SOUTHSTATE BANK v. QOINS TECHNOLOGIES INC (2024)

ORDER

This case comes before the Court on Defendant Qoins Technologies, Inc. (“Qoins”)’s Motion to Dismiss [Doc. 22].

I. BACKGROUND 1

A. The Parties and the Business Model

Qoins is a financial technology company that collects funds from its customers and disburses payments to designated creditors in order to help its customers pay off their debts. Compl. ¶¶ 2, 10, 14. Qoins maintains a “personal finance platform,” where its customers inform Qoins of their outstanding debts that they wish to pay and transfer money to Qoins “on a regular basis to satisfy such debts over time.” Id. ¶ 10. On January 15, 2019, Qoins entered into a Master Disbursement Services Agreement with Atlantic Capital Bank, N.A. (“ACB”) to establish a banking relationship, which included creating bank accounts that contained customer funds; this relationship then initially continued with SouthState Bank, N.A. (“SouthState”), ACB's successor-in-interest.² Id. ¶¶3, 11-12, 40; Master Disbursement Servs. Agreement (the “Agreement”) [Doc. 1-1]:³ The Agreement defines the services provided by Qoins to its customers as the “Program,” which is further described in Section 2(a) of the Agreement. Compl. ¶ 13; Agreement § 2(a).

B. Qoins's Relevant Obligations Under the Terms of the Agreement

The Agreement provides that the only customer of the Bank for the purposes of the Program was Qoins, and that Qoins's customers were not the Bank's customers. Compl. ¶¶ 12, 26; Agreement § 3(e). Pursuant to the Agreement, Qoins set up three different types of accounts with the Bank: the Custodial Accounts (for holding customer's funds), the Operating Account, and a Reserve Account. Compl. ¶ 17; Agreement § 4. Per the terms of the Agreement, the Custodial Accounts would not be used for Qoins's operations. Compl. ¶ 17.

In connection with the Program, Bank will provide [Qoins] with one or more custodial accounts (each, a “Custodial Account”) for the benefit of Customers, and will also provide certain funds receipt and disbursement services, account services, and related banking services to [Qoins] as described in greater detail in this Agreement.

Agreement Recitals at 1, § 1.

The Custodial Accounts were designated “for the benefit” of Qoins's customers, and Qoins agreed that it did not own nor had any legal interest or control to the funds within the Custodial Accounts. Agreement § 3(b). Qoins also agreed to provide “appropriate disclosures regarding the Program” to its customers regarding the Custodial Accounts. Id.

The Agreement defines the Operating and Reserve Accounts, in pertinent part, as follows:

(a) Operating Account. [Qoins] will establish and maintain at all times during the Term, one or more Operating Accounts with Bank, which [Qoins] shall fund with no less than $5,000 as of the Effective Date ․ Bank may debit the Operating Account for Bank's Fees and any other costs and expenses owed to Bank by [Qoins] from time to time upon seven (7) days’ prior notice provided via Bank's online banking platform or such other method as determined by the Bank), in addition to any other debits or deductions from the Operating Account as may be authorized under this Agreement.

(b) Reserve Account. At any time during the Term, within three (3) business days after Bank's written request, [Qoins] shall also establish and fund a separate reserve account (the “Reserve Account”) at Bank, for the purpose of securing Bank against the risk that [Qoins] will fail to perform any of its obligations (including indemnity obligations) under this Agreement ․ Bank shall have sole control of the Reserve Account and may use it to cover any shortfalls in the Custodial Account for any reason, as well as to pay or reimburse Bank for any other unpaid obligations (including expense reimbursement and indemnity obligations) owed by [Qoins] to Bank ․ If at any time the Reserve Account has an excess balance, Bank shall refund such excess balance upon written request by [Qoins].

Agreement §§ 4(a)-(b).

Pursuant to the terms of the Program, Qoins's customers would apply for and establish individual accounts through Qoins's mobile application. Compl. ¶ 15; Agreement, Schedule 2(a). Those payments would then be deposited into the Custodial Accounts. Compl. ¶¶ 15, 18. To move any funds out of the Custodial Accounts (i.e., for payments to the customer's creditors), Qoins would send payment instructions to the Bank through an intermediary (Smart Payables). Compl. ¶ 16; see also Agreement, Schedule 2(a) (“Smart Payables ․ submits [payment instructions] to [the Bank] on behalf of Qoins to send these funds to the billers as the payment to student loans, credit cards, etc.”). Once payment is sent to the specified creditor, Qoins would reconcile these deposits and payments to accurately determine the Custodial Account balance. Compl. ¶ 19. Prior to sending any payment instructions, Qoins agreed to ensure that the Custodial Accounts had sufficient funds to carry out the payments and to cover any fees related to the transactions. Id. ¶¶ 18-20.

[Qoins] shall use a Custodial Account solely for purposes of operating the Program and implementing Payment Instructions. Prior to relaying any Payment Instructions to Bank, [Qoins] shall ensure that all required Custodial Account(s), Operating Account(s), and Reserve Account(s) have been established at Bank, that the applicable Custodial Account(s) contain sufficient funds to carry out such Payment Instructions, and that there are sufficient funds in the Operating Accounts to cover any Fees relating to the Payment Instructions or the Program.

Agreement § 3(a).

