Highmark Inc v. UMPC Health Plan ( 2001 )

Opinions of the United
2001 Decisions States Court of Appeals
for the Third Circuit
12-21-2001
Highmark Inc v. UMPC Health Plan
Precedential or Non-Precedential:
Docket 01-1377
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Filed December 21, 2001
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 01-1377
HIGHMARK, INCORPORATED,
v.
UPMC HEALTH PLAN, INCORPORATED,
Appellant
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
(Filed: December 21, 2001)
Christine L. Donohue (Argued)
Bryan S. Neft
David W. Snyder
Klett, Rooney, Lieber &
Schorling
A Professional Corporation
One Oxford Centre, 40th Floor
Pittsburgh, PA 15219
Counsel for Appellant
Michael E. Lowenstein (Argued)
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),
15 U.S.C. SS 1011-1015, bars a false advertising claim by
an insurer against another insurer under Section 43(a) of
the Lanham Act, 15 U.S.C. S 1125(a)(1)(B), is an issue of
first impression in this court.
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 jurisdiction, contending that neither its Ad, nor the
2
services mentioned therein, substantially affect interstate
commerce as required under Section 43(a) of the Lanham
Act. UPMC later asserted that plaintiff 's Lanham Act claims
also were proscribed by the McCarran Act and the
Pennsylvania Unfair Insurance Practices Act (UIPA), 40 PA.
CONS. STAT. ANN. SS 1171.1-.15 (1999). After a two-day
hearing, the District Court denied the motion to dismiss
and granted Highmark's motion for a preliminary
injunction. In granting the injunction, the District Court
found that UPMC's ad contained nine separate literally false
statements. The Court also found that UPMC's advertising
had a tendency to deceive the intended readers. The Court's
order required UPMC to cease and desist further
dissemination of its Ad and any other false and deceptive
advertisements or marketing materials containing a claim
specifically found by the District Court to be false and
misleading. UPMC timely appealed to this Court. We affirm.
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 such, 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
3
advertisements in the Pittsburgh Post-Gazette comparing
various features of UPMC's and Highmark's plans. The top
of the Ad states "A message to the employers of Allegheny
County," and asks "If you were diagnosed with a serious
illness tomorrow, which health plan would you rather
have?" The District Court found nine statements in the Ad
(including seven statements comparing UPMC and
Highmark health care plans) were false and misleading.
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 competition 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 review 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
4
argument, holding that the Ad does indeed substantially
affect interstate commerce.
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. 15 U.S.C.
S 1125(a)(1)(B). The term "commerce," as used in the Act,
refers to "all commerce which may lawfully be regulated by
Congress." 15 U.S.C. S 1127. It has long been
acknowledged that the Act "confers broad jurisdictional
powers upon the courts of the United States." Steele v.
Bulova Watch Co., 344 U.S. 280, 283 (1952); accord U.S.
Healthcare, Inc. v. Blue Cross, 898 F.2d 914, 922 (3d Cir.
1990) ("The commerce requirement has been broadly
interpreted."). Congress's authority under the interstate
commerce clause extends even to purely intrastate activity
if that activity substantially affects interstate commerce.
United States v. Lopez, 514 U.S. 549, 558-59 (1995).
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
5
management and development, testified that
CommunityBlue Direct covers subscribers' dependents
residing outside of Pennsylvania, and that CommunityBlue
Direct offers emergency care outside of the state and
country. She also testified that CommunityBlue Direct
subscribers have access to out-of-state hospitals such as
Sloan-Kettering, the Cleveland Clinic, Massachusetts
General Hospitals, and the Mayo Clinic. Dr. Kenneth
Melani, the executive vice president of Highmark for
strategic business development and health services,
testified that Highmark has approved care for subscribers
at Sloan-Kettering. Melani further noted that Joslin Clinic,
a CommunityBlue Direct network hospital situated in
Boston, Massachusetts, is an internationally recognized
diabetes treatment center.
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 conclusion 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 . . ." 15
U.S.C. S 1012(b). To determine whether the McCarran Act
applies, this Court considers the threshold question to be
whether the activity complained of constitutes the
"business of insurance." Sabo v. Metropolitan Life Ins. Co.,
6
137 F.3d 185, 191 (3d Cir. 1998). If the activity does not
constitute the "business of insurance," then the McCarran
Act does not apply. Id. at 190. If, on the other hand, the
activity does constitute the "business of insurance," we
then look to whether S 1012(b) precludes a federal cause of
action. Id. at 189. Federal jurisdiction is barred if three
requirements are met: (1) the federal law at issue does not
specifically relate to the business of insurance; (2) the state
law regulating the activity was enacted for the purpose of
regulating the business of insurance; and (3) applying
federal law would invalidate, impair, or supersede the state
law. Id.
