TM, advertising claims excluded from LivingSocial's arbitration agreement

Faegin, v. LivingSocial, Inc., No. 14cv00418, 2014 WL 5307186 (S.D. Cal. Oct. 15, 2014)

Plaintiffs (A.T. Your Service Cleaning and Janitorial) sued defendants for trademark infringement and related business torts.  ATYS is a cleaning service in San Diego.  LivingSocial is a national online marketing company that advertises deals and discounts on behalf of merchants. Plaintiffs signed an agreement with LivingSocial allowing it to advertise and sell vouchers for ATYS in San Diego; there was an arbitration provision covering “any dispute, claim, or disagreement arising from or relating to this Agreement or the breach thereof.”  This advertising relationship lasted a few months in 2012.

 In April 2013, plaintiffs contacted LivingSocial again, but was told there was a 2-3 month wait time in San Diego.  In May, plaintiffs heard from an existing customer that the customer had bought a voucher for ATYS through LivingSocial.  The voucher was not for ATYS, however; it was another company, At Your Service Housekeeping, also in the San Diego area.  LivingSocial didn’t include a phone number for AYSH on the vouchers it sold; customers who searched for “At Your Service San Diego” found plaintiffs’ web site and telephone number.  Plaintiffs received calls from customers who mistakenly thought they bought vouchers for ATYS. The complaint also alleged that AYSH failed to honor its vouchers, causing confused consumers to give negative reviews to ATYS on Yelp, Google, etc., harming ATYS.

LivingSocial argued that this dispute had to be arbitrated, since plaintiffs’ trademark claims “related to” the agreement.  Plaintiffs pointed out that they made no allegations relating to the terms and conditions of the parties’ agreement. The court found that the arbitration was worded broadly, reaching “every dispute between the parties having a significant relationship to the contract and all disputes having their origin or genesis in the contract.” Nonetheless, arbitration may only be ordered when the parties agreed to arbitrate their dispute.

LivingSocial argued that plaintiffs’ trademark claims depended explicitly on the prior contract, and pointed to plaintiffs’ allegation that LivingSocial helped plaintiffs’ mark “become famous and distinguished” through LivingSocial’s assistance with promoting and strengthening the mark.  (Comment: Aaargh.  On the facts alleged, ATYS has suffered significant harm, but there is no way they have a famous mark and alleging dilution should be understood as meriting an award of fees to defendants in cases like this.) 

But claims “arise from” an agreement or breach when the claims relate to “the interpretation and performance of the contract itself.”   Resolution of the infringement claims wouldn’t require interpretation of the contract or of the parties’ performance thereunder.  The agreement didn’t say anything about LivingSocial’s rights or obligations with respect to ATYS’s mark. The infringement claims “constitute independent wrongs” and didn’t “arise from” the agreement.  Similarly with false advertising and unfair business practices claims: the agreement didn’t refer to LivingSocial’s right to advertise competing business, and nowhere in the agreement did LivingSocial agree to refrain from providing advertising services to companies with similar names.  The claims here weren’t based on LivingSocial’s relationship with ATYS; they were based on LivingSocial’s relationship with AYSH.