Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-01941/USCOURTS-cand-3_07-cv-01941-9/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1391 Personal Injury

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

KENNETH STICKRATH, et al.,

Plaintiffs,

v.

GLOBALSTAR, INC.,

Defendant.

NO. C07-1941 TEH

ORDER GRANTING IN PART

AND DENYING IN PART

DEFENDANT’S MOTION TO

DISMISS SECOND AMENDED

COMPLAINT

On September 17, 2007, this Court held a hearing on Defendant Globalstar, Inc.’s

motion to dismiss Plaintiffs’ first amended complaint (“FAC”). The Court orally granted in

part and denied in part Defendant’s motion at the conclusion of the hearing and issued a

written order explaining its ruling in more detail on September 25, 2007. The Court granted

Plaintiffs leave to amend their complaint, and Plaintiffs timely filed their second amended

complaint (“SAC”) on October 17, 2007. Defendant subsequently moved to dismiss the

SAC, and this Court heard oral argument on Defendant’s motion on February 4, 2008. After

carefully reviewing the parties’ written and oral arguments, the Court now GRANTS IN

PART and DENIES IN PART Defendant’s motion for the reasons discussed below.

BACKGROUND

Plaintiffs Kenneth Stickrath, Sharan Stickrath, Neil Greenberg, and John Wallace seek

to represent a nationwide class of individuals who purchased a satellite telephone and related

service from Defendant Globalstar, Inc. between April 2003 and the present. All four

plaintiffs subscribed to the service in 2004. Although the Stickraths cancelled their service

on July 2, 2006, Greenberg and Wallace remain current subscribers.

Plaintiffs allege that Defendant’s satellite telephone service is extremely poor, but the

gravamen of the complaint is that Defendant knew about material defects in its satellite

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The FAC also alleged that Defendant made affirmative misrepresentations, but

Plaintiffs abandoned those allegations in the SAC.

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telephone service and failed to disclose such information to Plaintiffs.1

 Plaintiffs assert two

causes of action: one under California’s unfair competition law (“UCL”), California Business

and Professions Code §§ 17200 et seq., and another under California’s Consumers Legal

Remedies Act (“CLRA”), Cal. Civ. Code §§ 1750 et seq. Plaintiffs contend that Defendant’s

failure to disclose material information is unfair, unlawful, and fraudulent in violation of the

UCL, and that it constitutes prohibited practices under two sections of the CLRA:

“[r]epresenting that goods or services have sponsorship, approval, characteristics,

ingredients, uses, benefits, or quantities which they do not have,” Cal. Civ. Code

§ 1770(a)(5), and “[r]epresenting that goods or services are of a particular standard, quality,

or grade . . . if they are of another,” Cal. Civ. Code § 1770(a)(7).

LEGAL STANDARD

Dismissal is appropriate under Federal Rule of Civil Procedure 12(b)(6) when a

plaintiff’s allegations fail “to state a claim upon which relief can be granted.” Fed. R. Civ. P.

12(b)(6). In evaluating the sufficiency of a complaint’s allegations, a court must assume the

facts alleged in the complaint to be true unless the allegations are controverted by exhibits

attached to the complaint, matters subject to judicial notice, or documents necessarily relied

on by the complaint and whose authenticity no party questions. Lee v. City of Los Angeles,

250 F.3d 668, 688-89 (9th Cir. 2001). In addition, a court need not “accept as true

allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable

inferences.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001), amended

on other grounds by 275 F.3d 1187 (9th Cir. 2001). A court should not grant dismissal

unless the plaintiff has failed to plead “enough facts to state a claim to relief that is plausible

on its face.” Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1974 (2007). Moreover,

dismissal should be with leave to amend unless it is clear that amendment could not possibly

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cure the complaint’s deficiencies. Steckman v. Hart Brewing, Inc., 143 F.3d 1293, 1296 (9th

Cir. 1998).

DISCUSSION

I. CLRA Claims by Plaintiffs Greenberg and Wallace

First, it is undisputed that Plaintiffs Greenberg and Wallace do not fall under the

CLRA’s definition of “consumer.” Cal. Civ. Code § 1761(d) (defining “consumer” as “an

individual who seeks or acquires, by purchase or lease, any goods or services for personal,

family, or household purposes”). Accordingly, Defendant’s motion to dismiss these two

plaintiffs’ CLRA claims with prejudice is GRANTED.

II. Sufficiency of Plaintiffs’ Allegations Regarding a Duty to Disclose

Turning to the disputed arguments, the Court dismissed Plaintiffs’ claims regarding

omissions from the FAC because Plaintiffs failed to allege materiality – i.e., that “had the

omitted information been disclosed, [they] would have been aware of it and behaved

differently,” Mirkin v. Wasserman, 5 Cal. 4th 1082, 1093 (1993) – and also failed to allege

that Defendant had a duty to disclose the omitted information. Plaintiffs have now cured the

deficiency regarding materiality, and Defendant no longer seeks dismissal on that basis.

