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ANDON L. AMARAICH, Chief Justice:
This case came before the Court for hearing on plaintiff Foods Pacific, Ltd.'s ("Foods Pacific") Motion for a Preliminary Injunction on June 6, 2001.
The basis for this lawsuit is that defendant H.J. Heinz Co., Australia1 ("Heinz") (seller of ox &
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palm) and Foods Pacific (seller of oxford) compete in the corned beef market in the FSM. Pictures of the cans of corned beef sold by each of the two companies are attached to defendant Heinz's counterclaims as Exhibits A & B. In December, 2000, Heinz sent letters to various merchants in Pohnpei, and one merchant in Chuuk, who sell oxford corned beef.2 Heinz retained local attorneys Douglas Parkinson and Saloman Saimon for this purpose. The letters, stipulated to by counsel for both parties and admitted at the hearing as Exhibit 1, advised the merchants that they were violating 34 F.S.M.C. 103 by selling oxford, because it was deceptively similar to ox & palm corned beef. The letters requested that the merchants cease selling oxford, destroy the labels from all of their oxford corned beef product, submit an accounting of oxford sales to Heinz, and agree not to sell any more oxford corned beef product.
A. Plaintiff's Complaint
Foods Pacific filed its complaint, along with a motion for a preliminary injunction, on February 20, 2001. In its complaint, Foods Pacific asserts eight causes of action. The first five causes of action allege violations of Chapter 3 of Title 32 of the FSM Code, which prohibits anti-competitive practices. Foods Pacific alleges separate violations of 32 F.S.M.C. 302(1), 302(2), 302(3), and two violations of 32 F.S.M.C. 303. Under 32 F.S.M.C. 306(2), any person who is injured by another's violation of 32 F.S.M.C. 302 or 303 may: "sue therefor in the High Court in the district where the defendant resides or where service may be obtained, and may recover three times the damages sustained by him together with a reasonable attorney's fee and the costs of suit . . . ." 32 F.S.M.C. 306(2). Thus, 32 F.S.M.C. 306(2) creates a civil cause of action under national law for violations of the prohibitions against anti-competitive practices.
32 F.S.M.C. 302 states that:
It is illegal for one or more persons to create or use an existing combination of capital, skill, or acts the effect of which is:
(1) to create or carry out restrictions in trade or commerce;
(2) to limit or reduce the production, or increase the price of, merchandise or of any commodity;
(3) to prevent competition in the manufacture, making, transportation, sale, or purchase of any merchandise, produce or commodity . . . .
32 F.S.M.C. 303 states in relevant part that it is unlawful for any person to make a sale or contract for sale of goods for use within the Trust Territory (FSM), or to fix a price therefore, or discount from, or rebate upon, such price, on the condition that the purchaser thereof shall not use or deal in the goods of a competitor.
Each of these causes of action asserts that Heinz, by contacting and threatening merchants who
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sold oxford corned beef, was attempting to use its power in the market to lessen competition.
The remaining three causes of action asserted by Foods Pacific are state law tort claims for tortious interference with contractual relationships, defamation, and interference with prospective business opportunities. The Court ruled on May 21, 2001, that it has pendent jurisdiction over these state law tort claims. Foods Pacific, Ltd. v. H.J. Heinz Co. Australia, 10 FSM Intrm. 200 (Pon. 2001).
B. Defendant's Answer and Counterclaim
On June 1, 2001, pursuant to the Court's Order dated May 21, 2001,3 defendant filed its Answer, Counterclaims, and Opposition to plaintiff's Motion for a Preliminary Injunction. Defendant admits most of the significant factual allegations of the complaint, and stipulated to the admission of the letters Heinz sent to merchants in Pohnpei and Chuuk, introduced as Exhibit 1 at the June 6, 2001 hearing.
Defendant counterclaimed against plaintiff for unfair competition. Defendant alleges that Foods Pacific committed the common law tort of unfair competition by marketing its oxford product with a similar name, can, shape, design and color as Heinz's ox & palm product. Heinz alleges that Foods Pacific has attempted to "pass-off" its oxford product as ox & palm, confusing consumers and capitalizing on Heinz's goodwill, good reputation, and advertising and promotions.
