Melaleuca, Inc. v. Hansen

Filing 13

MEMORANDUM ORDER granting 9 Motion to Dismiss. Signed by Judge Edward J. Lodge. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by dks)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
MELALEUCA, INC.,
Plaintiff,
v.

Case No. CV 10-553-S-EJL
MEMORANDUM ORDER

DARYL HANSEN,
Defendant.

INTRODUCTION
Pending before the Court is Defendant's Motion to Dismiss (Dkt. No. 9.) The
Complaint in this action was filed on November 10, 2010 and the pending Motion was
filed on February 7, 2011. (Dkt. Nos. 1, 9.) The Plaintiff filed an opposition and Defendant
filed an objection to the opposition. (Dkt. Nos. 10, 11.) Having fully reviewed the record
herein, the Court finds that the facts and legal arguments are adequately presented in the
briefs and record. Accordingly, in the interest of avoiding further delay, and because the
Court conclusively finds that the decisional process would not be significantly aided by
oral argument, the Motion shall be decided on the record before this Court without oral
argument.

MEMORANDUM ORDER - 1

FACTUAL AND PROCEDURAL BACKGROUND 1
Defendant Daryl Hansen resides in California and at the time of these alleged
events, worked as an independent marketing executive for a multi-level marketing
company called ITV. In connection with the work he performed for ITV, Mr. Hansen
would attempt to get ITV customers to join ITV, performing the same type of work.
Plaintiff, Melaleuca, Inc., an Idaho corporation, is engaged in a similar type of business
model. Melaleuca encourages its customers to become marketing executives by referring
family and friends to Melaleuca to purchase its products and allowing them to earn
commission on any orders made by the referred individuals.
Additionally, Melaleuca is the owner of the domain name iglide.net. Through
iglide.net, Melaleuca gives their marketing executives the option of purchasing Internet
services, including e-mail. Internet access, however, is provided by Melaleuca through a
third-party Internet Service Provider (“ISP”), IP Applications, Inc., who has been
identified in the introductory paragraphs of the Complaint as a "non-party." (Dkt. No. 1,
¶ 4.)2 IP Applications owns certain servers and other equipment and has, the Complaint
alleges, assigned all of its rights, title, and interest in any claims, demands, and causes of

1

Certain portions of the factual background in this Order were obtained from the
previously filed case, Case Number CV07-212-E-EJL.
2

The "Introductory Paragraphs" of the Complaint are somewhat confusing in the parties
listed. (Dkt. No. 1, ¶¶ 3-4.) Paragraph three lists Hansen and Belova as "Defendants" who are
married and were both named in Melaleuca I. Belova, however, is not included in the caption and
the Complaint refers to Defendant in the singular.
MEMORANDUM ORDER - 2

action of any kind whatsoever that relate to the Defendant's actions in the sending of
unsolicited commercial email to email accounts sold by Melaleuca to the general public
for which IP Applications provides services and equipment. (Dkt. No. 1, ¶ 4.)
After Mr. Hansen began working at ITV, he contacted individuals via e-mail, some
of whom worked at Melaleuca, and inquired whether they would be interested in hearing
about a new business opportunity. The e-mails gave a brief description of how ITV works,
exulted the benefits of working for ITV, and asked the individuals to call him. Mr. Hansen
may have been aware that several of these individuals worked at Melaleuca. Some of the
Melaleuca marketing executives he contacted were users of the iglide.net e-mail service.
On May 8, 2007, Melaleuca filed a Complaint in Case No. CV07-212-E-EJL,
("Melaleuca I")3 alleging claims against Mr. Hansen, including violation of the
Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (“CANSPAM” Act), 15 U.S.C. § 7701, et seq., violation of the Idaho Consumer Protection Act
(“ICPA”), Idaho Code § 48-603E(2), misappropriation of trade secrets in violation of the
Idaho Trade Secrets Act ("ITSA"), Idaho Code § 48-801 et seq., and tortious interference
with contract. (Melaleuca I, Dkt. No. 1.)4 The Defendants filed a Motion to Dismiss

3

In this Order, when citing to the docket in Melaleuca I the Court will cite to
(Melaleuca I, Dkt. No. ). When citing to the docket in the instant case the Court will
simply use (Dkt. No. ).
4

An Amended Complaint was filed later raising the same claims against both Daryl
Hansen and his wife Svetlana Belova. (Melaleuca I, Dkt. No. 6.) The Defendants' filed a Motion
to Dismiss for lack of personal jurisdiction which the Court granted in part dismissing Defendant
MEMORANDUM ORDER - 3