Qoins agreed to keep records of its customer transactions and provide accurate information to facilitate the banking services. Compl. ¶¶ 22-23; Agreement § 5(n) (“[Qoins] shall retain records of transactions on [Qoins]’s platform and records regarding other matters related to [Qoins]’s performance of its obligations under this Agreement ․ [Qoins] shall make such records available to Bank promptly upon request.”).

To facilitate Bank's provision of Disbursement Services, [Qoins] shall submit timely, complete and accurate Disbursement Information on behalf of Customers at all times during the Term. As between the Parties, [Qoins] is responsible for any errors and any losses, liabilities, damages, costs and expenses, including reasonable attorneys’ fees and expenses resulting from incomplete or inaccurate Disbursement Information or an unauthorized or otherwise flawed, incorrect, or erroneous request to disburse funds from the Custodial Account (including the disposition, failure to disburse, or misdirection of funds resulting from [Qoins] providing inaccurate or incomplete Disbursement Information), provided that such incomplete or inaccurate Disbursement Information or flawed, incorrect, or erroneous request to disburse funds from the Custodial Account is not attributable to Bank's gross negligence, reckless, or intentional acts or omissions in processing Disbursement Information.

Agreement § 3(d).

Pursuant to the Agreement, Qoins would “bear[ ] full responsibility” to its customers and “[c]ustomers will have no recourse against Bank arising out of or relating to the Disbursement Services or this Agreement.” Compl. ¶ 27; Agreement § 3(e) (noting that any of Qoins's marketing materials or customer agreements should be consistent with this obligation). Qoins further agreed that it would not represent that the Bank possessed customer funds that were insured by the FDIC. Compl. ¶¶ 66, 71(d); Agreement § 5(e) (“[Qoins] shall not represent that funds in a Custodial Account are subject to FDIC pass-through deposit insurance.”).

C. The Termination of the Agreement by SouthState and its Denial of the Transfer of Funds to Evolve Bank & Trust

SouthState succeeded to ACB's rights and obligations under the Agreement on March 1, 2022, the date of the merger between ACB and SouthState. Compl. ¶ 40. By letter dated June 10, 2022, “SouthState documented the mutual agreement” reached by Qoins and SouthState that the banking relationship between them would terminate, effective July 20, 2022.⁴ Compl. ¶ 41. Qoins communicated to SouthState its intention to transition to a new banking partner, Evolve Bank & Trust (“Evolve”). Id. ¶ 43. However, SouthState was unable to complete the transition process because “ACH requests to SouthState for Qoins's Customers’ funds [ ] exceeded the amounts in Qoins's accounts with SouthState.” Id. ¶¶ 44, 51. In fact, during the relevant time period from approximately July 18, 2022, to July 22, 2022, “nearly all” Qoins's accounts with SouthState allegedly were overdrawn. Id. ¶¶ 44-47, 51.

As part of the transition process from SouthState to Evolve, Qoins initiated an ACH request in the amount of $150,000 from the Custodial Accounts to Evolve; however, because the Custodial Accounts were overdrawn, SouthState denied the request. Id. ¶¶ 44-46; see also Agreement § 6(c) (“Bank shall not be obligated to provide the Disbursement Services or honor, in whole or in part, any Payment Instructions or other instruction or request for Disbursement Services that: (i) exceeds the available balance in a Custodial Account[.]”). Because “Qoins never brought the balance of their overdrawn accounts, including the Custodial Accounts, positive—SouthState eventually had to charge off the negative balances of Qoins's accounts in an amount in excess of $33,000.” Compl. ¶ 51.

SouthState later initiated a forensic analysis of Qoins's transaction history and concluded that the Custodial Accounts were improperly “used in multiple instances by Qoins to fund Qoins's other accounts at SouthState.” Id. ¶¶ 48, 50(a). The analysis also showed that the Custodial Accounts frequently were funded by the Operating Account to meet transfer requests. Id. ¶ 50(b). SouthState also alleges that Qoins's earnings were not sufficient to maintain operating capital, and that funds from the different accounts were commingled at various periods of the banking relationship. Id. ¶¶ 50(a)-(f).

SouthState determined that the discrepancies between Qoins's internal records and the actual funds in Qoins's accounts at SouthState were due to (i) Qoins's lack of regular reconciliations between Qoins's raw data and SouthState statements or the [payment instructions] prepared by Smart Payables; (ii) Qoins's use of the Custodial Accounts for its operations, as evidenced by the transfers between the Custodial Accounts and Operating Account, which are beyond the purposes permitted by the Agreement; and (iii) the inconsistencies between Qoins's raw data and [payment instructions] from Smart Payables.

Id. ¶ 52.

In September and October 2022, SouthState, through its counsel, allegedly informed Qoins of the findings of the analysis and SouthState's conclusion that the denial of the transfer request was justified; moreover, “[t]o date, SouthState has not received any evidence, from Qoins or otherwise, indicating that any of the findings of the Analysis were not accurate.” Id. ¶¶ 54-55.

D. Qoins's Public Statements About SouthState

In early December 2022, Qoins published an announcement on its website informing customers that it “recently switched to a new bank partner” in order to “provide additional services,” but “[u]nfortunately, however, some of our customers have not been able to migrate their accounts due to ongoing issues with SouthState Bank.” Id. ¶¶ 56-59; Qoins's Announcement [Doc. 1-2] at 2. The Announcement also contained the question, “Why can't I access my money?” and provided the following answer:

If you never attempted to migrate, or if you received an error message during the migration process (including a message that says your account is “on hold”), your funds are still at SouthState Bank. SouthState Bank is unable to release your funds, so we have been unable to migrate your account or refund your money. We continue to work with SouthState Bank to resolve this matter expeditiously. While we have seen some customers reach out to SouthState Bank directly, customers have had no luck. Some customers have also reached out to our new bank partner, but they are not in a position to help.

