REVIEW DIRECTORIES INC. v. McLEODUSA PUBLISHING COMPANY, (W.D.Mich. 2001)

Hon. Richard Alan Enslen

This matter is before the Court on Plaintiff's Motion for Summary Judgment on Defendant's False Advertising, Trade Disparagement, and Business Defamation Counterclaims. The Court grants in part and denies in part the Motion.

According to Plaintiff, Plaintiff received many inquiries from customers regarding whether Plaintiff had ceased its operations and whether Plaintiff still published their directories. To address this, Plaintiff initiated an advertising campaign in Charlevoix, Emmet, Mackinac, and Cheboygan counties in northern Michigan. Plaintiff states it used the campaign to minimize the confusion caused by Defendant and to mitigate perceived damages. Plaintiff further states that it believed all the information contained in its advertisements were true.

According to Defendant, Plaintiff's campaign centered on four themes: (1) Defendant, an Iowa corporation, was attempting to start a low quality directory in the area; (2) Defendant was falsely passing itself as a local entity that had published area directories in the past; (3) Defendant was the local entity that had been publishing the Cheboygan directory; and (4) Defendant's representatives had been lying to local businesses and could not be trusted.

Defendant bases its counterclaims of False Advertising, Trade Disparagement, and Business Defamation on Plaintiff's advertising campaign. Plaintiff claims that each Counterclaim fails.

In reviewing a motion for summary judgment, this Court will only consider the narrow question of whether there are "genuine issues as to any material fact and [whether] the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A motion for summary judgment requires that the Court view the "`inferences to be drawn from the underlying facts . . . in the light most favorable to the party opposing the motion."` Matsushita Elec. Ind Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)). The opponent, however, has the burden of showing that a "rational trier of fact [could] find for the non-moving party [or] that there is a `genuine issue for trial."` Matsushita, 475 U.S. at 587. "The mere existence of a scintilla of evidence in support of plaintiff's position[, however,] will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff." Anderson v. Liberty Lobby, 477 U.S. 242, 252 (1986).

The Lanham Act prohibits false advertising in interstate commerce. 15 U.S.C. § 1125. Defendant must prove the following to succeed in a false advertising claim: (1) Plaintiff made false or misleading statements of fact concerning its product or Defendant's; (2) the false statements actually deceives or tends to deceive a substantial portion of the intended audience; (3) the statement is material and will likely influence a deceived consumer's purchasing decisions; (4) the advertisements were introduced into interstate commerce; and (5) a causal link between the challenged statements and Defendant's harm exists. See Balance Dynamics Corp. v. Schmitt Indus., Inc., 204 F.3d 683, 689 (6th Cir. 2000). Plaintiff claims that Defendant cannot fulfill these standards.

Plaintiff argues that Defendant failed to plead that the advertising was introduced into interstate commerce because Defendant's allegation that its "phone service and directories are conducted in interstate commerce" is not sufficient. Plaintiff claims that Defendant was obligated to plead that the accused advertisements or statements moved in interstate commerce rather than whether the underlying commercial activity moved in interstate commerce. See Licata Co. v. Goldberg, 812 F. Supp. 403, 409 (S.D.N.Y. 1993). In addition, Plaintiff argues that Defendant specifically pled that Plaintiff s advertising campaign took place only in the previously mentioned northern Michigan counties.

Defendant counters by relying on cases indicating that the interstate commerce elements is satisfied when false statements have "substantially affected interstate business," Mother Waddles Perpetual Mission, Inc. v. Frazier, 904 F. Supp. 603, 611 (E.D.Mich. 1995), or when the false statements "enter interstate commerce," Fed. Express Corp. v. U.S. Postal Serv., 40 F. Supp.2d 943, 950 (W.D.Tenn. 1999). Furthermore, Defendant argues that "commerce" includes intrastate activities that affect interstate commerce. See Mother Waddles, 904 F. Supp. at 611 (finding the interstate jurisdictional requirement met where the defendant's intrastate use substantially affected interstate business).

Defendant claims that whether interstate business is substantially affected depends on whether Defendant was hindered in its ability to conduct its interstate business. See Johnson v. Jones, 149 F.3d 494, 502 (6th Cir. 1998). Based on this, Defendant claims that the evidence raises a sufficient factual issue on whether Plaintiff's advertising hindered Defendant's interstate business.

The Court has read Defendant's argument and the cases on which Defendant relies. The Court questions the relevance of these cases. Most of the cases address the general jurisdictional requirement of bringing a claim under the Lanham Act, but they do not address the specific interstate commerce element necessary to bring a false advertising claim. This Court must look to the recent Sixth Circuit decision explicitly stating that a party must specifically plead that the advertisements entered interstate commerce.

Having stated the applicable law, the Court finds Defendant's pleading lacking. Defendant did not allege that the advertisements entered interstate commerce. In fact, Defendant specifically pleads that the advertisements only occurred in northern Michigan. This is simply not enough to sustain a false advertising claim. Furthermore, nothing in the record appears to indicate that the advertisements in question entered interstate commerce. Thus, the advertisements do not violate the Lanham Act, and Defendant's False Advertising claim must be dismissed.

