Abstract Serv., Inc. v. First Am. Title
Ins. Co., 173 F.3d 725 (9th Cir. 1999); Seven-Up Co. v. Coca-Cola Co., 86 F.3d 1379
(5th Cir. 1996). But see First Health Grp. Corp. v. BCE Emergis Corp., 269 F.3d 800,
803-04 (7th Cir. 2001) (rejecting Gordon & Breach factors, and determining that
“advertising or promotion” is a subset of commercial speech aimed at anonymous
recipients). We similarly adopt these factors.
But following the Sixth Circuit, we do not adopt the second factor requiring a
competitive relationship. Grubbs v. Sheakley Grp., Inc., 807 F.3d 785, 800-01 (6th Cir.
2015) (adopting all Gordon & Breach factors except the competition requirement); cf.
Fashion Boutique of Short Hills, Inc. v. Fendi USA, Inc., 314 F.3d 48, 58 (2d Cir. 2002)
(adopting Gordon & Breach factors, but not deciding whether to adopt the competition
factor). While many of our sister circuits have recognized that an economically
competitive relationship is necessary for a false advertising claim, the Supreme Court has
recently made clear that the analysis is best suited not in the merits of whether a
communication is advertising, but in standing. 2 See Lexmark Int’l, Inc. v. Static Control
Components, Inc., 134 S. Ct. 1377 (2014); see also Harold H. Huggins Realty, Inc. v.
FNC, Inc., 634 F.3d 787 (5th Cir. 2011) (examining whether corporations have
sufficiently competitive relationship in standing analysis); Serbin v. Ziebart Int’l Corp.,
2
The parties dispute whether Lexmark’s principles apply to the competition
requirement in Gordon & Breach. But they do not dispute that Handsome Brook had
standing to bring a false advertising claim, and--therefore--that Handsome Brook’s
competitive relationship with HFAC satisfies Lexmark’s requirements.
9
Inc., 11 F.3d 1163 (3d Cir. 1993) (recognizing that consumer, lacking a competitive
economic relationship, has no standing to raise a Lanham Act claim). And upon
consideration, any communication that is commercial speech, promotes a good, and is
sufficiently disseminated is an advertisement for the promoted good, regardless of the
speaker. A competitive relationship, therefore, is necessary inasmuch as it gate-keeps
who may appropriately bring suit. This is especially true for realizing Congress’s intent
that the Lanham Act “protect persons engaged in [interstate] commerce against unfair
competition.” 15 U.S.C. § 1127; see also Lexmark, 134 S. Ct. at 1389-90 (reasoning that
only commercial competitors, not consumers, suffer from unfair competition and thus
have standing to enforce the Lanham Act’s prohibitions). Taking into account Lexmark,
the lack of a competition requirement in the statute’s false advertising prohibition, the
fact that our sister circuits adopting the competition factor did so before Lexmark, and
that the only circuit to examine the Gordon & Breach factors post-Lexmark has rejected
the competition factor, we also do not require a competitive relationship when
determining whether a communication is advertising or promotion. As a result, we adopt
only the first, third, and fourth factors of the Gordon & Breach test.
B.
We next apply these factors to HFAC’s email. We begin with the requirement that
the challenged advertising or promotion constitute commercial speech. This inquiry,
however, poses an antecedent question: How do we determine whether a communication
is commercial speech? And how do we classify communication that expresses both
commercial and noncommercial messages?
10
1.
Save for certain, carefully circumscribed forms of expression, speech is protected
by the First Amendment. But commercial speech receives less protection than pure
noncommercial speech. Bigelow v. Virginia, 421 U.S. 809, 825-26 (1975). At its core,
commercial speech is “speech which does ‘no more than propose a commercial
transaction.’” Va. State Bd. of Pharmacy v. Va. Citizens Consumer Council, Inc., 425
U.S. 748, 762 (1976) (quoting Pittsburgh Press Co. v. Hum. Relations Comm’n, 413 U.S.