II. Plaintiff's Motion to Dismiss Counterclaim
Plaintiff filed a Motion to Dismiss Heinz's counterclaim on June 26, 2001. Heinz filed a response on July 9, 2001. Although this motion was filed later in time than the Motion for a Preliminary Injunction, the Court will address it first, because resolution of the validity of Heinz's counterclaim is necessary to determining a number of the factors that the Court is required to consider when deciding whether to grant a preliminary injunction. Specifically, Heinz defended against Foods Pacific's motion for a preliminary injunction by stating that its contact with Foods Pacific merchants was grounded in a good faith belief that it was protecting its legally cognizable interest in defending its name and trademark against "unfair competition." Accordingly, the issue of whether the common law tort of unfair competition is recognized in the FSM is material to defendant's arguments opposing the issuance of the preliminary injunction.
The Court finds that there is no common law tort of unfair competition in the FSM because that field of law has been preempted by the Consumer Protection Act of 1970, comprehensive legislation which does not recognize the standing of competing businesses to sue one another for engaging in such practices.
Under the Transition Clause, FSM Const. art. XV, § 1, "[a] statute of the Trust Territory continues in effect except to the extent it is inconsistent with this Constitution is amended or repealed." Upon the ratification of the Constitution, Trust Territory statutes which related to matters that now fall within the legislative powers of the national government became national law, and the other Trust Territory laws presumably became law of each of the states at the same time. See FSM v. Oliver, 3
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FSM Intrm. 469, 472-73 (Pon. 1988). If neither state nor national powers alone are sufficient to carry out the original purpose of the statute, or if state and national powers are invoked, then the statute is enforceable as both state and national law. Id. at 477.
The Interim Congress of Micronesia adopted the predecessor to 34 F.S.M.C. 101 et seq., the Consumer Protection Act, in August, 1970. In the Consumer Protection Act, "trade" or "commerce" is defined as: "the advertising, offering for sale, sale, or distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value wherever situated, and shall include any trade or commerce directly or indirectly affecting the people of the Trust Territory." 34 F.S.M.C. 102(2). Because the national government has the exclusive power to "regulate foreign and interstate commerce," the Court finds that the Consumer Protection Act is the law of the FSM insofar as any advertising, sale, offer or distribution involves commerce between the states of the FSM or with any foreign entity. FSM Const. art. IX, § 2(g). In this case, both Heinz and Foods Pacific are companies organized in foreign countries who export their corned beef products to the FSM. Accordingly, this case involves foreign commerce and falls within the purview of 34 F.S.M.C. 102(2) as a national law.
However, the Consumer Protection Act also is the law of the states of the FSM, insofar as it involves commerce which is intrastate and it has not been repealed by the legislatures of the states. Significantly, for purposes of this case, neither Pohnpei State nor Chuuk State4 has enacted consumer protection laws or any other laws which are inconsistent with the Consumer Protection Act of 1970.
Thus, the Consumer Protection Act of 1970 exclusively provides the means by which unfair competition between businesses should be dealt with under both national and applicable state law. Accordingly, the Court finds that the Consumer Protection Act precludes a finding that any independent common law tort of unfair competition may be asserted by Heinz.
The Committee Report accompanying the Consumer Protection Act states that:
Your Committee is mindful of the necessity for legislation to protect customers against false, misleading, or deceptive acts or practices by those with whom they deal. This bill declares those acts and practices illegal.
We do, however, recognize that those dealing with the public also need protection from others similarly engaged in commerce who would engage in unfair methods of competition. This bill declares such unfair competition illegal. Thus, it serves a dual purpose by protecting both the public and the businessman against sharp practices.
SCREP No. 185, House J. of 3rd Cong., 3rd Reg. Sess. 263 (1970) (Comm. on Resources and Development). The Consumer Protection Act vests consumers with a civil cause of action against anyone engaged in activity which is deceptive or misleading, and authorizes the Attorney General to seek injunctive relief against such activity. Further, it authorizes the Attorney General to prosecute criminal violations of the Act, and provides that the Attorney General may seek to have civil and criminal penalties imposed against those who violate the Act. The Act does not provide a means for
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recourse by businesses against other competing businesses: it presumes that the Attorney General will protect businesses from unfair competition by other businesses by prosecuting violations of the Consumer Protection Act. Congress could have chosen to protect businesses by allowing them to bring civil actions against one another for unfair competition, but Congress did not so provide in the Consumer Protection Act.
