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In re Sears

April 6, 2009

IN RE SEARS, ROEBUCK & CO. TOOLS MARKETING AND SALES PRACTICES LITIGATION,
CHARLES CHATHAM ET AL., INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
SEARS, ROEBUCK & CO., DEFENDANT.



The opinion of the court was delivered by: John F. Grady, United States District Judge

MDL-1703

MEMORANDUM OPINION

Before the court is defendant's motion to dismiss nine plaintiffs' claims in the third amended complaint, which are the only remaining claims in this action. For the reasons stated below, the motion is granted in part and denied in part.

BACKGROUND

Plaintiffs, who are citizens of several different states, claim that defendant Sears, Roebuck & Company ("Sears") deceptively advertised its proprietary line of "Craftsman" tools as manufactured in the United States when in fact many of the tools are foreign-made or contain significant foreign parts. The current complaint is titled "Third Amended Consolidated Class Action Complaint" ("Third Amended Complaint"). After a series of rulings on motions to dismiss the instant complaint and previous complaints or portions thereof, the remaining plaintiffs are Charles Chatham, Gloria Layton, Heather Pistorius, Stephen Jolley, Curtis Oates, Kathryn DeSautell, Nancy and David Freid, and William Hurst.*fn1 These plaintiffs' remaining claims are for statutory consumer fraud (Count III), unjust enrichment (Count IV), and "equitable relief" (Count VI).

This case was filed as a putative class action. In December 2007, we denied plaintiffs' motion for class certification, holding that the proposed class was overbroad and insufficiently identifiable and that plaintiffs had failed to satisfy the typicality and predominance requirements of Federal Rule of Civil Procedure 23. Thereafter, Sears moved to dismiss the remaining plaintiffs' claims, but we suspended briefing on that motion and requested briefs addressing the propriety of our continued exercise of jurisdiction pursuant to the Class Action Fairness Act in light of our denial of plaintiff's motion for class certification. In an order of November 6, 2008, we concluded that we continue to have jurisdiction over this matter and directed briefing to proceed on defendant's motion to dismiss. The motion is now fully briefed.

DISCUSSION

A. Standard of Review

The purpose of a 12(b)(6) motion to dismiss is to test the sufficiency of the complaint, not to resolve the case on the merits. 5B Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1356, at 354 (3d ed. 2004). When evaluating such a motion, the court must accept as true all factual allegations in the complaint and draw all reasonable inferences in the plaintiff's favor. Hentosh v. Herman M. Finch Univ. of Health Sciences, 167 F.3d 1170, 1173 (7th Cir. 1999); Jang v. A.M. Miller & Assocs., 122 F.3d 480, 483 (7th Cir. 1997). However, the "allegations must plausibly suggest that the plaintiff has a right to relief, raising that possibility above a 'speculative level.'" EEOC v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1965, 167 L.Ed. 2d 929 (2007)). The complaint must "contain enough facts to state a claim to relief that is plausible on its face." Killingsworth v. HSBC Bank Nevada, 507 F.3d 614, 618 (7th Cir. 2007).

Plaintiffs' remaining claims are for statutory consumer fraud (Count III), unjust enrichment (Count IV), and "equitable relief" (Count VI).*fn2 Because these claims are based on fraud, specifically the allegation that Sears has intentionally misled consumers about the country of origin of Craftsman tools, the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) apply here. Rule 9(b) requires plaintiffs to plead with particularity the factual bases for averments of fraud, including "the identity of the person making the misrepresentation, the time, place, and content of the misrepresentation, and the method by which the misrepresentation was communicated to the plaintiff." Hefferman v. Bass, 467 F.3d 596, 601 (7th Cir. 2006); see also DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990) (stating that the plaintiff must plead the who, what, when, where, and how of the alleged fraud).

