Tuesday, December 15, 2015

California false advertising requires "advertising," but unfair competition doesn't

Golden v. Sound Inpatient Physicians Medical Group, Inc., No. 14-cv-00497, 2015 WL 8539034 (E.D. Cal. Dec. 11, 2015)
Golden, a medical doctor, was a VP of medical affairs/chief quality officer at Dameron Hospital from 2008-2012.  Golden was also the majority shareholder of the California Hospitalist Physicians, Inc. (CHP), a medical corporation providing primary care medical services, which contracted with Dameron to provide services from 2009-2012, at which point Dameron chose Sound Inpatient as the new hospitalist group for Dameron.  Golden had entered into agreements with several doctors to provide hospitalist services for their patients, competing with Sound Inpatient.
Golden posted a list in the emergency room of doctors who designated her as the hospitalist for their patients.  But Sound Inpatient sent letters to providers saying Golden did not practice at Dameron anymore; sent a nurse to visit offices of providers stating Golden was not practicing at Dameron anymore; and told employees to inform Dameron emergency room staff not to check anymore whether Golden was designated as hospitalist for patients, because all those patients were now assigned to Sound Inpatient.
Golden sued for violation of the California consumer protection laws.  She had standing to sue because she alleged that she lost money as a result of patients not seeking her services anymore.
Under Cal. Bus & Prof. Code § 17500, it’s “unlawful for any person [or] corporation … with intent directly or indirectly to dispose of real or personal property or to perform services … or to induce the public to enter into any obligation relating thereto, to make or disseminate … any statement, concerning that real or personal property or those services … which is untrue or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading.”  However, a close reading of the statute convinced the court that the statements had to be made in “advertising,” which these statements were not.  The relevant language from Section 17500 refers to false statements disseminated: “in any newspaper or other publication, or any advertising device, or by public outcry or proclamation, or in any other manner or means whatever, including over the Internet.” The all-inclusive language of “any other manner or means whatever” could include letters, a nurse’s statements to providers, and instructions to employees not to check whether Golden had been designated as the hospitalist. But section 17500 as a whole clearly referred to advertising, and there was a “common sense” difference between the communications at issue here and advertising. If Golden could sue here, “nearly any false statement connected with the sale of a product/service constitutes false advertising.”  (Which would be a problem because …)
The language of the statute clearly referred to harm to the public, and Golden didn’t show that the public was induced or that a false advertisement was disseminated to the public. Instead, Sound Inpatient allegedly targeted individual providers and employees.   “[T]hese sporadic, infrequent means were not directed at the public for purposes of section 17500.”  Moreover, the complaint didn’t allege how consumers such as patients were deceived or harmed, just that medical providers and staff were the recipients of false statements.  (If they didn’t get the hospitalist they’d chosen, why isn’t that harm?)
Section 17200 prohibits “any unlawful, unfair or fraudulent business act.”  “Unlawful” borrows violations of other laws, and without a 17500 predicate claim, there was nothing there.  As for “fraudulent,” that requires actual and justifiable reliance, and Golden didn’t allege that she relied on Sound Inpatient’s false statements.  Nor did most of the facts alleged amount to “unfair” conduct, which requires “an incipient violation of an antitrust law, or that violates the policy or spirit of [such] laws because its effects are comparable to a violation of the law, or that otherwise significantly threatens or harms competition.”

However, alleged false statements that Golden wasn’t practicing at Dameron anymore nudged the complaint based on 17200 past the threshold of plausibility.  Repeatedly making such false statements with the aim of drawing patients away from Golden stated a claim for unfair competition.

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