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LITHUANIAN COMMERCE CORP. v. SARA LEE HOSIERY

April 23, 1999

LITHUANIAN COMMERCE CORPORATION, LTD., PLAINTIFF AND COUNTERCLAIM DEFENDANT,
v.
SARA LEE HOSIERY, SARA LEE HOSIERY INTERNATIONAL, SARA LEE INTERNATIONAL AND SARA LEE CORPORATION, DEFENDANTS AND COUNTERCLAIM PLAINTIFFS, V. ALGIS VASYS AND LAIMA ZAJANCKAUSKIENE, ADDITIONAL COUNTERCLAIM DEFENDANTS.



The opinion of the court was delivered by: Orlofsky, District Judge.

  OPINION

This case, involving an acrimonious dispute between the manufacturer of L'eggs® pantyhose and one of its distributors, has generated numerous motions, four published opinions,*fn1 six weeks of trial testimony, and now it is almost at an end. This opinion is, hopefully, dare I say it, my "last L'eggs." The history of this epic litigation is set forth in great detail in the four published opinions which have been filed in this case and will not be repeated here.

At the opening of their case on their Counterclaims, Defendants and Counterclaim Plaintiffs, Sara Lee Hosiery, Sara Lee Hosiery International, Sara Lee International, and Sara Lee Corporation (collectively, "Sara Lee"), the manufacturer of L'eggs pantyhose, "withdr[e]w the damage claims under the counterclaim[s]," Trial Tr. at 2522, and elected to seek only injunctive relief.*fn2 See id. at 2522, 2615. Accordingly, Sara Lee's Counterclaim and Third-Party Complaint (collectively, "Counterclaims") were tried before the Court, rather than the jury. As a result, I must now make findings of fact and conclusions of law with respect to Sara Lee's Counterclaims pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.*fn3

Additionally, Plaintiff and Counterclaim Defendant, Lithuanian Commerce Corpation, and Additional Counterclaim Defendants, Algis Vasys and Laima Zajanckauskiene (collectively, "LCC"), the exclusive distributor of L'eggs® pantyhose in several Eastern European countries, moved, during their closing argument on Sara Lee's Counterclaims, for judgment as a matter of law, see Trial Tr. at 2653-54, pursuant to Rule 52(c)*fn4 of the Federal Rules of Civil Procedure.*fn5 This Court asked LCC "to formalize" its motion for judgment as a matter of law. See Trial Tr. at 2659. As a result, LCC filed its written motion for judgment as a matter of law on November 20, 1998,*fn6 accompanied by its Proposed Findings of Fact and Conclusions of Law. Sara Lee filed its Proposed Findings of Fact and Conclusions of Law on November 20, 1998, and its opposition to LCC's motion for judgment as a matter of law on December 18, 1998. LCC filed a brief in reply to Sara Lee's opposition on January 4, 1999.

Sara Lee has asserted four counterclaims, namely: (1) a violation of § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a),*fn7 which prohibits the use of unfair trade practices; (2) a violation of the North Carolina Unfair Trade Practices Act, N.C. Gen.Stat. § 75-1.1,*fn8 which also prohibits unfair trade practices; (3) negligent misrepresentation; and (4) trade libel. In these four counterclaims, Sara Lee essentially alleges that LCC repeatedly and falsely or misleadingly advertised to consumers and represented to the Lithuanian and Latvian governments that L'eggs® pantyhose assist in the prevention of varicose veins. Quixotically, Sara Lee presented no testimony to prove this allegation. Instead, it relied solely upon the evidence introduced during LCC's case-in-chief and additional exhibits admitted into evidence for the purpose of the Court's consideration of the Counterclaims. See Trial Tr. at 2522.

In its Rule 52(c) motion, LCC asserts, inter alia, that Sara Lee has failed to meet its burden of proving that: (1) L'eggs® pantyhose do not have the therapeutic qualities advertised by LCC; and (2) Sara Lee suffered any injury as a result of the alleged misrepresentations and false advertising. LCC argues that, because Sara Lee has failed to meet its burden of proof on at least two essential elements of all four of its counterclaims, it cannot recover under any of its four claims.

