Articles Posted in Consumer Protection Laws

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A federal judge denied most of a motion to dismiss brought by multiple banks in a consolidated case alleging overdraft fee fraud. In re Checking Account Overdraft Litigation, 694 F.Supp.2d 1302 (S.D. Fla. 2010). The Judicial Panel on Multidistrict Litigation (JPML) consolidated multiple claims into a single matter in the Southern District of Florida in order to deal efficiently with common pretrial matters. The plaintiffs asserted causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing (“GFFD covenant”), and many individual causes asserted common law breach of contract claims and state law consumer protection claims. The defendants filed an omnibus motion to dismiss, which the trial court granted in part and denied in larger part. The court dismissed claims under certain state consumer statutes, as well as claims based on the laws of states in which no plaintiffs lived.

The central issue of the litigation was the ordering of ATM transactions from highest to lowest, regardless of the order in which the account holder performed the transaction. This allegedly reduced the account holder’s total account balance more quickly, garnering more overdraft fees for the defendants. At the time the court rendered its order on the omnibus motion to dismiss, the litigation consisted of fifteen separate complaints, each brought against an individual bank. All of the fifteen complaints pending at the time of the court’s order involved breach of GFFD covenant claims. Five complaints were filed in California as putative class actions on behalf of California customers. Eight complaints were filed outside California, putatively on behalf of nationwide classes excluding California. One complaint was filed by a California resident and sought to represent a nationwide class. The final complaint was filed by a Washington resident on behalf of a class of Washington customers. According to the JPML, the consolidated litigation has involved one hundred separate complaints since 2009, with forty-four still involved as of March 5, 2013.

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A federal court allowed most causes to proceed in a putative class action against a bank for allegedly fraudulent overdraft fees. White, et al v. Wachovia Bank, N.A., No. 1:08-cv-1007, order (N.D. Ga., Jul. 2, 2008). The plaintiffs, who alleged that the bank had recorded transactions out of chronological order to maximize overdraft fee liability, claimed violations of state deceptive trade practice laws and several claims related to breach of contract. The court denied the defendant bank’s motion to dismiss as to all but two of the plaintiffs’ claims.

The two lead plaintiffs opened a joint checking account with Wachovia Bank in 2007. They signed a Deposit Agreement that stated that the bank could pay checks and other items in any order it chose, even if it resulted in an overdraft. It also stated that the bank could impose overdraft charges if payment of any single item exceeded the balance in the account. The plaintiffs alleged in their lawsuit that Wachovia ordered its posting of transactions in a way that would cause their account to incur overdraft fees, even when they had sufficient funds to pay the items. They also alleged that the bank imposed overdraft fees when no overdraft had occurred.

The lawsuit, originally filed in a Georgia state court in February 2008, asserted violations of the Georgia Fair Business Practices Act (FBPA), O.C.G.A. §§ 10-1-390 et seq., and breach of the duty of good faith. The plaintiffs also claimed that the clause of the Agreement related to the ordering of transaction was unconscionable, that the bank had engaged in trover and conversion, and that it had been unjustly enriched. The defendant removed the case to federal court under the Class Action Fairness Act of 2005, 28 U.S.C. § 1332(d)(2), which allows defendants to remove certain class actions to federal court. It then moved to dismiss all claims under Federal Rule of Civil Procedure 12(b)(6), which allows a court to dismiss a lawsuit that “fail[s] to state a claim upon which relief can be granted.” To defeat such a motion, a plaintiff must show a plausible factual basis for their claims.

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Under the First Amendment to the Constitution and lawyers’ ethics rules, the public and litigants have a right to know about about matters that are resolved in our court and litigation system. For instance a car dealer who repeatedly engages in consumer fraud, bait and switch and false advertising or who regularly sells lemon cars should not be able to hide litigation about its misconduct from the public though use of confidential settlement agreements. This is particularly true because the Supreme Court has allowed contracts of adhesion to force consumers to arbitrate claims in secret forums against big business such as car dealers and other businesses such as cell providers and cable television companies. The combination of secret arbitration proceedings and of defendants using confidentiality clauses in settlement agreements to hide misconduct that has been exposed through litigation is keeping misconduct by many businesses secret.

