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Amcol Systems, Inc. v. Lemberg Law, LLC

United States District Court, D. South Carolina, Columbia Division

February 16, 2016

AMCOL Systems, Inc., Plaintiff,
v.
Lemberg Law, LLC, and Sergei Lemberg, Defendants.

OPINION AND ORDER ON MOTIONS TO DISMISS AND RECONSIDER (ECF NOS. 11, 29)

CAMERON MCGOWAN CURRIE Senior United States District Judge

Through this action, AMCOL Systems, Inc. (“AMCOL”), seeks relief from Lemberg Law, LLC, and Sergei Lemberg (collectively “Defendants”), for alleged violations of state and federal law. AMCOL is a “business-to-business service provider” whose “services include debt collection.” Amended Complaint ¶ 11 (ECF No. 8). Defendants are an attorney and law firm with a practice that includes “plaintiff’s litigation against debt collectors.” Id. ¶ 19.

AMCOL’s claims arise out of statements Defendants made in internet advertising, specifically comments on two websites and a YouTube channel, which “solicit[] potential clients to file lawsuits against debt collectors.” Id. ¶¶ 19-20. AMCOL alleges that Defendants have used the terms “AMCOL” and “AMCOL SYSTEMS . . . in connection with the advertising and offering of [Defendants’] services” and that this use “is likely to result and has resulted in consumer confusion.” Id. ¶¶ 22-23. AMCOL further alleges that statements made in Defendants’ online advertising are defamatory and “have damaged AMCOL’s business and reputation as well as incited debtors to sue AMCOL.” Id. ¶ 25; see also Id. ¶ 27 (alleging “Defendants [also] invited and encouraged defamatory statements by third parties on their websites by providing comments sections on their webpages.”).

AMCOL asserts the following five causes of action: (1) trademark infringement and unfair competition under 15 U.S.C. § 1114 (“Section 1114 Claim”); (2) unfair competition under 15 U.S.C. § 1125(a) (“Section 1125(a) Claim”); (3) common law trademark and unfair competition; (“Common Law Trademark Claim”) (4) defamation (“Defamation Claim”); and (5) violation of the South Carolina Unfair Trade Practices Act, SC Code Ann. § 39-5-10 et seq. (“SCUTPA Claim”). The court previously dismissed the two federal claims and remanded the action to state court without addressing Defendants’ motion to dismiss the three state law claims. ECF No. 26. The court subsequently granted Defendants’ motion to reconsider the decision to remand the action. ECF No. 34 (granting motion and withdrawing order of remand).

The matter is now before the court on AMCOL’s motion to reconsider dismissal of its Section 1125(a) Claim (ECF No. 29) and on previously unresolved aspects of Defendants’ motion to dismiss (ECF No. 11). For reasons set forth below, the court denies AMCOL’s motion to reconsider dismissal of the Section 1125(a) Claim. The court grants Defendants’ motion to dismiss to the extent it seeks dismissal of AMCOL’s Common Law Trademark and SCUTPA Claims. The court denies Defendants’ motion to the extent it seeks dismissal of AMCOL’s Defamation Claim but limits that claim in some respects.

I.AMCOL’S MOTION TO RECONSIDER

By order entered December 10, 2015, the court dismissed AMCOL’s Section 1114 and Section 1125(a) Claims. ECF No. 26 (“Dismissal Order”). Through its present motion, AMCOL seeks reconsideration of the dismissal of its Section 1125(a) Claim. AMCOL argues that the court construed this claim too narrowly by considering only whether the alleged misrepresentations led “to direct diversion of creditors” and failed to consider whether the alleged misrepresentations “damaged [AMCOL’s] brand, i.e., lessened the goodwill associated therewith by creditors.” ECF No. 29 at 1-2 (relying on 15 U.S.C. § 1125(a)(1)(B)).

As explained in more detail below, this argument does not support reconsideration because it ignores the injuries alleged under this cause of action, which refer only to deception and misleading of debtors, revenue lost when debtors work with Defendants to oppose collection rather than working with AMCOL to pay the debt, and legal expenses resulting when debtors sue AMCOL in what AMCOL describes as meritless lawsuits. ECF No. 8 ¶¶ 43, 44. AMCOL also failed to raise this argument or to propose corresponding amendments to the complaint prior to entry of the Dismissal Order or even following entry of that order. While the delay in raising the present arguments or seeking to amend the complaint does not mandate denial of the motion for reconsideration, it does weigh against reconsideration.

For all of these reasons, the motion to reconsider is denied. Denial of this motion does not, however, preclude AMCOL from seeking to amend the complaint if the amendment is otherwise warranted.

A. STANDARD

Reconsideration of interlocutory orders is governed by Rule 54(b) of the Federal Rules of Civil Procedure. See, e.g., Am. Canoe Ass’n v. Murphy Farms, Inc., 326 F.3d 505, 514-15 (4th Cir. 2003). Under Rule 54(b), “any order or other decision, however designated, . . . may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties’ rights and liabilities.” Thus, “a district court retains the power to reconsider and modify its interlocutory judgments, including partial summary judgments, at any time prior to final judgment when such is warranted.Am. Canoe Ass’n, 326 F.3d at 514-15 (noting reconsideration under Rule 54(b) is “committed to the discretion of the district court” with the goal of “reach[ing] the correct judgment under law.”) (emphasis added).

In light of Rule 54(b)’s permissive language, a court’s discretion to review an interlocutory order is not limited to the strict standards applicable to motions to alter or amend a final judgment under Rule 59(e) or for relief from judgment under Rule 60(b). Id. at 514-15. The decision whether to reconsider a prior ruling is, instead, “committed to the discretion of the district court.” Id. at 515.

“[D]octrines such as law of the case . . . have evolved as a means of guiding that discretion.” Id. Under the law-of-the-case doctrine, “earlier decisions of a court become law of the case and must be followed unless (1) a subsequent trial produces substantially different evidence, (2) controlling authority has since made a contrary decision of law applicable to the issue, or (3) the prior decision was clearly erroneous and would work manifest injustice.” Id. (quoting Sejman v. Warner-Lambert Co., Inc., 845 F.2d 66, 69 (4th Cir. 1988) (internal marks omitted). While the district court’s decision whether to reconsider a prior interlocutory ruling “may be tempered at times by concerns of finality and judicial economy, ” the court retains an “ultimate responsibility . . . to reach the correct judgment under law.” Id. (finding standing issue and related circumstances “present[ed] the type of exceptional circumstances justifying reconsideration and render[ed] . . . denial of [reconsideration] an abuse of discretion”).

B.CHALLENGED RULING

In granting Defendants’ motion to dismiss the Section 1125(a) Claim, the Dismissal Order considered both subparts of Section 1125(a)(1), explaining that Subpart (A) covers claims for false association while Subpart B covers claims for false advertising. ECF No. 26 at 9 (citing Lexmark Int’l Inc. v. Static Control Components, ___ U.S. ___, 134 S.Ct. 1377 (2014)); id. n.1 (noting Subpart A claims are sometimes referred to as false designation of origin claims). Considering the allegations of the Amended Complaint and AMCOL’s arguments in opposition to dismissal, the court construed AMCOL’s Section 1125(a) Claim as a claim arising under Subpart B. Id. at 10.[1]

Reciting the elements of a Subpart B false advertising claim, the Dismissal Order noted that the fifth element required proof that AMCOL “has been or is likely to be injured as a result of the misrepresentations, either by direct diversion of sales or by a lessening of goodwill associated with its products.” Id. at 10 (quoting Design Res., Inc. v. Leather Indus. of Am., 789 F.3d 495 at 501 (4th Cir. 2015)). The Dismissal Order noted that the alleged misrepresentation must be “likely to mislead and to confuse consumers given the merchandising context.” Id. at 10 (emphasis added) (citing C.B. Fleet Co. v. SmithKline Beecham Consumer Healthcare, L.P., 131 F.3d 430, 434 (4th Cir. 1997)). The Dismissal Order found a disconnect between AMCOL’s potential customers, i.e., creditors, and the injuries alleged in the Amended Complaint, “revenue AMCOL would have otherwise generated had the mislead debtors worked with AMCOL rather than Defendants.” The court, therefore, concluded AMCOL had not “allege[d] a plausible claim that such consumers [creditors] are likely to believe Defendants are providing debt collection services on behalf of creditors.” Id. at 11.

C. ARGUMENTS

AMCOL’s Arguments.

AMCOL argues that the court failed to fully consider the false advertising claim under 15 U.S.C. § 1125(a) because it failed to address whether Defendants’ actions “lessened the goodwill associated [with AMCOL’s brand] by creditors.” ECF No. 29 at 1. AMCOL notes that consumer confusion is not required under Section 1125(a)(1)(B) because “[a] claim for false advertising can be based on misrepresentations about Defendants’ services or those of another person.” Id. at 2 (citing Section 1125(a)(1)(B) and Design Res., Inc., 789 F.3d at 501) (emphasis added); see also Id. at 3 (citing Design Res. for the proposition “[f]alse advertising is actionable if it leads to a direct diversion of sales or a lessening of the goodwill associated with a brand.” (emphasis added)). AMCOL explains that it is complaining of false representations “that AMCOL violates the law in carrying out its services and should be sued.” Id. (citing Amended Complaint ¶¶ 25, 35, 42).[2] AMCOL acknowledges that the Dismissal Order found “no sufficient allegation of direct diversion of creditors” but argues dismissal of the Section 1125 Claim should be reconsidered because it failed to consider AMCOL’s “complain[t] of Defendants’ false representations leading to the lessening of the goodwill associated with AMCOL’s brand.” Id. at 3 (citing Amended Complaint ¶¶ 13, 25, 38).[3]

AMCOL asserts that its Section 1125(a) Claim should survive, “[e]ven if the analysis is limited to creditors . . . for lessening AMCOL’s goodwill with those consumers.” Id. at 3. It explains that, because of “Defendants’ lessening of AMCOL’s goodwill, creditors are less likely to hire AMCOL.” Id. (explaining that creditors may be dissuaded from hiring AMCOL “because even though a debt is valid, if AMCOL’s techniques for collecting it violate the ...


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