Qoins's Announcement at 3. Additionally, Qoins's homepage contained an FDIC disclosure that indicated that the financial institutions holding Qoins's customers’ funds (specifically including SouthState) have insured the funds up to $250,000 with the FDIC. Compl. ¶65. Qoins's Announcement also provided a link to the FDIC's Customer Assistance Form and informed any aggrieved customers that a Qoins representative would assist in helping the customer file a complaint against SouthState with the FDIC. Qoins's Announcement at 3-4 (“If you feel the need to file a complaint against South State Bank, you may do so here. If you'd like assistance in filing this complaint, please reach out via support@qoins.io and one of our reps will be more than happy to assist you.”); Compl. ¶ 62.

In November 2022, Qoins also referenced SouthState in its responses to customer reviews that Qoins's customers left on various online application stores that complained about issues with the bank migration. Customer Review Responses [Doc. 1-3]; Compl. ¶¶ 67-71. In response to one review, Qoins represented that “[o]ur previous bank is still holding on to customer funds and preventing [Qoins] from migrating [customer] funds to our new bank.” Customer Review Responses at 2. The other responses attribute any issues with releasing customer funds to the migration and failure to receive funds held at SouthState. Id. at 3-4.

SouthState alleges that Qoins's representations attributing the inability to access any funds to SouthState were false because the issues stemmed from Qoins's negative account balances and subsequent charge-off, and because SouthState “did not possess any of Qoins's Customers’ funds.” Compl. ¶ 59. According to SouthState, “Qoins knowingly disseminated false information to its Customers by representing that SouthState possessed Customer funds and somehow was ‘unable to release’ such funds.” Id. ¶ 61. Additionally, notwithstanding the prohibition in the Agreement, Qoins allegedly represented that customers’ funds deposited in SouthState were subject to FDIC insurance. Id. ¶¶ 65-66; Agreement § 5(d). SouthState also alleges that “numerous” Qoins customers filed complaints against SouthState “with relevant federal agencies,” even though SouthState was not responsible to Qoins's customers and SouthState did not possess any records of the customers’ interactions with Qoins. Compl. ¶ 72.

E. The Complaint

Based on the foregoing, SouthState filed the above-styled Complaint, alleging the following causes of action: (1) Breach of Contract (Count I); (2) Libel/Libel Per Se (Count II); and (3) False Designation of Origin and Unfair Competition and Trade Libel Pursuant to Section 43 of the Lanham Act, 15 U.S.C. § 1125(a) (Count III). Id. ¶¶ 73-93. SouthState also seeks injunctive relief to enjoin Qoins from continuing to make false representations (Count IV). Id. ¶¶ 94-98.

II. LEGAL STANDARD

Federal Rule of Civil Procedure 8(a)(2) requires that a pleading contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). While this pleading standard does not require “detailed factual allegations,” the Supreme Court has held that “labels and conclusions” or “a formulaic recitation of the elements of a cause of action will not do.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Under Federal Rule of Civil Procedure 12(b)(6), a claim will be dismissed for failure to state a claim upon which relief can be granted if it does not plead “enough facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570, 127 S.Ct. 1955. The Supreme Court has explained this standard as follows:

A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a “probability requirement,” but it asks for more than a sheer possibility that a defendant has acted unlawfully.

Ashcroft, 556 U.S. at 678, 129 S.Ct. 1937 (internal citation omitted). Thus, a claim will survive a motion to dismiss only if the factual allegations in the pleading are “enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555, 127 S.Ct. 1955.

At the motion to dismiss stage, the court accepts all well-pleaded facts in the plaintiff's complaint as true, as well as all reasonable inferences drawn from those facts. McGinley v. Houston, 361 F.3d 1328, 1330 (11th Cir. 2004); Lotierzo v. Woman's World Med. Ctr., Inc., 278 F.3d 1180, 1182 (11th Cir. 2002). Not only must the court accept the well-pleaded allegations as true, but these allegations must also be construed in the light most favorable to the pleader. Powell v. Thomas, 643 F.3d 1300, 1302 (11th Cir. 2011). However, the court need not accept legal conclusions, nor must it accept as true legal conclusions couched as factual allegations. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. Thus, evaluation of a motion to dismiss requires the court to assume the veracity of well-pleaded factual allegations and “determine whether they plausibly give rise to an entitlement to relief.” Id. at 679, 129 S.Ct. 1937.

III. DISCUSSION

A. Breach of Contract (Count I)

Qoins argues that SouthState's breach of contract claim fails to properly plead that any of the purported breaches caused damages, and that the only purported loss references a “charge off [of] the negative balances of Qoins's accounts in an amount in excess of $33,000” which itself would not be a breach of the Agreement. Def.’s Br. in Supp. of Mot. to Dismiss Compl. (“Def.’s Br.”) [Doc. 22-1] at 9-10 (citing Kellogg v. Fannie's Inc., No. 1:18-CV-1929-MHC, 2019 WL 13245096, at *3 (N.D. Ga. Jan. 11, 2019)). In response, SouthState argues that it adequately pleads a breach of contract, including the damages requirement, and points to the $33,000 it allegedly charged off as sufficient allegations of damages. SouthState's Opp'n to Qoins's Mot. to Dismiss (“Pl.’s Resp.”) [Doc. 31] at 3-6; see also Compl. ¶ 51 (“Qoins never brought the balance of their overdrawn accounts, including the Custodial Accounts, positive—SouthState eventually had to charge off the negative balances of Qoins's accounts in an amount in excess of $33,000.”).

