Tuesday, June 12, 2012

Forward-looking claims in government bids not false advertising

Government Payment Service, Inc. v. LexisNexis VitalChek Network, Inc., 2012 WL 1952905 (N.D. Ill.)

Plaintiff, doing business as GovPayNet, sued VitalChek for false advertising.  The court granted VitalChek’s motion to dismiss.  The facts are complicated, but basically GPN alleged that VitalChek falsely promised that it could charge a percentage convenience fee for processing bail bond payments made by credit card when Visa rules didn’t allow it to do so because it didn’t provide other bail bond services.  This was part of a bid to Cook County; like some other governments, the County refuses to pay any fee for accepting credit card payments, meaning that the processor has to charge the consumer directly.  VitalChek allegedly beat GPN out of the payment processing contract because of this misrepresentation, even though GPN was able to offer the other bail bond services and could charge a percentage fee. GPN also alleged that a VitalChek VP sent documents to the County indicating that VitalChek was certified under data security standards and falsely suggested that this certification related to bail bond payment processing rather than to standards for protecting cardholder information.

GPN sued for false advertising under state and federal law, as well as tortious interference.  Unfortunately for GPN, the Seventh Circuit’s bizarre interpretation of “advertising and promotion” requires communications with anonymous recipients, not face-to-face communication, and also says that letters sent to current customers aren’t advertising and promotion, though I’m not sure how that latter applies here.  The court seems to have thought that the County’s solicitation of bids was the same thing as having a current customer-seller relationship.  So the Lanham Act claim was dismissed.

The court found that GPN didn’t allege any false statements.  The central claim was that, unlike GPN, VitalChek wasn’t a merchant offering bail bond services and thus cannot charge a percentage convenience fee to bail bond customers.  VitalChek argued that even if it has to offer bail bond services in order to charge a percentage fee, it can do so in the future.  GPN didn’t dispute that there was no special certification required of a merchant before it could do so.  Thus, GPN didn’t plausibly allege a false statement even assuming VitalChek implied that it could charge a percentage fee.  Though GPN alleged that VitalChek didn’t intend to provide such services when it submitted its bid, promissory fraud is generally not actionable under Illinois law unless it’s part of a larger or egregious scheme to defraud, and no such scheme was alleged.  Likewise, VitalChek’s statements about data security were clearly made to cover all services, not just bail services, and thus suggested no special relationship to the bail bond payment process. State law claims dismissed.

No comments: