False Advertising: Jackson Hewitt May Not Tack on New Jersey Consumer Fraud Claim to Lanham Act False Advertising Complaint

Faced with competitor false advertising, plaintiffs often seek as broad relief as possible and look to claims other than the Lanham Act when bringing litigation. The availability of the broad remedies (like treble damages and attorneys’ fees) available in many states’ consumer fraud acts make them an attractive avenue for prospective plaintiffs.

However, unlike the Lanham Act, states’ consumer fraud acts are improper vehicles for competitor plaintiffs in false advertising cases, as those state statutes were not written to remedy competitive harms. Rather, most consumer fraud acts were written to protect consumers from the harm associated with false advertising. At least one court has prohibited a Lanham Act plaintiff from proceeding with a consumer fraud act claim in its competitor false advertising matter.

On the eve of this year’s tax season, in January 2011, Jackson Hewitt Tax Service Inc. (“Jackson Hewitt”) sued H&R Block Inc. (“H&R Block”) to stop H&R Block from continuing an allegedly false advertising campaign. H&R Block placed print and television advertising about its tax refund loans and the competence of Jackson Hewitt’s tax professionals — claiming, among other things, that H&R Block “found errors in 2 out of 3″ Jackson Hewitt returns.

Seeking to stop the damaging advertising campaign, Jackson Hewitt brought a lawsuit against H&R Block in the United States District Court for the Southern District of New York, seeking temporary and preliminary injunctive relief and alleging violations of both the Lanham Act, 15 U.S.C. § 1125(a) and the New Jersey Consumer Fraud Act, N.J. Stat. Ann. § 56:8-2, which prohibits “any unconscionable commercial practice, deception, fraud, false pretence, false promise, misrepresentation . . . with intent that others rely upon such concealment, suppression or omission, in connection with the sale of advertisement of any merchandise.” H&R Block moved to dismiss the New Jersey Consumer Fraud Act claim, contending that Jackson Hewitt, a competitor and not a consumer of retail services, could not avail itself of the New Jersey Act’s protection.

In a May 26, 2011 decision [link], the Southern District of New York agreed and dismissed the New Jersey Consumer Fraud Act claim. Citing the New Jersey Supreme Court, the Southern District of New York reminded Jackson Hewitt that the New Jersey Consumer Fraud Act permits causes of action to be brought only by (1) the Attorney General of the state or (b) “victims of consumer fraud who have suffered an ascertainable loss.” Jackson Hewitt Inc. v. H&R Block Inc., et al, Case No. 11 Civ. 641 (S.D. N.Y. filed Jan. 31, 2011) (citing Weinberg v. Spring Corp., 173 N.J. 233, 290-91 (N.J. 2002). As to the “victims of consumer fraud,” the New Jersey Consumer Fraud Act “focuses on allowing individual consumers to recover refunds for losses caused by violations of the Act.” Id. (citing Weinberg, 173 N.J. at 290). Since Jackson Hewitt identifies itself and H&R Block as “direct competitors in an intensively competitive market” (Amended Complaint, 2) and does not allege any harm associated with consuming H&R Block’s services, Jackson Hewitt could not avail itself of the protections (and broad remedies) of the New Jersey Consumer Fraud Act.

While some states’ statutes (like deceptive trade practices and unfair competition acts) do allow for competitor actions, many consumer fraud acts do not reach competitor false advertising injuries. Thus, while the relief associated with the consumer fraud acts often make them attractive to competitor litigants in false advertising cases, the statutes are not often available in competitor false advertising litigation. Lanham Act defendants faced with broad shotgun-style pleadings that allege claims under states’ consumer fraud acts should seek to dismiss those claims, trimming the complaint and avoiding the broad relief allowed in those states’ consumer fraud acts..


Posted by Brian Wright
Advertising and Media
June 28, 2011