376, 385 (1973)). It is thus removed from the “exposition of ideas” or the expression of
“truth, science, morality, [the] arts in general” and other topics that characterize speech
fully protected by the First Amendment. Id. (quoting Chaplinsky v. New Hampshire, 315
U.S. 568, 572 (1942) and Roth v. United States, 354 U.S. 476, 484 (1957)). And because
of the government’s interest in “insuring that the stream of commercial information flow
cleanly as well as freely,” id. at 772, restrictions on “false, deceptive, and misleading
commercial speech,” like the Lanham Act’s prohibition against false or misleading
commercial advertising or promotions, are wholly permissible means of furthering that
interest, Friedman v. Rogers, 440 U.S. 1, 9-10 (1979).
Neither our precedent, nor the Supreme Court, has issued any determinative
standard by which to assess if a message is commercial speech. The Supreme Court has
highlighted a handful of considerations, and our own cases have been similarly context-
specific. These factors are all illustrative, but none are determinative. A message may
bear many of these qualities yet not be commercial speech; and a message may lack some
of these qualities yet still be commercial speech.
11
The Supreme Court has identified three qualities of commercial speech: whether
the message is economically motivated, promotes a specific product, and is an
advertisement. Bolger v. Youngs Drug Prods. Corp., 463 U.S. 60, 66-67 (1983). Thus,
as found in Bolger, a corporation that sells contraceptives and publishes pamphlets
advocating for the superiority of its products engages in commercial speech.
Our own precedent has alluded to yet another quality of commercial speech:
whether the message is “placed in a commercial context and [is] directed at the providing
of services rather than toward an exchange of ideas.” Greater Balt. Ctr. for Pregnancy
Concerns, Inc. v. Mayor & City Council of Balt., 721 F.3d 264, 286 (4th Cir. 2013)
(quoting Fargo Women’s Health Org., Inc. v. Larson, 381 N.W.2d 176 (N.D. 1986), cert.
denied, 476 U.S. 1108 (1986)). In Greater Baltimore Center for Pregnancy Concerns v.
Mayor & City Council of Baltimore, this Court remanded the question of whether a crisis
pregnancy center’s promotion of its services was commercial speech. But in doing so,
this Court approvingly highlighted a state supreme court case that considered as
commercial speech a non-profit crisis pregnancy center’s misleading promotion of
services in newspapers and yellow-page advertisements.
2.
With these factors in mind, we next determine whether HFAC’s email is
commercial speech. 3
3
Bolger recognized three qualities of commercial speech, the third of which was
whether the communication is an advertisement. Because the speaker in Bolger
(Continued)
12
We first consider whether HFAC was economically motivated. This prong asks
whether HFAC hoped to realize an economic gain when disseminating its message.
HFAC is a non-profit organization, and as such has a noneconomic purpose in
advocating for the humane treatment of farm animals. But HFAC also has an economic
motivation in the sale of its licensees’ eggs. Not only does HFAC receive revenue from
egg sales, but it may also gain more licensees if its “Certified Humane” certification is
seen as more reliable than other non-profit organizations’ certifications. This hope of
economic gain is made even more apparent by the email’s target audience: grocery store
chains, including some of the largest in the nation, that HFAC had a relationship with and
that were considering switching their egg supplier from another brand to Handsome
Brook. HFAC’s list of recipients evidences its hope of economic gain--that is, that the
grocery stores would switch their businesses from Handsome Brook to HFAC licensees.
The parties dispute whether HFAC’s identity as a non-profit, rather than for-profit,
organization categorically deems its motivation noneconomic. And certainly, the identity
of the speaker factors into the reasonable recipient’s perception of economic motivation.
A for-profit company is often presumed to have primarily economic motivations for its
speech. Thus, a corporation’s informative literature or seminar is often still seen as
commercial speech, especially if it includes any product promotion. For example, the
identified his material as advertisements, the Court had no occasion to decide if the
pamphlets were advertisements. The factor is unhelpful here, where we must determine
if HFAC’s email is commercial speech in order to see if it is commercial advertising or
promotion. We therefore do not address this non-dispositive quality.
