Diamond Auto Glass v. Safelite Court Documents Explained: An Analysis of What the Judge Actually Ruled in the Most Recent Installment of the Case

On Monday, Judge James M. Munley of the U.S. District Court for the Middle District of Pennsylvania issued his ruling in the Diamond Triumph Auto Glass v. Safelite case, a result of the June 1 hearing at which both sides presented their arguments for motions for summary judgment.

Both Diamond Glass Companies and Safelite have issued statements regarding the ruling (see Tuesday's glassBYTES.com story Diamond, Safelite Case Moves Forward in Part), but what, exactly, did the judge say? He signed a Memorandum stating six things: part of Safelite's Motion for Summary Judgment (a request made by a party in a civil case asserting that the opposing party hasn't made a reasonable argument for case and asks the judge to rule in their favor) on five claims was granted and part denied; part of Diamond's Motion for Summary Judgment was granted, and part denied; Diamond's Motion to Exclude the Opinion of a Safelite expert witness was denied; two Safelite Motions to Exclude theOpinion of expert witnesses for Diamond were denied as moot, as was one Motion by Diamond for the same thing.

DIAMOND'S CLAIMS AND SAFELITE'S MOTION FOR SUMMARY JUDGMENT

Diamond's suit went to bench trail on June 1 with five allegations against Safelite: Lanham act violations, breach of network participation agreement, disparagement, and tortious interference with business relations and loss of profits.

1. Claims of Lanham Act Violations

Safelite requested a Motion for Summary Judgment on each of Diamond's claims of Lanham Act violations, disparagement and tortuous interference claims. Judge Munley granted part of the summary judgment and denied parts of it as well, which means he agreed with some of Safelite's arguments that Diamond Glass Companies did not sufficiently prove its argument but in other aspects found that Diamond Glass were strong enough to hold up in court to go forward.

Specifically, Diamond Glass alleged violation of the Lanham act, claiming false advertising on Safelite's part-starting with the scripts used by Safleite Customer Service Representatives (CSRs). The argument was that Safelite CSR script led policyholders to believe they were talking with their insurance company rather than at third party administrator (TPA) and that the script also had CSRs warning policyholders that the insurance company could not guarantee Diamond's pricing or service (after the company terminated its business with the Safelite network). Judge Munley sided with Safelite, whose lawyers had argued that the script the Safelite CSRs were not literally false because the agreements that Safelite had with insurance companies allowed Safelite to act as a representative of the insurance companies and the insurance companies approved the scripts used by the Safelite CSRs, so there was not enough evidence of actual "consumer deception."

Additionally, Munley also ruled that once Diamond left the network, "it had no contractual arrangement with Safelite or the insurance companies and it was free to change its pricing, services or warranty at any time without notice" and thus the CSRs phrases about the company's pricing and services were not literally false, as the Safelite script did not state that Diamond would not be covered for the different reasons listed but rather the may be denied and "the insurance company could not guarantee the work."

Diamond had also used the Lanham act to argue that consumer deception had taken place with language in the scripts used by Safelite CSRs left consumers doubting Diamond's services and pricing; Diamond cited a report by expert witness Dr. Barbara Kahn who was quoted in the Judge's Memorandum as saying that she felt "the features and benefits scripting that the CSR uses is not used to educate the consumer, but rather is a tool to try to persuade the consumer to make a decision in favor of Safelite." Judge Munley pointed out that the Lanham Act "doesn't require advertisements to educate the consumer and … does not prohibit the use of advertisements as a means for persuasion."

Munley also stated that "the Lanham Act does not require that Diamond's competitors provide this information for it" and ruled that Diamond did not prove that Safelite business practices did not create actual consumer confusion.

2. Claims of Breach of Network Participation Agreement

Diamond alleged that Safelite "breached the implied duty of good faith and fair dealing in the Network Agreement."

On this claim, Judge Munley ruled against Diamond, stating that when the two companies entered into the business contract, Diamond could have considered the possibility that Safelite would direct business to its own shops and "could have negotiated for explicit terms requiring Safelite to honor customer preference." The result of Diamond not negotiating for specific conditions was that Safelite was not bound to refer a specific number or percentage of calls to Diamond and "Diamond would not acquire the right to any customer" and Munley ruled, "Diamond may not rely on implied duty of good faith and fair dealing."

3. Claims of Disparagement

Diamond also alleged that Safelite's business practices were disparaging toward Diamond. Had Diamond relied strictly on the argument that Safelite scripts were untrue, Munley would have ruled in Safelite's favor, as he had established that the scripts used were not literally false and were "subject to a qualified privilege"; however, Diamond had also claimed that Safelite's CSR scripts were also defamatory.

In his Memorandum, Munley states that "Defamatory statements are made with actual malice if the speaker is acting with 'knowledge that the statements are false or acting with reckless disregard to their truth or falsity,'" and notes that Safelite knew when Diamond was a network member and during the time that it was, statements to contrary were enough to prove "genuine issue of material fact." Munley denied Safelite's Motion for Summary Judgment on this claim and ruled in Diamond's favor.