"Spam Issues" asking that the claims for violations of federal and state anti-span statutes
be dismissed on the grounds that Melaleuca did not have standing to raise such claims.
(Melaleuca I, Dkt. No. 38.) Magistrate Judge Mikel H. Williams held a hearing on the
Motion and entered a Report and Recommendation ("Report") recommending that the
Motion to Dismiss be granted; concluding Melaleuca lacked standing to bring a claim
under the CAN-SPAM Act and that the Court should not exercise jurisdiction over the
remaining state law claims. (Melaleuca I, Dkt. No. 69.) This Court considered the Report
as well as Melaleuca's objections and the Defendants' response thereto and concluded that
the Report had correctly decided the Motion and adopted the same. (Melaleuca I, Dkt. No.
72.) As such, the case was dismissed without prejudice. (Melaleuca I, Dkt. No. 73.) On
October 29, 2010, Melaleuca filed an appeal which has since been voluntarily dismissed.
(Melaleuca I, Dkt. Nos. 74, 81.) On November 17, 2010, Mr. Hansen filed a cross-appeal,
which remains pending, asking whether or not the Court erred in not dismissing
Melaleuca's claims with prejudice. (Melaleuca I, Dkt. No. 77.)
On November 10, 2010, Melaleuca initiated this new action by filing the Complaint
raising the same four causes of action against Mr. Hansen. (Dkt. No. 1.) In response, Mr.
Hansen filed his pro se Motion to Dismiss which the Court now takes up. (Dkt. No. 9.)

Belova from the action. (Melaleuca I, Dkt. Nos. 27, 31.) Paragraph 3 of the Complaint in this
action lists Belova as a one of the Defendants. (Dkt. No. 1.) Though not raised in the instant
Motion, it seems the Court's ruling in Melaleuca I on the Motion to Dismiss for Personal
Jurisdiction would preclude Belova's inclusion as a party in this action.
MEMORANDUM ORDER - 4

DISCUSSION
1.

Standard of Review
A motion to dismiss under Rule 12(b)(6) will be granted when the complaint fails

to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). Generally, the
Court may not consider any material beyond the pleadings in ruling on a motion to dismiss
under Federal Rule of Civil Procedure 12(b)(6). Branch v. Tunnel, 14 F.3d 449, 453 (9th
Cir. 1993). Furthermore, if a Rule 12(b)(6) motion raises “matters outside the pleading”
and these matters are “presented to and not excluded by the court, the motion shall be
treated as one for summary judgment and disposed of as provided in Rule 56.” Id. at 453.
When reviewing a motion for summary judgment, the proper inquiry is whether “the
pleadings, depositions, answers to interrogatories, and admissions on file, together with
the affidavits, show that there is no genuine issue as to any material fact and that the
moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). “[T]he
mere existence of some alleged factual dispute between the parties will not defeat an
otherwise properly supported motion for summary judgment; the requirement is that there
be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 24748 (1986). Material facts are those which may affect the outcome of the case. See Id.
2.

Defendant’s Motion to Dismiss
Mr. Hansen's Motion seeks dismissal of Melaleuca’s claims against him primarily

based on issue preclusion/collateral estoppel as well as violations of Federal Rule of Civil

MEMORANDUM ORDER - 5

Procedure 26(d). (Dkt. No. 9.) Mr. Hansen argues the dismissal in Melaleuca I precludes
the claims raised here. Melaleuca opposes the Motion arguing the prior case was dismissed
without prejudice and, therefore, is not preclusive of the claims brought in this action.
(Dkt. No. 10.) Mr. Hansen replies arguing Melaleuca addresses only res judicata/claim
preclusion but does not dispute the application of issue preclusion/collateral estoppel.
(Dkt. No. 11, p. 2.)
A.

Principles of Preclusion

“Although the literal definition of the term res judicata is expansive enough to
cover both preclusion of relitigation of the same cause of action and relitigation of the
same issue, the modern tendency is to refer to the aspect of the doctrine that precludes
relitigation of the same issue in a separate cause of action as collateral estoppel, and to
refer to that aspect preventing relitigation of the same cause of action as res judicata. Res
Judicata thus applies to protect litigants from the burden of litigating the same cause of
action with the same party or its privity” Coeur d'Alene Tribe v. Asarco Inc., 280
F.Supp.2d 1094, 1117-19 (D. Idaho 2003) (quotations and citations omitted).5 "[I]n order

5

Similarly, the Idaho Supreme Court has stated “[r]es judicata is comprised of claim
preclusion (true res judicata ) and issue preclusion (collateral estoppel)." Oregon Mut. Ins. Co. v.
Farm Bureau Mut. Ins. Co. of Idaho, 218 P.3d 391, 394-94 (Idaho 2009) (citations omitted).
“Res judicata is an affirmative defense and the party asserting it must prove all of the essential
elements by a preponderance of the evidence.” Id. (citation omitted). Res judicata “bars not only
subsequent relitigation of a claim previously asserted, but also subsequent relitigation of any
claims relating to the same cause of action which were actually made or which might have been
made." Lohman v. Flynn, 78 P.3d 379, 386 (Idaho 2003) (citing Hindmarsh v. Mock, 57 P.3d
803, 805 (Idaho 2002) (citations omitted)).
MEMORANDUM ORDER - 6