In a recent case our firm litigated a so called pro-consumer rights law firm that regularly litigates consumer fraud cases on behalf of consumer victims used such a confidentiality clause to refuse to cooperate and force us to go to court to uncover the details of repeated false advertising engaged in by a business whose pattern of misconduct had already been exposed through extensive litigation. This so called pro-consumer rights law firm had documents that were not publicly available which put the lie to false testimony provided by the owners of the deceptive business. These lawyers in this firm, who have a practice that should make them sympathetic to protecting consumer rights and freedom to obtain information about public lawsuits, participated in trying to hide the very misconduct that they had litigated to expose. This type of conduct according to a recent Chicago Bar Association ethics advisory opinion violates lawyer ethics rules.

At the request of Lubin Austermuehle’s long time co-counsel Dmitry Feofanov of ChicagoLemonLaw.com , the Chicago Bar Association just issued the below ethics advisory opinion concluding that use of certain confidentiality provisions in consumer rights, class action and other important litigation are unethical under Illinois attorney ethics rules. These same rules apply in many other states. There has been a recent trend among defendants to demand these confidentiality provisions.

You can click here for a copy of the opinion.

Below is the full text of this important advisory opinion in full:

Chicago Bar Association
Informal Ethics Opinion 2012-10
Committee on Professional Responsibility
Opinions Subcommittee

The Professional Responsibility Committee of the Chicago Bar Association has
issued the following informal legal ethics opinion as a public service to aid the inquiring
lawyer in interpreting the Illinois Rules of Professional Conduct. The opinion represents
the judgment of a member or members of the Committee and does not constitute an official
act of the Chicago Bar Association. The opinion is not binding upon the Attorney
Registration and Disciplinary Commission or on any court and should not be relied upon
as substitute for legal advice.

The Committee has received the following inquiry:

(1) Is the confidentiality provision of the proposed settlement agreement attached
hereto as Exhibit A ethical under Illinois Rule of Professional Conduct 3.4(f)?
(2) Is the confidentiality provision of the proposed settlement agreement attached
hereto as Exhibit A ethical under Illinois Rule of Professional Conduct 5.6(b)?
(3) May a defendant’s lawyer, as part of settlement discussions, demand that the
settlement agreement include a provision that prohibits plaintiffs counsel
from disclosing publicly available facts about the case on plaintiffs counsel’s
website or through a press release?

Opinion

Inquiry 1: Settlement Agreement Non-Cooperation Provisions and Rule 3.4(f)
Illinois Rule of Professional Conduct 3.4(f) states that a “lawyer shall not. . . request a person
other than a client to refrain from voluntarily giving relevant information to another party” unless
that person is a relative or agent of the client and the lawyer reasonably believes that the person’s interests will not be adversely affected by refraining from disclosure. I I I . R. PROF’L CONDUCT R. 3.4(f) (2010). As the comments to Rule 3.4 explain, the rule is based on the belief that “[fjair competition in the adversary system is secured by prohibitions against destruction or concealment of evidence, improperly influencing witnesses, obstructive tactics in discovery
procedure, and the like.” Id. cmt. 1.

Settlement agreements are not exempt from Rule 3.4(f). S.C Ethics Advisory Comm. Op. 93-20
(1993). Therefore, when negotiating a settlement agreement, a lawyer cannot ethically request
that the opposing party agree that it will not disclose potentially relevant information to another
party. Id. The Committee believes that “another party” in Rule 3.4(f) means more than just the
named parties to the present litigation. Rather, it should be interpreted more broadly to include
any person or entity with a current or potential claim against one of the parties to the settlement
agreement. A more narrow interpretation would undermine the purpose of the rule and the proper functioning of the justice system by allowing a party to a settlement agreement to conceal important information and thus obstruct meritorious lawsuits.