Defendant does, however, continue to seek dismissal of Plaintiffs’ claims based on

failure to allege a duty to disclose. Under California law, such a duty arises in four

circumstances:

(1) when the defendant is in a fiduciary relationship with the

plaintiff; (2) when the defendant had exclusive knowledge of

material facts not known to the plaintiff; (3) when the defendant

actively conceals a material fact from the plaintiff; and (4) when

the defendant makes partial representations but also suppresses

some material facts.

Heliotis v. Schuman, 181 Cal. App. 3d 646, 651 (1986); see also Falk v. General Motors

Corp., 496 F. Supp. 2d 1088, 1094-95 (N.D. Cal. 2007) (applying the same test). Plaintiffs

assert that they have adequately alleged a duty to disclose under the second and third of these

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circumstances, while Defendant contends that Plaintiffs have failed to allege exclusive

knowledge or active concealment with sufficient particularity.

As this Court ruled when deciding Defendant’s motion to dismiss the FAC, the

heightened pleading requirements of Federal Rule of Civil Procedure 9(b) apply to Plaintiffs’

claims. Under Rule 9(b), “a party must state with particularity the circumstances constituting

fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be

alleged generally.” The Court previously explained that:

To meet these requirements, fraud allegations must be “specific

enough to give defendants notice of the particular misconduct

which is alleged to constitute the fraud charged so that they can

defend against the charge and not just deny that they have done

anything wrong.” Semegen v. Weidner, 780 F.2d 727, 731 (9th

Cir. 1985). This generally requires plaintiffs to “state the time,

place, and specific content of the false representations as well as

the identities of the parties to the misrepresentation.” Alan

Neuman Prods., Inc. v. Albright, 862 F.2d 1388, 1392-93 (9th

Cir. 1988). However, where allegations rest on claims of

omission, this standard is relaxed because, “[f]or example, a

plaintiff cannot plead either the specific time of [an] omission or

the place, as he is not alleging an act, but a failure to act.” 

Washington v. Baenziger, 673 F. Supp. 1478, 1482 (N.D. Cal.

1987).

Sept. 25, 2007 Order Granting in Part & Denying in Part Def.’s Mot. to Dismiss at 7.

As part of Plaintiffs’ active concealment theory, Plaintiffs allege that Defendant

“concealed from purchasers of the satellite telephone service and/or failed to alert the

purchasers of the degradation of the communications satellites and associated satellite

telephone service.” SAC ¶ 68. Plaintiffs also rely on paragraph 60 of the SAC for the

proposition that “various Globalstar customers complained between 2003 and 2007.” Opp’n

at 5. However, Defendant correctly observes that paragraph 60 purportedly lists complaints

posted on the internet, but that the SAC fails to include in paragraph 60 or elsewhere the

dates on which such complaints were allegedly made. Nor does the SAC allege, in paragraph

60 or elsewhere, that the listed complaints were made to Defendant or that Defendant

otherwise knew of such complaints. Thus, paragraph 60 does not support Plaintiffs’

assertion that Defendant knew of material defects in its service based on consumer

complaints made prior to Plaintiffs’ 2004 purchases.

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As the Court noted when ruling on Defendant’s motion to dismiss the FAC,

“[u]ltimately, Plaintiffs may have difficulty proving Defendant’s knowledge . . . prior to

2007, as much of the complaint focuses on information released that year. However, it

would be premature for this Court to resolve that issue on this motion to dismiss.” Sept. 25,

2007 Order at 8 n.4.

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Nonetheless, the SAC does allege that Defendant has known of material defects in its

service “since at least 2003, if not earlier,” SAC ¶ 35, and, similarly, that Defendant “has

known of the degradation of the communications satellites and associated satellite telephone

service since at least 2003,” id. ¶ 68. Under Rule 9(b), knowledge “may be alleged

generally,” and the Ninth Circuit has explained that, in non-securities cases, “plaintiffs may

aver scienter generally, just as the rule states – that is, simply by saying that scienter existed.” 

In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1547 (9th Cir. 1994) (en banc) (quoted with

approval in Odom v. Microsoft Corp., 486 F.3d 541, 553 (9th Cir. 2007) (en banc)). Thus,

contrary to Defendant’s assertions, Plaintiffs’ bareboned allegations are sufficient to allege

knowledge under Rule 9(b). The Court further rejects Defendant’s contention that Plaintiffs’

allegations of knowledge are not, as required by the Supreme Court, “plausible on [their]

face”; the SAC presents sufficient allegations for Defendants’ knowledge of material defects

to be believable rather than merely imaginable.2

 Bell Atlantic, 127 S. Ct. at 1974 (noting that

plaintiffs must “nudge[] their claims across the line from conceivable to plausible” to state a

claim for relief).