for res judicata to bar litigation, the following requirements must be met: (1) the same
claim or cause of action arising out of the same facts must be involved in both suits; (2)
there must be a final judgment on the merits in the prior action; and (3) the parties in the
instant action must be the same as or in privity with the parties in the prior action in
question." Id. (citations omitted). "The purposes of these judicially created rules are to
conserve judicial resources, protect litigants from multiple lawsuits, and foster certainty
and reliance in legal relations." Id.6
On the other hand, "[c]ollateral estoppel bars 'the re-litigation of an issue that has
been actually litigated and necessarily decided.'" Schoenleber v. Harrah's Laughlin, Inc.,
423 F.Supp.2d 1109, 1112 (D. Nev. 2006) (quoting Clements v. Airport Authority of
Washoe County, 69 F.3d 321, 330 (9th Cir. 1995). "Collateral estoppel, or issue
preclusion, bars the relitigation of both issues of law and issues of fact actually adjudicated
in previous litigation between the same parties. Collateral estoppel applies not only against
actual parties to prior litigation, but also against a party that is in privity to a party in
6

The Idaho Supreme Court has also recognized that the three fundamental purposes
served by res judicata are:
First, it "[preserves] the acceptability of judicial dispute resolution against the
corrosive disrespect that would follow if the same matter were twice litigated to
inconsistent results." Second, it serves the public interest in protecting the courts
against the burdens of repetitious litigation; and third, it advances the private
interest in repose from the harassment of repetitive claims. The doctrine of claim
preclusion bars not only subsequent relitigation of a claim previously asserted, but
also subsequent relitigation of any claims relating to the same cause of action
which were actually made or which might have been made.
Lohman, 78 P.3d at 386.
MEMORANDUM ORDER - 7

previous litigation." Washington Mut. Inc. v. United States, ___ F.3d ___, No. 09-36109,
2011 WL 723101, *9 (9th Cir. March 3, 2011) (citation omitted).7
Federal law controls the collateral estoppel analysis where, as here, a federal court
has decided the earlier case. See McQuillion v. Schwarzenegger, 369 F.3d 1091, 1096 (9th
Cir. 2004). Melaleuca I invoked the Court's original jurisdiction by virtue of the federal
law claim made under the CAN-SPAM Act. (Melaleuca I, Dkt. No. 1.) The state claims in
Melaleuca I were based on supplemental jurisdiction. (Melaleuca I, Dkt. No. 1.)8 Because

7

The Idaho Supreme Court has also stated "[u]nder principles of claim preclusion, a valid
final judgment rendered on the merits by a court of competent jurisdiction is an absolute bar to a
subsequent action between the same parties upon the same claim.” Lohman, 78 P.3d at 386
(citations omitted). In Idaho, "[i]ssue preclusion protects a party from litigating an identical issue
with the same party or his privy. Five factors are required in order for an action to be barred on
the basis of issue preclusion: (1) the party against whom the earlier decision was asserted had a
full and fair opportunity to litigate the issue decided in the earlier case; (2) the issue decided in
the prior litigation was identical to the issue presented in the present action; (3) the issue sought
to be precluded was actually decided in the prior litigation; (4) there was a final judgment on the
merits in the prior litigation; and (5) the party against whom the issue is asserted was a party or in
privity with a party to the litigation.” Bach v. Bagley, 229 P.3d 1146, 1157 (Idaho 2010) (citation
omitted); see also Oregon Mut. Ins., 218 P.3d at 395 (citations omitted); Lohman, 78 P.3d at 386
(citation omitted).
8

Unlike Melaleuca I, however, in this case Melaleuca has also alleged diversity
jurisdiction exists here over all claims. (Dkt. No. 1.) “[A] federal court sitting in diversity must
apply the res judicata law of the state in which it sits.” Costantini v. Trans World Airlines, 681
F.2d 1199, 1201 (9th Cir. 1982); see also Murray v. Sears, Roebuck and Co., No. 09-05744 CW,
2010 WL 3490214, *2 (N.D. Cal. Sept. 3, 2010) (citing Semtek Int'l v. Lockheed Martin Corp.,
531 U.S. 497, 508 (2001) (“Since state, rather than federal, substantive law is at issue there is no
need for a uniform federal rule.... This is, it seems to us, a classic case for adopting, as the
federally prescribed rule of decision, the law that would be applied by state courts in the State in
which the federal diversity court sits.”); see also Priest v. Am. Smelting & Ref. Co., 409 F.2d
1229, 1231 (9th Cir. 1969) (Where federal jurisdiction "is based upon diversity of citizenship, the
district court...must apply the substantive law of the forum state....”). Here however, because the
dismissal in Melaleuca I was a federal judgment made based on this Court's original federal
jurisdiction, not diversity jurisdiction, the federal law regarding collateral estoppel applies. See
MEMORANDUM ORDER - 8

