HIGHMARK, INCORPORATED, v. UPMC HEALTH PLAN, INCORPORATED, Aрpellant
No. 01-1377
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
December 21, 2001
2001 Decisions, Paper 296
Appeal from the United States District Court For the Western District of Pennsylvania. D.C. No.: 01-cv-00254. District Judge: Honorable William L. Standish. Argued: October 17, 2001. Before: ALITO, BARRY, and ROSENN, Circuit Judges.
Bryan S. Neft
David W. Snyder
Klett, Rooney, Lieber & Schorling
A Professional Corporation
One Oxford Centre, 40th Floor
Pittsburgh, PA 15219
Counsel for Appellant
Daniel I. Booker
Gary L. Kaplan
Gregory M. Luyt
Reed Smith LLP
435 Sixth Avenue
Pittsburgh, PA 15219
Counsel for Appellee
OPINION OF THE COURT
ROSENN, Circuit Judge.
This appeal has its genesis in the intense commercial rivalry between two insurers licensed in Pennsylvania to underwrite health insurance plans. This rivalry erupted in advertisements that appeared in the Pittsburgh Post-Gazette in February 2001. We had occasion almost a decade ago to observe the “dynamic role” commercial advertising plays in the financial and industrial activities of our society. Castrol Inc. v. Pennzoil Co., 987 F.2d 939, 940-41 (3d Cir. 1993). Whether the McCarran-Ferguson Act (the McCarran Act),
Alleging that UPMC Health Plan, Inc. (UPMC), one of the foregoing insurers, published full-page advertisements (the UPMC ad or the Ad) in the Pittsburgh Post-Gazette in February 2001 containing deceptive misstatements in comparing insurance plans offered by UPMC and Highmark, Inc. (Highmark), the other insurer, Highmark, promptly sought injunctive relief and damages in the United States District Court for the Western District of Pennsylvania. The bases for its action are that the UPMC ad contained false statements and deceptive advertising in violation of Section 43(a) of the Lanham Act, state common law claims of commercial disparagement, and intentional interference with contractual relations.
UPMC moved to dismiss the action for lack of subject matter jurisdiсtion, contending that neither its Ad, nor the
I.
As a licensed insurer, UPMC offers two health insurance plans marketed solely to employers and subscribers in Western Pennsylvania, the Enhanced Access Point of Service plan and the Enhanced Access HMO plan. Highmark, also a licensed insurer, offers three health insurance plans under its CommunityBlue umbrella, including its CommunityBlue Direct plan. The CommunityBlue Direct plan is also marketed solely to employers and subscribers in Western Pennsylvania. Both UPMC plans and Highmark‘s CommunityBlue Direct plan are network-based plans. As suсh, they utilize the services of hospitals and physicians under contract with the plan to provide health care to subscribers. UPMC‘s plans and Highmark‘s plan make their services available outside of their respective networks, but at a greater cost to the subscriber, through deductibles and co-payments.
The County of Allegheny chose the UPMC health plans and the Highmark CommunityBlue Direct plan as the exclusive health insurance plans offered to the County‘s non-union employees during the open enrollment period beginning on February 1, 2001. On February 1 and February 4, 2001, UPMC published full-page
The District Court reviewed the prerequisites for a preliminary injunction. Based on its findings of fact, it concluded that Highmark had established that it was likely to succeed on the merits and that it would suffer irreparable injury if injunctive relief were denied. The Court also balanced the hardship to the parties and considered the public interest. On balance, it reasoned that the injunction would prevent UPMC “from gaining an unfair advantage in its сompetition with Highmark” and that the public interest would best be served by a cessation of the Ad and the publication of a corrective advertisement. It thereupon granted the application for the injunction.
II.
On appeal, UPMC raises two significant legal issues. First, it claims the Ad does not substantially affect interstate commerce, and thus there is no Lanham Act jurisdiction. It also claims that the McCarran Act bars the application of the Lanham Act, because to do so would invalidate, impair, or supersede Pennsylvania‘s Unfair Insurance Practices Act.
First, we address the jurisdictional issues with respect to Highmark‘s Lanham Act claim. This is essentially a legal issue and our standard of reviеw is plenary. United States Sec. & Exch. Comm‘n v. Infinity Group Co., 212 F.3d 180, 186 n.6 (3d Cir. 2000).
UPMC argues that the Lanham Act‘s interstate commerce requirement is not met because it directed its Ad to employees of Allegheny County, Pennsylvania, and the advertised health plans are sold only in Pennsylvania. Thus, it maintains that there is no substantial effect on interstate commerce. The District Court rejected this
A.
The Lanham Act provides civil liability for any person who “uses in commerce” any false or misleading description or representation of fact which in commercial advertising misrepresents the nature, characteristics, or qualities of any person‘s services or commercial activities.
The District Court held that five nexi substantially affect interstate commerce. First, the Pittsburgh Post-Gazette is distributed interstate and, therefore, the Ad appeared outside Pennsylvania. Second, the health plans referred to in the advertisements offer emergency care to patients outside of Pennsylvania. Third, the Highmark plan applies to subscribers residing outside of Pennsylvania, and services may be provided to a subscriber‘s dependents who reside outside of Pennsylvania. Fourth, subscribers may be referred to a hospital or medical facility outside of Pennsylvania. Finally, the Ad might have an impact on the parties outside of Pennsylvania. UPMC does not challenge the Court‘s factual findings, appealing only the Court‘s holding that these facts are sufficient to give the Court Lanham Act jurisdiction.
The District Court‘s findings relating to the health plan services offered outside of Pennsylvania support its conclusion with respect to interstate commerce. Cynthia Dellecker, Highmark‘s vice president of product
John DeGruttola, the chief marketing officer for UPMC, acknowledged that Highmark has arrangements with the Cleveland Clinic and Johns Hopkins University, situated in Baltimore, Maryland. Moreover, UPMC covers medical emergency care outside Pennsylvania, and, according to DeGruttola, he‘s “never had a complaint come across . . . that said th[e UPMC] card wasn‘t recognized across the United States or in the world.” The record testimony amply supports the District Court‘s cоnclusion with respect to the substantial effect on interstate commerce.
B.
We turn now to UPMC‘s contention that the McCarran Act and Pennsylvania‘s UIPA bar application of the Lanham Act. Because it is an issue of law, we exercise plenary review over the District Court‘s holding that the McCarran Act does not proscribe Highmark‘s Lanham Act claims. United States v. Southeastern Pa. Transp. Auth., 235 F.3d 817, 822 (3d Cir. 2000). The McCarran Act provides that “[n]o Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance . . .”
As for the threshold question, the action complained of -- the advertising -- constitutes part of the business of insurance. The District Court, without discussion, concluded that the advertising practices of the parties involved the business of insurance. Although we are not referred to any appellate case squarely on point, we perceive no error in this conclusion. The Ad dealt with the scope and services offered by the insurers to their subscribers and thus concerned the “business of insurance.” See, e.g., Fed. Trade Comm‘n v. Nat‘l Cas. Co., 357 U.S. 560, 562-63 (1958); accord Sec. & Exch. Comm‘n v. Nat‘l Sec., Inc., 393 U.S. 453, 460, (1969) (advertising is the business of insurance).1
Concluding that advertising constitutes the business of insurance, we must look to whether the three statutory requirements bar federal jurisdiction. We need not tarry long on the first two requirements. The Lanham Act under which this suit is brought does not specifically or otherwise relate to the business of insurance. As for the second requirement, Pennsylvania enacted the Unfair Insurance Practices Act (the UIPA) in 1974 and expressly stated its policy as follows:
The purpose of this act is to regulate trade practices in the business of insurance in accordance with the intent of congress as expressed in the [McCarran-Ferguson Act], by defining or providing for the determination of all such practices in this state which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined.
The more difficult question is in the third requirement -- does application of the Lanham Act invalidate, impair, or supersede the state regulation of deceptive and false
A federal law impairs a state law if: (1) it directly conflicts with the state law; (2) applying federal law would frustrate any declared state policy; or (3) applying federal law would interfere with a state‘s administrative regime. Humana Inc. v. Forsyth, 525 U.S. 299, 310 (1999). A federal law supersedes a state law if it “displace[s] (and thus render[s] ineffective) [state law] while providing for a substitute rule.” Id. at 307. UPMC argues that the policy of the UIPA is exclusive and that only the Pennsylvania Legislature can define or provide for the determination of all unfair insurance practices, “not Congress or the federal courts.” UPMC claims that applying the Lanham Act here would impair or supersede Pennsylvania law.
The District Court noted that the UIPA is enforceable only by the State Commissioner of Insurance and confers no private right of action. However, it also observed that state law actions for deceit and fraud in connection with the insurance industry are not barred, аnd are available to provide remedies for victims of illegal insurance practices. Pennsylvania‘s allowance of private actions like these to proceed casts doubt upon the UIPA‘s exclusivity.
