Maday v. Toll Bros. Inc.

• Decision Date: 18 October 1999
• Docket Number: No. Civ.A. 99-1120-A.,Civ.A. 99-1120-A.
• Citation: 72 F.Supp.2d 599
• Court: U.S. District Court — Eastern District of Virginia
• Parties: James I. MADAY, Plaintiff, v. TOLL BROTHERS INC., et al., Defendants.

72 F.Supp.2d 599

James I. MADAY, Plaintiff, v. TOLL BROTHERS INC., et al., Defendants.

No. Civ.A. 99-1120-A.

United States District Court, E.D. Virginia, Alexandria Division.

October 18, 1999.

William H. Bode, Bode & Beckman, L.L.P., Washington, DC, for Plaintiff.

Michael Joseph McManus, Drinker, Biddle & Reath, L.L.P., Washington, DC, for Defendants.

MEMORANDUM OPINION

ELLIS, District Judge.

Plaintiff, who, with his wife, purchased a house from defendants, asserts a Lanham Act claim and several state law claims against defendants, based on defendants' alleged misrepresentations regarding the nature of building materials used in the construction of the house. Defendants' motion to dismiss presents two threshold jurisdictional issues: (i) whether plaintiff, as a consumer, may seek relief for false advertising pursuant to the Lanham Act, 15 U.S.C. § 1125, and thus claim federal question jurisdiction pursuant to 28 U.S.C. § 1331, and if not, (ii) whether complete diversity exists between plaintiff and defendants, thereby furnishing a basis for the exercise of federal jurisdiction over plaintiff's remaining state claims.

I.¹

Plaintiff James Maday, a citizen of Virginia, claims that defendants Toll Brothers, Inc., ("Toll Brothers") and Hunter Mill Limited Partnership ("Hunter Mill") misrepresented the nature of certain building materials used in constructing the house he and his wife purchased from defendants. Toll Brothers is a Delaware corporation with its principal place of business in Pennsylvania, while Hunter Mill is a Virginia limited partnership with two partners, both of which are corporations: Toll VA GP Corp. ("Toll VA") is the general partner, and Toll Bros., Inc., ("Toll Bros.") is the limited partner. Both of these entities are formally distinct from defendant Toll Brothers.

According to the complaint,² plaintiff initially approached Toll Brothers based on the company's reputation as a home builder and seller, and reviewed several brochures describing houses built by Toll Brothers. Among the models he examined was the "Sterling Provincial," a house the brochure described as having "stucco detailing," and that Toll Brothers representatives described as a "stucco home." Plaintiff and his wife preferred stucco, and defendants' representatives assured them that a stucco exterior would not require any additional maintenance as compared with other house exteriors. Apparently encouraged by the company's statements and brochures and the prospects of owning a newly constructed stucco home, plaintiff and his wife decided to purchase a Sterling Provincial, to be built in the Hunter Mill Estates subdivision, located in Vienna, Virginia.

As it turned out, the home's facade was not constructed with stucco,³ as plaintiff had been led to believe, but rather with the External Insulation Finish System ("EIFS"), a synthetic substitute. Moreover defendants were aware of plaintiff's mistake of fact, yet failed to correct him. Specifically, defendants' agents sat silent while plaintiff indicated what color of stucco he preferred, gave plaintiff an information packet that described methods of maintaining stucco, and referred to the house's "stucco" exterior during plaintiff's final inspection.

According to the complaint, defendants' misrepresentations were not harmless, as the decision to use EIFS had significant structural and maintenance ramifications. First, houses built with an EIFS exterior apparently have a tendency to trap more moisture than other homes, making EIFS houses more vulnerable to wood rot, a fact plaintiff claims is known generally in the construction industry. Second, defendants allegedly compounded the damage by misapplying the EIFS exterior, apparently ignoring the EIFS manufacturer's instructions. In short, plaintiff claims he suffered significant damages as a result of defendants' misrepresentations concerning the house's exterior and then their misapplication of the EIFS exterior.

Plaintiff seeks relief from Toll Brothers and Hunter Mill⁴ under a variety of theories, including one federal false advertising claim pursuant to the Lanham Act, 15 U.S.C. § 1125, and several state statutory and common law claims, such as breach of warranty and violation of the Virginia Consumer Protection Act, Va.Code § 59.1-196 et seq. In a threshold Rule 12 motion, defendants seek dismissal of the complaint, claiming that plaintiff, as a consumer, lacks standing to sue for false advertising under the Lanham Act, and that the remaining state claims must also be dismissed because complete diversity between plaintiff and defendants is lacking. The matter has been fully briefed and is ripe for disposition.