Here, the defendant has proposed a settlement provision that would prohibit the plaintiff from,
among other things, disclosing the “existence, substance and content of the claims” and “all
information produced or located in the discovery processes in the Action” unless “disclosure is
ordered by a court of competent jurisdiction, and only if the other party has been given prior
notice of the disclosure request and an opportunity to appear and defend against disclosure . . .”
That proposed settlement provision therefore precludes the plaintiff from voluntarily disclosing
relevant information to other parties. As a result, it violates Rule 3.4(f) and a lawyer cannot
propose or accept it. I I I . R. PROF’L CONDUCT R. 3.4(f); S.C. Ethics Advisory Comm. Op. 93-20 (1993).

Inquiry 2: Settlement Agreement Confidentiality Provisions and Rule 5.6(b) llinois Rule of Professional Conduct 5.6(b) states that a “lawyer shall not participate in offering or making . . . an agreement in which a restriction on the lawyer’s right to practice is part of the settlement of a client controversy.” I I I . R. PROF’L CONDUCT R. 5.6(b).There are three main public policy rationales for Rule 5.6(b): (i) to ensure the public will have broad access to legal representation; (ii) to prevent awards to plaintiffs that are based on the value of keeping plaintiffs’ counsel out of future litigation, rather than the merits of plaintiffs case; and (iii) to limit conflicts of interest.

By its own terms, Rule 5.6(b) plainly applies to direct restrictions on the right to practice law.
Moreover, certain indirect restrictions on the right to practice law violate Rule 5.6(b) as well,
namely, a lawyer agreeing not to bring future claims against a defendant, and a number of ethics
authorities have determined that some confidentiality provisions in settlement agreements violate
Rule 5.6(b).

According to the American Bar Association’s Ethics Opinion 00-417, a provision in a settlement
agreement that prohibits a lawyer’s future “use” of information learned during the litigation
violates Rule 5.6(b), because preventing a lawyer from using information is no different than
prohibiting a lawyer from representing certain persons. ABA Standing Comm. on Ethics &
Prof 1 Responsibility, Formal Op. 00-417 (2000). That same opinion further determined that a
settlement provision that prohibits a lawyer’s future “disclosure” of such information generally is
permissible, because without client consent the lawyer already generally is foreclosed from
disclosing information about the representation. Id.

However, not all limitations on the disclosure of information are ethical. Rather, as several
authorities have stated, whether a settlement provision restricting a lawyer’s “disclosure” of
information violates Rule 5.6(b) depends on the nature of the information. Numerous ethics
authorities have determined that settlement provisions may prohibit a party’s lawyer from
disclosing the amount and terms of the settlement (provided that information is not otherwise
known to the public), because that information generally is a client confidence and consequently
is required by the rules of professional conduct to be kept confidential absent client consent.
D.C. Bar Ethics Op. 335 (2006); N.Y. State Bar Ass’n Comm. on Prof 1 Ethics Op. 730 (2000);
N.D. State Bar Ass’n Ethics Comm Op. 97-05 (1997); Col. Bar Ass’n Ethics Comm. Op. 92 (1993); N.M. Bar Ass’n Advisory Ops. Comm. Op. 1985-5 (1985). On the other hand, ethics
authorities have found that a settlement agreement may not prohibit a party’s lawyer from disclosing information that is publicly available or that would be available through discovery in
other cases. D.C. Bar Ethics Op. 335 (2006); N.Y. State Bar Ass’n Comm. on Prof 1 Ethics Op.
730 (2000); N.D. State Bar Ass’n Ethics Comm. Op. 97-05 (1997).

