Monday, February 12, 2018

Lexmark allows false advertising claim against law firm for soliciting timeshare clients

Diamond Resorts Int’l, Inc. v. Aaronson, 2018 WL 735627, No. 17-cv-1394 (M.D. Fla. Jan. 26, 2018)

Diamond is a timeshare developer managing more than 420 membership resorts worldwide. The Aaronson defendants are an Orlando-based attorney and his law firm focusing on soliciting Diamond’s timeshare members to become clients of Aaronson’s services to free them from financial obligations under their purchase and financing contracts. Diamond alleged false advertising, resulting in members ceasing to pay under their timeshare contracts, and subjecting Diamond to baseless arbitration proceedings.  Diamond sued for (1) violations of the Lanham Act; (2) tortious interference with a contractual relationship; (3) trade libel; (4) violations of Florida’s Deceptive and Unfair Trade Practices Act; (5) malicious prosecution; and (6) RICO violations (of which no more will be said, because they’re RICO claims).

The court rejected Aaronson’s argument that its speech wasn’t “commercial advertising or promotion” under the Gordon & Breach test, because it wasn’t in competition with Diamond.  The court unsurprisingly rejected that argument in light of Lexmark (which functionally amended the Gordon & Breach test).  Where, as here, “a party claims reputational injury from disparagement, competition is not required for proximate cause; and that is true even if the defendant’s aim was to harm its immediate competitors, and the plaintiff merely suffered collateral damage.”

Nor could the court resolve whether the advertising was merely opinion or puffery at the pleading stage.  (Indeed, it wasn’t clear from the court’s analysis whether Diamond alleged specific statements, or merely “ ‘material false and misleading statements,’ which have deceived Plaintiffs’ timeshare members into believing that Plaintiffs have engaged in unlawful activity and caused them to stop making payments on their Timeshare Contracts.”  The court also cited precedent holding that an opinion may be actionable under the Lanham Act “if it fairly implies a factual basis.”

The state-law claims weren’t precluded by Florida’s litigation privilege, which provides absolute immunity for acts or statements: (1) made or committed in the course of judicial or quasi-judicial proceedings; and (2) “connected with, or relevant or material to, the cause in hand or subject of inquiry.” This includes “conduct that is ‘necessarily preliminary’ to a judicial proceeding,” which is confined to pre-suit communications that are a statutory or contractual condition precedent to suit.  Diamond’s claims arose out of the challenged advertising, which wasn’t required by, permitted by, or even related to the subsequent arbitration proceedings.

For similar reasons, the court rejected Aaronson’s argument that, when they rendered legal services to Diamond’s timeshare members, they were agents of those members and couldn’t be a third party for purposes of tortious interference claims, which require a third party to interfere.

The trade libel claims sufficiently alleged special damages: (1) the costs of arbitrations; (2) the costs of defending arbitrations; and (3) members’ unpaid promissory notes.  FDUTPA claims also survived.

The malicious prosecution claim failed, however, because malicious prosecution claims are generally disfavored under Florida law, and other jurisdictions have rejected malicious prosecution claims based on arbitration proceedings. Thus, the court would not predict that the Florida Supreme Court would expand this claim to arbitration proceedings.

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