13
Supreme Court examined in Bolger the pamphlets a corporation published, informing
readers about contraception and promoting the corporation’s contraceptive products. In
finding the pamphlets to be commercial speech, the Court stated,
[a] company has the full panoply of protections available to its direct
comments on public issues, so there is no reason for providing similar
constitutional protection when such statements are made in the context of
commercial transactions. Advertisers should not be permitted to immunize
false or misleading product information from government regulation simply
by including references to public issues.
Bolger, 463 U.S. at 68 (emphasis added). There, the Supreme Court presumed that the
for-profit corporation included noncommercial messages to insulate its advertisement
from government review, rather than for the noneconomic purpose of educating the
public about contraceptives.
Conversely, a non-profit organization is often presumed to have primarily
noneconomic motivations for its speech, even if there are ancillary economic benefits.
Thus, a watchdog non-profit organization’s report on allegedly abusive or unethical
practices is still likely noncommercial speech, even if the report garners more donations;
a reader would know that the watchdog organization’s primary motivation for publishing
the report is noneconomic. See Huntingdon Life Sciences, Inc. v. Rokke, 978 F. Supp.
662 (E.D. Va. 1997) (adjudicating dispute between PETA and a corporation whose lab
practices were criticized by PETA). And disinterested non-profit journals or publications
that review products engage in noncommercial speech, even if they publish negative
reviews. See Neurotron, Inc. v. Am. Ass’n of Electrodiagnostic Medicine, 189 F. Supp.
2d 271 (D. Md. 2001) (finding that trade journal’s publication of a negative or lukewarm
14
review of a product is noncommercial speech); Gordon & Breach, 859 F. Supp. 1521
(finding that scientific journal’s publication of scientific-journal rankings by cost of
journal per thousand characters and times cited is noncommercial speech). See also 135
Cong. Rec. H1217 (daily ed. April 13, 1989) (statement of Rep. Kastenmeier)
(recognizing that limiting the Lanham Act’s reach to only commercial speech ensures
that the Act does not cover “political speech, consumer or editorial comment, parodies,
satires,” consumer reports, and other constitutionally protected material).
But identity of the speaker does not categorically determine whether a speaker is
economically motivated. Where a non-profit organization has a direct economic stake in
the provision of its product or service, and structures its message in the hopes of realizing
an economic gain rather than merely informing the public or pursuing its ideological
views, it may reasonably be viewed as economically motivated.
Here, HFAC could have disseminated the message to the public at large or to the
egg industry in order to shame Handsome Brook. It also could have disseminated the
message to only Handsome Brook’s certifier or to grocery stores that sold Handsome
Brook eggs. HFAC’s specific target audience--retailers who were considering or had
recently switched to Handsome Brook eggs--and last paragraph extolling the reliability of
its own certifications, bespeaks of HFAC’s economic motivation despite its entity as a
non-profit organization.
The second prong asks whether HFAC’s email promoted a good. After telling its
recipients about Handsome Brook’s certifications, HFAC’s email stated, “I hope you will
reconsider changing suppliers.” HFAC-licensed producers, the email continued,
15
“undergo traceability audits to verify that every egg that goes into every carton that has
claims such as ‘free range’ or ‘pasture raised’ are verified by our inspectors to be exactly
that. This in turn protects you.”
HFAC argues that its email did not specifically promote eggs certified with
HFAC’s “Humane Certified” license over Handsome Brook’s; it merely urged retailers to
purchase any eggs that were humane, whether certified by HFAC or another certifying
institution, rather than Handsome Brook’s allegedly inhumane eggs. But in comparing its
certification to any other carton that says “free range” or “pasture raised,” the email was
not just comparing its certifications to Handsome Brook or to non-certified eggs. The
email implicitly compared its licensees to the licensees of any other humane certification,
and touted HFAC-certified eggs over all other eggs, including eggs certified by other
organizations. Thus, the email’s final statements were intended to, and indeed did,
promote HFAC-certified eggs over any other eggs, including those certified by other
organizations.
