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PILLSBURY COMPANY v. UPPER CRUST PRODUCTION CO.

January 6, 2004.

THE PILLSBURY COMPANY, Plaintiff,
v.
UPPER CRUST PRODUCTION CO., INC. and UPPER CRUST USA INC., Defendants



The opinion of the court was delivered by: JONATHAN FELDMAN, Magistrate Judge

DECISION AND ORDER

Preliminary Statement

Exactly how much butter must a croissant blended with butter contain to be properly labeled a "butter blend" croissant? The answer to this slippery legal issue has consumed the attention of lawyers, scientists, testing laboratories, and ultimately this federal court. In a complicated legal proceeding that was long on organic chemistry and lamentably short on taste testing, the evidence adduced confirmed what noted British mathematician, logician and philosopher Bertrand Russell (1872-1970) once wrote about evaluating scientific proof: "Although this may seem a paradox, all exact science is dominated by the idea of approximation. When a man tells you that he knows the exact truth about anything, you are safe in inferring that he is an inexact man." Bertrand Russell, The Scientific Outlook, Chapter 2, 1st Ed. 1931. Page 2

  FACTUAL BACKGROUND

  The hard facts of this dispute center upon a soft roll known as the croissant. Made in the shape of a crescent similar to the emblem of Turkey, this small roll was first baked in Vienna in 1689 to celebrate the defeat of the Turks by Austria. The croissant was introduced into France by Marie Antoinette, who was originally the Princess of Austria. The French were later recognized as being responsible for re-formulating the dough resulting in the buttery flaky pastry which today is marketed and sold throughout the world.

  One of the major sales outlets for baked goods, including croissants, are supermarket bakeries. Industry publications estimate that the retail bakery business is a ten billion dollar industry. (Transcript of Contempt Proceedings, hereinafter "Tr." at 27). Aside from being lucrative, the industry is also intensely competitive. Retail bakeries, including supermarket chains, invite different manufacturers to bid on supplying frozen dough products. The bidding process often includes blind taste tests of the competing products. (Tr. at 41). It is a highly competitive process, frequently pitting large national companies against regional dough suppliers who are vying for the same frozen dough business. The "winner" usually gains the exclusive right to supply the retail outlet with the frozen dough that is ultimately baked and sold by the retail bakery as their own "freshly baked" goods. Page 3

  Given the size of the industry and the profits at stake, the contenders for the various dough supply contracts are justifiably concerned that those competing against them play "by the rules." One of the most fundamental rules pertains to a supplier's obligation to truthfully label its product. The United States Food and Drug Administration (FDA) has promulgated extensive regulations concerning the accurate labeling of food products. The applicable FDA labeling rules are not in dispute here and can be simply stated. First, the regulations require that frozen croissant dough labeled and sold as a "butter croissant" must, in fact, actually be croissant dough made only with butter fat. Second, frozen croissant dough labeled and sold as a "butter blend" croissant may legally contain a blend of butter and margarine so long as the dominant shortening product used in the "butter blend" product is, in fact, butter.*fn1

  Finally, by way of background to the current dispute, there is a meaningful link between the competitive bid process and the accurate labeling of the product by the competing suppliers. Butter is three to five times more expensive than margarine. Tr. Page 4 at 716-717). Consequently, the type of shortening product used by a frozen dough supplier could dramatically affect the price for which the product could be offered for sale. A product labeled and marketed as a butter croissant but which contains margarine as a shortening product can be manufactured at a significantly lower cost than a butter croissant product that is accurately labeled and contains only butter fat. The same holds true for butter blend croissants where a manufacturer does not use butter as its dominant shortening product but nevertheless improperly labels the product as a "butter blend" croissant. Thus, an unscrupulous dough supplier who deliberately "fudges" the actual butter content of its product has a significant price advantage over a dough supplier who accurately labels the butter content of its product. By virtue of deceptive labeling, the unscrupulous supplier will be able to submit lower bids and will unfairly profit from that deception where price is a consideration in awarding the dough supply contract.

  BACKGROUND OF THE BUTTER DISPUTE

  The dispute between the parties here is straight forward. Pillsbury and Upper Crust are competitors in the frozen dough business. Pillsbury has accused Upper Crust of cheating by deliberately misrepresenting the butter content in its "butter Page 5 blend" croissants. Upper Crust denies that the labels on its frozen croissant dough packages misrepresent the butter content of its products. Indeed, Upper Crust submits that the current litigation was commenced by Pillsbury not because of any product labeling dispute, but because Pillsbury just "lost another big customer" to Upper Crust and they "just can't believe a small unsophisticated business [like Upper Crust] could make a product that customers like better [than Pillsbury] and want to buy." (Tr. at 20).

