Melaleuca, Inc. v. Hansen

Filing 55

ORDER ON REPORT AND RECOMMENDATION incorporating and adopting in its entirety 50 Report and Recommendations; granting in part and denying in part 29 Motion to Amend/Correct. The parties are directed to file a joint litigation plan by 5/5/2014. 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 (cjm)

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

Case No. 1:10-cv-00553-EJL
ORDER ON REPORT AND
RECOMMENDATION

DARYL HANSEN,
Defendant.

INTRODUCTION
On February 25, 2014, United States Magistrate Judge Ronald E. Bush issued a Report
and Recommendation (“Report”), recommending that the Motion to Amend Complaint be
granted in part and denied in part. (Dkt. 50.) Any party may challenge a Magistrate Judge’s
proposed recommendation by filing written objections to the Report within fourteen days after
being served with a copy of the same. 28 U.S.C. § 636(b)(1) and District of Idaho Local Rule
72.1(b). The district court must then “make a de novo determination of those portions of the
report or specified proposed findings or recommendations to which objection is made.” Id.
The district court may accept, reject, or modify in whole or in part, the findings and
recommendations made by the Magistrate Judge. Id.; see also Fed. R. Civ. P. 72(b).

ORDER ON REPORT AND RECOMMENDATION - 1

Defendant filed objections to the Report arguing the Report fails to recognize
Plaintiff’s bad faith, ignores the application of judicial estoppel, overlooks Plaintiff’s track
record of frivolous litigation and prejudice from the delay, and neglects to identify the futility
of the amended complaint. (Dkt. 51.)1 Plaintiff did not file any objections but has responded
to the Defendant’s objections. (Dkt. 53.) The matter is now ripe for the Court’s consideration.
See Local Civil Rule 72.1(b)(2); 28 U.S.C. § 636(b)(1)(B).
FACTUAL AND PROCEDURAL BACKGROUND
This action began on November 10, 2010 when Plaintiff, Melaleuca, Inc., filed a
Complaint against the Defendant, Daryl Hansen alleging claims for violations 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. (Dkt. 1.) These same claims were raised previously by Melaleuca against Mr.
Hansen in an earlier case, Case No. CV07-212-E-EJL, ("Melaleuca I"),2 filed on May 8, 2007.
In Melaleuca I, Mr. Hansen filed a Motion to Dismiss arguing Melaleuca did not have
standing to raise the claims for violations of federal and state anti-span statutes. (Melaleuca

1

Defendant has also filed a Motion to Disqualify the Magistrate Judge that the Court will take up
in a separate Order. (Dkt. 52.)
2

In this Order, when citing to the docket in Melaleuca I the Court will use (Melaleuca I,
Dkt. ). When citing to the docket in the instant case, Melaleuca II, the Court will simply use
(Dkt. ).
ORDER ON REPORT AND RECOMMENDATION - 2

I, Dkt. 38.) The Court granted Mr. Hansen's Motion to Dismiss concluding Melaleuca lacked
standing to bring the CAN-SPAM Act claim and declined to exercise jurisdiction over the
remaining state law claims. (Melaleuca I, Dkt. 69, 72.) The case was dismissed without
prejudice. (Melaleuca I, Dkt. 73.)
In this action, Mr. Hansen again filed a Motion to Dismiss which the Court granted on
April 15, 2011. (Dkt. 9, 13.) The Court concluded that the claims raised in this case were the
same as those previously dismissed in Melaleuca I and, therefore, were barred by collateral
estoppel. (Dkt. 13.) On appeal, the Ninth Circuit affirmed the dismissal of the CAN-SPAM
Act claim but remanded to this Court the question of whether diversity jurisdiction had been
invoked so as to allow Melaleuca to raise the state law claims in this action. (Dkt. 20.) On
remand, the parties briefed the diversity jurisdiction question and Melaleuca filed a Motion
to Amend/Correct Complaint. (Dkt. 29.)3 These matters are the subject of the Report which
recommends granting the Motion to Amend/Correct to which Mr. Hansen has filed objections.
(Dkt. 50, 51, 53.)2 The Court finds as follows.
STANDARD OF REVIEW
Pursuant to 28 U.S.C. § 636(b)(1)(C), this Court “may accept, reject, or modify, in
whole or in part, the findings and recommendations made by the magistrate judge.” Where

3

The parties also field related Motions which the Magistrate Judge resolved. (Dkt. 49,

