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SWARTZ v. SCHAUB

July 12, 1993

DAN SWARTZ, Plaintiff,
v.
JERRY SCHAUB, et al., Defendants.



The opinion of the court was delivered by: MILTON I. SHADUR

 From the very beginning this Court has been troubled as to whether federal jurisdiction exists over this action. Plaintiff Dan Swartz ("Swartz") alleges several claims stemming from asserted misrepresentations by defendants in their sale to Swartz of a 1965 Porsche Cabriolet for $ 50,000--and of course the jurisdictional amount for any diversity-based claims is more than $ 50,000. By definition any straight breach of contract claim by Swartz (that is, a claim that the car was worth less than Swartz paid for it) could not meet that level of dispute. And absent any federal-question claim, each of Swartz' state-law claims would have to confront that same problem of the jurisdictional amount in controversy. *fn1"

  *fn1" On March 10, 1992, within a week after the Complaint was filed, this Court issued a short unpublished memorandum opinion and order ("Opinion I") identifying a whole series of concerns as to jurisdiction. It concluded by stating (Opinion I at 4-5):

 
In summary, any potential for retention of this action as a federal-court lawsuit is dependent on a congeries of issues that appear to require early resolution. One problem with such a prospect is that more money can be chewed up in lawyers' fees in resolving those questions than would appear to make sense in light of the amount that is at issue between the parties. It might seem the better part of valor to consider litigating this dispute in a state court of general jurisdiction, where most of the problems that have been identified in this opinion would vanish.

 In addition to his several state law claims, Swartz has also included as his Count IV a purported federal-question claim--one under Lanham Act § 43(a), 15 U.S.C. § 1125(a) ("Section 43(a)")--for which no minimum jurisdictional amount need be in controversy. If that claim were to stand up, the several state law claims could survive irrespective of whether they topped the $ 50,000 figure--that has been established by the enactment of the supplemental jurisdiction statute, 28 U.S.C. § 1367 ("Section 1367"). But Opinion I at 4 also briefly characterized the Section 43(a) claim as problematic, and it too will be addressed a bit later.

 Two of Swartz' original six counts have gone the way of all flesh via their dismissal in this Court's April 23, 1993 memorandum opinion and order ("Opinion II," 818 F. Supp. 1214): Count III (advanced under the Illinois Consumer Fraud and Deceptive Business Practices Act) and Count V (purporting to sound in negligent misrepresentation). Because the final pretrial order ("FPTO") then tendered by the parties and entered by this Court on June 4, 1993 disclosed facts that caused this Court to have a continuing concern in subject matter jurisdictional terms, it put the parties to briefing the issues on that score. At this point the briefing on the Lanham Act claim has been completed, and the entire matter is now ready for disposition.

 First as to the Count IV Lanham Act claim, Opinion I's original intuitive characterization of that as "quite a strange reading" has been borne out in spades by the parties' memoranda and this Court's own research. Some of the case law (led by decisions in the Second Circuit, which originally marked out its position in Colligan v. Activities Club of New York, 442 F.2d 686 (2d Cir. 1971)) would limit the availability of Section 43(a) to members of a "purely commercial class" and would expressly render the statute unavailable to consumer plaintiffs. But quite apart from those restrictive readings, even the numerous courts that give the statute a much broader scope do not support what Swartz attempts here.

 Section 43(a) has often been referred to in shorthand terms as having enacted a federal common law of unfair competition. Our own Court of Appeals has engaged in a thoughtful survey of Colligan and of the case law trending in a different direction in Dovenmuehle v. Gilldorn Mortgage Midw. Corp., 871 F.2d 697, 699-700 (7th Cir. 1989) (citations omitted)):

 
Typically, plaintiffs suing under § 43(a) are business competitors claiming to be injured as a result of false advertising. The question of how broadly the Lanham Act extends beyond business competitors, however, is somewhat uncertain.
 
In Colligan v. Activities Club of New York, Ltd., 442 F.2d 686, 692 (2d Cir.), cert. denied, 404 U.S. 1004, 92 S. Ct. 559, 30 L. Ed. 2d 557 (1971), the Second Circuit held that standing under § 43(a) is limited to commercial parties, thereby rejecting claims by consumers under the Act. Nonetheless, within the class of commercial parties, the Second Circuit has made clear that the class of parties with standing in § 43(a) is quite broad. A party need not be in direct competition with a defendant to challenge a defendant's practices under the Act. All a commercial party needs to bring suit under the Act is a "reasonable interest to be protected" against activities that violate the Act.
 
Other circuits have also agreed that the question of standing under § 43(a) "turns on whether the party 'has a reasonable interest to be protected against'" conduct violating the Act. There has been some criticism of language in the Second Circuit's Colligan decision limiting standing to members of a "purely commercial class." Cases criticizing Colligan have reasoned that limiting standing under § 43(a) to members of a "purely commercial class" is too narrow a reading of the Act's broad language that allows a person "who believes that he is or is likely to be damaged" by the defendant's activities to sue. Whether the plaintiff's claims are viewed under the Second Circuit's authority limiting standing to commercial parties or under a more expansive approach, however, plaintiffs in the present case have failed to establish "a reasonable interest to be protected. . . ."

 That extended statement in Dovenmuehle was followed by an analysis of the facts before the court that made it plain that a plaintiff's "reasonable interest" had to be commercial in nature--whether competitive (directly or indirectly) with defendants, or in the operation of some commercial activity, or to protect some other actual or anticipated commercial interest. Even though that set of alternatives may not exhaust the universe, it is crystal-clear that Lanham Act coverage requires a potential injury in commerce in a very different sense from that advanced by Swartz here. Essentially Swartz would seek to federalize every contract for the sale of goods in which a buyer charges the seller with misrepresentation, and the law simply does not support that in a one-to-one transaction such as that involved here. There is no genuine issue of material fact on that score (that is, Swartz cannot win even on his own version of the facts), and defendants are therefore entitled to a judgment as a matter of law on Count IV.

 Thus lacking a federal-question anchor, Swartz' entitlement to remain in this District Court must depend on the existence of the requisite amount in controversy to support diversity jurisdiction. Supplemental jurisdiction under Section 1367 is not enough, for by its very nature it must be supplemental to some claim over which jurisdiction exists (and for that reason the Count VI breach of contract claim, which clearly involves less than $ 50,000, may be ignored).

 Count I sounds in rescission, as to which the repayment of the $ 50,000 purchase price plus reimbursement of other expenses incurred by Swartz would get the amount over the jurisdictional watershed if the claim were viable. But as the ensuing discussion ...


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