Court Opinion

ID: 9384729
Source: CourtListenerOpinion
Date Created: 2023-04-04 20:00:34.286818+00
Date Added: 2024-06-11T17:17:56.080552
License: Public Domain

RECOMMENDED FOR PUBLICATION
                                Pursuant to Sixth Circuit I.O.P. 32.1(b)
                                       File Name: 23a0062p.06

                    UNITED STATES COURT OF APPEALS
                                   FOR THE SIXTH CIRCUIT

                                                             ┐
 COTY LEWIS, individually and on behalf of a class of
                                                             │
 similarly situated persons,
                                                             │
                                 Plaintiff-Appellant,         >        No. 22-1406
                                                             │
                                                             │
        v.                                                   │
                                                             │
 ACUITY REAL ESTATE SERVICES, LLC; KEVIN                     │
 STUTEVILLE,                                                 │
                       Defendants-Appellees.                 │
                                                             ┘

 Appeal from the United States District Court for the Eastern District of Michigan at Bay City.
                 No. 1:21-cv-12319—Thomas L. Ludington, District Judge.

                                   Argued: December 8, 2022

                                Decided and Filed: April 4, 2023

                 Before: MOORE, STRANCH, and MURPHY, Circuit Judges.
                                 _________________

                                            COUNSEL

ARGUED: Philip L. Ellison, OUTSIDE LEGAL COUNSEL PLC, Hemlock, Michigan, for
Appellant. Jonathan B. Frank, FRANK & FRANK LAW, Bloomfield Hills, Michigan, for
Appellees. ON BRIEF: Matthew E. Gronda, MATTHEW E. GRONDA, J.D., P.L.C., St.
Charles, Michigan, for Appellant. Jonathan B. Frank, FRANK & FRANK LAW, Bloomfield
Hills, Michigan, for Appellees.
                                      _________________

                                             OPINION
                                      _________________

       MURPHY, Circuit Judge. Acuity Real Estate Services operates a website that connects
people looking to buy or sell homes with a local real-estate agent in their area. Acuity offers its
 No. 22-1406                 Lewis v. Acuity Real Estate Servs., et al.                   Page 2

services for free to home buyers and sellers but requires realtors to pay a fee for referrals. The
real-estate broker that employed Coty Lewis, a real-estate agent, signed up to receive Acuity’s
referrals. The broker required its agents (including Lewis) to pay Acuity’s fee out of their
commissions from home sales. In this suit, Lewis alleges that Acuity makes false claims to
home buyers and sellers on its website and that this false advertising violates the Lanham Act, 15
U.S.C. § 1125(a)(1)(B). But the Lanham Act provides a cause of action only for businesses that
suffer commercial injuries (such as lost product sales) from the challenged false advertising. See
Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 131–32 (2014). The Act
does not provide a cause of action for customers who suffer consumer injuries (such as the cost
of a defective product) from the false advertising. See id. And here, Lewis alleges this type of
consumer harm as his injury from Acuity’s allegedly false advertising: He seeks to recover the
referral fee (that is, the price) he paid for Acuity’s services. Because Lewis may not bring this
claim under the Lanham Act, we affirm the district court’s dismissal of his complaint.

                                                I

       Because this case comes to us from an order granting a motion to dismiss, we must
accept the complaint’s well-pleaded factual allegations as true. See Rudd v. City of Norton
Shores, 977 F.3d 503, 511 (6th Cir. 2020).

       Lewis, a licensed real-estate agent, provides his realtor services to buyers and sellers of
homes in and around Saginaw County, Michigan. Compl., R.1, PageID 2. At the times relevant
to this suit, he was a member of Re/Max New Image, a brokerage company. Id., PageID 6.

       In the internet age, many prospective home buyers and sellers use online searches to find
realtors. The frequency of these internet searches has led to a new industry of companies that
operate what Lewis calls “online real estate referral network[s].” Id., PageID 3. Among other
competitors, Acuity provides one of these referral networks. Id. Kevin Stuteville founded and
manages Acuity. Id., PageID 2.

