Antitrust Law Daily Wrap Up, ADVERTISING—E.D. Mich.: Realtor lacked standing to sue referral service for false advertising, (Apr 12, 2022)

By Martin A. Steinberg, J.D.

The plaintiff agent did not satisfy the Lanham Act’s requirement of a commercial injury flowing directly from the alleged misrepresentations.

A realtor’s false advertising suit against the operators of a website real estate agent referral service was dismissed because the plaintiff failed to allege a commercial injury flowing from the alleged false advertising. The suit by Michigan realtor, Coty Lewis (Lewis) was brought in the form of a putative class action against Acuity Real Estate Services, LLC, and its owner, Kevin Stuteville, (Acuity). Their website offered consumers a free realtor referral, and charged the real estate agent a referral fee. Lewis’s brokerage entered into a referral agreement with Acuity. Lewis alleged that Acuity engaged in false advertising in violation of the Lanham Act by claiming that its service was superior to others because it used a sophisticated algorithm to match consumers to realtors. He alleged harm by claiming that this service diverted customers away from realtors. Acuity filed a motion to dismiss, which the court granted (Lewis v. Acuity Real Estate Services, LLC, April 6, 2022, Ludington, T.).

Background. Acuity operated a website to refer consumers to local real estate agents by claiming to use a sophisticated algorithm to match consumers to agents. This service was advertised as free to consumers because the agent paid a 35% referral fee. Lewis’s brokerage, which was not a party to the lawsuit, entered into a referral agreement with Acuity. Acuity referred a 93-year-old customer who wanted to sell her house to Lewis. On the same day, Agent Pronto, a competitor of Acuity, also referred the same customer to Lewis. Upon completing the sale of the home, both services demanded payment of their respective referral fee. Lewis, instead of paying Acuity, paid Agent Pronto its fee. Acuity sued Lewis for the fee and obtained a judgment against him.

One month later, Lewis filed this lawsuit, claiming a violation of the Act. Acuity claimed to use a sophisticated system to match consumers and realtors, when, in fact, it only referred them to agents who agreed to pay. These false claims, according to Lewis, harmed local realtors by driving customers away from local realtors into Acuity’s network.

Motion to dismiss. Acuity filed a motion seeking dismissal on two grounds. First, Lewis lacked standing under the Act for failing to fall within the Act’s zone of interest and his failure to show a causal connection between any injury he may have suffered and false advertising. Second, Acuity’s statements did not qualify as commercial advertising. The court dispensed with a hearing and decided the motion based on the parties’ filings.

Standing. The threshold issue that faced the court was whether Lewis had standing under the Act to sue Acuity. Pursuant to the U.S. Supreme Court, Lewis needed to show (1) that he suffered an injury to a commercial interest, such as his reputation or sales and (2) that the injury stemmed from Acuity’s deceptive advertising. Lewis argued that he had standing because he was a direct competitor of Acuity and that Acuity directed sales away from him.

Competitor. The mere fact that Acuity and Lewis were both seeking real estate clients did not make them direct competitors. The difference was that Acuity sought consumers only to refer them to agents such as Lewis. While Lewis would have preferred not to pay the referral fee, he still benefited from Acuity’s referrals. The court viewed Lewis more as a customer of Acuity than a competitor. Accordingly, the Act was not designed to protect customers from purchasing defective or lower quality products.

Lack of injury. Lewis also failed to show that he suffered any injury from Acuity’s statements. Claiming that the 93-year-old customer may have come to him directly was not plausible. Even if he had alleged a plausible injury, he could not have tied it to Acuity’s advertising. Acuity’s use of the claim of having a “sophisticated algorithm” was mere puffery since it was ambiguous and unverifiable. The term “sophisticated” is not a statement of objective fact. Likewise, “algorithm” is a term that encompasses every computerized function. No consumer would have been expected to rely on this claim. The court was particularly confounded by Lewis’s argument that Acuity made a false claim by calling its service as free to consumers when the agent must pay a 35% referral fee. Lewis failed to allege how this referral fee negatively impacted consumers or caused him harm.

Lewis also complained that Acuity deceived real-estate agents by telling them that it had “clients.” These representations to real estate agents, however, were not cognizable under the Act since they were made to the agents as its customers. Even if the statements were cognizable, Lewis failed to allege how such statements damaged his business. For these reasons, the court dismissed the complaint.

Commercial advertising. Though the court dismissed the complaint on the above grounds, in the interest of completing the record, it also addressed the issue of whether Acuity’s statements were commercial advertising. Acuity argued that since consumers were not lured into buying anything from Acuity, the statements could not be considered commercial advertising. The court rejected this argument since Acuity used its advertising as part of an organized campaign to penetrate the real estate referral market. The bottom line was that Acuity made those statements to convince consumers to provide their contact information so that Acuity could then leverage it for referral fees from the agents.

The case is No. 1:21-cv-12319-TLL-PTM.

Attorneys: Matthew E. Gronda (Matthew E. Gronda, J.D., P.L.C.) for Coty Lewis. Janette E. Frank (Frank & Frank Law) for Acuity Real Estate Services, LLC.

Companies: Acuity Real Estate Services, LLC

Cases: Advertising GCNNews MichiganNews