Based on my findings of fact and conclusions of law, and for the reasons set forth below, I find that Sara Lee has not presented any evidence that it suffered any harm whatsoever as a result of LCC's alleged false advertising and misrepresentations. I further find that, even if Sara Lee had offered proof of its alleged injuries, Sara Lee has failed to demonstrate that those injuries were caused by LCC's alleged misrepresentations. Finally, I find that Sara Lee has failed to meet its burden of proof in demonstrating that the alleged misrepresentations made by LCC in its advertisements were false, misleading, or disparaging. Thus, Sara Lee has failed to meet its burden of proof on at least one of the essential elements of each of its Counterclaims. Accordingly, I will grant LCC's motion for judgment as a matter of law on Sara Lee's claim under the North Carolina Unfair Trade Practices Act, and for negligent misrepresentation and trade libel. In addition, I must dismiss Sara Lee's claim under § 43(a) of the Lanham Act for lack of subject matter jurisdiction.

I. FINDINGS OF FACT

The Parties and Jurisdiction

1. Counterclaim Plaintiff, Sara Lee Corporation, is incorporated in the state of Maryland and maintains its principal place of business in Chicago, Illinois. See Joint Final Pretrial Order ("JFPO"), Stipulated Facts, ¶ 6. Counterclaim Plaintiff, Sara Lee Hosiery, which manufactures L'eggs® pantyhose, is a wholly owned subsidiary of Counterclaim Plaintiff, Sara Lee Corporation. See Trial Tr. at 262-65. Counterclaim Plaintiff, Sara Lee Hosiery International, located in Winston-Salem, North Carolina, is a subdivision of Counterclaim Plaintiff, Sara Lee Hosiery. See JFPO, Stipulated Facts, ¶¶ 3-4.

2. Counterclaim Defendant, LCC, is incorporated in the state of New Jersey and maintains its principal place of business at 11 Harwood Lane, Clementon, New Jersey. See id. ¶¶ 1-2. "LCC was established for the purpose of exporting various consumer goods and personal care products to Lithuania." Id. ¶ 11.

3. Lithuanian-born,*fn9 Additional Counterclaim Defendant, Algis Vasys ("Vasys"), is "a resident [and citizen] of New Jersey who conducts his business from 11 Harwood Lane, Clementon, New Jersey." See JFPO, Jurisdiction, at 3. Vasys is the sole shareholder and the President of LCC. Trial Tr. at 1661, 1824; LCC Exs. 10, 11, 99.

4. Additional Counterclaim Defendant, Laima Zajanckauskiene ("Zajanckauskiene"), is a citizen of Lithuania. See JFPO, Jurisdiction, at 3. She is the Vice-President of LCC and it is clear from the record that she manages all of its daily operations in Eastern Europe. See Lithuanian Commerce Corp. v. Sara Lee Hosiery, 23 F. Supp.2d 509, 512, 515 (noting that Zajanckauskiene is "LCC's Vice-President"). See generally Trial Tr. at 936-1031 (testimony of Zajanckauskiene). She has also repeatedly visited the United States on behalf of LCC. See infra ¶¶ 8, 10.

5. This Court has subject matter jurisdiction over Sara Lee's claim under § 43(a) of the Lanham Act pursuant to 28 U.S.C. § 1331.*fn10

6. This Court has subject matter jurisdiction over Sara Lee's claim under the North Carolina Unfair Trade Practices Act and for negligent misrepresentation and trade libel pursuant to 28 U.S.C. § 1332,*fn11 as there is complete diversity of citizenship and the amount in controversy is in excess of $75,000, exclusive of interest and costs. Furthermore, this Court has subject matter jurisdiction over these claims pursuant 28 U.S.C. § 1367(a),*fn12 which permits this Court to exercise supplemental jurisdiction.

The Genesis of LCC's Relationship With Sara Lee

7. Some time early in 1993, Vasys traveled to Lithuania and observed "a country emerging from 50 years of [a] totally different economic and political system." Trial Tr. at 1583. Vasys saw this period of transition as an opportunity for entrepreneurship. See id.

8. "In the spring of 1993," Vasys "hosted a small group of Lithuanian business people in the" United States, for "a one-week tour." Id. at 1584. During this tour, Zajanckauskiene and Vasys met and had the opportunity to "exchange[] ideas" about starting "an import business together." Id.; see also id. at 473 (testimony of Zajanckauskiene) (testifying that she discussed business opportunities with Vasys when she traveled to the United States in 1993).