       A potential customer’s internet search for realtors may bring back a “hit” for Acuity’s
website: www.effectiveagents.com. See id., PageID 3. On this website, Acuity allegedly tells
customers that it has a “proprietary algorithm” designed to match the “perfect” real-estate agent
 No. 22-1406                  Lewis v. Acuity Real Estate Servs., et al.                    Page 3

to their unique needs. Id. Acuity also assures customers that it has rigorously screened the 1.5
million realtors in the United States and included only a small number of “hand-picked” and “top
talent” realtors on its site. Id., PageID 4. Perhaps best of all for these customers, Acuity informs
them that it offers its referral services free of charge. Id. The customers need only fill out a form
on Acuity’s website providing their contact information. Id.

       According to Lewis, Acuity’s statements to these customers do not match reality. He
alleges that Acuity does not undertake any detailed “mathematical analysis” to find the perfect
realtor. Id., PageID 6. Rather, Acuity allegedly sends customers to any realtor willing to pay its
referral fee. Id. And its only alleged expertise consists of designing a website that will be
among the top results when customers search for realtors in web browsers. Id., PageID 10.

       In 2019, Lewis’s brokerage firm, Re/Max, contracted with Acuity for referrals. Id.,
PageID 6. Re/Max agreed that its agents would pay 35% of their commissions to Acuity for
each successful home sale involving an Acuity-referred buyer or seller. Id., PageID 6–7.

       In October of that year, Lewis received a referral from Acuity indicating that a potential
customer named Lillian Garrett was looking to sell her Saginaw home. Id., PageID 7–8. As it
turns out, Garrett’s son-in-law filled out the form on her behalf because the 93-year-old Garrett
had moved to a nursing home. Id., PageID 10. Undertaking his due diligence, her son-in-law
also provided Garrett’s information to a competing online referral network, Agent Pronto, which
sent a second referral to Lewis. Id.

       After receiving the referrals from both Acuity and Agent Pronto, Lewis contacted
Garrett’s son-in-law and successfully sold her home. Id., PageID 11. Lewis paid Agent Pronto
its referral fee. Id. But Acuity sought its fee too. Id. When Lewis refused to pay a second time,
Acuity sued him in a Florida court (relying on a venue provision to which Re/Max had agreed in
its contract with Acuity). Id. Acuity won this breach-of-contract suit and obtained its attorney’s
fees, so Lewis had to pay a judgment that was over twice the size of the commission he had
earned for selling Garrett’s home. Id. According to Acuity, when two real-estate referral
networks send the same referral, its contract requires a realtor to pay the network that first sends
 No. 22-1406                  Lewis v. Acuity Real Estate Servs., et al.                     Page 4

the referral. Acuity won its suit against Lewis because it sent him its referral of Garrett ahead of
Agent Pronto. Appellees’ Br. 6.

       Having lost the Florida case, Lewis brought this suit against Acuity on behalf of himself
and a putative class of “real estate agents, brokers, and professional[s] who paid, or are liable for,
payment of a referral fee to Acuity.” Compl., R.1, PageID 12. He alleged that Acuity engaged
in false advertising in violation of the Lanham Act by misleading home buyers and sellers into
thinking that it uses sophisticated means to find the realtor best suited for them. Id., PageID 15;
15 U.S.C. § 1125(a)(1)(B). Acuity’s conduct allegedly injured Lewis because customers might
have found him directly (rather than through Acuity) without its false statements. Compl., R.1,
PageID 16. In that scenario, he would not have been on the hook for Acuity’s referral fee. Id.

       The district court granted Acuity’s motion to dismiss Lewis’s complaint. See Lewis v.
Acuity Real Est. Servs., LLC, 597 F. Supp. 3d 1154, 1156 (E.D. Mich. 2022). The court held that
the Lanham Act does not permit customers to sue over false advertisements and that Lewis’s
allegations showed that he was Acuity’s customer. See id. at 1158–59. It next held that Lewis
failed to plausibly plead that Acuity’s online statements to home buyers and sellers caused him
an injury. See id. at 1159–60. At the same time, the court rejected Acuity’s alternative argument
that its online statements to home buyers and sellers do not qualify as “commercial advertising”
under the Lanham Act because they do not pay anything for its services. See id. at 1160–62. We
review the district court’s decision de novo. See Rudd, 977 F.3d at 511; Traverse Bay Area
Intermediate Sch. Dist. v. Mich. Dep’t of Educ., 615 F.3d 622, 626–27 (6th Cir. 2010).