Third, we consider whether HFAC’s message was placed in a commercial context
and fixated on the provision of services rather than advocacy of its ideological
commitments. Here, HFAC’s email both was placed in a commercial context and fixated
on the provision of services.
HFAC’s occupies a commercial role in the economic market of humanely
produced eggs, and its email was placed in that economic, commercial context. HFAC,
and organizations like HFAC, function as a cog in the production and sale of pasture
raised eggs; without such certifications, consumers are less likely to trust a producer’s
16
practices and pay higher prices. And HFAC’s message fits neatly into the type of
promotional, commercial activity an identical for-profit organization would engage in.
This situation is thus different from a non-profit organization that promotes an auction in
its name to drum up contributions or sells its paraphernalia, like hats or t-shirts or pens, to
supplement its charitable donations. In those situations, the organization is surely
promoting a service; yet a reasonable recipient would recognize that the context was
meant to celebrate, promote, and spread its ideological mission.
HFAC’s email also fixated on the provision of service, rather than the advocacy of
its ideology. The email was directed at only individuals with whom HFAC had economic
relationships, and whose business HFAC may lose or hopes to gain. Its message focused,
not on ideological or moral concerns, but on economic and legal ones--“this in turn
protects you.” It engaged with the grocery stores, not as an entity motivated by an
ideological mission, but as a commercial actor in the industry of higher-priced, humane-
certified eggs. More like a crisis pregnancy center than PETA, HFAC’s email was
“directed at the providing of services rather than toward an exchange of ideas.” 4 Greater
Balt. Ctr., 721 F.3d at 286 (quoting Fargo Women’s Health Org., 381 N.W.2d at 181).
4
HFAC argues that it is a non-profit organization that fulfills its mission by
conducting itself as an economic actor in the commercial industry of egg sales. Thus, its
behavior in commercial markets as an economic actor is all meant to promote its
ideological mission. Accepting HFAC’s argument, however, inappropriately melds the
first prong of the analysis, which examines the speaker’s motivation, with the third prong
of the analysis, which examines a recipient’s expectation. HFAC’s hope to promote its
ideological message through commercial communication does not change the fact that a
(Continued)
17
HFAC’s email, sent by an organization with an economic stake in the grocery
stores’ decision, notified only certain retailers about the allegedly bad practices of its
indirect competitor, and touted itself as a superior, more reliable, and therefore better
economic partner. Its email appealed to the stores’ economic and commercial
motivations, and was directed at offering a service--the reliability of its certification—
rather than an idea. Its conduct was, in many ways, indistinguishable from that of a for-
profit organization. And in this specific context, its identity as a non-profit organization
did not override the many commercial qualities of its message.
3.
HFAC’s email also in part disseminates noncommercial speech: its warning to
retailers about Handsome Brook’s allegedly fraudulent labeling. When a message
communicates both commercial and noncommercial speech, it is treated like commercial
speech unless the commercial and noncommercial messages are “inextricably
intertwined.” Riley v. Nat’l Fed. of the Blind of N.C., Inc., 487 U.S. 781, 796 (1988).
Here, for the reasons discussed below, this message is not “inextricably intertwined” with
HFAC’s promotion of its license. Thus, though the email bears mixed messages, the
district court correctly treated the email as commercial speech.
Under this “inextricably intertwined” analysis, solicitation for charitable donations
by non-profit organizations is noncommercial speech, wholly protected by the First
recipient will likely view its communication as a promotion of services in a commercial
context.
