Allsup Inc. v. Advantage 2000 ( 2005 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 04-3376
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Allsup, Inc., *
*
Plaintiff-Appellant, *
* Appeal from the United States
v. * District Court for the
* Eastern District of Missouri.
Advantage 2000 Consultants Inc., a *
Missouri Corporation; Richard C. *
Smith, other, Pete; Terry L. Binder; *
Robert V. Luetkenhaus, *
*
Defendants-Appellees. *
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Submitted: October 13, 2005
Filed: November 16, 2005
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Before BYE, BEAM, and SMITH, Circuit Judges.
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BYE, Circuit Judge.
Allsup, Inc. (Allsup) sued Advantage 2000 Consultants, Inc. (A2K), Richard
C. Smith, and Terry L. Binder alleging reverse passing-off in violation of 15 U.S.C.
§ 1125(a)(1)(A), false advertising in violation of 15 U.S.C. § 1125(a)(1)(B), and eight
claims under Missouri common law. The district court1 granted the defendants'
1
The Honorable Jean C. Hamilton, United States District Judge for the Eastern
District of Missouri.
motion for summary judgment on the federal claims and declined to extend
jurisdiction to the state law claims. Allsup appeals only the grant of summary
judgment on the false advertising claim. We affirm.
I
James F. Allsup founded Allsup in 1983 after working as an employee for the
Social Security Administration (SSA). Allsup hired two other former SSA
employees, Smith in 1987 and Binder in 1989. In 1995, Smith and Binder left Allsup
to form A2K.
Allsup was created to provide long term disability (LTD) insurance carriers
with a means to recover overpayment benefits received by their insureds from the
SSA. Typically, disabled employees receive LTD benefits immediately from their
insurance carrier. The employees may also file claims for social security benefits, but
the SSA often takes up to one year to determine eligibility. If the employees are
eligible, the SSA issues a retroactive lump sum to the employees to cover the benefits
owed as of the day of the application. The SSA may also award benefits on a going-
forward basis. The employees, however, cannot legally assign the right to receive
this payment, which is owed by contract to the LTD carriers as an offset.
Allsup made available a system to assist LTD carriers recoup the money owed
through a process known as "overpayment recovery." To effectuate the recovery,
LTD carriers referred their insureds to Allsup, which required them to execute a pre-
authorized electronic withdrawal of funds. These contracts allowed Allsup to transfer
the money received from SSA back to the LTD insurers almost immediately after the
insureds received their funds. Allsup claims to have spent more than one million
dollars creating its particular system, known as "Seamless ORS," but A2K alleges
other companies developed similar processes as early as 1991. The automatic
withdrawals and transfers are accomplished through the use of an Automated
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Clearing House (ACH) service. ACH services are commonly deployed to effectuate
a wide variety of automatic deposits and withdrawals, including payroll deposits,
payments of utilities and other bills, and other electronic funds transfers.
In late 2001 and early 2002, A2K was approached by CIGNA and two other
insurance companies to submit bids for their overpayment recovery business. In
putting the proposal together, A2K submitted draft versions of documents used in
overpayment recovery. A2K also represented it could be operational by the time the
carriers needed the service. At no point during this process did A2K represent its
system as being fully operational. In February 2002, counsel for Allsup sent A2K a
letter explaining Allsup was in the process of patenting its "Seamless ORS" system
and threatening to sue A2K for continuing to develop an "automated over-payment
recovery system." In an attempt to avoid litigation, A2K withdrew its bids and
removed itself from the overpayment recovery market. In unrelated litigation,2
representatives from A2K stated the company never entered the relevant market or
had any plans to do so in the future.
Allsup alleges A2K, inter alia, falsely advertised its plans to enter the
overpayment recovery market. Specifically, the First Amended Complaint alleges
"A2K's, Smith's and Binder's statements about A2K's ORS capability . . . were false
or misleading statements of fact about goods and services moving in interstate
commerce." Allsup's claim is based almost entirely on the discrepancy between
A2K's statements regarding its interest in entering the market in 2001 and 2002 and
its later statements denying it ever entered the market. To substantiate its claim,
Allsup alleges A2K did not produce evidence it actually could be operational;
however, Allsup's own expert testified A2K had the capacity to provide such a
program.
2
This litigation involved Allsup's claims against another former employee for
breach of a non-compete agreement.
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II
We review de novo the district court's grant of summary judgment. Turner v.
Gonzales, 421 F.3d 688, 694 (8th Cir. 2005). Summary judgment is appropriate when
"the pleadings, depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to judgment as a matter of law."
