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Diamond Triumph Auto Glass, Inc. v. Safelite Glass Corp.

July 31, 2006


The opinion of the court was delivered by: Judge James M. Munley United States District Court

Judge Munley)


Presently before the court for disposition is Defendant Safelite Glass Corporation's motion for summary judgment. Additionally, Plaintiff Diamond Triumph Auto Glass, Inc. has moved for summary judgment on Safelite's counterclaims. These matters have been fully briefed and are ripe for disposition. For the reasons that follow, we will grant each motion in part and deny each in part.

I. Background

Diamond and Safelite are competing glass companies. They each repair and replace damaged vehicle glass. A significant portion of the glass business involves providing services for insured individuals. This case involves the arrangements between Diamond, Safelite, and the insurance companies.

In addition to repairing and replacing damaged automobile glass, Safelite acted as the automobile glass claims administrator for more than 100 insurance companies from January 1, 1999 through June 30, 2004. (Def. Ex. 89 in Supp. Summ. J., Taghvai Aff. ¶¶ 3-4; Ex. 132 in Supp. Summ. J., O'Mara Aff. ¶¶ 4.) These companies entered into service agreements with Safelite to outline and control the scope of Safelite's services. (Def. Ex. 89 in Supp. Summ. J., Taghvai Aff. ¶¶ 4-5.) These services included:

a) leasing and maintaining a telephone number or numbers dedicated to the insurance company's auto glass claims;

b) maintaining call centers staffed with operators to answer agent, policyholder, and insurance company calls to the line maintained for the client, usually on a 24 hour per day, seven day per week basis;

c) answering questions regarding coverage and confirming coverage for agents and policyholders;

d) taking information regarding the auto glass claim, including the name and contact details for the policyholder, the details of the vehicle and glass part involved, and other relevant information;

e) answering policy questions;

f) administering a pre-established and pre-approved script to guide the call center employee's conversations with policyholders;

g) assisting the policyholder in scheduling his vehicle with a glass provider; and

h) handling and paying the invoice submitted by the auto-glass company, including a review of the amounts charged to reconcile them with the amounts authorized for payment by the insurance company. (Def. Ex. 132 in Supp. Summ. J., O'Mara Aff. ¶4.)

In the service agreements, each insurance company and Safelite agreed to a maximum price for each glass claim. (Def. Ex. 89.1 in Supp. Summ J., SAFE31G000007 ¶ 1.5.) This price is referred to as the "reasonable and customary price" or "fair market value" price. (Def. Ex. 89.1 in Supp. Summ J., SAFE31G000040 ¶ 4.) In addition to guaranteeing its pricing, Safelite agreed to warranty its products and service. (Def. Ex. 89.1 in Supp. Summ J., SAFE31G000012 ¶ 2.8.) The service agreements also required that Safelite and the insurance companies jointly develop scripts to guide the call center employees who handled policyholders' initial calls, known as first notice of loss (FNOL) calls. (Def. Ex. 89.1 in Supp. Summ J., SAFE31G000009 ¶ 2.2(b).)

The service agreements did not require that Safelite shops replace the glass for every claimant, but provided that Safelite would refer some claims to other shops. (Def. Ex. 89.1 in Supp. Summ. J., SAFE31G000040 ¶ 2; Def. Ex. 89.1 in Supp. Summ J., SAFE27B000105 ¶ 2.6. ) Thus, Safelite developed a referral network of third party glass providers ("the network."). (Def. Ex. 131 in Supp. Summ. J, Kipker Aff. ¶ 4-5.) Glass companies wishing to join Safelite's network signed contracts called Network Affiliate Participation Agreements, which required that the shops perform work at or below the reasonable and customary prices and meet certain quality standards, such as providing a lifetime warranty. (Def. Ex. 131 in Supp. Summ. J., Kipker Aff. ¶ 8,13; Def. Ex. 131.1 in Supp Summ J. § 1.7, 1.9.) Safelite's network included 200 Safelite shops, 400 Safelite mobile units, and 10,500 network affiliate shops. (Def. Ex. 131 in Supp. Summ. J., Kipker Aff. ¶ 5.) The glass shops paid no charge to join the network and Safelite did not guarantee that it would refer any volume of claims from its call center. (Def. Ex. 131 in Supp. Summ. J., Kipker Aff. ¶ 7,9.) Diamond entered into a Network Affiliate Participation Agreement ("Network Agreement") and was a member of the network from April 1, 2000 until it voluntarily terminated the relationship on April 1, 2002.

