Hallstrom v. Aqua Flora, Inc. et al

Filing 19

ORDER signed by Judge Frank C. Damrell, Jr on 10/15/2010 ORDERING that defendants' 10 Rule 12(b)(1) and 9 Rule 12(b)(6) motions to dismiss are DENIED.(Duong, D)

Hallstrom v. Aqua Flora, Inc. et al

Doc. 19

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Because oral argument will not be of material assistance, the court orders these matters submitted on the briefs. E.D. Cal. L.R. 230(g). 1
1

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA ----oo0oo---UNITED STATES OF AMERICA, EX. REL., ZACHARY HALLSTROM, Plaintiff, v. AQUA FLORA, INC.; KING BIO, INC.; and DOES 1-10, INCLUSIVE, Defendants. ----oo0oo---This matter is before the court on defendants Aqua Flora, Inc. ("Aqua Flora") and King Bio, Inc.'s ("King Bio") (collectively "defendants") motions to dismiss plaintiff Zachary Hallstrom's ("Hallstrom" or "plaintiff") complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Plaintiff opposes the motions.1 For the reasons set forth below,

NO. CIV. 2-10-cv-01459-FCD-EFB MEMORANDUM AND ORDER

defendants' motions to dismiss are DENIED.

Dockets.Justia.com

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BACKGROUND Plaintiff is a California citizen who is bringing this action on behalf of himself and the United States of America. (Pl.'s Complaint [Docket # 1] ("Compl."), filed June 14, 2010, ¶ 7). Defendants are in the business of manufacturing,

advertising, distributing, and selling homeopathic medicine, including AquaFlora "Nano-Potentiated" homeopathic products ("AquaFlora products"). (Id. ¶¶ 1, 8-9). AquaFlora products are

advertised as products that can relieve a number of symptoms, from physical to mental ailments. (Id. ¶ 16). Plaintiff alleges

that defendants falsely advertise that AquaFlora products are patented on their respective websites, by representing that "[t]he patented process works by dynamically activating the substances digestion, assimilation, transportation, cellular utilization, elimination, storage, recycling, organ and grandular metabolism activating the complex metabolic regulatory control networks for optimal homeostasis (balance) and therapeutic results." (Id. ¶ 19) (emphasis added). Plaintiff claims that

after exhaustively researching public records it has found that no patent exists for any AquaFlora products or a "Nano-Potentiated" process. (Id. ¶ 20).

Plaintiff asserts that as of June 11, 2010, defendants were still claims that the AquaFlora products were patented. at Ex. 1-2). (See Id.

Moreover, plaintiff alleges that defendants boast

"17 years, long-standing success" of the AquaFlora NanoPotentiated line of products. (Id. ¶ 21; Ex. 2). Plaintiff

further alleges that defendants' false claims concerning AquaFlora products were intentional and made in an effort to 2

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deceive the public, stifle legitimate competition, and gain a competitive advantage in the market. (Id. ¶¶ 21-22).

Plaintiff filed this qui tam action on June 14, 2010 under 35 U.S.C. § 292 (the "false marking statute") alleging that defendants have falsely advertised AquaFlora products as patented. (Id. ¶ 19). Plaintiff seeks to preliminarily and

permanently enjoin defendants from committing new acts of false patent marking and cease all existing acts of false patent marking on AquaFlora products. (Id. ¶ 3).

STANDARD A. Lack of Subject Matter Jurisdiction "Federal courts are courts of limited jurisdiction." Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 377 (1994). Lack of subject matter jurisdiction may be asserted by

either party or by a court, sua sponte, at any time during the course of an action. (Fed. R. Civ. P. 12(h)(2)-(3)). Once

challenged, the burden of establishing a federal courts jurisdiction rests on the party asserting the jurisdiction. See

Farmers Ins. Exch. v. Portage La Prairie Mut. Ins. Co., 907 F.2d 911, 912 (9th Cir. 1990). There are two forms of 12(b)(1) attacks on subject matter jurisdiction: facial and factual attacks. See Thornhill Publ'g

Co. v. Gen. Tel. & Elecs. Corp., 594 F.2d 730, 733 (9th Cir. 1979). In a facial attack, a court construes jurisdictional

allegations liberally and considers uncontroverted factual allegations to be true. See Robinson v. Overseas Military Sales

Corp., 21 F.3d 502, 507 (2d Cir. 1994); Oaxaca v. Roscoe, 641 F.2d 386, 391 (5th Cir. 1981). However, where the defendant 3

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refers to matters outside the complaint to challenge the plaintiff's assertion of subject matter jurisdiction, the 12(b)(1) motion is a factual attack. F.3d 1035, 1039 (9th Cir. 2004). See Safe Air v. Meyer, 373

In a factual attack, a district

court may review affidavits or evidence relating to the jurisdictional issue and need not presume the truthfulness of the plaintiff's allegations. Id. The burden then falls upon the

party opposing the motion to present affidavits or other evidence to establish subject matter jurisdiction. B. Id.

