Wednesday, February 15, 2012

Standing manages to screw up non-standing case

CHW Group, Inc. v. Better Business Bureau of New Jersey, Inc., 2012 WL 426292 (D.N.J.)
CHW sells home warranties, and objected to the BBB’s rating system, which was allegedly a two-tier pay-to-play system where “donating” to the BBB automatically improved a company’s ratings.  CHW also alleged that the BBB’s letter grading system unfairly evaluated companies, for example by counting a consumer-induced delay in dispute resolution as delay by CHW.  CHW has consistently had a BBB rating of D- or F, despite its appeals and its request to be unrated.  It alleged that the BBB told CHW that if CHW paid for accreditation, the letter grade “would dramatically improve.” It also alleged that the bad grades harmed its business.
It sued for Lanham Act and state law violations.  The court found that the BBB statements at issue didn’t appear in “commercial advertising or promotion” according to the widely adopted Gordon & Breach test: (1) commercial speech; (2) by a defendant who is in commercial competition with the plaintiff; (3) for the purpose of influencing consumers to buy defendant's goods or services; (4) disseminated sufficiently to the relevant purchasing public.
Though the Third Circuit hasn’t yet adopted the test, it’s quite popular.  CHW argued, quite correctly, that Gordon & Breach is inconsistent with Conte Bros. Automotive, Inc. v. Quaker State–Slick 50, Inc., 165 F.3d 221 (3d Cir. 1998), which explicitly holds out the possibility (though not the reality) that noncompetitors might have standing to allege false advertising under the Lanham Act, which would seem to imply that competition is not an element.  If Gordon & Breach applies plus Conte Bros., then Conte Bros. serves only to strip competitors of standing and to make analysis more difficult.  Of course, this just goes to show that Conte Bros. is wrong to apply antitrust standing tests to Lanham Act cases and that Gordon & Breach serves all the worthwhile plaintiff-limiting functions to be had from a standing test.  But the court here was having none of it, for the kind of bad reason endemic to Conte Bros. standing analysis: “Considering the Third Circuit's Lanham Act prudential standing test asks whether the parties are in commercial competition, it would likely endorse [the] second element of the Gordon & Breach test.”  Um, no.  Conte Bros. purports to be a balancing test, such that strength on one element can balance out weakness on another.  Gordon & Breach requires each factor to be satisfied.  Just because they’re both called “tests” doesn’t make them consistent.
At least the court’s error doesn’t get in the way of the right result here.  The parties aren’t competitors either for warranty services or business rating services.  Moreover, CHW didn’t allege that CHW’s bad grade was generated for the purpose of influencing CHW’s customers to buy the services of the BBB, as required for prong three of Gordon & Breach.
After dismissing the Lanham Act claim, the court declined to exercise its supplemental jurisdiction over the remaining state law claims. 

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