"[f]ederal law governs the collateral estoppel effect of a case decided by a federal court,"
the Court will apply the federal law elements for collateral estoppel. See Trevino v. Gates,
99 F.3d 911, 923 (9th Cir.1996) (Trevino involved a federal law claim brought under
§ 1983 which invoked the court's original jurisdiction.) (citation omitted). Under federal
law, a prior court decision has preclusive effect under the doctrine of collateral estoppel
only where it is established that:
(1) the issue necessarily decided at the previous proceeding is identical to the
one which is sought to be relitigated; (2) the first proceeding ended with a
final judgment on the merits; and (3) the party against whom collateral
estoppel is asserted was a party or in privity with a party at the first
proceeding.
United States v. Edwards, 595 F.3d 1004, 1012 (9th Cir. 2010) (quoting Hydranautics v.
FilmTec Corp., 204 F.3d 880, 885 (9th Cir. 2000)). The party asserting preclusion based
on collateral estoppel "bears the burden of showing with clarity and certainty what was
determined by the prior judgment." Id. (citation omitted).
B.

Analysis

Mr. Hansen maintains this action is bared by collateral estoppel because the issues
are identical to the first case, were actually litigated, and the determinations were a
necessary part of the judgment. (Dkt. No. 11, p. 2.) Melaleuca counters that the dismissal
of the prior case for lack of standing was without prejudice and, therefore, not a final

Bui v. IBP, Inc., 205 F.Supp.2d 1181, 1185 (D.Ka 2002) (federal law for collateral estoppel
applies even when jurisdiction is based on diversity).

MEMORANDUM ORDER - 9

adjudication on the merits as to the CAN-SPAM Act claim. (Dkt. No. 10, p. 7.)
(1)

First and Third Elements of Collateral Estoppel.

The parties here do not seem to dispute that this cases raises the same claims,
against the same parties, upon the same factual basis as was asserted in the prior action.
(Dkt. No. 10, p. 6.), (Dkt. No. 11, p. 1-2.) The Complaints in both actions name the
identical parties and raise the same claims. See (Melaleuca I, Dkt. No. 1), (Dkt. No. 1.)
Likewise, the cases present identical issues, namely whether: 1) Melaleuca has standing
under the CAN-SPAM Act and 2) the amount in controversy exceeds $75,000.
In Melaleuca I the Court granted Mr. Hansen's Motion to Dismiss made pursuant to
Rule 12(b)(6) on the ground that Melaleuca did not have standing to raise its CAN-SPAM
Act claim. (Melaleuca I, Dkt. Nos. 69, 72.)9 There are two elements for standing under the
CAN-SPAM Act: (1) Plaintiff must be a provider of “Internet access service” (“IAS
provider” and (2) Plaintiff must be “adversely affected” by a violation of the Act. 15
U.S.C. § 7706(g)(1). See Gordon v. Virtumundo, Inc., 575 F.3d 1040, 1048-49 (9th Cir.
2009) (citation omitted). There the Court concluded that Melaleuca failed on both
elements. (Melaleuca I, Dkt. No. 72.) As to the first element, the Court agreed with the
Report's conclusion that Melaleuca was not a bona fide IAS provider because the access
and control over the hardware that enables internet access to iglide.net customers and

9

Because matters outside of the complaint were considered, the Court analyzed the
Motion as a motion for summary judgment. (Melaleuca I, Dkt. No. 72, p. 4.)
MEMORANDUM ORDER - 10

spam filters are all held by IP Applications. (Melaleuca I, Dkt. Nos. 69, 71.) In doing so,
the Court also rejected Melaleuca's "attempt to establish standing after filing its
complaint...by having IP Applications assign its CAN-SPAM claims" to it. (Melaleuca I,
Dkt. No. 72, p. 6.) As to the second element, the Court concluded that Melaleuca had not
shown it was adversely affected. (Melaleuca I, Dkt. Nos. 69, 72.)
In addition, the Court found that the claim for violation of the Idaho Consumer
Protection Act was preempted by federal law and Melaleuca had not satisfied the statutory
amount in controversy requirement for diversity jurisdiction; noting without the CANSPAM Act claim it is "difficult to imagine how Plaintiff could establish damages of at
least $75,000 that were not purely speculative based on the alleged emails sent to its
customers." (Melaleuca I, Dkt. No. 72, p. 8.) The Court then stated that because "a
dismissal based on a lack of standing is not an adjudication on the merits," the case was
dismissed without prejudice. (Melaleuca I, Dkt. No. 72, p. 8.) Based on the foregoing, the
Court finds the first and third elements of collateral estoppel are met.
(2)

Second Element of Collateral Estoppel.

