Thursday, December 18, 2014

you can't a accuse competitor of lawbreaking when courts have ruled against you

Paul Davis Restoration, Inc. v. Everett, No. 14–C–1534, 2014 WL 7140038 (E.D. Wis. Dec. 12, 2014)

Following a series of unsuccessful lawsuits with Paul Davis Restoration, Inc., Matthew Everett, a former franchisee, began running a radio ad:
This is a business advisory. Paul Davis Restoration, Inc., a national operator of fire and water restoration franchises, is seeking a judgment of 25 percent commission on certain prior sales, which constitutes an unenforceable penalty in violation of Wisconsin state statutes and case law governing such restrictions and practices. In addition, they are seeking to impose several other terminations and conditions that are in direct violation of Wisconsin’s Fair Dealership laws, those Wisconsin laws which are designed to protect all Wisconsinites. To learn more, please visit This ad paid for by Paul Davis Restoration of NOWI.
The court enjoined Everett from using “Paul Davis Restoration” as a trade name; he was no longer a franchisee.  Although he agreed to remove that reference from the ad, given the litigation history between the parties, the court found that he hadn’t mooted the claim.

Paul Davis also argued that the rest of the ad was false and misleading; Everett argued that suppressing it would violate the First Amendment. Jordan v. Jewel Food Stores, Inc., 743 F.3d 509 (7th Cir. 2014), used a test for identifying commercial speech assessing whether (1) the speech is an advertisement; (2) the speech refers to a specific product; and (3) the speaker has an economic motivation for the speech.

The speech was undoubtedly in the form of an ad, and presumptively had an economic purpose: “advertising costs money, and most private citizens do not buy ad time merely to express their personal or political views.”  Also, Everett was a competitor of Paul Davis, and the content addressed topics of economic import.  And Everett’s own emails showed a purpose to divert business from Paul Davis to Everett: “This began running today in the markets we serve. It will begin running Statewide next week. …”  Running the ad in “the markets we serve” limited the ad to areas where Everett had an economic interest in driving business away from Paul Davis. “The threat implied by the ad is that Paul Davis’ business from the state and insurance carriers will dry up (and migrate to Everett’s business).” Also, the ad labeled itself a “business advisory,” which the court found to be “an effort to make the communication sound official, rather than something based on a citizen’s private views.” 

The ad didn’t refer to a specific product, but it did refer to a specific company and that company’s services. In context, it was clearly commercial speech.

In addition, the court found that the ad was false.  The ad claimed that Paul Davis was seeking “an unenforceable penalty in violation of Wisconsin state statutes and case law governing such restrictions and practices.” That is, the ad said that Paul Davis was breaking the law.  But it was merely seeking to enforce an arbitration award against Everett.  Even if the arbitrator got it wrong, “the fact that questions of law may be arguable does not mean a competitor can accuse a company of illegal conduct merely for seeking to enforce a lawfully obtained arbitration award. If Paul Davis’ CEO were tried and exonerated for a crime, a competitor would not be able to claim that the CEO committed criminal acts merely on the basis that it was the competitor’s opinion that the jury erred.”  (I should note that this rule must be limited to commercial speech.  If I, acting as a private citizen, opine that OJ Simpson is a murderer, the jury’s verdict of acquittal can’t be dispositive, and couldn’t be even before the civil verdict agreeing with me.)  There was no reasonable argument that Paul Davis was breaking any law by seeking to enforce an arbitration award, making the claim misleading and false.

The next statement, accusing Paul Davis of “direct violation of Wisconsin’s Fair Dealership laws,” also simply took issue with the rulings of the arbitration panel and the courts.  The claim of “direct violation” was not just an opinion but implied that the Paul Davis’s liability was clear, “when just the opposite is true.”  Accepting that many legal questions are arguable, and thus unfalsifiable, “would allow anyone’s subjective legal views to insulate them from liability simply on the basis that they disagreed (for whatever reason) with the rulings of a court.” Everett was free to run an ad expressing disagreement with the arbitration or the courts and arguing why he believed they erred.  “But here, the ad makes the preposterous claim that there is something illegal about attempting to enforce an arbitration award. The only conceivable purpose of such an assertion is to mislead consumers and others into thinking that the Plaintiff has engaged in illegal activity.”

Thus there was a strong likelihood of success on the merits. The parties didn’t much discuss the other factors, but “[g]iven the difficulty of calculating damages due to false accusations of illegal activity, the Plaintiff would suffer irreparable harm and would have no adequate remedy at law.”  So an injunction against the ad issued.

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