Antitrust Law Daily Wrap Up, ADVERTISING—W.D.N.Y.: Catholic Health System may be liable for false advertisements regarding health plan coverage, (Sep 29, 2015)

By Michael Menzhuber, J.D., LL.M.

A motion to dismiss claims that statements made by Catholic Health System, Inc. (CHS), regarding a Healthnow New York, Inc., d/b/a Blue Cross and Blue Shield of Western New York (BCBS) senior HMO plan, violated the Lanham Act and the New York State General Business Law was converted to a motion for summary judgment by the federal district court in Buffalo, New York. The motion was converted because certain exhibits submitted by CHS, that the court considered integral in the dispute but could not be considered on a motion to dismiss, could be considered on a motion for summary judgment. The court determined that BCBS’s claim of per se defamation was actually a claim for product disparagement. It dismissed the claim because BCBS failed to plead and prove special damages (Healthnow New York Inc. v. Catholic Health System, Inc., September 24, 2015, Skretny, W.).

Background. CHS place advertisements in church bulletins and a local newspaper which stated that coverage under BCBS’ Senior Blue HMO Select health plan (SB-HMO) excluded Catholic Health facilities. CHS also made similar statements on its website and in an op-ed article written by the CEO and president of CHS.

Following CHS’s motion to dismiss BCBS’s initial complaint, BCBS filed an amended complaint that asserted five causes of action: (1) CHS made literally false statements in advertisements regarding SB-HMO, in violation of § 1125(a) of the Lanham Act; (2) CHM made misleading statement regarding SB-HMO, thereby influencing customers’ purchasing decisions, in violation of § 1125(a); (3) CHS’s deceptive and misleading advertisements violated the New York General Business Law § 349; (4) CHS’s statements constituted false advertising in violation of the New York General Business Law § 350; and (5) CHS’ false statements constituted per se defamation warranting actual and special damages as a result of customer confusion, loss of goodwill, loss of customers, and out-of-pocket expenses.

Lanham Act and New York General Business Law. The court determined that BCBS’s first two causes of action alleged violations of § 43 of the Lanham Act. It further determined that BCBS’s third and fourth causes of actions asserted similar claims under §§ 349 and 350 of the New York General Business Law. It then noted that, for purposes of the case at issue, the standards were the same for bringing a claim under § 43 of the Lanham Act and §§ 349 and 350 of the New York General Business Law.

Relying on a four-part test set out in Gordon & Breach Sci. Publishers S.A. v. Am. Inst. Of Physics, 859 F. Supp. 1521 (1994), CHS argued the BCBS’s false advertising claims should be dismissed because: (1) the purportedly false or misleading statements that it was charged with making were not commercial in nature; (2) CHS and BCBS were not competitors; and (3) the purportedly false or misleading were not made for the purpose of influencing consumers to buy its products. The court, however, disagreed. It noted that contested representations, made as part of an organized campaign to penetrate the relevant market, may be considered commercial advertising. It then concluded that CHS’s advertisements and statements regard SB-HMO were made as part of a campaign directed at influencing consumers’ Medicare enrollment decisions.

CHS also argued that BCBS’s false and misleading advertising claims should be dismissed because BCBC had admitted that its SB-HMO excluded all Catholic Health facilities. In support of this argument, CHS relied on an article by a BCBS spokesman and plan materials distributed by BCBS. BCBC responded that none of these documents could be considered on a motion to dismiss because it did not rely on any of these documents in drafting its amended complaint. The court agreed. However, it noted that a court has two options when matters outside the pleadings are presented in motion to dismiss, one of which is to convert the motion to one for summary judgment and afford the parties the opportunity to present supporting material. After determining that CHS’s exhibits were integral in resolving the matter, the court converted CHS’s motion to dismiss the first four causes of action to one for summary judgment.

Defamation. The court concluded that BCBS’ fifth cause of action, which alleged that it was entitled to damages because the statements contained in CHS’ advertisements were false and constituted per se defamation, was actually a claim for product disparagement. It made this determination because the purportedly false or misleading statements made by CHS tended to disparage or reflect negatively on the quality, condition or value of a product. To satisfy the special damages pleading requirement of a product disparagement claim, a plaintiff must set forth an itemized account of the losses. It further noted that round figures or a general allegation of a dollar amount as special damages is not sufficient. Because BCBS made no attempt to meet this requirement in its amended complaint, the court dismissed its claim.

The case is No. 13-CV-986S.

Attorneys: Andrew O. Miller (Webster Szanyi, LLP) for HealthNow New York Inc. d/b/a Blue Cross Blue Shield of Western New York. Andrew Clayton Rose (Nixon Peabody LLP) for Catholic Health System, Inc.

Companies: HealthNow New York Inc. d/b/a Blue Cross Blue Shield of Western New York; Catholic Health System, Inc.

Cases: Advertising NewYorkNews