Policyholders needing glass repair would dial a toll-free number provided by their insurance companies, which connected them to one of Safelite's call centers. The scripts developed pursuant to the service agreements guided the ensuing conversation with the customer service representatives (CSRs). The initial greeting was tailored for each insurance company. If, for example, the policyholder was insured with ABC Insurance Co., the greeting would be, "Thank you for calling the ABC Insurance Glass program. This is [name]. How may I help you?" (See Safelite Ex.132.1 in Supp. Summ. J.; Hellwich Decl., 10/7/2005, Ex. 2, Tr. Phone Call 6/5/03; Hellwich Decl. 10/7/05, Ex. 3, Tr. Phone Call 4/24/03.) Another possible greeting was, "Thank you for calling the ABC Insurance Glass program with services provided by Safelite." (Def. Ex. In Supp. Summ. J. 132.1.) The CSR would then request basic information about the insured and the damage to the vehicle. (See Safelite Ex. in Supp. Summ. J. 132.1; Hellwich Decl., 10/7/2005, Ex. 2, Tr. Phone Call 6/5/03; Hellwich Decl. 10/7/05, Ex. 3, Tr. Phone Call 4/24/03.) If the policyholder expressed a preference for a glass company that was not part of the Safelite network, the CSR would warn him that the price may exceed his coverage, the insurer could not guarantee the work, and the service may not equal that of the network shops. (Hellwich Decl., 10/5/05, Ex. 13, Sample Script ¶ 24; Pl. Ex. 127 in Opp. Summ. J., Sample Script ¶ 21.) One script, for example, provides, "You have the right to have the work performed at any glass shop you choose, but they may charge you more than what [ABC Insurance] is willing to pay and may not provide the total service offerings of the [ABC Insurance] glass program."*fn1 (Pl. Ex. 127 in Opp. Summ J., Sample Script ¶ 21.)

After Diamond terminated its participation in the network in April 2002, it sent a series of letters to insurance companies complaining about Safelite's claims administration practices. From April 20 to April 26, 2002, Diamond sent letters to at least fifteen different insurance companies. (Def. Ex. 7-21 in Opp. Pl. Mot. Summ. J. ("Def. Opp. Ex.").) These letters accused Safelite of making false statements about Diamond's products and services and using the claims administration program to direct customers to Safelite's glass shops. (See, e.g., Def. Opp. Ex. 7.) On June 6, 2002, Diamond sent another round of letters accusing Safelite of stealing jobs. (Def. Opp. Ex. 28-42.)

In addition, from 2002 to 2005, in an effort to increase business, Diamond provided financial rewards, such as gift certificates or free gasoline cards, to insurance agents when they referred policyholders. (Def. Opp. Ex. 115, Joob Dep. 25; Def. Opp. Ex. 116, Chakales Dep. 35.) Diamond spent more than $4.5 million on gift cards to insurance agents from 2002 to 2005. (Def. Opp. Ex. 114, Harris Dep. Ex. 4(g).)

II. Procedural History

On March 29, 2002, Diamond filed a complaint initiating the instant case. Diamond filed its First Amended Complaint on May 7, 2002. Following a partial motion for summary judgment, Diamond filed its Second Amended Complaint on February 18, 2004, which is presently before this Court. Therein, Diamond advances five counts stemming from Safelite's claims administration. In Count I, Diamond alleges that Safelite breached the Network Agreement. In Count II, Diamond maintains that Safelite violated various state consumer protection statutes by using the claims administration business to improperly influence policyholders. In Count III, Diamond claims that Safelite tortiously interfered with its business relationships with policyholders. Count IV is a common-law disparagement claim. Finally, Count V alleges that the CSRs' representations to callers constituted false advertising under the Lanham Act, 15 U.S.C. § 1125(a)(1).

On March 8, 2004 , Safelite filed seven counterclaims stemming from Diamond's letters to insurance companies and its gift card program. Following a motion to dismiss, Safelite filed seven amended counterclaims on November 29, 2004.*fn2

III. Jurisdiction

The Court exercises jurisdiction over this dispute pursuant to its federal question jurisdiction, 28 U.S.C. § 1331, and supplemental jurisdiction, 28 U.S.C. § 1367. State law applies to those claims considered pursuant to supplemental jurisdiction. United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 726 (1966) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938)).

IV. Standard

Granting summary judgment is proper if 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. See Knabe v. Boury, 114 F.3d 407, 410 n.4 (3d Cir. 1997) (citing FED. R. CIV. P. 56(c)). "[T]his standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis in original).

