Phoenix of Broward, Inc. v. McDonald's Corp.

• Decision Date: 22 June 2007
• Docket Number: No. 06-14726.,06-14726.
• Citation: 489 F.3d 1156
• Parties: PHOENIX OF BROWARD, INC., on behalf of Itself and Similarly Situated Burger King Franchisees, 1101 S. Rogers Circle, Suite 10, Boca Raton, Florida 33487, Plaintiff-Appellant, v. McDONALD'S CORPORATION, One McDonald Plaza, Oak Brook, Illinois 60523, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

489 F.3d 1156

PHOENIX OF BROWARD, INC., on behalf of Itself and Similarly Situated Burger King Franchisees, 1101 S. Rogers Circle, Suite 10, Boca Raton, Florida 33487, Plaintiff-Appellant, v. McDONALD'S CORPORATION, One McDonald Plaza, Oak Brook, Illinois 60523, Defendant-Appellee.

No. 06-14726.

United States Court of Appeals, Eleventh Circuit.

June 22, 2007.

Marc J. Zucker, Weir & Partners, LLP, Philadelphia, PA, William P. Eiselstein, Miller & Martin, PLLC, Atlanta, GA, Charna E. Sherman, Squire, Sanders & Dempsey, L.L.P., Cleveland, OH, Pierre H. Bergeron, Squire, Sanders & Dempsey, L.L.P., Cincinnati, OH, for Plaintiff-Appellant.

George C. Lombardi, David J. Doyle, Winston & Strawn, LLP, Chicago, IL, Donald A. Loft, Ross A. Albert, Morris, Manning & Martin, Atlanta, GA, for Defendant-Appellee.

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

Before PRYOR, KRAVITCH and ALARCÓN,^* Circuit Judges.

KRAVITCH, Circuit Judge:

The primary issue in this appeal is the proper test for determining whether a party has prudential standing to bring a false advertising claim under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). Phoenix of Broward, Inc. ("Phoenix") appeals the district court's dismissal of its false advertising claim against McDonald's Corporation ("McDonald's") for lack of prudential standing. For the reasons that follow, we adopt the test for prudential standing set forth in Conte Bros. Automotive, Inc. v. Quaker State-Slick 50, Inc., 165 F.3d 221, 225 (3d Cir.1998), and affirm the district court's dismissal.

I. BACKGROUND

Burger King Corporation ("Burger King") owns, operates, and franchises fast food restaurants throughout the world. Today, there are approximately 11,000 Burger King restaurants worldwide. Appellant Phoenix is a licensed Burger King franchisee that owns and operates a Burger King franchise in Fort Lauderdale, Florida. McDonald's, like Burger King, owns, operates, and franchises fast food restaurants throughout the world, and there are approximately 30,000 McDonald's restaurants worldwide. As competitors in the fast food industry, both McDonald's and Burger King have employed a variety of marketing and promotional strategies to attract customers, generate sales, and ensure customer loyalty.

From 1995 to August 2001, McDonald's offered customers the opportunity to participate in various promotional games such as "Monopoly Games at McDonald's," "The Deluxe Monopoly Game," "Who Wants to be a Millionaire," and "Hatch, Match and Win." Each of the promotional games featured low-value, mid-value, and high-value prizes. The low-value prizes included low-dollar cash awards and food and beverage items, while the high-value prizes included automobiles and cash awards of up to $1 million dollars. In general, customers could win the $1 million grand prize in one of two ways — by obtaining one of the rare $1 million, instant-winner game pieces or by collecting and matching a combination of certain other game pieces.

McDonald's conducted an extensive advertising and marketing campaign for each of the games it offered. In these advertisements, McDonald's represented that all customers who participated in the games had a fair and equal opportunity to win the offered prizes. The advertisements also represented the specific odds of winning certain prizes, including the high-value prizes.

In approximately April 2000, the Federal Bureau of Investigation ("FBI") began investigating the promotional games. While the games were still underway, the FBI informed McDonald's that there were problems with the random distribution of its game pieces. In spite of this alleged knowledge, McDonald's continued to advertise that customers had a fair and equal opportunity to win the offered prizes, including the high-value prizes.

On August 21, 2001, the United States Department of Justice ("DOJ") and the FBI announced that between 1995 and August 2001, certain of McDonald's promotional games had been compromised by a criminal ring led by an employee of Simon Marketing, Inc. ("Simon"), the company McDonald's engaged to operate the promotional games. From approximately 1995 to August 2001, Simon's Director of Security, Jerome Jacobson, diverted at least $20 million in high-value prizes by embezzling winning, high-value game pieces and distributing them to a network of "winners" who claimed (or recruited others to claim) the prizes from McDonald's. The DOJ and FBI announced that eight individuals, including Jacobson, had been arrested in connection with the scheme. In announcing the arrests, the U.S. Attorney General stated that the "fraud scheme denied McDonald's customers a fair and equal chance of winning." In a corporate press release issued after the arrests, McDonald's Chairman and Chief Executive Officer described the scheme as "a highly sophisticated inside game of fraud and deception."