“The elements for a breach of contract claim in Georgia are the (1) breach and the (2) resultant damages (3) to the party who has the right to complain about the contract being broken.” Bates v. JPMorgan Chase Bank, NA, 768 F.3d 1126, 1130 (11th Cir. 2014) (citation and quotation omitted). SouthState has alleged that the Agreement between Qoins and SouthState required Qoins to maintain a minimum balance in its Operating Account and that Qoins did not maintain sufficient such balances (in violation of the Agreement), which resulted in SouthState charging off $33,000. Compl. ¶ 51; Agreement § 4(a) (“Client will ensure that at all times the Operating Account(s) have a minimum balance.”). By pleading that it “charged off” $33,000 due to Qoins's violation of the Agreement, the Court infers that SouthState alleges that it lost $33,000 due to Qoins's failure to maintain the appropriate balances in the Custodial Accounts. As such, SouthState sufficiently alleges the specific provision of the Agreement that Qoins breached and the resulting damages.

The only case cited by Qoins in support of its argument is inapposite. Kellogg v. Fannie's Inc., No. 1:18-CV-1929-MHC, 2019 WL 13245096, at *1 (N.D. Ga. Jan. 11, 2019), is a case brought by a female dancer who contended that she was paid to perform nude dancing at a nightclub and sought minimum wages under the Fair Labor Standards Act, 29 U.S.C. § 201, et seq. The nightclub counterclaimed for breach of contract, alleging that it was damaged by the dancer's failure to report amounts she earned from tips and service charges. Id. at *3. This Court dismissed the counterclaim based upon a failure to plead the existence of a contract, concluding that “Fannie's does not plead facts establishing that a contract was formed, how it was breached, or how Fannie's has been damaged by the breach. Fannie's alleges only that Kellogg received policies, not that she agreed to be bound by their contents or assented to a contract. These allegations are insufficient.” Id.

In this case, it is undisputed that there was an agreement between the parties and SouthState has pleaded with specificity an amount of financial loss it suffered due to the alleged breach. “If the language is unambiguous, the court simply enforces the contract according to its terms, and looks to the contract alone for the meaning.” Am. Empire Surplus Lines Ins. Co. v. Hathaway Dev. Co., 288 Ga. 749, 750, 707 S.E.2d 369 (2011). Because this Court must accept the allegations in the Complaint as true, the Court concludes that SouthState has, at this stage of the proceedings, plausibly pleaded a claim for breach of contract. Accordingly, Qoins's Motion to Dismiss SouthState's breach of contract claim is DENIED.

B. Libel/Libel Per Se (Count II)

Qoins argues that SouthState has failed to adequately plead a claim for libel or libel per se under Georgia law because (1) none of the alleged misstatements by Qoins “could have been false or misleading,” (2) SouthState fails to allege that the statements were made with actual malice, (3) SouthState fails to plead that the statements by Qoins were the type of statements that could tend to injure or expose SouthState to public hatred, and (4) SouthState failed to allege that it suffered any special damages. Def.’s Br. at 22-25. SouthState contends that it has sufficiently pleaded a claim for libel per se because it has alleged false statements that “relate directly to SouthState's ability to perform the most basic banking function of accounting for customers’ funds[.]” Pl.’s Resp. at 17. Additionally, SouthState argues that it has sufficiently pleaded a claim for libel because its Complaint alleges that Qoins made statements that are capable of being proven false, that the false statements were published to third parties, that Qoins acted with reckless disregard or malice, and SouthState pleaded special damages by alleging that it will be harmed in “the flow of its business as a whole.” Id. at 17-24.

Under Georgia law,

(a) A libel is a false and malicious defamation of another, expressed in print, writing, pictures, or signs, tending to injure the reputation of the person and exposing him to public hatred, contempt, or ridicule.

(b) The publication of the libelous matter is essential to recovery.

O.C.G.A. § 51-5-1. “To state a claim for libel under Georgia law, the [plaintiffs] must plead a false statement that either: (1) is libel per se; or (2) caused them to suffer special damages.” McGowan v. Homeward Residential, Inc., 500 F. App'x 882, 885 (11th Cir. 2012); see also Echols v. Lawton, 913 F.3d 1313, 1321 (11th Cir. 2019) (“Libel consists of the publication of defamatory statements in writing, O.C.G.A. § 51-5-1, and some written statements are libel per se.”).

“[L]ibel per se involves, in relevant part, the following: ․ ‘Making charges against another in reference to his trade, office, or profession, calculated to injure him therein.’ ” Morgan v. Mainstreet Newspapers, Inc., 368 Ga. App. 111, 118, 889 S.E.2d 217 (2023) (citing O.C.G.A § 51-5-4(a)); see also Cottrell v. Smith, 299 Ga. 517, 524, 788 S.E.2d 772 (2016) (noting that O.C.G.A. § 51-5-4, which refers to slander per se, also applies to libel per se because “the definition of slander in Georgia has been incorporated into the definition of libel.”). “Libel per se must involve words ‘that are recognized as injurious on their face—without the aid of extrinsic proof. Should extrinsic faces be necessary to establish the defamatory nature of the words, the words may constitute libel, but they do not constitute libel per se.’ ” Morgan, 368 Ga. App. at 118, 889 S.E.2d 217 (quoting Bellemead, LLC v. Stoker, 280 Ga. 635, 637, 631 S.E.2d 693 (2006)) (alterations accepted).

