Federal Trade Commission v. Adept Management, Inc. et al

Motion to Dismiss for Failure to State a Claim Simpson Defendants' Cross-Claim

D. Or.December 12, 2016

THE HOYAL DEFENDANTS’ MOTION TO DISMISS -- 1 THE SIMPSON DEFENDANTS’ CROSSCLAIM James E. Magleby (USB 7247) (pro hac vice) magleby@mcgiplaw.com Eric K. Schnibbe (USB 8463) (pro hac vice) schnibbe@mcgiplaw.com Adam Alba (USB 13128) (pro hac vice) alba@mcgiplaw.com MAGLEBY CATAXINOS & GREENWOOD 170 South Main Street, Suite 1100 Salt Lake City, Utah 84101 Telephone: (801) 359 9000 Facsimile: (801) 359 9011 David B. Paradis (OSB 853016) dparadis@brophylegal.com BROPHY SCHMOR, LLP 201 West Main Street, 5th Floor P.O. Box 128 Medford, Oregon 97501 Telephone: 541 772 7123 Facsimile: 541 772 7249 Attorneys for Defendants Hoyal & Associates, Inc., Jeffery Hoyal and Lori Hoyal IN THE UNITED STATES DISTRICT COURT DISTRICT OF OREGON, MEDFORD DIVISION FEDERAL TRADE COMMISSION Plaintiff, v. Case No.: 1:16-cv-00720-CL THE HOYAL DEFENDANTS’ MOTION TO DISMISS THE SIMPSON DEFENDANTS’ CROSSCLAIM AND MEMORANDUM IN SUPPORT THEREOF ADEPT MANAGEMENT, INC., et al. Defendants. REQUEST FOR ORAL ARGUMENT Case 1:16-cv-00720-CL Document 89 Filed 12/12/16 Page 1 of 12 THE HOYAL DEFENDANTS’ MOTION TO DISMISS -- 2 THE SIMPSON DEFENDANTS’ CROSSCLAIM MOTION Pursuant to Fed. R. Civ. P. 12(b)(6), Defendants Jeffrey Hoyal (“Hoyal”) and Hoyal & Associates (“H&A”) (collectively, the “Hoyal Defendants”), through counsel of record, hereby move the Court to dismiss Defendants Reality Kats, LLC and Dennis Simpson’s Crossclaims against Jeffrey Hoyal and Hoyal & Associates, Inc. [see Doc. 76 at 22] (“Crossclaim”). The Hoyal Defendants certify, in compliance with Local Rule 7-1, the parties made a good faith effort through a telephone conference to resolve the dispute and have been unable to do so. This Motion is made on the grounds that the Crossclaim attempts to assert causes of action against the Hoyal Defendants that fail as a matter of law. First, the multiple claims for contribution and indemnity seek relief that is not permitted under the Federal Trade Commission Act (“FTC Act”). Second, the cause of action for “fraud” fails to state a claim for which relief may be granted because (a) it is based entirely upon representations made by their Hoyal Defendants through their Answer filed in this case and such statements are protected by the litigation privilege, and (b) the Crossclaim admits essential elements of a fraud claim cannot be established by Defendants Reality Kats, LLC (“Reality Kats”) and Dennis Simpson (“Simpson”) (collectively, the “Simpson Defendants”). MEMORANDUM OF LAW BACKGROUND The FTC initiated this case pursuant to section 13(b) of the FTC Act, 15 U.S.C. § 53(b), alleging there were acts or practices by the defendants that violated section 5(a) Case 1:16-cv-00720-CL Document 89 Filed 12/12/16 Page 2 of 12 THE HOYAL DEFENDANTS’ MOTION TO DISMISS -- 3 THE SIMPSON DEFENDANTS’ CROSSCLAIM of the FTC Act, 15 U.S.C. § 45(a), in connection with the business of soliciting newspaper subscriptions and renewals. [See Doc. 1, ¶¶ 1-2]. The FTC alleges that mailers used in connection with such business were deceptive. [See Doc. 1, ¶¶ 61-62 & Ex. 1]. The Hoyal Defendants subsequently filed their Answer, denying any liability and asserting defenses, among other things, based upon the fact that the Hoyal Defendants did not draft, revise, or participate in the creation of any mailer, including the mailer which is the apparent basis for the FTC’s claim, and that only the Simpson Defendants were responsible for the creation, format, delivery, and recipients of all mailers. [See Doc. 32 at 10-11 (¶¶ 35-36)]. Accordingly, any relief obtained by the FTC should be against the Simpson Defendants, rather than the Hoyal Defendants. Following the Court’s denial of the Simpson Defendants’ motion to dismiss the FTC’s Complaint, on November 17, 2016, the Simpson Defendants filed their Answer. [Doc. 76]. Appended to the end of the Simpson Defendants’ Answer