Generally, the legislature has the power to modify or abolish common law rights or remedies. The legislature may supersede the common law without an express directive to that effect, as by adoption of a system of statutes comprehensively dealing with a subject to which the common law rule related. 15A Am. Jur. 2d Common Law § 18, at 619 (1976). The tort of unfair competition never has been recognized as being the law of the FSM or of Chuuk or Pohnpei states. This Court previously has recognized certain common law tort causes of action, e.g. tortious interference with contract, commercial appropriation, Mauricio v. Phoenix of Micronesia, Inc., 8 FSM Intrm. 248, 259 (Pon. 1998), and false imprisonment, Pohnpei v. M/V Miyo Maru No. 11, 8 FSM Intrm. 281, 295 (Pon. 1998). However, none of these cases involved a comprehensive legislative enactment which was directly relevant to the subject matter of the suit, as the Consumer Protection Act is in this case.
The Court finds that the Consumer Protection Act abolishes any common law action for unfair competition. The current state of the law in the FSM is such that businesses do not have standing to sue competitors for violations of 34 F.S.M.C. 103, including "passing off goods or services as those of another." 34 F.S.M.C. 103(1). Because Congress has legislated comprehensively in this field, it should be Congress that decides whether to provide businesses with a private cause of action against competitors for engaging in unfair competition.
Accordingly, the Court finds that Heinz's counterclaim fails to state a claim upon which relief may be granted, and plaintiff's Motion to Dismiss will be granted.
III. Plaintiff's Motion for a Preliminary Injunction
In reviewing a motion for preliminary injunction, the court is to weigh four factors: (1) the possibility of irreparable injury to the plaintiff; (2) the balance of possible injuries between the parties; (3) the movant's likelihood of success on the merits; and (4) the impact of any requested action upon the public interest. See Ponape Transfer & Storage v. Pohnpei State Public Lands Auth., 2 FSM Intrm. 272, 276-77 (Pon. 1986), and Ponape Transfer & Storage v. Federated Shipping Co., 3 FSM Intrm. 174, 177 (Pon. 1987). See also Ponape Enterprises v. Bergen, 6 FSM Intrm. 286, 289-90 (Pon. 1993).
A. Plaintiff's Claim of Irreparable Injury
At the hearing on plaintiff's Motion for a Preliminary Injunction, plaintiff presented the testimony of witnesses C.V. Ramesh and James Movick. Mr. Ramesh testified that he communicated with Best Buy, an oxford merchant, after Best Buy received a letter from Heinz's attorneys (in Exhibit 1) in December, 2000. He testified that, before Heinz caused its letter to be sent, Best Buy had purchased oxford from Foods Pacific, and that after Best Buy received the letter from Heinz's counsel, Best Buy ceased purchasing oxford. Mr. Ramesh further stated that Best Buy expressed concern to him that they were being asked by Heinz's attorneys to destroy their oxford products. Mr. Ramesh also testified that, because of the letters from Heinz, Foods Pacific was required to retain its own attorneys to write letters to its merchants and attempt to convince them to continue selling oxford.
Mr. James Movick, the agent in the FSM for Foods Pacific, also testified for plaintiff. Significantly, Mr. Movick testified that several of Foods Pacific's customers expressed concern about continuing to sell oxford corned beef after receiving letters from Heinz's attorneys. Mr. Movick
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testified that oxford has had difficulty overcoming the perception held by its merchants since receiving letters from Heinz's attorneys that they place themselves in legal jeopardy by selling oxford. Specifically, Mr. Movick stated that he met with Ambrose Senda, the owner of Ambrose markets, at least three times regarding the letter from Heinz's attorneys, and that Foods Pacific still has to expend resources to reassure its merchants that they can continue to sell oxford.
The testimony of these witnesses, along with other evidence received by the Court at the hearing, establishes that plaintiff will be irreparably harmed if this injunction does not issue.
No FSM cases have determined that the loss of customers and potential customers is irreparable harm. However, the loss of goodwill, loss of customers and potential customers, lost sales, and similar harms alleged by plaintiff, are not readily compensable by money damages, and thus are precisely the type of harm a preliminary injunction is intended to prevent. Economic damages based on such harms are extremely difficult to calculate: it is hard to prove, for example, how many people stopped buying a particular product, or bought less of that product, and for what period of time, that might be related to the conduct alleged. If Heinz were permitted to continue to contact Foods Pacific merchants and threaten legal action, especially when it has no basis to do so, it is possible that Foods Pacific's entire oxford business could be permanently and irreparably affected during the pendency of this litigation.
