Munderloh v. Biegler GmbH

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Timothy Munderloh, et al., Plaintiffs, v. Biegler GmbH, et al., Defendants.

No. CV-21-08004-PCT-GMS

United States District Court, D. Arizona

March 28, 2022

ORDER

G Murray Snow Chief United States District Judge.

Pending before the Court is Biegler GmbH's (“Defendant Biegler”) Motion to Dismiss Under 12(b)(2) and 12(b)(6) (Doc. 33). Also pending before the Court is Dr. Timothy Munderloh, Dr. Travis Stiegler, and Munderloh Medical Incorporated's (“Plaintiffs”) Motion for Leave to File a Surreply (Doc. 45). For the reasons below both Motions are denied.

BACKGROUND

For the purposes of the Motion-and unless otherwise noted-the Court construes all facts alleged in the Complaint as true. Defendant Biegler manufactures the Stivax device. (Doc. 1 at 8.) As defined by the Food and Drug Administration (“FDA”), the Stivax device is “an electro-acupuncture device for use in the practice of acupuncture by qualified practitioners of acupuncture.” (Doc. 1 at 13.) In 2016, the FDA authorized the sale of the Stivax device in the United States as an acupuncture device. (Doc. 1 at 13.)

After receiving FDA approval, Defendant Biegler engaged Defendant Solace Advancement as the importer and distributor of the Stivax device in the United States. (Doc. 1 at 14.) Both Defendants Biegler and Solace Advancement then contacted other distributors, including Doc Solutions, to market and sell the Stivax device. (Doc. 1 at 14.) Mark Kaiser (“Mr. Kaiser”), Doc Solutions's Chief Executive Officer, personally promoted, marketed, and sold the Stivax device throughout the United States to various medical providers, including Plaintiffs. (Doc. 1 at 15.)

Although the FDA had classified the Stivax device as an electro-acupuncture device, Defendants, including Defendant Biegler, marketed the device to medical providers as an “implantable non-narcotic pain management medical device” that was reimbursable by Medicare. (Doc. 1 at 4-5, 42.) Importantly, Defendant Biegler knew that the Stivax device was not actually reimbursable. (Doc. 1 at 11-13, 41.) Despite this knowledge, Defendant Biegler collaborated with Defendant Solace Advancement to produce promotional materials, including a promotional video, that misrepresented that the Stivax device was implantable and usable by doctors. (Doc. 1 at 16-18, 40-42.) Acupuncture was not mentioned in any of these materials. (Doc. 1 at 17-18.)

In addition to these promotional materials, Defendants Biegler and Solace Advancement created the “Stivax Coding Scheme, ” pursuant to which the Stivax device would be marketed as reimbursable by Medicare as an implantable pain management device. (Doc. 1 at 36, 42.) As part of this scheme, Mr. Kaiser personally visited Plaintiffs to induce them to purchase the Stivax device. As is the industry norm, Mr. Kaiser trained the purchasing medical providers on how to properly code and bill the Stivax device for reimbursement by Medicare. (Doc. 1 at 15-17, 26-28.) Mr. Kaiser instructed Plaintiffs that they should use a particular set of codes to bill for the Stivax device and explained that because the Stivax device was “piercing skin, ” it could be coded as an implantable pain management device. (Doc. 1 at 26-28.) Based on Mr. Kaiser's representations and the promotional materials developed by Defendants Biegler and Solace Advancement, “Plaintiffs purchased hundreds of Stivax devices.” (Doc. 1 at 29.) Soon thereafter, Plaintiffs billed the Stivax device as they had been instructed by Mr. Kaiser, which resulted in overpayments and audits by Medicare. (Doc. 1 at 33-37.)

Based on the foregoing, Plaintiffs filed suit on behalf of themselves and all others similarly situated against Defendants Biegler, Solace Advancement, and others, alleging violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) as well as common-law fraud claims. (Doc. 1.) Defendant Biegler has moved to dismiss for lack of personal jurisdiction and for failure to state a claim upon which relief can be granted. (Doc. 21c33.)

DISCUSSION

I. Personal Jurisdiction in Arizona

Defendant Biegler first argues that the Court cannot assert personal jurisdiction over it without violating due process.^[1] (Doc. 33-1.) On a motion to dismiss for lack of personal jurisdiction, the plaintiff “bears the burden of demonstrating that jurisdiction is appropriate.” Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 2004). “Where, as here, the motion is based on written materials rather than an evidentiary hearing, ‘the plaintiff need only make a prima facie showing of jurisdictional facts.'” Id. (quoting Sher v. Johnson, 911 F.2d 1357, 1361 (9th Cir. 1990)). Although the plaintiff cannot “simply rest on the bare allegations of its complaint, ” id. (quoting Amba Mktg. Sys., Inc. v. Jobar Int'l, Inc., 551 F.2d 784, 787 (9th Cir. 1977)), the Court must “take as true all uncontroverted allegations in the complaint.” Glob. Commodities Trading Grp., Inc. v. Beneficio de Arroz Choloma, S.A., 972 F.3d 1101, 1106 (9th Cir. 2020). Allegations that are contradicted by affidavit are not assumed as true, but factual disputes between affidavits are resolved in the plaintiff's favor. CollegeSource, Inc. v. AcademyOne, Inc., 653 F.3d 1066, 1073 (9th Cir. 2011).