In considering a motion for summary judgment, the court must examine the facts in the light most favorable to the party opposing the motion. Int'l Raw Materials, Ltd. v. Stauffer Chem. Co., 898 F.2d 946, 949 (3d Cir. 1990). The burden is on the moving party to demonstrate that the evidence is such that a reasonable jury could not return a verdict for the non-moving party. Anderson, 477 U.S. at 248. A fact is material when it might affect the outcome of the suit under the governing law. Id. Where the non-moving party will bear the burden of proof at trial, the party moving for summary judgment may meet its burden by showing that the evidentiary materials of record, if reduced to admissible evidence, would be insufficient to carry the non-movant's burden of proof at trial. Celotex v. Catrett, 477 U.S. 317, 322 (1986). Once the moving party satisfies its burden, the burden shifts to the non-moving party, who must go beyond its pleadings, and designate specific facts by the use of affidavits, depositions, admissions, or answers to interrogatories showing that there is a genuine issue for trial. Id. at 324.

V. Safelite's Motion

Safelite has moved for summary judgment on each of Diamond's claims. Its central argument is that the Lanham Act,*fn3 disparagement, and tortious interference claims should be dismissed because the scripts and CSRs provided truthful, non-misleading guidance to policyholders. It further argues that it did not violate the Network Agreement, and therefore, the breach of contract claim fails as well. We will address each argument separately beginning with the Lanham Act.

A. Lanham Act

Count V of Diamond's complaint alleges that Safelite violated section 43 of the Lanham Act, 15 U.S.C. § 1125(a)(1), which proscribes false advertising. In relevant part, it states:

(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact which (A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or (B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is likely to be damaged by such act. 15 U.S.C. § 1125(a)(1). "Congress enacted section 43(a) of the Lanham Act 'to stop the kind of unfair competition that consists of lying about goods or services.'" Castrol v. Pennzoil, 987 F.2d 939, 941 (3d Cir. 1993) (quoting U-Haul v. Jartran, 681 F.2d 1159, 1162 (9th Cir. 1982)). A plaintiff may establish a violation of this section by demonstrating either that: 1) the advertising was literally false; or 2) the advertising was literally true or ambiguous but "given the merchandising context, it nevertheless is likely to mislead and confuse consumers." Id. at 943 (quoting Johnson & Johnson v. GAC, 862 F.2d 975, 977 (2d Cir. 1988)). Thus, a plaintiff must prove "either literal falsity or consumer confusion, but not both." Id. (citations omitted).

Diamond argues that Safelite CSRs: 1) falsely conveyed in their greetings that they were representatives of the insurance companies; and 2) falsely warned policyholders that they could not guarantee Diamond's pricing or service after it left the network.*fn4 Safelite contends that the greetings and warnings were literally true and Diamond has produced insufficient evidence to create a genuine issue of material fact as to consumer deception.

1. Literal Falsity

The test for literal falsity is simple: "[i]f a defendant's claim is untrue, it must be deemed literally false." Castrol, 987 F.2d at 944. Even if the advertiser has a reasonable basis to support the truth of the advertisement, it will be liable if the statement is untrue. Id. "In analyzing whether an advertisement or product name is literally false, a court must determine, first, the unambiguous claims made by the advertisement or product name, and second, whether those claims are false." Novartis Consumer Health, Inc. v. Johnson & Johnson-Merck Consumer Pharm. Co., 290 F.3d 578, 586 (3d Cir. 2002) (citing Clorox Co. v. Proctor & Gamble Commercial Co., 228 F.3d 24, 34 (1st Cir. 2000)).

We find that Safelite's greetings and warnings were not literally false. When greeting callers, the CSRs would state, "Thank you for calling the ABC Insurance Glass program. This is [name]. How may I help you?" (See Safelite Ex. 132.1 in Supp. Summ. J.; Hellwich Decl. Oct. 7, 2005, Ex. 2, Tr. Phone Call June 5, 2003; Hellwich Decl. Oct. 7, 2005, Ex. 3, Tr. Phone Call April 24, 2003.) Diamond claims that this greeting was false and Safelite was "masquerading" as an insurance company because the callers had reached Safelite's call centers, not the insurance company. Diamond, however, ignores Safelite's agreements with the insurance companies that both affiliated the CSRs with the insurance companies for the purpose of providing their claims administration services and authorized the CSRs to represent themselves as the companies' representatives. Safelite, in fact, was the "glass program" for the insurance companies and did provide their claims administration. Moreover, the insurance companies approved the scripts that included the greeting, and thus authorized the CSRs to make this greeting. See MJ & Partners Rest. Ltd. P'ship v. Zadikoff, 10 F. Supp. 2d 922, 927-28 (N.D. Ill. 1990) (citing Ballet Makers, Inc. v. United States Shoe Corp., 633 F. Supp. 1328, 1335 (S.D.N.Y. 1986)) (finding that no consumer confusion as to source can exist when the disputed representation of source has been authorized by the owner of the mark); Official Airline Guides, Inc. v. Churchfield Publ'n, 756 F. Supp. 1393, 1405 (D. Or. 1990) (concluding no confusion as to affiliation existed where legitimate business relationship supported affiliation); Diebold v. Positran Mfg., No.CIV.A. 02-374, 2002 WL 31129726, at *4 (D. Del. Sept. 26, 2002) (citing Monte Carlo Shirt, Inc. v. Daewoo Int'l Corp., 707 F.2d 1054, 1057 (9th Cir. 1983)) (finding no consumer confusion where the defendant was authorized to produce the plaintiff's product).