Unlike libel, libel per se does not require proof of special damages; rather, damages are inferred. See O.C.G.A. § 51-5-4(b); Cottrell, 299 Ga. at 522-23, 788 S.E.2d 772. “As to proof of malice, proof that the writing is false, and that it maligns the private character or mercantile standing of another, is itself evidence of legal malice.” Lucas v. Cranshaw, 289 Ga. App. 510, 512, 659 S.E.2d 612 (2008) (quoting John D. Robinson Corp. v. S. Marine & Indus. Supply Co., 196 Ga. App. 402, 404, 395 S.E.2d 837 (1990)).

SouthState alleges that Qoins, in both the Announcement posted on its website and in responses to customer reviews, made false representations that SouthState still possessed customer funds and that the funds were FDIC-insured. Compl. ¶¶ 56-72. Accepting SouthState's allegations as true and making all reasonable inferences in its favor, the Court finds that SouthState has alleged with specificity that the false statements by Qoins concerning SouthState's primary function as a bank and its mishandling of funds were published, and were calculated to cause injury to SouthState's professional reputation because they relate to SouthState's reputation within the banking industry. Compl. ¶¶ 71-72, 84-86. See also Cottrell, 299 Ga. at 524, 788 S.E.2d 772 (holding that defamation in regard to a trade, profession, or office “must either be spoken of the plaintiff in connection with his calling or they may be of such a nature such as to charge him with some defect of character or lack of knowledge, skill, or capacity as necessarily to affect his competency successfully to carry on his business trade or profession.”) (citation omitted); Zarach v. Atlanta Claims Ass'n, 231 Ga. App. 685, 688, 500 S.E.2d 1 (1998) (“Statements that tend to injury one in his trade or business also are libelous per se.”). Because Qoins's alleged statements concern SouthState's mercantile standing as a bank that is entrusted with properly keeping its customers’ funds, this is sufficient to infer malice. Lucas, 289 Ga. App. at 512, 659 S.E.2d 612. Therefore, SouthState has sufficiently alleged a libel per se claim, and Qoins's motion to dismiss Count II is DENIED.⁵

C. Lanham Act (Count III)

Count III of the Complaint is headed as “False Designation of Origin and Unfair Competition and Trade Libel Pursuant to Section 43 of the Lanham Act (15 U.S.C. § 1125).” Compl. at 28. SouthState alleges that Qoins used SouthState's name with false and misleading descriptions and representations of fact which has caused confusion and deception and harmed SouthState. Id. ¶¶ 89-93. Qoins argues that SouthState lacks standing to assert a Lanham Act violation, and SouthState fails to plausibly plead a claim under either 15 U.S.C. §§ 1125(a)(1)(A) or 1125(a)(1)(B). Def.’s Br. at 11-22. In response, SouthState asserts that Qoins ignores binding Supreme Court precedent as to SouthState's standing to bring Lanham Act claims and that Qoins ignores the Complaint's allegations which specify Qoins's false and misleading statements that purportedly misled customers and are actionable under the Lanham Act. Pl.’s Resp. at 9-16.

The statutory provision at issue provides:

(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which—

(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or

(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities,

shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

15 U.S.C. § 1125(a). “Section 1125(a) thus creates two distinct bases of liability: false association, § 1125(a)(1)(A), and false advertising, § 1125(a)(1)(B).”⁶ Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 122, 134 S.Ct. 1377, 188 L.Ed.2d 392 (2014).

1. Whether SouthState Lacks Standing to Sue Under 15 U.S.C. §§ 1125(a)(1)(A) & (B)

Qoins argues that SouthState lacks standing to assert its Lanham Act claims under either the false association or false advertising prongs in 15 U.S.C. § 1125(a) because there are no allegations that Qoins's statements were made to “divert sales” or strip SouthState of customers. Def.’s Br. at 12 (citing Lexmark). In response, SouthState asserts that, consistent with Lexmark, it has sufficiently alleged damage to its business reputation, and there is no requirement that SouthState be in direct competition with Qoins. Pl.’s Resp. at 10-12. In reply, Qoins contends that the because the complaint fails to allege any kind of competitive injury, there is no standing to pursue a claim under either prong of the Lanham Act. Def.’s Reply to SouthState's Mot. to Dismiss [Doc. 36] at 4-5.

Federal courts are limited under Article III of the United States Constitution to adjudicating actual “cases” or “controversies.” U.S. Const. art. III, § 2, cl. 1. “Perhaps the most important of the Article III doctrines grounded in the case-or-controversy requirement is that of standing.” Georgia State Conf. of NAACP Branches v. Cox, 183 F.3d 1259, 1262 (11th Cir. 1999).