Based on the foregoing authority, the Committee believes that under Rule 5.6(b), a settlement
agreement may not prohibit a party’s lawyer from using information learned during the instant
litigation in the future representation of clients. The Committee agrees with the American Bar
Association that prohibiting a lawyer from using such information essentially is no different than
prohibiting a lawyer from representing certain clients in the future, and thus such a settlement
provision is an impermissible restriction on the practice of law in violation of Rule 5.6(b).
In addition, the Committee believes that pursuant to Rule 5.6(b) a settlement agreement may not
prohibit a party’s lawyer from disclosing publicly available information or information that
would be obtainable through the course of discovery in future cases. The Committee agrees with
the District of Columbia Ethics Committee, and other ethics authorities cited above, that drawing
such a line strikes an appropriate balance between the genuine interests of parties who wish to
keep truly confidential information confidential and the important policy of preserving the
public’s access to, and ability to identify, lawyers whose background and experience may make
them the best available persons to represent future litigants in similar cases.

Applying those principles here, the Committee believes that the settlement provision as currently
drafted does not comply with Rule 5.6(b). While it is permissible for the settlement agreement to
prohibit the disclosure of the “substance, terms and content of the settlement agreement
(assuming that information is not otherwise publicly known), the settlement agreement violates
Rule 5.6(b) because it broadly forecloses the lawyer’s disclosure of information that appears to
be publicly available already, such as the fact that a lawsuit was filed and certain claims were
asserted, as well as other information that could be obtained (and in fact was obtained) in
discovery. The settlement agreement therefore should be re-written to permit the lawyer’s use of
information learned during the dispute and to permit the lawyer’s disclosure of publicly available
information and information that would be available through discovery in other litigation.
Inquiry 3: Settlement Agreement Restrictions on Attorney Advertising and Rule 5.6(b)
Based on the principles discussed above, the Committee believes that under Rule 5.6(b), a
settlement agreement may not prohibit a party’s lawyer from disclosing publicly available facts
about the case (such as the parties’ names and the allegations of the complaint) on the lawyer’s
website or through a press release. See, e.g., D.C. Bar Ethics Op. 335 (2006).

Dated: February 12,2013
CHICAGO BAR ASSOCIATION
PROFESSIONAL RESPONSIBILITY COMMITTEE
OPINIONS SUBCOMMITTEE

EXHIBIT A – Proposed Confidentiality Provision in Settlement Agreement
8. Plaintiff and his counsel agree that the existence, substance and content of the
claims of the Action, as well as all information produced or located in the discovery processes in
the Action shall be completely confidential from and after the date of this Agreement. Similarly,
the existence, substance, terms and content of this Agreement shall be and remain completely
confidential. Plaintiff shall not disclose to anyone any information described in this paragraph,
except: (a) if disclosure is ordered by a court of competent jurisdiction, and only if the other
party has been given prior notice of the disclosure request and an opportunity to appear and
defend against disclosure and/or to arrange for a protective order; (b) Plaintiff may disclose the
contents of this Agreement to his attorneys, accounting and/or tax professionals as may be
necessary for tax or accounting purposes, subject to an express agreement to become obligated
under and abide by this confidential and non-disclosure restriction; and (c) Plaintiff may disclose
that the Action has been dismissed.

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While this blog frequently discusses issues regarding consumer rights in the event the consumers purchase a faulty product, it is equally important for companies to provide their consumers with full disclosure regarding their return policies. This is the issue at hand in a class action lawsuit against Toys “R” Us for allegedly failing to provide customers with full refunds on items purchased with promotional gift cards or discounts.

Allegedly, Toys “R” Us customers who purchased items from the store that offered free gift cards, buy-one-get-one-50-percent-off discounts or other benefits received less money than the full purchase price when they went to return the items.

Laura Maybaum, the lead plaintiff in the case, purchased $75 worth of Toys “R” Us products and received a $10 gift card. When she later returned one of the toys, the toy company allegedly refused to pay the full purchase price.

Under California law, retailers must give no less than full cash or credit refunds unless a more restrictive policy has been announced.

