FindTheBest.com, Inc. v. Lumen View Tech. LLC

20 F.Supp.3d 451

FINDTHEBEST.COM, INC., Plaintiff

v.LUMEN VIEW TECHNOLOGY LLC; Dalton Sentry, LLC; DecisionSorter, LLC; the Hillcrest Group, Inc; Eileen C. Shaprio; Steven J. Mintz ; and Does 1 through 50, Defendants.

No. 13 Civ. 6521DLC.

United States District Court, S.D. New York.

Signed May 19, 2014.

Joseph Leventhal, Leventhal Law, LLP, San Diego, CA, for the Plaintiff FindTheBest.com, Inc.

Mark P. Goodman, Carl Riehl, Debevoise & Plimpton, LLP, New York, NY, for the Defendants DecisionSorter, LLC, The Hillcrest Group, Inc., Eileen C. Shapiro, and Steven J. Mintz.

Stamatios Stamoulis, Richard C. Weinblatt, Stamoulis & Weinblatt, LLC, Wilmington, DE, for the Defendant Lumen View Technology, LLC.

OPINION & ORDER

DENISE COTE, District Judge:

FindTheBest.com, Inc. (“FTB”) filed this action on September 16, 2013, against Lumen View Technology LLC, (“Lumen”), Dalton Sentry, LLC, DecisionSorter, LLC, Hillcrest Group, Inc., Eileen C. Shapiro (“Shapiro”), and Steven J. Mintz (“Mintz”) (collectively “the Defendants”), asserting violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. (“RICO”), and various state laws. FTB asserts that the Defendants made baseless claims of patent infringement to extort licensing fees from FTB and others.

FTB filed a first amended complaint (“FAC”) on November 22, 2013. The Defendants have moved to dismiss that complaint. For the following reasons, the Defendants' motions to dismiss the RICO claims are granted. The Court declines to exercise supplemental jurisdiction over the state law claims.

BACKGROUND

The FAC pleads six claims or “counts.” The core of each of these claims is that Lumen filed frivolous lawsuits in bad faith to extort money from FTB and others. The first two counts are brought pursuant to the RICO statute, 18 U.S.C. §§ 1961, 1962(c) & (d), and assert a substantive violation of the statute and a RICO conspiracy. The predicate acts for these two counts arise from the central assertion that the Defendants filed frivolous patent infringement lawsuits against various businesses and demanded nuisance settlements. The predicate acts are conclusorily identified as acts of mail and wire fraud, in violation of 18 U.S.C. §§ 1341 and 1343, respectively; a scheme to extort, in violation of both the Hobbs Act, 18 U.S.C. § 1951(a), and California State Penal Law § 518 et seq. ; and a violation of the Travel Act, 18 U.S.C. § 1952. The two RICO counts incorporate the allegations made throughout the FAC; they do not separately enumerate specific predicate acts.

The remaining four counts assert state law claims, including extortion by commencing frivolous patent infringement actions without probable cause and without a good faith investigation; abuse of process through the filing of litigation based on a vague patent in order to extort money; and two violations of California Business & Professions Code § 17200. The two violations of the California statute assert first, participation in a civil conspiracy by means of threats, abuse of process and extortion, and second, the conduct of fraudulent business practices, which required FTB to devote significant time and resources to defend itself against frivolous and false claims.

The FAC alleges that the Defendants filed more than twenty patent infringement lawsuits in the eighteen months following the formation of Lumen on February 23, 2012. Lumen is a Delaware company formed by Shapiro and Mintz. Like DecisionSorter and the Hillcrest Group, Lumen appears to be a shell company created for litigation purposes. It has no business operations; it is a nonpracticing entity. Instead of conducting research, it acquires patents in order to file patent infringement lawsuits.

Lumen became the exclusive licensee of patent 8,069,073 (“'073 Patent”) on March 1, 2012, which was approximately a week after Lumen was formed. The '073 Patent was issued on November 29, 2011, for a “System and Method For Facilitating Bilateral And Multilateral Decision–Making.” Lumen filed its first patent infringement lawsuit asserting infringement of the ' 073 Patent on March 9, 2012. The FAC asserts that the Defendants were aware that the parties named as defendants in the lawsuits filed by Lumen were not infringing the '073 Patent.

The FAC describes a pattern that the Defendants employed in bringing their lawsuits. The Defendants use form complaints that make nearly identical accusations and conduct no investigation into the services offered by those they sue. The Defendants serve a letter with the complaint that informs those named in their lawsuits that they may avoid the cost of litigation by paying a licensing fee to Lumen. The letter threatens that Lumen will increase its settlement demands if the litigation progresses. If those they have sued seek to defend themselves, Lumen threatens to contact their customers and to escalate its settlement fee demands. The Defendants use their shell companies to avoid complying with discovery requests.

