Coastal Abstract Service, Inc. v. First American Title Ins. Co.

• Decision Date: 23 March 1999
• Docket Number: No. 96-56675,96-56675
• Citation: 173 F.3d 725
• Parties: , 99 Cal. Daily Op. Serv. 2065, 1999 Daily Journal D.A.R. 2693 COASTAL ABSTRACT SERVICE, INC., Plaintiff-Appellee, v. FIRST AMERICAN TITLE INSURANCE COMPANY, John M. Hollenbeck, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 725

173 F.3d 725

50 U.S.P.Q.2d 1118, 99 Cal. Daily Op. Serv. 2065,

1999 Daily Journal D.A.R. 2693

COASTAL ABSTRACT SERVICE, INC., Plaintiff-Appellee, v. FIRST AMERICAN TITLE INSURANCE COMPANY, John M. Hollenbeck Defendants-Appellants.

No. 96-56675.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 6, 1998.

Opinion Filed Dec. 28, 1998.

Opinion Withdrawn March 23, 1999.

Decided March 23, 1999.

Robert C. Braun, Rutan & Tucker, Costa Mesa, California, for the defendants-appellants.

Peter I. Livingston, Rosen & Livingston, New York, New York, for the plaintiff-appellee.

Appeal from the United States District Court for the Central District of California; Kim McLane Wardlaw, District Judge, Presiding. D.C. No. CV-94-07324-KMW-CTx.

Before: CANBY, NOONAN and KLEINFELD, Circuit Judges.

ORDER

The opinion filed December 28, 1998, is hereby withdrawn.

OPINION

CANBY, Circuit Judge:

Coastal Abstract Services, Inc. ("Coastal") sued First American Title Insurance corp. ("First American") and one of its officers, John Hollenbeck, asserting three theories of liability: defamation, tortious interference with contract, and false advertising under the Lanham Act, 15 U.S.C. § 1125(a) (1998). ¹ A jury found both defendants liable under all three theories. Liability under each theory was found to arise largely or entirely from three derogatory statements published by First American or Hollenbeck, or both. The jury assessed $1,425,000 in damages against Hollenbeck and $4,475,000 against First American. Both defendants now appeal.

We conclude that two of the three statements upon which liability was based were, as a matter of law, not actionable under the Lanham Act or state defamation law. We also conclude that the damages were excessive and that, because it is not possible to isolate the damages properly attributable to the one statement actionable under the Lanham Act and state defamation law, the award of damages on those claims must be reversed. Similarly, the damages for tortious interference with contract are likely to have been based in part on the jury's incorrect understanding that two of the statements violated the Lanham Act and state defamation law. We therefore reverse the award of damages on that claim and remand for a retrial of damages on all three claims.

BACKGROUND

In 1991, Shearson Lehman Hutton Mortgage Corp. ("Shearson") began a home loan refinancing project that was designed to retain its current mortgagors by permitting them to take advantage of declining interest rates without leaving Shearson. Shearson engaged Coastal as an escrow agent to perform some of the tasks involved in this nationwide project. Shearson provided Coastal with the names and addresses of home owners who wanted to refinance with Shearson. Coastal then arranged for preliminary title searches and title insurance commitments for each relevant property. If Shearson was satisfied with the condition of the title, then it would prepare all of the necessary loan documents. Coastal then prepared a "HUD-1" Settlement Statement that set forth the various costs and disbursements associated with the new loan, such as recording fees and title insurance premiums. Coastal then arranged for the borrower to review and sign all of these various loan documents. Following an obligatory three-day waiting period, Shearson would issue a check to Coastal for the loan amount. Coastal then disbursed the funds, or "paid the bills," in accordance with the HUD statement. After Coastal made the necessary disbursements, it secured the title insurance policy from the selected insurer for delivery to Shearson. Shearson paid Coastal $350 plus certain expenses for each completed transaction.

Coastal, in turn, engaged First American to provide some of the services for the Shearson account. First American conducted the preliminary title searches and issued the title insurance policies when the loans closed. Because Coastal's office was in New York City, First American allowed borrowers to sign the loan documents at local First American offices located nationwide. First American also provided office space and services to a Coastal employee who was working in California, where most of the refinancing was occurring. The Coastal employee collected documents from Shearson and faxed them to Coastal in New York.

