Corizon sued Wexford for false advertising. The parties
compete to provide healthcare services to correctional facilities. Corizon was formed in 2011 from the merger of
Prison Health Services and Correctional Medical Services (CMS). Corizon had a contract with Maryland that
extended until 2010, when Maryland issued a request for bids and both parties
submitted bids. In late 2010, Maryland
announced its intention to award the contract to Wexford. Corizon/CMS protested, and though Maryland
denied the protest, Maryland informed Wexford that it was withdrawing the award
because Wexford didn’t meet certain state requirements. Corizon then extended its contract with
Maryland.
While all this was going on, Wexford directed a PR firm, the
CHT Group, to create a website. CHT’s
president Marlin Collingwood registered cmsdoesnotcare.com and, along with
Wexford’s CEO, authored its contents.
The website was live from November 2010 to May 2011. It was purportedly written by a Corizon
insider and said many critical things about Corizon and its contract with
Maryland. CHT also created a website
about the PHS/CMS merger, phscmergerconcerns.com, questioning the wisdom of the
merger; it was removed when the merger was complete.
Because this is what defendants do now, Wexford argued that
Corizon lacked standing, because it alleged no damages other than its demand
for attorneys’ fees and investigative costs incurred determining the website’s
creator. Constitutional standing: an
injury in fact is an invasion of a legally protected interest that is concrete,
particularized, and actual or imminent but not conjectural or hypothetical. In
false advertising cases, injury may be shown “by creating a chain of inferences
showing how defendant's false advertising could harm plaintiff's business.” Direct
competition is strong proof of injury in fact, and the parties agreed that they
competed. Direct competition plus
falsity was enough to show likely confusion, which was sufficient for injury in
fact.
Prudential standing: one test requires competition plus
competitive injury; the other is Conte
Bros. The Supreme Court is going to
decide a case on this, but it didn’t matter here. For the first test, the parties were
competitors, and competitive injury involves harm to the plaintiff’s ability to
compete, which can be presumed when there’s direct competition plus misrepresentation,
which there was here. Likewise, under Conte
Bros., the court first considers whether the alleged injury was of a type
Congress sought to redress with the Lanham Act, whose focus is on “commercial
interests that have been harmed by a competitor's false advertising,” so the
answer was yes. The evidence supported
Corizon’s claims for investigative and attorneys’ fees, which were available in
false advertising cases, and there was no risk of duplicative damages or
complexity in apportioning damages, meaning that Corizon also had prudential
standing under the Conte Bros. test.
Corizon argued that the statements at issue were literally
false, while Wexford argued that they were mere puffery. In an argument that is structurally similar
to an establishment/“tests prove” claim, Corizon focused on the statement that
the website’s author was a “CMS insider.”
Wexford argued that this wasn’t literally false, since an “insider” can
be a person who knows facts unavailable to the general public, and Wexford had
such knowledge gained from Corizon employees and others involved in the
relevant events. However, the context excluded Wexford “insiders” from being
the purported “CMS insider,” implying that the author was a Corizon employee: The
introduction stated, “I’ve been a [CMS] insider for quite a while now,” and “I
decided to start this site to vent a little and give some of my insight into
the CMS way of doing business.” It
continued, “[CMS’s] actions in Maryland are now directly affecting me and many
of my colleagues and friends.” Colleague means coworker. The website also said, “Many of us know the
security officers in Maryland and even they are looking forward to the change
in vendors.” And it implied lack of
affiliation with Wexford by “feigning uncertainty” about Wexford’s
location. Thus, the court found literal
falsity.
Was the website a “commercial advertisement” under the
Lanham Act? One question was whether it
was disseminated sufficiently to the relevant purchasing public within that
industry. Wexford argued that as few as
two dozen people viewed the website, and that there was no evidence that any
were from the relevant purchasing public.
But classification as an ad doesn’t turn on whether statements were
read; it turns on the defendant’s efforts to make such statements available: the
touchstone is whether there was an organized campaign to penetrate the relevant
market. Here, Wexford disseminated the
statements to anyone with access to the internet.
The parties also disputed whether the website referred to
products or services. But it stated: “CMS
decided to protest the award and they were denied. This was even though their
price was lower than the Wexford company, Maryland decided not to go with CMS.” Wexford argued that this wasn’t a reference
to normal “services” (because certainly the well-being of the prisoners being
treated is rarely first on anyone’s list!) but rather to Corizon’s practices as
an employer and its failure to cooperate with the transition from CMS to
Wexford, but that last bit didn’t make sense because the website was about
Maryland’s decision to change the contract.
And even assuming that “services” referred to relations with Maryland
security officers, not services as a healthcare provider, the website’s context
indicated that working with security officers was part of the services.