50.)
2

In addition, Mr. Hansen has filed a Motion for Disqualification of Magistrate Judge
Bush. (Dkt. 52.) This Motion is not yet ripe. The Court will consider the same in a separate order
once it has been fully briefed.
ORDER ON REPORT AND RECOMMENDATION - 3

the parties object to a report and recommendation, this Court “shall make a de novo
determination of those portions of the report which objection is made.” Id. Where, however,
no objections are filed the district court need not conduct a de novo review. In United States
v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003), the court interpreted the requirements
of 28 U.S.C. 636(b)(1)(C):
The statute [28 U.S.C. § 636(b)(1)(C)] makes it clear that the district judge
must review the magistrate judge's findings and recommendations de novo if
objection is made, but not otherwise. As the Peretz Court instructed, “to the
extent de novo review is required to satisfy Article III concerns, it need not be
exercised unless requested by the parties.” Peretz, 501 U.S. at 939 (internal
citation omitted). Neither the Constitution nor the statute requires a district
judge to review, de novo, findings and recommendations that the parties
themselves accept as correct. See Ciapponi, 77 F.3d at 1251 (“Absent an
objection or request for review by the defendant, the district court was not
required to engage in any more formal review of the plea proceeding.”); see
also Peretz, 501 U.S. at 937-39 (clarifying that de novo review not required for
Article III purposes unless requested by the parties) . . . .
See also Wang v. Masaitis, 416 F.3d 993, 1000 & n.13 (9th Cir. 2005). Furthermore, to the
extent that no objections are made, arguments to the contrary are waived. See Fed. R. Civ. P.
72; 28 U.S.C. § 636(b)(1) (objections are waived if they are not filed within fourteen days of
service of the Report and Recommendation). “When no timely objection is filed, the Court
need only satisfy itself that there is no clear error on the face of the record in order to accept
the recommendation.” Advisory Committee Notes to Fed. R. Civ. P. 72 (citing Campbell v.
United States Dist. Court, 501 F.2d 196, 206 (9th Cir.1974)).

ORDER ON REPORT AND RECOMMENDATION - 4

In this case, the Court has conducted a de novo review of those portions of the Report
to which Mr. Hansen has objected. The Court has also reviewed the entire Report as well as
the record in this matter for clear error on the face of the record and finds as follows.
DISCUSSION
1.

Bad Faith
The Ninth Circuit's order of remand directed this Court to determine whether

Melaleuca has asserted "good faith damages in excess of the federal amount-in-controversy."
(Dkt. 20.) For diversity actions the statutory requirement is that the amount in controversy
exceed $75,000 exclusive of interest and costs. 28 U.S.C. § 1332. As the Report correctly
noted, the "amount in controversy alleged by the party seeking to invoke diversity jurisdiction
is controlling, so long as the claim is made in good faith." (Dkt. 50 at 4) (citing Geographic
Expeditions, Inc. v. Estate of Lhotka ex rel. Lhotka, 599 F.2d 1102, 1106 (9th Cir. 2010)).
In his objections, Mr. Hanson argues all of Melaleuca's alleged damages are brought
in bad faith, deceptive, meritless, and based on claims that have been dismissed or are
otherwise legally barred. (Dkt. 51 at 2.) Melaleuca maintains it has clearly shown the claims
are made in good faith and exceed the $75,000 statutory requirement for diversity jurisdiction.
(Dkt. 53.) The Report concluded that the statutory damages alleged in the ICPA claim, $100
per violation with 1,400 alleged violations, alone satisfies the jurisdictional amount in
controversy. (Dkt. 50 at 6.) Having reviewed the record in this case, this Court agrees with
the Report's conclusion that Melaleuca has alleged, at least at this early stage, damages

ORDER ON REPORT AND RECOMMENDATION - 5

sufficient to satisfy the statutory amount in controversy requirement.
2.

Judicial Estoppel
Mr. Hansen argues the Report failed to apply the doctrine of judicial estoppel to bar

Melaleuca's claims. (Dkt. 51 at 3.) Specifically, Mr. Hansen argues the Report inaccurately
described his judicial estoppel argument as applying only to the CAN-SPAM claims when he
is arguing that the doctrine should bar all of Melaleuca's claims. In response, Melaleuca
argues judicial estoppel does not apply here as it has not taken an inconsistent litigation
position, is not precluded from pleading alternative theories, and it has not placed Mr. Hansen
at an unfair disadvantage. (Dkt. 53.) The parties briefed this issue in their initial briefing on
the Motion to Amend Complaint. (Dkt. 30, 37.)
“Judicial estoppel is an equitable doctrine that precludes a party from gaining an
advantage by asserting one position, and then later seeking an advantage by taking a clearly
inconsistent position.” Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782 (9th Cir.
2001). The doctrine applies when: (1) a party’s position is clearly inconsistent with a previous
position; (2) the prior court accepted the previous inconsistent position; and (3) the
inconsistency gave the litigant an unfair advantage in the subsequent suit. Id. at 782 (citing
New Hampshire v. Maine, 532 U.S. 742, 751 (2001)).
The Report discusses the impact of the Ninth Circuit's ruling on CAN-SPAM Act
claims and recommends that the Motion to Amend be denied as to allegations relating to that
claim. (Dkt. 50 at 5.) Mr. Hansen's objections seeks to have the Court go one step further and

ORDER ON REPORT AND RECOMMENDATION - 6

conclude that estoppel precludes all of Melaleuca's claims. The Court declines to do so at this
time. The question before the Court at this stage is simply whether Melaleuca has made a
sufficient showing to meet the diversity jurisdiction requirements on the non-CAN-SPAM Act
claims. This Court agrees with the Report's analysis of that question and will adopt the same.
In so concluding, the Court makes no finding at this time as to the viability of his argument
if it is raised in a later motion.
3.

