Skedco Inc. v. ARC Products, LLC

Filing 30

OPINION AND ORDER Granting Plaintiff's Motion to Dismiss 25 signed on 2/13/2014 by Judge Ancer L. Haggerty. Defendant's counter claims are dismissed. The dismissal is without prejudice and defendant has leave to file an amended answer that addresses the deficiencies identified in this opinion within 21 days of this date. (sp)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
PORTLAND DIVISION

SKEDKO, INC., an Oregon corporation,
Plaintiff,

Case No. 3:13-cv-00696-HA
OPINION AND ORDER

v.
ARC PRODUCTS, LLC, a Missouri limited
liability company, d/b/a MEDSLED,
Defendant.

HAGGERTY, District Judge:
SKEDCO, Inc. ("plaintiff' or "SKEDCO") filed this action against ARC Products, LLC
("defendant" or "Medsled") for false adve1iising in violation of Section 43(a) of the Lanham Act,
15 U.S. C.§ 1125(a), and unfair competition in violation of common law. On November 11,
2013, defendant filed an Answer [24], which included counterclaims for false adve1iising under
Secti'on 43(a) of the Lanham Act and attomey fees. Plaintiff moves to dismiss defendant's
counterclaims pursuant to Federal Rule of Civil Procedure 12(b)(6) and Federal Rule of Civil
Procedure 9(b). For the following reasons, plaintiffs Motion to Dismiss [25] is granted.

1 - OPINION AND ORDER

BACKGROUND
Plaintiff is an Oregon corporation that manufactures and sells emergency medical rescue
equipment, and its leading product is the Sked® Rescue System ("Sked"), an evacuation sled
system designed to quickly evacuate wounded people from confined spaces, from high angles, in
technical rescues, and in traditional land-based rescues.
Defendant is a Missouri company that also manufactures and sells emergency
transportation and evacuation devices. Of particular relevance to this case, defendant
manufactures and sells the Vertical Lift Rescue Sled ("VLR Sled"), which is an evacuation
device that provides quick transport of a nonambulatmy individual il) a difficult rescue situation
or a confined space.
On April24, 2013, plaintiff filed this lawsuit, alleging that defendant has used false and
misleading advertising in brochures, in films, in presentations, and on the Internet that compare
the VLR Sled and the Sked. Based on these misrepresentations, plaintiff asserts that defendant
engaged in false adve1iising.in violation of Section 43(a) of the Lanham Act, 15 U.S. C.§ 1125(a)
and unfair competition in violation of Oregon common law.
On November 11,2013, defendant filed its Answer [24], which included counterclaims.
Defendant alleges that plaintiff violated Section 43(a) of the Lanham Act by promoting its
product through the use of false and misleading statements. Plaintiff moves to dismiss
defendant's counterclaims.

ANALYSIS
Plaintiff argues that defendant's counterclaims should be dismissed because they fail to
meet the pleading requirements of Federal Rule of Civil Procedure (FRCP) 9(b). Generally, a

2 - OPINION AND ORDER

claim must only satisfy the liberal pleading standard ofFRCP 8(a)(2), which requires "a short
and plain statement of the claim showing that the pleader is entitled to relief." However, FRCP
9(b) requires that "[i]n alleging fraud or mistake, a party must state with pmiicularity the
circumstances constituting fraud or mistake." To satisfy Rule 9(b), "a pleading must identify the
who, what, when, where, and how of the misconduct charged, as well as what is false or
misleading about the purportedly false statement, and why it is false." Cafasso, US. ex rel. v.

Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1054-55 (9th Cir. 2011) (quotations and citations
omitted). The question at issue is whether defendant's counterclaims must satisfy the heightened
pleading standards of Rule 9(b).
The Ninth Circuit has not addressed whether false advertising claims under the Lanham
Act must be pleaded with pmiicularity. However, the Ninth Circuit has discussed the application
of the Rules 8 and 9(b) standards in similar contexts. In Vess v. Ciba-Geigy Corp. USA, 317
F.3d 1097 (9th Cir. 2003), the plaintiff alleged that the defendants increased prescription drug
sales by fraudulently representing that the diagnostic criteria for Attention Deficit Disorder were
scientifically reliable. The Ninth Circuit noted that, while fraud was not an essential element of
the California statutes upon which the plaintiff relied in its complaint, the plaintiff is not
necessarily relieved of the pleading requirements of Rule 9(b). !d. 317 F.3d at 1103. The
plaintiff may still choose to allege that the defendant has engaged in fraudulent conduct. "[T]he
plaintiff may allege a unified course of fraudulent conduct and rely entirely on that course of
conduct as the basis of a claim. In that event, the claim is said to be 'grounded in fraud' or to
'sound in fraud,' and the pleading of that claim as a whole must satisfy the particularity
requirement of Rule 9(b)." !d. at 1103-04 (citations and quotations omitted).