4. Claims of Tortious Interference with Business Relations

In the lawsuit, which has been ongoing for four years now, Diamond claimed tortious interference by Safelite, citing the use of the scripts as well as "other activity [that] constituted wrongful means to interfere with Diamond's prospective relationships with policyholders" such as examples of Safelite completing a job scheduled with Diamond without permission from the consumer.

A consumer's preference to use Diamond's services did not hold up to the judge's scrutiny, as it was deemed part of the negotiation phase and the scripts, previously deemed literally true, no longer qualified for the tortious interference claim and on these elements, Safelite's Motion for Summary Judgment was granted. However Munley ruled in Diamond's favor on "other tactics" used to interfere with potential business, stating "Diamond did have a prospective relationship with customers who, like Mr. Martin, scheduled appointments with it."

5. Claims of Lost Profits

Judge Munley denied Safelite's Motion for Summary Judgment against Diamond's allegations for loss of profits due to Safelite business practices.

"We recognize that Diamond did not lose the sale of the vast majority of the incidents that it presents as evidence of the tortious interference or disparagement. Diamond, however, has presented evidence of some incidents, such as the one with Martin, where it lost a sale," Munley wrote.

SAFELITE'S COUNTERCLAIMS AND DIAMOND'S MOTION FOR SUMMARY JUDGMENT

Safelite filed seven Counterclaims against Diamond, alleging defamation, false advertising under the Lanham Act, commercial bribery, interference with business relationships, common law unfair competition, deceptive trade practices and breach of the Network Agreement. Diamond filed its own Motions for Summary Judgment.

1. Claims of Defamation

In April and June 2002, Diamond sent letters to different insurance agencies, letters that Safelite claims were defamatory. Diamond argued that they couldn't be defamatory because Safelite is a public figure and could not establish that Diamond acted with actual malice.

Munley stated in the Judge's Memorandum that "Diamond and Safelite are competing companies and the allegedly defamatory statements addressed the competitor's business," and that Safelite did not advertise itself to the public but "simply received calls from policyholders across the nation." On these grounds, Munley denied Diamond's Motion for Summary Judgment.

2. Claims of False Advertising Under the Lanham Act

Safelite followed up on the letters with a claim of false advertising under the Lanham Act. Diamond argued that Safelite couldn't prove that the letters met the third element of the Lanham Act's definition of advertising, that the means are used "for the purpose of influencing customers to buy defendants' goods or services," since the letters "do not reference any effort to sell claims administration services and that Kevin Gill, the company's former vice president, "denied that the letters were sent for the purpose of influencing insurers in this manner."

Munley didn't agree with that assessment, finding that Safelite had a genuine argument "of material fact as to whether Diamond sent the letters for the purpose of influencing the insurance companies to purchase its claims management service" and that "Diamond criticized its competitor during its campaign to increase business," ruling in Safelite's favor.

3. Claims of Commercial Bribery

According to the background information cited in the Judge's Memorandum, Diamond provided insurance agents with financial rewards, such as gift certificates or free gasoline cards, for referring customers from 2002 to 2005. Safelite claims the gifts amount to commercial bribery, citing the insurance companies as the buyers in the transaction and arguing that the transaction would be a seller-to-buyer bribe. Munley found "Safelite's argument unpersuasive," stating, "That these consumers are policyholders who have insurance coverage does not convert the insurance companies into the buyer" and granting Diamond's Motion for Summary Judgment.

4. Interference with Business Relationships

The letters and financial rewards also spurred Safelite's counterclaim of interference with business relationships. Though he had granted Diamond's Motion for Summary Judgment with regard to the bribery allegations, Munley found that Safelite had "produced sufficient evidence" that it had suffered financial loss as a result of the letters and gifts issued by Diamond and denied the Motion for Summary Judgment.

5. Common Law Unfair Competition

Munley did not delve specifically or separately into Safelite's Counterclaims of common law unfair competition, deceptive trade practices and breach of the Network Agreement; rather, ruling on them within Safelite's claim of Injury. The scope of the unfair competition claims were addressed as a footnote on the "unfair competition claims based on the gift card program" notes that "these claims include Counts III-VII," which he ruled Safelite to have shown "genuine issue of material fact that it suffered an injury because of the program" and found that Safelite did "[suffer] actual pecuniary loss flowing from Diamond's gift card program."

6. Deceptive Trade Practices

Safelite's claims of Diamond's deceptive practices were also examined within the realm of Injuries. Safelite alleged the gift cards violated commercial bribery and unfair trade practice statutes in North Carolina, South Carolina, West Virginia and Illinois common law, submitting "evidence that at least four policyholders in North Carolina and five in West Virginia, who had no preference for an auto glass company and thus under the service agreements would have used Safelite, used Diamond based on the direction of their insurance agents who received payments from Diamond." The evidence compelled the Judge to rule against Diamond and deny the Motion for Summary Judgment.

CLICK HERE to read the original Memorandum as issued by Judge James Munley.