Pekular v. Eich, 513 A.2d 427 (Pa. Super. Ct. 1986), a decision of a Pennsylvania appellate court, supports the District Court‘s finding. The court in Pekular allowed plaintiff ‘s common law claims of fraud and deceit to proceed, along with a claim under the Pennsylvania Unfair Trade Practices Consumer Protection Law (CPL), despite the UIPA. 513 A.2d 427 (Pa. Super. Ct. 1986). By allowing the common law and the CPL to define unfair trade practices, the court tacitly acknowledged that the UIPA is not exclusive. “[T]he UIPA contains no provision either stating or implying that the power vested in the Insurance Commissioner represents the exclusive means by which an insurer‘s unfair or deceptive acts are to be penalized . . . .” Id. at 434. It is also worth noting that since the decision in Pekular fifteen years ago, the state legislature has had more than enough time to address whatever exclusivity might exist in this policy. Its failure to do so is further evidence that there is no such exclusive policy.
Moreover, this Court has also recognized the lack of UIPA exclusivity. In ruling that a federal court could consider a private RICO claim despite the UIPA, the Court noted that it found no indication, through legislative intent or judicial interpretation, “that Pennsylvania‘s non-recognition of a private remedy under the UIPA represents a reasoned state policy of exclusive administrative enforcement or that the vindication of UIPA norms should be limited or rare.” Sabo, 137 F.3d at 195. Although vindication of UIPA norms came through RICO in Sabo, those norms were inherently defined by RICO, not the UIPA. Remarkably, UPMC tries to gainsay the obvious, by arguing that “[a]lthough a RICO claim may provide a remedy for conduct that falls under the rubric of the UIPA, a court adjudicating a RICO claim will not necessarily `determine’ whether such conduct constitutes an `unfair method of competition’ or an `unfair or deceptive act or practice’ in the insurance industry.” To state that proposition illustrates its invalidity. By its very nature, a company that violates the RICO statute has participated in an unfair method of competition. UPMC‘s assertion is akin to a claim that a conviction of murder is not necessarily a finding that such a person is guilty of a violent crime. Allowing Highmark‘s private action to proceed under the Lanham Act is merely a logical extension of Sabo , and not the huge leap UPMC would make of it.
After examining the federal legislation and Pennsylvania‘s UIPA, the District Court found that the Lanham Act neither conflicts with UIPA nor invalidates, impairs, or supersedes its provisions. The District Court therefore concluded that the McCarran Act does not bar the application of the Lanham Act provisions to such practices. Not only does the Lanham Act not invalidate, impair, or supersede the UIPA, or interfere with the State Commissioner‘s enforcement of its provisions, it also supрorts the State‘s efforts to correct such practices by allowing private actions in the federal courts.
UPMC contends that the Lanham Act supersedes Pennsylvania law by providing different standards of liability than the UIPA, and therefore Highmark‘s Lanham Act claim interferes with Pennsylvania‘s administrative regime in violation of the McCarran Act. As UPMC observes,
If different standards of liability were enough to render the UIPA ineffective under the McCarran Act, then this Court would not have allowed RICO claims to proceed in Sabo. As this Court noted in Sabo, the UIPA provides for actions solely through the Pennsylvania Insurance Commissioner, and not privately. 137 F.3d at 192. Thus, vindication of UIPA norms would seemingly be rare. Allowing private actions when none is provided by state law permits the insurance commissioner to proceed and also provides a victim of deception a private cause of action. Obviously, all things being equal, victims would much rather file a private cause of action than rely on an administrative process. In Sabo, we allowed the RICO claimant to proceed despite the UIPA. Pennsylvania state courts also have allowed private actions under state common and statutory law. See, e.g., Pekular v. Eich, 513 A.2d 427 (Pa. Super. Ct. 1986). In light of these precedents, the District Court did not err in holding that the UIPA is not superseded by the Lanham Act.
UPMC also argues that the more liberal remedies provided by the Lanham Act impair Pennsylvania‘s administrative scheme, and should bar Highmark‘s Lanham Act claim. In Sabo, this Court stated that it would “leave for another day the question of whether different federal and state remedies could ever be the basis for preclusion under the Act.” 137 F.3d at 195. More liberal remedies are found under RICO than the UIPA. See id. at 192-93 (RICO‘s remedies authorize awarding treble damages, attorney‘s fees, and costs). This did not prevent the Court from allowing the RICO сlaim to proceed, as it noted that Pennsylvania‘s general consumer protection statute (available as a cause of action), like RICO, allows for treble damages. Id. at 195. The Sabo Court did not limit itself to a RICO-UIPA comparison, and we will not limit ourselves to a Lanham Act-UIPA comparison.