The real debate between the parties lies around the second element of collateral
estoppel; whether or not the first proceeding ended with a final judgment on the merits.
Mr. Hansen cites case law defining the second element as asking whether the issue was
"actually litigated" such that Melaleuca had a "full and fair opportunity to litigate the
issues. (Dkt. No. 11, p. 2.) Melaleuca, on the other had, argues the second element requires

MEMORANDUM ORDER - 11

the prior case be a "final adjudication of the merits." (Dkt. No. 10.)
Mr. Hansen maintains issue preclusion/collateral estoppel applies to bar relitigation
of an issue even where there is no final judgment on the merits. (Dkt. No. 11, p. 2.) In
support of his argument, Mr. Hansen cites to Trevino v. Gates, where the Ninth Circuit
held the plaintiff was collaterally estopped from relitigating the punitive damages issue. 99
F.3d 911, 923 (9th Cir. 1996). There, the Ninth Circuit defined the second element as
requiring "the issue must have been actually litigated [by the party against whom
preclusion is asserted] in the prior litigation...." Trevino, 99 F.3d at 923 (quoting Town of
North Bonneville v. Callaway, 10 F.3d 1505, 1508) (9th Cir. 1993) (citations omitted).10
Melaleuca cites to cases discussing res judicata, or claim preclusion, which are
inapplicable here as that is a distinct analysis to the collateral estoppel/issue preclusion
argument raised in Mr. Hansen's Motion. (Dkt. No. 10) (citing Mpoyo v. Litton ElectroOptical Syst., 430 F.3d 985 (9th Cir. 2005); Oscar v. Alaska Dept. of Educ. and Early
Development, 541 F.3d 978 (9th Cir. 2008); Saint Alphonsus Reg'l Med. Ctr. v. Bannon,
910 P.2d 155 (Idaho 1995).)

10

There the Ninth Circuit identified the elements of collateral estoppel as:
[t]o foreclose relitigation of an issue under federal law: (1) the issue at stake must
be identical to the one alleged in the prior litigation; (2) the issue must have been
actually litigated [by the party against whom preclusion is asserted] in the prior
litigation; and (3) the determination of the issue in the prior litigation must have
been a critical and necessary part of the judgment in the earlier action.

Trevino, 99 F.3d at 923 (quoting Town of North Bonneville v. Callaway, 10 F.3d 1505 1508 (9th
Cir. 1993).
MEMORANDUM ORDER - 12

The more recent case law discussing the second element of the collateral estoppel
doctrine, however, requires that "the first proceeding ended with a final judgment on the
merits." Edwards, 595 F.3d at 1012 (quoting Hydranautics, 204 F.3d at 885); see also
Reyn's Pasta, 442 F.3d at 746. Thus, under federal law, "[c]ollateral estoppel, or issue
preclusion, bars re-litigation of issues when:
(1) the issue necessarily decided at the previous proceeding is identical to the
one which is sought to be relitigated; (2) the first proceeding ended with a
final judgment on the merits; and (3) the party against whom collateral
estoppel is asserted was a party or in privity with a party at the first
proceeding.
Murray v. Sears, Roebuck and Co., No. 09-05744 CW, 2010 WL 28998291, at *2-3 (N.D.
Cal. July 21, 2010) (quoting Reyn's Pasta, 442 F.3d at 746). It is "inappropriate," however,
"to apply collateral estoppel when its effect would be unfair.” Id. (quoting Eureka Fed.
Sav. & Loan Ass'n v. Am. Cas. Co. of Reading, Pa., 873 F.2d 229, 234 (9th Cir.1989)).
The Court will apply the more recent Ninth Circuit language requiring a "final judgment
on the merits" to these cases.
“To be ‘final’ for collateral estoppel purposes, a decision need not possess ‘finality’
in the sense of 28 U.S.C. § 1291." Murray, 2010 WL 2898291, at *4.11 “A ‘final
judgment’ for purposes of collateral estoppel can be any prior adjudication of an issue in
another action that is determined to be ‘sufficiently firm’ to be accorded conclusive

11

28 U.S.C. § 1291 provides for the jurisdiction of the courts of appeal over “all final
decisions of the district courts of the United States.”
MEMORANDUM ORDER - 13

effect.” Pruitt v. County of Sacramento, No. CIV. 2:10-416 WBS KJN, 2011 WL 219551,
*3 (E.D. Cal. Jan. 20, 2011) (quoting Luben Indus., Inc. v. United States, 707 F.2d 1037,
1040 (9th Cir.1983); see also Murray, 2010 WL 2898291, at *4-5.12 "Several factors are
relevant to the determination of 'firmness'”:
[P]reclusion should be refused if the decision was avowedly tentative. On
the other hand, that the parties were fully heard, that the court supported its
decision with a reasoned opinion, that the decision was subject to appeal or
was in fact reviewed on appeal, are factors supporting the conclusion that the
decision is final for purpose of preclusion.
Id. (quoting Restatement (Second) of Judgments § 13 cmt. g (1982)).
In Luben, the often cited case in this circuit, the Ninth Circuit stated that preclusion
should be refused if the prior decision was “avowedly tentative,” but preclusion is
supported if the parties were fully heard, the Court supported its decision with a reasoned
opinion, and the decision was subject to appeal. Luben, 707 F.2d at 1040 (quoting
Restatement (Second) of Judgments § 13 (1982)). There, the Ninth Circuit determined that
an interlocutory order did not have preclusive affect because an unappealable decision is
"not sufficiently firm to give it collateral estoppel effect." Id. at 1040. Applying the Luben
factors here, the Court finds the prior decision in Melaleuca I was sufficiently firm to have

12

But see Householder Group, LLLP v. Van Mason, 2010 WL 5093117 (Dec. 8, 2010 D.
Ariz.) (discussing the distinction between the "sufficiently firm" standards in Luben and St. Paul
Fire & Marine Ins. v. F.H., 55 F.3d 1420 (9th Cir. 1995)). The Court finds the Luben factors to
be applicable here as the prior rulings in Melaleuca I in question here resulted in a final judgment
unlike the circumstances presented in St. Paul Fire.