9. Within the next few weeks, Vasys "wrote a letter of inquiry to Sara Lee, stating that [he and Zajanckauskiene] would be interested in becoming [a] pantyhose, specifically L'eggs or Hanes, and/or Hanes distributor in Lithuania." Id. at 1585. On May 19, 1993, Vereen Mizelle ("Mizelle") responded to this letter on behalf of Sara Lee. See id. Mizelle asked Vasys "nine questions, inquiring about who [they were] and what [their] plans might be if [they] in fact were appointed a distributor." Id.; Sara Lee Ex. 12 (letter from Mizelle to Vasys, dated May 19, 1993, asking nine questions).

11. "Following this meeting, LCC made its initial purchase of L'eggs® brand pantyhose ordering the styles Sheer Energy®, Sheer Elengance®, L'eggs Classics®, Active Support®, and Little L'eggs Tights®." JFPO, Stipulated Facts, ¶ 14; see also Sara Lee Ex. 29 (Invoice No. 931208); LCC Ex. 14 (same). On December 8, 1993, Sara Lee sent an invoice to LCC for 928 dozen pairs of pantyhose for the price of $19,951.30, to be sent by truck from North Carolina to New Jersey. See Sara Lee Ex. 29. Sara Lee also sent, free of charge, displays, consumer pamphlets, posters, and swatches. See id.

12. Sara Lee granted LCC the exclusive right to sell L'eggs® pantyhose in Lithuania, Latvia, Estonia, and the Russian District of Kaliningrad. See LCC Ex. 110 (letter from Mizelle to Whom It May Concern, dated Aug. 23, 1995).

13. LCC had already applied to the Lithuanian Government to obtain a tariff exemption for L'eggs® pantyhose, arguing that L'eggs® pantyhose with spandex prevent varicose veins and, thus, are a medical product. See JFPO, Stipulated Facts, ¶ 15. To this end, LCC submitted various documents, see Sara Lee Ex. 30, including a "Certificate of Quality," signed by Mizelle, which asserted that Active Support® pantyhose "stimulate[] circulation to prevent swollen, tired, and aching legs." Sara Lee Ex. 51. In this Certificate, Mizelle also certified that other L'eggs® brands that contained spandex had qualities similar to Active Support®. See id. Based on this and other information, the Lithuanian Government granted the tariff exemption, permitting LCC to import L'eggs® pantyhose without paying any tariff charges. See JFPO, Stipulated Facts, ¶ 15. The Latvian government, after considering similar information, granted the same tariff exemption. See Sara Lee Ex. 177.

14. Another brand of pantyhose, Sanpellegrino, had also obtained "the varicose veins exemption" from the Lithuanian Government, Trial Tr. at 2182 (testimony of Vasys), even though some of the Sanpellegrino brands had less spandex than some of the L'eggs® brand pantyhose that had been granted the exemption. See id. at 2183.

15. After placing its first order for L'eggs® pantyhose in December of 1993, LCC continued to purchase L'eggs® pantyhose from Sara Lee and sell them in its territory. See LCC Ex. 117 (summarizing LCC purchases of L'eggs® pantyhose). LCC's sales grew rapidly. See Trial Tr. at 496 (testimony of Zajanckauskiene) (testifying that LCC experienced "500 percent growth" by the end of 1994). As Zajanckauskiene testified:

  [E]verybody [was] buying like crazy, all the women
  loved it [L'eggs pantyhose]. And the women, once they
  buy one time, they would always come back. And since
  we advertised a lot, people would be calling us and
  asking how come your store doesn't carry that
  pantyhose, and the store [managers] then would come
  themselves to our store and contact us, saying that
  [they would] like to sell [L'eggs pantyhose]. And
  that's how the network spread and grew.
  Trial Tr. at 496. As a result of this success, LCC abandoned its attempts to sell any other products and focused its efforts exclusively on L'eggs® pantyhose. See id. at 1838 (testimony of Vasys).