Although the Lanham Act provides stronger remedies than the UIPA, compare
Finally, UPMC argues that common law claims are not available to insurers like Highmark under Pennsylvania law, and allowing Highmark‘s Lanham Act claim to proceed impairs Pennsylvania‘s administrative scheme. As UPMC correctly notes, Pennsylvania courts have not yet squarely decided whether insurers can bring private false advertising claims. Again, however, precedent indicates that such claims would be allowed. As the Pekular court stated, when finding common law remedies and the UIPA to coexist, “we do not read [precedent] to preclude existing common law remedies such as fraud and deceit.” 513 A.2d at 431. UPMC argues that this statement refers only to fraud and deceit actions. The Court‘s language, however, is not so narrowly drawn. It speaks of “existing common law remedies” and illustrates them with fraud and deceit. There is no reason to believe that Highmark‘s common law claims, already in existence at the time of the UIPA enactment, would be barred by Pennsylvania‘s courts. See Metro. Prop. & Liab. Ins. Co. v. Ins. Comm‘r, 580 A.2d 300, 303 (Pa. 1990) (finding that provisions of the UIPA are not all encompassing and that common law remedy of rescission is
III.
Notwithstanding subject matter jurisdiction in the federal District Court,3 UPMC contends that the District Court erred in granting the preliminary injunction. We use a three-part standard to review the District Court‘s decision. The ultimate decision to grant the preliminary injunction is reviewed for abuse of discretion; the District Court‘s findings of fact are reviewed for clear error; and the District Court‘s conclusions of law receive plenary review. Warner-Lambert Co. v. Breathasure, Inc., 204 F.3d 87, 89 n.1 (3d Cir. 2000).
A.
Four factors are considered in determining whether to grant a preliminary injunction: (1) whether the movant has a reasonable probability of success on the merits; (2) whether the movant will be irreparably harmed by denying the injunction; (3) whether there will be greater harm to the
The District Court found that Highmark has a reasonable probability of succeeding on the merits. To establish its Lanham Act claim, Highmark must show: (1) the defendant made false or misleading statements about the plaintiff ‘s product; (2) there is actual deception or a tendency to deceive a substantial portion of the intended audience; (3) the deception is material in that it is likely to influence purchasing decisions; (4) the advertised goods traveled in interstate commerce; and (5) there is a likelihood of injury to the plaintiff, e.g., declining sales and loss of good will. Breathasure, 204 F.3d at 91-92.
There are two ways to prove a false advertising claim under the Lanham Act. Either the advertisement must be literally false, or it must be literally true but misleading to the consumer. Castrol Inc. v. Pennzoil Co., 987 F.2d 939, 943 (3d Cir. 1993). If an advertisement is literally false, the plaintiff does not have to prove actual consumer deception. Id. If, on the other hand, an advertisement is literally true but misleading, the plaintiff must prove actual deception by a preponderance of the evidence. Id. If a claim is literally true, a plaintiff ” `cannot obtain relief by arguing how consumers cоuld react; it must show how consumers actually do react.’ ” Id. (quoting Sandoz Pharm. Corp. v. Richardson-Vicks, Inc., 902 F.2d 222, 228-29 (3d Cir. 1990)).
The District Court found nine separate claims made in the UPMC ad false and, in the alternative, misleading:
- Reference to the Highmark plan as “CommunityBlue.” The District Court found that “CommunityBlue” is in fact a service mark for three of Highmark‘s network plans, which includes “CommunityBlue Direct,” the plan actually being offered to Allegheny County employees.
Highmark provides service only in 10 hospitals in Allegheny County, as compared to 18 hospitals offered by UPMC. The Court found that Highmark actually offers the services of 16 hospitals, when rehabilitation and psychiatric facilities are included.4 - Highmark may send members to out-of-state hospitals for some types of care available in Allegheny County. The Court found that Highmark does not send subscribers to out-of-state hospitals for care available in Allegheny County.
- Doctors must obtain approval from Highmark before ordering some tests, admitting members to the hospital, and making other key medical decisions. The Court found that Highmark does not make medical decisions for its subscribers.
- UPMC does not limit self-referrals to its network specialists. The Court found that the $25 co-payment required by UPMC for such self-referrals is in fact a limitation. Further, the Court found that this representation implied that Highmark limits self-referrals; the Court found that Highmark did not.
The remaining four of the nine claims in the UPMC Ad that the District Court found false and misleading centered around the Ad‘s use of the word “access.” The Ad claims that CommunityBlue Direct offers no access to specialty care at several named facilities, no access to several “world-renowned physicians,” and no access to any services at Magee-Womens Hospital. The Ad also claims that CommunityBlue offers access to “only certain services” at Children‘s Hospital.