MEMORANDUM ORDER - 14

preclusive effect.
As to the first factor, the parties were fully heard on the issues in the prior
proceeding. The Motion to Dismiss raised the CAN-SPAM Act standing issue and was
fully briefed by both sides. (Melaleuca I, Dkt. Nos. 38, 43, 44.) The parties both filed
several exhibits and Affidavits to support their arguments on the Motion. Further, in their
status conference, Melaleuca, the aggrieved party, requested that the Court decide the
Motion without oral argument, further briefing, or discovery. (Melaleuca I, Dkt. No. 72, p.
4.) Following the issuance of the Report, Melaleuca filed fourteen pages of objections and
a supporting Affidavit challenging the Report's conclusions on the CAN-SPAM Act
standing issue and raising the argument that diversity jurisdiction applies to the state law
claims. (Melaleuca I, Dkt. No. 70.) Mr. Hansen responded to the objections including
opposing Melaleuca's new diversity argument. (Melaleuca I, Dkt. No. 71.) This Court then
took up the matter and, after considering all of the materials submitted by the parties de
novo, the Court issued its Order adopting the Report. (Melaleuca I, Dkt. No. 72.) In that
Order, the Court demonstrated it had fully considered the issues involving CAN-SPAM
Act standing as well as Melaleuca's diversity argument. It is clear from reading both of the
decisions in Melaleuca I as well as a review of the filings by the parties that both sides
were given an opportunity to be fully heard on the issues.
As to the second Luben factor, both the Magistrate Judge and this Court supported
their decisions in Melaleuca I with well-reasoned opinions neither of which were tentative.

MEMORANDUM ORDER - 15

In the Report, the Magistrate Judge accurately relayed the facts of the case, the applicable
standard of law, and thoroughly discussed and analyzed the CAN-SPAM Act standing
issue. (Melaleuca I, Dkt. No. 69.) This Court too provided a thorough discussion and
analysis of the CAN-SPAM Act standing issue as well as the amount in controversy
requirement for diversity jurisdiction. (Melaleuca I, Dkt. No. 72.) In both opinions, the
parties' briefing and arguments were addressed, fully considered, and decided
unequivocally.
As to the third factor, whether the decision was subject to appeal or was in fact
reviewed on appeal, in Melaleuca I the Court entering a final Judgment dismissing the
case. (Melaleuca I, Dkt. No. 73.) Both parties appealed. (Melaleuca I, Dkt. Nos. 74, 77,
80.) Melaleuca has since voluntarily dismissed his appeal presumably in favor of filing this
new action. (Melaleuca I, Dkt. No. 81.) Mr. Hansen's appeal remains pending. (Melaleuca
I, Dkt. Nos. 77, 80.)
Based on the foregoing and having applied the Luben factors, the Court finds the
decisions issued in Melaleuca I were final for collateral estoppel purposes as the decisions
were sufficiently firm so as to be accorded conclusive effect.
(3)

The Appeals in Melaleuca I.

Though not argued by the parties, the Court also finds relevant the fact of Mr.
Hansen's pending appeal in Melaleuca I challenging whether this Court's dismissal of that
case without prejudice was in error. (Melaleuca I, Dkt. No. 80); but see Bui v. IBP, Inc.,

MEMORANDUM ORDER - 16

205 F.Supp.2d 1181, 1189 (D. Ka 2002) ("The pendency of the appeal does not alter the
finality of the case for purposes of res judicata or collateral estoppel.") (citations omitted).
The practical implications of the Ninth Circuit's forthcoming decision of the Melaleuca I
appeal will directly impact the very question presented on this Motion; whether or not the
dismissal of Melaleuca I should have been with or without prejudice. Were the Ninth
Circuit to find error in this Court's order in Melaleuca I, Mr. Hansen would possess an
order dismissing with prejudice the claims against him in that case. In such event, without
the application of the collateral estoppel doctrine here, Mr. Hansen would be required to
once again defend himself in this case against the same claims previously dismissed in
Melaleuca I. Such a result would be wholly unfair and could potentially result in
inconsistent judgments between the two cases.
It goes without saying that such an outcome is directly contrary to the well
established purposes of collateral estoppel in promoting judicial economy by preventing
the relitigation of an issue previously argued and resolved in a prior proceeding. See
Hydranautics, 204 F.3d at 885; see also United States v. Stauffer Chem. Co., 464 U.S. 165,
176, (1984) (White, J., concurring) (“Collateral estoppel is generally said to have three
purposes: to relieve parties of the cost and vexation of multiple lawsuits, conserve judicial
resources, and, by preventing inconsistent decisions, encourage reliance on adjudication.”)
(internal quotations omitted)). Thus, the fact that appeals were filed in Melaleuca I
weights in favor of finding the prior decisions were sufficiently firm and final. In addition,

