Temming v. Summus Holdings, LLC

STEVE TEMMING, Plaintiff, v. SUMMUS HOLDINGS, LLC, et al., Defendants.

No. 21-cv-04858-LB

United States District Court, N.D. California, San Francisco Division

January 21, 2022

ORDER GRANTING IN PART MOTION TO DISMISS

RE: ECF NO. 35

LAUREL BEELER, UNITED STATES MAGISTRATE JUDGE

INTRODUCTION

The plaintiff leased a medical laser (allegedly falsely branded as a K-Laser product) at a veterinary trade show in San Francisco through a lease agreement with an equipment supplier and financer, Beneficial Equipment Finance Corporation. He thought it was manufactured by Eltech K-Laser, an Italian company, in part because an employee of Summus Medical Laser (the supplier) told him that it was, and the branding was deceptively similar. Toward the end of his lease, he determined that the laser was (allegedly) counterfeit, and he sued Summus Medical Laser, its holding company Summus Holdings, and its principal Richard Albright for trafficking in counterfeit goods and fraud, in violation of the federal RICO statute, and false advertising and fraud under state law.

The court previously determined that there was personal jurisdiction only against Summus Medical (and not Summus Holdings and Dr. Albright). It also granted the defendants' motion to dismiss the RICO and all state-law claims (except for the fraud claim) because the plaintiff did not plausibly plead them. The defendants moved to dismiss the amended complaint on the same grounds: the plaintiff's failure to (1) establish personal jurisdiction over Summus Holdings and Dr. Albright and (2) plausibly plead claims. They also moved to transfer the case to Pennsylvania under a forum-selection clause in the plaintiff's lease with Beneficial.

First there is no personal jurisdiction over Summus Holdings and Dr. Albright. The plaintiff asks for jurisdictional discovery to test the jurisdictional facts in Dr. Albright's declaration, but because discovery would not yield jurisdictionally relevant facts, the court denies the motion.

Second the claim under California's False Advertising Law (FAL) survives because it is based on the employee's allegedly false statement that Eltech manufactured the laser. Otherwise, the court grants the motion to dismiss: (1) the RICO claim fails because the plaintiff did not plausibly plead investment injury and two RICO predicate acts, and (2) the plaintiff did not oppose the motion to dismiss the common-law fraud claim (because he thought it unnecessary given the court's earlier order). (The court orders supplemental briefing on the fraud claim.) The court denies the motion to transfer: the defendants did not meet their burden to show that that they are a third-party beneficiary of the plaintiff's lease agreement with Beneficial.

STATEMENT

The allegations in the amended complaint are largely unchanged.^[1] In sum, the plaintiff leased a medical laser branded as a K-Laser Platinum after seeing it at a trade show in San Francisco, thought it was manufactured by Eltech K-Laser made in Italy (based on its branding and because Summus Medical employee Scott Allen said that it was), learned near the end of the lease that it was not manufactured by Eltech, and then sued the defendants.^[2] The product was labeled K-Laser USA and showed a Franklin, Tennessee, address.^[3] The equipment lease is signed by the plaintiff only, although there is an unsigned signature area that says “ACCEPTED BY LESSOR: Beneficial Equipment Finance Corporation.” It lists the equipment supplier as K-Laser USA LLC. It lists the product as the K-Laser Platinum 4.^[4] The agreement provides that the lessor is not warranting the equipment because it is not the manufacturer and the lessee selected the supplier and the equipment.^[5] It has an inspection clause: the lessee agreed to inspect the equipment within 48 hours of delivery, and unless the lessee objected, it is presumed conclusively “as between Lessor and Lessee that: (A) Lessee has fully inspected the Equipment; (B) the Equipment is in full compliance with the terms and conditions of this Lease; (C) the Equipment is in good condition and repair; and (D) Lessee has accepted the Equipment and the obligation to remit rent shall begin.”^[6] It has a purchase option at the end of the lease for $1. It provides that the supplier is not an agent of the lessor.^[7] It has waiver and indemnity terms: for example, the lessee waives the right to recover damages from the lessor for breaches of warranty or “any other reason, ” and the lessee must indemnify the lessor for liability “pertaining in any way to the Equipment.”^[8] The agreement has a Pennsylvania choice-of-law provision, a venue provision for state and federal courts in Pennsylvania, and the plaintiff's agreement to personal jurisdiction in Pennsylvania courts.^[9] The plaintiff signed the agreement, initialed each page, and initialed the choice-of-law and venue provision.^[10]

