resources spent correcting false advertising provide business standing in California

Underground Solutions, Inc. v. Palermo, No. 13 C 8407, 2015 WL 1594189 (N.D. Ill. Apr. 7, 2015)

 

Previous ruling on this dispute between Underground Solutions and a person who basically served as an expert supporting its competitor. Related case about a website impersonating Palermo.  In its amended complaint, Underground Solutions alleged trade libel, violation of the Lanham Act, intentional interference with prospective economic advantage, and violation of California’s UCL. Palermo moved to dismiss the last two, and the court denied the motion.

 

For intentional interference, a plaintiff has to show “that it is reasonably probable that the lost economic advantage would have been realized but for the defendant’s interference.” This usually means alleging “a lost contract, failed negotiation, or ongoing business relationship.”  This time around, Underground Solutions alleged that an engineer had approved its pipe for a bid on a project in Santa Clara, but the local water district expressed concern about the pipe after reviewing materials authored by Palermo, and the engineer subsequently withdrew his approval, precluding Underground Solutions from bidding on the project. In addition, Underground Solutions alleged that it was the sole supplier of the relevant pipe in the US. The court found that the business discussions about a specific construction project, resulting in an approved use, formed a relationship sufficient to give rise to a tortious interference claim. 

 

Palermo argued that he didn’t now about any particular prospective deal, but it sufficed to allege that “Palermo knew that UGSI’s Fusible PVC® pipe was being considered by several municipalities for upcoming projects, and knew or should have known that his false and misleading statements would reflect negatively on UGSI’s Fusible PVC® pipe, causing the contractors considering UGSI’s Fusible PVC® pipe to reject said pipe.”  Palermo further argued that other competitors were still being considered for the project. But including Underground Solutions’ pipe in a narrowed set of approved pipes was sufficient—all that’s required is reasonably probable benefit, not certain benefit.

 

As for the state law false advertising claim, Underground Solutions had standing because it allegedly lost money or property by virtue of being “forced to expend time, effort, and funds to correspond and meet with potential clients to debunk the misstatements....” Nor did Underground Solutions need to allege that it relied on the false advertising; this is a competitor suit and not a consumer suit.  “Requiring a competitor to allege reliance … would effectively read unfair competition claims out of the statute. That would be contrary to the legislature’s express intent.” Proposition 64’s express intent was to protect “California businesses and consumers from unlawful, unfair, and fraudulent business practices” (emphasis added).