MEMORANDUM ORDER - 17

because one appeal remains pending, policy reasons support applying collateral estoppel
here to avoid inconsistent judgments, prejudice, and wasting judicial resources. The appeal
in Melaleuca I was Melaleuca's proper vehicle for challenging the dismissal, not the filing
of a new suit.
(4)

Curable Defects

Melaleuca contends it has "cured" its deficiencies from Melaleuca I and, therefore,
this case should be allowed to proceed. (Dkt. No. 10.) The concept of "curable defect" is
an exception to the application of collateral estoppel's preclusive effect that appears in
other circuits. See Bui v. IBP, Inc., 205 F.Supp.2d 1181, 1187 (D.Ka. 2002). The Ninth
Circuit too has discussed curable defects as being permissible in a second action where the
prior case was not adjudicated on the merits. See Wolfson v. Brammer, 616 F.3d 1045,
1064-65 (9th Cir. 2010). The dismissal in Melaleuca I was primarily based on the lack of
CAN-SPAM Act standing as well as lack of diversity jurisdiction. (Melaleuca I, Dkt. No.
72.) Because lack of standing and diversity are jurisdictional defects, they are subject to
correction in a second action. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560
(1992).13 Thus, Melaleuca can avoid the application of collateral estoppel's preclusive rule

13

“Standing” is generally understood to address the question of whether the
plaintiff has suffered a redressable injury. See generally Cetacean Cmty. v. Bush, 386
F.3d 1169, 1174 (9th Cir. 2004). Article III standing requires the plaintiff to establish:
“(1) an injury in fact (i.e., a concrete and particularized invasion of a legally protected
interest); (2) causation (i.e., a fairly traceable connection between the alleged injury in
fact and the alleged conduct of the defendant); and (3) redressability (i.e., it is likely and
not merely speculative that the plaintiff's injury will be remedied by the relief plaintiff
MEMORANDUM ORDER - 18

here if it has cured the defects from Melaleuca I. If it cannot, however, as discussed above,
because the decision in Melaleuca I was a final adjudication of the same issues as to the
same parties, application of the collateral estoppel doctrine is appropriate.
Again, the CAN-SPAM Act standing inquiry involves two general components: (1)
whether the plaintiff is an "IAS provider", and (2) whether the plaintiff was “adversely
affected by” statutory violations." Gordon, 575 F.3d at 1048-49 (citation omitted). The
Melaleuca I decisions concluded that Melaleuca lacked both of the required elements for
standing under the CAN-SPAM Act. (Melaleuca I, Dkt. Nos. 69, 72.) On the CAN-SPAM
Act standing issue, the Court concluded Melaleuca had failed to satisfy either component.
The Court determined it was not an IAS provider, rejecting Melaleuca's argument that IP
Applications' assignment of claims after the filing of the Complaint conferred standing.
(Melaleuca I, Dkt. No. 72, p. 6.) Because the IP Applications' assignment is dated prior to
the Complaint filed in this action, Melaleuca argues it has cured this defect. The Court
finds that Melaleuca may have corrected the temporal standing issue here with the filing of
this action dated subsequent to the assignment.14
The Melaleuca I decision, however, also concluded that Melaleuca failed to

seeks in bringing suit).” Sprint Commc'n Co., L.P. v. APCC Servs., Inc., 554 U.S. 269,
273 (2008) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)).
14

Whether or not the assignment is valid and/or actually provides CAN-SPAM Act
standing is not decided here. This decision only concludes that for purposes of collateral estoppel
it appears this isolated defect may be cured. The substantive questions surrounding the
assignment would have to be tested in future motions.
MEMORANDUM ORDER - 19

establish the second CAN-SPAM Act standing requirement because it had not established
any direct adverse affect or damages incurred as a result of Mr. Hansen's emails and that
the type of harm alleged did not satisfy the legal test Congress intended for IAS providers
to prove under the Act. (Melaleuca I, Dkt. No. 72, p. 7) (citing see Gordon, 575 F.3d at
1053-54.) This deficiency has not been cured.
In this case, Melaleuca alleges the same damages/types of harms as were raised in
Melaleuca I that the Court deemed insufficient to meet the second CAN-SPAM Act
standing requirement. Compare (Melaleuca I, Dkt. No. 6.) with (Dkt. No. 1.) Therefore,
Melaleuca has not cured that deficiency from Melaleuca I so as to preclude the application
of collateral estoppel. (Dkt. No. 1.) Thus, while it may be that Melaleuca has cured its
deficiencies in terms of the first standing requirement under the CAN-SPAM Act, the fact
remains that Melaleuca has not cured the defect as to the second standing requirement in
this action. As such, the Court's prior ruling that Melaleuca had not shown it was adversely
affected is preclusive to this action because that ruling was final and identical to the claim
and parties here. Accordingly, the Court finds the doctrine of collateral estoppel applies
Melaleuca I's ruling on the second standing element to this case precluding Melaleuca's
claims.
Likewise, the deficiencies from Melaleuca I as to diversity jurisdiction were not
cured in this case. In Melaleuca I, the Court considered Melaleuca's diversity jurisdiction
argument and concluded it had not shown that the amount in controversy exceeded