We also find that the CSRs' warnings about Diamond's pricing and services after it left the network were not literally false. They informed callers that the insurance companies could not guarantee the work of the non-network shops, these shops may charge more than is authorized by their coverage, and they may not provide the same services. One script provided, for example, "You have the right to have the work performed at any glass shop you choose, but they may charge you more than what [ABC Insurance] is willing to pay and may not provide the total service offerings of the [ABC Insurance] glass program." (Pl. Ex. 127.1 in Opp. Summ. J., Sample Script ¶ 21, SAFE00E005770.) Another script provides, "[W]hile you may choose any shop you wish, do you understand that the benefits and warranties I just explained may not be provided by the shop you selected? Because this shop does not participate in the Blue Ribbon Glass Service, [ABC Insurance] cannot stand behind the warranty your chosen shop may provide." (Def Ex. 132.3 in Supp. Summ. J. ¶ 24.)

Diamond contends that Safelite's warnings were literally false because it never charged more than the insurance companies could pay, it informed Safelite and the insurance companies that it agreed to their pricing, and it provided its own warranty in its invoices to all customers. The scripts, however, did not represent that Diamond's pricing would exceed the coverage, or that the workmanship would be of lower quality, or Diamond would not provide a warranty.*fn5 Rather, it represented that the pricing may be higher, the services may not be the same,*fn6 and the insurance company could not guarantee the work. After Diamond terminated its Network Agreement, it had no contractual arrangement with Safelite or the insurance companies and it was free to change its pricing, services, or warranty at any time without notice. Diamond even took steps to preserve its right to charge prices exceeding the coverage by requiring customers to sign invoices that stated, "If the cost of all or part of this job is not covered by my insurance, I agree to pay Diamond Auto Glass the balance upon installation."*fn7 (Def. Ex. in Supp. Summ. J. 57.) On one occasion, Diamond informed an insurer that "We do expect payment in full for these claims. If these claims are not paid in full, your insured will be responsible for the remaining payments." (Def. Ex. in Supp. Summ. J. 144.) Since Diamond was at liberty to change its prices, services, and warranty at any time after it terminated the Network Agreement, the CSRs' warnings that the insurance companies would not warranty the work and that Diamond may have had higher prices and different service were not literally false.

2. Actual Confusion

If a claimant cannot demonstrate that the defendant made literally false statements, it can establish a false advertising claim if it can "prove actual deception by a preponderance of the evidence." Highmark, Inc. v. UPMC Health Plan, Inc., 276 F.3d 160, 171 (3d Cir. 2001). The claimant must establish, "actual deception or at lest a tendency to deceive a substantial portion of the intended audience." Novartis Consumer Health, Inc. v. Johnson & JohnsonMerck Consumer Pharm. Co., 290 F.3d 578, 594 (3d Cir. 2002) (quoting Johnson & Johnson-Merck Consumer Pharm. Co. v. Rhone-Poulenc Rorer Pharm., Inc., 19 F.3d 125, 129 (3d Cir. 1994)). A plaintiff "cannot obtain relief by arguing how consumers could react; it must show how consumers actually do react." Castrol v. Pennzoil, 987 F.2d 939, 943 (3d Cir. 1993) (quoting Sandoz Pharm. Corp. v. Richardson-Vicks, Inc., 902 F.2d 222, 226 (3d Cir. 1990)). "[T]he success of the claim usually turns on the persuasiveness of a consumer survey." Rhone-Poulenc, 19 F.3d at 129-30. In Rhone-Poulenc, the plaintiff alleged that the defendant's claim that Extra Strength Maalox Plus (ESMP) "is the strongest antacid there is" misled consumers to believe that ESMP provided superior relief to the plaintiff's product.

Id. 132. The plaintiff offered five consumer surveys wherein researchers traveled to shopping malls, aired the commercials to shoppers, and asked a number of questions. Id. The court found the surveys were not probative of actual consumer confusion because of the leading and suggestive nature of the questions. Id. at 135-36. It then noted that the ...

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