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
_________________________________________________________________
1. Twenty-five years after National Casualty the Supreme Court of the
United States laid out a three-pronged test for determining what is the
"business of insurance" for purposes of deciding whether the McCarran
Act precludes application of federal antitrust law. Union Labor Life Ins.
Co. v. Pireno, 458 U.S. 119 (1982). These prongs are first, whether the
practice transfers or spreads a policyholder's risk; second, whether the
practice is an integral part of the policy relationship between the
insurer
and the insured; and third, whether the practice is limited to entities
within the insurance industry. Id. at 129. Although it could be argued
that Pireno impliedly overruled National Casualty, United States
Department of Treasury v. Fabe, 508 U.S. 491 (1993), casts doubt upon
that interpretation. In Fabe the Court noted that Pireno dealt with the
McCarran Act's effect on antitrust laws, which the Court found readily
distinguishable from other laws. Id. at 504. This is because there are two
separate clauses in the McCarran Act. According to the Supreme Court,
the second clause, which proscribes application of antitrust laws, is
7
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.
40 PA. CONS. STAT. ANN. S 1171.2 (1999)(footnote omitted).
Judge Standish for the District Court recognized that
Pennsylvania enacted the UIPA to regulate the business of
insurance. Its plain language having done so, we agree.
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
_________________________________________________________________
more "narrowly circumscribed" than the first clause, which deals with
federal laws in general. Id. Only the first clause is pertinent in this
case.
The general clause (the first clause) provides:"[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 . . . ."
The Supreme Court sees a distinction between the"business of
insurance" and laws that serve the purpose of regulating the business of
insurance. This distinction makes it difficult, if not impossible, to
apply
Pireno to insurance advertising under the Lanham Act, because the
Lanham Act is a general law controlled by the first clause. In a case on
point, a South Carolina District Court concluded that National Casualty
remains good law, and held that laws regulating insurance advertising
are laws whose purpose is to regulate the business of insurance. Colonial
Life & Accident Ins. Co. v. American Family Life Assurance Co., 846 F.
Supp. 454, 460 (D.S.C. 1994).
8
practices in violation of the McCarran Act? The District
Court concluded that it does not and we again agree.
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, and 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, 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.
9
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 supports 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,
10
the standard to obtain a permanent injunction under the
Lanham Act is less formidable than under the UIPA. UPMC
claims the UIPA is thus rendered literally ineffective (i.e.,
superseded) by the Lanham Act because plaintiffs, given a
choice, will elect to file claims with an easier burden of
proof. This argument, however, also ignores precedent.
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 claim 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.
11
Although the Lanham Act provides stronger remedies
than the UIPA, compare 15 U.S.C. S 1117(a) (allowing
recovery of defendant's profits, unlimited damages, and
court costs) with 40 PA. CONS. STAT. ANN.SS 1171.9, 1171.11
(1999) (allowing orders enjoining the unlawful activity,
suspension or revocation of the defendant's license, and
capping monetary awards), the point of reference should
also include Pennsylvania common law remedies, as the
Court included in Sabo. Highmark's common law claims
include tortious interference with potential contractual
relations, and assuming it could bring such an action, the
Lanham Act's remedies do not appear unduly severe.
Moreover, Pennsylvania allows for punitive damages for a
tortious interference with a prospective business
relationship claim. See SHV Coal, Inc. v. Continental Grain
Co., 587 A.2d 702 (Pa. 1991). Punitive damages can easily
meet, if not exceed, Lanham Act damages. The UIPA itself,
in light of its non-exclusive nature, does not provide a basis
for the Court to determine if different federal and state
remedies can be a basis for preclusion under the McCarran
Act.
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
12
not precluded by UIPA); Baker v. Pa. Nat'l Mut. Cas. Ins.
Co., 559 A.2d 914, 915-16 n.1 (Pa. 1989)(noting that the
UIPA does not provide the exclusive remedy in cases
involving improper conduct on the part of insurance
companies); Commonwealth v. Allstate Ins. Co. , 729 A.2d
135, 139-40 (Pa. Commw. Ct. 1999)(finding UIPA is not the
exclusive remedy for fraudulent insurance practices).