A California judge has recently approved a $1.1 million settlement in the case. Under the settlement, Class Members will receive a voucher for $10 off a purchase of $50 or more. The toy company has also agreed to provide more disclosure of its return policy for merchandise bought as part of a promotion. One of the ways they intend to do this is by putting the disclosure on point-of-sale displays.

Class Members include all California consumers who purchased toys from Toys “R” Us since January 1, 2008 that qualified for a promotion and then returned one or more items.

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As consumers become increasingly health-conscious, we see more lawsuits against food manufacturers who label their products as “natural” when, in fact, they may have highly processed ingredients. Such is the case in a lawsuit currently facing the Northern District of California. Two consumers, Lauren Ries and Serena Algozer have filed a class action on behalf of all similarly situated consumers against AriZona iced tea. They argue that the “natural” label on the beverages is deceptive, because they allegedly contain high fructose corn syrup and citric acid.

Ms. Ries claims she purchased an “All Natural Green Tea” at a gas station because she was thirsty and was looking for an option which would be healthier than soda. Ms. Algozer says she purchased several AriZona iced teas over the years, but neither plaintiff remembers the prices, nor do they have receipts.

Ms. Ries and Ms. Algozer filed for a class action under the Federal Rule of Civil Procedure 23(b)(2). This Rule is a little more lenient than Rule 23(b)(3), under which the commonality hurdle would have been much higher. As it is, potential class members only need to satisfy “minimal commonality” in order to qualify.

While this works in favor of the plaintiffs towards attaining class certification, it prevents them from collecting any monetary damages. The lawsuit was filed seeking an injunction against using the word “natural” on the product’s packaging, as well as restitution for their purchases of the mislabeled iced tea. However, the same “minimal commonality” requirements which allow this class to gain certification also prevent the class from claiming any monetary damages. Therefore, Judge Seeborg of the Northern District of California has partially certified the class for an injunction, but refused to certify the class to seek restitution for their purchases.

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The Seventh Circuit Federal Court of appeals in a succinct and simply worded opinion by Judge Posner blew much needed fresh air into class action litigation by approving certification of class actions against Sears for front loading washing machines which are allegedly prone to mold or which had an allegedly defective controller. Judge Posner correctly concluded that machines with these type of uniform alleged defects are worth less than machines in correct working order and that consumers are therefore entitled to pursue refunds or other compensation for their alleged damages. Judge Posner correctly noted that class actions make sense to rectify consumer rights involving mass product defects which are essentially uniform but the damage recoveries to individual consumers would be too small to justify litigation. He made short shrift of the parade of claimed individual issues that defendants always claim exist to defeat class certification.

The class action suits which Posner considered involved alleged defects in Kenmore-brand Sears’ washing machines sold in periods beginning in 2001 and 2004. One asserted a defect that causes mold; the other asserted a defect that stops the machine inopportunely. The district court denied certification of the class complaining of mold and granted certification of the class complaining of sudden stoppage. The Seventh Circuit affirmed certification of the stoppage claims and reversed denial of certification for the mold claims. Rule 23(b)(3) conditions maintenance of a class action on a finding “that the questions of fact or law common to class members predominate over any questions affecting only individual members.” The basic question in the litigation is: were the machines defective in permitting mold to accumulate and generate noxious odors? The question is common to the entire mold class, although the answer may vary with the differences in design. The individual questions are the amount of damages owed particular class members. It is more efficient for the question whether the washing machines were defective to be resolved in a single proceeding than for it to be litigated separately in hundreds of different trials.

You can read the full opinion here.