The District Court ruled that “access” has a plain meaning, applicable in this case. The Merriam-Webster Dictionary defines “access” as the “capacity to enter or approach.” THE MERRIAM-WEBSTER DICTIONARY 23 (5th ed. 1997). The District Court‘s explanation on its face seems
According to UPMC, the objective industry standard definition of “access” is “access without additional cost to the subscriber.” Under this definition, UPMC сlaims, its Ad is both literally true and not misleading. There is not enough evidence to determine whether UPMC in fact offers the objective industry standard definition.5 There are decisions that support UPMC‘s contention that industry standards are relevant in determining whether the use of the term “access” was literally false. See, e.g., Castrol, 799 F. Supp. at 436 (“In order to determine whether a claim is literally false, courts have looked to objective industry standards rather than subjective standards of the party making the comparison.“); Tire Kingdom, Inc. v. Morgan Tire & Auto, Inc., 915 F. Supp. 360, 365-66 (S.D. Fla. 1996) (“In making a threshold determination concerning the falsity of a challenged advertisement under the Lanham Act, examining the industry standard is appropriate.“); American Rockwool, Inc. v. Owens-Corning Fiberglas Corp., 640 F. Suрp. 1411, 1443 (E.D.N.C. 1986) (“In the view of the
We now review the facts considered by the District Court in determining that Highmark has a reasonable probability of success on the merits. We see no need to discuss each of the claims presented by Highmark, and limit ourselves to the most obviously deceptive.
The UPMC ad asserts that CommunityBlue Direct “[m]ay send members to out-of-state hospitals for some types of care available” in Western Pennsylvania. UPMC does not even argue that it has evidence thаt this takes place; instead, it argues that Highmark has the means and motive to direct patients to out-of-state hospitals. Means and motive are not sufficient to prove the statement true, and the District Court did not clearly err in finding this claim literally false.
The UPMC ad also asserts that UPMC does not “limit self-referrals to our network specialists.” The District Court found that the $25 co-payment is indeed a limitation, and thus this claim is also literally false. This ruling likewise is not clearly erroneous.
Of most importance, the Ad asserts that CommunityBlue Direct provides “[a]ccess to only certain services at Children‘s Hospital.” This claim is literally false, because Children‘s Hospital is actually part of the CommunityBlue Direct network. UPMC again argues that the claim is true, because Highmark has the “incentives and means to steer patients away from Children‘s Hospital.” Without presenting evidence that Highmark is actually diverting patients from Children‘s Hospital, any incentives and means it may have to do so are irrelevant.
This assertion pertaining to Children‘s Hospital is of paramount importance because it speaks directly to the materiality and likelihood of injury components of Highmark‘s Lanham Act claim. As Judge Roth has noted, “[c]onsumer survey evidence is extremely helpful in determining whether an allegedly false statement is
B.
Before concluding, we turn to UPMC‘s argument that the District Court did not address -- unclean hands. UPMC argues that Highmark should be barred from bringing its Lanham Act claim because of the equitable doctrine of unclean hands. In July 1999, Highmark ran an advertisement in the Post-Gazette claiming to be the only health care plan offering “access” to five local hospitals ranked among America‘s best. UPMC claims that Highmark, having used the term “access” the same way UPMC did in the Ad before us, should not be heard now to complain about the UPMC ad. We reject this argument.
The equitable doctrine of unclean hands applies when a party seeking relief has committed an unconscionable аct immediately related to the equity the party seeks in respect to the litigation. Keystone Driller Co. v. General Excavator Co., 290 U.S. 240, 245 (1933). The doctrine is applicable in actions seeking relief under the Lanham Act. Ames Publ‘g Co. v. Walker-Davis Publ‘n, Inc., 372 F. Supp. 1, 13 (E.D. Pa. 1974). Courts, however, do not close their doors when plaintiff ‘s misconduct has “no relation to anything involved in the suit, but only for such violations of conscience as in
Although we may sua sponte apply the doctrine,6 we choose not to do it. Highmark‘s inappropriate use оf a term in its 1999 advertisement does not excuse current deceptive and misleading advertisements to the public.
IV. CONCLUSION
In summary, we conclude that the plaintiff offered sufficient evidence to prove that the challenged activities substantially affected interstate commerce. Highmark also established that the McCarran Act did not preclude relief under the Lanham Act for the deceptive and misleading representations in UPMC‘s February 2001 Ad. Finally, the District Court did not abuse its discretion in granting Highmark‘s application for a preliminary injunction. Costs taxed against the appellant, UPMC.
A True Copy:
Teste:
Clerk of the United States Court of Appeals for the Third Circuit