MEMORANDUM ORDER - 20

$75,000. (Melaleuca I, Dkt. Nos. 70, 71, 72.) Preclusion on this issue applies here as well
as it was again raised as the same claims and same parties and fully considered by the
Court. In objecting to the Report in Melaleuca I, Melaleuca claimed the amount in
controversy exceeded $75,000 and argued it was "confident" diversity jurisdiction exists
and asked for leave to amend the complaint to make such a showing. (Melaleuca I, Dkt.
No. 70, p. 12.) The Court's decision, however, was sufficiently final in concluding
Melaleuca failed to satisfy the diversity jurisdiction requirements; in particular as to the
amount in controversy. (Melaleuca I, Dkt. Nos. 70, 71, 72.)
Unlike the prior case however, as Melaleuca points out, the Complaint filed in this
action alleges diversity, 28 U.S.C. § 1332, as another basis for jurisdiction. (Dkt. No. 10,
p. 6.) The difference between the two cases lies in Paragraphs 16, 20, 24, and 31 of the
Complaint here where Melaleuca adds the phrase "damages exceed $75,000." (Dkt. No. 1.)
This addition to Melaleuca's Complaint, however, does not cure the diversity jurisdictional
defects of Melaleuca I. (Dkt. No. 1.)
Such bare conclusory statements fail to satisfy the amount in controversy showing
required by § 1332. See Matheson v. Progressive Specialty Ins. Co., 319 F.3d 1089, 109091 (9th Cir. 2003) ("Conclusory allegations as to the amount in controversy are
insufficient."). A party seeking to invoke federal subject matter jurisdiction has the burden
of establishing that jurisdiction exists. See Data Disc, Inc. v. Systems Technology
Associates, Inc., 557 F.2d 1280 (9th Cir. 1977); see also Fields v. Sedgwick Associated

MEMORANDUM ORDER - 21

Risks, Ltd., 796 F.2d 299, 301 (9th Cir. 1986) (holding a plaintiff must make a prima facie
showing of subject matter jurisdiction in order to maintain his claims).
"When alleging the jurisdictional amount to maintain a suit in diversity, a plaintiff
must demonstrate a good faith, minimally reasonable belief that the suit might result in a
judgment in excess of that amount.” Szanto v. British Airways, et al., Case No. 99-CV1508-J, 2000 WL 34017115, *2 (S.D. Cal. Mar. 15, 2000) (quoting St. Paul Mercury
Indemnity Co. v. Red Cab Co., 303 U S 283, 288 (1938)). "However, once a plaintiffs
jurisdictional allegations are challenged, the plaintiff bears the burden of proving his claim
meets the jurisdictional amount." Id. (citing McNurt v. Genera Motors Acceptance Corp.,
298 U.S 178, 189, (1936), Sanchez v. Monumental Life Ins. Co., 102 F.2d 398, 403-04 (9th
Cir. 1996)).
Melaleuca's bare conclusory allegations in the Complaint that the amount in
controversy exceeds $75,000 do not satisfy this burden. As the Court determined in
Melaleuca I, there are not facts alleged in the Complaint from which it can be inferred that
the amount in controversy exceeds $75,000 beyond the conculsory statements. This is
particularly true where, as here, the CAN-SPAM Act claim is dismissed and, therefore,
those statutory damages are not available to Melaleuca. As such, Melaleuca has not cured
the deficiencies of Melaleuca I so as to avoid application of collateral estoppel here.
C.

Conclusion

The parties and claims raised in this second action are identical to those brought

MEMORANDUM ORDER - 22

and dismissed in Melaleuca I. The issues upon which the dismissal in Melaleuca I was
decided were fully argued by the parties and considered by the Court with finality. Two
well reasoned opinions were issued in Melaleuca I discussing the decision to which both
parties filed appeals. One of these appeals remains pending, the outcome of which will
directly impact this case such that the policies behind collateral estoppel warrant its
application to this case. Finally, Melaleuca has failed to cure the defects of Melaleuca I
which resulted in the dismissal in that case. For these reasons, the Court finds the doctrine
of collateral estoppel should be applied here to preclude re-litigation of identical issues
and claims against identical parties. Accordingly, the Motion to Dismiss is granted.
ORDER
NOW THEREFORE IT IS HEREBY ORDERED that Defendant’s Motion to Dismiss
(Dkt. No. 9) is GRANTED.

DATED: April 15, 2011

Honorable Edward J. Lodge
U. S. District Judge

MEMORANDUM ORDER - 23