Taken together, Plaintiffs’ allegations of knowledge and concealment are sufficient –

although just barely – to allege active concealment. Active concealment requires an intent to

defraud, Falk, 496 F. Supp. 2d at 1097 (citing Lovejoy v. AT&T Corp., 119 Cal. App. 4th

151, 157 (2004)), but courts have found that such intent may be inferred at the pleadings

stage. In Falk, for example, the court found that “the fact that various GM customers

complained between 2003 and 2007 yet GM never made any attempt to notify other

customers or effect a recall, suggests that GM may have attempted to actively conceal the

alleged defect in their speedometers.” Falk, 496 F. Supp. 2d at 1097. Although Defendant

correctly observes that the Falk plaintiffs also alleged facts suggesting that “GM tried to

gloss over the problems with its speedometers by replacing broken ones with the exact same

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model of speedometer, thereby giving the impression that any defects were unique cases,”

id., that does not mean that the first allegation, standing alone, would not have been sufficient

for plaintiffs to defeat a motion to dismiss. In a California appellate case cited by Plaintiffs

and ignored by Defendant, the court similarly stated that “[i]t may be inferred that [the

defendant] concealed [material information] with fraudulent intent, for the purpose of making

a profit.” Lovejoy v. AT&T Corp., 92 Cal. App. 4th 85, 96 (2001). The Court concludes that

intent to defraud may also be inferred in this case, and Plaintiffs’ allegations that Defendant

knew of material defects but did not disclose them to potential customers are sufficient to

allege a duty to disclose under an active concealment theory. Accordingly, the Court

DENIES Defendant’s motion to dismiss Plaintiffs’ claims based on a failure to allege a duty

to disclose.

Because Plaintiffs’ allegations of active concealment are sufficient to allege a duty to

disclose, the Court need not decide whether Plaintiffs’ have also alleged a duty to disclose

under an exclusive knowledge theory. Nonetheless, in case Plaintiffs seek to continue to rely

on that theory, the Court notes its agreement with Defendant that the paragraphs of the SAC

cited by Plaintiffs during oral argument – paragraphs 19 through 25 – do not appear to

support an allegation of exclusivity given that Plaintiffs allege disclosure by Defendant “in

public filings,” SAC ¶ 21, and in “an application with the FCC,” id. ¶ 24.

III. Claim for Injunctive Relief

Finally, Defendant moves to dismiss Plaintiffs’ claim for injunctive relief. This Court

previously dismissed the Stickraths’ claim for injunctive relief for lack of standing because

they no longer subscribe to Defendant’s services. Plaintiffs remedied this defect by adding

two current subscribers, Greenberg and Wallace, as named plaintiffs. Although these

plaintiffs’ CLRA claims have been dismissed, their UCL claims remain viable.

Injunctive relief is available under the UCL, but it “has no application to completed

wrongs absent a showing of threatened future harm or a continuing violation.” Sun

Microsystems, Inc. v. Microsoft Corp., 87 F. Supp. 2d 992, 1004 (N.D. Cal. 2000). In this

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case, Plaintiffs do allege – albeit quite vaguely – that they “will continue to suffer harm and

damages” as a result of Defendant’s conduct, SAC ¶ 67, and that Defendant “has engaged in,

is engaged in, and proposes to engage in . . . unlawful, unfair, and fraudulent business acts

and practices,” id. ¶ 86. Plaintiffs also specifically “seek injunctive relief prohibiting

defendant from charging an early termination fee to those class members seeking to

terminate their Service with Globalstar due to the defective Service.” Id. ¶ 98.

While injunctive relief may not ultimately be proper, the Court declines to dismiss the

prayer for such relief at this early stage of the proceedings because the complaint contains

sufficient allegations for injunctive relief to remain a possibility in this case. This is not, for

example, a case where the defendant contends that plaintiffs lack standing to seek injunctive

relief, in which case dismissal would be proper. See, e.g., Walsh v. Nev. Dep’t of Human

Res., 471 F.3d 1033, 1036-37 (9th Cir. 2006). Consequently, Defendant’s motion to dismiss

Plaintiffs’ claim for injunctive relief is DENIED.

CONCLUSION

For the reasons discussed above, Defendant’s motion to dismiss Plaintiffs’ second

amended complaint is GRANTED IN PART and DENIED IN PART. The motion is

GRANTED as to the CLRA claims by Plaintiffs Greenberg and Wallace and DENIED in all

other respects.

IT IS FURTHER ORDERED that:

1. Pursuant to the parties’ agreement in their January 24, 2008 joint case management

statement, Defendant shall file an answer to the second amended complaint within thirty

calendar days of the date of this order.

2. The parties shall appear before the Court for a further case management conference

on March 24, 2008, at 1:30 PM. They shall meet and confer and file a joint case

management statement on or before March 17, 2008. The Court has reviewed the parties’

January 24, 2008 joint case management statement and advises the parties to be prepared to

address why their proposed close of class discovery is after the proposed filing deadline for

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Plaintiffs’ motion for class certification, and also why the parties request sixty and thirty days

to prepare an opposition and reply, respectively, to the class certification motion.

IT IS SO ORDERED.

Dated: 02/06/08 

THELTON E. HENDERSON, JUDGE

UNITED STATES DISTRICT COURT

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