In Lexmark, the Supreme Court considered “the appropriate analytical framework for determining a party's standing to maintain an action for false advertising under the Lanham Act.” Lexmark, 572 U.S. at 125, 134 S.Ct. 1377. In order to fall within the “zone of interests” protected by the Lanham Act in a § 1125(a) false advertising suit, the Court held that a plaintiff must allege “an injury to a commercial interest in reputation or sales.” Id. at 132, 134 S.Ct. 1377. Moreover, “a plaintiff suing under § 1125(a) ordinarily must show economic or reputational injury flowing directly from the deception wrought by the defendant's advertising; and that that occurs when deception of consumers causes them to withhold trade from the plaintiff.” Id. at 133, 134 S.Ct. 1377. Because the plaintiff's purported lost sales and damage to its business reputation fell within the zone of interests protected by the false advertising proscription in the Lanham Act, the Court held that the plaintiff in Lexmark had standing to maintain a false advertising claim even though the claim did not involve a direct competitor. Id. at 138-40, 134 S.Ct. 1377.

As an initial matter, this Court finds that the test for standing in Lexmark is not controlling as to false association claims under § 1125(a)(1)(A). See Epic Tech, LLC v. SpinX Games Ltd., No. 1:22-CV-02043-SCJ, 2023 WL 6371025, at *4 (N.D. Ga. Apr. 13, 2023) (“The Court finds that Lexmark’s prudential standing test applies to a false advertising claim, not a false association claim.”). A false designation of origin, or false association, claim under Section 1125(a)(1) prescribes the behavior of “passing off” or “palming off,” which “occurs when a producer misrepresents his own goods or services as someone else's.” Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 28 n. 1, 123 S.Ct. 2041, 156 L.Ed.2d 18 (2003). Although a plaintiff bringing a false association claim need not establish direct competition between itself and the alleged infringing party, it does need to allege that the use of its trademark is “likely to cause confusion ․ as to the origin, sponsorship, or approval” of the relevant foods or services. 15 U.S.C. § 1125(a)(1)(A). This is distinguishable from the false advertising prong of the Lanham Act, which imposes liability for use of a trademark that “in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin” of the relevant goods or services. Id. § 1125(a)(1)(B).

This Court finds that SouthState lacks standing to bring a false association claim against Qoins under § 1125(a)(1)(A). SouthState fails to allege that Qoins made an unauthorized use of its trademark in an effort to pass its own services off as SouthState's. Indeed, SouthState alleges that Qoins identified it as a banking partner, rather than a similar entity or business as Qoins. Compl. ¶ 68; Qoins's Announcement.⁷ Consequently, the allegations made by SouthState do not fall within the zone of interests encompassed in a false association claim, and Qoins's motion to dismiss that portion of Count III that alleges a claim under 15 U.S.C. § 1125(a)(1)(A) is GRANTED.

However, SouthState does have standing to bring a false advertising claim against Qoins. Contrary to Qoins's contention, Lexmark does not require that the plaintiff allege an injury to competition. “It is thus a mistake to infer that because the Lanham Act treats false advertising as a form of unfair competition, it can protect only the false-advertiser's direct competitors.” Lexmark, 572 U.S. at 136, 134 S.Ct. 1377. Because SouthState is alleging reputational injuries, no direct competition is required and SouthState has pleaded with sufficiency that it has standing to sue because the alleged false representations about SouthState could impact its business reputation. See id., 572 U.S. at 140, 134 S.Ct. 1377 (holding that a plaintiff may assert a false advertising claim by pleading “an injury to a commercial interest in sales or business reputation proximately caused by the defendant's misrepresentations.”).

2. Whether SouthState States a Claim for False Advertising Under 15 U.S.C. § 1125(a)(1)(B)

Qoins argues that SouthState has failed to allege any of the elements of a alse advertising claim; namely, that the statements were false or misleading, were deceptive, were material, or caused injury. Def.’s Br. at 18-22. In response, SouthState argues that it plausibly pleaded the element of a false advertising claim through their allegations that Qoins misrepresented the nature of their relationship and commercial activities by the issuance of false public statements through Qoins's Announcement and the Customer Review Responses. Pl.’s Resp. at 7-9, 14-15.

A claim for false advertising requires a false or misleading description or representation of fact in commercial advertising or promotion.

To succeed on a false advertising claim under § 43(a)(1)(B) of the Lanham Act, a plaintiff must establish that (1) the advertisements of the opposing party were false or misleading; (2) the advertisements deceived, or had the capacity to deceive, consumers; (3) the deception had a material effect on purchasing decisions; (4) the misrepresented product or service affects interstate commerce;8 and (5) the movant has been—or is likely to be—injured as a result of the false advertising.

Hickson Corp. v. N. Crossarm Co., 357 F.3d 1256, 1260 (11th Cir. 2004) (citations omitted).

a. Qoins Was Engaged in Commercial Advertising or Promotion.

At the outset, Qoins contends that the alleged statements made were not commercial advertising or promotion but instead, answers to customer's questions; additionally, Qoins argues that SouthState was not in commercial competition with Qoins, Qoins's statements were not intended to influence customers away from SouthState, and Qoins did not target SouthState's prospective customers in making the statements. Def.’s Br. at 15-18.

For representations to be considered commercial advertising or promotion, the Eleventh Circuit has held that

they must be: (1) commercial speech; (2) by a defendant who is in commercial competition with plaintiff;9 (3) for the purpose of influencing consumers to buy defendant's goods or services. While the representations need not be made in a “classic advertising campaign,” but may consist instead of more informal types of ‘promotion,’ the representations (4) must be disseminated sufficiently to the relevant purchasing public to constitute “advertising” or “promotion” within that industry.

Suntree Techs., Inc. v. Ecosense Int'l Inc., 693 F.3d 1338, 1349 (11th Cir. 2012) (citation omitted).

