Thursday, March 01, 2012

Vicarious liability for false advertising left to jury

NTP Marble, Inc. v. AAA Hellenic Marble, Inc., 2012 WL 607975 (E.D.Pa.)
The parties compete in the marble and granite installation business for predominantly residential customers.  Hellenic has been around for longer than NTP (aka Colonial).  Colonial alleged that, in 2009, a smear campaign of negative reviews appeared on websites such as Citysearch, Insiderpages, Yellowbot and Google.  According to Colonial, the reviews were far too numerous, and appeared in far too short a time frame (more than 100 over several months), to be legitimate. They attacked Colonial’s customer service, on-site performance, and employment practices.  Colonial filed a Lanham Act/defamation complaint against unknown Doe defendants.
Colonial subpoenaed the websites and found that several reviews came from computers having IP addresses belonging to Hellenic's business office and/or the residence of one of its alleged directors, Nicholas Alexiadis (Hellenic argued that Alexiadis was merely a managing agent).  Colonial amended its complaint to name Hellenic, Alexiadis, and his wife (later dropped for reasons that will become apparent) as defendants.  It also issued a press release claiming to have discovered the source of the reviews, accusing the defendants of “having launched an anonymous, deliberate and defamatory campaign against Colonial [ ] over the internet,” which formed the basis of Hellenic’s Lanham Act/defamation counterclaims.
Meanwhile, Richard Moser, then a Hellenic employee, drafted a statement taking sole responsibility for the reviews.  He’d worked at Colonial in 2008, and he said he posted the reviews because he was angry with Colonial for treating him poorly and denying him some of his compensation.  Moser claimed that he posted all the reviews without the knowledge of the other defendants, even though he wrote many of these Reviews from Alexiadis' residence and Hellenic's place of business.  Moser testified that he lived in the Alexiadis home for some time in 2009 and had access to the wireless router.  He claimed to have used his own laptop, which he claimed went missing when he was incarcerated in 2010.  Alexiadis contended that Moser came to him when Moser learned that Alexiadis' computer records had been subpoenaed and confessed.  Colonial added Moser as a defendant.
Colonial argued that Moser’s confession didn’t insulate the other defendants from liability.  Moser disavowed authorship of certain other reviews posted through either IP addresses or internet accounts controlled by the defendants. Also, Moser has pled guilty to and been jailed for identity theft and forgery, which makes him somewhat less credible.
The non-Moser defendants moved for summary judgment, which the court denied.  A key question was whether Moser alone was responsible for all the fake reviews.  A reasonable jury could decide that Moser didn’t post all the reviews and/or that he did so with the other defendants’ knowledge or encouragement.  Moser testified that he couldn’t remember which reviews he posted, and also that he didn’t use Hellenic’s email accounts to post any reviews.
Both parties adduced evidence about the location from which the reviews were posted.  Colonial’s expert stated that he determined that the reviews came not just from the defendants’ IP addresses, but from Hellenic’s two business email accounts. His report described how a Google account holder posts online reviews, and concluded that the defendants’ email addresses were used to create one or more of the customer accounts that posted one or more of the reviews identified in Colonial’s subpoena of Google.  This contradicts the contention that Moser acted alone, since Moser stated that he never posted any review from Hellenic’s email addresses and was almost certain that he didn’t post any review from Hellenic’s computers themselves (which, I suppose, bears on the likelihood that he was actually signed in to a Hellenic Google account and didn’t notice).
Defendants offered their own expert report concluding that Hellenic couldn’t have been responsible for the reviews and asked the court to take judicial notice of it.  The court found that the parties were disputing the the significance of unique IP addresses and web-based email accounts. “How these tools are obtained, maintained, monitored, controlled, and accessed are not matters of ‘common knowledge,’” and also the report drew on Hellenic’s specific internal operating procedures, so the court declined to take judicial notice of the facts set out in the expert report.  Rather, competing expert forensic reports in information technology and internet use would be appropriately weighed by a jury.
In addition, the court found a significant factual issue regarding the substance of the reviews. A jury could conclude that they were false advertising under the Lanham Act; they warned potential customers away from Colonial and suggested that customers take their business elsewhere. Though they didn’t identify Hellenic by name, that wasn’t required to make the reviews commercial advertising or promotion.  “A Lanham Act violation may be found where the speech is commercial, refers to a specific product or service, and is motivated by economic interests.”  Likely confusion determinations should be made by a jury, not on summary judgment.
In addition, there was evidence a jury could use to conclude that the reviews affected Colonial’s business, as required for a defamation claim.  Colonial offered evidence from general contractors and salespersons attesting to lost profits.  This was enough to avoid summary judgment on the Lanham Act (which requires actual damages for a damage award) and defamation (which requires competent proof of special damages where the defamation concerned the plaintiff’s business fitness).
Colonial also argued that Hellenic was vicariously liable for Moser’s acts.  Hellenic argued that Moser was acting outside the scope of his employment.  The court refused to award Hellenic summary judgment on this issue. The mere existence of a personal motivation is insufficient to relieve an employer from liability where the conduct also benefitted the employer and was within the general scope of employment.  The defendants argued that Moser wasn’t working as Hellenic’s employee when posting the reviews, because his position as a granite installer didn’t require him to access a computer on the company’s time, while Colonial argued that he was using Hellenic’s location to aid Hellenic’s business interests, and that the fact that Moser wasn’t fired or disciplined for posting the reviews is further evidence that he was acting at Hellenic’s behest.  The court concluded that a jury should decide.
Turning to the counterclaims, defendants argued that the press release was defamatory per se and violated the Lanham Act, because Moser acted alone and the press release attributing the reviews to Hellenic and Alexiadis was literally false.  The release said that Colonial had recently determined the identities of the competitors falsely posing as consumers who “launched an anonymous, deliberate, defamatory campaign against [Plaintiff] over the internet,” identifying defendants as the “perpetrator[s].”
Because there were factual questions of responsibility, this too was a jury question. A jury might find the statements not literally false, but substantially true.


Anonymous said...

Do you have any update in regards to the decision. I have been unable to find any information regarding the actual trial.

RT said...

As far as I can tell, anonymous, it is still proceeding. You may be able to find out more by contacting the E.D. Pa. clerk's office.

Anonymous said...

Settled Sat. 6/9/12