Failure to State a Claim Upon Which Relief Can Be Granted Under Federal Rule of Civil Procedure 8(a), a pleading must

contain "a short and plain statement of the claim showing that the pleader is entitled to relief." S. Ct. 1937, 1949 (2009). See Ashcroft v. Iqbal, 129

Under notice pleading in federal

court, the complaint must "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atlantic

v. Twombly, 550 U.S. 544, 555 (2007) (internal quotations omitted). "This simplified notice pleading standard relies on

liberal discovery rules and summary judgment motions to define disputed facts and issues and to dispose of unmeritorious claims." Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002).

On a motion to dismiss, the factual allegations of the complaint must be accepted as true. 322 (1972). Cruz v. Beto, 405 U.S. 319,

The court is bound to give plaintiff the benefit of

every reasonable inference to be drawn from the "well-pleaded" allegations of the complaint. Retail Clerks Int'l Ass'n v. A plaintiff need not

Schermerhorn, 373 U.S. 746, 753 n.6 (1963).

allege "`specific facts' beyond those necessary to state his 4

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claim and the grounds showing entitlement to relief." 550 U.S. at 570.

Twombly,

"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." Iqbal, 129 S. Ct. at 1949.

Nevertheless, the court "need not assume the truth of legal conclusions cast in the form of factual allegations." United

States ex rel. Chunie v. Ringrose, 788 F.2d 638, 643 n.2 (9th Cir. 1986). While Rule 8(a) does not require detailed factual

allegations, "it demands more than an unadorned, the defendant-unlawfully-harmed-me accusation." 1949. Iqbal, 129 S. Ct. at

A pleading is insufficient if it offers mere "labels and

conclusions" or "a formulaic recitation of the elements of a cause of action." Twombly, 550 U.S. at 555; Iqbal, 129 S. Ct. at

1950 ("Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice."). Moreover, it is inappropriate to assume that the plaintiff "can prove facts which it has not alleged or that the defendants have violated the . . . laws in ways that have not been alleged." Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983). Ultimately, the court may not dismiss a complaint in which the plaintiff has alleged "enough facts to state a claim to relief that is plausible on its face." Iqbal, 129 S. Ct. at 1949

(citing Bell Atlantic Corp. v. Twombly, 550 U.S. 554, 570 (2007)). Only where a plaintiff has failed to "nudge [his or

her] claims across the line from conceivable to plausible," is the complaint properly dismissed. 5 Id. at 1952. While the

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plausibility requirement is not akin to a probability requirement, it demands more than "a sheer possibility that a defendant has acted unlawfully." Id. at 1949. This plausibility

inquiry is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." at 1950. In ruling upon a motion to dismiss, the court may consider only the complaint, any exhibits thereto, and matters which may be judicially noticed pursuant to Federal Rule of Evidence 201. See Mir v. Little Co. Of Mary Hospital, 844 F.2d 646, 649 (9th Cir. 1988); Isuzu Motors Ltd. V. Consumers Union of United States, Inc., 12 F. Supp. 2d 1035, 1042 (C.D. Cal. 1998). ANALYSIS A. Standing in a Qui Tam Action Defendants move to dismiss plaintiff's complaint for lack of subject matter jurisdiction. Specifically, defendants argue that Id.

the plaintiff lacks standing in the instant action because he does not and cannot allege an injury in fact. (Defs.' Mot.

Dismiss [Docket #10] ("Defs.' 12(b)(1)"), filed July 26, 2010, at 3, 5). Defendants assert that in order to have standing,

Hallstrom must allege an injury to himself in addition to an injury to the United States. (Id.). Plaintiff opposes this

motion and asserts that, as a qui tam relator, his standing is based on the injury in fact suffered by the United States. (Pl.'s Opp'n [Docket #12] ("Pl.'s 12(b)(1)"), filed Aug. 20, 2010, at 2-3). The issue of standing is a threshold determination of "whether the litigant is entitled to have the court decide the 6

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merits of the dispute or of particular issues."