Qoins's argument that the statements were not made to the purchasing public is unavailing because SouthState has alleged that Qoins made the representations on its website and in response to customer reviews on online application stores. Compl. ¶¶ 67, 71, 80. Importantly, these representations are alleged to be public-facing and widely accessible. “[W]hen statements are so broadly disseminated, they are much more likely to constitute commercial advertising.” Concordia Pharms. Inc., S.A.R.L. v. Winder Lab'ys, LLC, No. 2:16-CV-00004-RWS, 2021 WL 3573118, at *15 (N.D. Ga. Feb. 17, 2021).

SouthState alleges that Qoins publicly made false statements to shift blame to SouthState for Qoins's insolvency, and influence Qoins's customers to file complaints against SouthState. Compl. ¶¶ 62-63, 71-72. The common theme of Qoins's alleged statements are that any issues relating to customers not being able to access their funds are attributable solely to SouthState and not Qoins or Qoins's new banking partner. Qoins's Announcement; Customer Review Responses. Taking SouthState's allegations as true, and all reasonable inferences In its favor, the Court infers that Qoins's statements were made to pacify customer concerns and to influence customers to start or continue their relationship with Qoins. A reasonable inference also can be made that Qoins's statements were intended to influence customers to purchase its service, because such issues were not attributable to the new banking partner. See, e.g., Marksman Sec. Corp. v. P.G. Sec., Inc., No. 0:19-CV-62467-KMM, 2020 WL 12188373, at *4 (S.D. Fla. June 25, 2020) (“[T]he standard for commercial advertising is whether the speech was made for the purpose of influencing consumers, not whether the speech was likely to influence consumers”). Because SouthState has plausibly alleged that the speech could influence customers, it falls within the gambit of commercial advertising. Accordingly, the Court finds that Qoins's representations constitute commercial advertising or promotion.

b. The Complaint Alleges Facts Establishing the Falsity of Qoins's Public Statements.

To succeed under a false advertising claim, the plaintiff must show that the statements at issue were either “(1) commercial claims that are literally false as a factual matter” or “(2) claims that may be literally true or ambiguous but which implicitly convey a false impression, are misleading in contest, or likely to deceive customers.” Hickson, 357 F.3d at 1261 (citation omitted).

Contrary to Qoins's contentions, SouthState's allegations are not conclusory and explicitly allege that Qoins made representations that it knew to be false. Compl. ¶¶ 59 (noting that Qoins's announcement “falsely” stated that their customers have been unable to migrate funds due to issues with SouthState bank), 61 (“Qoins knowingly disseminated false information to its Customers by representing that SouthState possessed Customer funds and somehow was ‘unable to release’ such funds.”), 67 (“Qoins began to post such falsehoods in certain online software application stores, directly in response to negative reviews of Qoins's app.”). These allegations of literally false statements sufficiently plead the first element of a false advertising claim.

c. Because There Are Allegations of Literal False Statements, Deception Need Not Be Separately Alleged.

“If the court deems an advertisement to be literally false, then the movant is not required to present evidence of consumer deception.” Osmose, Inc. v. Viance, LLC, 612 F.3d 1298, 1319 (11th Cir. 2010). Because SouthState alleges that Qoins's advertisements are literally false, SouthState is “not required to allege evidence of consumer deception and, thus, this element is satisfied.” Supplement Ctr., LLC v. Evol Nutrition Assocs., Inc., 389 F. Supp. 3d 1281, 1289 (N.D. Ga. 2019) (citing cases).

d. The Complaint Alleges Facts Establishing Materiality.

To establish materiality, SouthState must demonstrate that Qoins's deception “is likely to influence the purchasing decision [of consumers].” Osmose, Inc., 612 F.3d at 1319 (citation omitted). “The materiality requirement is based on the premise that not all deceptions affect consumer decisions.” Johnson & Johnson Vision Care, Inc. v. 1-800 Contacts, Inc., 299 F.3d 1242, 1250 (11th Cir. 2002).

SouthState has alleged that Qoins made false representations about SouthState continuing to be in possession of customers’ funds, which concerns the essential characteristic of its business as a bank. “A plaintiff may establish this materiality requirement by proving that ‘the defendants misrepresented an inherent quality or characteristic of the product.’ ” 1-800 Contacts, Inc., 299 F.3d 1242, 1250 (11th Cir. 2002) (citation omitted). Based on these representations, SouthState has sufficiently established materiality.

Moreover, SouthState alleged that customers filed complaints against SouthState based on Qoins's representations. Compl. ¶ 72 (stating that “numerous Qoins Customers” filed complaints against SouthState “with relevant federal agencies.”). Drawing all plausible inferences in favor of SouthState, the Court infers that the alleged representations affected consumer decisions about SouthState. Thus, SouthState has sufficiently pleaded that Qoins's deception was material.

e. The Complaint Alleges a Sufficient Injury.

“To invoke the Lanham Act's cause of action for false advertising, a plaintiff must plead (and ultimately prove) an injury to a commercial interest in sales or business reputation proximately caused by the defendant's misrepresentations.” Lexmark, 572 U.S. at 140, 134 S.Ct. 1377.

