Allsup, Inc. v. Advantage 2000 Consultants Inc.

• Decision Date: 16 November 2005
• Docket Number: No. 04-3376.,04-3376.
• Citation: 428 F.3d 1135
• Parties: ALLSUP, INC., Plaintiff-Appellant, v. ADVANTAGE 2000 CONSULTANTS INC., a Missouri Corporation; Richard C. Smith, other, Pete; Terry L. Binder; Robert V. Luetkenhaus, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

428 F.3d 1135

ALLSUP, INC., Plaintiff-Appellant, v. ADVANTAGE 2000 CONSULTANTS INC., a Missouri Corporation; Richard C. Smith, other, Pete; Terry L. Binder; Robert V. Luetkenhaus, Defendants-Appellees.

No. 04-3376.

United States Court of Appeals, Eighth Circuit.

Submitted: October 13, 2005.

Filed: November 16, 2005.

Terrence J. O'Toole, argued, St. Louis, MO (Ameer Gado, on the brief), for appellant.

David T. Ahlheim, argued, St. Louis, MO (James W. Childress, on the brief), for appellee.

Before BYE, BEAM, and SMITH, Circuit Judges.

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' 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 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.

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...