Monday, January 03, 2011

Standing as factual issue

Holy Cross Hospital, Inc. v. Baskot, 2010 WL 5418999 (S.D. Fla.)

A perceptive discussion of standing makes this false advertising case notable.

Baskot, formerly employed by Holy Cross, allegedly violated the terms of her employment agreement by, among other things, working at Baskot P.A., next door to Holy Cross medical offices. Prior to terminating her employment, Baskot allegedly contacted Holy Cross third-party payors, notified them that payments for her services to Holy Cross patients were to be sent to Baskot P.A., and sought a contract with one such payor. Holy Cross also alleged that Baskot’s website and other ads were literally false and/or misleading. It sued for false advertising and unfair competition under state and federal law, as well as breach of contract, tortious interference, and conversion.

Defendants voluntarily changed their website, leaving as the sole remaining website-related disagreement between the parties the continued listing of defendants’ practice location at 1142 E. Broward Boulevard, next door to Holy Cross medical offices. (Holy Cross retained damages claims for past conduct.)

Defendants moved to dismiss the Lanham Act claim for lack of standing, but the court thought they were really challenging the merits. Tellingly, the court noted its belief that “the merits nature of Defendants' argument regarding lack of standing is due to the overlap between the test for prudential standing under Section 43(a) and the injury element of such Section 43(a) claims…. A side-by-side comparison of the Phoenix of Broward factors and the injury element of a false advertising claim suggests that the jurisdictional and merits inquiries under Section 43(a) could overlap, and in this case, indeed they do.”

Defendants argued that Holy Cross didn’t plead a quantifiable claim to damages, which goes to the injury element of a §43(a) violation and implicates the Phoenix of Broward factors of the directness or indirectness of the asserted injury and the speculativeness of the damages claim. When the facts necessary to sustain jurisdiction implicate the merits, the proper result is to find jurisdiction and deal with the direct attack on the merits under Rule 12(b)(6) or on summary judgment. Thus, the motion to dismiss for lack of standing was denied. (Note the implication: in the now-garden-variety standing challenge, this reasoning should regularly apply, since the questions of quantifying damages, directness of injury, and speculativeness will essentially always be factual ones. While Iqbal and Twombly certainly complicate matters, the Phoenix of Broward factors fundamentally require factfinding, and that makes them poor fits with motions to dismiss.)

The footnotes are also of interest: the court commented that it was uncertain that Holy Cross could show that listing a current, accurate address could give rise to a §43(a) claim, but that this was a matter for further proceedings. In some sense, Holy Cross is making a passing off claim, though not claiming its address as a trademark; Margreth Barrett’s recent piece on passing off claims considers circumstances under which the passing off claim makes sense separate from trademark. In addition, the court noted that Phoenix of Broward purports to cover false advertising claims only, and to the extent that the §43(a) claims were for some other kind of misconduct, the parties didn’t address what standing test applied. This is yet another emerging catastrophe of current standing doctrine, as the knots into which the Second Circuit recently tied itself in Famous Horse suggest.

The court then declined to exercise supplemental jurisdiction over the state law claims.

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