3 - OPINION AND ORDER

In the present case, plaintiff proceeds under Section 43 of the Lanham Act, which does
not require plaintiff to prove fraud as an element. Defendant argues that, because its
counterclaims do not "sound in fraud", Rule 9(b) is inapplicable. This comi disagrees.
An analysis of the essential elements of fraud demonstrate that defendant's allegations
"sound in fraud." In Oregon, the elements of fraud are: (I) a false representation of material fact;
(2) knowingly made or made with an insufficient basis for asse1ting it truth; (3) with the intent to
induce one to act or refrain from acting; (4) justifiable reliance on the misrepresentation; and (5)
resultant damage. ,Yfaitlandv. Jvfitchell, 44 F.3d 1431, 1438-39 (9th Cir. 1995). Defendant's
allegations satisfy each element. First, it is clear that defendant alleges that plaintiffs marketing
materials are "false and misleading." Answer at ~ 35. Defendant alleges the second element of
fraud in stating that plaintiff "intended and intends to persuade actual or prospective customers ..
. that the Sked sled possesses qualities or attributes that it does not possess .... " Answer at~ 40.
The third and foutih elements of fraud are alleged where defendant states "the Sked Marketing
Materials are intended to enhance the reputation of Skedco's own product or products, to defame
the reputation of ARC's products and to attempt to obtain unfairly business that Skedco would
not have obtained if not for Skedco's false and misleading Sked Marketing Materials." Answer at
~

35. Defendant alleges that the resultant damage is lost customers. Answer at~ 35. By

asserting that plaintiff unfairly obtained business by intentionally misleading customers about the
characteristics of its product, defendant made allegations that reach beyond a mere unintentional
misrepresentation. Instead, defendant asserted that plaintiffs misrepresentations were made
knowingly, satisfying the scienter element of fraud. Accordingly, defendant's allegations sound
in fraud and should be subject to the heightened pleading standards of Rule 9(b ).
4 - OPINION AND ORDER

Additionally, several district courts in this circuit have held that false advertising claims
under the lanham Act must be pleaded in accordance with Rule 9(b). CollegeNet, Inc. v. Xap

Corp., No. CV-03-1229-HU, 2004 WL 2303506 (D. Or. Oct.12, 2004); Seoul Laser Dieboard
Sys. Co., Ltd. v. Serviform S.R.L., No. 12-CV-2427 BEN, 2013 WL 3761535 (S.D. Cal. July, 16,
2013); Epicor Software Corp. v. Alternative Tech. Solutions, Inc., No. SACV 13-00448-CJC,
2013 WL 2382262 (C.D. Cal. May 9, 2013); EcoDisc Tech. AG v. DVD Format/Logo Licensing

Corp., 711 F. Supp. 2d 1074 (C.D. Cal. 201 0); Stahl Law Firm v. Judicate West, No. C13-1668
THE, 2013 WL 4873065 (N.D. Cal. Sep. 12, 2013); Rpost Holdings, Inc. v. Trustifi Corp., No.
CV 11-2118 PSG, 2011 WL 4802372 (C.D. Cal. Oct. 11, 2011) (citing additional authority
within the Ninth Circuit). Defendant has failed to direct this court to any case supporting its
argument that Rule 9(b) is inapplicable to false adve1iising claims under the lanham Act.
Therefore, defendant is required to plead its counterclaims in accordance with FRCP 9(b).
Defendant argues that even if the Rule 9(b) standards apply, those standards "may be
relaxed where the circumstances of the alleged fraud are peculiarly within the [plaintiffs)
knowledge or are readily obtainable by him." Epicor Software Corp., 2013 WL 2382262 at *3
(citing Neubronner v. }.liken, 6 F.3d 666 (9th Cir. 1993)). However, this exception does not
nullify Rule 9(b) completely. Neubronner, 6 F.3d at 672. Defendant's pleadings fail to state
when the alleged misrepresentations were made; where the misrepresentations were made; or
who relied on them. Such pleadings do not satisfy even a relaxed Rule 9(b) standard.

Ill
Ill
Ill
5 - OPINION AND ORDER

CONCLUSION

For the foregoing reasons, plaintiffs Motion to Dismiss [25] is granted. Defendant's
counter claims are dismissed. The dismissal is without prejudice and defendant has leave to file
an amended answer that addresses the deficiencies identified above within 21 days of the date of
this Order.
ITIS SO ORDERED.
Dated this$ day of February, 2014.

~/~~
ANCER L. HAGGERT
United States Dist:CO::

6 - OPINION AND ORDER