Antitrust Law Daily Wrap Up, ADVERTISING—D. Md.: Locksmiths could not assert valid DTPA, false advertising claims against advertising directory publisher, (Aug 15, 2013)

By Peter Reap, J.D., LL.M.

Baldino’s Lock & Key Service, Inc. and Baldino’s Electronic Security, Inc. (collectively, “Baldino’s”) could not state valid Texas Deceptive Trade Practices Act (DTPA) or Lanham Act false advertising counterclaims against Supermedia, LLC, a publisher of advertising directories, the federal district court in Baltimore has ruled (Supermedia LLC v. Baldino’s Lock & Key Service, Inc., August 13, 2013, Gesner, B.). Baldino’s also could not allege valid counterclaims for negligence or breach of contract. Thus, Baldino’s Motion to File Second Amended Answer and Counterclaim was denied on the ground of futility.

Background. Baldino’s entered into contracts with Supermedia for directory and advertising services. Supermedia filed this suit against Baldino’s to collect amounts owed under those contracts.

Previously, the court dismissed Baldino’s 11 affirmative defenses and 13 counterclaims contained in their First Amended Answer and Counterclaim. Before the court was Baldino’s Motion for Leave to File Second Amended Answer and Counterclaim.

Undue delay. Supermedia first argued that the amendment was barred by undue delay. The Fourth Circuit has held that delay alone is an insufficient reason to deny leave to amend. Rather, delay must be accompanied by prejudice, bad faith, or futility.

In this case, there was no undue delay by Baldino’s, the court held. After their counterclaims were dismissed, Baldino’s promptly retained new counsel, and informed the court of their intention to move for leave to file a Second Amended Answer and Counterclaim. Baldino’s met the court-imposed deadline for them to so move. Thus, Supermedia’s first argument, that amendment was barred by undue delay, was rejected.

Futility. Amendment is futile if the claims as amended would not survive a motion to dismiss for failure to state a claim upon which relief can be granted, the court noted. Therefore, the “plausibility” standard for pleading, articulated by the Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007), and Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), applied. Under that standard, accepting all of the defendants’ factual allegations as true, a claim must “plausibly give rise to an entitlement to relief.”

Deceptive Trade Practices Act. In Count I of their proposed Second Amended Counterclaim, Baldino’s asserted a claim for a violation of the Texas DTPA. The DTPA creates a cause of action against any person who, among other things, engages in unconscionable conduct, or misrepresents the source, geographic origin, characteristics, or rights and obligations associated with goods or services, to induce a consumer into a transaction.

Baldino’s alleged that Supermedia violated the DTPA by publishing listings for “phony” locksmiths and by orally promising defendants that it would remove the false listings as an inducement for renewal of their contract.

By publishing advertisements or listings of third party businesses, Supermedia did not make any representation about goods or services, according to the court. The representation in an advertisement or listing was made by the business listed, and the DTPA imposed no duty on Supermedia, the publisher, to monitor the listings it published for accuracy. To state a claim for a DTPA violation, Baldino’s must allege that Supermedia did something “more” than simply breach the contract between the parties.

In Crawford v. Ace Sign, Inc., 917 S.W.2d 12, 13-14 (Tex. 1996), the Supreme Court of Texas concluded that oral representations by the publisher’s employee, that induced plaintiff to enter a contract, could not sustain a DTPA claim. The court held that the publisher’s statements did not cause the harm, but rather the injury for alleged lost profits was governed by contract law. Further, the court noted that to recognize a DTPA claim in that situation would convert every breach of contract into a DTPA claim. The same rationale applied in this case, the court decided. Because Baldino’s did not state a plausible DTPA claim, leave to allow the proposed amendment in Count I to assert a DTPA claim was denied as futile.

False advertising. Baldino’s proposed Count IV asserted a new claim for a violation of the false advertising provision of the Lanham Act. In order to establish a false advertising claim pursuant to the Lanham Act, a party must prove that the opponent made a false or misleading description of fact or representation of fact in a commercial advertisement about his own or another’s product.

Here, Supermedia did not make any representation in a commercial advertisement or otherwise. Instead, Supermedia merely published information provided to it by Baldino’s and the other businesses in the listings. Because Baldino’s claim was based on representations made by other advertisers, Baldino’s could not state a Lanham Act false advertising claim against Supermedia, the publisher of those ads, the court reasoned.

Negligence. Baldino’s proposed to amend their Counterclaim to include a negligence claim with allegations that Supermedia “unilaterally flood[ed] the locksmith section of its print directories and superpages.com with false information that was designed to steal business of Baldino’s and other legitimate locksmiths.” Their claim could be simplified into an argument that Supermedia was liable for publishing the listings of “false” locksmiths, the court noted.

Supermedia owed Baldino’s no duty beyond that imposed by the contract between the parties, the court determined. Supermedia provided Baldino’s with advertising and listing services as outlined in the contract. The conduct alleged in this case, that Supermedia allowed “phony” listings to be published, did not give rise to a tort action because Supermedia had no independent duty to monitor the content of other listings. Thus, the addition of a counterclaim of negligence would be futile, the court ruled.

Breach of contract. As to Baldino’s proposed counterclaim for breach of contract, it was futile because no contractual provision could be read to impose a duty on Supermedia to investigate and verify the information in other listings. The terms of the contract explicitly stated that Supermedia “[did] not guarantee the placement of any Ad (or the Ad of any other advertiser) on or within any Publication, the Electronic Platform or any page, cover, or heading and will not provide any adjustments on claims relating to the placement for any Ad.” The contract further provided that Supermedia was not responsible for the content provided by advertisers.

The case is No. BPG-12-1117.

Attorneys: John Edward McCann, Jr. (Miles and Stockbridge PC) for SuperMedia LLC. Martin Harold Schreiber II for Baldino's Lock & Key Service, Inc.

Companies: SuperMedia LLC; Baldino's Lock & Key Service, Inc.

Cases: Advertising StateUnfairTradePractices MarylandNews