Cook, Perkiss and Liehe, Inc. v. Northern California Collection Service Inc.

Decision Date10 August 1990
Docket NumberNo. 88-15447,88-15447
Citation911 F.2d 242
Parties, 15 U.S.P.Q.2d 1894 COOK, PERKISS AND LIEHE, INC., and David J. Cook, Plaintiffs-Appellants, v. NORTHERN CALIFORNIA COLLECTION SERVICE INC.; Sacramento Valley Board of Trade Inc.; Lawrence H. Cassidy, Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

David J. Cook, Cook, Perkiss & Liehe, San Francisco, Cal., for plaintiffs-appellants.

Harold B. Auerback, San Francisco, Cal., for defendants-appellees.

Appeal from the United States District Court for the Northern District of California.

Before WALLACE, PREGERSON and ALARCON, Circuit Judges.

PER CURIAM:

Appellant Cook, Perkiss & Liehe appeals the decision of a United States Magistrate acting pursuant to 28 U.S.C. Sec. 636(c) granting appellees' motion to dismiss for failure to state a claim for false advertising under section 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a). We agree with the magistrate that Cook's complaint does not state a claim for relief under the Lanham Act because, as a matter of law, the alleged misrepresentations contained in the appellees' advertisement are merely "puffery." We therefore affirm the magistrate's judgment dismissing the Lanham Act claim and dismissing without prejudice the pendent state claims.

BACKGROUND

Appellant, Cook, Perkiss and Liehe, Inc., ("Cook") is a California law firm engaged primarily in commercial and consumer debt collection in Northern California. Lawrence H. Cassidy, appellee, is chief executive officer of appellee, Northern California Collection Service ("NCC"), a California corporation that provides debt collection services for its clients.

Giving rise to this suit was an advertisement placed by NCC in McCords Daily Notification Sheet, a San Francisco publication that provides credit information to subscribers. The advertisement stated:

DO YOU PAY FOR AN ATTORNEY TO DO YOUR COLLECTION WORK? And pay. And pay. And pay! Were you quoted a really low "collection fee" only to find that "costs" are eating you alive? Do you find that you are doing all the "leg work" for your lawyer? Then call us--we're the low cost commercial collection experts.

NORTHERN CALIFORNIA COLLECTION SERVICE, INC.

SACRAMENTO VALLEY BOARD OF TRADE, INC.

700 Leisure Lane, Sacramento, CA 95815

(916) 929-7811

Lawrence H. Cassidy, President

Cook filed a complaint in the United States District Court, Northern District of California, on April 29, 1988 and an amended complaint on May 16, 1988, alleging five causes of action with regard to the advertisement. The first is a false advertising claim under section 43(a) of the Lanham Act (the "Act"), 15 U.S.C. Sec. 1125(a). The remaining claims are state and common law causes of action for unfair competition, libel, defamation, and disparagement.

The parties consented to proceed before a U.S. Magistrate pursuant to 28 U.S.C. Sec. 636(c). On August 2, 1988, Magistrate Claudia Wilken granted, without leave to amend, NCC's motion to dismiss for failure to state a claim under the Lanham Act. She then declined to exercise jurisdiction over the pendent state claims in the absence of a cognizable claim under the Lanham Act, and dismissed them without prejudice. A judgment was entered by Magistrate Wilken on September 9, 1988.

Magistrate Wilken found that false advertising under section 43(a) of the Act is limited to false representations with respect to a defendant's own product and services, so that to the extent NCC's advertisement made false representations about Cook's or collection attorneys' services, rather than its own, such representations are not actionable under the Lanham Act. Cook does not contest this legal finding on appeal. 1

Magistrate Wilken granted the motion to dismiss because she found that the alleged implied misrepresentations concerning NCC's own services (that NCC's fees are lower than those of any attorney and that NCC performs the same services as attorneys at a better or more competitive price) were not actionable under the Act because they constituted mere "puffery" rather than factual claims upon which a reasonable consumer would rely.

Cook contends that the dismissal was improper. It argues that its complaint sufficiently stated each element of a false advertising claim under the Lanham Act, and that the district court improperly made a factual determination in holding that the advertisement was puffery and therefore not actionable. Cook also asserts that it could have added other federal claims which would have saved the pendent claims from dismissal and that the district court therefore abused its discretion in dismissing the complaint without leave to amend.