                                                  II

       On appeal, the parties debate all three questions that the district court answered: Did
Lewis plausibly allege the type of commercial injury that permitted him to sue under the Lanham
Act? Did he plausibly allege that the statements on Acuity’s website proximately caused an
injury to him? And did those statements qualify as “commercial advertising” under the Act? To
resolve Lewis’s appeal, however, we need not proceed past the first question. The district court
properly dismissed this suit because Lewis’s complaint pleaded a consumer injury that resulted
only from his status as Acuity’s customer rather than its competitor.
 No. 22-1406                  Lewis v. Acuity Real Estate Servs., et al.                    Page 5

        The Lanham Act prohibits a “person” from using a “false or misleading description” or
“representation of fact” in “commercial advertising or promotion” that “misrepresents the nature,
characteristics, qualities, or geographic origin” of the person’s or another’s “goods, services, or
commercial activities[.]” 15 U.S.C. § 1125(a)(1)(B). The Act expressly authorizes “a civil
action by any person who believes that he or she is or is likely to be damaged by” the false
advertising. Id. § 1125(a)(1).

        On its face, this text could be read to place no limits on the injured parties who may sue
over false advertising. See Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118,
129 (2014).     Nearly anyone might claim to have been “damaged” by a business’s false
advertising. Consumers might argue that they would not have bought the business’s poor
product except for the false claims in its advertising. See id. at 132. Competitors might argue
that they lost sales because the false advertising caused consumers to buy the business’s product
rather than their own. See Belmora LLC v. Bayer Consumer Care AG, 819 F.3d 697, 712 (4th
Cir. 2016). Distributors of the business’s product might argue that its false advertising harmed
their reputations because they became associated with a lemon product. See The Knit With v.
Knitting Fever, Inc., 625 F. App’x 27, 40–41 (3d Cir. 2015). Even the business’s shareholders
might argue that the false advertising caused the business’s stock prices to go down when the
falsity came to light.

        But courts have never read the Lanham Act to permit suit by all parties who can show an
injury. See Lexmark, 572 U.S. at 129. That is because we must read all statutory causes of
action, including the Lanham Act’s cause of action, against background interpretive rules.
See id. Under one rule with common-law roots, courts will interpret a statute’s private right of
action to authorize a suit only by those potential “plaintiffs whose interests ‘fall within the zone
of interests’” that the law protects. Id. at 129–30 & n.5 (citation omitted); Bennett v. Spear, 520
U.S. 154, 163 (1997). Although the Supreme Court at one time described this zone-of-interests
test as a “prudential standing” doctrine that judges could apply in seemingly common-law
fashion, it has now made clear that the test asks an ordinary question of statutory interpretation:
Is the specific statutory text best read to grant a cause of action to a specific plaintiff? Lexmark,
572 U.S. at 126–28.
 No. 22-1406                  Lewis v. Acuity Real Estate Servs., et al.                    Page 6

       In Lexmark, the Court held that the zone-of-interests test applies to the Lanham Act’s
cause of action “for false advertising under § 1125(a).” Id. at 131; see also id. at 129–32. To
identify the “damaged” parties for which this cause of action offers a remedy, the Court
interpreted it together with the Act’s statement of purposes. See id. at 131. Highlighting the
purpose most relevant to false advertising, the Court explained that Congress’s “intent” in
passing the Act was “to protect persons engaged in [interstate] commerce against unfair
competition[.]” Id. (quoting 15 U.S.C. § 1127). The Act’s use of this common-law term of art
(“unfair competition”) revealed a narrow goal to protect parties only against “injuries to business
reputation and present and future sales.” Id. The Court thus interpreted the zone of interests for
false-advertising claims to include only businesses that complain about an “injury to a
commercial interest in reputation or sales.” Id. at 131–32. It concluded, by contrast, that
consumers do not fall within this zone of interests even if they waste money on a useless product
because the traditional unfair-competition tort did not encompass this consumer harm. See id. at
131–32. After Lexmark, then, a plaintiff suing under § 1125(a) of the Lanham Act must allege a
commercial—not a consumer—injury.

