Thursday, December 27, 2012

No standing when defendant wore noncompeting hat elsewhere in sales chain

Dominick v. Collectors Universe, Inc., 2012 WL 6618616 (C.D. Cal.)

Dominick is a professional numismatist and rare-coin dealer who owns Westwood Rare Coin Gallery, Inc., which sells rare coins and other numismatic material.  The court dismissed Dominick’s mostly antitrust-based complaint without leave to amend.

Defendant Hall is also a numismatist and rare-coin dealer who owns defendant David Hall Rare Coins.  He also acts as the president, director, and CEO of defendant Collectors Universe, Inc.; he serves as the director of defendant Certified Coin Exchange, owned by Collectors Universe, which operates the main website for real-time trading of numismatic materials; and he is a founding member and the chief executive officer of Professional Coin Grading Service, the service that grades most of the rare coins traded on the CCE website (PCGS is now merged with Collectors Universe and no longer an independent entity).   Dominick also sued CCE’s president and sales director.

Along with antitrust claims based on alleged acts to control the market in real-time numismatic materials trading, Dominick alleged that Hall falsely advertised that PCGS-graded rare coins are “valued accurately and impartially” and that rare-coin dealers can become CCE members as long as they fulfill CCE's requirements.

Defendants argued that plaintiffs lacked standing because the statements were about PCGS and the membership requirements for CCE, neither of which were named defendants.  Article III injury in a false advertising case occurs “if some consumers who bought the defendant's product under a mistaken belief fostered by the defendant would have otherwise bought the plaintiff's product.”, Inc. v. Edriver Inc., 653 F.3d 820 (9th Cir. 2011).  In addition, Lanham Act standing requires a plaintiff to show that the false statement caused a “competitive” commercial injury: harm to the plaintiff's ability to compete with the defendant.

The complaint showed a lack of standing.  Plaintiffs alleged a Lanham Act claim only against Hall, their direct competitor, but while parts of the complaint ascribed the false statements to Hall, other parts suggested that the statements were more properly attributable to PCGS and CCE, not Hall.  (The court seems to be suggesting that false statements made by an entity wearing the wrong “hat” aren’t within the scope of the Lanham Act; this seems wrong to me.  Compare Harold H. Huggins Realty, Inc. v. FNC, Inc., --- F.3d ----, 2011 WL 651892 (5th Cir.), which involves an allegedly false statement made in part of the competitive chain that the plaintiffs didn’t compete in, but that nonetheless allegedly harmed them as competitors with the defendant; the court of appeals found standing even under a restrictive standing test.  It’s not quite the same because of the different corporate entities here, but I’m not sure why that should be dispositive, since it invites gaming.  Possibly there is a distinction to be made in that plaintiffs weren't harmed as competitors, but I'm not sure there are enough facts here to be very confident of that.) 
The fact that Hall owned PCGS and CCE was insufficient to allege that he made the false statements, since they’re separate entities even if Hall owns and operates them “to some degree.”  Thus, the false representations were more properly attributable to PCGS and CCE, and plaintiffs needed to allege a hindrance to their ability to compete with those entities.  But they didn’t allege a claim against those entities, nor did they allege that they provide coin grading services or an online trading platform that competes with the services provided by those entities.  Given that this was the second amended complaint, the court determined that dismissal with prejudice was appropriate.

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