Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-04-03376/USCOURTS-ca8-04-03376-0/pdf.json

Parties Involved:
Advantage 2000 Consultants Inc.
Appellee
Allsup
Appellant
Terry L. Binder
Appellee
Robert V. Luetkenhaus
Appellee
Richard C. Smith
Appellee

Document Text:

1

The Honorable Jean C. Hamilton, United States District Judge for the Eastern

District of Missouri.

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 04-3376

___________

Allsup, Inc., *

*

Plaintiff-Appellant, *

* Appeal from the United States

v. * District Court for the

* Eastern District of Missouri.

Advantage 2000 Consultants Inc., a *

Missouri Corporation; Richard C. *

Smith, other, Pete; Terry L. Binder; *

Robert V. Luetkenhaus, *

* 

Defendants-Appellees. *

___________

Submitted: October 13, 2005

Filed: November 16, 2005

___________

Before BYE, BEAM, and SMITH, Circuit Judges.

___________

BYE, Circuit Judge.

Allsup, Inc. (Allsup) sued Advantage 2000 Consultants, Inc. (A2K), Richard

C. Smith, and Terry L. Binder alleging reverse passing-off in violation of 15 U.S.C.

§ 1125(a)(1)(A), false advertising in violation of 15 U.S.C. § 1125(a)(1)(B), and eight

claims under Missouri common law. The district court1

 granted the defendants'

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motion for summary judgment on the federal claims and declined to extend

jurisdiction to the state law claims. Allsup appeals only the grant of summary

judgment on the false advertising claim. We affirm.

I

James F. Allsup founded Allsup in 1983 after working as an employee for the

Social Security Administration (SSA). Allsup hired two other former SSA

employees, Smith in 1987 and Binder in 1989. In 1995, Smith and Binder left Allsup

to form A2K. 

Allsup was created to provide long term disability (LTD) insurance carriers

with a means to recover overpayment benefits received by their insureds from the

SSA. Typically, disabled employees receive LTD benefits immediately from their

insurance carrier. The employees may also file claims for social security benefits, but

the SSA often takes up to one year to determine eligibility. If the employees are

eligible, the SSA issues a retroactive lump sum to the employees to cover the benefits

owed as of the day of the application. The SSA may also award benefits on a goingforward basis. The employees, however, cannot legally assign the right to receive

this payment, which is owed by contract to the LTD carriers as an offset. 

Allsup made available a system to assist LTD carriers recoup the money owed

through a process known as "overpayment recovery." To effectuate the recovery,

LTD carriers referred their insureds to Allsup, which required them to execute a preauthorized electronic withdrawal of funds. These contracts allowed Allsup to transfer

the money received from SSA back to the LTD insurers almost immediately after the

insureds received their funds. Allsup claims to have spent more than one million

dollars creating its particular system, known as "Seamless ORS," but A2K alleges

other companies developed similar processes as early as 1991. The automatic

withdrawals and transfers are accomplished through the use of an Automated

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This litigation involved Allsup's claims against another former employee for

breach of a non-compete agreement.

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Clearing House (ACH) service. ACH services are commonly deployed to effectuate

a wide variety of automatic deposits and withdrawals, including payroll deposits,

payments of utilities and other bills, and other electronic funds transfers.

In late 2001 and early 2002, A2K was approached by CIGNA and two other

insurance companies to submit bids for their overpayment recovery business. In

putting the proposal together, A2K submitted draft versions of documents used in

overpayment recovery. A2K also represented it could be operational by the time the

carriers needed the service. At no point during this process did A2K represent its

system as being fully operational. In February 2002, counsel for Allsup sent A2K a

letter explaining Allsup was in the process of patenting its "Seamless ORS" system

and threatening to sue A2K for continuing to develop an "automated over-payment

recovery system." In an attempt to avoid litigation, A2K withdrew its bids and

removed itself from the overpayment recovery market. In unrelated litigation,2

representatives from A2K stated the company never entered the relevant market or

had any plans to do so in the future.

Allsup alleges A2K, inter alia, falsely advertised its plans to enter the

overpayment recovery market. Specifically, the First Amended Complaint alleges

"A2K's, Smith's and Binder's statements about A2K's ORS capability . . . were false

or misleading statements of fact about goods and services moving in interstate

commerce." Allsup's claim is based almost entirely on the discrepancy between

A2K's statements regarding its interest in entering the market in 2001 and 2002 and

its later statements denying it ever entered the market. To substantiate its claim,

Allsup alleges A2K did not produce evidence it actually could be operational;

however, Allsup's own expert testified A2K had the capacity to provide such a

program.

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II

We review de novo the district court's grant of summary judgment. Turner v.

