Thursday, October 08, 2015

Lexmark means what it says, except when it says not to use the word "standing"

New Jersey Physicians United Reciprocal Exchange v. Boynton & Boynton, Inc., Nos. 12-5610, 13-2286, 2015 WL 5822930 (D.N.J. Oct. 1, 2015)
Plaintiff NJ PURE sued Boynton, who added third-party defendants Joanna Elias and Eric Poe.
Boynton is an insurance agent that brokers the sale of medical malpractice insurance policies to physicians and other healthcare workers. NJ PURE is a “reciprocal inter-insurance exchange,” that is engaged in the “direct sale of medical malpractice insurance policies that it produces itself to physicians and other individuals and institutions engaged in the provision of healthcare.” Elias and Poe were employees of NJ PURE during the relevant time period.
Boynton alleged that it competed directly with NJ PURE because NJ PURE markets its medical malpractice insurance policies directly to potential insureds, without the use of a broker.  It alleged that NJ PURE falsely advertised that NJ PURE was rated favorably by A.M. Best Company to several existing and prospective Boynton customers.
Under Lexmark, a plaintiff must allege that it falls within the zone of interests protected by § 1125(a), which requires injury to “a commercial interest in reputation or sales.”  Moreover, its injury must be proximately caused by the defendant’s conduct.  Alleged loss of customers was an injury within the Lanham Act’s zone of interests, and because the loss was allegedly procured through false and misleading statements, there was proximate cause.  Though NJ PURE argued that other insurance companies were more directly injured, Lexmark rejected a direct competition test.  Moreover, though the parties didn’t compete in producing insurance policies, they definitely competed in selling insurance policies.
However, as to Poe and Elias, Boynton didn’t claim that their alleged misrepresentations caused customers to end business relations with Boynton, so there was no standing.  (Once again, lower courts just refuse to end their use of the simple term “standing” to describe the inquiry, even while applying the standard Justice Scalia set out.)
Many district courts in the Third Circuit have applied a so-called “slightly heightened” or “intermediate” pleading standard for false advertising claims under the Lanham Act, because of the “fraudulent” element necessary in a Lanham Act claim (whatever that means).  (Note also that this so-called standard dates from before Twiqbal and arguably has no further function or validity thereafter.)  Assuming arguendo that the standard applied, Boynton satisfied it.  It alleged that in “May or June of 2012” an unknown representative of NJ Pure “verbally advised” a representative of OB/GYN that “NJ PURE had received a favorable rating from A.M. Best Company.”  That was sufficiently detailed to allow NJ PURE to mount a proper defense.
Tortious interference with existing contract claims also survived against NJ PURE, though not claims for future economic advantage; Boynton claimed that it lost a customer to NJ PURE, it didn’t allege facts showing expected future economic benefits from that customer other than those obtained under its existing contract.

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