Warth v. Seldin,

422 U.S. 490, 498 (1975); Steel Co. v. Citizens For A Better Env't, 523 U.S. 83 (1998). "The judicial power of the United

States defined by Art[icle] III is not an unconditioned authority to determine the constitutionality of legislative or executive acts." Valley Forge Christian Coll. v. Americans United For

Separation of Church and State, Inc., 454 U.S. 464, 471 (1982). Rather, Article III limits "the federal judicial power `to those disputes which confine federal courts to a role consistent with a system of separated powers and which are traditionally thought to be capable of resolution through the judicial process.'" Id. at

472 (quoting Flast v. Cohen, 392 U.S. 83, 97 (1968)); Steele, 523 U.S. at 102. "Those who do not possess Article III standing may Id.

not litigate as suitors in the Courts of the United States." at 476.

In order to satisfy Article III standing a plaintiff must meet three requirements: injury in fact, causation, and redressability. Vermont Agency of Natural Res. v. U.S. ex rel. To satisfy the first

Stevens, 529 U.S. 765, 771 (2000).

requirement, injury in fact, the plaintiff must demonstrate that he has suffered a harm that is "concrete" and "actual or imminent, not conjectural or hypothetical." Id. Second, to

establish causation the plaintiff must establish a "fairly . . . traceable" connection between the alleged injury in fact and the conduct of the defendant. Id. Third, the plaintiff must

demonstrate redressability by showing a "substantial likelihood" that his requested relief will remedy the alleged injury in fact. Id. The three factors together constitute the "irreducible 7

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constitutional minimum" under Article III's case-or-controversy requirement. Id. (citing Lujan v. Defenders of Wildlife, 504

U.S. 555, 560 (1992)).2 It is well established that the false marking statute, 35 U.S.C. § 292, is a qui tam statute. See Vermont Agency, 529 U.S.

at 786 n.1 (listing § 292(b) as one of four qui tam statutes that is currently in force); Pequignot v. Solo Cup Co., 608 F. 3d 1356 (Fed. Cir. 2010); Boyd v. Schildkraut Giftware Corp., 936 F.2d 76, 79 (2d Cir. 1991) (stating that § 292 is "enforceable by a qui tam remedy, enabling `any person' to sue for the statutory penalty and retain one-half of the recovery"). The Article III

standing requirement applies to plaintiffs who bring suit under a qui tam statute. See Vermont Agency, 529 U.S. at 771-75.

The Federal Circuit recently held that in order for a qui

15 tam relator to have standing under the false marking statute, he 16 must assert an injury to the United States, but does not need to 17 suffer an injury himself.
Stauffer v. Brooks Brothers, Inc., In Stauffer the qui

18 2010 WL 3397419 (Fed. Cir. Aug. 31, 2010).

19 tam relator was a patent attorney who purchased bow ties made by 20 the defendant, which the relator claimed to have been falsely 21 marked.
The court reasoned that the "qui tam provision operates

22 as a statutory assignment of the United States' rights, and `the 23 assignee of a claim has standing to assert the injury in fact 24 suffered by the assignor.'" 25 at 773). 26 27 28
Defendants challenge only the sufficiency of plaintiff's alleged injury in fact, not the second two standing requirements. 8
2

Id. (citing Vermont Agengy, 529 U.S.

The court concluded that by creating the statute

1 Congress determined that deceptive patent marking is harmful and 2 should be prohibited; therefore, a violation of § 292 inherently 3 constitutes an injury to the United States.
Id. The court

4 further reasoned that because the government would have standing 5 to enforce 35 U.S.C. § 292, the relator, as the government's 6 assignee, also has standing to enforce § 292.
Id. Accordingly,

7 the court held that the plaintiff, by acting as the government's 8 assignee, had standing to enforce § 292 against the defendant 9 without alleging injury to himself. 10
The court finds the Federal Circuit's reasoning persuasive.

11 As such, the court similarly concludes that a relator in a § 292 12 can act as the government's assignee without demonstrating his 13 own injury in fact.
In this case, plaintiff alleges a violation Following the reasoning of Stauffer,

14 of § 292 by defendants.