       Lexmark did not offer much guidance on how to distinguish between these two types of
injuries, recognizing the “nebulous” nature of the inquiry. Id. at 135. That said, the Court did
provide two useful data points showing that it is the nature of the injury (not the nature of the
plaintiff) that matters. On the one hand, the Court clarified that, as long as the plaintiff sues for
business or reputational harms, the plaintiff need not be a “direct competitor” of a false
advertiser to assert a claim against it. Id. at 136. The dispute between Lexmark and Static
Control in Lexmark itself proves this point. Lexmark made toner cartridges for its laser printers,
and its competitors refurbished and resold Lexmark’s used cartridges. Id. at 121. Static Control
did not itself resell these used cartridges in competition with Lexmark; it instead sold parts to
Lexmark’s competitors so that they could do so. Id. Lexmark told end users of the cartridges
that they must obtain them from Lexmark, and it told Static Control’s customers (Lexmark’s
competitors) that Static Control’s business violated federal law. Id. at 123. Static Control
brought false-advertising claims against Lexmark for these allegedly false statements.            Id.
It asserted that Lexmark’s statements had caused it to lose sales to customers (Lexmark’s
competitors) and had damaged its business reputation. Id. at 137. The Court had “no doubt” that
 No. 22-1406                  Lewis v. Acuity Real Estate Servs., et al.                    Page 7

these commercial injuries fell within the Act’s zone of interests even though Static Control did
not directly compete with Lexmark. Id.

       On the other hand, the Court concluded that even commercial businesses that sell goods
to end users may qualify as “customers” who cannot sue under the Act—depending on the nature
of their injuries. The Court gave as an example a business that buys a defective input from a
“supplier” based on the supplier’s false advertising. Id. at 132. The Court noted that this
business could not sue the supplier under the Act to recover damages for the “inferior” input. Id.

       This divide requires us to focus on whether Lewis seeks to recover for a commercial or
consumer injury. Recall that he alleges that Acuity’s website falsely advertised the nature of its
referral network to the end buyers and sellers of real estate. Compl., R.1, PageID 15. If Acuity
had not engaged in this false advertisement, Lewis says, these home buyers and sellers may have
found his services in other ways. Id., PageID 16. Acuity’s false advertising thus allegedly
harmed Lewis because he had to pay the 35% referral fee that he would not have been forced to
pay if he had closed on a home without the referral. Id. Confirming that the payment of this
referral fee sits at the center of Lewis’s suit, he cabined his proposed class to include only those
realtors “who paid, or are liable for, payment of a referral fee to Acuity[.]” Id., PageID 12.

       These allegations leave “no doubt” that Lewis sues to recover for a consumer injury that
he incurred as Acuity’s customer. Lexmark, 572 U.S. at 137. The referral fee that Lewis now
asks Acuity to return to him is the “price” that he paid for Acuity’s services. And a person who
makes a payment to a party in exchange for a service from the party is generally described as the
party’s “customer.” Because Lewis uses Acuity’s services to help him perform his real-estate
job, he is analogous to the hypothetical company “misled by a supplier into purchasing an
inferior product” that Lexmark said falls outside the Act. Id. at 132. The same rule applies both
to companies that seek a good to run a business and to end users who seek only to consume the
good: the Lanham Act simply does not cover parties who are “hoodwinked into purchasing a
disappointing product,” id., because that injury does not constitute “unfair competition,”
15 U.S.C. § 1127.
 No. 22-1406                 Lewis v. Acuity Real Estate Servs., et al.                    Page 8

       Conversely, no reasonable person would describe Lewis’s payment of this referral fee as
a commercial injury to his “reputation or sales.” Lexmark, 572 U.S. at 131. As for sales,
whenever this injury arose (that is, whenever Acuity requested its fee), Lewis will have gained,
not lost, a sale. This fact distinguishes the cases on which Lewis relies because the plaintiffs
there claimed that the defendants’ false advertising diverted sales away from (not toward) them.
See ThermoLife Int’l, LLC v. Compound Sols., Inc., 848 F. App’x 706, 709 (9th Cir. 2021)
(memorandum); TrafficSchool.com, Inc. v. Edriver, Inc., 653 F.3d 820, 825–26 (9th Cir. 2011).
As for reputation, Lewis makes no claim that his payment of this referral fee injured his status in
the realtor market in any way. Nor does he allege any reputational harm from, say, Acuity’s
online description of the realtors in its network (including Lewis) as “top talent.” Compl., R.1,
PageID 4.

       In response, Lewis contends that he has asserted a commercial injury because he
competes with Acuity in that both are “licensed real estate sales professional[s] whose business
is premised on finding consumers interested in buying or selling a home.” Appellant’s Br. 13.
Here again, however, whenever Lewis pays Acuity the referral fee (his purported injury), Acuity
will have sought out buyers and sellers on his behalf, not to divert sales away from him. And
while the referred buyers and sellers may also qualify as Acuity’s customers, that fact does not
turn Lewis into Acuity’s competitor. To the contrary, Acuity operates “what economists call a
‘two-sided platform.’” Ohio v. Am. Express Co., 138 S. Ct. 2274, 2280 (2018). Like credit-card
companies that seek to connect purchasers of goods and services and the merchants that sell
those goods and services, Acuity has customers on both sides of its platform (home buyers and
sellers on one side and the realtors who seek to help them on the other). See id. at 2280–81.
This type of platform often tends to charge a higher price to the side with the more inelastic
demand curve, which may explain why Acuity’s customers receive its services for free while
real-estate agents must pay for them. See id. at 2281. Be that as it may, both the home buyers
and sellers and the realtors “jointly consume[]” Acuity’s referral services. Id. at 2286 (citation
omitted).

       To be sure, it is not difficult to imagine a potential commercial injury to realtors arising
from Acuity’s allegedly false advertising. Instead of identifying the referral fee as the injury,
 No. 22-1406                  Lewis v. Acuity Real Estate Servs., et al.                    Page 9

suppose that a different group of realtors refused to join Acuity’s network. Suppose further that
these realtors alleged that they lost business because Acuity’s purportedly false advertising
caused home buyers and sellers to use Acuity’s referral services and the competing realtors in
Acuity’s network. Even though this different group of realtors would not directly compete with
Acuity (as compared to its network of realtors), this purported lost business may well qualify as
“an injury to a commercial interest in . . . sales” that falls within the Act’s zone of interests.
Lexmark, 572 U.S. at 132. (These realtors would, of course, have to plead the Act’s other
elements, including, for example, its proximate-causation requirement. See, e.g., id. at 132–34.)

       But we need not decide this hypothetical case. Perhaps one could have read Lewis’s
complaint—charitably—to suggest that he alleged lost sales because Acuity’s false advertising
“divert[ed] potential business” toward other realtors.       Compl., R.1, PageID 16.        At oral
argument, however, Lewis’s counsel conceded that he alleged the payment of Acuity’s referral
fee as his only injury. Oral Arg., 34:50–35:05. Because Lewis incurred that specific injury as
Acuity’s customer, he failed to present a claim within the Lanham Act’s zone of interests.
Lexmark, 572 U.S. at 132.

       Lewis lastly spent significant time at oral argument suggesting that Acuity’s business
model violates the Real Estate Settlement Procedures Act of 1974, 12 U.S.C. §§ 2601–17. But
his complaint did not assert a claim under this Act. So this argument is irrelevant in this case.

                                              * * *

       All told, Lewis’s complaint alleged consumer injuries that fall outside the Lanham Act’s
zone of interests. That fact independently dooms his lawsuit. We thus need not resolve whether
he has adequately alleged that Acuity proximately caused any injury to him or engaged in
commercial advertising under the Act.

       We affirm.