18
Amendment, even though it solicits money. Village of Schaumburg v. Citizens for a
Better Env’t, 444 U.S. 620 (1980). Disclosures about a non-profit organization’s
professional fundraiser’s financial motivations are considered fully protected,
noncommercial speech. Riley, 487 U.S. 781. And even a non-profit organization selling
toys or jewelry to support its expenses, like an animal-rights organization selling stuffed
animals emblazoned with its logo, may still be noncommercial speech. Gaudiya
Vaishnava Soc’y v. City & County of San Francisco, 952 F.2d 1059, 1063-65 (9th Cir.
1990). This is because a non-profit organization’s solicitation for donations often is
“intertwined with informative and perhaps persuasive speech seeking support for
particular causes or for particular views on economic, political, or social issues,” and
secondly, because without such solicitation, “the flow of such information and advocacy
would likely cease.” Schaumburg, 444 U.S. at 632. Thirdly, a charitable solicitation
“does more than inform primary economic decisions and is not primarily concerned with
providing information about the characteristics and costs of goods and services.” Id. In
short, a non-profit organization cannot solicit donations without also advocating for its
mission; and conversely, a non-profit organization cannot advocate for its mission unless
it can solicit donations to support its advocacy.
In contrast, an educational seminar hosted by a corporation that sells houseware,
where attendees both may purchase the products and learn “how to be financially
responsible and how to run an efficient home,” is still treated as commercial speech. Bd.
of Trustees of State Univ. of N.Y. v. Fox, 492 U.S. 469, 473-74 (1989). “[T]here is
nothing whatever ‘inextricable’ about the noncommercial aspects of these presentations.
19
No law of man or of nature makes it impossible to sell housewares without teaching
home economics, or to teach home economics without selling housewares.” Id. at 474.
HFAC’s promotion of Certified Humane eggs is not “inextricably intertwined”
with its warning to retailers that Handsome Brook’s eggs may bear misleading labels.
Just as a corporation is capable of conducting an educational seminar without promoting
its own product, “[n]o law of man or of nature makes it impossible” to warn the public of
misleading labeling without promoting one’s own products. And thus, even assuming
that HFAC’s email without the promotional last paragraph were noncommercial speech,
HFAC was capable of notifying grocery stores about the issues in Handsome Brook’s
certifications without promoting its own certification. The commercial proposition in
HFAC’s email is therefore not “inextricably intertwined” with its noncommercial
message. As a result, the email is commercial speech despite its mixed messages.
C.
We turn to the next Gordon & Breach factor: promotion of a good. This inquiry
is identical to the promotion inquiry conducted in Section III.B.2. For the same reasons
as stated above, HFAC’s email promoted Certified Humane® eggs over eggs licensed by
any other organization.
D.
We turn to the last Gordon & Breach factor: dissemination of the message. A
communication may be advertising or promotion only if it is “part of an organized
campaign to penetrate the relevant market.” Grubbs, 807 F.3d at 800-01 (quoting
Fashion Boutique of Short Hills, Inc., 314 F.3d at 57). Widespread market distribution
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often demonstrates an organized campaign, but is not necessary. For example, a
promotion aimed at a subset of customers, such as a “friends and family” sale or an
advertisement shown to consumers based on their Internet history, is sufficiently
distributed to show an attempt to penetrate the relevant market even if it has been sent to
only a portion of the consumer base. See id. at 801.
HFAC’s email went to thirty-six retailers, including some of the largest
supermarket companies in the nation. The email did not go to every grocery store in the
nation; as the district court noted, there “are many national and countless regional and
local retailers that are not included.” J.A. 500 (quoting Def.’s Mem. in Opp’n at 14). But
a “cold-send” to anonymous recipients is not needed for a dissemination to be considered
advertising. This email, sent to thirty-six major retailers of ethically sourced eggs, all of
whom were chosen because they were considering switching to Handsome Brook eggs,
was sufficiently disseminated to be an attempt to penetrate the relevant market.
HFAC’s email satisfies the three Gordon & Breach factors which we adopt, and is
therefore commercial advertising or promotion.