is a Crossclaim alleged against Hoyal and H&A. [Doc. 76 at 22].1 The Crossclaim first alleges an erroneous description of the historical relationship between the Simpson Defendants, the Hoyal Defendants, and the other defendants. [Doc. 76 at 23-25]. The Crossclaim then makes allegations pertaining to the instant case brought by the FTC, by denying the Simpson Defendants’ exclusive role in designing and managing the mailers at issue in this case, stating Simpson limited his role to data analysis, and falsely alleging that 1 Defendants Reality Kats, LLC and Dennis Simpson’s Crossclaims against Jeffrey Hoyal and Hoyal & Associates, Inc. is referred to herein as the “Crossclaim.” Case 1:16-cv-00720-CL Document 89 Filed 12/12/16 Page 3 of 12 THE HOYAL DEFENDANTS’ MOTION TO DISMISS -- 4 THE SIMPSON DEFENDANTS’ CROSSCLAIM the Hoyal Defendants (among others) changed the wording, content, and format of direct mail pieces. [Doc. 76 at 25 (¶¶ 17-20)]. The Crossclaim then turns exclusively to the Hoyal Defendants’ Answer filed in this case, and alleges such things as that the Hoyal Defendants “falsely represented in [their] Answer” “that [the Simpson Defendants] were responsible for the content of the direct mail marketing pieces at issue” [id., ¶ 20], “were solely responsible for the creation, format, delivery, and recipients of all mailers” [id. at 26, ¶ 21], and “were ‘engaged in the magazine and newspaper subscription business,’” [id., ¶ 23], citing to the Hoyal Defendants’ Answer in this case as support. The Crossclaim then alleges that the Hoyal Defendants “knew at all times the falsity of the representations set forth in thei[r] answer.” [Id., ¶ 24]. Based upon this factual background alone, the Crossclaim asserts essentially two types of claims against the Hoyal Defendants. First, the Crossclaim seeks contribution and indemnification against the Hoyal Defendants through the first five “Counts,” using various labels, by seeking that, in the event the Simpson Defendants are liable to the FTC, then the Hoyal Defendants should be held liable to the Simpson Defendants. These five contribution and indemnification counts all are based upon the factual allegations that it was actually the Hoyal Defendants’ conduct, rather than the Simpson Defendants’ conduct, in managing the mailers that constitute the deceptive acts at issue in this case. [Id. at 26-33]. Second, the Crossclaim asserts a sixth “Count” for “Fraud,” based exclusively upon the Simpson Defendants’ assertion that the Hoyal Defendants’ statements in their Answer were false. [Id. at 30 (¶¶ 41-44)]. Case 1:16-cv-00720-CL Document 89 Filed 12/12/16 Page 4 of 12 THE HOYAL DEFENDANTS’ MOTION TO DISMISS -- 5 THE SIMPSON DEFENDANTS’ CROSSCLAIM ARGUMENT I. THE SIMPSON DEFENDANTS’ CROSSCLAIM DOES NOT STATE A VALID CLAIM UNDER THE GOVERNING RULE 12(b)(6) STANDARD The Court should dismiss the Crossclaim because it does not allege claims against the Hoyal Defendants on which relief may be granted. The Crossclaim must meet the same pleading requirements applicable to complaints in order to properly state a claim on which relief may be granted. See Fed. R. Civ. P. 8(a) (“A pleading that states a claim for relief must contain . . . .”); Ancier v. Egan, No. CV 14-00294 JMS-RLP, 2015 WL 12745807, at *2 (D. Haw. Sept. 29, 2015) (“Cross-claims, like claims for relief set forth in complaints, are governed by Federal Rule of Civil Procedure 8(a)(2) . . . .”). This Court has already described the proper standard applicable to this Motion to dismiss: “A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted ‘tests the legal sufficiency of a claim.’” Dismissal under Rule 12(b)(6) is proper “if there is a ‘lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.’” To survive a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6) “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” In evaluating a motion to dismiss, the court must accept the allegations of material fact as true and construe those allegations in the light most favorable