Frivolous Litigation, Prejudice, and Delay
Mr. Hansen maintains the Report erred in failing to find this litigation to be frivolous

and that the delays have prejudiced him. (Dkt. 51 at 4.) This case has undoubtedly taken a
long and winding road to get to this point. Although it has been pending since 2010, the case
is only in its beginning stage procedurally. The Court finds the Report applied the correct
standard of law to the question and Motion currently pending. (Dkt. 50 at 3.) At this point,
Melaleuca has demonstrated the minimal requirements for diversity jurisdiction and the Court
agrees with the Report's conclusion that Mr. Hansen has not demonstrated prejudice.
4.

Futility
The Motion to Amend/Correct the Complaint should be denied, Mr. Hansen argues,

because any amendment is futile. (Dkt. 51 at 5-6.) Mr. Hansen maintains that the state law
claims that survived appeal are "barred by laches, the doctrine of unclean hands, expired
statute of limitations, and the lack of subject matter jurisdiction." (Dkt. 51 at 6.) He argues the
Report failed to consider the matters that have already been adjudicated and apply the above

ORDER ON REPORT AND RECOMMENDATION - 7

doctrines that bar Melaleuca's state law claims.
The prior cases, procedural history, and claims made by Melaleuca against Mr. Hansen
were all considered in the Report. (Dkt. 50 at 1-3.) This Court too has gone back and reviewed
the prior cases and rulings therein when considering the pending matters and the parties'
arguments in this case. Mr. Hansen's objection goes more to the merits of the claims which
would be appropriate for a later dispositive type motion. On the questions currently pending,
the Court finds the Report correctly decided the matter. Applying the correct standard
applicable for this early stage in the case, Melaleuca has satisfied the minimal showing
required for diversity jurisdiction and the liberal standard for leave to amend. Whether the
claims survive a later dispositive motion remains to be seen.
5.

Conclusion
The Court has reviewed the Report and finds it to be well founded in law and

consistent with this Court’s own view of the evidence in the record. Acting on the
recommendation of Magistrate Judge Bush, and this Court being fully advised in the premises,
the Court agrees with Magistrate Judge Bush’s conclusions and will adopt the same.
ORDER
NOW THEREFORE IT IS HEREBY ORDERED that the Report and
Recommendation entered on February 25, 2014 (Dkt. 50) is INCORPORATED by reference
and ADOPTED IN ITS ENTIRETY and the Court HEREBY ORDERS as follows:

ORDER ON REPORT AND RECOMMENDATION - 8

1)

Plaintiff’s Motion to Amend/Correct Complaint (Dkt. 29) is GRANTED IN
PART and DENIED IN PART as stated in the Report.

2)

The parties are directed to file a joint litigation plan3 by May 5, 2014.
DATED: April 3, 2014

Honorable Edward J. Lodge
U. S. District Judge

3

Attached is a Civil Case Litigation Outline which shall be used by the parties in determining
their case litigation plan. The Court will expect the outline to be followed unless a showing by the parties
is made that the case is highly complex in nature. The litigation plan form can be found at
http://www.id.uscourts.gov/forms-dc/LITPLAN_ejl.pdf.

ORDER ON REPORT AND RECOMMENDATION - 9

CIVIL CASE LITIGATION OUTLINE
DAY
EVENT
1
Order on Report and Recommendaiton
30

DISTRICT COURT FILING DEADLINE: Joint Litigation Plan
Form

90

Expert Disclosure by plaintiff

120

Expert Disclosure by defendant

135

Rebuttal Expert Disclosure by plaintiff

160

Pre-Alternative Dispute Resolution (ADR) Discovery Deadline
DISTRICT COURT FILING DEADLINE: Motion to Amend

210

ADR Conference (Mediation, Arbitration or Settlement Conference)

240

Final Discovery Deadline

270

DISTRICT COURT FILING DEADLINE: All Pre-Trial Motions (6
months before trial)
TRIAL: Scheduled to begin on Tuesdays at 9:30 a.m. unless otherwise
ordered.

ORDER ON REPORT AND RECOMMENDATION - 10