IV.
Turning to another element of the Lanham Act claim, HFAC next argues that the
district court erroneously concluded that Handsome Brook was likely to succeed on the
merits because, contrary to the district court’s finding, HFAC’s “whistleblower”
statement was not false or misleading. The statement is as follows: “Based upon a
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whistleblower complaint we recently conducted a traceability inspection of a packing
plant that packs Certified Humane® eggs and also packs Handsome Brook[’s ] eggs.”
HFAC argues that, while legal professionals know “whistleblower” means an
individual reporting his own employer’s bad actions, the email recipients, who were not
legally trained, would interpret “whistleblower” as meaning someone in the industry.
Because HFAC had received a complaint about Handsome Brook’s eggs from Hanson,
another egg producer’s employee, HFAC argues that its statement was neither false nor
misleading.
Regardless of whether labeling Hanson a whistleblower is misleading or false,
HFAC’s statement is still likely false, because HFAC never conducted the audit “based
on” the complaint it received. In fact, HFAC had told Hanson that it could not do
anything about the allegedly unethical egg-packing because it was not Handsome
Brook’s licenser. Its audit was not based on the complaint, but was based on its routine
audit of Phil’s Fresh Eggs. Thus, the district court did not abuse its discretion in
determining that Handsome Brook was likely to succeed on the merits of its false
advertising claim.
V.
In addition to finding a likelihood of success on the merits, the district court
determined that Handsome Brook had suffered irreparable harm and will continue to
suffer irreparable harm if the injunction is denied; that the balance of equities favored
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granting the injunction; and that public interest counsels in favor of granting the
injunction. We address these factors in turn.
A.
Handsome Brook must show that the likelihood of irreparable harm rises above
the threshold of mere possibility and is likely to occur if the request is denied. Winter,
555 U.S at 22. “[T]he possibility of permanent loss of customers to a competitor or the
loss of goodwill” may give rise to irreparable harm. Multi-Channel TV Cable Co. v.
Charlottesville Quality Cable Operating Co., 22 F.3d 546, 552 (4th Cir. 1994), abrogated
on other grounds by Winter, 555 U.S. 7; see also Scotts Co., 315 F.3d at 283. And while
monetary damages generally do not give rise to irreparable harm, irreparable harm may
still occur in extraordinary circumstances, such as when monetary damages are
unavailable or unquantifiable. See Multi-Channel TV Cable Co., 22 F.3d at 551; Hughes
Network Sys., Inc. v. InterDigital Comms. Corp., 17 F.3d 691, 694 (4th Cir. 1994).
Handsome Brook alleges (and the district court found) that because of the false
information in the email, two retailers have removed Handsome Brook eggs from their
shelves and a third retailer has indefinitely suspended plans to sell Handsome Brook
eggs. Handsome Brook also alleges (and the district court found) that the email has
unduly strained client relationships; for example, one of its brokers heard the email being
discussed at an industry trade show, indicating that retailers continue to circulate the
email’s contents.
Based on these facts, the district court appropriately exercised its discretion in
finding that Handsome Brook would suffer irreparable harm if the preliminary injunction
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were not granted. Handsome Brook had already lost customers, and further
dissemination of the email amongst retailers may result in further loss of customers. The
business’s reputation continues to be tarnished as questions about the reliability of its
labeling continue to circulate. And even if the monetary damages from Handsome
Brook’s lost profits were quantifiable, they would likely be unattainable at judgment;
Handsome Brook estimated that its monthly loss of revenue could number in the
hundreds of thousands, and HFAC is a non-profit organization that likely cannot pay the
damages Handsome Brook would be due.
This irreparable harm supports the district court’s injunction prohibiting HFAC
from circulating the email and requiring HFAC to publish a retraction email. Handsome
Brook alleges that, even without HFAC’s assistance, the email has continued to circulate
as recipients forward the email to other members of the industry. Thus, Handsome Brook
will continue to suffer irreparable harm unless HFAC publishes a retraction email that
can disseminate its corrective message through the same channels as the first, misleading
email.