In this case, Foods Pacific alleges that merchants have attempted to rescind contracts based on Heinz's threats contained in the December letters. Foods Pacific further alleges that future or continued threats to its merchants will cause it irreparable harm, in that it may be impossible for plaintiff to recover lost customers, even if it eventually prevails in this action.
In sum, plaintiff does demonstrate irreparable harm. If Heinz is not restrained and Foods Pacific prevails on the merits, it is possible that it would be necessary to prove lost sales not only in the past, but also in the future, to place plaintiff in the position it was in before Heinz began contacting its merchants. Merely compensating plaintiff for lost sales in the past would not amount to a full recovery if Heinz were to destroy Foods Pacific's ability to sell its oxford product.
B. Likelihood of Success on the Merits
Foods Pacific alleges a series of claims based upon Heinz's contact with its merchants and the threats contained in the December letters. Essentially plaintiff claims that Heinz is unfairly attempting to capture the market in corned beef products, with the result that plaintiff will be driven out of the market and ultimately the FSM consumers will suffer from the lack of competitive pricing of corned beef products. Also, it is clear in the text of the December letters that, after threatening Foods Pacific merchants that they may be liable for damages for unfair trade practices, Heinz attempted to induce the merchants to enter into agreements with Heinz that they would not distribute any more oxford products.
Attempts to threaten or induce merchants not to sell competing products violate 32 F.S.M.C. 303. It is not clear whether plaintiff can demonstrate the type of illegal "combination" contemplated by 32 F.S.M.C. 302, nor is there any relevant case law found in the FSM which interprets the anti-competitive practices law. The Court also does not have before it any evidence of the relative market shares of Heinz or Foods Pacific products. Thus, at present it is difficult to evaluate the likelihood of success of plaintiff's claims under 32 F.S.M.C. 301 et seq.
Plaintiff's tort claims are more straightforward. At the hearing, plaintiff presented evidence that Heinz's contact with Foods Pacific merchants caused some merchants to threaten to cease purchasing oxford, and that some merchants may have ceased purchasing oxford as a result of Heinz's conduct.
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This evidence supports Foods Pacific's claims for tortious interference with contract, and tortious interference with prospective business relationships.5
Defendant asserts that all of its actions were legally justified because Foods Pacific is marketing a product which is confusingly similar to Heinz's own product, and Foods Pacific's oxford corned beef product is likely to lead to consumer confusion. Heinz asserts as an affirmative defense that it "had a legally cognizable interest in protecting its brand name, ox & palm corned beef, and as a result all efforts alleged to be undertaken by defendant were made in a good faith effort to protect this legally cognizable interest." Def. Ans., Affirmative Defense #3.
The relevant provisions of the FSM Consumer Protection Act state that:
The following unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared to be unlawful
. . .
(2) causing likelihood of confusion or of misunderstanding as to the source, sponsorship, approval or certification of goods and services;
(3) causing likelihood of confusion or of misunderstanding as to affiliation, connection, or association with, or certification by another;
. . .
(12) engaging in any other conduct which similarly creates a likelihood of confusion or of misunderstanding;
(13) engaging in any act or practice which is unfair or deceptive to the consumer.
34 F.S.M.C. 103.
As noted above, the Attorney General has the authority to prosecute violations of the Consumer Protection Act, but private entities like Heinz do not. The Act recognizes that unfair or deceptive trade practices are criminal, and also confers standing on consumers who are injured by the practices to recover their actual damages or $100, whichever is greater.
Thus, the issue is whether Heinz's actions were a good faith effort to protect a legally cognizable interest under FSM law, when Heinz has no standing to enforce this particular law.
The Court finds that, not only does Heinz not have a legally cognizable interest under FSM law, but also that Heinz's actions were not in good faith. See Federated Shipping Co. v. Ponape Transfer & Storage Co., 4 FSM Intrm. 3, 15 (Pon. 1989) (recognizing that a "good faith effort to protect a legally cognizable interest" prevents the Court from finding tortious interference with contractual relationships under Pohnpei law as a valid affirmative defense). Accordingly, the Court finds that
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plaintiff's likelihood of success in this case weighs in favor of granting the preliminary injunction.