DISCUSSION
I. Dismissal For Failure to State a Claim
A. Standard of Review

We review de novo a dismissal for failure to state a claim upon which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(6). Guillory v. County of Orange, 731 F.2d 1379, 1381 (9th Cir.1984). We must accept material allegations in the complaint as true and construe them in the light most favorable to the appellant, Cook. Ascon Properties, Inc. v. Mobil Oil Co., 866 F.2d 1149, 1152 (9th Cir.1989). We may affirm the district court's dismissal "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Id. (quoting Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984)).

B. Analysis

On appeal, the parties agree on the elements that must be alleged in order to state a false advertising claim under section 43(a) of the Act. These elements were set out in Skil Corp. v. Rockwell Int'l Corp., 375 F.Supp. 777, 783 (N.D.Ill.1974):

1) in its ... advertisements, defendant made false statements of fact about its own product; 11

2) those advertisements actually deceived or have the tendency to deceive a substantial segment of their audience;

3) such deception is material, in that it is likely to influence the purchasing decision;

4) defendant caused its falsely advertised goods to enter interstate commerce; and

5) plaintiff has been or is likely to be injured as the result of the foregoing either by direct diversion of sales from itself to defendant, or by lessening of the good will which its products enjoy with the buying public.

Id. (footnote omitted). 2 See also Oil Heat Inst. of Oregon v. Northwest Natural Gas, 708 F.Supp. 1118, 1121 (D.Or.1988).

The controversy in this case centers around elements one and two. NCC makes one overt statement about its own services in its advertisement: "[W]e're the low cost commercial collection experts." However, a false advertising cause of action under the Act is not limited to literal falsehoods; it extends to false representations made by implication or innuendo. In American Home Products Corp. v. Johnson & Johnson, 577 F.2d 160 (2d Cir.1978), the Second Circuit stated:

That Section 43(a) of the Lanham Act encompasses more than literal falsehoods cannot be questioned. Were it otherwise, clever use of innuendo, indirect intimations, and ambiguous suggestions could shield the advertisement from scrutiny precisely when protection against such sophisticated deception is most needed.

Id. at 165 (citations omitted). See also U-Haul Int'l, Inc. v. Jartran, Inc., 522 F.Supp. 1238, 1247 (D.Ariz.1981), aff'd, 681 F.2d 1159 (9th Cir.1982); cf. American Home Products Corp. v. Federal Trade Commission, 695 F.2d 681, 687 (3d Cir.1982).

Therefore, Cook may allege--and we are willing to accept as true for the purposes of this appeal--that the advertisement as a whole can be read as implying that NCC offers the same collection services as lawyers at a lower or more competitive price. The dispositive issue, however, is whether this alleged misrepresentation is merely "puffery," as the lower court found, and thus not actionable under the act, or whether it is a statement of fact which has the tendency to deceive the reader.

Cook does not refute the contention that puffing immunizes an advertisement from liability under the Lanham Act. Indeed, there is much support for this contention. See Stiffel Co. v. Westwood Lighting Group, 658 F.Supp. 1103, 1115 (D.N.J.1987); Toro Co. v. Textron, Inc., 499 F.Supp. 241, 253 n. 23 (D.Del.1980); Smith-Victor Corp. v. Sylvania Electric Products, Inc., 242 F.Supp. 302, 308-09 (N.D.Ill.1965). Cook argues, however, that whether a statement in an advertisement constitutes "puffing" is a question of fact that may not be determined by a court in a 12(b)(6) motion. Cook contends that it should have been allowed to introduce evidence showing that these misrepresentations could have misled the public.

It is well-established that questions of fact cannot be resolved or determined on a motion to dismiss for failure to state a claim upon which relief can be granted. Rennie & Laughlin, Inc. v. Chrysler Corp., 242 F.2d 208, 212 (9th Cir.1957). It is also well-established that a court must accept material allegations as true and construe them in the light most favorable to the appellant. Ascon, 866 F.2d at 1152.

Here, we are willing to accept as true Cook's allegation that the advertisement implies that NCC offers the same collection services as lawyers at a lower price. However, we still may determine as a matter of law whether this alleged misrepresentation is a statement of fact, actionable under the Lanham Act, or mere puffery. District courts often resolve whether a statement is puffery when considering a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) and we can think of no sound reason why they should not do so. See Cohen v. Prudential-Bache Sec., Inc., 713 F.Supp. 653, 658 (S.D.N.Y.1989) (considering whether a securities broker's statement constituted puffing in determining whether to grant a motion to dismiss for failure to state a claim for securities fraud); Metzner v. D.H. Blair & Co., 689 F.Supp. 262, 263-64 (S.D.N.Y.1988) ...

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