B. Plaintiffs' Allegations

In our opinion denying plaintiffs' class certification motion, we set forth the background facts as alleged by plaintiffs:

Defendant Sears has sold a line of tools under its proprietary "Craftsman" brand for over seventy years. Craftsman tools, which generate approximately $4 billion in annual sales, are nationally marketed, and Sears advertises and promotes the brand as being made in the United States. Sears also advertises Craftsman tools as being of higher quality because they are made in America by "American workers." (Third Am. Compl. ¶ 2.)

Sears has made the representation that Craftsman tools are made in the United States through various media: Sears's catalogs, Sears's Web site, advertising in periodicals and newspapers, on display racks and signs for the tools, and in television shows and commercials featuring actor John Ratzenberger, home improvement expert Bob Vila, and race car driver A.J. Foyt. Plaintiffs also allege on information and belief that Sears trains its employees to make verbal representations to customers that Craftsman tools are made in the United States.

Plaintiffs allege that Sears's "Made in USA" claim is deceptive because many, if not most, Craftsman tools are foreign-made or contain significant foreign components. The Third Amended Complaint cites several examples of tools, such as axes and hoes, that were marked "Made in USA" when in fact substantial parts of those tools were made abroad. Plaintiffs contend that Sears has violated Federal Trade Commission ("FTC") guidelines, which provide that "manufacturers and marketers should not indicate, either expressly or implicitly, that a whole product line is of U.S. origin when only some products in the product line are made in the U.S. according to the 'all or virtually all' standard." (Id. ¶ 94 (citing publication on FTC Web site).) In plaintiffs' view, Sears has exploited consumers' patriotism and desire to buy domestically-produced goods and to support American workers and the American economy. The "Made in USA" claim has enabled Sears to sell Craftsman tools at inflated prices.

At some point, Sears decided to manufacture more Craftsman products overseas in order to save money and increase profit margins. In the year 2000, approximately 20 percent of Craftsman products were not made in the United States; by 2005, the number had increased to 70 percent.

During this time period, Sears's executives were aware that their customers believed that Craftsman products were made in the United States. Sears commissioned studies which found that consumers believed that "Made in the USA" was an attribute of Craftsman more so than any other brand of hand and power tools and from which Sears concluded that "Craftsman is well known to be a 'Made in USA' brand." (Id. ¶¶ 70-71.) Sears also commissioned studies on how the knowledge that Craftsman products were made overseas would affect customers. The findings were that 25 percent of Sears's customers would not buy the products at all "if it [became] known" that the products were made overseas; that an additional 49 percent of its customers "would pay between" 10 and 25 percent less "for products that they believed were not made in America"; and that 57 percent of its "do-it-yourself" customers and 72 percent of its "pro" customers would pay 20 to 50 percent more for a tool if it were made in the United States. At the same time, the Craftsman line of products had a profit margin of 31.3 percent. This margin was roughly twice that of other tool manufacturers whose products were not perceived by customers as being made in the United States.

Plaintiffs further allege: "Sears knew that if it became known that its Craftsman products were not made in the U.S.A. it would be forced to reduce its prices and profit margins on Craftsman to be in line with other manufacturers. Sears decided not to correct the misconception its customers had about the origin of its Craftsman products because such a disclosure would cost it money." (Id. ¶¶ 74-75.)

After lawsuits similar to the instant suit were filed around the country, Sears "acknowledged the wrongfulness of its conduct" by instructing its employees to mark out or tape over "Made in USA" labels on certain Craftsman tools in Sears stores. (Id. ¶ 4.) According to plaintiffs, however, this cover-up did not completely eliminate the false representations, and "millions of consumers had been, and continue to be, misled by the improper claims of country of origin." (Id.)