Defendant's Trade Disparagement and Business Defamation claims are based on Plaintiff's alleged violation of Michigan's common law prohibition against trade disparagement, which is also known as business defamation. In Michigan, claims for trade disparagement and business defamation must be specifically pled. See Royal Palace Homes, Inc. v. Channel 7 of Detroit, Inc. 197 Mich. App. 48, 52 (1992). Plaintiff claims Defendant has failed to sufficiently plead its trade disparagement and business defamation claims. In the alternative, Plaintiff claims that Defendant cannot establish the elements of these claims.

The Court finds that Defendant has adequately pled both trade disparagement and business defamation. These claims are different from Defendant's False Advertising claim. Regarding its False Advertising claim, Defendant failed to specifically plead an element of false advertising, and the record does not demonstrate evidence to support the missing element. Defendant's have sufficiently pled these two claims such that Plaintiff is on notice of Defendant's claims and able to respond thereto.

To succeed on its trade disparagement claim, Defendant must prove: (1) Plaintiff published or communicated to a third person, (2) a false statement about Defendant's products or services, (3) with knowledge of the statement's falsity or reckless disregard for its truth, and (4) intending to inflict economic harm. See MNP Corp. v. Prod. Risk Reduction, Inc., 1996 U.S. Dist. LEXIS 9094 (E.D.Mich. 1996); Dealer Adver. Dev., Inc. v. Barbara Allan Fin. Adver., Inc., 1979 WL 1079, * 14 (W.D.Mich. November 21, 1979).

Plaintiff asserts that a conditional privilege exists for competitors and cites to the Restatement (Second) of Torts for support. Section 649 of the Restatement defines the conditional privilege of competitors as the right to make an unduly favorable comparison of the quality of one's services with the quality of a competitor's services. Furthermore, this privilege exists even if one does not believe that his or her own services are superior to those of the competitor as long as the comparison does not contain false assertions of specific, unfavorable facts about the competitor's services. Restatement (Second) of Torts, § 649 (1976). To overcome this privilege, Defendant must prove that Plaintiff abused it by showing that Plaintiff knew its statements were false or that Plaintiff recklessly disregarded their truth. See Bichler v. Union Bank and Trust Co. of Grand Rapids, 745 F.2d 1006, 1011 (6th Cir. 1984).

Plaintiff claims Defendant cannot present any facts to support its trade disparagement claim. Rather, Plaintiff claims that the record shows it acted without malice in attempt to address the confusion Defendant's representatives caused. Plaintiff also claims that it believed its statements were true. Plaintiff further claims that it is protected by the conditional privilege between competitors because Plaintiff and Defendant are competitors, and Defendant cannot overcome this privilege because Defendant cannot show that Plaintiff knew its statements were false or that it recklessly disregarded the truth.

The Court disagrees with Plaintiff. If Plaintiff's advertisements contain statements of opinion creating a reasonable inference that the statements are justified because of undisclosed facts, the Court cannot grant summary judgment. See Falls v. Sporting News Publ `g Co., 834 F.2d 611, 614-15 (6th Cir. 1987). Plaintiff has made many statements that create an inference they are justified because of undisclosed fact. For example, Plaintiff stated that Defendant published a "phony book," and published a directory of poor quality. In addition, Plaintiff indicated that Defendant's sales representatives were imposters and were attempting to sell customers a "bridge." Furthermore, Plaintiff stated as a fact that Defendant would do "anything and everything to get you to sign on the dotted line, including lying to your face." These statements present a question of fact as to whether Plaintiff made false statements.

In addition, were the conditional privilege of competitors to apply between Plaintiff and Defendant, it is possible that a rational juror could find that Plaintiff abused the privilege. It is possible, based on the advertisements and other evidence, that Plaintiff knew its statements were false or that Plaintiff acted with malice. As such, the Court denies Plaintiff's Motion for Summary Judgment Regarding Defendant's Trade Disparagement claim.

Business defamation addresses damage to a business' reputation, see U.S. Healthcare, Inc. v. Blue Cross of Greater Philadelphia, 898 F.2d 914, 924 (3d. Cir. 1990), and to succeed in this claim, Defendant must prove: (1) a false and defamatory statement concerning Defendant, (2) unprivileged and made to a third party, (3) made at least negligently, and (4) causing damage. See Falls, 834 F.2d at 614-15.

Plaintiff claims Defendant cannot prove that Plaintiff made a false statement about Defendant in the advertisements. Plaintiff also claims the conditional competitor privilege protects its advertisements against Defendant's Business Defamation claim.

For the same reasons the Court did not find summary judgment appropriate regarding Defendant's Trade Disparagement claims, the Court does not find summary judgment appropriate regarding Defendant's Business Defamation claim.

For the foregoing reasons, Plaintiff's Motion for Summary Judgment on Defendant's False Advertising, Trade Disparagement, and Business Defamation Counterclaims is granted in part and denied in part. It is granted to the extent that Defendant's False Advertising Claim is dismissed.

An Order consistent with this Opinion is forthcoming.

In accordance with the Opinion entered this day,

IT IS HEREBY ORDERED that Plaintiff's Motion for Summary Judgment on Defendant's False Advertising, Trade Disparagement, and Business Defamation Counterclaims (Dkt. No. 156) is GRANTED in part and DENIED in part. It is granted to the extent that Defendant's False Advertising Counterclaim is DISMISSED.