15 defendants' violation of the false marking statute gives the 16 United States, or its assignee, standing under § 292. 18 to establish standing in this action.
The fact

17 that plaintiff has not alleged harm to himself is not necessary
Plaintiff is considered

19 "any person" under § 292(b) and, as such, may act as an assignee 20 of the United States to enforce § 292 against defendants. 21 Therefore, defendants' motion to dismiss plaintiff's complaint 22 for lack of subject matter jurisdiction is DENIED. 23 B. 24
Failure to Plead Fraud with Particularity Defendants also argue that this action must be dismissed

25 because plaintiff failed to plead false marking with 26 particularity, as required under Federal Rule of Civil Procedure 27 9(b) ("Rule 9(b)").
(Defs.' Mot. Dismiss [Docket #9] ("Defs.' Plaintiff claims that

28 12(b)(6)"), filed July 26, 2010, at 3).
9

1 the false marking statute is not subject to the heightened 2 pleading requirements of Rule 9(b); and, alternatively, that if 3 the court finds that the plaintiff is subject to Rule 9(b), the 4 complaint also meets the heightened pleading requirements of the 5 rule. 6 7
(Pl.'s Opp'n [Docket # 13] ("Pl.'s 12(b)(6)"), at 5-6). 1. Heightened Pleading Standard

In this circuit, the heightened pleading standard of Rule

8 9(b) applies to claims that are "grounded in fraud" or that 9 "sound in fraud."
See Vess, 317 F. 3d at 1103-04. A claim for

10 false patent marking requires that the defendant acted for the 11 "purpose of deceiving the public."
(35 U.S.C. § 292(a)). As

12 such, courts have held that Rule 9(b) applies to false marking 13 claims because the statute "sounds in fraud" or is "fraud-based." 14 See e.g. Shizzle Pop, LLC. v. Wham-O, Inc., 2010 WL 3063066, at 15 *4 (C.D. Cal. Aug. 2, 2010); Juniper Networks v. Shipley, 2009 WL 16 1381873, at *4 (N.D. Cal. May 14, 2009).
Specifically, in

17 Juniper Networks, the court focused on the intent to deceive 18 element of the false marking statute and concluded that false 19 marking is a fraud-based claim, which is subject to the 20 heightened pleading requirement of Rule 9(b).
Id. (citing Berson

21 v. Applied Signal Technology, Inc., 527 F. 3d 982, 987 (9th Cir. 22 2008) ("[p]laintiffs must `state with particularity facts giving 23 rise to a strong inference' that defendants acted with the intent 24 to deceive"); c.f., Eisai Co., Ltd. V. Teva Pharmaceuticals USA, 25 Inc., 557 F. Supp. 2d 490, 493 (D.N.J. 2008) (a claim for 26 inequitable conduct, which requires an intent to deceive the 27 Patent and Trademark Office, is subject to heightened pleading 28 standard under Rule 9(b))).
10

1

Consistent with the holdings of district courts in the

2 Central District of California and the Northern District of 3 California, the court concludes that the false marking statute 4 requires an intent to deceive, and thus, sounds in fraud. 5 Therefore, plaintiff's complaint must meet the heightened 6 pleading requirements of Rule 9(b). 7 8
2. Sufficiency of Plaintiff's Allegations Federal Rule of Civil Procedure 9(b) requires that when

9 alleging fraud or mistake, the party must state with 10 particularity the circumstances constituting fraud or mistake. 11 Fed. R. Civ. Pro. 9(b). 13 generally.
Id. However, under Rule 9(b) malice, intent,

12 knowledge, and other condition of mind of a person may be plead
Rule 9(b) requires that a plaintiff set forth

14 the activities underlying the alleged frauds, including the time, 15 place, specific content of the alleged misrepresentations, and 16 the identity of the parties involved.
Odom v. Microsoft Corp.,

17 486 F.3d 541, 553 (9th Cir. 2007) (citing Schreiber Distrib. Co. 18 v. Serv-Well Furniture Co., 806 F. 2d 1393, 1400 (9th Cir. 1986); 19 see also Moore v. Kayport Package Express, Inc., 885 F.2d 531, 20 541 (9th Cir. 1989).
To satisfy Rule 9(b) the allegations,

21 essentially, must state the who, what, when, where, and how of 22 the misconduct charged.
Vess v. Ciba-Geigly Corp. USA, 317 F.3d The purpose of Rule 9(b) is to

23 1097, 1106 (9th Cir. 2003).

24 identify the circumstances that constitute fraud so that the 25 defendant can prepare an adequate answer from the allegations. 26 Odom, 486 F. 3d at 553 (citation omitted). 27
In this case, the complaint alleges that defendants

28 manufacture, advertise, distribute, and sell AquaFlora products.
11

1 (Compl. ¶¶ 3, 8-9).