In re Sears, Roebuck & Co. Tools Mktg. and Sales Practices Litig., Nos. 05 C 4742 & 05 C 2623, 2007 WL 4287511, at *1-2 (N.D. Ill. Dec. 4, 2007). The Third Amended Complaint includes a paragraph for each plaintiff (or plaintiff-couple, in the Freids' case) containing individualized allegations. For example, plaintiff Chatham's allegations are as follows:

Plaintiff Charles Chatham is a citizen of the State of Alabama. Between 2003 and the present, at a Sears store in the Oxford Mall, in Oxford, Alabama, Plaintiff Chatham purchased a Craftsman edger, and Craftsman rakes, shovels, sledge hammers, and garden tools. Shortly before making his purchases, Plaintiff Chatham saw and relied on Sears advertising for the Craftsman line, which stated "Made in USA," and/or included depictions of the United States flag, on Craftsman posters in the Sears store in Oxford Mall, on Bob Vila television commercials which he viewed from his home, and on the packaging of the tools he purchased. At the time of his purchases, and as a result of seeing these posters, television commercials, and packaging, Plaintiff Chatham believed that each Craftsman tool he purchased was made in the United States, and that belief was the primary factor in his decision to purchase Craftsman over any other brand.

As a result of Sears' concealment, as alleged below, Plaintiff Chatham was unaware his Craftsman tools were not made in the United States, until approximately the time this lawsuit was filed. On post-purchase inspection, he found an imprint on his Craftsman Edger, which indicates it was made in Canada. On information and belief, Plaintiff Chatham's above-referenced Craftsman tools were not made in the United States. Plaintiff Chatham further alleges that, but for Sears' material misrepresentations alleged herein, he would not have purchased Craftsman tools in the first instance, and/or not at the inflated and premium prices he paid for those tools. (Id. ¶ 5.) Layton, Pistorius, Jolley, Oates, DeSautell, Hurst, and the Freids make similar allegations, the particulars of which are discussed infra.

C. Plaintiffs' Compliance with Rule 9(b)

The principal argument raised by Sears is that plaintiffs' claims are not pled with the requisite particularity.*fn3 Plaintiffs allege that they saw and relied on Sears's "advertising for the Craftsman line, which stated 'Made in USA,' and/or included depictions of the United States flag." (Third Am. Compl. ¶¶ 5, 6, 19, 20, 24, 25, 29, 34.) In most of the paragraphs setting forth plaintiffs' individualized fact allegations, plaintiffs then state the general types of advertisements they saw but do not specify any particular advertisements. Sears contends that plaintiffs have insufficiently specified the "what" and "when" aspects of these advertisements. According to Sears, the FTC, whose standards are invoked by plaintiffs themselves, has stated in a publication for businesses that it evaluates implied "Made in USA" claims (such as the display of a United States flag) by "focus[ing] on the overall impression of the advertising, label, or promotional material" and examining the context. (Def.'s Mem. in Supp. of Mot. to Dismiss at 7 (citing Federal Trade Commission, Facts for Business: Complying with the Made in the USA Standard, available at http://www.ftc.gov/bcp/edu/pubs/business/adv/bus03.shtm (last modified Oct. 28, 2008)). Sears submits that federal courts also examine the context in which claims of geographic origin appear, citing, inter alia, Black & Decker (U.S.) Inc. v. Pro-Tech Power Inc., 26 F. Supp. 2d 834 (E.D. Va. 1998).

Plaintiffs do not allege that Sears's advertisements uniformly represented that the entire Craftsman line of products was made in the United States. Rather, even the advertisements cited in the Third Amended Complaint show that Sears sometimes qualified its claim. Sears argues that "the critical importance of the factual context [plaintiffs] fail[] to allege is persuasively demonstrated by" Exhibit A-2 to the Third Amended Complaint, a Sears advertisement that states "1,800 CRAFTSMAN HAND TOOLS. MADE IN AMERICA. GUARANTEED FOREVER!" (Def.'s Mem. in Supp. of Mot. at 8.) (Paragraph 52 of the Third Amended Complaint refers to a statement on Sears's Craftsman web site that cited a total of "over 5,100 Craftsman tools.") Sears further argues that this advertisement does not state or imply ...


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