This opinion should swing the pendulum towards the middle again and end trial courts from reflexively finding hypothetical individual issues to destroy the chances of cases that truly justify class action treatment from proceeding which has been occurring all too frequently in recent years. It should breathe new life into class actions which can help protect consumers from mass wrongdoing where the damages are too small to justify individual consumer lawsuits. Without the threat of class actions, business entities have far less incentive to correct mass product defects if a cost benefit analysis would make it easier for them to ignore resolving the issues in a fair manner. However, the Supreme Court’s recent decision to allow businesses, including disreputable ones, to force consumer to sign arbitration agreements eliminating consumer rights to bring class actions allows for an escape hatch from this decision which will continue to harm consumer rights unless Congress acts to prevent forced arbitration of consumer claims. Such congressional action is very unlikely.

Forced arbitration precludes class actions and also forces consumers to arbitrate their individual cases outside of court sometimes in front of rigged or biased arbitration outfits that retain unqualified arbitrators and favor their repeat business customers. While JAMS and American Arbitration Association (“AAA”) are extremely reputable arbitration organizations that provide forums, which in our opinion can be equal or superior to courts, our firm is now seeing sleazy businesses such as used car dealers forcing consumers to arbitrate claims in front of unfair business oriented arbitration organizations that provide kangaroo courts where consumers rights are trampled on and the business firms that pay these organizations are rewarded with unfair and favorable verdicts in cases where the evidence of misconduct is clear cut. Lawyers will avoid taking cases when these incompetent and pro-business arbitration organizations are selected in adhesion contracts created by used car dealers and other disreputable businesses. Without lawyers to represent them, consumers will not only have lost the protection of the court system but they will not be able to retain counsel to even bring their cases. Legislatures need to act to police these private court systems run by disreputable and biased organizations and to ensure that arbitration organizations that hear consumer claims are all legitimate outfits like the AAA and JAMS.

Since so many businesses are forcing consumers to opt out of class actions and to arbitrate claims on an individual basis, the full benefit of Judge Posner’s efficiency analysis for allowing class actions to proceed will unfortunately be lost. Our state and federal legislative bodies need to act to reopen the courthouse doors for vindicating consumer rights by ending mandatory arbitration in consumer contracts or at least to create government oversight bodies to drive out disreputable arbitration outfits that businesses are using to deny consumer rights. The government regulates lawyers and judges, but these disreputable and incompetent arbitration organizations lack the same regulation, which oftentimes means unjust results for consumers.

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“Location, location, location” isn’t just a mantra for real estate agents and house hunters. When it comes to litigation, venue is an important issue to consider for both plaintiffs and defendants alike. In Westwood Apex v. Contreras, the Court of Appeal for the Ninth Circuit explains an important federal law bearing on venue and, in particular, a class action defendant’s ability to change it.

Westwood Apex, a subsidiary of the for-profit higher-education institution Westwood College (Westwood) which operates campuses in 14 states including California, filed a breach of contract action against Jesus Contreras in state court, seeking to recover roughly $20,000 in unpaid student loan debt. In response, Contreras filed a class action counterclaim on behalf of all current and former Westwood students against the school as well as a number of affiliated entities alleging fraud as well as unfair and deceptive business practices in violation of various California consumer protection laws.

All of the counterclaim defendants except Westwood filed a notice of removal, transferring the action to a federal court, the District Court for the Central District of California. The Defendants asserted that removal was appropriate under a federal law called the Class Action Fairness Act (CAFA). The law grants federal courts jurisdiction over class action lawsuits where the amount in controversy exceeds $5 million and the opposing parties are minimally diverse (at least one plaintiff must live in a different state than one defendant).

After issuing an order to show cause as to why the case should not be removed, the District Court remanded the case back to the state court, ruling that CAFA does not permit a counterclaim defendant to remove an action to federal court. On appeal, the Ninth Circuit upheld this decision and the underlying reasoning.

Enacted in 2005, CAFA – codified at 28 U.S.C. § 1453 – was intended to fight perceived abuses (so-called “junk lawsuits”) in the class action litigation process. Although the statute allows “any defendant” to remove a qualifying class action, the Court held that it does not extend the removal power to counterclaim defendants. “[A] counterclaim defendant who is also a plaintiff to the original state action may not remove the case to federal court,” the Court ruled, citing the Supreme Court’s 1941 decision in Shamrock Oil & Gas Corporation v. Sheets as well as the Ninth Circuit’s more recent opinion in Progressive West v. Preciado (2007). As a result, the Court upheld the District Court’s ruling, leaving the action in state court.

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The law firm of Lubin Austermuehle on behalf of a class of Abercrombie & Fitch customers recently obtained certification of a class-action against Abercrombie regarding $25 promotional cards with no expiration date on the face of the cards. Abercrombie will not honor the cards any longer. Customers obtained the cards in a promotion which required a $100 purchase to receive the $25 cards. The cards came in a paper sleeve which stated a short use period of just a few months. However, the card itself stated that it had no expiration date.

The Federal District Court for the Northern District of Illinois certified a nationwide breach of contract class action based on the Class’s position that the card is a contract. It is the Class’s position that contractual term of no expiration date on the card itself trumps the sleeve either because the sleeve is mere advertising or because when two terms in a contract conflict the contract should be construed against the entity that drafted it — in this case Abercrombie & Fitch. The Court has not yet made a decision on the merits of the case. You can read the Court’s decision by clicking here. The 7th Circuit Federal Court of Appeals rejected Abercrombie’s request to hear an immediate appeal on the class-certification decision.

Lubin Austermuehle is also representing a consumer of Abercrombie’s sister company Hollister in an identical putative class action lawsuit involving the same promotion. The Court has not yet certified a class in that case.

If you are a member of the class alleged in Hollister case, you can contact Lubin Austermuehle for additional information about participating as a class representative.

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Claims for trademark infringement and false advertising under the Lanham Act do not apply to allegedly false assertions of “authorship of a creative work,” according to the U.S. District Court for the Northern District of Illinois. In M. Arthur Gensler, Jr. & Associates, Inc. v. Jay Marshall Strabala, the court dismissed a Lanham Act suit based on claims of authorship of architectural designs, but suggested that a copyright claim might be more appropriate.

The plaintiff, M. Arthur Gensler, Jr. & Associates, Inc. (“Gensler”) is a design firm with offices in multiple countries. It employed the defendant, Jay Marshall Strabala (“Strabala”) as an architect from 2006 to 2010. Gensler sued Strabala under the Lanham Act and two Illinois deceptive trade practice statutes. Strabala moved the court to dismiss Gensler’s suit for failure to state a claim for which relief may be granted, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The court agreed and dismissed the case.

In considering a 12(b)(6) motion, a court must consider all of a plaintiff’s “well-pleaded factual allegations” as true. While Strabala was an employee of Gensler, he worked on multiple high-profile projects, including the Shanghai Tower in China and multiple buildings in Houston, Texas. Strabala left Gensler in February 2010 and began practicing under an assumed business name, 2DEFINE Architecture. While based in Chicago, he advertised offices in Shanghai, China and Seoul, South Korea. Strabala set up a website and a page on the photo-sharing site Flickr to market his business. His Flickr site included claims that he designed the Shanghai Tower and several of Gensler’s Houston buildings. Gensler sued to stop Strabala from claiming primary responsibility for the design of these buildings.

Gensler alleged that Strabala’s claims constituted “false designation of origin” and “false advertising” under the Lanham Act. The court considered whether a claim of authorship of a creative work could be considered a “false designation of origin,” and concluded that it cannot. In Dastar Corp. v. Twentieth Century Fox Film Corp., a 2003 Supreme Court case involving a film studio and a video publisher, the Supreme Court considered whether “origin of goods” included the author/producer of the films themselves, or just the actual physical videotapes. It specifically interpreted the “origin of goods” provision to refer to actual tangible goods, not creative works. Because Gensler could not cite any authority that overruled the Dastar holding, the Illinois district court found its claim unpersuasive. The court did note, however, two federal appellate cases that applied Dastar but allowed the possibility of copyright claims.

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