Harold H. Huggins Realty Inc. v. Torres

Decision Date24 February 2011
Docket NumberNo. 09–60804.,09–60804.
CourtU.S. Court of Appeals — Fifth Circuit
PartiesHAROLD H. HUGGINS REALTY, INC., P.E. Turner & Company, Ltd., Residential Appraisal and Consulting, Inc., and Alfonso V. Torres, d/b/a Front Door Appraisals, individually and on behalf of all others similarly situated, Plaintiffs–Appellants,v.FNC, INC., Defendant–Appellee.

634 F.3d 787
2011-1 Trade Cases P 77,376
97 U.S.P.Q.2d 1962

HAROLD H. HUGGINS REALTY, INC., P.E. Turner & Company, Ltd., Residential Appraisal and Consulting, Inc., and Alfonso
v.
Torres, d/b/a Front Door Appraisals, individually and on behalf of all others similarly situated, Plaintiffs–Appellants,
v.
FNC, INC., Defendant–Appellee.

No. 09–60804.

United States Court of Appeals, Fifth Circuit.

Feb. 24, 2011.


[634 F.3d 793]

Paul George Gaston (argued), Law Offices of Paul G. Gaston, Washington, DC, LeRoy Davis Percy, Percy Law Firm, P.L.L.C., Oxford, MS, Tobey B. Marzouk, Thomas M. Parry, Marzouk & Parry, Washington, DC, for Plaintiffs–Appellants.Matthew P. Previn (argued), Andrew R. Louis, BuckleySandler, L.L.P., Washington, DC, H. Hunter Twiford, III,

[634 F.3d 794]

Candy Burnette, McGlinchey Stafford, P.L.L.C., Jackson, MS, for Defendant–Appellee.Appeal from the United States District Court for the Northern District of Mississippi.Before HIGGINBOTHAM, CLEMENT and OWEN, Circuit Judges.PATRICK E. HIGGINBOTHAM, Circuit Judge:

Four residential real-estate appraisers, seeking to represent themselves and a class of others similarly situated, appeal the district court's determination that they lack prudential standing to sue under the Lanham Act. We conclude that the plaintiffs have pleaded economic injury to a commercial interest caused by the defendant's anti-competitive conduct. Because this is the type of injury Congress intended the Lanham Act to redress, we reverse the judgment of the district court and remand this action for further proceedings.

I.

The plaintiffs appeal the district court's order granting the defendant FNC, Inc. (“FNC”)'s motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), so we recite the facts here as the plaintiffs' complaint pleads them. 1 This is a putative class action. Each of the plaintiffs is a residential real-estate appraiser. FNC develops software for use by the mortgage industry. FNC has developed two software platforms that are relevant to this appeal. One is called AppraisalPort; the other is the National Collateral Database.

AppraisalPort is an electronic, Web-based data-transmittal service that functions as a conduit between lending institutions and appraisers. Lending institutions use AppraisalPort to order an appraisal of real estate and to receive a completed appraisal. Appraisers use AppraisalPort to confirm acceptance of an order and to transmit the completed appraisal. After an appraiser performs an appraisal that a lending institution ordered through AppraisalPort, the appraiser enters the appraisal data into an electronic form. AppraisalPort then transmits the appraisal-report data to the lending institution in an industry-standard format. To be able to receive orders for appraisals from lending institutions, appraisers must register with and pay fees to AppraisalPort. The plaintiffs are thus customers of the service FNC offers through AppraisalPort.

FNC's marketing materials for AppraisalPort included a series of representations about the confidentiality of the appraisal-report data that appraisers transmit through the service. FNC repeatedly assured and represented to appraisers that AppraisalPort was secure and private, that only the client lending institution would have access to the data transmitted via AppraisalPort. FNC represented that the appraisal-report data was “unseen and untouchable by anyone” other than the appraisers and their paying customers and that neither FNC nor any other lending institutions would have access to the data generated by the appraisers and transmitted via AppraisalPort. Finally, FNC represented to the appraisers that it was not building a database with or otherwise using the data the appraisers transmitted via AppraisalPort. The plaintiffs allege that these representations induced them to provide FNC with data from residential appraisals they had performed.