16. In addition to purchasing pantyhose from Sara Lee and importing it into Lithuania, LCC also "engaged in a widespread advertising campaign consisting of television commercials, radio advertisements, billboards, in-store posters, coupons and distributed pamphlets." JFPO, Stipulated Facts, ¶ 16; see also LCC Ex. 51 (listing advertising expenses). LCC obtained some of this advertising material from Sara Lee and created some of it independently. See LCC Ex. 14 (December 8, 1993, invoice providing advertising material at no cost); Sara Lee Exs. 358-60 (examples of advertising produced by LCC). In addition, Sara Lee had established "a co-op program," through which Sara Lee would reimburse its distributors for a portion of their advertising expenses as an incentive to distributors to promote Sara Lee products. Trial Tr. at 1516 (testimony of Mizelle); see also LCC Ex. 19 (letter from Vasys to Mizelle, dated May 9, 1994, asking for "a refund of approximately $2,000" of "a total of $7,371,73 [spent by LCC] for advertising L'eggs"); LCC Ex. 49 (letter from Vasys to Mizelle, dated Nov. 23, 1994, noting a total of $10,631 in advertising expenditures and requesting that Sara Lee "[p]lease send us the check for your participation in these advertising expenses"); LCC Ex. 53 (check from Sara Lee to LCC for $2,800 for "advertising").

17. As part of its advertising, LCC "put [a] special kind of stickers on the Sara Lee product, on the boxes of pantyhose[, that] carried [the LCC] logo, . . . address and the phone number." Trial Tr. at 580 (testimony of Zajanckauskiene). LCC had these stickers "made . . . in [the] U.S., because in Lithuania [there is no] access to manufacturing something as good quality as the stickies made in the U.S." Id.

18. As part of its efforts to promote the L'eggs® brand itself, LCC advertised that "L'eggs will . . . guard your legs from fatigue and varicose veins." Sara Lee Ex. 358 (quoting English translation of Lithuanian television commercial). Similarly, LCC claimed that L'eggs® pantyhose "speed[] up blood circulation in veins in legs, three, five times. . . . This is the prophylactic measure against superficial vein expansion in legs[,] veins varicose, swolleness of the legs from the hard working, standing and sitting position." Id. (English translation of Lithuanian store poster); see also Sara Lee Exs. 359, 360.

19. Sara Lee's own brochures and advertisements for L'eggs® pantyhose claimed that Active Support® pantyhose "stimulates circulation to prevent swollen, tired and achy legs." LCC Ex. 21. Sara Lee's own advertising also claimed that Sheer Energy® pantyhose "give the legs an All Day Message®." Id.

20. Three witnesses testified at trial that L'eggs® brand pantyhose helped to prevent varicose veins. Mizelle, then an Assistant Marketing Manager for Sara Lee, testified that he "recommend[ed] L'eggs pantyhose for speeding blood circulation . . . because in [his] mind [he] associated that with varicose veins." Trial Tr. at 1419. Similarly, Zajanckauskiene testified that L'eggs pantyhose "help[] a lot like a prophylactic means" to "guard your legs from fatigue and varicose veins." Id. at 1121. Zajanckauskiene also testified that "Mizelle explained [to Vasys and Zajanckauskiene] that certain styles of pantyhose[, which] have spandex in them, . . . [serve as a] prophylactic means of, to fight varicose vein problems." Id. at 488; see also id. at 600. Lithuanian Dr. Irena Pivoriuniene, who graduated from Vilnus University Medical School and currently hosts a television talk show in Lithuania, see id. at 721-22, testified that L'eggs® pantyhose do not help a woman whose "veins are already expanded and swollen," but that they can prevent varicose veins "for a woman who doesn't have" them already. Id. at 757-58.

21. Zajanckauskiene, however, testified that Mexicanmanufactured L'eggs Regular do not improve circulation or prevent varicose veins, although LCC advertised that they do. See id. at 1122-23. Zajanckauskiene testified the advertisements for Mexican-made L'eggs Regular contained incorrect information, because "the person who prepared the advertisement" included his or her own "conclusions," without approval from LCC. Id.

22. Sara Lee claims that LCC falsely represented that L'eggs® pantyhose had "certain medical and therapeutic qualities" in its advertising and in its applications for tariff exemptions. See JFPO, Sara Lee's Contested Facts Regarding Liability, ¶¶ 63-97, 104. Sara Lee, however, did not present any evidence at trial which suggests that L'eggs® pantyhose do not assist in the prevention of varicose veins. Thus, Sara Lee has failed to meet its burden of proving ...


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