Accordingly, the District Court committed no error in
rejecting UPMC's arguments that this action is barred by
the McCarran Act.2
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
_________________________________________________________________
2. It is worth noting that, although the cases did not discuss possible
McCarran-Ferguson preclusion, this Court, and the District Courts in
this Circuit, have routinely exercised jurisdiction over Lanham Act
claims involving the insurance industry. See, e.g., U.S. Healthcare, Inc.
v.
Blue Cross, 898 F.2d 914 (3d Cir. 1990); American Fidelity & Liberty Ins.
Co. v. American Fidelity Group, 2000 WL 1385899, at *1 (E.D. Pa. Sept.
25, 2000); Guardian Life Ins. Co. v. American Guardian Life Assurance
Co., 943 F. Supp. 509 (E.D. Pa. 1996).
3. We have appellate jurisdiction, although the order before us is
interlocutory. 28 U.S.C. S 1292(a)(1) permits an appeal from an order
granting an injunction.
13
nonmoving party if the injunction is granted; and (4)
whether granting the injunction is in the public interest.
ACLU v. Reno, 217 F.3d 162, 172 (3d Cir. 2000). Although
it is not clear from its brief, UPMC seems to challenge only
the District Court's finding that Highmark has a reasonable
probability of succeeding on the merits. Accordingly, that is
the only finding we will address.
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 could 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:
(1) 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.
14
(2) 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
(3) 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.
(4) 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.
(5) 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
_________________________________________________________________
4. UPMC included rehabilitation and psychiatric facilities in determining
the number of hospitals it offers.
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appropriate, as the Ad was addressed to the public and not
the industry. The District Court, using this plain meaning,
determined that most of the Ad's claims relating to access
were false and misleading because CommunityBlue Direct
subscribers do indeed have access to the disputed facilities
and world-renowned doctors, but at a lower level of benefits
(that is, with additional out-of-pocket costs). UPMC argues
that the Court should not have defined "access" according
to its plain meaning, but rather should have looked to
objective industry standards to construe the term.
According to UPMC, the objective industry standard
definition of "access" is "access without additional cost to
the subscriber." Under this definition, UPMC claims, 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.
Supp. 1411, 1443 (E.D.N.C. 1986) ("In the view of the
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5. In arguing for its definition, UPMC points only to a previous
advertisement by Highmark that similarly used the term "access." More
evidence is needed to prove its definition is the objective industry
standard. For instance, in addition to competitors' advertisements, the
defendant in Illinois Bell Telephone Co. v. MCI Telecommunications Corp.
produced employee testimony and definitions used by expert sources in
the industry. 1996 WL 717466, *4 (N.D. Ill. 1996). In Castrol Inc. v.
Pennzoil Co., the District Court heard expert testimony to help it
determine the industry standard. 799 F. Supp. 424, 437 (D. N.J. 1992).
One advertisement is not sufficient proof of an industry standard.
However, we note that the burden of proving the objective industry
standard definition rests on the plaintiff and not on the defendant. Id.
at
436.
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court, [objective industry standards] must be used in order
to find a violation of the Lanham Act."). However, as there
are several other claims in the Ad that support the District
Court's granting the preliminary injunction, we need not
decide this issue today.
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 that 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
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material." Castrol, 987 F.2d at 954 (Roth, J., dissenting).
Patricia Ann Liebman, the Chief Executive Officer of UPMC,
testified that at informational meetings with the non-union
employees of Allegheny County, the employees specifically
asked questions about the Children's Hospital claim.
Liebman also testified that Children's Hospital is an
important institution for health plans offering services in
Western Pennsylvania; a lack of access to the Hospital will
influence the plan that employees with children will choose.
In light of such testimony, the District Court did not err in
finding the claim material or in finding that Highmark has
a reasonable probability of succeeding on the merits.
Accordingly, the District Court did not abuse its discretion
in issuing the preliminary injunction. Moreover, on an
application for preliminary injunction, the plaintiff need
only prove a prima facie case, not a certainty that he or she
will win. 11A Wright, Miller & Kane, Federal Practice and
Procedure: Civil 2d S 2948.3.
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 act
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
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6. Thus, if we wish to, we can apply the doctrine. Harris v. City of
Philadelphia, 47 F.3d 1333, 1342 (3d Cir. 1995); Gaudiosi v. Mellon, 269
F.2d 873, 881 (3d Cir. 1959).
some measure affect the equitable relations between the
parties in respect of something brought before the court for
adjudication." Keystone Driller, 290 U.S. at 245. The nexus
"between the misconduct and the claim must be close." In
re New Valley Corp., 181 F.3d 517, 525 (3d Cir. 1999).
Although we may sua sponte apply the doctrine,6 we
choose not to do it. Highmark's inappropriate use of 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
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