The complaint attaches advertisements by

2 defendants from their respective websites with pictures of the 3 products at issue in this action.
(Compl. at Ex. 1-2). The

4 complaint also alleges that defendants were advertising AquaFlora 5 products as patented on June 11, 2010 and that defendants' 6 products are neither patented, nor do they have a patent pending. 7 (Id. ¶ 19).
Additionally, with respect to intent, plaintiff

8 alleges that defendants acted intentionally because they have no 9 reasonable basis to believe that AquaFlora products are patented 10 and because they attempted to gain a profit by confusing and 11 misleading customers through claims of "17 years, long-standing 12 success."
(Id. ¶¶ 17, 21-22). The court finds that these

13 allegations satisfy Rule 9(b) because the allegations address 14 who, what, when, where, and how defendants have allegedly 15 violated the false marking statute.
See Vess, 317 F.3d at 1106.

16 The court also finds that plaintiff's allegations regarding 17 intent meet the general allegation requirement under Rule 9(b). 18 Therefore, defendants Rule 12(b)(6) motion to dismiss for failure 19 to plead with particularity is DENIED. 20 C. 21
Time Barred by the Statute of Limitations Finally, defendants claim that plaintiff's action is time

22 barred by the five-year statute of limitations applicable to 35 23 U.S.C. § 292, and therefore should be dismissed with prejudice. 24 (Defs.' 12(b)(6), at 4).
Specifically, defendants argue that

25 plaintiff has not alleged when such markings began and thus, it 26 is unclear whether the complaint was filed within five years from 27 the date when the claim accrued. (Def.' 12(b)(6) at 5-6). 28 Plaintiff argues that the defendants misstate the allegations in
12

1 the complaint.

Plaintiff asserts that violations of the false

2 marking statute have occurred within the statutory period, 3 specifically referring to June 11, 2010. (Pl.'s 12(b)(6), at 74 8). 5
False marking claims under 35 U.S.C. § 292 are subject to a

6 five-year statute of limitations, which is set forth in 28 U.S.C. 7 § 2462.
Arcadia Mach. & Tool Inc. v. Sterm, Ruger & Co., 786 A dismissal under Rule

8 F.2d 1124, 1125 (Fed. Cir. 1986).

9 12(b)(b) based upon the expiration of the statute of limitations 10 may only be made " if the assertions of the complaint, read with 11 the required liberality, would not permit the plaintiff to prove 12 that the statute (had been) tolled."
Cervantes v. City of San The fact that dates

13 Diego, 5 F.3d 1273, 1275 (9th Cir. 1993).

14 alleged in the complaint are beyond the statutory period is not 15 enough to support a Rule 12(b)(6) dismissal. 16
Id. Plaintiff's complaint alleges that on June 11, 2010

17 defendants were in violation of the false marking statute 18 because, on that date, they described AquaFlora products on their 19 respective websites as using a "patented process" and as having 20 "17 years, long-standing success."
(Compl. ¶¶ 19, 21). While

21 plaintiff, in his opposition, broadly asserts that the 22 misrepresentations have been going on for 17 years, it is unclear 23 to the court what violations the plaintiff is referring to or 24 whether the viability of this action is affected. 25 12(b)(6), at 7-8).
(See Pl.'s Rather, taking the complaint in the light

26 most favorable to the plaintiff and drawing all reasonable 27 inferences therefrom, the court cannot conclude that the alleged 28 violations of the false marking statute did not occur within the
13

1 last 5 years. 3 limitations.

Indeed, the only specific date alleged in the

2 complaint is June 11, 2010, which falls within the statute of
Accordingly, at this stage in the litigation the

4 court cannot determine as a matter of law that plaintiff's claim 5 is time-barred.3 7 DENIED. 8 9 11 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
The court notes that nothing in this order precludes defendants from raising this argument in a motion for summary judgement. 14
3

Therefore, defendants's Rule 12(b)(6) motion to

6 dismiss on the basis that plaintiff's claim is time-barred is
CONCLUSION For the foregoing reasons, defendants' Rule 12(b)(1) and

10 Rule 12(b)(6) motions to dismiss are DENIED.
IT IS SO ORDERED.

12 DATED: October 15, 2010

FRANK C. DAMRELL, JR. UNITED STATES DISTRICT JUDGE