  This is not the first time that Upper Crust and Pillsbury have squared off over allegations that Upper Crust deliberately exaggerated the butter content of frozen croissant dough. In 1998, Pillsbury sued Upper Crust in federal court alleging that Upper Crust was selling "Butter Croissants" which contained less than 100% butter as is required for products labeled "butter" without qualification. In support of their claim, Pillsbury provided Upper Crust with test results it had obtained from both its own and an independent testing laboratory which revealed that the shortening used in Upper Crust's "Butter Croissants" contained an average of 35% butter.

  Following discovery, this Court engaged the parties in settlement negotiations and a settlement of the case was achieved. Interestingly, in the earlier case, Upper Crust did not deny that Page 6 its "Butter Croissants" contained less than 100% butter, but insisted that as a Canadian company it was simply unaware of PDA labeling regulations. However, as part of the settlement, Upper Crust acknowledged that it inaccurately labeled and sold "Butter Croissants" in violation of FDA regulations. In addition, Upper Crust agreed to have a Consent Order and Permanent Injunction entered by this Court forbidding it from: (1) "marketing or selling any croissants in the U.S. labeled "Butter Croissants unless 100% of the shortening ingredients is butter," and (2) from "marketing or labeling any croissants sold in the U.S. in any way that misrepresents the butter content of the croissant product." (Docket #14, 112). The Consent Judgment further provided that "[i]n the event any party breaches any terms of this Consent Judgment and Permanent Injunction, or any term of the incorporated Settlement Agreement, that party shall be subject to a contempt proceeding in which the Court shall award the prevailing party its attorney fees and costs, and in which the Court may, in its discretion, award damages and other relief." (Docket #14, 54). The Consent Judgment, Permanent Injunction and settlement agreement (Docket #14) were filed on January 15, 1999.

  The dispute now before this Court pays tribute to the fact that Pillsbury believes Upper Crust has violated the Consent Judgment and Permanent Injunction. More specifically, Pillsbury Page 7 contends that Upper Crust has intentionally overstated the butter content of its "butter blend" frozen croissant dough. The parties agree that a "butter blend" croissant which contains more than 50% butter (as a percentage of the total shortening in the dough) would comply with both FDA regulations and the Consent Judgment. However, Pillsbury maintains that Upper Crust's "butter blend" croissant dough contains less than 50% butter despite the fact that the product ingredient label lists butter before margarine.

  In order to verify Upper Crust's alleged violation of the Consent Judgment, in January 2001, Pillsbury sent samples of Upper Crust's frozen dough to two separate independent laboratories (Rtech Laboratory and Covance Laboratory) for testing.*fn2 Both labs determined that butter constituted less than 50% of the fat content of the butter blend product samples tested. (Hearing Exhibits 2 and 3). After receiving the test results, Pillsbury notified Upper Crust that "it was in violation of the [settlement] agreement and the injunction." (Tr. at 37). Unable to resolve their dispute, in April 2001 Pillsbury commenced the instant contempt proceeding. Page 8

  THE APPLICABLE STANDARD OF REVIEW

  Before turning to the merits of the contempt proceeding commenced by Pillsbury, it is important to note the standard of proof needed to demonstrate civil contempt of court. Pillsbury bears the burden of proof to demonstrate contempt. Levin v. Tiber Holding Corp., 277 F.3d 243, 250 (2d Cir. 2002) ("The party seeking to hold another in civil contempt bears the burden of proof"). There are three requirements for a court to find a party in civil contempt: (1) the order being enforced must be clear and unambiguous; (2) proof of non-compliance is clear and convincing, and (3) the party charged with contempt has not been reasonably diligent and energetic in attempting to accomplish what was ordered. Equal Employment Opportunity Comm'n v. Local 580, 925 F.2d 588, 594 (2d Cir. 1991). See United States v. O'Rourke, 943 F.2d 180, 189 (2d Cir. 1991) (parties may be held in civil contempt for failure to comply with a court order if order is clear and unambiguous, proof of noncompliance is clear and convincing, and parties have not been reasonably diligent in ...


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