Reversing a district court’s dismissal of a false advertising class action, the U. S. Court of Appeals for the Fifth Circuit determined that the plaintiff, a real estate appraiser, possessed prudential standing under the Lanham Act through its status as a competitor of the defendant, despite its duel status as a consumer. Harold H. Huggins Realty, Inc., et al. v. FNC, Inc., Case No. 09-60804 (5th Cir., Feb. 24, 2011) (Higginbotham, J.).
Defendant FNC develops software for the mortgage industry. FNC offers AppraisalPort, which permits real estate appraisers to transmit completed real estate appraisals to lending institutions. The plaintiffs were customers of FNC’s AppraisalPort service. In promoting its AppraisalPort service, FNC made several representations in its advertising materials and orally that all appraisal data submitted through the web-based service would be kept confidential and “unseen and untouchable by anyone” other than the submitting appraisers. FNC also represented that it was not using the data submitted by appraisers through the service. Despite these representations, FNC did in fact use the appraisal data submitted by appraisers to populate its National Collateral Database, an electronic real estate valuation database offering appraisal information to lending institutions. As FNC’s database was an alternative means to retaining an appraiser, FNC thus offered appraisal information in competition with plaintiffs.
The plaintiffs sued FNC, seeking to represent themselves and similarly situated persons in a class action for false advertising under the Lanham Act. The plaintiffs argued that FNC misrepresented to plaintiffs, in their capacities as customers of AppraisalPort, that the appraisal data they transmitted through AppraisalPort would be secure and unavailable to FNC. The district court granted FNC’s motion to dismiss, holding that plaintiffs, as deceived consumers, lacked prudential standing under the Lanham Act. While Section 43(a) of the Lanham Act creates a private remedy for false advertising, potential plaintiffs are subject to the limits of prudential standing, i.e., only persons who have suffered a commercial injury as a result of anti-competitive conduct have standing to sue under the Lanham Act.
On appeal, the 5th Circuit determined that plaintiffs had sued FNC in their capacity as competitors of FNC National Collateral Database, not as consumers. The court noted that the plaintiffs had alleged two forms of injury: injury to their commercial interest and injury in the form of lost profits. The 5th Circuit held that prudential standing existed based upon an analysis of five factors: (1) the nature of the plaintiff’s alleged injury, (2) the directness or indirectness of the asserted injury, the (3) proximity or remoteness of the party to the alleged injurious conduct, (4) the speculative nature of the damages claims and (5) the risk of duplicative damages or complexity in apportioning damages. The court determined that the plaintiffs had met factors 1, 3, 4 and 5, which outweighed the remaining factor, factor 2. In reversing the district court’s dismissal and remanding the case for further proceedings, the court explained that “[t]his case presents unique facts, and we view it as falling just within the outer limits of the zone of interests protected by the Lanham Act.”