On or about April 5, 2002, Jacobson pleaded guilty to charges of conspiracy and mail fraud. Approximately 50 other persons either pleaded guilty or were convicted in connection with the conspiracy.

Following the disclosure of the scheme, McDonald's created an independent task force to review all of its promotional practices, and it introduced additional security procedures to ensure the integrity of future promotional games. Nonetheless, consumers throughout the U.S. filed several class actions against McDonald's, alleging consumer fraud, negligence, and unjust enrichment. On April 19, 2002, McDonald's settled these class actions by, inter alia, agreeing to implement a $15 million "Instant Giveaway," providing class members and the general public an opportunity to win fifteen $1 million prizes.

On February 22, 2006, Phoenix filed the instant action against McDonald's on behalf of itself and all similarly situated Burger King franchisees (a proposed class of approximately 1,100 franchisees), alleging false advertising in violation of § 43(a) of the Lanham Act. Specifically, Phoenix alleged that McDonald's misrepresented that each player in its promotional games had a fair and equal chance of winning high-value prizes and misrepresented the specific odds of winning high-value prizes. According to Phoenix, McDonald's promotional games were "rigged from approximately 1995-2001," those games lured customers away from Burger King and yielded an "unnatural" spike in profits for McDonald's, the high-value prizes (including the $1 million prizes) were diverted from McDonald's customers, and the "advertising campaigns that touted million dollar prizes were literally false." Phoenix also alleged that after learning that the games had been compromised, McDonald's knowingly and deliberately continued to advertise the games as though customers had a fair and equal chance of winning.

McDonald's moved to dismiss Phoenix's complaint on the grounds that Phoenix lacked prudential standing under the Lanham Act and, in the alternative, that Jacobson's theft was an intervening cause of Phoenix's alleged injury. On August 1, 2006, the district court issued a written order granting McDonald's motion and dismissing the action with prejudice. Noting that the Eleventh Circuit had not addressed the appropriate standard for determining whether a plaintiff has prudential standing to bring a false advertising claim under § 43(a) of the Lanham Act, the district court surveyed the case law of other circuits and adopted the five-factor test set forth by the Third Circuit in Conte Bros., 165 F.3d at 225, finding that test to be more "persuasive" than the "categorical approach" adopted by several other circuits. Applying the Conte Bros. test, the district court concluded that Phoenix did not have prudential standing to bring a false advertisement claim under the Lanham Act against McDonald's. Phoenix now appeals.

II. DISCUSSION

On appeal, Phoenix argues that the district court erred in dismissing its complaint against McDonald's for lack of prudential standing. "We review standing determinations de novo." Bochese v. Town of Ponce Inlet, 405 F.3d 964, 975 (11th Cir.2005). "We review a district court's grant of a motion to dismiss de novo, taking as true the facts as they are alleged in the complaint." Owens v. Samkle Auto. Inc., 425 F.3d 1318, 1320 (11th Cir.2005).

"In every federal case, the party bringing the suit must establish standing to prosecute the action." Elk Grove Unified Sch. Dist. v. Newdow, 542 U.S. 1, 11, 124 S.Ct. 2301, 2308, 159 L.Ed.2d 98 (2004). As the Supreme Court has explained, standing jurisprudence is comprised of "two strands: Article III standing, which enforces the Constitution's case-or-controversy requirement, and prudential standing, which embodies judicially self-imposed limits on the exercise of federal jurisdiction." Id. at 11-12, 124 S.Ct. at 2308 (internal quotation marks and citation omitted).

To demonstrate Article III standing, a plaintiff must allege that (1) he has suffered an actual or threatened injury, (2) the injury is fairly traceable to the challenged conduct of the defendant, and (3) the injury is likely to be redressed by a favorable ruling. Primera Iglesia Bautista Hispana of Boca Raton, Inc. v. Broward County, 450 F.3d 1295, 1304 (11th Cir.2006).

McDonald's does not dispute that the allegations in Phoenix's complaint satisfy these constitutional standing requirements. Because the issue of constitutional standing is jurisdictional, however, we address it here. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 91-93, 118 S.Ct. 1003, 1011, 140 L.Ed.2d 210 (1998) (stating that the question of Article III standing is jurisdictional and should be addressed before issues of prudential and statutory standing); Conte Bros., 165 F.3d at 225.

In its complaint, Phoenix alleges that "[a]s a direct and proximate result of McDonald's false ... advertising and unfair competition, customers were diverted from Phoenix and its Affiliated Franchisees, who accordingly not...