Fed. R. Civ. P. 56(c). We view all evidence in the light most favorable to Allsup, the
non-moving party. Lester E. Cox Med. Ctr., Springfield, Mo. v. Huntsman, 408 F.3d
989, 992 (8th Cir. 2005). However, to warrant reversal, Allsup "must show the
existence of facts on the record which create a genuine issue." Id. (citing Krenik v.
Cty. of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995)).
Under the Lanham Act, "[a]ny person who, . . . in connection with any . . .
services, . . . uses in commerce any . . . false or misleading representation of fact,
which . . . in commercial advertising or promotion, misrepresents the nature,
characteristics, [or] qualities . . . [of] another person's . . . services . . . shall be liable
. . . by any person who believes . . . to be damaged by such act." 15 U.S.C.
§ 1125(a)(1)(B). The purpose of this Act is "to protect persons engaged in commerce
against false advertising and unfair competition." Am. Italian Pasta Co. v. New World
Pasta Co., 371 F.3d 387, 390 (8th Cir. 2004) (quoting United Indus. Corp. v. Clorox
Co., 140 F.3d 1175, 1179 (8th Cir.1998)).
To establish a claim for false advertising, Allsup must establish the following:
1) A2K made false statements of fact about its own product; 2) A2K's statement
"actually deceived" or had the "tendency to deceive a substantial segment" of its
audience; 3) the deception created was material; 4) A2K caused the false statement
to enter interstate commerce; and 5) Allsup has been or is likely to be injured as a
result of A2K's alleged false advertisement. Id. (citing United Indus. Corp., 140 F.3d
at 1180). Failure to establish any one element of the prima facie case is fatal to the
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claim. Id. Under the first element, a statement is false if it is either 1) literally false,
or 2) literally true or ambiguous, but renders a "false impression" when viewed in
context. Id. A literally false statement can be determined as a matter of law, but
whether a statement is misleading is considered a matter of fact. Peters v. Gen. Serv.
Bureau, Inc., 277 F.3d 1051, 1055 (8th Cir. 2002).
Allsup rests its case on four statements made by Binder during the bidding
processes. These statements are: 1) "We have the internal capability and software
available to provide the [overpayment recovery] service"; 2) "We will be fully
prepared to initiate the service prior to [LTD carrier's] start date. The authorizations,
communications, and processes have been scripted and are in our systems directories
awaiting activation"; 3) "I am attaching copies of [A2K's] Pre-Authorized Withdrawal
consent. . . . We are extremely careful to ensure the program is voluntary, and to not
specifically state in any consent signed by the claimant that . . . retroactive benefits
must be repaid" to the LTD carrier; and 4) "Attached is the 'Preauthorized
Withdrawal' consent required to facilitate the Overpayment Recovery Service through
the utilization of the PC ACH software. We do have the software and have used the
service on a limited basis."3
All of these statements relate to A2K's intention of entering the "overpayment
recovery" market in late 2001 and early 2002. Although A2K later changed its mind
about entering the market, its statements in mid-2002 about never having provided
this service and having no future plans to provide the service do not render the
previous four statements false. Allsup has brought forward no evidence proving the
falsity of these statements about A2K's capacity and willingness to enter the market.
3
Although not argued by the parties, this reference to having used "the service
on a limited basis" appears to describe A2K's experience with PC ACH software,
rather than experience in the "overpayment recovery" market.
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As such, the district court did not err in determining the statements were not literally
false.
Even if the statements are not literally false, we must still determine if they are
false in context. "Statements that are literally true or ambiguous but which
nevertheless have a tendency to mislead or deceive the consumer are actionable under
the Lanham Act." United Indus. Corp., 140 F.3d at 1182 . Viewing these statements
in context only bolsters A2K's contention they concerned its ability to provide
"overpayment recovery" services in the future after securing a contract from a LTD
carrier. The statements at issue were made in e-mail messages and bid proposals to
specific LTD carriers about A2K's capacity to provide services on a date to be
determined later. At no point did A2K represent it had already entered the market or
was currently providing the services at issue. Furthermore, Allsup's own expert
testified A2K could have entered the market if it secured a contract from a LTD
carrier. This evidence, coupled with A2K's production of its preliminary
preauthorized withdrawal forms, demonstrates the veracity of A2K's statements.
Because Allsup cannot prove the statements are either literally false or false in
context, it has failed to demonstrate a prima facie case of false advertising under the
Lanham Act. Accordingly, we affirm the district court's grant of summary judgment
to A2K, Smith, and Binder.
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