Gonzales, 421 F.3d 688, 694 (8th Cir. 2005). Summary judgment is appropriate when

"the pleadings, depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to judgment as a matter of law."

Fed. R. Civ. P. 56(c). We view all evidence in the light most favorable to Allsup, the

non-moving party. Lester E. Cox Med. Ctr., Springfield, Mo. v. Huntsman, 408 F.3d

989, 992 (8th Cir. 2005). However, to warrant reversal, Allsup "must show the

existence of facts on the record which create a genuine issue." Id. (citing Krenik v.

Cty. of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995)). 

Under the Lanham Act, "[a]ny person who, . . . in connection with any . . .

services, . . . uses in commerce any . . . false or misleading representation of fact,

which . . . in commercial advertising or promotion, misrepresents the nature,

characteristics, [or] qualities . . . [of] another person's . . . services . . . shall be liable

. . . by any person who believes . . . to be damaged by such act." 15 U.S.C.

§ 1125(a)(1)(B). The purpose of this Act is "to protect persons engaged in commerce

against false advertising and unfair competition." Am. Italian Pasta Co. v. New World

Pasta Co., 371 F.3d 387, 390 (8th Cir. 2004) (quoting United Indus. Corp. v. Clorox

Co., 140 F.3d 1175, 1179 (8th Cir.1998)).

To establish a claim for false advertising, Allsup must establish the following:

1) A2K made false statements of fact about its own product; 2) A2K's statement

"actually deceived" or had the "tendency to deceive a substantial segment" of its

audience; 3) the deception created was material; 4) A2K caused the false statement

to enter interstate commerce; and 5) Allsup has been or is likely to be injured as a

result of A2K's alleged false advertisement. Id. (citing United Indus. Corp., 140 F.3d

at 1180). Failure to establish any one element of the prima facie case is fatal to the

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Although not argued by the parties, this reference to having used "the service

on a limited basis" appears to describe A2K's experience with PC ACH software,

rather than experience in the "overpayment recovery" market. 

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claim. Id. Under the first element, a statement is false if it is either 1) literally false,

or 2) literally true or ambiguous, but renders a "false impression" when viewed in

context. Id. A literally false statement can be determined as a matter of law, but

whether a statement is misleading is considered a matter of fact. Peters v. Gen. Serv.

Bureau, Inc., 277 F.3d 1051, 1055 (8th Cir. 2002). 

Allsup rests its case on four statements made by Binder during the bidding

processes. These statements are: 1) "We have the internal capability and software

available to provide the [overpayment recovery] service"; 2) "We will be fully

prepared to initiate the service prior to [LTD carrier's] start date. The authorizations,

communications, and processes have been scripted and are in our systems directories

awaiting activation"; 3) "I am attaching copies of [A2K's] Pre-Authorized Withdrawal

consent. . . . We are extremely careful to ensure the program is voluntary, and to not

specifically state in any consent signed by the claimant that . . . retroactive benefits

must be repaid" to the LTD carrier; and 4) "Attached is the 'Preauthorized

Withdrawal' consent required to facilitate the Overpayment Recovery Service through

the utilization of the PC ACH software. We do have the software and have used the

service on a limited basis."3

 

All of these statements relate to A2K's intention of entering the "overpayment

recovery" market in late 2001 and early 2002. Although A2K later changed its mind

about entering the market, its statements in mid-2002 about never having provided

this service and having no future plans to provide the service do not render the

previous four statements false. Allsup has brought forward no evidence proving the

falsity of these statements about A2K's capacity and willingness to enter the market.

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As such, the district court did not err in determining the statements were not literally

false. 

Even if the statements are not literally false, we must still determine if they are

false in context. "Statements that are literally true or ambiguous but which

nevertheless have a tendency to mislead or deceive the consumer are actionable under

the Lanham Act." United Indus. Corp., 140 F.3d at 1182 . Viewing these statements

in context only bolsters A2K's contention they concerned its ability to provide

"overpayment recovery" services in the future after securing a contract from a LTD

carrier. The statements at issue were made in e-mail messages and bid proposals to

specific LTD carriers about A2K's capacity to provide services on a date to be

determined later. At no point did A2K represent it had already entered the market or

was currently providing the services at issue. Furthermore, Allsup's own expert

testified A2K could have entered the market if it secured a contract from a LTD

carrier. This evidence, coupled with A2K's production of its preliminary

preauthorized withdrawal forms, demonstrates the veracity of A2K's statements.

Because Allsup cannot prove the statements are either literally false or false in

context, it has failed to demonstrate a prima facie case of false advertising under the

Lanham Act. Accordingly, we affirm the district court's grant of summary judgment

to A2K, Smith, and Binder. 

______________________________

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