C. Balance of Injuries to Parties
Because the Court has found that Heinz has no valid counterclaim for unfair competition under a common law theory, and that Foods Pacific is likely to prevail in at least some of its claims, the Court finds that the balance of harms is in favor of plaintiff. Foods Pacific has demonstrated potential irreparable loss to its business interests. Heinz cannot demonstrate any entitlement to interfere with Foods Pacific's sale and distribution of its oxford corned beef. It is up to the Attorney General to determine if there have been any violations or 32 F.S.M.C. 301 et seq. and take any appropriate enforcement actions. Thus, Heinz has not demonstrated any injury related to the issuance of an injunction.
D. Public Interest
Foods Pacific asserts that Heinz's actions tend to lessen competition and will limit the choice of consumers, possibly resulting in higher prices and an anti-competitive market for corned beef. Heinz asserts that consumers are being confused, and are being led to believe they are buying ox & palm product when they purchase oxford, which is a completely different product.
The Court finds that the public interest weighs in favor of granting the preliminary injunction, as the harm to the public that Heinz alleges remains fully protectable by consumers who may be confused, or by the Attorney General. Thus, the public interest is best served by maintaining competition in the corned beef market pending the outcome of this litigation.
Accordingly, the Court hereby dismisses John Does 1-10 from this case. The Court hereby grants plaintiff's Motion to Dismiss, and defendant's Counterclaim is hereby dismissed. The Court hereby grants plaintiff's motion for a preliminary injunction, which shall issue when plaintiff posts a cash bond of $1,000.00 with the Chief Clerk of Courts of the FSM Supreme Court, and Chief Clerk of Courts certifies to the Court that he has received that bond. FSM Civ. R. 65(c). Upon issuance, the preliminary injunction shall remain in effect pending a determination by this Court of the merits of the case. The Court also hereby schedules a status conference to set a schedule and trial date for this matter on November 14, 2001, at 10:00 a.m. at the FSM Supreme Court in Palikir, Pohnpei.
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1. Foods Pacific alleges that Heinz acted in an anti-competitive manner along with certain "John Doe" defendants. Generally, in in personam actions, there is no authority to proceed against unknown persons in the absence of a statute or rule. The FSM has no rule or statute permitting the use of fictitious names to designate defendants. Accordingly, the Court will dismiss the Doe defendants. This does not prohibit plaintiff from seeking to amend its complaint if it does ascertain other parties should be named defendants. However, since any judgment in personam against an unknown defendant would be void, the Court dismisses defendants John Does 1-10 from this case. See 59 Am. Jur. 2d Parties § 16, at 401-02 (1987); Craig v. United States, 413 F.2d 854, 857 (9th Cir. 1969) (the only purpose of naming fictitious defendants is to make it possible to substitute named defendants after the statute of limitations has run).2. Oxford also markets other products such as canned curry chicken and mutton, but all references in this opinion are to oxford corned beef, which is the only product at issue in this case.
3. On May 21, 2001, the Court denied defendant's motion to dismiss for lack of subject matter jurisdiction. [Foods Pacific, Ltd. v. H.J. Heinz Co. Australia, 10 FSM Intrm. 200, 203-05 (Pon. 2001).] Until that time, defendant had appeared only for the limited purpose of contesting this Court's jurisdiction. Accordingly, when the Court denied defendant's motion, it granted defendant time to appear and defend by filing its Answer and opposition.
4. Oxford's counterclaim alleges that Foods Pacific engaged in unfair competition by marketing its corned beef products in the FSM, but does not specify which state law (or national law) allegedly was violated. Evidence submitted at the hearing on the motion for a preliminary injunction revealed that Heinz sent letters complaining of such unfair competition in Pohnpei and Chuuk. Accordingly, the Court has looked at both Pohnpei and Chuuk State laws as they relate to consumer protection.
5.Oxford's counterclaim alleges that Foods Pacific engaged in unfair competition by marketing its corned beef products in the FSM, but does not specify which state law (or national law) allegedly was violated. Evidence submitted at the hearing on the motion for a preliminary injunction revealed that Heinz sent letters complaining of such unfair competition in Pohnpei and Chuuk. Accordingly, the Court has looked at both Pohnpei and Chuuk State laws as they relate to consumer protection.