II.

Plaintiff first asserts federal question jurisdiction pursuant to 28 U.S.C. § 1331 based on his single federal claim brought pursuant to the Lanham Act, 15 U.S.C. § 1125(a).⁵ Specifically, he claims that defendants' misrepresentations concerning the use of stucco in the construction of the house he purchased constitute false advertising actionable under § 1125. Defendants respond that § 1125 provides a remedy for commercial injuries only; it provides no remedy or cause of action for the consumer injury alleged by plaintiff. Consequently, plaintiff cannot rely on § 1125 as a basis for relief or jurisdiction.

The question presented, therefore, is whether § 1125 grants plaintiff standing to sue for the consumer injury he alleges. Well-reasoned authority compels the conclusion that the Lanham Act does not confer standing on plaintiff for this purpose. Every circuit that has confronted this issue has reached this result, concluding that the Lanham Act provides a remedy only for a commercial injury.⁶ And although the Fourth Circuit has not squarely decided this issue, at least one district court in this circuit has agreed with this authority, noting that the Fourth Circuit has "implicitly approved restriction of standing under the Lanham Act to commercial interests."⁷ The statutory construction that compels this result was clearly set forth by the Ninth Circuit in Halicki v. United Artists Communications, Inc., 812 F.2d 1213, 1214 (9th Cir. 1987).⁸ There, the Ninth Circuit noted that even though § 1125's plain language would seem to allow "any person" to bring a suit under the Lanham Act, Congress, in an "unusual, and extraordinarily helpful"⁹ passage, made clear that the Act's purpose was limited to protecting "persons engaged in ... commerce against unfair competition." 15 U.S.C. § 1127 (emphasis added).¹⁰ Thus, the Ninth Circuit concluded, the Lanham Act does not provide a cause of action for every person who suffers in some way because of false advertising, but only for those who allege a competitive injury. Halicki, 812 F.2d at 1214. One must be the victim of unfair competition, in other words, and not simply a customer-victim of a company's unfair sales techniques. The Second Circuit, the first court to decide this issue, noted that allowing a claim such as plaintiff's would create a federal consumer protection cause of action, preempting existing state remedies in an area traditionally governed by state law.¹¹ Concluding that it was within Congress's power to create such a cause of action, the Second Circuit correctly observed that "had Congress contemplated so revolutionary a departure [from the role of state law in this field] ..., its intention could and would have been clearly expressed." Colligan, 442 F.2d at 694.

In sum, plaintiff's argument focuses too narrowly on the language of § 1125 alone; that language must be construed, and its scope determined, by reference to Congress's purpose in enacting the Act as a whole, which purpose is plainly set forth in § 1127. As § 1127 makes clear, § 1125 is a remedy only for commercial injuries. And, although there may be some ambiguity as to the total universe of such injuries,¹² that ambiguity need not be parsed in this case as plaintiff's injury is clearly not based on a commercial interest. Defendants' allegedly false advertising did not disparage a product or a service offered by the plaintiff, nor did it render competition between defendant and plaintiff unfair based on inflated or misleading claims about defendants' own products or services. Instead, defendants' allegedly false statements induced plaintiff to purchase a home he would not otherwise have purchased, and whatever injury arose from that purchase can only be construed as a consumer injury. In this circumstance, the Lanham Act affords plaintiff no personal remedy.

III

Because plaintiff cannot state a claim under the Lanham Act, there is no basis for federal question jurisdiction. Accordingly, the next question is whether there is any basis to exercise federal jurisdiction over plaintiff's remaining state claims. As the sole federal claim has been dismissed well in advance of trial, it would be imprudent to exercise supplemental jurisdiction over the remaining state claims. See 28 U.S.C. § 1367.¹³ Thus, the only remaining possible basis for federal jurisdiction over plaintiff's state law claims is diversity jurisdiction. See 28 U.S.C. § 1332. Yet, a review of the record as a whole compels the conclusion that diversity does not exist, as Hunter Mill is not diverse from plaintiff because Hunter Mill's general partner, Toll VA, like plaintiff, is a citizen of Virginia.

It is axiomatic that diversity jurisdiction exists only where the parties are completely diverse, meaning that while defendants may share common citizenship, plaintiff's citizenship must be different from that of all defendants. See Straw-bridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806); Athena Automotive, Inc., v. DiGregorio, 166 F.3d 288, 289 (4th Cir.1999). Here, the parties agree that plaintiff is a Virginia citizen, and that defendant Toll Brothers is a citizen of Delaware, its state of incorporation, and Pennsylvania, the location of its principal place of business. See 28 U.S.C. § 1332. Thus, the only...