In February 1992, Max Alonzo and Karen Condo from First American met with the supervisor of Shearson's refinancing program, Karen Charlotta Near. According to Near, Alonzo stated that First American's office in San Bernardino, California, could no longer provide title insurance policies in connection with Shearson's refinancing program because Coastal was not licensed in California as an escrow company. Alonzo's licensure statement was the first of the three statements that were the focus of this litigation. Alonzo and Condo at the same time offered, on behalf of First American, to provide all of the services to Shearson that Coastal had been providing. Near related the conversation to her superior at Shearson, Marty Foster. Foster subsequently curtailed the placement of California escrows with Coastal out of concern that Coastal was not properly licensed. Coastal associated with an escrow company licensed in California to assuage Foster's concerns, although it insisted that it was not required to obtain a California license. The placements resumed.

A second problem followed soon after the licensure problem. Shearson had not received title insurance policies in connection with several hundred of the refinanced loans. Shearson could not sell the loans on the secondary markets without the title insurance policies. Shearson reportedly declared that it would suspend new business with Coastal until the missing policies were delivered. Coastal representatives then contacted local First American offices to try to expedite the issuance of policies. As a result, Coastal obtained and delivered to Shearson 130 of the delinquent policies. Shearson then agreed to end its suspension of new business with Coastal.

First American assigned John Hollenbeck, a vice-president, to report on the cause for the delay in issuing title polices. Following his investigation, Hollenbeck reported to Near at Shearson that Coastal's failure to disburse the loan amounts, including the payments for title insurance premiums, created the delay in issuing the title policies. Hollenbeck's statement that Coastal was not "paying its bills" was the second of the three allegedly tortious statements. Hollenbeck also told Near that Coastal was too small to handle the volume of business that Shearson provided. The "too small" statement was the third supposedly actionable statement. Near later testified that Hollenbeck also solicited the Shearson account for First American.

According to Coastal, Hollenbeck repeatedly blamed Coastal for the delays in the ensuing months, even though his accusations were not well founded. It further asserted that Hollenbeck thwarted Coastal's efforts to cure the delays by instructing local First American offices to send the policies to him, rather than to Coastal or directly to Shearson. Coastal maintained that it disbursed the loan amounts in a timely manner, and therefore it had not caused the delays in issuing the title policies.

Shearson eventually discontinued its association with both Coastal and First American. Coastal then sued First American and Hollenbeck in district court for false advertising under the Lanham Act, and for tortious interference with contract and defamation. The jury found both defendants liable under all three theories. ² The jury awarded damages of $500,000 against Hollenbeck and $1,700,000 against First American on the Lanham Act claim; $500,000 against Hollenbeck and $1,500,000 against First American on the contract interference claim; and $425,000 against Hollenbeck and $1,275,000 against First American on the defamation claim. The district court denied the defendants' motions for judgment as a matter of law, new trial, and remittitur.

DISCUSSION

I. Actionability of Statements Under the Lanham Act and State Defamation Law

Liability under the relevant provision of the Lanham Act requires, among other things, a "false or misleading representation of fact." 15 U.S.C. § 1125(a)(1)(emphasis added). Similarly, California defamation law requires that the offending statement "expressly or impliedly assert a fact that is susceptible to being proved false," and must be able reasonably to be "interpreted as stating actual facts." Weller v. American Broadcasting Companies, 232 Cal.App.3d 991, 1001, 283 Cal.Rptr. 644, 650 (1991). Two of the three statements upon which the jury's verdict was based do not meet these requirements as a matter of law.

"Too Small "

The statement that Coastal was "too small" to handle Shearson's business, along with the implication or statement that First American was large enough to handle that business, was exactly the kind of "puffery" that does not qualify as a statement of fact capable of being proved false. See Cook, Perkiss & Liehe, Inc. v. Northern Cal. Collection Serv., Inc., 911 F.2d 242, 245 (9th Cir.1990) (puffery, which a court may determine as a matter of law, is not actionable under Lanham Act). In Cook, we affirmed the district court's determination that the defendant's statement implying better service and lower rates than the competition was puffery because a reasonable consumer would not interpret the statement as a reliably factual claim. Id. at 246. We cited with approval the reasoning in Smith-Victor Corp. v. Sylvania Elect. Products, Inc., 242 F.Supp. 302 (N.D.Ill.1965).

In Smith-Victor, an advertiser's statement that its lamps were "far brighter than any lamp ever before offered for home movies" was ruled puffery. However, when the advertiser quantified numerically the alleged superior brightness with statements such as "35,000 candle power and 10-hour life," the...