to the non-moving party. FTC v. Adept Mgmt., Inc., No. 1:16-CV-00720-CL, 2016 WL 6542837, at *1-2 (D. Or. Nov. 3, 2016) (citations omitted) [Doc. 72 at 3]. Moreover, with regard to the Simpson Defendants’ sixth count for “Fraud,” the Simpson Defendants’ must “state with Case 1:16-cv-00720-CL Document 89 Filed 12/12/16 Page 5 of 12 THE HOYAL DEFENDANTS’ MOTION TO DISMISS -- 6 THE SIMPSON DEFENDANTS’ CROSSCLAIM particularity the circumstances constituting fraud.” Fed. R. Civ. P. 9(b). As this Court explained, The plaintiff must plead with particularity “the who, what, when, where, and how of the misconduct charged.” “Rule 9(b) demands that, when averments of fraud are made, the circumstances constituting the alleged fraud be specific enough to give defendants notice of the particular misconduct so that they can defend against the charge and not just deny that they have done anything wrong.” Adept Mgmt., Inc., 2016 WL 6542837, at *2 (citations omitted) [Doc. 72 at 3-4]. There is no question that the Simpson Defendants’ fail to plead any cognizable claim against the Hoyal Defendants and, with regard to the fraud claim, fail to do so with the requisite particularity. Accordingly, the Court should grant this Motion and dismiss the Simpson Defendants’ Crossclaim. II. THE SIMPSON DEFENDANTS ARE NOT PERMITTED TO ASSERT A CROSSCLAIM SEEKING CONTRIBUTION OR INDEMNITY IN THIS CASE BROUGHT UNDER THE FTC ACT The Court should dismiss the Crossclaim because its first five counts seek contribution and indemnity that is not permitted under the FTC Act. When the law governing a case is federal, a right to contribution or indemnification exists only if Congress intended or the courts have created such federal common law rights. See Texas Indus., Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 638 (1981); FTC v. Southwest Sunsites, Inc., No. CV 87-6312-WMB, 1988 WL 94519 (C.D. Cal. Apr. 5, 1988). Courts have held that there are no rights to contribution or indemnification in the context of cases brought under the FTC Act, either through congressional intent or the federal common law. See Southwest Sunsites, 1988 WL 94519, at *1-3 (surveying legislative history of FTC Act in consumer redress case and Case 1:16-cv-00720-CL Document 89 Filed 12/12/16 Page 6 of 12 THE HOYAL DEFENDANTS’ MOTION TO DISMISS -- 7 THE SIMPSON DEFENDANTS’ CROSSCLAIM holding no right to contribution or equitable indemnity); see also FTC v. Hang-Ups Art Enterprises, Inc., No. CV 95-0027 RMT(JGX), 1995 WL 914179, at *1-2 (C.D. Cal. Sept. 27, 1995) (holding Southwest Sunsites’ analysis applied to suit brought by the FTC under section 13(b) of the FTC Act). Shortly before the filing of the instant Motion, the FTC filed its own motion in this case seeking to strike the Crossclaim on the grounds that the Simpson Defendants have no right to assert claims for contribution or indemnity in this case. [See Doc. 86 at 12-16]. The Hoyal Defendants agree with Part C of the FTC’s Argument supporting that motion, which equally supports dismissal of the Simpson Defendants’ contribution and indemnity claims. Rather than burdening the Court with an analysis duplicative of the FTC’s, the Hoyal Defendants hereby incorporate that Part C by reference. Based upon those authorities cited above and by the FTC, the Simpson Defendants have no right to contribution or indemnification against the Hoyal Defendants in this case, those claims fail as a matter of law, and the Court should dismiss them pursuant to Rule 12(b)(6). III. THE COURT SHOULD DISMISS THE FRAUD CLAIM AS BARRED BY THE LITIGATION PRIVILEGE AND BECAUSE THE SIMPSON DEFENDANTS ADMIT THEY CANNOT ESTABLISH ESSENTIAL ELEMENTS The Simpson Defendants’ fraud claim must be dismissed because it is based exclusively upon statements that are protected by the litigation privilege and because the Simpson Defendants’ Crossclaim refutes necessary elements of such a claim. A. The Hoyal Defendants’ Statements in their Answer Are Protected by the Litigation Privilege The fraud claim fails