It is interesting to see how TM has become so much more
muscular than other false advertising law that this case
against odious defendants succeeds as a TM case, even though the core wrong
is the fraud on the public (as the resulting injunction makes clear). I don’t think TM should generally be used
this way, primarily because real TM cases might cite it, which would be a
mistake. That’s what false advertising
laws at the state and federal level are for, and they clearly cover all
defendants’ misconduct, not just the TM confusion part. That said, it’s hard to work up any sympathy
for defendants whose deception proceeded in part by pretending to be affiliated
with plaintiff.
NACA, a nonprofit community advocacy organization, sued
First One and John Vescera for cheating homeowners by facing foreclosure,
charging them $1000-$2000 based on false claims to provide mortgage
modification services. In fact, NACA
provides these services for free as part of its activities originating loans
and advocating for low and moderate income homeowners; after the financial
crisis, it expanded its services to help homeowners facing foreclosure. NACA has registered incontestable service
marks for NACA; it also has a heavily promoted “Home Save Program” for
homeowners with unaffordable mortgage payments, and uses “Save-the-Dream”
events, held in large meeting spaces throughout the country, to promote its
programs.
First One allegedly does business under a variety of
different names such as National Mortgage Help Center (“NMHC”) and National
Mortgage Assistance Center (“NMAC”), two “entities” with nearly identical
websites and the same phone number.
First One made a number of allegedly misleading statements
creating confusion over affiliation with NACA.
E.g., it claimed to be “a member of NAHCA.” Other claims: “First One coordinates each
client's financial analysis submission to the Home Save Program of the
Neighborhood Assistance Network of HUD Housing Counselors to assist you with
your lender to achieve a result. HUD (Dept. of Housing and Urban Development)
Housing Counseling assistance is provided at no-charge and is not contingent on
you hiring First One for any other service”; First One had been “Helping to Save
the American Dream since 1995”; First One was a nonprofit organization that
educates the general public and is “a Housing Counseling Public Benefit
Corporation,” with the purpose of expanding “affordable housing opportunities
to the public,” and providing “housing counseling services” and assistance to
“homeowners to avoid default and foreclosures.; First One has a “national
network of foreclosure prevention specialists” that will negotiate directly
with the homeowner's bank to obtain lower monthly payments through a “Mortgage
Modification Plan.” First One falsely
implied it was approved by HUD for counseling and mortgage modification
services, claimed to have relationships with “all major lenders & loan
servicers,” purported to obtain “Actual Modifications” through its “National
Mortgage Help Center Program,” claimed already to have contacted the relevant
lender, claimed to protect its customers’ personal information, and purported
to offer free counseling.
Other allegedly false and misleading statements on First One
websites: “Only State approved attorneys may legally modify your loan with your
lender”; “Do not give out your information with other Websites” (allegedly
deterring direct contact with NACA); “Homeowners who have benefited from our
services have received mortgage payment reductions that bring their mortgage
payment debt ratio to within 31 % [of] their gross income. Mortgage principal
balance reductions have also been achieved and are possible when your current
mortgage balance exceeds the value of your home”; its staff was “comprised of
case managers, loan processors, and housing counselors working on your behalf”;
and so on.
NACA submitted five declarations from confused First One
customers who stated they thought they were dealing with NACA and sent First
One money (typically $1850 or $1450) but didn’t receive help. One customer stated that, instead of
contacting his lender, First One sent him a letter reinforcing his belief that
First One was affiliated with NACA. It
stated his financial analysis had been submitted to his “Housing Counselor of
the Neighborhood Assistance Network of HUD Housing Counselors,” and included a
NACA identification number, a password, and directions to check the status
online at NACA's website, www.naca.com. After he was unable to log on, he went to
NACA’s office, and then learned that First One wasn’t affiliated with NACA. NACA alleged that over 240 homeowners fell
for this scheme.