The Court applies Arizona law to determine whether it may exercise jurisdiction over a defendant. Picot v. Weston, 780 F.3d 1206, 1211 (9th Cir. 2015). “The Arizona long-arm statute provides for personal jurisdiction co-extensive with the limits of federal due process.” Doe v. Am. Nat. Red Cross, 112 F.3d 1048, 1050 (9th Cir. 1997); Ariz. R. Civ. P. 4.2(a). For a court's exercise of personal jurisdiction over a nonresident defendant to comport with due process, “that defendant must have at least ‘minimum contacts' with the relevant forum such that the exercise of jurisdiction ‘does not offend traditional notions of fair play and substantial justice.'” Schwarzenegger, 374 F.3d at 801 (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)).

Here, Defendant Biegler provided an affidavit from its President and CEO Ingeborg Biegler (“Mr. Biegler”). (Doc. 33-1 at 21-24.) In it, Mr. Biegler claims that Defendant Biegler is an Austrian corporation with its principal place of business in Austria; that Defendant Biegler does not conduct any business operations within the United States and has no physical presence in Arizona; that Defendant Biegler does not market, sell, or distribute products directly to Arizonans; and that Defendant Biegler has no control over where the product is marketed after it is given to the distributor, Defendant Solace Advancement. (Doc. 33-1 at 22-23.) Plaintiffs provide no rebuttal evidence of Defendant Biegler's Arizona contacts; instead, Plaintiffs reallege the allegations in the Complaint.^[2](Doc. 43 at 5.) This is insufficient to defeat Defendant Biegler's Motion. Cummings v. W. Trial Laws. Ass'n, 133 F.Supp.2d 1144, 1154, 1158 (D. Ariz. 2001); see Data Disc., Inc. v. Sys. Tech. Assocs., Inc., 557 F.2d 1280, 1284 (9th Cir. 1977) (“If only one side of the conflict was supported by affidavit, [the] task would be relatively easy, for [courts] may not assume the truth of allegations in a pleading which are contradicted by affidavit.”). Plaintiffs have failed to meet their burden to show that Arizona courts may exercise specific jurisdiction over Defendant Biegler.

II. Jurisdiction under Rule 4(k)(2)

Plaintiffs argue that this Court may assert jurisdiction pursuant to Federal Rule of Civil Procedure 4(k)(2). (Doc. 43 at 7.) The Rule states, “[f]or a claim that arises under federal law, serving a summons or filing a waiver of service establishes personal jurisdiction over a defendant if: (A) the defendant is not subject to jurisdiction in any state's courts of general jurisdiction; and (B) exercising jurisdiction is consistent with the United States Constitution and laws.” Fed.R.Civ.P. 4(k)(2). To assert jurisdiction under Rule 4(k)(2), (1) the claim must arise under federal law; (2) “the defendant must not be subject to the personal jurisdiction of any state court of general jurisdiction”; and (3) “the federal court's exercise of personal jurisdiction must comport with due process.” Holland Am. Line Inc. v. Wartsila N. Am., Inc., 485 F.3d 450, 461 (9th Cir. 2007).

Plaintiffs clearly meet the first element because they allege two claims arising under federal law.^[3] (Doc. 1 at 49-51.) With respect to the second requirement, if the defendant has not named a state in which it would be subject to jurisdiction, “then the federal court is entitled to use Rule 4(k)(2).” Holland, 485 F.3d at 461. Defendant Biegler has named no such state. (Doc. 33-1.) Therefore, the only remaining issue is whether this Court's exercise of jurisdiction over Defendant Biegler comports with due process. The due process analysis under Rule 4(k)(2) is nearly identical to traditional personal jurisdiction analysis with one significant difference: rather than considering contacts between Defendant Biegler and Arizona, the Court considers Defendant Biegler's contacts with the nation as a whole. Holland, 485 F.3d at 462.

The Ninth Circuit uses a three-part test to determine whether specific jurisdiction exists. “First ‘[t]he non-resident defendant must purposefully direct his activities or consummate some transaction with the forum or resident thereof; or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws.'” Glob. Commodities, 972 F.3d at 1107 (quoting Schwarzenegger, 374 F.3d at 802). “Second, the claim must arise out of or relate to the defendant's forum-related activities.” Id. “Finally the exercise of jurisdiction must be...