as a matter of law as a result of the litigation privilege. “Oregon courts have long recognized, and enforced, an absolute privilege for Case 1:16-cv-00720-CL Document 89 Filed 12/12/16 Page 7 of 12 THE HOYAL DEFENDANTS’ MOTION TO DISMISS -- 8 THE SIMPSON DEFENDANTS’ CROSSCLAIM statements in the course of or incident to judicial and quasi-judicial proceedings. That privilege applies equally to parties to such proceedings and to their attorneys.” Mantia v. Hanson, 190 Or. App. 412, 417, 79 P.3d 404, 407 (2003) (citing Ramstead v. Morgan, 219 Or. 383, 388-89, 347 P.2d 594 (1959); Chard v. Galton, 277 Or. 109, 559 P.2d 1280 (1977); Troutman v. Erlandson, 286 Or. 3, 593 P.2d 793 (1979); Wallulis v. Dymowski, 323 Or. 337, 918 P.2d 755 (1996)). The policy underpinning this privilege is that “there are certain relations of life in which it is so important that the persons engaged in them should be able to speak freely that the law takes the risk of their abusing the occasion and speaking maliciously as well as untruly, and in order that their duties may be carried on freely and without fear of any action being brought against them, it says: ‘We will treat as absolutely privileged any statement made in the performance of these duties.’” Ramstead, 219 Or. at 387, 347 P.2d at 596 (citations omitted); accord Mantia, 190 Or. App. at 418, 79 P.3d at 408. Accordingly, “[t]he absolute immunity attaches to statements made in the course of, or incident to a judicial proceeding.” Ramstead, 219 Or. at 387, 347 P.2d at 596. The Oregon Court of Appeals has further explained that the litigation privilege, which is absolute as to defamation claims, also applies to other torts. Mantia, 190 Or. App. at 419-27, 79 P.3d at 409-13. Although the privilege does not limit actionable torts in Oregon to claims for wrongful initiation of litigation, id., 190 Or. App. at 428, 79 P.3d at 413-14, the antecedent proceedings in which tortious statements or conduct occurred must have nonetheless terminated in favor of the person against whom they were brought. Id., 190 Or. App. at 429-30, 79 P.3d at 414. Case 1:16-cv-00720-CL Document 89 Filed 12/12/16 Page 8 of 12 THE HOYAL DEFENDANTS’ MOTION TO DISMISS -- 9 THE SIMPSON DEFENDANTS’ CROSSCLAIM Here, the Simpson Defendants’ fraud claim must be dismissed because it is predicated entirely upon statements made in the Hoyal Defendants’ Answer to the FTC’s Complaint. All the statements on which the claim is based are that only the Simpson Defendants were responsible for the creation, format, delivery, and recipients of mailers at issue in the case and that the Hoyal Defendants did not draft, revise, or participate in the creation of any such mailer. Even assuming those statements are false (they are not), their veracity will be tested through this litigation itself and the Simpson Defendants could have no cognizable claim based upon them unless and until after this litigation has been completed and the Simpson Defendants’ prevail in refuting those statements. Accordingly, the Simpson Defendants’ fraud claim is barred by the litigation privilege, fails as a matter of law, and must be dismissed. B. The Fraud Claim Fails as a Matter of Law Because the Simpson Defendants Cannot Establish its Essential Elements Independent from the litigation privilege, the Court should dismiss the fraud claim because the Simpson Defendants cannot establish its essential elements. In Oregon, “[t]he essential elements of a common-law fraud claim are: [1] the defendant made a material misrepresentation that was false; [2] the defendant did so knowing that the representation was false; [3] the defendant intended the plaintiff to rely on the misrepresentation; [4] the plaintiff justifiably relied on the misrepresentation; and [5] the plaintiff was damaged as a result of that reliance.” Great Am. Ins. Co. v. Linderman, 116 F. Supp. 3d 1183, 1192 (D. Or. 2015) (quoting Strawn v. Farmers Ins. Co. of Or., 350 Or. 336, 258 P.3d 1199, 1209) (alterations in original). The Simpson Defendants’ fraud claim fails because the Crossclaim itself Case 1:16-cv-00720-CL Document 89 Filed 12/12/16 Page 9 of 12 THE HOYAL DEFENDANTS’ MOTION TO DISMISS -- 10 THE SIMPSON DEFENDANTS’ CROSSCLAIM refutes there was any reliance upon the Hoyal Defendants’ statements and the Simpson Defendants cannot show a “consequent and proximate injury” resulting from that non- existent reliance. See Kim v. Prudential Fin., Inc., No. 3:15-CV-02029-HZ, 2016 WL 6803082, at *6 (D. Or. Nov. 14, 2016) (“Plaintiff has not alleged a ‘consequent and proximate injury’ stemming from his reliance on Prudential’s promise”); Great Am. Ins. Co., 116 F.Supp.3d at 1193-94 (dismissing fraud claim because allegations linking false representations to injury not sufficiently particular). The Crossclaim’s own allegations refute that there was any reliance upon the truth of the Hoyal Defendants’ statements in their Answer. The Crossclaim expressly denies that the Simpson Defendants’ had the exclusive role in designing and managing the mailers at issue in this case, states that Simpson limited his role to data analysis, and asserts that the Hoyal Defendants (among others) changed the wording, content, and format of direct mail pieces. [Doc. 76 at 25 (¶¶ 17-20)]. Assuming these allegations are true, the Simpson Defendants admit they fully knew that statements in the Hoyal Defendants’ Answer were false at the time Simpson read it. Indeed, there cannot be any reliance supporting a fraud claim unless the Hoyal Defendants’ Answer somehow convinced Simpson that the events at issue in this case were not as Simpson actually remembered them to be. Further, there could be no consequent and proximate injury supporting a fraud claim unless, during this moment in which Simpson believed the Hoyal falsehoods, the Simpson Defendants did something as a result of that belief that harmed them. Such a scenario is absurd on its face, nothing in the Crossclaim Case 1:16-cv-00720-CL Document 89 Filed 12/12/16 Page 10 of 12 THE HOYAL DEFENDANTS’ MOTION TO DISMISS -- 11 THE SIMPSON DEFENDANTS’ CROSSCLAIM supports it, and, therefore, the Simpson Defendants cannot assert a valid fraud claim based upon statements in the Hoyal Defendants’ answer that are purportedly false. In sum, the Simpson Defendants’ fail to state a claim for fraud on which relief may be granted and the Court should dismiss the claim. CONCLUSION For the foregoing reasons, the Court should grant the Motion and dismiss the Crossclaim in its entirety. DATED this 12th day of December, 2016. MAGLEBY CATAXINOS & GREENWOOD James E Magleby Eric K Schnibbe Adam Alba Attorneys for Hoyal & Associates, Inc., Jeffery Hoyal, and Lori Hoyal Defendants and David B. Paradis BROPHY SCHMOR LLP Case 1:16-cv-00720-CL Document 89 Filed 12/12/16 Page 11 of 12 THE HOYAL DEFENDANTS’ MOTION TO DISMISS -- 12 THE SIMPSON DEFENDANTS’ CROSSCLAIM CERTIFICATE OF SERVICE I hereby certify that I am employed by the law firm of MAGLEBY CATAXINOS & GREENWOOD, 170 South Main Street, Suite 1100, Salt Lake City, Utah 84101, and that pursuant to Rule 5(b), Federal Rules of Civil Procedure, a true and correct copy of the foregoing THE HOYAL DEFENDANTS’ MOTION TO DISMISS THE SIMPSON DEFENDANTS’ CROSSCLAIM AND MEMORANDUM IN SUPPORT THEREOF was delivered to the following this 12th day of December, 2016, as follows: [ ] Hand Delivery [ ] Depositing the same in the U.S. Mail, postage prepaid [X] Via CM/ECF System [ ] Via Electronic Mail Krist K. Bush kbush@ftc.gov Laura M. Solis lsolis@ftc.gov Richard McKewen rmckewen@ftc.gov Connor Shively cshively@ftc.gov Federal Trade Commission 915 Second Avenue, Suite 2896 Seattle, WA 98174 David P. Lennon david@lennon-klein.com Lennon & Klein, P.C. 3922 Bellinger Lane Medford, OR 97501 Kevin W. Bons kbons@beckley-law.com Beckly & Bons, P.C. 66 Club Road, Suite 360 P.O. Box 11098 Eugene, OR 97440 Tyler J. King Tyler@lawgroupfs.com The Franklin Square Law Group 1225 Eye Street NW, Ste. C-110 Washington, DC 20005 Case 1:16-cv-00720-CL Document 89 Filed 12/12/16 Page 12 of 12