B.
HFAC alleges that the equities counsel against the district court’s injunction
because the injunction imposes an unconstitutional prior restraint on its speech and
requires an unconstitutional compelled disclosure. For the reasons below, neither of
these arguments is persuasive, and the equities balance in favor of the injunction.
“Any prior restraint on expression comes to this Court with a ‘heavy presumption’
against its constitutional validity.” Neb. Press Ass’n v. Stuart, 427 U.S. 539, 558 (1976)
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(quoting Organization for a Better Austin v. Keefe, 402 U.S. 415, 419 (1971)). But even
if the injunction were a prior restraint, prior restraints prohibiting false and misleading
commercial speech are constitutional. See, e.g., Cent. Hudson Gas & Elec. Corp. v. Pub.
Serv. Comm’n of N.Y., 447 U.S. 557, 563 (1980) (“[T]here can be no constitutional
objection to the suppression of commercial messages that do not accurately inform the
public about lawful activity.”). Because, as determined above, HFAC’s email is likely
false or misleading commercial speech, the district court may prohibit HFAC from
disseminating the email.
The First Amendment also allows the district court to require HFAC to issue a
retraction email. While compelled speech is usually a bold remedy in the context of
noncommercial speech, compelled speech is more likely to be constitutionally
permissible in the context of commercial speech. Indeed, our First Amendment
jurisprudence on commercial speech “is justified principally by the value to consumers of
the information such speech provides.” Zauderer v. Office of Disciplinary Counsel of the
Supreme Court, 471 U.S. 626, 651 (1985). Thus, “disclosure requirements aimed at
misleading commercial speech need only survive rational basis scrutiny, by being
‘reasonably related to the State’s interest in preventing deception of consumers.’”
Greater Baltimore Ctr., 721 F.3d at 283 (quoting Zauderer, 471 U.S. at 651); see also In
re R.M.J., 455 U.S. 191, 201 (1982) (“a warning or disclaimer might be appropriately
required, even in the context of advertising as to price, in order to dissipate the possibility
of consumer confusion or deception.”).
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Here, compelling HFAC to issue a retraction email is reasonably related to the
State’s interest in preventing deception of consumers. HFAC’s email informed the
grocery stores, who were Handsome Brook’s consumers, that Handsome Brook’s eggs
were not pasture raised or organic. As determined by the district court and largely
uncontested here, this email was likely false or misleading. Merely refusing to further
disseminate the email reduces the speed by which the false information spreads, but
provides no remedy for those who have already read the email and those who share the
email with others. Requiring HFAC to issue a retraction email, sent to its initial list of
recipients, is a reasonably related requirement to ensure that those who received the first
email will also receive the retraction email that mitigates the harm the first email caused.
Requiring HFAC to issue a retraction email thus comports with the First
Amendment. Taking into account the irreparable harm that may occur without the
injunction and the constitutionality of the injunction’s restraints, the balance of equities
counsels in favor of the preliminary injunction.
C.
Lastly, the district court correctly determined that preliminary injunctive relief was
in the public interest. “There is a strong public interest in the prevention of misleading
advertisements.” Scotts Co., 315 F.3d at 286 (quoting Novartis Consumer Health, Inc. v.
Johnson & Johnson-Merck Consumer Pharmaceuticals Co., 290 F.3d 578, 597 (3d Cir.
2002)); see also Sanborn Mfg. Co., Inc. v. Campbell Hausfeld/Scott Fetzer Co., 997 F.2d
484, 491 (8th Cir. 1993) (“the public interest favors enjoining false statements”). And it
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is in the public’s interest to ensure that such false information is corrected. Thus, public
interest counsels in favor of granting the preliminary injunction.
VI.
For these reasons, the district court’s grant of a preliminary injunction is
AFFIRMED.
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