Tuesday, February 10, 2015

false claim of gov't affiliation not actionable by non-gov't plaintiff

Two Jinn, Inc. v. Government Payment Serv., Inc., A136984, 2015 WL 456063 (Cal. Ct. App. Feb. 3, 2015)
Two Jinn (dba Aladdin Bail Bonds), a licensed bail agent, tried to enjoin GPS, a financial services entity, from allegedly engaging in bail agent activities in violation of state licensing and regulatory requirements. The court of appeals upheld the dismissal of Aladdin’s UCL and Lanham Act claims.
Aladdin and GPS allegedly “provide pretrial release services to detainees in exchange for a monetary compensation.” Aladdin posts surety bonds, while GPS allegedly posts cash bail for detainees using contracts with county sheriffs in several counties.  Under those agreements, GPS agreed to process credit/debit card transaction requests for cash bail.  Aladdin alleged that this required a license under the insurance law regulating bail/bail bonds, and violated other provisions of the insurance code.  Aladdin also alleged that ads GPS posts in county jails are false, misleading and confusing to consumers because it employs the terms “Government,” and “GOV” in combination with a state capitol dome logo to create the false impression of government status or affiliation.

First, the court agreed that Aladdin didn’t have UCL standing. Standing requires a plaintiff to “(1) establish a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic injury, and (2) show that that economic injury was the result of, i.e., caused by, the unfair business practice or false advertising that is the gravamen of the claim.”  The evidence showed that any customer diversion didn’t result from GPS’s lack of a bail bond license or noncompliance with regulations.  GPS doesn’t compete directly with Aladdin or post bond. The legislative history shows that the state authorized counties to accept a credit card, debit card or other EFT in order to “make it easier for people to pay fines, post bail, and to alleviate time spent in jail.” Plus, GPS isn’t the only company that provides EFT services to California counties, so even were GPS enjoined, Aladdin’s customer base could still make a cash bail payment that way.  “[A]ny diversion of potential customers from Aladdin to GPS results from the Legislature’s establishment of the cash bail payment system as an alternative to the traditional bail bond service, and not from the fact that GPS conducts its business without a bail agent license.”
Nor did Aladdin’s investigation costs give it standing, because they were in anticipation of litigation. “Aladdin has failed to identify any evidence supporting its remarkable claim that it investigated GPS’s activities for non-litigation reasons.”
In addition, GPS’s business practices weren’t unlawful or unfair under the UCL.
The unlawfulness theory required a violation of the Insurance Code, which wasn’t present, and there was also no unfairness.
Lanham Act: Aladdin failed to allege a false statement in commercial advertising or promotion. The court described Aladdin’s theory as being that the advertising was “conceptually misleading” by using words like “gov,” “government,” and a capitol dome as its logo. This allegedly misled consumers to believe that GPS is a government agency or affiliate.
The court misunderstood the Lanham Act, finding that Aladdin didn’t have standing to bring a false association claim, which is true, but should be irrelevant given the special status of government approval.  But the court reasoned that Aladdin conflated false association and false advertising when it argued that the Lanham Act prohibited misleading ads, including misleading statements about endorsement or approval by another, including the government.  (Does that mean that competitors lack standing to claim that a competitor falsely claims FDA approval, or compliance with ISO standards, or UA certification?  This is a deceptively simple argument that is nonetheless troubling, and does conflict with the FDA cases.)
Aladdin correctly pointed to Trafficschool.com, Inc. v. Edriver, Inc., which did find false advertising based on use of dmv.org based on consumer confusion about whether the website was owned by or affiliated with state governments.  Puzzlingly, the court said, “Edriver was not a pleading case; it did not address or even consider what allegations are sufficient to allege a false advertising claim. Furthermore, Aladdin overlooks that EDriver expressly confirms that the first element of false advertising under the Lanham Act is ‘a false statement of fact.’”  Hunh?  The false/misleading statement in Edriver was “dmv.org,” which caused consumers to have the mistaken belief that the website was official. The analogy is exact. 
True, the court said, Edriver does support the proposition that false statements can either be literally false or literally true but misleading, but Aladdin didn’t identify “any actual statement in a GPS advertisement that allegedly misled or deceived consumers.”  (Other than the name and the logo?  Names and images can be false and misleading; e.g., the 3d Circuit’s Breathasure case.)  Though Aladdin alleged that the use of the words “gov” and “government” was misleading, it didn’t allege “that these isolated words were used in a statement of fact that was provably false or misleading.”  I’m still befuddled.  The claim makes perfect sense: in the context in which it’s encountered, GPS’s name confuses consumers into thinking it’s an official government entity.  GPS’s name is part of its advertising.  This might or might not be material, but it’s not incapable of being falsified.
Nonetheless, Aladdin’s claim failed.

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