According to the FAC, the Defendants do not actually want to litigate their patent infringement claims and do not want an injunction to stop any allegedly infringing conduct. If someone is unable to pay a licensing fee, Lumen will voluntarily dismiss its lawsuit.

On May 30, 2013, Lumen sent a letter to FTB, enclosing the complaint that Lumen had filed against FTB in this district. It invited FTB to contact Lumen to discuss “license” terms if it wanted to avoid the need to file a responsive pleading. The letter threatened full-scale litigation, motion practice, and protracted discovery if FTB chose to defend itself in the litigation. Lumen explained that its settlement demands would increase over the course of any litigation. It demanded that FTB preserve not just accessible, but also inaccessible, electronically stored information, including information unrelated to the lawsuit. It recommended confiscating electronic devices of employees with significant knowledge of FTB's products.

When FTB's CEO contacted Lumen's attorney, the attorney was unable to explain the basis for any claim of infringement. The CEO called Shapiro, a co-inventor of the '073 Patent. Thereafter, Lumen's attorney accused FTB's CEO of calling Shapiro a “patent troll,” and stated that use of the term “patent troll” constituted a hate crime in the Ninth Circuit. Lumen's attorney explained that the offer of a licensing fee was only good until the close of business that day. The FAC describes as well Lumen's alleged abuse of the discovery process in the lawsuit Lumen filed against FTB in this district.

Lumen's patent infringement lawsuit against FTB was dismissed by Opinion and Order of this Court of November 22, 2013. Lumen View Tech. LLC v. Findthebest.com, Inc., 984 F.Supp.2d 189, 13 CIV. 3599(DLC), 2013 WL 6164341 (S.D.N.Y. Nov. 22, 2013). This Court held that the '073 Patent claimed an abstract idea, which was patent ineligible subject matter under the codified Patent Act, 35 U.S.C. § 101. Id. at 205, 2013 WL 6164341 at *16.

The Defendants moved to dismiss the original complaint in this action by motions of October 29 and 31, 2013. FTB was given an opportunity to either amend its complaint or oppose the motions to dismiss. On November 22, FTB filed the FAC. On December 16, 2013, Lumen moved to dismiss the FAC. Shapiro, Mintz, DecisionSorter, and Hillcrest filed a separate joint motion to dismiss on December 23. And Dalton Sentry filed a motion to dismiss, also on December 23, which adopted in full the arguments in the latter motion. On January 20, 2014, FTB filed a consolidated opposition. The motions to dismiss were fully submitted on January 28.

DISCUSSION

The Defendants have moved to dismiss the FAC in its entirety. They have argued that their right to bring patent infringement litigation is protected by the Noerr–Pennington doctrine unless their lawsuits are a sham, and that the FAC does not plausibly allege that those lawsuits are a sham. See Globetrotter Software, Inc. v. Elan Computer Grp., Inc., 362 F.3d 1367, 1377 (Fed.Cir.2004). They contend, as well, that the FAC does not adequately plead a RICO claim. Finally, they argue that the Court should not exercise supplemental jurisdiction over the state law claims. Because the FAC does not plead a RICO violation, and the Court declines to exercise supplemental jurisdiction over state law claims, it is unnecessary to reach the argument made under the Noerr–Pennington doctrine.

When deciding a motion to dismiss under Rule 12(b)(6), Fed.R.Civ.P., the court must “accept all allegations in the complaint as true and draw all inferences in the non-moving party's favor.” LaFaro v. New York Cardiothoracic Group, PLLC, 570 F.3d 471, 475 (2d Cir.2009). To survive a motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citation omitted). A complaint must do more, however, than offer “naked assertions devoid of further factual enhancement.” Id. (citation omitted).

Where fraud is alleged as a component of a RICO predicate act, Rule 9(b), Fed. Civ. P., imposes a heightened pleading standard. “In the RICO context, Rule 9(b) calls for the complaint to specify the statements it claims were false or misleading, give particulars as to the respect in which plaintiffs contend the statements were fraudulent, state when and where the statements were made, and identify those responsible for the statements.” Moore v. PaineWebber, Inc., 189 F.3d 165, 173 (2d Cir.1999) (citation omitted). “In addition, the plaintiffs must allege facts that give rise to a strong inference of fraudulent intent.” Id. (citation omitted).

I. RICO

RICO provides a private cause of action for “[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter.” 18 U.S.C. § 1964(c). The RICO provisions upon which FTB predicates its...