Taking SouthState's allegations as true and making all plausible inferences in SouthState's favor, SouthState has sufficiently pleaded a reputational harm sufficient to fulfill the injury element of a false advertising claim under the Lanham Act. BPI Sports, LLC v. ThermoLife Int'l LLC, No. 19-60505-CIV, 2020 WL 10180910, at *6 (S.D. Fla. Jan. 9, 2020); see also Dependable Sales & Serv., Inc. v. TrueCar, Inc., 394 F. Supp. 3d 368, 374 (S.D.N.Y. 2019) (“[A] plaintiff in a false-advertising case must demonstrate injury by way of lost sales or damage to business reputation.”).¹⁰

Accordingly, Qoins's motion to dismiss the Lanham Act false advertising claim under § 1125(a)(1)(B) is DENIED.

D. Injunctive Relief (Count IV)

Qoins argues that, after the filing of the Complaint, it removed any reference to SouthState from its website and responses to customer questions; therefore, Qoins contends that SouthState's request for injunctive relief is moot. Def.’s Br. at 25. SouthState argues that the mootness argument relies on information that goes beyond the allegations of the Complaint and that a Motion to Dismiss is an improper vehicle for this relief. Pl.’s Br. at 24-25. The Court is limited to the allegations in the Complaint and cannot consider Qoins's representation that it has ceased any alleged activity. Moreover, the Court notes that injunctive relief “may be appropriate to prevent future harm.” WIKA Instrument I, LP v. Ashcroft, Inc., No. 1:13-CV-43-CAP, 2013 WL 12061904, at *8 (N.D. Ga. July 3, 2013) (denying request to moot injunctive relief in Lanham Act case where defendant attests to ceasing dissemination of alleged false advertisements). “[A] defendant claiming that its voluntary compliance moots a case bears the formidable burden of showing that it is absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur.” Friends of the Earth, Inc. v. Laidlaw Env't Servs. (TOC), Inc., 528 U.S. 167, 190, 120 S.Ct. 693, 145 L.Ed.2d 610 (2000).

Accordingly, Qoins's motion to dismiss SouthState's injunctive relief claim is DENIED.

IV. CONCLUSION

For the above stated reasons, Defendants Qoins Technologies, Inc. (“Qoins”)’s Motion to Dismiss [Doc. 22] is GRANTED IN PART and DENIED IN PART.

The Motion is GRANTED as to SouthState's Lanham Act claim in Count III under 15 U.S.C. § 1125(a)(1)(A) for false association. The Motion is otherwise DENIED.

IT IS SO ORDERED this 1st day of March, 2024.

FOOTNOTES

2.   On March 1, 2022, ACB and SouthState merged, and SouthState succeeded in interest to ACB's rights and obligations. Compl. ¶¶ 12, 40. Because the Agreement refers to “the Bank” and, during the course of the Agreement, the “Bank” first referred to ACB and later, after the merger, SouthState, the Court also will use “the Bank” when referencing the Agreement.

3.   Generally, the district court must convert a motion to dismiss into a motion for summary judgment if it considers materials outside the complaint. Fed. R. Civ. P. 12(d); Day v. Taylor, 400 F.3d 1272, 1276 (11th Cir. 2005). “However, the district court may always consider exhibits attached to the complaint on a 12(b)(6) motion, because exhibits are part of the pleadings.” Basson v. Mortg. Elec. Registration Sys., Inc., 741 F. App'x 770, 770-71 (11th Cir. 2018) (citing Fed. R. Civ. P. 10(c)); see also Thaeter v. Palm Beach Cnty. Sheriff's Office, 449 F.3d 1342, 1352 (11th Cir. 2006) (internal punctuation, footnote, and citation omitted) (“When considering a motion to dismiss, all facts set forth in the plaintiff's complaint are to be accepted as true and the court limits its consideration to the pleadings and exhibits attached thereto.”). Therefore, the Court will consider the documents attached to the Complaint in deciding the motion to dismiss.

4.   SouthState alleges that the decision to terminate the relationship was due, in part, “to a large volume of ACH [Automated Clearing House] returns.” Compl. ¶ 42.

5.   Because the Court concludes that SouthState states a claim for libel per se, it need not discuss whether it also states a claim for libel per quod.

6.   Count III of the Complaint references 15 U.S.C. § 1125(a) but fails to set forth whether SouthState is proceeding under the false association prong in § 1125(a)(1)(A), or the false advertising prong in § 1125(a)(1)(B). The Court's analysis covers both prongs.

7.   Even if SouthState could establish standing to raise a false association claim against Qoins, it would still fail to state a claim upon which relief could be granted because it fails to allege that Qoins “adopted a mark or name that was the same, or confusingly similar to its mark, such that consumers were likely to confuse the two.” Fla. Int'l Univ. Bd. of Trustees v. Fla. Nat'l Univ, Inc., 830 F.3d 1242, 1265 (11th Cir. 2016) (citation and quotation marks omitted).

8.   The parties do not dispute this element and the Court will not address it.

9.   Because the Supreme Court in Lexmark held that a challenge to commercial speech under the Lanham Act's false advertising prong need not be made by the plaintiff's competitor, there is no longer a requirement that the defendant must be in “commercial competition with plaintiff.” See Syngenta Seeds, Inc. v. Bunge N. Am., Inc., 773 F.3d 58, 64 (8th Cir. 2014) (“The Supreme Court also expressly rejected the requirement that challenged commercial speech be made by a competitor.”) (citing Lexmark, 572 U.S. at 136, 134 S.Ct. 1377). So, Qoins's argument that it is necessary for SouthState to allege direct competition is without merit.

10.   This element was also addressed above in the libel and standing sections.

MARK H. COHEN, United States District Judge