The speech was also economically motivated. Wexford argued
that it only created the website to facilitate the transition after Maryland
announced its intent to award the contract to Wexford, and that assisting an
incoming vendor to ensure continuity of healthcare is standard in the
industry. Transitioning could include
employing existing personnel, buying existing equipment and supplies, and
assuming existing leases—but that just meant that Wexford intended to use the
website to facilitate multiple economic transactions. Also, the parties’
competitive relationship and the website’s content were circumstantial evidence
of economic motivation. Taken all
together, the website was commercial speech.
Literal falsity allows a court to grant relief without
evidence of actual deception, but the parties agreed that the presumption of
deception was rebuttable. The Eighth
Circuit has used some loose language, once suggesting that proof of willful
deception was required to presume deception, causation and injury, though most
cases just say literal falsity, which isn’t coexstensive with willfulness. To resolve the discrepancy, the court here
stated that either willful deception or literal falsity would trigger the
presumption of causation and injury.
Materiality was different. (Note
that this seems to be overlooking the content for the labels. Causation is
materiality, in false advertising: the deceptive statement is likely to cause a
reasonable consumer to behave differently.)
Though some courts have presumed materiality on finding literal falsity,
the weight of authority makes materiality separate. The presumption of deception arose from
concerns over the difficulty of proving deception, but “difficulty with
obtaining proof is less likely to arise with the element of materiality, which
may be determined by reference to the objectionable statements alone.” (But presuming materiality from literal
falsity has its own justification: an advertiser, who by hypothesis
straightforwardly said something that turns out to be false, is in the best
position to know what claims are likely to influence purchasers.) The literal falsity here created rebuttable
presumptions of deception and injury, shifting the burden to Wexford to prove
the absence of deception and injury, but the burden to show materiality
remained with Corizon. (How Corizon
would be injured in the absence of materiality is left as an exercise for the
reader.)
Wexford argued that there was no evidence that any customer
or potential customer saw the website, and that Corizon’s senior VP, its
regional VP, and its regional administrator all said they’d never seen the
website or knew anyone who had, but that wasn’t Corizon’s burden. Also, Wexford didn’t produce corroborating
evidence for the claim that there were only 20-25 website visitors (mostly
representatives of the parties), and a Yahoo! Finance page and a Baltimore Sun article
comment section each contained a link to the website. Wexford had the burden of proof, and though
the few-visitors claim would prove a lack of actual deception/tendency to
deceive given how long the website was up, summary judgment was improper given
the lack of corroborating documentary evidence about the level of web
traffic. Also, one could infer deception
of at least one person (though not a consumer) by comparing the timing of the
Baltimore Sun post and an email Wexford received from a Baltimore Sun reporter,
which requested information regarding the contract and refers to “a source with
the current vendor.” Thus, deception represented a genuine issue of material
fact.
As for materiality, even if the website was just about
Corizon’s conduct during the transition process, that could influence a
purchasing decision. No evidence of
consumer decisionmaking was required, only a showing that Wexford
misrepresented an inherent quality or characteristic of the
product/service. A reasonable factfinder
could find materiality, given the website’s statements that Corizon’s executives
said they didn’t care about customer preferences, that Maryland security
officers repeatedly complained about Corizon, and that Corizon lied to its
employees and to Maryland.
As for injury, Corizon mostly alleged the expenses it
incurred finding the website’s author and removing the website. The court found that damage control expenses
were cognizable; they were similar to injunctive relief in the purpose of
controlling lost sales and lost goodwill.
As the Sixth Circuit has held, “As is the case with plaintiffs seeking
injunctive relief, plaintiffs engaging in damage control are still at a stage
where substantial uncertainty exists as to the extent of the business harm
being inflicted by the false advertising.”
Wexford argued that Corizon had no evidence of lost profits or goodwill,
and that Maryland extended its contract after the website went live. But
Wexford had the burden of proof, and it was also possible that Corizon lost
profits or goodwill from other customers. Thus both actual and likely injury
were disputed issues of material fact.
Wexford argued that Corizon manufactured its damages,
because it knew that Wexford authored the website ten days after it went
live. Corizon argued that, though
Wexford was a suspect, the true author remained a “mystery” until the
deposition of the PR firm’s head. These questions of intent and reasonableness
were for a jury.
Also, Wexford’s voluntary cessation didn’t moot Corizon’s
request for a permanent injunction.
Wexford’s affiliation with the link postings on Yahoo! Finance and the
Baltimore Sun website, plus the creation of phscmsmergerconcerns.com, was
relevant to the likelihood that it would engage in similar conduct in the
future, so it wasn’t “absolutely clear” that no injunction was required.
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