Tuesday, May 14, 2013

foisting blame on subcontractor not actionable by subcontractor under the Lanham Act

Nationwide CATV Auditing Services, Inc. v. Cablevision Systems Corp., 2013 WL 1911434 (E.D.N.Y.)

Nationwide sued Cablevision for breach of contract, false advertising under the Lanham Act, unfair/deceptive trade practices, and other torts.  The court dismissed most of the claims.

Nationwide provides installation and maintenance services to consumers on behalf of cable providers, including Cablevision for a while.  Their agreement required Nationwide to engage in employment screening and to not allow any individual to perform contract work unless the screening was acceptable.  Nationwide hired Francisco Sanchez after such a screening, which revealed nothing of concern, and had him perform work for Cablevision, using the “Optimum Cable” badge, uniform and vehicle signage required by Cablevision.  Shortly thereafter, law enforcement investigated a report from a Cablevision customer that Sanchez had stolen jewelry from the customer’s home while performing work for Cablevision.  Nationwide notified Cablevision of the investigation, stopped Sanchez from performing further contract work, and performed a second background check, which again raised no concerns.  Cablevision agreed that Sanchez could again perform contract work.

Nationwide significantly increased its workforce and bought additional vehicles based on Cablevision’s promise to provide additional contract work, but then police responded to a reported burglary and pulled over a van with “Optimum Cable” signs on the doors.  Sanchez and two others were inside; they were arrested and charged with seven burglaries, and Sanchez was also charged with the earlier burglary.  Various news reports identified him as a Nationwide employee.

Nationwide alleged that Cablevision tried to foist the blame on Nationwide, publicly announcing that it was immediately suspending work with Nationwide “which provides a limited amount of work, only in Suffolk County, NY, pending a complete and thorough investigation.”  Cablevision failed to disclose that it had earlier specifically authorized Nationwide to permit Sanchez to return to work after the accusation of the earlier burglary, and that Cablevision's employees, not Nationwide's, had serviced some of the customers who had allegedly been burglarized.

Nationwide subsequently disclosed its screening materials for Sanchez and its other employees; Cablevision representatives allegedly assured Nationwide that Nationwide had done nothing wrong and couldn’t have anticipated Sanchez’s alleged crimes any more than Cablevision could have. However, they were instructed to terminate Nationwide’s contract as a PR strategy.  Then, Cablevision allegedly worked with a Nationwide competitor, AWS, to hire away most of Nationwide’s employees, using the confidential information Nationwide had provided to Cablevision as part of the investigation.  Cablevision terminated its contract with Nationwide for failure to conduct adequate background checks, an allegedly pretextual reason.

The court dismissed the breach of contract claim to the extent it was based on termination of the contract and on alleged promises to provide additional contract work, leaving some claims based on disputed equipment charges/withholding of remittances for work Nationwide performed.

The court also dismissed the state-law unfair and deceptive trade practices claim.  Though Cablevision’s statement that it was suspending Nationwide was true, Nationwide alleged that it was misleading because it “impl[ied] that Cablevision ‘had effectively eliminated the risk of burglaries by cable technicians bearing its marks and logos on their vehicles and uniforms by terminating its contract with Nationwide,’ when in fact Nationwide had nothing to do with the thefts and the termination of Nationwide did nothing to protect the consumers who were the intended audience for Cablevision's false claim.”  The court found that Nationwide provided only speculation about what consumers inferred from the statement, and that was insufficient to survive a motion to dismiss.  Cablevision “made clear that it was conducting an investigation and did not claim to have provided all relevant information concerning the burglaries.”  The information that Nationwide contended should have been included in the statement—whether Nationwide serviced the allegedly burglarized customers--was known to Nationwide, making it a nonactionable omission, and “Nationwide was free to publicize that information if it believed that it was relevant to consumers or would mitigate the damage to its reputation.”

Even if the statement was misleading, Nationwide failed to allege that it harmed consumers or the public interest.  Allegations of consumer confusion—here, confusion over whether the risk of burglaries by cable technicians using Cablevision trademarks—are generally insufficient consumer harm under NY GBL §§ 349 & 350.

Unfair competition is a broad tort under New York law, but not this broad. It requires misappropriation of the fruit of a plaintiff’s labors, but not all commercial unfairness qualifies.  Nationwide alleged unfair competition based on Cablevision’s alleged misappropriation of its employee-related information, and its requirements that Nationwide employees performing contract work omit any reference to Nationwide and use only Cablevision’s service mark.  (Nationwide also alleged that Cablevision’s suspension statement was unfair competition because it caused Cablevision’s own activities to be mistaken for Nationwide’s activities, but since it wasn’t false or misleading it couldn’t be unfair competition.)

But Nationwide’s bare allegation that the identities of its employees were “confidential and proprietary” was not sufficient to withstand a motion to dismiss. Mere inducement of an at-will employee to join a competitor isn’t actionable absent dishonest means or a scheme designed solely to produce damage.  Neither were alleged here.  Given that Cablevision terminated Nationwide, it was true to tell the employees that their only option for continuing to perform work for Cablevision was to leave Nationwide and join AWS.  The parties’ agreements didn’t designate employee identity as confidential, and Nationwide offered no other reason that this information should be considered proprietary.

As for the allegations about required use of the Optimum service mark, the contracts required all contractor vehicles to prominently display both the Cablevision sign and the contractor’s name and address.  “Nationwide cannot complain of confusion caused by its failure to prominently display its name on its vehicles.”  Nor did Nationwide explain how the alleged consumer confusion caused by the use of the Optimum service mark on employees’ badges and uniforms caused it any of the injuries it alleged.

The court also dismissed the Lanham Act claim because Cablevision’s statement wasn’t literally false, nor was it likely to mislead or confuse consumers based just on Nationwide’s speculation.  Regardless, it wasn’t commercial advertising or promotion, which in the Second Circuit requires (1) commercial speech, (2) for the purpose of influencing consumers to buy defendant's goods or services, and (3) disseminated sufficiently to the relevant purchasing public.  The touchstone is that “the contested representations are part of an organized campaign to penetrate the relevant market.” While Nationwide alleged widespread public dissemination, that was insufficient; the statement wasn’t part of an organized campaign, but at most an isolated disparaging statement, which had to be addressed (if at all) by state-law causes of action.

The court also dismissed Nationwide’s negligence, breach of fiduciary duty, unjust enrichment, civil conspiracy, and prima facie tort claims.

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