First Mariner Bank v. Resolution Law
Group, P.C., 2014 WL 1652550, No. MJG–12–1133 (D. Md. Apr. 22, 2014)
FMB sued RLG for false advertising,
unfair competition, and defamation, based on ads send to FMB customers. The ads stated “that RLG was investigating
First Mariner, suggested (at minimum) that First Mariner was engaging in
illegal and improper banking practices, and indicated that some banks were in
settlement negotiations with government agencies.” They also said that the government would seek
money damages and favorable mortgage modifications, and urged recipients to
contact RLG. FMB contended that these claims were false, and that RLG was
engaged in a “mass joinder mortgage reduction scam,” seeking to scare
recipients into “engaging RLG (and paying a retainer) for non-existent mortgage
reduction services and representation in a scam-lawsuit which RLG has no bona
fide basis for filing.”
During 16 months of discovery, the
magistrate judge found (echoing earlier findings), defendants
engaged in “repeated and ongoing discovery misconduct,” including spoliation of
a computer and cellphone that were the only identified sources of records
pertaining to whether RLG ever intended to pursue or was capable of pursuing “a
bona fide lawsuit on behalf of the recipients of the mailers it distributed.” Given the extent of the misconduct, the waste
of judicial resources, and the expense and delay to FMB, the magistrate
recommended judgment by default as to liability on all counts of the amended
complaint as “necessary to uphold the integrity of the judicial process and
squarely within the Court’s discretion.”
Defendants argued that FMB lacked
standing to bring its federal and state false advertising/unfair competition
claims, which would preclude entry of default judgment. The district judge already
ruled that under Maryland law, a plaintiff need not be in competition with the
defendant to have standing to pursue an unfair competition claim.
As for the Lanham Act, Lexmark changed the ground rules. Despite Justice Scalia’s unhappiness with the
term, the magistrate still called the concept at issue “standing,” since what
else are you going to call it? As the
magistrate explained, “(1) the statutory cause of action only extends to
plaintiffs whose interests fall within the ‘zone of interests’ protected by the
Act; and (2) the statutory cause of action is limited to plaintiffs whose
injuries are ‘proximately caused’ by violations of the Act.” The zone of interests prong requires a
plaintiff to allege an injury to a “commercial interest in reputation or sales,”
and proximate cause ordinarily requires “economic or reputational injury flowing
directly from the deception wrought by the defendant’s advertising,”
particularly when “deception of consumers causes them to withhold trade from
the plaintiff.”
The claim here “fits snugly within
the Lexmark framework.” FMB alleged that
it lost sales, market share, and damage to reputation because of defendants’
false advertising and disparagement.
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