Apparently, what First One did was take customers’ money and
then use their personal information—which it had promised not to share with
third parties—to register a NACA account for the homeowner through NACA's
website. Then it told customers that they should call the housing counselor
assigned to their file at NACA. When
customers complained, First One took the position that it only provided
documentation services, and NACA provided the “free of charge assistance phase
of the service.” On at least two
occasions, employees allegedly responded to complaints by falsely stating or
implying a NACA affiliation.
California’s Department of Real Estate sent a C&D to First One telling
it to stop collecting advance fees for loan modification or forbearance
services.
Defendants moved to dismiss, arguing that the complaint
failed to allege use of NACA’s registered trademark, that there was no
advertising or promotion, and that the parties didn’t compete because NACA
doesn’t charge homeowners for its services.
The court found that NACA was bringing a false association claim, not a
false advertising claim. Such a claim
doesn’t require use of NACA’s TM, as long as there’s a “word, term, name,
symbol, or device, or any combination thereof, or any false designation of
origin, false or misleading description of fact, or false or misleading
representation of fact, which ... is likely cause confusion ... as to the
affiliation ... or ... misrepresents the nature, characteristics, qualities ...
of his or her ... services or commercial activities.” Plus, NACA’s claim could be understood as one
for reverse palming off: First One was marketing NACA’s services as its own,
and that doesn’t require use of NACA’s mark.
Thus, NACA wasn’t required to plead any use of its registered or
unregistered marks.
Also, a false association claim doesn’t need to be in
“advertising or promotion” as a false advertising claim does. Nor was NACA required to be a competitor to
have standing. “Defendants' rule would
exclude from the Lanham Act those most deserving of its protection: non-profit
organizations that help the neediest members of society and organizations whose
operations are so beyond reproach that their reputations survive others'
destructive schemes. Fortunately, the law is not as mean-spirited as Defendants
would wish.” The alleged damage to
NACA’s goodwill was sufficient to satisfy the Lanham Act requirement that a
commercial/competitive interest be harmed.
“Because consumers are likely to feel ripped off by Defendants and are
likely to conflate Defendants and Plaintiff, Defendants' scheme damages and
will continue to damage Plaintiff's reputation and good will with the public.” In addition, NACA gets compensation from
mortgage servicers for each successful Home Save, and harm to its reputation
would likely diminish its ability to attract participants, resulting in lower
revenue.
The court also rejected First One’s affirmative defenses
that “facts” outside the complaint established the truth of three of the
“numerous” false or misleading statements alleged in the complaint and that one
defendant was immune from liability under the federal Volunteer
Protection Act (one of those “news to me!” statutes). The court refused to consider the claimed
facts that First One was (1) a registered NACA referral agent; (2) a HUD
approved lender; and (3) a not-for-profit 501(c) corporation, since these were
not appropriate for judicial notice.
Even if the court could take judicial notice of the existence of certain
documents (e.g., a letter from the IRS to First One), that wouldn’t justify
judicial notice of the disputed facts in the documents. And also, the documents didn’t even support
the purported facts, which were themselves misleading! For example, the printout from NACA’s website
stating that First One was a “registered NACA referral agent for NACA” created
a dispute over the meaning of “referral agent,” and seemed to confirm the
allegation that First One used customers’ personal information to register NACA
accounts in their names. Likewise, a HUD
letter showing that First One was approved as a lender doesn’t mean that HUD
approved First One for counseling/foreclosure avoidance, an allegedly separate
program, and thus First One’s claim of HUD approval might be misleading in the
foreclosure avoidance context. Even the
501(c)(3) claim was held up by the IRS’s official notice, stating that First
One was a 501(c)(4), and the California Secretary of State has a record
indicating that First One is “For Profit.”
Anyway, even if it’s all true, nothing would entitle First One “to
create confusion in the marketplace by passing Plaintiff's services off as
First One's services,” or to make the other alleged misrepresentations.
The court turned to NACA’s request for a preliminary
injunction, which could be granted either using the Supreme Court’s Winter factors or the 9th
Circuit’s serious questions going to the merits/balance of hardships sharply
favoring the plaintiff/irreparable injury/public interest test. Under either test, NACA was entitled to a
preliminary injunction; it was likely to succeed on the merits of its false
association/reverse palming off claim.
The following words etc. were likely to mislead consumers into thinking
First One was NACA: the acronym NAHCA; the acronym NMAC; the acronym NMHC;
slogans such as “Helping to Save the American Dream since 1995” and “Helping
Homeowners to Save Their Dream”; and phrases such as “Home Save Program of the
Neighborhood Assistance Network of HUD Counselors.” The acronyms were likely to be confused with
NACA, and NACA’s phrase “Home Save Program” and full name “Neighborhood
Assistance Corporation of America” was likely to be confused with First One’s
“Home Save Program of the Neighborhood Assistance Network of HUD Counselors” NACA’s slogan “Save–the–Dream” was likely to
be confused with First One’s “Helping to Save the American Dream since 1995”
and “Helping Homeowners to Save Their Dream.”
(This is why bad cases make bad law: these highly descriptive terms
should generally be free for others to use, and ordinarily there’d be a strong
fair use defense. Oh, and also the court
called NACA “the strongest kind of mark” because it’s registered and
incontestable.) The court found intent
the “most telling[]” factor—First One’s use of all four of NACA’s marks,
combined with its likely illegal conduct towards its customers, indicated bad
faith.
Irreparable harm could be presumed from likely success on
the merits, and was shown to be likely in any event because loss of good will
or ability to control one’s reputation is irreparable harm. (I’ve never understood why this second
statement isn’t exactly the same as the first: what is there behind it other
than a presumption?) First One argued
that there was no irreparable harm because NACA’s reputation remained good and
because NACA, a nonprofit, by definition couldn’t suffer lost profits. The court rejected these arguments as a
matter of law. Declarations from five
homeowners who were confused about the relationship between the parties and
angry at First One sufficed.
Because First One charged money while NACA promotes its free
program, “any perceived affiliation between First One and Plaintiff will give
consumers the false impression that Plaintiff is being deceptive.” Moreover, even if the homeowner eventually
learns the truth, NACA still suffers. “Homeowners
who have paid a third party a fee before working with Plaintiff are much more
likely to view the entire mortgage modification business, including Plaintiff's
Home Save Program, as a scam.”
Unsurprisingly, the balance of the equities and the public
interest favored a preliminary injunction:
All too frequently, intellectual
property disputes between two faceless entities can make the judiciary appear
to the public like a mere handmaiden to corporate interests, blessing
corporations' efforts to commodify an ever-growing swath of the nation's
intellectual capital. This case is a refreshing reminder that the policy
justification for trademark law is to protect human beings, not corporations.
Here, a preliminary injunction would be “extremely
beneficial” to the public. First One’s
scheme appeared to violate a number of consumer protection laws and had caused
significant harm. So the court granted
the injunction, which notably covers both false association and false
advertising type claims. On the TM side,
defendants were enjoined from: making any statements likely to create an
impression of affiliation etc. between the parties; using the word NACA or its
web address in any website, advertising or promotional materials, or written
materials provided to customers or potential customers; using “Home Save,”
“Home Save Program,” “Neighborhood Assistance”; or referring anyone to NACA or
its phone number or registering anyone through NACA’s site. On the false advertising side, the injunction
also barred making any statements likely to create the impression that First
One provides loan modification or housing counseling services, or that it’s
approved by HUD to provide such services; advising consumers not to provide
information to other websites or that only attorneys can provide loan
modification services; or stating a consumer has been pre-qualified for a loan
modification in the absence of a written statement from the lender to that
effect. These remedies, of course, are only justified by the false advertising, which was aided and abetted by the TM confusion but still distinct from it.
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