The plaintiffs also allege that these representations were false. As FNC's chief executive officer stated in an October 2005 interview, “when an appraisal is transmitted to the lender [via AppraisalPort], we are able to pop it open and suck all the

[634 F.3d 795]

data out.” According to the plaintiffs, FNC has access to the appraisal data that is transmitted through AppraisalPort, has been copying and warehousing this data, and used it to build the National Collateral Database.

The National Collateral Database is an electronic real-estate-valuation service, collecting appraisal data and other information about residential real-estate properties and making it available to lending institutions as an alternative to paying an appraiser to perform an appraisal. The plaintiffs are thus competitors of the service FNC offers through the National Collateral Database. The electronic real-estate-valuation service FNC offers through the Database competes with the traditional real-estate-valuation services offered by the plaintiffs in two distinct ways. First, if a lender needs appraisal data on a specific property and there is an existing appraisal of that property in the Database, the lender might use that existing appraisal instead of commissioning a new appraisal from one of the plaintiffs. Second, if there is no existing appraisal of that property in the Database, but there are existing appraisals of several comparable properties in the same neighborhood, the lender might choose to estimate that property's value using those existing, comparable appraisals instead of commissioning a new appraisal from one of the plaintiffs.

FNC thus misrepresented to the plaintiffs, in their capacities as customers of AppraisalPort, that the appraisal data they transmitted through AppraisalPort would be secure and unavailable to FNC. In fact, FNC warehoused that data and used it to build the National Collateral Database. These misrepresentations caused injury to the plaintiffs in their capacities as competitors of the Database. Specifically, the plaintiffs, as competing providers of real-estate-valuation services, allege that they have suffered economic injury in the form of lost business because lending institutions consult the National Collateral Database instead of commissioning new appraisals when the same or similar neighboring properties are sold, refinanced, or offered as collateral for a line of credit. The plaintiffs seek to represent themselves and a class of all persons and entities who are engaged in performing appraisals and who have used FNC's AppraisalPort service since its inception through at least April 2007 and were damaged thereby. The district court concluded that the plaintiffs lacked prudential standing under the Lanham Act and granted FNC's 12(b)(6) motion to dismiss.2

II.

We review de novo the decision to grant a 12(b)(6) motion to dismiss, applying

[634 F.3d 796]

the same standard as the district court. 3 “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ”4 A claim for relief is plausible on its face “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”5 A claim for relief is implausible on its face when “the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct.” 6

Section 43(a) of the Lanham Act creates a private remedy for violations of the Act's prohibition against false-advertising:

Any person who, on or in connection with any goods or services, ... uses in commerce any ... false or misleading description ... [or] misrepresentation of fact, which ... in commercial advertising or promotion misrepresents the nature, characteristics, [or] qualities ... of his or her ... goods, services or commercial activities shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.7

This Court has instructed that § 43(a) is “ ‘a remedial statute that should be broadly construed.’ ”8 However, that broad construction is subject to the limits of prudential standing. The Lanham Act incorporates prudential restrictions on standing that ensure that only persons whom Congress intended to protect by passing the Lanham Act have standing to sue under it.9 Congress's intent in passing the Lanham Act was “to protect persons engaged in [interstate] commerce against unfair competition.”10 Therefore, only persons who have suffered a commercial injury as a result of anti-competitive conduct have prudential standing to sue under the Lanham Act.11

We employ a five-factor test to determine whether a plaintiff has prudential standing under the Lanham Act:

(1) the nature of the plaintiff's alleged injury: Is the injury “of a type that Congress sought to redress in providing a private remedy for violations of the antitrust laws”?; (2) the directness or indirectness of the asserted injury; (3) the proximity or remoteness of the party to the alleged injurious conduct; (4) the speculativeness of the damages claim;

[634 F.3d 797]

and (5) the risk of duplicative damages or complexity in apportioning damages.12

While a multifactor test such as this one inevitably entails some measure of internal redundancy, it is nonetheless a valuable heuristic. These factors do not pose five wholly distinct inquiries. Instead, each turn of the prism illuminates a slightly different facet of a single underlying question. 13

We discuss each factor in turn. In summary, the first, third, fourth, and fifth factors weigh in favor of standing, while the second factor weighs against it. After considering the combined effect of these factors, we conclude that the plaintiffs have prudential standing.

A.
(1)

The nature of the plaintiffs' injury weighs in favor of standing. “The first factor directs us to decide whether the alleged injury is of a type Congress sought to redress in providing a private remedy for...

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