The claims in the amended complaint are (1) a RICO violation (18 U.S.C. § 1962(c)), based on four predicate acts: trafficking in a counterfeit good, mail and wire fraud, (18 U.S.C. §§ 2320, 1341, and 1343), and unlawful sale of a counterfeit good (Cal. Penal Code § 350); (2) false advertising in violation of the FAL (Cal. Bus. & Prof. Code § 17500); and (3) common-law fraud.^[11] The court held a hearing on the defendants' motion to dismiss on January 13, 2022. There is federal-question jurisdiction predicated on the RICO claim and diversity jurisdiction because the parties are diverse and the amount in controversy exceeds $75, 000. 28 U.S.C. § 1332. All parties consented to magistrate-judge jurisdiction under 28 U.S.C. § 636.^[12]

ANALYSIS

The four issues raised in the motion to dismiss are (1) whether there is personal jurisdiction over Summus Holdings and Dr Albright (and whether the plaintiff is entitled to jurisdictional discovery), (2) whether the plaintiffs plausibly pleaded a RICO claim, (3) whether the defendant is a third-party beneficiary of the plaintiff's lease-finance agreement with Beneficial and, if not, did the plaintiff plausibly plead state-law claims, and (4) whether transfer to Pennsylvania is appropriate under the lease agreement's forum-selection clause.

The court grants the motion in part. There is no personal jurisdiction (and the court denies the request for jurisdictional discovery because there is no colorable basis for it). The plaintiff did not plausibly plead a RICO claim because he did not plausibly plead investment injury or the RICO predicates, and he did not oppose the motion to dismiss the fraud claim. He did plausibly plead a FAL claim based on the alleged deceptive practices. The court denies the motion to transfer the case to Pennsylvania because the defendants are not third-party beneficiaries of the lease-finance agreement and thus are not entitled to the benefit of its terms).

1. Personal Jurisdiction

The earlier order recounts the jurisdictional facts and held that there was no personal jurisdiction over Summus Holdings and Dr. Albright.^[13] The amended complaint adds no new facts that change that analysis. The plaintiff thus asked for jurisdictional discovery. At the hearing, he clarified that he wanted to depose Dr. Albright to test the declaration that he submitted to show lack of personal jurisdiction. A court has the discretion to allow a plaintiff to conduct limited discovery when a defendant contests personal jurisdiction. Boschetto v. Hansing, 539 F.3d 1011, 1020 (9th Cir. 2008). But generally, there must be some colorable basis for the discovery. Id. (There is no abuse of discretion in denying limited discovery when the request was based on “little more than a hunch that it might yield jurisdictionally relevant facts.”). Here, there is no basis for the discovery (such as, for example, an alter-ego theory of liability). The court denies the request.

2. RICO Claim

The plaintiff claims a violation of the RICO statute, 18 U.S.C. § 1962(c), based on the predicate acts of (1) trafficking in counterfeit goods, in violation of 18 U.S.C. § 2320, (2) mail fraud in violation of 18 U.S.C. § 1341, (3) wire fraud in violation of 18 U.S.C. § 1343, and (4) the unlawful sale of a counterfeit good in violation of Cal. Penal Code § 350.^[14] The defendant moved to dismiss because the plaintiff did not plead investment injury and also because the plaintiff did not plead two predicate acts under RICO sufficiently.^[15]

The parties do not dispute that the plaintiff must plead investment injury.^[16] The earlier order analyzed the sufficiency of the plaintiff's allegations and concluded that he did not plausibly plead investment injury. The earlier order also analyzed the sufficiency of the allegations to support the predicate acts and concluded that the plaintiff did not plausibly plead the predicate acts.^[17] The new complaint adds no new allegations that alter that outcome.^[18] The court thus dismisses the RICO claim because - despite being given an opportunity to cure the earlier complaint's deficiencies - he did not plausibly plead investment injury or the RICO predicates.

3. State Claims

The plaintiff did not oppose the motion to dismiss the common-law fraud claim. At the hearing, he said that he thought he did not have to because the court previously let the claim stand. That is incorrect: An “amended complaint supersedes the original, the latter being treated thereafter as nonexistent, ” and any motion to dismiss must be targeted to the amended complaint. Ramirez v. Cty. of San Bernardino, 806 F.3d 1002, 1008 (9th Cir. 2015) (collecting cases); see 6 Wright, Miller, & Kane, 6 Fed. Prac. & Proc. Civ. § 1476 (4th ed. 2010) (same). A defendant thus may move to dismiss claims even on grounds that the court rejected previously.

Ordinarily the court would...